Close Brothers Group Annual Report 2015

FY2015 Annual Report · Close Brothers Group
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Close Brothers Group plc
Annual Report 2015

Modern Merchant Banking

Close Brothers is a leading UK  
merchant banking group providing  
lending, deposit taking, wealth  
management services and  
securities trading.

Welcome to Modern Merchant Banking

The photography within this Annual Report was photographed on 
location at our clients’ businesses. We would like to thank them for 
their generous support and cooperation.

Close Brothers Group plc Annual Report 2015

Modern Merchant Banking

Modern Merchant Banking is about  
Modern Merchant Banking is about  
meeting the ﬁnancial needs of our 
meeting the ﬁnancial needs of our 
clients today while applying the 
clients today while applying the 
traditional values of our past.
traditional values of our past.

At Close Brothers we provide ﬁnancial 
At Close Brothers we provide ﬁnancial 
support and advice to small businesses 
support and advice to small businesses 
and individuals in the UK. Our clients 
and individuals in the UK. Our clients 
are the makers of things, the wealth 
are the makers of things, the wealth 
creators, the investors, and the savers. 
creators, the investors, and the savers. 
They are playing an important role driving 
They are playing an important role driving 
growth in the British economy and we 
growth in the British economy and we 
are supporting them as they grow. 
are supporting them as they grow. 

Throughout our distinguished history, 
Throughout our distinguished history, 
we have remained focused on 
we have remained focused on 
upholding our traditional values, based 
upholding our traditional values, based 
on service and integrity. At the same 
on service and integrity. At the same 
time, we encourage innovation and 
time, we encourage innovation and 
support enterprise, reﬂecting how 
support enterprise, reﬂecting how 
our clients do business. 
our clients do business. 

This is Modern Merchant Banking 
This is Modern Merchant Banking 
at Close Brothers. We believe our 
at Close Brothers. We believe our 
traditional values and modern thinking 
traditional values and modern thinking 
are the reason behind our success and 
are the reason behind our success and 
why our clients continue to turn to us.
why our clients continue to turn to us.

Overleaf: Photographed on location at G&H Sheet Fed Ltd.

Inset: Photographed on location at Alicat Workboats Ltd.

Close Brothers Group plc Annual Report 2015

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Financial Highlights
for the year ended 31 July 2015

Strategic Report
  4  Chairman’s and Chief  
Executive’s Statement

  8  Business Model
12  Strategy and Key  

Performance Indicators
Financial Overview

14 
20  Banking
24  Securities
26  Asset Management
28  Principal Risks and Uncertainties
32  Sustainability Report

Governance
40  Board of Directors
42  Executive Committee
43  Report of the Directors
45  Corporate Governance
58  Report of the Board on  
Directors’ Remuneration

Financial Statements
80 

Independent Auditor’s Report  
to the Members of Close 
Brothers Group plc

83  Consolidated Income Statement
84  Consolidated Statement of 
Comprehensive Income
85  Consolidated Balance Sheet
86  Consolidated Statement of 

Changes in Equity
87  Consolidated Cash Flow  

Statement

88  Company Balance Sheet
89  The Notes
132 
Investor Relations
132  Cautionary Statement

£224.9m

(2014: £193.7m)
Adjusted1 operating profit  
from continuing operations

£219.9m

(2014: £188.8m)
Operating profit before tax  
from continuing operations

£185.7m

(2014: £149.8m)
Profit attributable to shareholders  
from continuing and discontinued 
operations

120.5p

(2014: 101.0p)
Adjusted2 basic earnings per share  
from continuing operations

117.8p

(2014: 98.4p)
Basic earnings per share  
from continuing operations

53.5p

(2014: 49.0p)
Ordinary dividend per share3

19.5%

(2014: 17.9%)
Return on opening equity4  
from continuing operations

Adjusted operating proﬁt
from continuing operations
£ million

224.9

193.7

167.2

131.2

134.2

2011

2012

2013

2014

2015

Adjusted basic earnings per share
from continuing operations
pence

120.5

101.0

83.5

64.8 67.3

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2012

2013

2014

2015

Ordinary dividend per share
pence

53.5

49.0

44.5

40.0 41.5

2011

2012

2013

2014

2015

Return on opening equity
from continuing operations
per cent

19.5

17.9

15.8

13.1 12.5

2011

2012

2013

2014

2015

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1  Stated before amortisation of intangible assets on acquisition. A reconciliation to operating proﬁt before tax is shown on page 15.
2  Stated before amortisation of intangible assets on acquisition and the tax effect of such adjustment.
3  Represents the ﬁnal dividend proposed for the respective years together with the interim dividend declared and paid in those years.
4  Return on opening equity calculated as adjusted operating proﬁt after tax and non-controlling interests on opening equity less non-controlling interests.

Note: The disposal of Close Brothers Seydler was completed on 5 January 2015. The proﬁt on disposal of £10.3 million and proﬁt after tax of £0.9 million have been 
classiﬁed as discontinued operations and the 2014 results have been restated. 2011 to 2013 results have not been restated.

 
 
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Close Brothers Group plc Annual Report 2015

Close Brothers Group plc Annual Report 2015

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Strategic Report

  4  Chairman’s and Chief Executive’s Statement
  8  Business Model
12  Strategy and Key Performance Indicators
14  Financial Overview
20  Banking
24  Securities
26  Asset Management
28  Principal Risks and Uncertainties
32  Sustainability Report

Photographed on location at Barfoots of Botley Ltd.

 
 
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Close Brothers Group plc Annual Report 2015

Chairman’s and Chief Executive’s Statement

Strone Macpherson,
Chairman

Preben Prebensen,
Chief Executive

We are pleased to report another year of strong performance for 
Close Brothers with good results across all of our businesses. After 
successive years of exceptional growth the group is in better shape 
than ever, which means we are well positioned to invest in supporting 
and extending our tried and tested business model and continue to 
deliver sustainable growth over the long term. 

Close Brothers Group plc Annual Report 2015

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Strong Financial Position
Overall, the group delivered adjusted 
operating proﬁt growth of 16% to 
£224.9 million (2014: £193.7 million), 
and adjusted earnings per share 
growth of 19% to 120.5p (2014: 
101.0p). As a result, we have delivered 
a further improvement in return on 
opening equity to 19.5% (2014: 17.9%).

Our strong and prudent ﬁnancial 
position has again been strengthened 
in the period, by further diversifying our 
sources of funding to include the 
government’s Funding for Lending 
Scheme and continued improvement 
in our capital position, with a common 
equity tier 1 ratio of 13.7% (31 July 
2014: 13.1%), and a leverage ratio of 
10.2% (31 July 2014: 9.2%). 

Our prudent approach, strong ﬁnancial 
position and consistent track record 
have resulted in Moody’s upgrading 
our credit rating to A3/P2 for Close 
Brothers Group and Aa3/P1 for Close 
Brothers Limited, both with stable 
outlooks, making us one of the highest 
rated banks in the UK.

In line with our commitment to 
delivering sustainable, progressive 
dividend growth for our shareholders, 
and to reﬂect our continued strong 
ﬁnancial performance, the board has 
recommended a 9% increase in the 
ﬁnal dividend to 35.5p (2014: 32.5p). 
This gives a total dividend per share 
for the full year of 53.5p (2014: 49.0p) 
making 2015 our ﬁfth successive year 
of growing our dividend. 

Another Year of Strong 
Performance
We are pleased to report another year 
of strong performance across the 
group, driven by continued good 
performance from the Banking division 
and steady growth in Asset 
Management. This once again 
demonstrates the robustness of our 
business model which supports our 
long-term track record and ﬁnancial 
performance.

The Banking division achieved strong 
proﬁt growth, beneﬁting from the high 
quality loan book growth in recent 
years and lower impairments. 
Winterﬂood experienced difﬁcult 
market conditions in the ﬁrst half but 
continued to trade proﬁtably and has 
delivered a solid result for the full year. 
Asset Management is continuing to see 
good demand for its high quality advice 
and wealth management services, 
supporting growth in client assets and 
improving proﬁtability.

We remain fully committed to our 
strategy of building leading positions in 
niche markets, through strong 
customer relationships. As the markets 
that we operate in continue to evolve, 
particularly for the Banking division, we 
will continue to invest in our people, 
products and systems, to both protect 
our positioning within existing markets, 
and extend our reach into new areas to 
support future growth.

We remain committed to delivering 
this growth and investment, whilst 
maintaining a strong and prudent 
ﬁnancial position, allowing us to 
support our customers, grow our 
businesses and deliver sustainable 
shareholder returns in all market 
conditions.

Consistent Proﬁtability and 
Returns over the Long Term 
The Banking division continued its 
good performance, delivering its sixth 
consecutive year of double-digit proﬁt 
growth. Adjusted operating proﬁt 
increased 15% to £208.7 million (2014: 
£181.6 million), reﬂecting good loan 
book growth over the last year, a 
strong net interest margin of 8.8%, and 
a further decline in impairments. This 
consistent performance illustrates the 
strength of our business model, 
focusing on our local presence in 
specialist markets, building strong 
client relationships, underpinned by 
prudent underwriting criteria. 

As we continue to see a gradual 
increase in the supply of credit with a 
return of competition in some of our 
key markets, we will maintain the same 
approach that has served us well 
through previous cycles, maintaining 
our margins and continuing to price 
risk appropriately rather than chasing 
growth. We will remain focused on our 
core attributes which differentiate us 
and underpin our long track record of 
proﬁtable growth through the cycle, 
namely the expertise of our people 
within their speciﬁc ﬁelds, our high 
levels of repeat business and local 
underwriting responsibility. We will also 
ensure that the proﬁle of our lending, 
which is predominantly short-term, 
secured and diversiﬁed across industry 
sectors, remains consistent. 

We continue to see opportunities for 
growth in the Banking division, both 
through our well established 
distribution network of over 500 direct 
sales people as well as specialist 
intermediaries including motor dealers 
and insurance brokers, and through 
initiatives looking at entry into adjacent 
markets which suit our specialist model 
and underwriting criteria.

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Close Brothers Group plc Annual Report 2015

Chairman’s and Chief Executive’s Statement continued

Investing for the Long Term
Our strong ﬁnancial position and good 
levels of proﬁtability also mean that we 
have the ﬁnancial resources to 
continuously invest in our people, 
products and systems to adapt as 
markets evolve, and to enhance and 
diversify our client offering and improve 
the delivery of services to our clients.

Our high touch business model and 
client led approach is dependent upon 
the knowledge and experience of our 
people and our shared values of 
integrity, prudence and commitment to 
service. Therefore, attracting, retaining 
and developing talent in each of our 
specialist ﬁelds is key to our longer 
term success. To further develop our 
employees, we have introduced a sales 
training programme for new recruits in 
our asset ﬁnance business, and to 
maximise productivity and enhance 
the client experience in Asset 
Management, we are investing in the 
training and development of our 
professional adviser force and creating 
regional practices which are supported 
by expanded client service teams.

We have a long history of supporting 
SMEs across the UK and currently 
provide £3.5 billion of lending to these 
growing businesses. To further 
demonstrate our ongoing commitment 
to supporting SMEs we have created 
an apprenticeship scheme. The Close 
Brothers SME Apprentice Programme 
will provide funding for up to 20 
apprentices per annum for the next 
three years with the aim of enabling 
SMEs that would otherwise be unable 
to afford to take on and train additional 
staff to grow and expand their 
businesses.

While we are predominantly a people 
driven business, we also continuously 
invest in our systems to both improve 
our client proposition and the 
accessibility of our products and 
services as well as protect our client 
data. During the year we have further 
strengthened our IT function within the 
Banking division to deliver 
improvements to our client proposition 
and increase our efﬁciency and speed 
to market. We have rolled out a number 
of new initiatives in recent years 
including system upgrades in Property 
and Treasury to improve efﬁciency and 
we are now enhancing our processes 
in premium ﬁnance. Winterﬂood invests 
continuously to support its market 
leading, proprietary technology and 
Asset Management is beneﬁting from 
the investment made in our technology 
platform in recent years.

Ongoing regulatory reform remains a 
signiﬁcant challenge in the banking 
sector, but with our strong client focus, 
straightforward products and prudent 
approach we are well positioned. 
Monitoring and implementing this 
regulatory change is resource intensive 
and we continue to invest in our people 
and systems to ensure we continue to 
meet increasing regulatory reporting 
requirements and operate in the best 
interests of our clients. Speciﬁcally, in 
response to the increased focus on risk 
and compliance across our industry 
and a greater level of oversight, we 
have reorganised and strengthened 
our group wide risk and compliance 
functions.

Winterﬂood experienced mixed market 
conditions during the year but 
continues to beneﬁt from its unique 
business model which allows us to 
provide continuous liquidity for our 
clients and trade proﬁtably even in 
challenging market conditions, thereby 
maintaining our market leading 
position. Lower activity and periods of 
increased volatility in the ﬁrst half 
resulted in an increase in the number of 
loss days, but conditions improved in 
the second half and good performance 
in our investment trusts business 
ensured that adjusted operating proﬁt 
reduced by just 8% to £24.6 million 
(2014: £26.6 million).

In the ﬁrst half we completed the sale 
of Close Brothers Seydler, our German 
securities business which has been 
treated as a discontinued operation.

Our Asset Management business 
continues to make good progress, with 
its high quality integrated ﬁnancial 
planning advice and investment 
management proposition proving 
popular with clients. We achieved good 
growth in the period with gross inﬂows 
into our managed assets up 31% 
year-on-year to £1.5 billion (31 July 
2014: £1.1 billion). We continue to see 
good demand for our discretionary 
Close Portfolio Funds which now total 
close to £3 billion under management, 
the majority of which delivered top 
quartile performance over the last year. 
This growth is driving further 
improvement in proﬁtability with 
adjusted operating proﬁt increasing to 
£17.8 million (2014: £9.9 million), 
including a £4.4 million beneﬁt from our 
former private equity business.

Our business remains well positioned 
to beneﬁt from ongoing changes in the 
market and regulatory environment, 
such as the recently announced 
pension freedoms legislation which 
we expect to increase the overall 
demand for retail advice and wealth 
management over the longer term.

Close Brothers Group plc Annual Report 2015

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Management and Board Changes 
As previously announced, after  
27 years with the business, Julian 
Palfreyman retired from his position as 
chief executive of Winterﬂood at the 
end of the ﬁnancial year. Philip Yarrow 
has taken over as chief executive, 
having previously been the head of 
electronic trading at Winterﬂood since 
2000. We would like to thank Julian for 
his signiﬁcant contribution to the 
business over many years and wish 
him well for the future. 

Additionally, Robert Sack joined Close 
Brothers in April 2015 as group risk 
ofﬁcer and is a member of the 
Executive Committee. Robert has held 
a number of senior roles at other 
ﬁnancial institutions and brings a wealth 
of risk management experience to his 
new role within the group.

As planned, Bruce Carnegie-Brown 
stood down from the board in 
November 2014. Following Bruce’s 
departure, Bridget Macaskill was 
appointed chairman of the 
Remuneration Committee and Geoffrey 
Howe was appointed senior 
independent director.

Outlook
We remain conﬁdent that our strategy 
and proven business model will 
continue to deliver both attractive 
propositions for our clients, and 
long-term value for our shareholders.

We see continued opportunities for 
growth in the Banking division, whilst 
maintaining our prudent risk proﬁle and 
focus on returns.

Winterﬂood is well positioned but 
remains sensitive to market conditions.

In Asset Management we expect to 
see continued net inﬂows and 
increasing proﬁtability.

Overall, the group remains well 
positioned to continue to deliver good 
results.

Photographed on location at Haynes Ford LTD.

 
 
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Close Brothers Group plc Annual Report 2015

Business Model

Our model is underpinned by our focus on service, expertise 
and relationships across our businesses. These attributes 
are fundamental to our client proposition, allowing us to 
support our clients and create and sustain value for 
shareholders in all market conditions.

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Our people
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Building long-term 
relationships
with clients and 
intermediaries

Allowing us
to provide
excellent 
service

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               Servic
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Close Brothers Group plc Annual Report 2015

99

We support our business model by managing our ﬁnancial 
resources prudently, employing talented and engaged 
employees, and investing to enhance our client proposition 
and protect and extend our successful business model for 
the long term.

Managing our 
resources prudently

Employ talented and 
engaged employees

Invest to strengthen 
our client proposition

Our prudent and efﬁcient balance 
sheet ensures we can serve our 
clients and deliver growth in all 
market conditions.

The expertise of our people is 
fundamental to understanding and 
meeting clients’ needs and ensuring 
high quality decision making.

We continuously invest to protect, 
support and extend our business 
model to ensure it is sustainable for 
the long-term.

•  We borrow longer than we lend, and 
maintain a prudent level of liquidity, 
predominantly in deposits with the 
Bank of England.

•  We invest signiﬁcantly in recruitment, 
training and development, whether 
employing school leavers, graduates 
or experienced professionals.

•  We have access to diverse funding 

sources, including retail and 
corporate deposits, securitisations, 
bilateral loan facilities and the public 
debt markets.

•  We match assets and liabilities, to 
minimise exposure to short-term 
movements in interest rates.

•  We maintain a prudent capital 
position to ensure we have the 
resources to grow throughout the 
cycle, and can absorb any changes 
in regulatory requirements.

•  Our employee survey demonstrates 
strong employee engagement and 
job satisfaction across the group.

•  We encourage and reward 

entrepreneurship and innovation.

•  We ensure our compensation 

structures are fair, transparent and 
competitive, and balance long and 
short-term objectives.

•  We are committed to providing equal 

opportunities and promoting a 
culture of diversity in the work place.

•  We strengthen our distribution 

networks by hiring and training new 
sales teams and ﬁnancial advisers.

•  We continuously evaluate and 
implement new technology to 
support and enhance the speed and 
quality of our client service.

•  We always look for ways to improve 

client processes to increase 
efﬁciency and ensure the highest 
level of customer focus.

•  We explore new ways to extend our 
successful business model into 
adjacent areas.

•  We invest in our brand to increase 
client awareness and leverage our 
strong reputation.

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Close Brothers Group plc Annual Report 2015

Business Model continued

How we are different

Banking

Securities

Our services
We focus on straightforward 
products and services in markets 
we know and understand.

The expertise of our people allows 
us to provide flexible solutions to 
meet individual client needs.

The Banking division provides a range 
of specialist lending products to UK 
SMEs, as well as specialist instalment 
payment solutions to UK retail 
borrowers. We also offer deposit-taking 
services to businesses and individuals, 
which form an important part of our 
funding along with wholesale facilities.

Winterﬂood is a leading market-maker 
in the UK, providing dealing and 
execution services principally to 
ﬁnancial institutions. We are committed 
to providing continuous liquidity 
allowing our clients to trade securities 
in all market conditions.

Our market position
We are a trusted brand developed 
over the last 100 years with a strong 
reputation in the financial services 
market.

We have built leading market 
positions in a number of specialised 
businesses.

We have a long track record of 
support for our clients and strong 
financial performance in all market 
conditions.

Our expertise
We understand our specialist markets 
and our clients’ needs, ranging from 
small businesses to private investors 
and retail brokers.

Our decentralised model enables 
personal service, with extensive local 
presence across the UK.

Sustainable income
We focus on recurring income 
streams and manage our financial 
resources carefully.

We apply our strategy consistently to 
support sustainable earnings growth.

We have a strong and established 
market position in each of our specialist 
areas. Overall our loan book is £5.7 
billion across several specialist  
markets in asset, invoice, property 
development, motor and insurance 
premium ﬁnance. We have always 
recognised the importance of building 
long-term client relationships, 
generating high levels of repeat 
business across the division.

Winterﬂood is a leading market-maker 
in the UK, with around 400 ﬁnancial 
institutions as clients, and covering 
around 15,000 securities in the UK and 
overseas. We also have a specialist 
team focused on investment trusts. 
Our strong market position ensures 
high levels of order ﬂow, allowing us to 
offer competitive prices and provide 
liquidity to our clients in all market 
conditions.

Our lenders are specialists with a deep 
knowledge of the industry sectors and 
asset classes we lend in, and oversee 
all lending decisions from origination to 
maturity with authority to make 
decisions. This means we understand 
our clients and can offer fast and 
ﬂexible solutions, while supporting our 
long track record of pricing risk 
appropriately. We have a local 
presence across the UK with a large 
direct sales force, as well as an 
intermediated distribution network 
through credit brokers, motor dealers 
and insurance brokers.

Income in the Banking division reﬂects 
the difference between the interest and 
fee income we earn on loans to 
customers and the cost of our funding. 
We have sustained a consistently 
strong net interest margin through the 
cycle, thanks to our high level of service 
and consistent pricing of risk.

Winterﬂood is differentiated by the skill 
and experience of our people; our 
traders have extensive experience in 
executing client orders and are united 
by a strong culture focused on 
traditional market-making. They are 
supported by our market leading, 
proprietary technology, which allows us 
to deliver ﬂexible client solutions and 
provides access to a deep pool of 
internal liquidity.

The majority of Winterﬂood’s income 
reﬂects the trading proﬁt on its market-
making. Although the level  
of income ﬂuctuates, we have a long 
track record of trading proﬁtably in a 
range of market conditions.  
Winterﬂood also earns corporate fees 
in its investment trust business, which 
advises on primary and secondary 
capital raisings.

Read more about Banking 
on pages 20 to 23.

Read more about Securities 
on pages 24 to 25.

Close Brothers Group plc Annual Report 2015

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Asset Management

The Asset Management division 
provides a complete wealth 
management service for individuals, 
incorporating both ﬁnancial planning 
advice and investment management. 
We also offer a range of multi-asset 
investment strategies, available to both 
our own ﬁnancial advisers and third 
party IFAs and other intermediaries.

We have a long history of advising 
clients and managing their investments 
and an established reputation in the 
market. In recent years we have 
enhanced our integrated model 
comprising ﬁnancial planning advice, 
investment management and platform 
technology, which puts us in a strong 
position to beneﬁt from pension 
reforms and changes to regulation, 
technology and demographics. We 
have increased our client assets 
over the last several years to nearly 
£11 billion today.

We employ ﬁnancial advisers 
throughout the UK who provide advice 
on a full range of issues and help our 
clients establish long-term ﬁnancial 
plans. We offer a wide range of 
investment solutions designed to meet 
the varying needs of our clients, 
supported by a high quality investment 
process delivered through an 
experienced team covering asset 
allocation, research and portfolio 
management.

Our Asset Management business 
builds long-term relationships with 
clients, which generate recurring and 
sustainable fee-based income for the 
provision of ﬁnancial advice and 
investment management services.

Read more about Asset Management 
on pages 26 to 27.

Photographed on location at Winterﬂood Securities Limited.

 
 
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Close Brothers Group plc Annual Report 2015

Strategy and Key Performance Indicators

Our strategy is to build and sustain strong 
market positions in specialist markets, 
where we can differentiate ourselves 
through the expertise of our people and by 
providing superior service to our clients. 

This is supported by a prudent approach 
to managing our business and our 
ﬁnancial resources, and ongoing 
investment in our people, systems 
and services.

Strategic objectives

2015 progress

Future objectives

Build leading market 
positions
Build strong market positions, 
using our expertise to provide 
excellent client service and 
develop long-term client 
relationships.

•  Continued increase in lending to small 
businesses and individuals, with 8.5% 
loan book growth to £5.7 billion.

•  Maintained Winterﬂood’s position as the 
leading market-maker to retail brokers in 
the UK.

•  11% growth in total client assets with 

strong investment management inﬂows 
in Asset Management.

•  Grow the loan book while maintaining 
prudent and consistent lending criteria.

•  Explore new opportunities that leverage our 

core capabilities in adjacent markets.

•  Grow client assets to increase the scale of 

our Asset Management business.

Remain prudent and 
efﬁcient
Hold an appropriate level of 
capital, funding and liquidity 
in all market conditions.

•  Maintained capital levels comfortably 
ahead of regulatory requirements. 
•  Further diversiﬁed funding sources 
through access to the Funding for 
Lending Scheme and maintained a 
prudent maturity proﬁle.

•  Close Brothers Limited’s credit rating 

upgraded by Moody’s to Aa3, making us 
one of the highest rated banks in the UK.

•  Maintain a prudent capital position to ensure 
ﬂexibility to deliver growth and absorb any 
changes in regulatory requirements.
•  Maintain access to a diverse range of 
funding sources, optimise price and 
maturity, and hold a prudent level 
of liquidity.

Develop our client 
proposition
Invest in people, technology, 
and products and services to 
enhance the proposition to 
our clients.

•  Launched new recruitment and training 
initiatives to attract and develop sales 
and advisory talent.

•  Targeted investment in IT infrastructure 

and processes to improve client 
proposition and efﬁciency.

•  Constant focus on customer service 

resulting in strong customer feedback 
and high levels of repeat business across 
the Banking division.

•  Further optimise the scale and effectiveness 
of our direct sales force and adviser base.

•  Ensure we continue to consider clients’ 

needs, ability to pay and appropriateness of 
our service, and provide clear and 
transparent communications to clients.
•  Maintain a programme of improving and 
upgrading our technology to further 
enhance resilience, efﬁciency and customer 
experience.

Deliver growing and 
sustainable earnings
Consistently apply our 
business model to generate 
high quality, recurring earnings 
and sustain a strong financial 
position.

•  Strong growth in adjusted operating 
proﬁt now up 68% in three years.
•  Continued solid earnings growth in 

•  Maintain strong returns in Banking through 

commitment to our lending model.

•  Maximise proﬁtability for Winterﬂood in all 

Banking, increasing proﬁtability in Asset 
Management and resilient proﬁtability in 
Winterﬂood despite challenging markets.

market conditions.

•  Drive operating leverage in Asset 
Management through growth in 
client assets.

Deliver attractive 
shareholder returns
Generate sustainable 
shareholder returns through 
earnings growth and prudent 
management of our financial 
resources.

•  Strong and improving return on opening 

•  Continue to execute our established 

equity.

•  Fifth consecutive year of dividend growth, 

up 9% to 53.5p for the full year.

•  Total shareholder returns of 18% in the 

year and 119% in three years.

business model and manage our ﬁnancial 
resources prudently.

•  Maintain appropriate dividend cover to 
support progressive and sustainable 
dividend growth.

•  Remain committed to clear and transparent 
communication with shareholders and other 
external stakeholders.

Close Brothers Group plc Annual Report 2015

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This in turn allows us to support our clients in all 
market conditions, while generating sustainable 
returns for our shareholders, and is demonstrated 
by our long track record of proﬁtability at all 
stages of the economic cycle.

Key risks1

Key performance indicators2

•  Increased competition in 

our markets.

•  Changes in technology, consumer 

habits or market structure.

•  Loss of key employees.

Loan book
£ billion

5.7

5.3

4.6

Winterﬂood’s income
£ million

Total client assets
£ billion

96.1 94.6

74.6

10.8

9.1

9.7

•  Changes in European or UK 

capital regulatory requirements.
•  Changes in the market price or 

availability of funding.

2013

2014

2015

2013

2014

2015

2013

2014

2015

Common equity
tier 1 capital
per cent
13.3 13.1 13.7         

Leverage ratio 
per cent

Funding % loan book
per cent

9.8

9.2

10.2

135

135

131

2013

2014

2015

2013

2014

2015

2013

2014

2015

•  Inability to attract and retain the 

required talent.

•  Failure in processes or controls 

or lack of transparency in 
communication.

•  Failure to support and upgrade 

technology resulting in loss of client 
data, security breaches or loss of 
competitiveness.

•  Changes in the economic 

environment adversely affecting 
borrowers’ ability to pay.

•  Failure to invest as required in 
people, technology, products 
and services.

Total headcount

Front ofﬁce
headcount

2,650 2,669

2,860

1,070 1,008 1,016

Employees satisﬁed/
very satisﬁed3
per cent
90

88

86

2013

2014

2015

2013

2014

2015

2011

2013

2015

Adjusted
operating proﬁt
£ million

224.9

193.7

167.2

Adjusted basic
earnings per share
pence

120.5

101.0

83.5

Basic earnings per share
pence

117.8

98.4

82.0

•  Failure to maintain our business 

model or execute on key elements 
of strategy.

•  Changes in regulation or taxation.
•  Major legal or regulatory event 

resulting in ﬁnes or compensation 
payments.

2013

2014

2015

2013

2014

2015

2013

2014

2015

Group return on
opening equity
per cent

19.5

17.9

15.8

Dividend per share
pence

Total shareholder return
per cent

53.5

49.0

44.5

47

26

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1  Further information on principal risks and uncertainties is provided on pages 28 to 31.
2  Key performance indicators have been restated to exclude Seydler for 2014 and 2015 only.
3  Our employee survey is run on a biennial basis, chart shows results from latest three surveys.

2013

2014

2015

2013

2014

2015

2013

2014

2015

 
 
14

Close Brothers Group plc Annual Report 2015

Financial Overview

Close Brothers has delivered 
another year of strong 
performance, with adjusted 
operating proﬁt growth of 16%  
to £224.9 million (2014: £193.7 
million), adjusted earnings per 
share (“EPS”) growth of 19% to 
120.5p (2014: 101.0p) and a 
further improvement in return  
on opening equity to 19.5% 
(2014: 17.9%).

Photographed on location at Biggin Hill Heritage Hangar Ltd.

Close Brothers Group plc Annual Report 2015

15

Continued Strong Performance
All three of our divisions delivered a 
good performance in 2015. The 
Banking division remains the key driver 
of the group’s growth, delivering a 15% 
uplift in adjusted operating proﬁt to 
£208.7 million (2014: £181.6 million), 
with 8.5% loan book growth to £5.7 
billion, helped by a strong net interest 
margin and further improvement  
in the bad debt ratio. Winterﬂood 
experienced difﬁcult trading conditions 
in the ﬁrst half but remained 
consistently proﬁtable, delivering £24.6 
million adjusted operating proﬁt (2014: 
£26.6 million) in the period as strong 
performance in the investment trust 
business and a one-off investment gain 
helped to offset weaker trading 
revenues. Asset Management 
continues to make progress in growing 
client assets and underlying proﬁtability, 
as well as beneﬁting from non-recurring 
income related to our former private 
equity business, to deliver 80% 
adjusted operating proﬁt growth to 
£17.8 million (2014: £9.9 million).

Total revenues increased 10% year-on-
year to £689.5 million (2014: £627.9 
million) driven primarily by strong 
growth in net interest and fee income  
in the Banking division and further 
growth in Asset Management, although 
income in Securities declined 
marginally.

We continue to invest in people, 
products and systems to sustain and 
further develop our business model. As 
a result adjusted operating expenses 
increased 8% to £422.7 million (2014: 
£390.1 million) primarily driven by 
higher volume related costs and 
continued investment to support 
growth in the Banking division. 
Securities costs have remained broadly 
stable, while costs in Asset 
Management increased only modestly 
reﬂecting the operating leverage in the 
division.

Overall, the expense/income and 
compensation ratios (total staff costs 
on adjusted operating income) both 
improved to 61% (2014: 62%) and 36% 
(2014: 37%) respectively.

The group continues to beneﬁt from its 
disciplined approach to underwriting 
and primarily secured lending model as 
well as the benign credit environment. 
As a result, impairment losses declined 
and the bad debt ratio fell for the sixth 
consecutive year to 0.8% (2014: 0.9%), 
despite the strong loan book growth 
over the same period.

Overall, this resulted in strong adjusted 
operating proﬁt growth of 16% to 
£224.9 million (2014: £193.7 million) 
which includes the group expenses of 
£26.2 million (2014: £24.4 million). The 
operating margin increased slightly to 
33% (2014: 31%).

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Group Income Statement

Adjusted operating income
Adjusted operating expenses
Impairment losses on loans and advances

Adjusted operating proﬁt
  Banking
  Securities
  Asset Management
  Group

Amortisation of intangible assets on acquisition

Operating proﬁt before tax

Tax
Non-controlling interests

Proﬁt attributable to shareholders from continuing operations

Proﬁt from discontinued operations, net of tax

2015
£ million
689.5
(422.7)
(41.9)

224.9
208.7
24.6
17.8
(26.2)

2014
£ million
627.9
(390.1)
(44.1)

193.7
181.6
26.6
9.9
(24.4)

(5.0)

(4.9)

219.9

188.8

(45.4)
–

(43.2)
(0.4)

174.5

145.2

11.2

4.6

Proﬁt attributable to shareholders from continuing and discontinued operations

185.7

149.8

Adjusted basic earnings per share (continuing operations)
Basic earnings per share (continuing operations)
Basic earnings per share (continuing and discontinued operations)
Ordinary dividend per share
Return on opening equity

120.5p
101.0p
117.8p
98.4p
125.4p
101.5p
53.5p
49.0p
19.5% 17.9%

Change
%
10
8
(5)

16
15
(8)
80
7

2

16

5

20

24

19
20
24
9

 
 
16

Close Brothers Group plc Annual Report 2015

Financial Overview continued

Photographed on location at 
Piling Equipment Ltd.

After amortisation of intangible assets 
of £5.0 million (2014: £4.9 million), proﬁt 
attributable to shareholders increased 
20% to £174.5 million (2014: £145.2 
million). The effective tax rate declined 
to 21% (2014: 23%), in line with the UK 
corporation tax rate.

In July 2015, draft legislation was 
published in relation to a corporation 
tax surcharge of 8% on banking sector 
proﬁts from 1 January 2016, together 
with a reduction in the underlying 
corporation tax rate from 20% to 18% 
by 2020. We will continue to monitor 
this legislation and its impact on our tax 
rate.

Our adjusted EPS from continuing 
operations increased 19% or 19.5p to 
120.5p (2014: 101.0p), ahead of the 
16% increase in adjusted operating 
proﬁt due to the reduction in effective 
tax rate. 

Our reported basic EPS, which 
includes amortisation of intangible 
assets, increased 20% to 117.8p (2014: 
98.4p) on a continuing basis. Basic 
EPS including continuing and 
discontinued operations increased 
24% to 125.4p (2014: 101.5p), which 
includes the trading result and proﬁt on 
disposal of Close Brothers Seydler.

Simple and Transparent 
Balance Sheet
During the year, the overall structure  
of the group’s high quality and 
transparent balance sheet has 
remained unchanged, and we have 
maintained our prudent capital, funding 
and liquidity positions. Our balance 
sheet remains simple and is 
predominantly made up of loans and 
advances to customers, which are 
short-term in nature and over 90% 
secured, cash and loans and advances 
to banks and settlement balances 
held within our Securities division.
Total assets increased by £256.9 
million to £8.0 billion, due to an 8.5% 
increase in loans and advances to 
customers to £5,737.8 million (31 July 
2014: £5,289.7 million) which account 
for the signiﬁcant majority of the 
balance sheet at 72% (31 July 2014: 
69%) of assets. Borrowings increased 
£351.6 million to £1,792.6 million (31 
July 2014: £1,441.0 million) to fund the 
loan book growth.

Net settlement balances declined 
£34.8 million to £77.6 million due to the 
disposal of Close Brothers Seydler and 
lower trading activity at Winterﬂood.

Total equity increased to £1,009.9 
million (31 July 2014: £917.6 million) 
reﬂecting strong proﬁtability in the year, 
partially offset by dividend payments  
of £74.3 million. The return on group 
assets improved to 2.3% from 1.9%  
in 2014.

Diverse and conservative 
funding position
Our conservative approach to funding 
and liquidity is a core part of our 
business model. Our Treasury function 
provides funding for our lending 
businesses from a diverse range of 
sources, including retail and corporate 
customer deposits, secured and 
unsecured loan facilities and bonds, 
and maintains a prudent maturity 
proﬁle at all times. As a result, we 
expect to meet the requirements for 
the new funding and liquidity ratios 
proposed under the Capital 
Requirements Directive (“CRD IV”) 
when they come into force.

In 2015 we have taken advantage of 
favourable market conditions to 
strengthen our funding position whilst 
at the same time reducing the overall 
funding costs for our business. We 
have further diversiﬁed our funding 
sources by drawing down £375 million 
from the government’s Funding for 
Lending Scheme secured against a 
portion of the asset ﬁnance loan book. 
We have also renewed £945 million of 
facilities and since the year end we 
have completed a private placement of 
a €25 million bond.

Group Balance Sheet

Assets
Cash and loans and advances to banks
Settlement balances, long trading positions and loans to money brokers
Loans and advances to customers
Non-trading debt securities
Intangible assets
Other assets

Total assets

Liabilities
Settlement balances, short trading positions and loans from money brokers
Deposits by banks
Deposits by customers
Borrowings
Other liabilities

Total liabilities

Equity

Total liabilities and equity

Group Funding

Deposits by customers
Drawn and undrawn facilities1
Senior unsecured bonds
Equity

Total available funding

Close Brothers Group plc Annual Report 2015

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£ million

31 July
2014
£ million

1,122.6
481.9
5,737.8
135.4
144.2
335.4

1,259.2
634.8
5,289.7
45.6
146.3
324.8

7,957.3

7,700.4

404.3
35.1
4,481.4
1,792.6
234.0

522.4
49.6
4,513.7
1,441.0
256.1

6,947.4

6,782.8

1,009.9

917.6

7,957.3

7,700.4

31 July
2015
£ million
4,481.4
1,512.2
516.8
1,009.9

31 July
2014
£ million
4,513.7
1,191.2
505.4
917.6

Change
£ million
(32.3)
321.0
11.4
92.3

7,520.3

7,127.9

392.4

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1  Includes £245.0 million (31 July 2014: £265.0 million) of undrawn facilities and excludes £8.6 million (31 July 2014: £9.4 million) of non-facility overdrafts included 

in borrowings.

Group Funding Maturity Proﬁle

Deposits by customers
Drawn and undrawn facilities 
Senior unsecured bonds
Equity

Less than
one year
£ million
3,330.9
152.2
18.5
–

One to 
two years
£ million
851.2
643.4
199.4
–

Greater than
two years
£ million
299.3
716.6
298.9
1,009.9

Total
£ million
4,481.4
1,512.2
516.8
1,009.9

Total available funding at 31 July 2015 

3,501.6

1,694.0

2,324.7

7,520.3

Total available funding at 31 July 2014

3,428.4

1,777.1

1,922.4

7,127.9

 
 
18

Close Brothers Group plc Annual Report 2015

Financial Overview continued

Photographed on location at  
Alicat Workboats Ltd.

Credit ratings upgraded by Moody’s
In May 2015, Moody’s Investor 
Services (“Moody’s”) upgraded its 
long-term rating for Close Brothers 
Group (“CBG”) and Close Brothers 
Limited (“CBL”) to A3/P2 from  
Baa1/P2 and Aa3/P1 from A3/P2, 
respectively, both with stable outlooks. 
Earlier in the year, Fitch Ratings 
(reafﬁrmed its ratings for CBG and CBL 
at A/F1, both with stable outlooks.

The rating upgrade reﬂects our proven 
business model, consistent track 
record through the cycle and prudent 
approach to funding and capital 
management, as well as the 
implementation of Moody’s new bank 
rating methodology.

Total funding increased £392.4 
million or 6% in the year to £7,520.3 
million (31 July 2014: £7,127.9 
million) and accounted for 131%  
(31 July 2014: 135%) of the loan 
book. This reﬂects a £321.0 million 
increase in drawn and undrawn 
facilities increasing to £1,512.2 
million (31 July 2014: £1,191.2 
million), reﬂecting participation in the 
government’s Funding for Lending 
Scheme.

Customer deposits remained 
broadly stable at £4,481.4 million 
(31 July 2014: £4,513.7 million) as 
did senior unsecured bonds at 
£516.8 million (31 July 2014: £505.4 
million).

Term funding (funding with a 
maturity greater than 12 months) 
increased by 9% to £4,018.7 million 
(31 July 2014: £3,699.5 million) due 
to participation in the Funding for 
Lending Scheme, which runs for 
four years, and the facility renewals. 
At 31 July 2015, the loan book was 
70% covered by term funding (31 
July 2014: 70%) with an average 
maturity of 31 months (31 July 
2014: 30 months), more than 
double the maturity of the loan 
book of 14 months (31 July 2014: 
14 months).

Prudent approach to managing 
liquidity
The group takes a conservative 
approach to liquidity management, and 
the majority of our liquidity 
requirements and surplus funding are 
held in the form of high quality liquid 
assets.

At 31 July 2015, our treasury assets 
totalled £1,173.4 million (31 July 2014: 
£1,217.3 million), of which £1,058.1 
million (31 July 2014: £1,217.3 million) 
comprised high quality liquid assets, 
principally in the form of deposits with 
the Bank of England. From time to time 
we also place surplus funding in 
certiﬁcates of deposits (“CDs”) or other 
liquid securities to maximise yield. At 
the year end, we held £115.3 million 
(31 July 2014: £nil) in CDs.

We regularly assess our long and 
short-term liquidity requirements 
including extensive stress testing, with 
a clearly deﬁned risk appetite. 
Therefore, we hold a prudent liquidity 
position at all times relative to both 
internal and external requirements, and 
expect to comfortably meet the 
Liquidity Coverage Ratio requirements 
under CRD IV when they come into 
force.

Close Brothers Group plc Annual Report 2015

19

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31 July
2015
£ million
20.1
1,038.0

31 July
2014
£ million
45.6
1,171.7

Change
£ million
(25.5)
(133.7)

1,058.1

1,217.3

(159.2)

 115.3

–

115.3

1,173.4

1,217.3

(43.9)

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31 July
31 July
2015
2014
£ million
£ million
13.7% 13.1%
14.3% 14.3%
10.2%
9.2%
813.2
710.8
848.0
780.4
5,932.1
5,445.8

Maintaining a strong capital position 
We have always maintained a strong 
and prudent capital position, which in 
recent years has allowed us to invest in 
our business and consistently deliver 
strong loan book growth while at the 
same time meeting increasingly 
demanding regulatory requirements. In 
2015, our capital position improved 
further with a common equity tier 1 
capital ratio of 13.7% (31 July 2014: 
13.1%) and a leverage ratio of 10.2% 
(31 July 2014: 9.2%), both comfortably 
ahead of minimum regulatory 
requirements. This reﬂects the strong 
proﬁtability in the period, more than 
offsetting the impact of the growing 
loan book.

Common equity tier 1 capital increased 
to £813.2 million (31 July 2014: £710.8 
million), reﬂecting proﬁt for the year of 
£185.7 million, partly offset by the 
deduction for foreseeable dividend 
payments and other reserve 
movements. Total risk weighted assets 
increased 9% to £5,932.1 million 
(31 July 2014: £5,445.8 million), 
predominantly due to the increased 
credit and counterparty risk resulting 
from loan book growth in the period. 
Risk weighted assets in respect of 
operational risk also increased 
reﬂecting growth across the group, 
whilst market risk reduced due to the 
disposal of Close Brothers Seydler and 
lower trading in Winterﬂood.

Our current capital position is strong 
and our existing ratios are comfortably 
ahead of current requirements. 
However, the regulatory environment 
continues to evolve, with capital 
requirements across the industry being 
reviewed by both UK and international 
regulators, which could lead to 
changes in the future. We are conﬁdent 
that our strong capital position, the 
quality of our assets and overall 
prudent approach to managing our 
business and ﬁnancial resources 
ensure we can absorb any future 
changes, while retaining the ﬂexibility to 
pursue growth opportunities.

Treasury Assets

Gilts 
Bank of England deposits

High quality liquid assets

Certiﬁcates of deposit

Total treasury assets

Group Capital Position

Common equity tier 1 capital ratio
Total capital ratio
Leverage ratio1
Common equity tier 1 capital
Total regulatory capital
Risk weighted assets

1  The leverage ratio is calculated using the 2014 Basel Committee methodology as required by the Prudential Regulation Authority. It is calculated as Tier 1 capital as a 

percentage of total balance sheet assets, adjusting for certain capital deductions, including intangible assets, and off balance sheet exposures.

 
 
20

Close Brothers Group plc Annual Report 2015

Banking

The Banking division’s strategy 
remains unchanged: to deliver 
sustainable growth and strong 
returns throughout the economic 
cycle. To do this, we continuously 
invest in our business model to 
maintain our local presence and 
leading position in our chosen 
specialist markets, in order  
to build long-term client 
relationships. This strategy has 
driven strong performance for the 
business which delivered its sixth 
consecutive year of double-digit 
proﬁt growth in 2015. 

Photographed on location at BCW Engineering Ltd.

Close Brothers Group plc Annual Report 2015

21

The bad debt ratio has improved 
steadily in recent years and declined 
further in 2015 to 0.8% (2014: 0.9%). 
The improvement in the year was 
principally driven by lower impairment 
charges in Commercial and Property, 
and reﬂects our ongoing focus on 
credit quality and the favourable 
economic conditions.

Adjusted operating expenses 
increased in line with income, up 12% 
to £248.0 million (2014: £221.0 million) 
reﬂecting an increase in volume related 
costs and continued investment in our 
service led business model to deliver 
further growth and consistent returns 
over the long term. Speciﬁcally, higher 
staff costs reﬂect increased headcount 
in our operational and control functions 
to support loan book growth and 
ensure we operate effectively in our 
regulated environment. IT costs also 
increased to meet the continued need 
to invest in our systems and technology 
to enhance our speed to market and 
customer focused service proposition. 
As a result the expense/income ratio 
has marginally increased to 50%  
(2014: 49%), whilst the compensation 
ratio remained stable at 27% (2014: 
27%).

Continued Loan Book Growth 
We have a track record of consistent 
growth through the cycle and delivered 
good growth in the year across our 
loan book despite a gradual increase in 
the supply of credit and increasing 
competition in some of our key markets.

In the 12 months to 31 July 2015, the 
overall loan book increased 8.5% to 
£5.7 billion (31 July 2014: £5.3 billion). 
Most importantly this growth was 
achieved with no change to our strict 
risk and return criteria and its key 
characteristics remained unchanged, 
with an average duration of 14 months 
(31 July 2014: 14 months) and around 
90% secured.

Asset ﬁnance continues to deliver good 
growth due to our strong customer 
relationships and direct lending 
capabilities. In motor ﬁnance, strong 
demand in the overall car market has 
allowed us to deliver further loan book 
growth whilst maintaining our robust 
margins in the face of increasing 
competition. Property remains the area 
of highest growth in the period with 
continued strong demand for 
development ﬁnance.

Overall, the Retail loan book increased 
8.3% to £2,266.0 million (31 July 2014: 
£2,092.8 million) in the 12 months to 
31 July 2015. The motor ﬁnance loan 
book increased 9.7% to £1,600.3 million 
(31 July 2014: £1,458.9 million) as 
underlying growth in car market 
volumes and successful sales 
campaigns in the second half offset 
increased competition. The premium 
ﬁnance book increased 5.0% to £665.7 
million (31 July 2014: £633.9 million) 
reﬂecting new business from both new 
and existing customers.

Delivering Sustainable Growth  
and Strong Returns over the  
Long Term
In recent years, the division has 
achieved exceptionally strong growth, 
which combined with improving 
economic conditions and our 
disciplined approach to underwriting 
has resulted in reduced impairments 
and increasingly strong returns. As we 
continue to see a gradual increase in 
the supply of credit and a return of 
competition in some of our key 
markets, we remain focused on 
maintaining the high quality of our loan 
book and ensuring that we price risk 
appropriately. This will enable us to 
continue our long track record of 
delivering strong returns and 
sustainable growth through the cycle. 

Distinctive Business Model Drives 
Strong Financial Performance 
The Banking division has again 
delivered solid growth and strong 
returns in 2015. Adjusted operating 
proﬁt increased 15% to £208.7 million 
(2014: £181.6 million) due to a 12% 
increase in adjusted operating income 
and lower impairment losses. As a 
result, the division’s return on opening 
equity improved to 27% (2014: 25%) 
and the return on net loan book 
increased to 3.8% (2014: 3.7%). 

Operating income increased 12% to 
£498.6 million (2014: £446.7 million) 
driven by increases across all our 
businesses, with particularly strong 
growth in Property which increased 
28% to £96.8 million (2014: £75.4 
million). The net interest margin 
remained strong at 8.8% (2014: 8.6%), 
reﬂecting our focus on maintaining our 
margins and pricing risk appropriately 
as competition increases and 
supported by a modest decline in 
funding costs. Treasury and other 
income declined slightly to £13.4 million 
(2014: £19.4 million).

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22

Close Brothers Group plc Annual Report 2015

Banking continued

Photographed on location at Mark Priestley SDT Ltd.

The Commercial loan book increased 
6.1% to £2,172.8 million (31 July 2014: 
£2,047.2 million) driven by an 8.5% 
increase in asset ﬁnance to £1,796.2 
million (31 July 2014: £1,656.0 million) 
due to good levels of new business 
across all sectors and the beneﬁts of 
our growth initiatives in Ireland and 
energy ﬁnance. Invoice ﬁnance 
reduced by 3.7% to £376.6 million 
(31 July 2014: £391.2 million) in a 
market that continues to be highly 
competitive.

In Property, we continue to beneﬁt from 
our strong positioning in the residential 
development market as we continued 
to see solid loan book growth in 2015 
of 13.0% to £1,299.0 million (31 July 
2014: £1,149.7 million). We have 
maintained our strict and consistent 
lending criteria throughout this period 
of increased demand and continue to 
lend at conservative loan to values 
focusing primarily on residential 
property development in the South 
East.

Well Positioned for Further Growth 
at Attractive Margins 
We remain conﬁdent in the outlook for 
the Banking division and our ability to 
deliver further growth and good returns 
over the long term. To do this we will 
continue to invest in our tried and 
tested business model, which is built 
upon strong customer relationships 
and expertise in our chosen markets 
which deliver high levels of repeat 
business. We will also deliver further 
investment in both people and 
technology to adapt to changes in the 
wider regulatory and market 
environments as they continue to 
evolve.

We continue to see opportunities for 
growth and we will maximise these 
opportunities by investing in our people 
to extend our reach and distribution 
capacity in existing markets and 
looking at new initiatives in adjacent 
markets. At the same time we will 
remain focused on the quality of our 
lending to support strong returns over 
the long term.

Close Brothers Group plc Annual Report 2015

23

Key Performance Indicators

Net interest
margin1
per cent

8.8

8.6

8.8

Bad debt
ratio2
per cent

1.2

0.9

0.8

Return on opening
equity3
per cent

27

24

25

Return on net
loan book4
per cent

3.6

3.7

3.8

2013

2014

2015

2013

2014

2015

2013

2014

2015

2013

2014

2015

1  Net interest and fees on average net loans and advances to customers.
2  Impairment losses on average net loans and advances to customers.
3  Adjusted operating proﬁt after tax and non-controlling interests on the division’s opening equity, excluding non-controlling interests. 
4  Adjusted operating proﬁt on average net loans and advances to customers.

Key Financials

Operating income
  Net interest and fees on loan book1
  Retail
  Commercial
  Property
  Treasury income
Adjusted operating expenses
Impairment losses on loans and advances

Adjusted operating proﬁt

2015
£ million
498.6
485.2
181.1
207.3
96.8
13.4
(248.0)
(41.9)

2014
£ million
446.7
427.3
164.6
187.3
75.4
19.4
(221.0)
(44.1)

Change
%
12
14
10
11
28
(31)
12
(5)

208.7

181.6

15

1  Includes £381.2 million (2014: £332.2 million) net interest income and £104.0 million (2014: £95.1 million) other income. Other income includes net fees and 

commissions, operating lease income, and other miscellaneous income.

Loan Book Analysis

Retail
Motor ﬁnance
Premium ﬁnance
Commercial
Asset ﬁnance
Invoice ﬁnance
Property

Closing loan book

31 July
2015
£ million
2,266.0
1,600.3
665.7
2,172.8
1,796.2
376.6
1,299.0

31 July
2014
£ million
2,092.8
1,458.9
633.9
2,047.2
1,656.0
391.2
1,149.7

Change
%
8.3
9.7
5.0
6.1
8.5
(3.7)
13.0

5,737.8

5,289.7           8.5

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24

Close Brothers Group plc Annual Report 2015

Securities

Winterﬂood has maintained its 
leading market position and 
remained proﬁtable by maximising 
revenue opportunities in all market 
conditions, beneﬁting from 
its experienced traders, proprietary 
technology and tight risk controls.

Photographed on location at Winterﬂood Securities Limited.

Close Brothers Group plc Annual Report 2015

25

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Key Performance Indicators1

Winterﬂood income
£ million

Winterﬂood average
bargains per day
’000

Securities operating
margin2
per cent

Securities return on
opening equity
per cent

96.1

94.6

74.6

60

56

47

28

26

24

28

26

20

2013

2014

2015

2013

2014

2015

2013

2014

2015

2013

2014

2015

1  Key performance indicators have been restated to exclude Seydler for 2014 and 2015 only.
2  Adjusted operating proﬁt on operating income.

Solid Result Despite Mixed Market 
Conditions
Winterﬂood experienced mixed market 
conditions throughout the ﬁnancial 
year, with periods of increased volatility 
due to economic and political 
uncertainty, and the UK equity markets 
in general seeing lower levels of activity 
compared to 2014. 

Against this tough market backdrop, 
Winterﬂood has provided continuous 
liquidity to clients whilst maintaining 
consistent proﬁtability and its variable 
cost model has allowed it to deliver 
good returns in the period with both 
operating margin and return on 
opening equity broadly stable at 26% 
(2014: 28%) and 26% (2014: 28%) 
respectively.

Diverse Business Model Drives 
Consistent Proﬁtability
Winterﬂood’s operating income 
remained broadly stable at £94.6 
million (2014: £96.1 million). This reﬂects 
a signiﬁcant decline in trading revenues 
with lower activity and income seen 
across most markets, but particularly in 
AIM which was impacted by the 
weakness in commodity prices. This 
decline was broadly offset by a 
particularly strong year for investment 
trust activity, as well as proceeds from 
the Euroclear disposal in the ﬁrst half. 
The relative stability of the division’s 
income under these conditions 
illustrates the resilience and diversity 
of Winterﬂood’s business model.

Key Financials (continuing operations)1

Operating income2
Operating expenses

2015
£ million
94.6
(70.0)

2014
£ million
96.1
(69.5)

Change
%
(2)
1

Adjusted operating proﬁt2

24.6

26.6

(8)

1  Results from continuing operations exclude Close Brothers Seydler, the sale of which was completed on 

5 January 2015 and has been classiﬁed as a discontinued operation under IFRS 5. 

2  Operating income and adjusted operating proﬁt include £6.8 million and £3.5 million respectively relating to 

the disposal of Euroclear shares. 

Total bargains and average bargains 
per day increased 9% to 15.3 million 
(2014: 14.1 million) and 60,494 (2014: 
55,749) respectively, as Winterﬂood 
maintained its leading market position 
and increased the level of international 
trading. Income per bargain (excluding 
the income relating to the disposal of 
Euroclear shares) decreased to £5.73 
(2014: £6.81) reﬂecting the adverse 
trading conditions seen in the ﬁrst half 
and an increase in lower margin 
international trades. As a result the 
number of loss days increased to 14 
(2014: four), the majority of which were 
in the ﬁrst half.

Operating expenses increased slightly 
to £70.0 million (2014: £69.5 million) 
with lower staff costs offset by higher 
settlement fees due to increased 
bargains. As a result, the expense/
income ratio increased slightly to 74% 
(2014: 72%) while the compensation 
ratio has remained broadly stable at 
47% (2014: 48%).

Overall, this resulted in an 8% decline in 
adjusted operating proﬁt to £24.6 
million (2014: £26.6 million), which 
includes a £3.5 million beneﬁt from the 
partial disposal of a long standing 
shareholding in Euroclear. 

Well Positioned
Market conditions since the year end 
have been challenging but we are 
conﬁdent that our consistent strategy 
and robust business model will enable 
us to provide continuous liquidity and 
remain proﬁtable in a variety of market 
conditions.

Close Brothers Seydler Disposal 
Completed
During the ﬁrst half of the year we 
completed the sale of Close Brothers 
Seydler. The proﬁt on disposal of 
£10.3 million and the proﬁt after tax of 
£0.9 million have been classiﬁed as 
discontinued operations and the results 
for 2014 have been restated. As a 
result, going forward the operations 
of the Securities division will relate 
exclusively to Winterﬂood.

 
 
26

Close Brothers Group plc Annual Report 2015

Asset Management

Photographed on location at Barfoots of  
Botley Ltd.

Asset Management has continued to deliver good 
growth in assets and improved proﬁtability in 2015. 
We continue to see solid demand for our integrated 
advice and investment management services and 
the business remains well positioned to beneﬁt from 
the ongoing regulatory and demographic changes.

Continued Good Progress
The division delivered adjusted 
operating proﬁt of £17.8 million (2014: 
£9.9 million), resulting in an improved 
operating margin of 19% (2014: 12%) 
and a return on opening equity of 39% 
(2014: 25%). Excluding a £4.4 million 
beneﬁt from non-recurring private 
equity income, adjusted operating 
proﬁt increased 35% to £13.4 million, 
with an operating margin of 15%.

Income on client assets increased 8% 
to £90.2 million (2014: £83.8 million), 
reﬂecting higher investment 
management revenues driven by solid 
growth in managed assets, offset by a 
slight decline in advice and other 
services. As a result, the revenue 
margin remained broadly stable at 88 
basis points (2014: 89 basis points). 

Other income increased to £5.4 million 
(2014: £0.6 million) due to the one-off 
income from our former private equity 
business. As a result, total operating 
income increased 13% to £95.6 million 
(2014: £84.4 million). 

Operating expenses increased by 4% 
to £77.8 million (2014: £74.5 million), 
less than the growth in income, 
reﬂecting the broadly stable ﬁxed cost 
base and operating leverage within the 
business. This resulted in an 
improvement in both the expense/
income ratio to 81% (2014: 88%) and 
the compensation ratio to 53%  
(2014: 58%).

Strong Growth in Client Assets
Total client assets increased 11% 
year-on-year to £10.8 billion (31 July 
2014: £9.7 billion), reﬂecting both solid 
net inﬂows and positive market 
movements with continued good 
demand for our integrated advice and 
investment management proposition.

We continue to see strong growth in 
our core investment management 
products, with good inﬂows from both 
our own advisers and investment 
managers and particularly from third 
party IFAs and other intermediaries. 
We also continue to deliver consistent 
investment performance for our clients, 
with three out of our ﬁve Close Portfolio 
Funds delivering top quartile 
performance over the last year.

Net inﬂows into our managed assets 
increased year-on-year to £700 million 
or 10% of opening total managed 
assets (2014: £554 million or 9%), while 
market movements added £374 million, 
beneﬁting from rising equity markets. 
As a result, total managed assets 
increased 16% in the year to £8.0 
billion (31 July 2014: £6.9 billion).

This includes £2.7 billion (31 July 2014: 
£2.4 billion) of assets in our integrated 
advice and investment management 
proposition, a 14% increase year-on-
year reﬂecting both strong new 
business levels and the ongoing 
migration of advised assets into our 
integrated investment management 
offering.

As a result, advised only assets 
remained broadly stable year-on-year 
at £2.8 billion resulting in overall growth 
in total advised assets of 7% to £5.5 
billion (31 July 2014: £5.2 billion).

Since the year end we have entered 
into an agreement regarding the sale of 
our corporate advice and investment 
management activities which we 
expect to complete before the end of 
the calendar year. This transaction 
further focuses our business around 
our core personal advice and wealth 
management proposition, where we 
see greater opportunities for growth 
and operating leverage.

The activities disposed of represented 
£711 million of advised assets and 
£652 million of managed assets as at 
31 July 2015, and contributed income 
of £5.8 million and adjusted operating 
proﬁt of £0.7 million in the 2015 
ﬁnancial year.

Close Brothers Group plc Annual Report 2015

27

Key Performance Indicators

Total client assets
£ billion

Revenue margin1
bps

Operating margin
per cent

Return on opening equity
per cent

10.8

9.1

9.7

88

89

88

19

12

5

39

25

10

2013

2014

2015

2013

2014

2015

2013

2014

2015

2013

2014

2015

1  Income from advice and other services and investment management over average client assets.

Well Positioned for Further Growth
Our business is well positioned for 
future growth given ongoing regulatory 
and demographic changes. We have a 
strong client offering covering a full 
range of ﬁnancial planning advice and 
investment management services, 
distributed directly to clients through 
our own advisers and high net worth 
investment managers and an 
outsourced investment management 
offering to third party IFAs.

We continue to invest in the business 
to support its growth, providing training 
and development programmes for our 
advisers and improving internal 
processes to increase efﬁciency and 
accelerate the growth of both new 
business and, where appropriate, 
migration of existing advised assets 
into our range of investment 
management propositions.

We believe the UK government’s 
recently announced changes to the 
pensions market create opportunities 
for the industry and expect them to 
increase demand for our products and 
services in the longer term. We will also 
continue to look selectively at 
opportunities to support our organic 
growth with inﬁll acquisitions and hiring 
of high quality advisers and investment 
managers.

Key Financials

Operating income

Income on client assets
  Advice and other services1
Investment management

  Other income2
Adjusted operating expenses

2015
£ million
95.6 
90.2 
36.1 
54.1 
5.4 
(77.8)

2014
£ million
84.4 
83.8 
36.6 
47.2 
0.6 
(74.5)

Adjusted operating proﬁt

 17.8

9.9

Change
%
13 
8 
(1)
15 

4

80

1  Income from advice to private and corporate clients and self directed services, excluding investment 

management income. 

2  Interest income and expense, income on principal investments and other income. 

Movement in Total Client Assets

Total managed assets at 1 August

Inﬂows
  Outﬂows
Net inﬂows
Market movements

Total managed assets at 31 July1

Advised only assets at 31 July2

2015
£ million
6,922
1,477 
(777)
700
374

2014
£ million
6,193
1,128
(574)
554
175

7,996

6,922

2,797

2,783

Total client assets at 31 July

10,793

9,705

Change
%
12
31
35
26
114

16

1

11

1   Total managed assets include £2.7 billion (31 July 2014: £2.4 billion) of assets that are both advised 

and managed.

2   Total advised assets of £5.5 billion at 31 July 2015 comprise £2.8 billion of advised only assets and 

£2.7 billion of assets that are both advised and managed.

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28

Close Brothers Group plc Annual Report 2015

Principal Risks and Uncertainties

The group faces a number of risks in the normal course of 
business providing a range of ﬁnancial services to small 
businesses and individuals. These risks are managed by:
•  Adhering to our established and proven business model 

outlined on pages 8 to 11;

•  Implementing an integrated risk management approach 

based on the concept of “three lines of defence” which is 
outlined in detail on pages 49 and 50; and

•  Setting clearly deﬁned risk appetites monitored with 

speciﬁc metrics within set limits.

A summary of the principal risks and uncertainties which 
may impact the group’s ability to deliver its strategy, how we 
seek to mitigate these risks and the change in the perceived 
level of risk over the year is set out below. The risks identiﬁed 
remain broadly unchanged from the prior year reﬂecting the 
group’s consistent strategy and adherence to its established 
business model.

This summary should not be regarded as a complete and 
comprehensive statement of all potential risks and 
uncertainties faced by the group but rather those risks which 
the group currently believes may have a signiﬁcant impact on 
the group’s performance and future prospects.

Key: 

  No change 

  Risk decreased 

  Risk increased

Risk

Mitigation

Change

Credit losses
At 31 July 2015 the group had 
loans and advances to customers 
totalling £5.7 billion. The group is 
exposed to credit losses if customers 
are unable to repay loans and 
outstanding interest and fees.

In addition the group has exposure 
to counterparties with which it places 
deposits or trades, and also has limited 
derivative contracts to hedge interest 
rate and foreign exchange exposures.

The loan impairment rate has remained 
low reﬂecting our lending discipline as 
well as favourable market conditions.

The group’s other counterparty 
exposures are broadly unchanged 
with the majority of our liquidity 
requirements and surplus funding 
placed with the Bank of England.

Further commentary on the credit 
quality of our loan book is outlined 
on pages 21 and 22. Further 
details on loans and advances to 
customers and debt securities 
held are in notes 11 and 12 on 
pages 103 and 104 of the Financial 
Statements.

Our approach to credit risk 
management and monitoring is 
outlined in more detail in note 29  
on page 125.

We seek to minimise our exposure to 
credit losses from our lending by:
•  Applying strict lending criteria when 

testing the credit quality and 
covenant of the borrower.
•  Maintaining consistent and 

conservative loan to value ratios with 
low average loan size and short-term 
tenor.

•  Lending on a predominantly secured 

basis with signiﬁcant emphasis 
placed on the underlying security.

•  Maintaining rigorous and timely 

collections and arrears management 
processes.

•  Operating strong control and 

governance both within our lending 
businesses and with oversight by a 
central credit risk team.

Our exposures to counterparties 
are mitigated by:
•  Conservative management of our 
liquidity requirements and surplus 
funding with £1.0 billion or c.85% 
placed with the Bank of England.
•  Continuous monitoring of credit 

quality of our counterparties within 
approved set limits.

•  Winterﬂood’s trading relating to 

exchange traded cash securities and 
being settled on a delivery against 
payment basis. Counterparty 
exposure and settlement failure 
monitoring controls are also in place.

Close Brothers Group plc Annual Report 2015

2929

Risk

Mitigation

Change

Economic environment
Any downturn in economic 
conditions could impact the 
group’s performance through:
•  Lower demand for the group’s 

products and services;

•  Lower investor risk appetite as a 

result of ﬁnancial markets instability;

•  Higher bad debts as a result of 

customers inability to service debt 
and lower asset values on which 
loans are secured; and

•  Increased volatility in funding 

markets.

Legal and regulatory
Changes to the existing legal, 
regulatory and tax environments 
and failure to comply with existing 
requirements may materially 
impact the group.

Failing to treat customers fairly, 
safeguard client assets or provide 
advice/products contrary to clients’ 
best interest has the potential to 
damage our reputation and may 
lead to legal or regulatory sanctions 
including litigation and customer 
redress. This applies to current, 
past and future business.

Similarly changes to regulation 
and taxation can impact our 
performance, capital and liquidity and 
the markets in which we operate.

Competition
The group operates in highly 
competitive markets and as the UK 
economy improves we expect to 
see competition continue to increase 
particularly in the Banking division.

The majority of the group’s activities 
are in specialist areas where our 
people have signiﬁcant experience 
and expertise. Our long standing 
commitment to our proven business 
model and strong ﬁnancial position 
has enabled us to support our clients 
in all economic conditions. This assists 
us in our aim of developing long-
term relationships with our clients.

The group carries out regular stress 
testing on its performance and ﬁnancial 
positions to test resilience in the event 
of adverse economic conditions.

The group seeks to manage these 
risks by:
•  Commitment to provide 

straightforward and transparent 
products and services to our clients.
•  Governance and control processes 

to review and approve new products 
and services.

•  Signiﬁcant investment in both staff 

and operating systems to ensure the 
group is well placed to respond to 
changes in regulation.

•  Investment in training for all staff 
including anti-money laundering, 
bribery and corruption, data 
protection and information security. 
Additional tailored training for relevant 
employees is provided in key areas 
such as complaint handling.

•  Continuous monitoring of key legal, 
regulatory and tax developments to 
anticipate their potential impact.

•  Maintaining constructive and positive 

relationships and dialogue with 
regulatory bodies and tax authorities.

The group has a long track record 
of trading successfully in all types 
of competitive environment.

We value our clients and build 
long-term relationships offering a 
differentiated proposition based on:
•  Speed and ﬂexibility of service.
•  Local presence.
•  Experienced and expert people.
•  Tailored, client driven product 

offerings.

While the UK economy has 
proven resilient and the outlook 
appears stable, signiﬁcant 
global uncertainty remains.

Further commentary on the 
attributes and resilience of the 
group’s business model is shown 
on pages 8 to 11.

Financial services businesses 
remain subject to signiﬁcant 
scrutiny. We believe the potential 
risks from legal and regulatory 
changes continue to increase.

The group’s approach to 
regulatory reform during the year 
is discussed in the Chairman and 
Chief Executive’s Statement on 
page 6 and the Risk Committee 
report on pages 51 and 52 of the 
Corporate Governance report. 
Further information on our approach 
to conduct risk can be found in the 
Sustainability Report on pages 34 
and 35.

We continue to experience 
increasing levels of competition 
particularly in the Banking division.

Further commentary on the market 
environment for the Banking 
division is outlined on page 21. Our 
business model is set out on pages 
8 to 11.

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30

Close Brothers Group plc Annual Report 2015

Principal Risks and Uncertainties continued

Risk

Mitigation

Change

Technology
Maintaining robust and secure IT 
infrastructure, systems and software 
is fundamental to allow the group to 
operate effectively, respond to new
technology, protect client and 
company data and counter 
the evolving cyber threat.

Failure to keep up with changing 
customer expectations or 
manage upgrades to existing 
technology has the potential to 
impact group performance.

The group continues to invest in its 
IT infrastructure, information security 
and software. We also continue to 
invest in our IT resources including 
the appointment of a chief information 
ofﬁcer in the Banking division with 
extensive relevant experience in 
the ﬁnancial services sector.

The group has strong governance in 
place to oversee its major projects.

We have in place business 
continuity and disaster recovery 
plans which are regularly tested. 

Employees
The calibre, quality and expertise of 
employees is critical to the success of 
the group. The loss of key individuals 
or teams may have an adverse 
impact on the group’s operations 
and ability to deliver its strategy.

The group seeks to attract, retain 
and develop staff by:
•  Operating remuneration structures 

which are competitive and recognise 
and reward performance.

•  Implementing succession planning 

for key roles.

•  Aiming to develop a pipeline of future 

leaders through our Emerging 
Leaders Programme.

•  Investing in training and development 

for all staff.

•  Attracting high quality staff including 
via our graduate and school leaver 
programmes, and new training 
academy in asset ﬁnance.

Funding
The Banking division’s access 
to stable funding remains key to 
support its lending activities and the 
liquidity requirements of the group.

At 31 July 2015 the group’s funding 
position was strong with total 
funding 131% of the loan book. This 
provides a prudent level of liquidity 
to support our lending activities.

Our funding is well diversiﬁed both 
by source and tenor. Liquidity in our 
Banking division is assessed on a daily 
basis and tested weekly to ensure 
adequate liquidity is held and readily 
accessible in stressed conditions.

Our funding approach is conservative 
based on the principle of “borrow 
long and lend short”. Over 50% 
of our total funding is repayable 
after more than one year with an 
average duration of 31 months. This 
compares to our weighted average 
loan maturity of 14 months.

The group continues to invest and 
upgrade its IT infrastructure to simplify 
our technology architecture and reduce 
exposure to cyber attack. However the 
risk of cyber threats or new technology 
impacting our business model remains.

Further detail on our technology 
related investment is outlined on 
pages 6 and 21.

For further information on our 
response to cyber threats and the 
independent review on our business 
continuity plans see page 52 of the 
Corporate Governance report.

Our highly skilled people are likely to be 
targeted but we are conﬁdent we are 
able to retain key employees. Our latest 
employee survey identiﬁed 88% of 
employees were either satisﬁed or very 
satisﬁed working at Close Brothers.

Further detail on the employee 
survey and our investment in 
our people is outlined in the 
Sustainability Report on pages 32 
to 34.

The group remains well funded, retains 
sufﬁcient liquidity and is well placed to 
access further funding as required.

Further commentary on funding  
and liquidity is provided on pages  
17 to 19. Further ﬁnancial analysis of 
our funding is shown in note 19 
on page 110 of the Financial 
Statements.

Close Brothers Group plc Annual Report 2015

3131

Risk

Mitigation

Change

The group’s approach and the 
underlying risks are unchanged.

Further detail on the group’s 
exposure to market risk is outlined 
in note 29 on pages 128 and 129 of 
the Financial Statements.

Market exposure
Market volatility and/or changes in 
interest and exchange rates have 
the potential to impact the group’s 
performance.

Although the majority of the group’s 
activities are carried out in the UK, 
there is foreign exchange exposure on 
deposits, lending and funding balances 
as part of our banking activities as 
well as trading in foreign securities.

Winterﬂood primarily act as a market-
maker in exchange traded cash 
securities reducing exposure to market 
volatility. In addition trading positions 
are monitored on a real time basis 
and both individual and trading book 
limits are set to control exposure.

The group matches ﬁxed and variable 
interest rate assets and liabilities 
using swaps where appropriate. The 
sensitivity analysis on interest rate 
exposures shown in note 29 on page 
128 shows the expected impact of 
interest rate changes. The group’s 
capital and reserves are not hedged.

Foreign exchange exposures in the 
Banking division are hedged using 
currency swaps with exposures 
monitored daily against approved limits. 
Trading exposures on foreign securities 
are also hedged and monitored against 
limits. The group does not speculate 
on foreign currency movements.

Stress tests are regularly performed 
on market risks to ensure we maintain 
adequate liquidity and capital even 
under extreme downside scenarios.

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32

Close Brothers Group plc Annual Report 2015

Sustainability Report

Over many years, we have built a 
strong reputation as a trusted 
ﬁnance partner to borrowers, 
depositors, and investors, providing 
ﬁnancial support to our clients in all 
market conditions. This reﬂects not 
only the prudent management of 
our ﬁnancial resources but also our 
ongoing investment in developing 
our people, maintaining sound 
business practices and engaging 
with and supporting the businesses 
and communities that we interact 
with.

Photographed on location at Wastewise Ltd.

Close Brothers Group plc Annual Report 2015

33

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Results of the survey are shared with 
group and divisional executive teams, 
and form the basis for planning for the 
next 24 months. Given the strong 
overall scores, most of the action 
planning is undertaken at a divisional 
and business level, and will cover areas 
such as communications, leadership 
visibility and customer focus. At a 
business unit level, areas of focus will 
be explored further through focus 
groups and topical surveys. The action 
plans are reviewed and reported on 
regularly between surveys to ensure 
momentum.

We also ensure all employees are 
aware of ﬁnancial and economic 
factors affecting the performance of 
the company; we do this via internal 
communications and updates to our 
group-wide intranet site.

We continue to be committed to 
maintaining a safe environment for our 
employees and visitors. We frequently 
review and look at ways to develop 
the safety culture within our business 
units and locations and are currently 
introducing new initiatives to ensure we 
have robust central oversight of health 
and safety matters.

Training and development
The training and development of our 
staff is key to employee retention, and 
ensuring that our employees continue 
to have the skills and expertise that is 
core to our business success. We have 
a number of initiatives under way which 
not only promote and develop our 
existing talent but also develop the next 
generation so that we can continue to 
support our successful business model 
over the long term.

We already run a successful graduate 
scheme and our school leavers 
programme, ASPIRE, is now in its third 
year. Both of these have been 
extended to cover all three of our 
divisions and form a core part of our 
talent development. Employees also 
have the opportunity to be mentored 
by senior colleagues, building one-to-
one relationships to coach people 
through their careers.

During the year we have launched the 
Close Brothers Training Academy, a 
two year programme aiming to develop 
the next generation of sales 
professionals, initially in our asset 
ﬁnance business. The ﬁrst intake of 34 
candidates started in September 2015 
and will experience a development 
programme delivered by external 
partners, internal subject matter 
experts and a group of experienced 
business mentors. The programme will 
use portal based network learning as 
well as facilitated classroom and on the 
job learning. We have also recently 
launched the Adviser Academy in 
Asset Management to enhance skills 
and to provide career development 
opportunities for our ﬁnancial advisers.

Recently, we have taken our strong 
commitment to training and 
development externally with the launch 
of the Close Brothers SME Apprentice 
Programme. Through this unique 
scheme, which is run in partnership 
with the Advanced Manufacturing 
Research Centre at Shefﬁeld University 
and the Manufacturers’ Technology 
Association, we are contributing to the 
cost of hiring and training 20 
apprentices on behalf of SMEs in the 
region, who could otherwise not have 
afforded an apprentice. This initiative 
allows us to support both the SME 
community and our passion for training 
and development, and we will be 
looking to build on the current 
programme in future years. It has been 
extremely well received by the media 
and the SME manufacturing 
community.

Not only do we strive to attract high 
quality new starters, we also focus on 
our existing employees, who have the 
opportunity to complete a number of 
internal courses for personal skills 
development alongside support for 
professional qualiﬁcations. We work 
hard to ensure career development 
and promotions within teams and also 
encourage internal transfers with the 
aim to retain our high quality staff. 
During 2015, we ﬁlled 124 (2014: 102) 
vacancies with existing employees.

Strong Commitment to Clients  
and Employees
Our focus on clients and other 
stakeholders is fundamental to our 
business, which is founded on the 
long-term relationships we build with 
them. As a group we share a strong 
commitment to acting responsibly, 
ethically and with integrity in our 
interaction with clients and staff, our 
role in the wider community and our 
environmental footprint. 

As a result, the management of 
sustainability issues is part of our daily 
business, and the management of 
related risks is integrated within our 
wider risk management framework. 
The group executive committee and 
the board receive updates on relevant 
issues and both human resources and 
responsible ﬁnance matters are regular 
items on the group and divisional risk 
committee agendas.

Our sustainability objectives are to 
support the group’s long-term strategy 
by:
•  Attracting, retaining and developing 

talent;

•  Operating responsibly and with the 

highest level of integrity in our 
dealings with clients;

•  Making a positive contribution to the 
communities where we do business; 
and

•  Minimising our impact on the 

environment.

Attracting, Retaining and 
Developing Talent
The skills, expertise and engagement 
of our people are fundamental to our 
business and we are committed to 
ensuring that Close Brothers is a 
stimulating and rewarding place to 
work. We invest extensively in training 
and development, and staff 
engagement initiatives.

Driving employee engagement
In the last year we repeated our 
biennial employee survey and were 
again delighted to observe continued 
strong scores across the organisation. 
The participation rate improved further 
to 87%, up from 79% in our previous 
survey. Overall, we recorded excellent 
engagement scores, with 88% of 
employees either satisﬁed or very 
satisﬁed working for the group, and 
85% of employees recommending our 
business as a place to work. 

 
 
34

Close Brothers Group plc Annual Report 2015

Sustainability Report continued

Photographed on location at Biggin Hill Heritage 
Hangar Ltd.

Remuneration and benefits
We believe in rewarding our staff fairly 
and transparently, ensuring that 
remuneration across the group is linked 
to clear and transparent objectives. 
Details of the group’s remuneration 
policies can be found in the Report of 
the Board on Directors’ Remuneration 
on pages 58 to 77.

We offer our employees a 
comprehensive range of beneﬁts, and 
continually review these to ensure they 
remain attractive and competitive. All 
our employees are eligible for a 
pension and life assurance. We also 
offer a childcare voucher scheme, 
interest free season ticket loans, and a 
cycle to work scheme offering a 
discount on bicycles and accessories.

Participation in our Save As You Earn 
scheme, which is intended to 
encourage saving and build long-term 
share ownership, continued to 
increase, with almost 40% of 
employees participating in the scheme. 
9% of our employees are taking part in 
our Buy as You Earn scheme which we 
introduced in the year; it allows 
employees to acquire shares on a 
monthly basis out of pre-tax earnings. 
Both of these schemes are available to 
all UK resident employees who have 
completed six months service.

Diversity and equality
We have a strong commitment 
throughout the organisation to ensuring 
that all our staff are treated fairly and 
that we provide equal opportunity both 
to existing employees and in our 
recruitment process. Our recent 
employee survey reported that 88% of 
staff surveyed across the group believe 
that Close Brothers treats their 
employees fairly regardless of gender, 
ethnicity or for any other diversity 
reasons.

Our aim is to ensure that no 
employees, workers or candidates are 
subjected to unlawful discrimination, 
either directly or indirectly, on grounds 
of a protected characteristic. This 
commitment applies to all aspects of 
employment, including: 
•  Recruitment and selection, including 
advertisements, job descriptions, 
interview and selection procedures;

•  Training;
•  Promotion and career development 

opportunities;

•  Terms and conditions of employment 

(with respect to the protected 
characteristic of disability, this 
commitment applies where 
practicable);

•  Access to employment related 

beneﬁts and facilities;

•  Grievance handling and the 
application of disciplinary 
procedures; and

•  Selection for redundancy.

We seek to consider employees from  
a wide range of backgrounds in our 
recruitment processes, and we do not 
tolerate any form of harassment or 
discrimination of employees with 
regards to race, gender, age, disability, 
sexual orientation or religion. These 
principles are supported by the equal 
opportunity policies in force across the 
group.

Our workforce has remained diverse, 
with 44% of our employees being 
women. We also employ a broad age 
range, with 23% of our employees 
under 30 years old and 15% above 50 
years old. Our board and executive 
committee both have three female 
members, which means we remain 
above the Lord Davies target of 25% of 
FTSE 100 boards made of women by 
2015.

Responsible Finance 
Maintaining the trust and respect of 
clients and other stakeholders is 
fundamental to the long-term 
relationships that are integral to our 
business model. A strong client focus 
is embedded in our culture and we 
strive to act responsibly, ethically and 
with integrity in all our dealings with 
clients and other stakeholders. This is 
supported by our recent employee 
opinion survey, which showed that 
95% of staff surveyed believe we work 
to continuously build relationships with 
our customers and that we treat 
customers fairly.

A strong culture of client focus is 
supported by a wide range of policies 
at group and divisional level which 
establish a framework for best practice 
and ensure we have robust procedures 
to minimise the risk of any failure in 
process or communication. The 
applicable policies are communicated 
to all employees and supported by a 
compulsory training programme to 
ensure staff are aware of their 
responsibilities and of the current rules 
and regulations.

The relevant policies include:
•  A comprehensive policy on conduct 
risk and treating customers fairly. 
This policy is overseen by the group 
head of compliance and 
implemented in each division.

•  We have implemented policies and 
procedures in accordance with 
anti-money laundering regulations 
and each regulated company has a 
dedicated money laundering 
reporting ofﬁcer.

Close Brothers Group plc Annual Report 2015

35

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•  Our whistle-blowing policy aims to 
protect employees who expose 
misconduct.

•  Our anti-bribery and corruption 

policy sets out the group standards 
and best practice for business 
conduct under the Bribery Act 2010.

•  A privacy policy to ensure the 

protection and correct treatment of 
client data in accordance with the 
Data Protection Act 1998.

•  A health and safety policy to ensure 
the provision of a safe and healthy 
working environment for our 
employees and visitors in 
accordance with The Management 
of Health and Safety at Work 
Regulations 1999.

Strong client focus
We aim to foster a culture of strong 
client focus aiming for the highest 
standards in all our dealings with 
clients. 

During the year, we launched customer 
forums across the group, which are 
focused on ensuring positive outcomes 
for customers drawing on both 
qualitative and quantitative inputs to 
challenge and improve the way we deal 
with customers. For example, in the 
Banking division the following ﬁve 
customer principles underpin the 
scope and objectives of the customer 
forum:
•  We seek to ensure the right 
outcomes for our customers.

•  We endeavour to ensure our pricing 

is fair and appropriate.

•  We are clear and consistent in the 

way we communicate with 
customers.

•  We expect our standards to be 

upheld by our partners.

•  We are responsible lenders and 

deposit-takers.

The eight banking business customer 
forums are attended by front line staff 
with a central forum attended by 
members of the Banking division 
Executive Committee and business 
heads, and best practice is shared 
across the group. We collect feedback 
through a number of resources, 
including customer, staff and mystery 
shopper surveys along with analysis of 
complaints.

Gender Diversity

Number of board directors1
Number of directors of subsidiaries1
Number of senior managers, other than board directors2
Number of employees, other than board directors and senior 

managers

Male
6
52
17

Female
3
9
10

1,541

1,243

1  Includes non-executive directors, excluded from Close Brothers Group plc headcount calculations.
2  Senior employees indentiﬁed as Material Risk Takers who are not directors or subsidiary directors.

Customer data and privacy
We continually monitor and enhance 
our systems and controls to ensure 
that our clients are safeguarded against 
system failure or cyber attack.

Human rights
The board gives due regard to human 
rights considerations, as deﬁned under 
the European Convention on Human 
Rights and the UK Human Rights Act 
1998.

The Community
Close Brothers runs a number of 
community initiatives across the group. 
Employees have provided feedback 
through our employee engagement 
survey telling us that charity awareness 
and support is an area of interest which 
is important to them; and also voting 
for a nominated staff charity – Cancer 
Research UK. Therefore we wish to put 
in place additional support for our 
employees to take part in activities 
which matter to them.

In addition to the charitable activity that 
our staff are involved in, there are some 
new community projects that Close 
Brothers have been involved in this 
year. These include our Close Brothers 
SME Apprentice Programme and 
partnering with the Prince’s Foundation 
for Children and the Arts to sponsor 
the ﬁrst National Schools Art 
Competition. We have also supported 
a local primary school since 2013, 
where volunteers from the business 
spend their lunch break reading to 
individual children who are struggling or 
who do not have time to practise at 
home.

We seek to provide continuity for the 
customer throughout the handling of  
a complaint, with a single point of 
contact where possible and review our 
processes in order to deliver fair 
complaint outcomes. We have policies 
designed to ensure that vulnerable 
customers are identiﬁed and treated 
appropriately and undertake both 
specialist and general training for staff.

Our commitment to customer 
experience is further evidenced by 
strong net promoter scores (“NPS”), a 
measure of how likely customers are to 
recommend a business on a scale of 
-100 to +100. We measure our NPS for 
our motor, invoice and asset ﬁnance 
businesses who all score above 50. 
Also in our premium ﬁnance business 
we have won awards for our contact 
centres, including “Contact Centre 
Manager of the Year 2015” by the UK 
National Contact Centre Awards and 
“Manager of the Year” by the UK 
Contact Centre Forum.

We continue to monitor our ongoing 
risk policies, which include:

Conduct risk and product 
governance
Our client’s interests are key within our 
policies; therefore new products and 
governance of existing products are 
reviewed regularly to ensure they are ﬁt 
for purpose.

Complaints handling
Our divisions monitor customer 
complaints so that they can be given 
the attention required to resolve the 
problem and put processes in place to 
prevent reoccurrence.

Supplier relationships
We manage our risks when contracting 
with third parties, to ensure that 
controls are in place to protect our 
clients.

 
 
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Close Brothers Group plc Annual Report 2015

Sustainability Report continued

Photographed on location at G&H Sheet Fed Ltd.

In Asset Management we have 
launched the Trustee Leadership 
Programme, where our employees 
learn the skills and conﬁdence to join a 
charity as a board member. By bringing 
young trustees onto charity boards 
they beneﬁt from fresh approaches and 
increased diversity of opinions. In 2014 
we had 130 participants, 35 of which 
have already been matched with 
charities to date, and in 2015 a further 
60 employees signed up for the 
programme.

The group corporate social 
responsibility (“CSR”) committee is 
chaired by our group head of human 
resources and supported by 
employees across the group; we also 
have a number of local CSR 
committees which run initiatives to 
raise funds for charity.

Charitable donations
The group’s charitable donations have 
continued to increase and we 
contributed a total of £261,000 during 
the 2015 ﬁnancial year, up 4% on 2014. 

We run a number of events throughout 
the year to raise money for charity 
which see widespread participation 
from employees across the group. We 
have continued to run our Charity 
Week, a dedicated week set aside to 
fundraise for Cancer Research UK, 
which consists of a number of locally 
organised events for staff, including 
raising awareness of how the funds we 
raise can support the great work done 
by the charity.

In addition, 44% of our total 
contributions to charity came from the 
Close Brothers Matched Giving 
Scheme, which encourages staff to 
fundraise and volunteer for the charities 
they support by matching 50% of 
funds raised, or donating £8 per hour 
of voluntary time given by employees.

We also match contributions under our 
payroll giving scheme, Workplace 
Giving, which allows employee 
donations to be made directly from 
pre-tax salary. The scheme has seen a 
signiﬁcant increase in employee 
participation to 17% (2014: 11%) 
allowing us to maintain our Payroll 
Giving Quality Mark Gold Award for the 
ﬁfth consecutive year. Each of our 
divisions individually hold either 
Platinum or Gold awards, with 
participation ranging from 14% to 29% 
across the divisions.

The Environment 
As a ﬁnancial services company, we 
require limited natural resources to 
operate and therefore have a relatively 
low environmental impact. Our direct 
environmental impact comes from our 
ofﬁce network, staff travel and from our 
supply chain. We continuously seek 
ways to minimise our environmental 
footprint and improve our energy 
saving, as well as reducing both 
emissions and waste.

Each business manages its resources 
and recycling locally, and we are on 
track for all of our Banking division sites 
to be supplied from renewable sources 
by the end of the 2015 calendar year. 
We also look to introduce new 
initiatives to improve our energy saving; 
for example in 2015 we installed PIR 
lighting and thermostat boiler plant 
controls within our head ofﬁce.

During the year we secured a new 
location at Wimbledon Bridge House 
for our Banking division staff previously 
located in Tolworth. We have taken 
steps to ensure that we are energy 
efﬁcient before moving into the 
property; this includes ensuring waste 
is recycled appropriately, LED lighting 
throughout the main ofﬁce and PIR 
detectors in all areas.

We also seek to improve the efﬁciency 
of water and paper usage through the 
introduction of secure and duplex 
printing, and monitor waste reduction 
via a third party provider. In 2015, 
waste recycling increased further as we 
recycled 93% (2014: 62%) of our waste 
which avoided 217 cubic metres of 
landﬁll and saved 328 trees, as well as 
providing renewable energy to homes.

Close Brothers Group plc Annual Report 2015

37

GHG Emissions By Division
(tCO2e)

3,787

3,374

924

898

1,011

1,153

1,083

894

Group

Banking

Securities

Asset
Management

 2014

 2015

Note: “Group” reﬂects the group headquarters which include some Banking division businesses.

GHG Emissions Summary (tCO2e)

GHG emissions source
Fuel (Buildings)
Fuel (Owned vehicles)
Electricity (excluding Scope 3 T&D losses)

Scope
Scope 1

Scope 2
Average number of employees

Total GHG emissions

Total per employee

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2015
165
2,677
4,079
2,767

20141
154
2,635
3,414
2,627

6,921

6,203

2.50

2.36

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1   The prior year ﬁgures have been restated to exclude the impact of discontinued activities, following the disposal of Close Brothers Seydler on 5 January 2015. Total 

Scope 1 and 2 tCO2e for Close Brothers Seydler were 139 for the ﬁve months to 5 January 2015 (2014: 317 tCO2e).

Greenhouse Gas (“GHG”) 
Emissions
In line with the GHG Protocol 
framework, we have calculated the 
GHG emissions associated with our 
Scope 1 and 2 operations. Scope 1 
includes fuel emissions from buildings 
and company vehicles, and Scope 2 
includes our emissions from electricity.

In 2015, our total GHG emissions were 
6,921 tonnes of carbon dioxide 
equivalent (“tCO2e”), equating to 2.5 
tCO2e per employee, up 5.0% overall 
and 0.1 per employee since 2014. As 
expected, given the nature of the 
group’s business activities, the largest 
source of GHG emissions in 2015 was 
again our Scope 2 electricity 
consumption. Given its relative size in 
terms of headcount, our Banking 
division contributes the majority of our 
GHG emissions. A full breakdown of 
our 2015 GHG emissions, together 
with corresponding data for 2014, is 
shown above.

Calculation
We have gathered data on a quarterly 
basis since 2013, working with an 
independent third party GHG 
emissions reporting company. This 
veriﬁes the accuracy of our data and 
enables us to monitor our performance 
on an ongoing basis.

Our total GHG emissions are reported 
as tonnes of carbon dioxide equivalent 
and are calculated in line with the GHG 
Protocol framework. In addition to 
reporting our total emissions, we have 
also disclosed the emissions per 
employee as an intensity metric to 
enable a comparable analysis in 
disclosures.

Outlook
We will continue to monitor and report 
our GHG emissions, working to 
improve our energy efﬁciency across 
our businesses. We encourage our 
ofﬁces to report their Scope 3 
emissions for water and waste each 
quarter, where this information is 
available to facilitate continued 
performance monitoring.

The Strategic Report was approved by
the board and signed on its behalf by:

Preben Prebensen
Chief Executive

22 September 2015

 
 
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Close Brothers Group plc Annual Report 2015

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Governance

40  Board of Directors
42  Executive Committee
43  Report of the Directors
45  Corporate Governance 
58  Report of the Board on Directors’ Remuneration

Photographed on location at Castle Air Ltd.

 
 
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Close Brothers Group plc Annual Report 2015

Board of Directors

Jonathan Howell  
Finance Director

Strone Macpherson 
Chairman

Bridget Macaskill  
Independent 
Non-executive Director

Elizabeth Lee
Group Head of Legal and 
Regulatory Affairs

Preben Prebensen  
Chief Executive

Geoffrey Howe
Senior Independent 
Director

Oliver Corbett
Independent 
Non-executive Director

Lesley Jones
Independent 
Non-executive Director

Stephen Hodges
Managing Director and 
Banking Chief Executive

Close Brothers Group plc Annual Report 2015

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Strone Macpherson
Chairman

Preben Prebensen
Chief Executive

Appointment to the board 
Strone was appointed a director in 
March 2003, senior independent 
director in 2004, deputy chairman in 
2006 and chairman in June 2008. 
He is chairman of the Nomination 
and Governance Committee.

Experience
Strone is also chairman of British 
Empire Securities and General Trust 
plc and a trustee of the King’s Fund. He 
was previously a director of Flemings, 
chairman of Tribal Group plc and of JP 
Morgan Smaller Companies Investment 
Trust plc, executive deputy chairman 
of Misys plc and a non-executive 
director of AXA UK plc and of Kleinwort 
Benson Private Bank Limited.

Stephen Hodges
Managing Director and  
Banking Chief Executive

Appointment to the board 
Stephen was appointed a director in 
August 1995 with responsibility for 
the Banking division and became 
managing director in November 2002.

Experience
Stephen spent eight years at 
Hambros before joining the Banking 
division of Close Brothers in 1985.

Bridget Macaskill
Independent  
Non-executive Director

Appointment to the board 
Bridget was appointed a 
director in November 2013 and 
chairman of the Remuneration 
Committee in November 2014.

Experience
Bridget is president and chief executive 
ofﬁcer of First Eagle Investment 
Management LLC in New York City, a 
trustee of the TIAA-CREF funds and a 
non-executive director of Jupiter Fund 
Management plc. She was previously 
a non-executive director of Prudential 
plc, Scottish & Newcastle plc, 
J Sainsbury plc, Hillsdown Holdings 
plc and of the Federal National 
Mortgage Association in the US.

Appointment to the board 
Preben was appointed to the board 
as chief executive in April 2009 
when he joined Close Brothers.

Experience
Preben previously spent his career 
in a number of senior positions at 
JP Morgan over 23 years, as well as 
being chief executive of Wellington 
Underwriting plc from 2004 to 
2006, and then chief investment 
ofﬁcer and a member of the group 
executive committee at Catlin
Group Limited.

Jonathan Howell 
Finance Director

Appointment to the board
Jonathan was appointed to the board 
as ﬁnance director in February 2008 
when he joined Close Brothers.

Experience
Jonathan was previously ﬁnance 
director of London Stock Exchange 
Group plc from 1999. Prior to that he 
was at Price Waterhouse where he 
qualiﬁed as a chartered accountant. 
He is also a non-executive director 
of The Sage Group plc where he is 
chairman of the audit committee.

Lesley Jones
Independent 
Non-executive Director

Appointment to the board 
Lesley was appointed a director in 
December 2013 and is chairman 
of the Risk Committee.

Experience
Lesley was group chief credit ofﬁcer 
of Royal Bank of Scotland plc until 
January 2014. She has extensive 
banking experience, having previously 
held several line management positions 
within Citigroup. Lesley is also a non-
executive director of Northern Bank 
Limited and N Brown Group plc.

Elizabeth Lee 
Group Head of Legal and  
Regulatory Affairs

Appointment to the board 
Elizabeth was appointed a director 
in August 2012 with responsibility 
for legal and regulatory affairs.

Experience
Elizabeth joined Close Brothers as 
general counsel in September 2009. 
She was previously with Lehman 
Brothers and General Electric’s 
ﬁnancial services businesses.

Geoffrey Howe
Senior Independent  
Director

Appointment to the board 
Geoffrey was appointed a director in 
January 2011 and senior independent 
director in November 2014.

Experience
Geoffrey is chairman of Jardine 
Lloyd Thompson Group plc. He was 
previously chairman of Railtrack plc 
and of Nationwide Building Society, 
a non-executive director of Investec 
plc and of JP Morgan Overseas 
Investment Trust plc, a director of 
Robert Fleming Holdings Limited and 
managing partner of Clifford Chance.

Oliver Corbett
Independent 
Non-executive Director

Appointment to the board 
Oliver was appointed a director 
in June 2014 and is chairman 
of the Audit Committee.

Experience
Oliver is chief ﬁnancial ofﬁcer of 
Hyperion Insurance Group Limited 
and was formerly ﬁnance director of 
LCH. Clearnet Group Limited and of 
Novae Group plc. He is a chartered 
accountant and previously worked 
for KPMG, SG Warburg, Phoenix 
Securities (later Donaldson Lufkin 
Jenrette) and Dresdner Kleinwort 
Wasserstein, where he was managing 
director of investment banking. He 
was also a non-executive director 
of Rathbone Brothers plc.

 
 
42

Close Brothers Group plc Annual Report 2015

Executive Committee

Stephen Hodges  
Managing Director and 
Banking Chief Executive

Preben Prebensen 
Chief Executive

Robert Sack
Group Chief 
Risk Ofﬁcer

Philip Yarrow
Winterﬂood  
Chief Executive

Tazim Essani
Group Head of Corporate  
Development

Jonathan Howell  
Finance Director

Elizabeth Lee
Group Head of Legal and 
Regulatory Affairs

Martin Andrew
Asset Management  
Chief Executive

Rebekah Etherington
Group Head of  
Human Resources

Report of the Directors

Close Brothers Group plc Annual Report 2015

43

Results and Dividends
The consolidated results for the year are shown on page 83 
of the Financial Statements. The directors recommend a ﬁnal 
dividend for the year of 35.5p (2014: 32.5p) on each ordinary 
share which, together with the interim dividend of 18.0p 
(2014: 16.5p), makes an ordinary distribution for the year of 
53.5p (2014: 49.0p) per share. The ﬁnal dividend, if approved 
by shareholders at the 2015 Annual General Meeting 
(“AGM”), will be paid on 24 November 2015 to shareholders 
on the register at 16 October 2015.

Directors
The names of the directors of the company at the date of this 
report, together with biographical details, are given on pages 
40 and 41 of this Annual Report. All the current directors held 
ofﬁce throughout the year, Bruce Carnegie-Brown having 
stood down from the board on 20 November 2014.

In accordance with the UK Corporate Governance Code,  
all directors offer themselves for reappointment at the  
2015 AGM.

The company is unaware of any arrangements between its 
shareholders that may result in restrictions on the transfer of 
shares and/or voting rights.

New issues of share capital
Under section 551 of the Companies Act 2006, the directors 
may allot equity securities only with the express authorisation 
of shareholders which may be given in general meeting, but 
which cannot last more than ﬁve years. Under section 561 of 
the Companies Act, the board may not allot shares for cash 
(otherwise than pursuant to an employee share scheme) 
without ﬁrst making an offer to existing shareholders to allot 
such shares to them on the same or more favourable terms 
in proportion to their respective shareholdings, unless this 
requirement is waived by a special resolution of the 
shareholders.

The existing authorities given to the company at the last 
AGM to allot shares will expire at the conclusion of the 
forthcoming AGM. Details of the resolutions renewing these 
authorities are included in the Notice of AGM.

Directors’ interests
The directors’ interests in the share capital of the company at 
31 July 2015 are set out on pages 74 and 76 of the Report of 
the Board on Directors’ Remuneration.

Purchase of Own Shares
Under section 724 of the Companies Act 2006 a company 
may purchase its own shares to be held in treasury 
(“Treasury Shares”).

Powers and appointment of directors
Details on the powers and appointment of directors are set 
out on page 48 of the Corporate Governance report.

The existing authority given to the company at the last AGM 
to purchase Treasury Shares of up to 10% of its issued share 
capital will expire at the conclusion of the next AGM.

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Directors’ indemnity
The company has granted indemnities to all of its directors 
on terms consistent with the applicable statutory provisions. 
Qualifying third party indemnity provisions for the purposes 
of section 234 of the Companies Act 2006 were accordingly 
in force during the course of the year, and remain in force at 
the date of this report.

Share Capital
The company’s share capital comprises one class of 
ordinary share with a nominal value of 25p each. At 31 July 
2015, 150,633,736 ordinary shares were in issue. During the 
year the company’s issued share capital increased by 11,153 
ordinary shares of 25p each through the issue of shares to 
satisfy option exercises. Full details of options exercised, the 
weighted average option exercise price and the weighted 
average market price at the date of exercise can be found in 
note 27 on page 117 of the Financial Statements.

Rights attaching to shares
On a show of hands, each member has the right to one vote 
at general meetings of the company. On a poll, each 
member would be entitled to one vote for every share held. 
The shares carry no rights to ﬁxed income. No person has 
any special rights of control over the company’s share capital 
and all shares are fully paid.

Restrictions on the transfer of shares
There are no speciﬁc restrictions on the transfer of the 
company’s shares which are governed by the general 
provisions of the articles of association and prevailing 
legislation.

The board considers it would be appropriate to renew this 
authority and intends to seek shareholder approval to 
purchase Treasury Shares of up to 10% of its issued share 
capital at the forthcoming AGM in line with current investor 
sentiment.

Details of the resolution renewing the authority are included 
in the Notice of AGM.

Awards under the company’s employee share plans are met 
from a combination of shares purchased in the market and 
held either in treasury or in the employee share trust as well 
as by newly issued shares.

During the year the company transferred 558,680 shares  
out of treasury, to satisfy share option awards, for a total 
consideration of £2.2 million. It did not purchase any 
Treasury Shares. The maximum number of Treasury Shares 
held at any time during the year was 1,724,960 with a 
nominal value of £0.4 million.

Employee Share Trust
Bedell Trustees Limited is the trustee of the Close Brothers 
Group Employee Share Trust, an independent trust, which 
holds shares for the beneﬁt of employees and former 
employees of the group. The trustee has agreed to satisfy a 
number of awards under the employee share plans. As part 
of these arrangements the company funds the trust, from 
time to time, to enable the trustee to acquire shares to satisfy 
these awards, details of which are set out in note 27 on 
pages 117 and 118 the Financial Statements.

During the year, the employee share trust made market 
purchases of 1,240,299 ordinary shares.

 
 
44

Close Brothers Group plc Annual Report 2015

Report of the Directors continued

Substantial Shareholdings
Details on substantial shareholdings in the company are set 
out on page 56 of the Corporate Governance report.

Post-balance Sheet Events
Details of post-balance sheet events are given in note 30 on 
page 130 of the Financial Statements.

Signiﬁcant Contracts
A change of control of the company, following a takeover bid, 
may cause a number of agreements to which the company 
is party to take effect, alter or terminate. These include the 
company bonds due 2017, certain insurance policies, bank 
facility agreements and employee share plans.

The group had committed facilities totalling £1.5 billion at  
31 July 2015 which contain clauses which require lender 
consent for any change of control. Should consent not be 
given, a change of control would trigger mandatory 
repayment of £1.5 billion of the facilities.

All of the company’s employee share plans contain 
provisions relating to a change of control. Outstanding 
awards and options may vest and become exercisable  
on a change of control, subject where appropriate to the 
satisfaction of any performance conditions at that time  
and pro-rating of awards.

Business Activities
The group’s business activities, together with the factors 
likely to affect its future development and performance and 
its summarised ﬁnancial position are set out on pages 4 to 
31 of the Strategic Report.

Financial Risk Management
The group has procedures in place to identify, monitor and 
evaluate the signiﬁcant risks it faces. The group’s risk 
management objectives and policies are described on pages 
49 and 50 and the risks associated with the group’s ﬁnancial 
instruments are analysed in note 29 on pages 120 to 130 of 
the Financial Statements.

Going Concern
The group has a strong, proven and conservative business 
model and has traded proﬁtably during the year. It is well 
positioned in each of its core businesses, well capitalised, 
soundly funded and has adequate access to liquidity.

After making enquiries, the directors have a reasonable 
expectation that the company and the group have adequate 
resources to continue in operational existence for the 
foreseeable future. Accordingly, they continue to adopt the 
going concern basis in preparing the Annual Report.

Sustainability
Information on the company’s employment practices and 
greenhouse gas emissions is set out on pages 33, 34, 35 
and 37 of the Strategic Report.

Political Donations
No political donations were made during the year (2014: £nil).

Resolutions at the AGM
The company’s AGM will be held on 19 November 2015. 
Resolutions to be proposed at the AGM include the renewal 
of the directors’ authority to allot shares, the disapplication of 
pre-emption rights, authority for the company to purchase its 
own shares and the re-election of all the directors standing 
for reappointment.

The full text of the resolutions is set out in the Notice of AGM 
sent to the company’s shareholders. A letter from the 
chairman, which explains the purpose of the resolutions, 
accompanies the Notice of AGM.

Auditor
Resolutions to reappoint Deloitte LLP as the company’s 
auditor and to give the directors the authority to determine 
the auditor’s remuneration will be proposed at the 
forthcoming AGM.

Disclosure of Information to Auditor
Each of the persons who are directors at the date of 
approval of this Annual Report conﬁrms that:
•  So far as the director is aware, there is no relevant audit 
information of which the company’s auditor is unaware; 
and

•  They have taken all the steps that they ought to have taken 
as a director in order to make themselves aware of any 
relevant audit information and to establish that the 
company’s auditor is aware of that information.

This conﬁrmation is given and should be interpreted in 
accordance with the provisions of section 418 of the 
Companies Act 2006.

By order of the board

Nicholas Jennings
Company Secretary

22 September 2015

Corporate Governance

Close Brothers Group plc Annual Report 2015

45

Strone Macpherson,  
Chairman

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As chairman of Close Brothers, I view the governance and 
oversight of its distinctive and prudent business model 
and strategy as key to the continuing creation and delivery 
of value to its stakeholders.

To accomplish this, the board has held eight meetings this 
year. Prior to each meeting the board receives reports on the 
results of each of the three divisions and key performance 
indicators, together with detailed updates on the progress 
and implementation of the agreed strategies for each 
division. The board has the opportunity to discuss the 
reports and challenge each of the divisional chief executives, 
who attend all or part of the board meetings, directly on the 
progress and implementation of their divisional strategy. In 
addition, in May 2015 the board attended two strategy days 
dedicated to discussing and reviewing the group’s long-term 
strategy with executive management.

The board has been unchanged this year, other than for the 
planned departure of Bruce Carnegie-Brown in November 
2014, as a consequence of which Bridget Macaskill was 
appointed chairman of the Remuneration Committee and 
Geoffrey Howe senior independent director.

The group’s overarching strategy is well deﬁned and 
continuing to produce good growth and strong returns,  
and the board’s focus has again been on reviewing its 
delivery by the divisions. Within the Banking division, there 
has been a monitoring of its major businesses, a focus on 
strengthening its risk management function and on the 
customer forums established to place particular emphasis 
on the provision of positive outcomes for its customers. 
For the Securities division the board has spent time 
understanding the impact of market conditions on 
Winterﬂood and reviewing regulatory developments. 

In relation to Asset Management, the focus has remained 
on reviewing its steady progress in meeting its strategic 
objectives and the opportunities for growth, including from 
the reforms to pension saving and from the continuing 
challenges in the IFA sector.

The board has also spent time considering challenges facing 
the businesses from regulatory and industry developments, 
understanding the prioritisation of project expenditure and 
monitoring relevant trends in emerging technology.

We are committed to the principles established in the UK 
Corporate Governance Code (“the Code”) issued by the 
Financial Reporting Council (“FRC”) in September 2012 and 
this report will explain and demonstrate how the group has 
applied the principles set out in the Code and complied with 
its provisions of best practice.

Strone Macpherson
Chairman

22 September 2015

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46

Close Brothers Group plc Annual Report 2015

Corporate Governance continued

Compliance
The Code has been applied by the company throughout the 
ﬁnancial year. In September 2014, the FRC updated the 
Code, publishing a revised UK Corporate Governance Code 
(“the Revised Code”). The Revised Code is not applicable to 
the company in the year under review, but the company has 
begun the process of reviewing its procedures to enable the 
board to report, as required, under the Revised Code in the 
next ﬁnancial year ending 31 July 2016.

The Code sets out guidance on best practice in the form of 
principles and provisions on how companies should be 
directed and controlled to follow good governance practice. 
The Financial Conduct Authority (“FCA”) requires companies 
with a premium listing in the UK to disclose, in relation to the 
Code, how they have applied its principles and whether they 
have complied with its provisions throughout the ﬁnancial 
year. Where the provisions have not been complied with, 
companies must provide an explanation for this.

It is the board’s view that the company’s governance regime 
has been fully compliant with the best practice set out in the 
Code for the ﬁnancial year.

A copy of the Code can be found on the FRC’s website: 
www.frc.org.uk.

The Board
Leadership of the board
The board’s primary role is to provide leadership, ensure that 
the company is appropriately managed and delivers long-
term shareholder value. It sets the group’s strategic 
objectives and provides direction for the group as a whole.  
A number of key decisions are reserved for and may only be 
made by the board, which enables the board and executive 
management to operate within a clear governance 
framework. These speciﬁc responsibilities are set out in a 
schedule of matters reserved to the board which is published 
on the company’s website and are summarised opposite.

Governance Framework
Board governance structure

The Board

Audit 
Committee

Remuneration 
Committee

Risk 
Committee

Nomination and 
Governance Committee

Executive Committee
Responsible for developing strategy, setting business objectives and assisting the chief executive with management of the group.

Board and committee meeting attendance 2014/2015
The attendance of directors at board and committee meetings of which they were members during the ﬁnancial year is  
shown in the table below. Some directors also attended committee meetings as invitees during the year. This is not reﬂected 
in the table.

Board

Audit Committee

Remuneration 
Committee

Risk Committee1

Nomination and  
Governance Committee

Attended

Eligible to 
attend

Attended

Eligible to 
attend

Attended

Eligible to 
attend

Regular 
attended

Ad hoc 
attended

Eligible to 
attend

Attended

Eligible to 
attend

Executive director
Preben Prebensen
Jonathan Howell
Stephen Hodges
Elizabeth Lee
Non-executive director
Strone Macpherson
Bruce Carnegie-Brown
Oliver Corbett
Geoffrey Howe2
Lesley Jones
Bridget Macaskill

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8
8
8

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1
8
8
8
8

8
8
8
8

8
1
8
8
8
8

2
5
4
5
5

2
5
5
5
5

1
5
4
5
5

1
5
5
5
5

2
5
5
5
5

–
1
1
1
1

2
6
6
6
6

2
4
3
4
4

2
4
4
4
4

1  The Risk Committee held ﬁve regular meetings during the year, together with one ad hoc meeting speciﬁcally to consider the Internal Capital Adequacy Assessment 

Process.

2  Geoffrey Howe was unable to attend one meeting of the Audit Committee due to illness and one meeting of each of the Remuneration Committee and Nomination  
and Governance Committee which were unavoidably held on the same day as the annual general meeting of the Nationwide Building Society at which he retired  
as chairman.

Close Brothers Group plc Annual Report 2015

47

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Specific responsibilities
•  Approval of strategy and monitoring its delivery.
•  Oversight of risk management, regulatory compliance  

and internal control.

•  Ensuring adequate ﬁnancial resources.
•  Acquisitions, disposals and expenditure over certain 

thresholds.

•  Approval of communications to shareholders.
•  Board membership and other appointments.
•  Corporate governance matters.

composition of the board. When board positions become 
available as a result of retirement, resignation or otherwise,  
it is focused on ensuring that a diverse pool of candidates is 
considered. Recent appointments have required specialist 
qualiﬁcations and extensive ﬁnancial services experience, 
whilst also widening the range of insights and perspectives 
brought to the board’s deliberations.

Details of the individual directors and their biographies are 
set out on pages 40 and 41.

The board has delegated speciﬁc powers for some matters 
to its committees, as set out in each committee’s terms of 
reference. These terms of reference, which are reviewed 
annually, detail a full list of each committee’s responsibilities 
and are available on our website at www.closebrothers.com/
investor-relations/investor-information/corporate-governance. 
The chairman of each committee reports regularly to the 
board on matters discussed at committee meetings.

The board has assessed the independence of each of the 
non-executive directors and is of the opinion that each acts 
in an independent and objective manner and therefore, 
under the Code, is independent and free from any 
relationship that could affect their judgement. The board’s 
opinion was determined by considering for each non-
executive director:
•  Whether they are independent in character and 

At each scheduled meeting the board receives reports from 
the chief executive and ﬁnance director on the performance 
and results of the group. In addition, the heads of the 
Banking, Securities and Asset Management divisions update 
the board on performance, strategic developments and 
initiatives in their respective areas and the head of legal and 
regulatory affairs provides updates on legal matters. In 
addition the board receives updates from the group 
operating functions on compliance, human resources, 
corporate development matters and internal audit.

There is an annual schedule of rolling agenda items to ensure 
that all matters are given due consideration and are reviewed 
at the appropriate point in the ﬁnancial and regulatory cycle. 
Meetings are structured to ensure that there is sufﬁcient time 
for consideration and debate of all matters.

During the year, the board has spent time particularly on:
•  Presentations from businesses within the Banking division;
•  Engagement with the regulators;
•  Review of regulatory proposals on capital requirements;
•  Review of the new Senior Managers Regime;
•  Updates to the Banking division’s Recovery & Resolution 
Plans and the Individual Liquidity Adequacy Assessment; 
•  Consideration of disposal of Close Brothers Seydler; and
•  Marketing strategy.

All directors also attended a dedicated two day strategy 
session in May 2015 on strategy development and execution.

Board size, composition and independence
Following the AGM in November 2014 at which Bruce 
Carnegie-Brown stood down as a director, the board 
comprises nine members: the chairman, four executive 
directors and four independent non-executive directors.

The structure of the board ensures that no individual or 
group of individuals is able to dominate the decision making 
process and no undue reliance is placed on any individual. 
The board now comprises six male and three female 
members. This means that a third of the directors are 
women. The company is committed to ensuring that any 
vacancies that may arise are ﬁlled by the most qualiﬁed 
candidates and recognises the value of diversity in the 

judgement;

•  How they conduct themselves in board and committee 

meetings;

•  Whether they have any interests which may give rise to an 

actual or perceived conﬂict of interest; and

•  Whether they act in the best interests of the company and 

of all its shareholders at all times.

The company has therefore complied with the Code 
provision that at least half the board, excluding the chairman, 
should comprise independent non-executive directors. Each 
non-executive director is required to conﬁrm at least annually, 
whether any circumstances exist which could impair their 
independence.

Meetings and attendance
The board held eight scheduled meetings in addition to the 
two day strategy session. Details of attendance at board 
meetings can be found on page 46.

The directors receive detailed papers in advance of each 
board meeting. The board agenda is carefully structured by 
the chairman in consultation with the chief executive and the 
company secretary. Each director may review the agenda 
and propose items for discussion with the chairman’s 
agreement. Additional information is also circulated to 
directors between meetings including relevant updates on 
the business and regulatory announcements.

The annual schedule of board meetings is decided a 
substantial time in advance in order to ensure the availability 
of each of the directors. In the event that directors are unable 
to attend meetings due to conﬂicts in their schedule, they 
receive papers in the normal manner and have the 
opportunity to relay their comments in advance of the 
meeting, as well as follow up with the chairman if necessary. 
The same process applies in respect of the various board 
committees.

Chairman and chief executive
The roles of the chairman and chief executive are separate 
and there is a clear division of responsibilities between the 
two roles. The chairman is Strone Macpherson. His other 
signiﬁcant commitments are set out in his biography on page 
41. The board is satisﬁed that his other commitments do not 
restrict him from carrying out his duties effectively.

 
 
48

Close Brothers Group plc Annual Report 2015

Corporate Governance continued

As chairman, Strone Macpherson is primarily responsible for 
leading the board and ensuring the effective engagement 
and contribution of all the directors. His other responsibilities 
include setting the agenda for board meetings, providing the 
directors with information in an accurate, clear and timely 
manner and the promotion of effective decision making. The 
chairman is also charged with ensuring that the directors 
continually update their skills and knowledge and that the 
performance of the board, its committees and the individual 
directors is evaluated on an annual basis.

The group chief executive is Preben Prebensen who is 
primarily responsible for the day-to-day management of the 
group’s business. His other responsibilities include proposing 
and developing strategic objectives for the group, managing 
the group’s risk exposures in line with board policies, 
implementing the decisions of the board and facilitating 
appropriate and effective communication with shareholders 
and regulatory bodies.

Senior independent director
The senior independent director is Geoffrey Howe. In 
addition to the existing channels for shareholder 
communications, shareholders may discuss any issues or 
concerns they may have with the senior independent 
director.

Powers of directors
The directors are responsible for the management of the 
company. They may exercise all powers of the company, 
subject to any directions given by special resolution and the 
articles of association. The directors have been authorised  
to allot and issue ordinary shares and to make market 
purchases of the company’s ordinary shares by virtue of 
resolutions passed at the company’s 2014 AGM.

Board evaluation
In accordance with the Code, the board determined that the 
annual evaluation of the board and its committees should be 
undertaken externally in 2015, two years after the previous 
external evaluation. It was decided to bring forward the 
external review by a year, particularly in light of the signiﬁcant 
change in non-executive director composition since 2013. 
Dr. Long of Boardroom Review Limited, who conducted 
previous effectiveness reviews most recently in 2013, was 
appointed to carry out the evaluation. Boardroom Review 
Limited provides no other services to the company. The 
evaluation explored key aspects of board and committee 
effectiveness through observation of meetings of the board 
and each of its committees, a review of board and 
committee information and one-to-one interviews with each 
of the directors.

Dr. Long presented her independent view of board strengths 
and future challenges to the board in July 2015, concluding 
that it is engaged and adding value, has many strengths, a 
sensible rhythm of meetings across the year and is focused 
on priorities. The report contained a number of observations 
and recommendations, designed to encourage the board to 
optimise its contribution to the success of the company and 
to add value beyond the legal requirements, by building on 
existing strengths, agreeing the challenges ahead and 
preparing for the future. The recommendations included: 
•  Recommendations for the reﬁnement of agendas and the 

presentation of board papers, given the necessary 
quantity of information required to be considered;

•  Suggestions for the further development of the board as a 

team, following the extensive non-executive director 
changes, and for board composition and succession 
planning in order to ensure continued alignment with 
long-term strategy;

•  A discussion of alternative approaches to the review of 
strategy and the beneﬁts of competitive analysis; and 
•  Thoughts regarding the development of remuneration 

strategies and executive succession planning.

The evaluation conﬁrmed the directors’ opinion that the 
board and its committees continue to be effective. Following 
discussion, it was agreed to adopt the report and to consider 
its recommendations with a view to producing an action plan 
and to review progress in six months time. It was further 
agreed to submit the report to the Prudential Regulation 
Authority (“PRA”). Dr. Long has reviewed and agreed this 
disclosure.

In addition to the board evaluation process, the senior 
independent director led a separate performance review in 
respect of the chairman which involved a review with the 
non-executive directors, excluding the chairman, and 
separate consultation with the chief executive. The senior 
independent director subsequently provided feedback to the 
chairman on his appraisal which conﬁrmed his effectiveness.

Appointment of directors
The appointment of directors is governed by the company’s 
articles of association, the Companies Act 2006 and other 
applicable regulations and policies. Directors may be elected 
by shareholders in general meeting or appointed by the 
board of directors in accordance with the provisions of the 
articles of association. The articles of association may be 
amended by special resolution of the shareholders and were 
last amended in November 2009.

In accordance with the Code all directors are subject to 
re-election at the AGM. The board will only recommend to 
shareholders that executive and non-executive directors be 
proposed for re-election at an AGM after evaluating the 
performance of the individual directors. Following the 
performance evaluations, the board will be recommending 
that all directors be re-elected by shareholders and 
conﬁrms that each director continues to be effective and 
demonstrates commitment to their role.

Letters of appointment are available for inspection by 
shareholders at each AGM and during normal business 
hours at the company’s registered ofﬁce.

Induction and professional development
On appointment all new directors receive a comprehensive 
and personalised induction programme to familiarise them 
with the company and to meet their speciﬁc requirements. 
The company also provides bespoke inductions for directors 
when they are appointed as a committee chairman. 
Induction programmes are tailored to a director’s particular 
requirements, but would typically include site visits, one-to-
one meetings with executive directors, the company 
secretary, senior management for the business areas and 
support functions and a conﬁdential meeting with the 
external auditor. Directors also receive guidance on directors’ 
liabilities and responsibilities. Induction programmes were 
concluded by non-executive directors appointed during the 
prior year.

Close Brothers Group plc Annual Report 2015

49

There is a central training programme in place for the 
directors which is reviewed and considered by the board. 
In addition, the chairman discusses and agrees any speciﬁc 
requirements as part of each non-executive director’s half 
year and year end reviews. During the year, training took the 
form of informal meetings with senior management within the 
businesses and control functions, in-depth business reviews, 
attendance at external seminars and brieﬁngs from the 
regulators and from internal and external advisers covering 
topics such as:
•  Operational risk model training;
•  Developments in the digital environment;
•  Corporate governance update;
•  Regulatory developments; and
•  UK accounting changes.

Training and development records are maintained by the 
company secretary and reviewed annually by the chairman 
and each individual director.

The company secretary is responsible for ensuring that the 
board procedures and applicable rules and regulations are 
observed. All directors have direct access to the services 
and advice of the company secretary who also acts as 
secretary to each of the board committees. Directors are 
able to take independent external professional advice to 
assist with the performance of their duties at the company’s 
expense.

Risk and Control Framework
The board has overall responsibility for maintaining a system 
of internal control to ensure that an effective risk 
management and oversight process operates across the 
group. The risk management framework and associated 
governance arrangements are designed to ensure that there 
is a clear organisation structure with well deﬁned, transparent 
and consistent lines of responsibility and effective processes 
to identify, manage, monitor and report the risks to which the 
group is, or might become, exposed. The board has a well 
deﬁned risk appetite with risk appetite measures which are 
integrated into decision making, monitoring and reporting 
processes, with early warning trigger levels set to drive the 
required corrective action before overall tolerance levels are 
reached. The risk framework through key committees, 
including the Risk Committee and Audit Committee, is the 
mechanism that ensures the board receives comprehensive 
risk information in a timely manner.

Identiﬁcation, measurement and management of risk are 
fundamental to the success of the group. Over the past  
12 months the group has continued to strengthen its risk 
management framework and further develop the group’s risk 
committees, at both board and divisional level, and these 
continue to work efﬁciently and effectively.

The group’s risk and control framework is designed to allow 
the capture of business opportunities while maintaining an 
appropriate balance of risk and reward within the group’s 
agreed risk appetite. It further ensures that the risks to which 
the group is or may become exposed are appropriately 
identiﬁed and that those which the group chooses to take 
are managed, controlled and, where necessary, are 
mitigated so that the group is not subject to material 
unexpected loss.

The group reviews and adjusts its risk appetite annually as 
part of the strategy setting process. This aligns risk taking 
with the achievement of strategic objectives. Adherence to 
appetite is monitored by the group’s risk committees.

The Risk Committee conducted its annual review of the 
adequacy and effectiveness of the group’s risk management 
and internal control arrangements in relation to the group’s 
strategy and risk proﬁle for the ﬁnancial year. This review was 
approved by the board which considers that it has in place 
adequate systems and controls with regard to the 
company’s proﬁle and strategy.

The risk management framework is based on the concept of 
“three lines of defence”, as set out in the table on page 50, 
and the key principles underlying risk management in the 
group are:
•  Business management own all the risks assumed 
throughout the group and are responsible for their 
management on a day-to-day basis to ensure that risk  
and return are balanced;

•  The board and business management promote a culture 
in which risks are identiﬁed, assessed and reported in an 
open, transparent and objective manner;

•  The overriding priority is to protect the group’s long-term 
viability and produce sustainable medium to long-term 
revenue streams;

•  Risk functions are independent of the businesses and 

provide oversight of and advice on the management of risk 
across the group;

•  Risk management activities across the group are 

proportionate to the scale and complexity of the group’s 
individual businesses;

•  Risk mitigation and control activities are commensurate 

with the degree of risk; and

•  Risk management and control supports decision making.

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50

Close Brothers Group plc Annual Report 2015

Corporate Governance continued

Risk Management Framework

First line of defence
The businesses

Second line of defence
Risk and Compliance

Third line of defence
Internal Audit

Group Risk and Compliance Committee
(Reports to the Risk Committee)

Risk Committee
(Reports to the board)

Audit Committee
(Reports to the board)

Chief executive delegates to divisional 
and operating business heads day-to-
day responsibility for risk management, 
regulatory compliance, internal control 
and conduct in running their divisions or 
businesses.

Business management has day-to-
day ownership, responsibility and 
accountability for risks:
•  Identifying and assessing risks;
•  Managing and controlling risks;
•  Measuring risk (key risk indicators/

early warning indicators);

•  Mitigating risks; and
•  Reporting risks.

Risk Committee delegates to the group 
chief risk ofﬁcer day-to-day responsibility 
for oversight and challenge on risk 
related issues.

Audit Committee mandates the head 
of group internal audit with day-to-
day responsibility for independent 
assurance.

Risk functions (including compliance) 
provide support and independent 
challenge on:
•  The design and operation of the Risk 

Internal audit provides independent 
assurance on:
•  First and second line of defence;
•  Appropriateness/effectiveness of 

framework;

•  Risk assessment;
•  Risk appetite and strategy;
•  Performance management;
•  Risk reporting;
•  Adequacy of mitigation plans; and
•  Group risk proﬁle.

internal controls; and
•  Effectiveness of policy 

implementation.

Key features
•  Draws on deep knowledge of the 

group and its businesses;

•  Independent assurance on the 

Key features
•  Promotes a strong risk culture and 
focus on sustainable risk-adjusted 
returns;

•  Implements the risk framework;
•  Promotes a culture of adhering to 

Key features
•  Overarching “risk oversight unit” takes 
an integrated view of risk (qualitative 
and quantitative);

activities of the ﬁrm including the risk 
management framework;

•  Assesses the appropriateness and 

effectiveness of internal controls; and

•  Risk management separate from risk 

•  Incorporates review of culture and 

control but work together;

conduct.

limits and managing risk exposures;
•  Promotes a culture of customer focus 

•  Supports through developing and 

advising on risk strategies;

and appropriate behaviours;

•  Ongoing monitoring of positions and 

management of risks;
•  Portfolio optimisation; and
•  Self assessment.

•  Creates constructive tension through 
challenge – “critical friend”/“trusted 
adviser”; and

•  Oversight of business conduct.

Close Brothers Group plc Annual Report 2015

51

Lesley Jones,
Chairman of the  
Risk Committee

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The Risk Committee’s principal roles and responsibilities are to 
support the board in its oversight of risk management across the 
group. The following sections set out the Committee’s membership, 
its key responsibilities and the principal areas of risk upon which we 
have focused during the year. The identiﬁcation, management and 
mitigation of risk is fundamental to the success of the group. 
The Committee plays an important role in setting the tone and 
culture that promotes effective risk management across the group.

Risk Committee
Chairman’s overview
The uneven recovery in the global economy continues to 
pose challenges for consumers and companies alike and 
has necessitated a continued high degree of vigilance. The 
UK economy has strengthened against a backdrop of tight 
public sector spending constraints and decreasing 
unemployment but remains vulnerable to Eurozone 
dislocation and to the uncertainties posed by a forthcoming 
EU referendum. These challenges, coupled with an ever-
broadening regulatory agenda aimed at bolstering the 
strength of the banking industry and the conduct of those 
who work in it, have kept the Risk Committee fully occupied 
throughout the year. I am nevertheless pleased to report 
again this year that Close Brothers’ prudent and consistent 
risk appetite has allowed us to maintain a robust capital 
position and a low risk proﬁle.

As in previous years the Committee apportions its time 
between the planned periodic review of key portfolio risks 
and the close scrutiny of new business risks as they develop. 
This allows us to ensure that emerging risks can be identiﬁed 
and debated and that management’s plans for risk mitigation 
are well understood and appropriately resourced. During the 
year the Committee saw continued improvement in the 
quality of the management information that it receives, 

facilitated by the considerable investment that the group 
has made in upgrading its risk and ﬁnance systems in 
recent years.

This remains a key focus for the Committee given its 
importance as a management tool to ensure that risk 
appetite is well understood, embedded and tracked across 
the many business areas.

Committee roles and responsibilities
The Committee’s key roles and responsibilities are therefore 
in summary to:
•  Oversee the maintenance and development of a 

supportive culture of organisation design in relation to the 
management of risk;

•  Review and set risk appetite, which is the level of risk the 
group is willing to take in pursuit of its strategic objectives;

•  Monitor the group’s risk proﬁle against the prescribed 

appetite;

•  Review the effectiveness of the risk framework to ensure 
that key risks are identiﬁed and appropriately managed; 
and

•  Provide input from a risk perspective into the alignment of 

remuneration with performance against risk appetite 
(through the Remuneration Committee).

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52

Close Brothers Group plc Annual Report 2015

Corporate Governance continued

Membership and meetings
The Committee comprises each of the independent non-
executive directors, with me as chairman. Five scheduled 
meetings were held during the year and these were 
supplemented by an additional meeting for review of the 
Internal Capital Adequacy Assessment Process (“ICAAP”) 
and its assumptions.

Full details of attendance by the non-executive directors at 
these meetings during the year are set out on page 46.

In addition to the members of the Committee, standing 
invitations are extended to the company chairman, the 
executive directors, chief risk ofﬁcer and risk team, head of 
compliance and the head of internal audit who attend all 
meetings as a matter of practice and have supported and 
informed the Committee’s discussions.

Other executives, subject matter experts and external 
advisers may also be invited to attend the Committee to 
present and advise on reports commissioned.

I meet regularly with the chief risk ofﬁcer and his risk team in 
a combination of formal and informal sessions, and with 
senior management across all divisions of the group to 
discuss the business environment and to gather their views 
of emerging risks.

Activity in 2015 financial year
Consistent with our plan to continue enhancing our overall 
risk management environment, April 2015 saw the 
appointment of a new chief risk ofﬁcer. This has supported 
the continued evolution and strengthening of the risk function 
across the group in a manner consistent with the three lines 
of defence model, an industry and regulatory standard. 
This has also allowed us to drive further improvement in the 
management information that is available to the Committee, 
from both a ﬁnancial and non-ﬁnancial risk perspective.

The Committee additionally received regular updates across 
the spectrum of operational risks and information technology, 
in response both to the growing threat posed by cyber crime 
and more exacting data management requirements driven 
by previous incidents elsewhere in the industry. Several of 

these kinds of risks were stressed in various scenarios as 
part of the annual ICAAP process. Following robust debate 
and challenge, the Committee and board were satisﬁed that 
the group’s business model and allocated risk appetite 
remained appropriate under each of the modelled scenarios. 
Risk around relationships with third parties also remained 
under review to ensure that outsourcing arrangements are 
appropriately controlled and the ﬁnancial condition of third 
party agents or suppliers is monitored and understood. The 
identiﬁcation and management of conduct risk, including 
associated management information, continues to be 
strengthened, so that the board can be comfortable that its 
understanding of the embedded risk culture is well founded.

The Committee maintained its oversight, review and 
challenge of the change management programmes across 
the group, and in our regular meetings there is speciﬁc focus 
on the progress of key projects and initiatives.

We continue to actively engage with the PRA and FCA with 
regards to proposed new regulation and the ongoing 
effective operation of the group’s risk framework.

Remuneration
We provided input to the Remuneration Committee to  
ensure that risk behaviours and the management of 
operational risk incidents over the course of the  
ﬁnancial year were appropriately reﬂected in the  
annual management performance and compensation  
review process.

Looking ahead to 2016
Key priorities for the coming year include:
•  Further development of the methodologies supporting the 

allocation and management of risk appetite.

•  Updating and enhancing the group’s risk framework, 

policies and standards, to further embed policy approval 
and governance.

•  Continued development of management information as 

well as the planned evolution of our risk systems to 
enhance further the efﬁciency of the Committee.

Lesley Jones
Chairman of the Risk Committee

22 September 2015

Close Brothers Group plc Annual Report 2015

53

Oliver Corbett,
Chairman of the
Audit Committee

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This report sets out the role and responsibilities of the Audit 
Committee and the principal areas which the Committee has 
focused on during the year. The Committee continues to be effective 
in supporting the board in its oversight of the group’s ﬁnancial 
reporting and internal controls. 

Audit Committee
Chairman’s overview
This year the Committee has again primarily focused on the 
review and challenge of the key accounting judgements 
underpinning the group’s ﬁnancial statements. We also 
commissioned and received an independent assessment of 
the internal audit function, continued to review the group’s 
processes to ensure its external reporting is fair, balanced 
and understandable; considered the rationale and evidence 
to support the going concern assumption and received an 
assessment of additional regulatory reporting and its impact 
on resources in our ﬁnance teams. 

Looking ahead, the Committee will be focused on future 
accounting changes particularly with regard to credit 
provisioning, as well as preparing for the external audit 
tender which we expect to take place by 2017.

Committee roles and responsibilities
The Committee’s key roles and responsibilities are to:
•  Monitor the integrity of the group’s external ﬁnancial 
reporting, in particular reviewing signiﬁcant ﬁnancial 
reporting judgements to ensure they are appropriate;
•  Review the effectiveness of the group’s internal controls; 

and

•  Monitor and review the activities and performance of both 

internal and external audit.

Membership and meetings
The Committee comprises each of the independent non-
executive directors and me as chairman.

The Committee acts independently of the executive to 
ensure the interests of shareholders are protected. Each of 
the Committee members is independent. Five meetings were 
held during the year scheduled to coincide with the ﬁnancial 
reporting cycle of the group. Each of the Committee 
members attended all meetings held with the exception of 
Geoffrey Howe who missed one meeting. Full details of 
attendance are shown in the table on page 46.

The qualiﬁcations of the members of the Committee are 
outlined in their biographies on page 41. I am deemed to 
have recent and relevant experience by the board.

Standing invitations are extended to the chairman of the 
board and the executive directors, all of whom attend 
meetings as a matter of practice. I meet with the group 
ﬁnance director, the heads of internal audit, risk and 
compliance and the group ﬁnancial controller in advance of 
each of the scheduled meetings to agree the agenda and 
receive full brieﬁng on relevant issues. This group also 
attends the meetings by invitation together with other senior 
executives as required. The lead external audit partner 
attends all of the Committee meetings and meets in private 
with the Committee on each occasion. In addition I have  
had regular contact with the lead audit partner throughout 
the year.

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54

Close Brothers Group plc Annual Report 2015

Corporate Governance continued

Key Accounting Judgements
Credit provisioning
The Committee considered a paper setting out the group’s 
provisioning policies and the governance processes in place 
to ensure compliance with those policies. 

The Committee challenged management and the external 
auditor on the level of provisioning and the consistency of the 
policies applied in the current year. The Committee 
concluded that the approach taken was consistent and 
appropriate and that the judgements were reasonable.

The Committee was also updated by management on the 
work being undertaken in preparation for the new accounting 
requirements relating to accounting for expected losses as 
part of International Financial Reporting Standard (“IFRS”) 9 
“Financial instruments”.

Revenue recognition
The Committee reviewed the group’s accounting policies on 
revenue recognition and in particular the timing of recognition 
and consistency of approach with prior periods. The 
Committee considered the approach to interest income, fee 
and commission income and gains less losses from dealing 
in securities. 

The Committee was satisﬁed that the approach to revenue 
recognition was appropriate and has been consistently 
applied across the group.

Goodwill
The Committee reviewed the annual assessment of the 
carrying value of goodwill. The results of the group’s value in 
use calculations were reviewed and the key assumptions 
regarding discount rates and forecast future earnings were 
challenged. Noting the levels of headroom above carrying 
value, the Committee agreed with management’s conclusion 
that the carrying value of goodwill remains appropriate.

Other accounting treatments
The Committee also reviewed a number of other accounting 
treatments during the year. In particular the Committee 
reviewed the proposed accounting treatment of the Close 
Brothers Seydler disposal and the disclosure and treatment 
of one-off revenues received in the Securities and Asset 
Management divisions.

Internal Audit
The group has operated a co-source internal audit function 
with PwC since 2009. This provides ﬂexible resourcing and 
ensures access to a full range of audit expertise across the
group’s businesses. The Committee continues to monitor 
the level and mix of co-source and internal resources and 
has again concluded that they remain appropriate.

During the year the Committee approved the annual internal 
audit plan. It also received a report from the head of internal 
audit at each meeting summarising audits concluded in the 
period and updates on outstanding agreed actions from 
previous reports including explanations around any overdue 
actions. The function completed 25 audits across the group 
during the 2015 ﬁnancial year. The head of internal audit 
meets the Committee privately at each meeting as well as 
meeting regularly with the Audit Committee chairman 
throughout the year.

An external effectiveness review of the internal audit function 
was undertaken in the year. The group’s policy is to carry out 
such a review every ﬁve years. The report concluded that the 
function is effective and identiﬁed a number of minor areas 
where enhancements could be made which will be fully 
implemented in the coming year.

External Audit
The Committee assesses the independence and objectivity, 
qualiﬁcations and effectiveness of the external auditor on an 
annual basis. The Committee also concludes on whether to 
recommend the reappointment of the auditor to the board.

Our annual evaluation focused on the following key areas:
•  The quality of audit expertise, judgement and dialogue 

with the Committee and senior management.

•  The independence and objectivity demonstrated by the 

audit team.

•  The quality of service including consistency of approach 

and responsiveness.

This process was facilitated by an enhanced group-wide 
survey of ﬁnance teams, formal interviews with management, 
a survey of the Deloitte LLP senior audit team’s view on the 
group and a review of audit and non-audit fees.

The Committee oversees the group’s policy on the provision 
of non-audit services by the external auditor. The Committee 
continues to see beneﬁts for the group in engaging Deloitte 
LLP where:
•  Work is closely related to the audit;
•  A detailed understanding of the group is required; and
•  Deloitte LLP is able to provide a higher quality and/or 

better value service.

However, the key principle of our policy is that permission to 
engage the external auditor will always be refused when a 
threat to independence and/or objectivity is perceived.

Close Brothers Group plc Annual Report 2015

55

During the year non-audit fees amounted to £0.6 million and 
were 56% of the overall audit fee (2014: 92%). Non-audit fees 
in the year were:

Nomination and Governance Committee
This report sets out the role and responsibilities of the 
Nomination and Governance Committee.

Assurance work on:
  Systems and controls
  Securitisation funding
Tax compliance

£ million

0.3
0.1
0.2

0.6

The Committee concluded that all of these fees fell within its 
criteria for engaging Deloitte LLP and does not believe they 
pose a threat to the auditor’s independence or objectivity.

The Committee has concluded that Deloitte LLP remain 
independent and that their audit is effective. Deloitte LLP or 
its predecessor ﬁrm has audited the group since it was ﬁrst 
listed in 1984, but has only acted as the group’s sole auditor 
since 2008. Although a full audit tender was not carried out, 
a detailed proposal was reviewed at that time prior to Deloitte 
LLP’s appointment as sole auditor to the group. No audit 
tender is planned for the current year given the continuing 
effectiveness of Deloitte LLP. However, as previously 
reported the Committee intends that an audit tender will take 
place no later than completion of the current lead partner’s 
ﬁve year term in 2017 in line with the Code and within the 
transitional period set out in recent EU legislation.

Oliver Corbett
Audit Committee Chairman

22 September 2015

Committee roles and responsibilities
The Committee’s key roles and responsibilities are:
•  Regularly reviewing the structure, size and composition  

of the board;

•  Considering the leadership needs of the group and 

considering succession planning for directors and other 
senior executives;

•  Considering the appointment or retirement of directors;
•  Evaluation of the skills, knowledge and experience 

required for a particular appointment, normally with the 
assistance of external advisers used to facilitate the search 
for suitable candidates; and

•  Assessing the contribution of non-executive directors.

Membership and meetings
The Committee comprises Geoffrey Howe, the senior 
independent director, Oliver Corbett, Lesley Jones and 
Bridget Macaskill who chair the Audit, Risk and 
Remuneration Committees respectively and me as 
chairman. Bruce Carnegie-Brown was also a member until 
20 November 2014. Each of the Committee members is 
independent. Four meetings were held during the year. All 
members attended each of the meetings held during their 
tenure of ofﬁce, except that Geoffrey Howe was unable to 
attend one of them. In addition, the chief executive attends 
meetings by invitation, as does the group head of human 
resources when presenting a review of talent and executive 
management succession planning.

Activity in 2015 financial year
During the year the Committee focused on:
•  Appointment of a new senior independent director and 

Remuneration Committee chairman;

•  Talent review and executive management succession 

planning;

•  Reviewing the non-executive directors’ skill sets to ensure 
that an appropriate balance of skills has been maintained; 
and

•  Board evaluation.

The Committee recommended the appointment of Geoffrey 
Howe as senior independent director on the basis of his 
extensive experience and contribution since his appointment 
to the board in 2011. It nominated Bridget Macaskill as 
chairman of the Remuneration Committee in line with its 
succession plan, following her appointment to the board in 
November 2013. Bridget Macaskill has signiﬁcant 
remuneration committee credentials and familiarity with FCA/
PRA and EU remuneration regulations.

Strone Macpherson
Chairman of the Nomination and Governance Committee

22 September 2015

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56

Close Brothers Group plc Annual Report 2015

Corporate Governance continued

Remuneration Committee
The Report of the Board on Directors’ Remuneration is set 
out on pages 58 to 77.

Conﬂicts of Interest
The articles of association include provisions giving the 
directors authority to approve conﬂicts of interest and 
potential conﬂicts of interest as permitted under the 
Companies Act 2006.

A procedure has been established whereby actual and 
potential conﬂicts of interest are regularly reviewed and 
appropriate authorisation sought, prior to the appointment of 
any new director or if a new conﬂict arises. The decision to 
authorise a conﬂict of interest can only be made by non-
conﬂicted directors and in making such a decision the 
directors must act in a way they consider, in good faith, will 
be most likely to promote the success of the company. The 
board believes this procedure operated effectively 
throughout the year.

Investor Relations
The group has a comprehensive investor relations (“IR”) 
programme to ensure that current and potential 
shareholders, as well as ﬁnancial analysts, are kept well 
informed of the group’s performance and have appropriate 
access to management to understand the company’s 
business and strategy.

The board believes it is important to maintain open and 
constructive relationships with all shareholders. The IR team, 
reporting to the ﬁnance director, are responsible for 
managing a structured programme of meetings, calls and 
presentations around the ﬁnancial reporting calendar as well 
as throughout the year. The chief executive and ﬁnance 
director meet with the group’s major institutional 
shareholders on a regular basis. In addition, the chairman 
arranges to meet with them once a year to discuss 
challenges facing the board, particularly in relation to 
strategy, corporate governance and succession planning. 
Separately the senior independent director is available, 
should shareholders wish to discuss any concerns they
may have.

All shareholders also have the opportunity to raise questions 
with the board at the AGM, either in person or by submitting 
written questions in advance. The chairman of each of the 
board committees attends the AGM and all other directors 
are expected to attend the meeting.

The board is regularly updated on the IR programme. An IR 
report, summarising share price performance, share register 
composition and feedback from any investor meetings, is 
produced for each board meeting.

All results announcements, annual reports, regulatory news 
announcements, presentations, webcasts and other relevant 
documents are available on the IR section of the group 
website (www.closebrothers.com/investor-relations). The 
group’s investor briefcase app for iPads and iPhones also 
offers analysts and investors access to ﬁnancial reports, 
presentations and news releases.

Substantial Shareholdings
The company has been notiﬁed to 11 September 2015 under 
the provisions of the Disclosure and Transparency Rules of 
the following signiﬁcant interests in the voting rights of the 
company.

Standard Life Investments
M&G Investment Management
Aberdeen Asset Managers
Royal London Asset Management

Ordinary 
shares 
millions
18.0
10.0
9.5
4.5

Voting 
rights 
%
12.05
6.81
6.42
3.03

Substantial shareholders do not have different voting rights 
from those of other shareholders.

Statement of Directors’ Responsibilities
The directors are responsible for preparing the Annual 
Report and accounts in accordance with applicable law  
and regulations.

Company law requires the directors to prepare ﬁnancial 
statements for each ﬁnancial year. Under that law the 
directors are required to prepare the group ﬁnancial 
statements in accordance with IFRSs as adopted by the 
European Union and Article 4 of the International Accounting 
Standards (“IAS”) Regulation. The directors have elected to 
prepare the parent company ﬁnancial statements in 
accordance with United Kingdom Generally Accepted 
Accounting Practice (United Kingdom Accounting Standards 
and applicable law). Under company law the directors must 
not approve the accounts unless they are satisﬁed that they 
give a true and fair view of the state of affairs of the company 
and of the proﬁt or loss of the company for that period.

In preparing the parent company ﬁnancial statements, the 
directors are required to:
•  Select suitable accounting policies and then apply them 

consistently;

•  Make judgements and accounting estimates that are 

reasonable and prudent;

•  State whether applicable UK Accounting Standards have 

been followed, subject to any material departures 
disclosed and explained in the ﬁnancial statements; and
•  Prepare the ﬁnancial statements on the going concern 
basis unless it is inappropriate to presume that the 
company will continue in business.

In preparing the group ﬁnancial statements, IAS 1 requires 
that directors:
•  Properly select and apply accounting policies;
•  Present information, including accounting policies, in a 

manner that provides relevant, reliable, comparable and 
understandable information;

•  Provide additional disclosures when compliance with the 
speciﬁc requirements in IFRSs are insufﬁcient to enable 
users to understand the impact of particular transactions, 
other events and conditions on the entity’s ﬁnancial 
position and ﬁnancial performance; and

•  Make an assessment of the company’s ability to continue 

as a going concern.

Close Brothers Group plc Annual Report 2015

57

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The directors are responsible for keeping adequate 
accounting records that are sufﬁcient to show and explain 
the company’s transactions and disclose with reasonable 
accuracy at any time the ﬁnancial position of the company 
and enable them to ensure that the ﬁnancial statements 
comply with the Companies Act 2006. They are also 
responsible for safeguarding the assets of the company and 
hence for taking reasonable steps for the prevention and 
detection of fraud and other irregularities.

Under applicable law and regulations, the directors are also 
responsible for preparing a strategic report, directors’ report, 
directors’ remuneration report and corporate governance 
report that complies with that law and those regulations.

The directors are responsible for the maintenance and 
integrity of the corporate and ﬁnancial information included 
on the company’s website. Legislation in the UK governing 
the preparation and dissemination of ﬁnancial statements 
may differ from legislation in other jurisdictions.

Responsibility statement
We conﬁrm that to the best of our knowledge:
•  The ﬁnancial statements, prepared in accordance with the 
relevant ﬁnancial reporting framework, give a true and fair 
view of the assets, liabilities, ﬁnancial position and proﬁt or 
loss of the company and the undertakings included in the 
consolidation taken as a whole;

•  The Strategic Report includes a fair review of the 

development and performance of the business and the 
position of the company and the undertakings included in 
the consolidation taken as a whole, together with a 
description of the principal risks and uncertainties that they 
face; and

•  The Annual Report and accounts, taken as a whole, are 

fair, balanced and understandable and provide the 
information necessary to assess the group’s performance, 
business model and strategy.

By order of the board

Nicholas Jennings
Company Secretary

22 September 2015

 
 
58

Close Brothers Group plc Annual Report 2015

Report of the Board on Directors’ Remuneration

Bridget Macaskill,  
Chairman of the 
Remuneration Committee

This report sets out our approach to remuneration for the group’s 
employees and directors for the 2015 ﬁnancial year. 

This report has been prepared in compliance with Schedule 
8 of the Large and Medium-sized Companies and Groups 
(Accounts and Reports) (Amendment) Regulations 2013 and 
the listing rules. It has been approved by the board. Certain 
parts of this report are audited by the company’s auditor 
Deloitte LLP and are marked as “audited” for clarity.

Annual Statement from the Remuneration 
Committee Chair
On behalf of the Remuneration Committee (hereafter referred 
to in this report as the “Committee”), I am pleased to present 
the report on directors’ remuneration for the 2015 ﬁnancial 
year. This is my ﬁrst report since becoming chairman of the 
Committee in November 2014. On behalf of the board, I 
would like to thank my predecessor, Bruce Carnegie-Brown 
for his service as chairman. 

The report is split into three sections:

Governance (page 60)
This section of the report covers the objectives, 
responsibilities, membership and activities of the Committee 
during the 2015 ﬁnancial year.

The Directors’ Remuneration Policy (pages 60 to 68)
The group’s policy on directors’ remuneration and the key 
factors taken into account in setting the policy are covered in 
this section. This policy was approved by shareholders for 
the following three years at the AGM on 20 November 2014.

The Annual Report on Remuneration (pages 69 to 77)
This section reports on the payments and awards made to 
the directors and details the link between company 
performance and remuneration for the 2015 ﬁnancial year. 
The Annual Report on Remuneration together with this 
annual statement is subject to an advisory shareholder vote 
at the AGM on 19 November 2015.

At a Glance
How we performed
As reported in the Financial Overview section on pages 14 to 
19 of the Strategic Report, this has been another year of 
strong performance across the group, driven by continued 
good performance from the Banking division and good 
growth in Asset Management. The key performance 
indicators with regards to remuneration are shown in the 
table below. The bonuses for the executive directors (“EDs”) 
have increased slightly this year, driven by strong 
performance. However, the single ﬁgure totals of 
remuneration have all decreased, primarily due to the impact 
of share price movement.

Key performance indicator
Return on equity
Adjusted operating proﬁt
Compounded adjusted 

2015
19.5%

20141
18.5%
£224.9 million £200.6 million

earnings per share growth2

79.0%

60.6%

Total shareholder return 

per annum3

33.9%
Distributions to shareholders £79.1 million

24.5%
£71.8 million

1  2014 performance measurement based on continuing and discontinued 

operations.

2  For the three year periods ended 31 July 2015 and 31 July 2014.
3  For the three year periods ended 31 July 2015 and 31 July 2014 based on the 

average three month share price prior to that date.

Key changes during the financial year
This year we have introduced clawback on all variable 
remuneration for the EDs, to allow the recovery of variable 
remuneration where appropriate. Clawback will extend to 
three years for cash bonuses, deferred bonuses and 
invested shares under the Share Matching Plan (“SMP”), and 
to four years for the Long Term Incentive Plan (“LTIP”) and 
Matched SMP shares. The other key details are outlined in 
the policy table on pages 61 to 64.

Close Brothers Group plc Annual Report 2015

59

This is an addition to the remuneration policy that was approved by 92.5% of shareholders for the following three years at the 
AGM held on 20 November 2014. A binding shareholder vote is required on this policy at least every three years, or in the 
event that the company wishes to make any signiﬁcant changes to the policy. Since clawback is a provision of the Revised 
Code, and the Committee believes it can operate these provisions within the remit of the existing policy, it is not our intention 
to put the remuneration policy to a vote at the AGM to be held on 19 November 2015.

Major Decisions on Remuneration for the Financial Year

Previous salary
Salary with effect from 1 August 2015
Percentage salary increase
2015 bonus
Percentage change in bonus from 2014
2015 bonus as a per cent of 2015 salary
2015 LTIP award
Percentage change in LTIP award from 

2014

2015 LTIP award as a per cent of 2015 

salary

Managing director and 
Banking chief executive

Chief executive

Finance director
Preben Prebensen Stephen Hodges Jonathan Howell
£400,000
£408,000
2.0%
£1,135,000
0.9%
284%
£750,000

£528,000
£540,000
2.3%
£1,552,000
0.8%
294%
£1,000,000

£475,000
£485,000
2.1%
£1,405,000
1.4%
296%
£850,000

Group head of legal and 
regulatory affairs
Elizabeth Lee
£360,000
£367,500
2.1%
£335,000
11.7%
93%
£400,000

0.0%

189%

0.0%

179%

0.0%

188%

0.0%

111%

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EDs’ Remuneration and Shareholdings
Single total figure of remuneration1

Preben Prebensen
£’000

Stephen Hodges
£’000

Jonathan Howell
£’000

Elizabeth Lee
£’000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

£7,411

70%

21%

9%

2014

£6,052

63%

26%

11%

2015

6,000

5,000

4,000

3,000

2,000

1,000

0

£5,098

62%

27%

11%

2014

£4,312

54%

32%

14%

2015

6,000

5,000

4,000

3,000

2,000

1,000

0

£4,571

65%

24%

11%

2014

£3,487

53%

33%

14%

2015

2,000

1,750

1,500

1,250

1,000

750

500

250

0

£1,646

£1,580

55%

50%

18%

27%

2014

21%

29%

2015

Fixed remuneration

Annual bonus

Performance awards

1  See page 69 for details.

Value of shareholding versus shareholding policy1 as a percentage of salary

Preben Prebensen
per cent

Stephen Hodges
per cent

Jonathan Howell
per cent

Elizabeth Lee
per cent

2,400

2,100

1,800

1,500

1,200

900

600

300

0

1,926

Actual

200

Policy

2,400

2,100

1,800

1,500

1,200

900

600

300

0

2,376

200

Policy

Actual

2,400

2,100

1,800

1,500

1,200

900

600

300

0

1  See EDs’ Shareholding and Share Interests table on page 74 for details.

1,000

800

600

400

200

0

100

Policy

222

Actual

958

Actual

200

Policy

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60

Close Brothers Group plc Annual Report 2015

Report of the Board on Directors’ Remuneration 
continued

Looking Forward to 2016
2016 is going to be another busy year for the Committee.  
If the proposed amendments to the application of the Capital 
Requirements Directive, currently in consultation by the 
European Banking Authority, are implemented, this will 
require a redesign of our remuneration policy. The most 
signiﬁcant proposed change would see the application of a 
cap on variable remuneration of one times ﬁxed 
remuneration, rising to two times with shareholder approval. 
We anticipate consulting with shareholders about any 
proposed amendments to the remuneration structure in the 
summer of 2016, and presenting a revised remuneration 
policy for approval by shareholders at the AGM in November 
2016.

I hope that you will ﬁnd this report on the directors’ 
remuneration useful, understandable and clear. 

Bridget Macaskill
Chairman of the Remuneration Committee

22 September 2015

Governance
Remuneration Committee
Committee roles and responsibilities
The Committee’s key objectives are to:
•  Determine the over-arching principles and parameters of 

the remuneration policy on a group-wide basis;
•  Establish and maintain a competitive remuneration 

package to attract, motivate and retain high calibre EDs 
and senior management across the group;

•  Promote the achievement of the group’s annual plans and 

its strategic objectives by providing a remuneration 
package that contains appropriately motivating targets that 
are consistent with the group’s risk appetite; and

•  Align senior executives’ remuneration with the interests  

of shareholders.

The Committee’s main responsibilities are to:
•  Review and determine the total remuneration packages of 
EDs and other senior executives in consultation with the 
chairman and chief executive and within the terms of the 
agreed policy;

•  Approve the design and targets of any performance 

related pay schemes operated by the group;

•  Review the design of all employee share incentive plans;
•  Ensure that contractual terms on termination and any 

payments made are fair to the individual and the group, 
that failure is not rewarded and that a duty to mitigate risk 
is fully recognised;

•  Review any major changes in employee beneﬁts structures 

throughout the group;

•  Select, appoint and determine terms of reference for 
independent remuneration consultants to advise the 
Committee on remuneration policy and levels of 
remuneration;

•  Ensure that the remuneration structures in the group are 
compliant with the rules and requirements of regulators, 
and all relevant legislation;

•  Ensure that provisions regarding disclosure of 

remuneration are fulﬁlled; and

•  Seek advice from group control functions to ensure 
remuneration structures and annual bonuses are 
appropriately aligned to the group’s risk appetite.

Membership
The Committee comprises Bridget Macaskill as chairman, 
together with each of the other independent non-executive 
directors. Five meetings were held during the year and a 
record of attendance at meetings is set out on page 46.

The chairman of the board, chief executive, group head of 
human resources and the head of reward and HR operations 
also attend meetings.

Activity in the 2015 financial year
The Committee has a standing calendar of items within its 
remit. In addition to these standing items, it discusses 
matters relating to the operation of the remuneration policy 
and emerging regulatory and market practices. The key 
issues that the Committee focused on during the year were 
as follows:
•  The introduction of clawback on variable remuneration  

for EDs;

•  The review of the annual bonus targets and objectives  

for EDs;

•  An external review of the reporting to the Committee;
•  Assessment of the vesting of LTIP and SMP awards;
•  Regular reviews of regulatory and legislative changes and 

developments;

•  Review of the remuneration structure for senior employees;
•  Review of the remuneration structure for employees in 

control and support functions;

•  Review of the approach to employee sales incentive 

schemes in the group;

•  The implementation of the Share Incentive Plan (“SIP”) for 

employees; and

•  The annual performance, salary and variable remuneration 

review.

Directors’ Remuneration Policy
This section sets out the company’s remuneration policy for 
directors and explains each element and how it operates. 

The reward structure aims to:
•  Attract, motivate and retain high calibre employees across 

the group;

•  Reward good performance;
•  Promote the achievement of the group’s annual plans and 

its long-term strategic objectives;

•  Align the interests of employees with those of all key 

stakeholders in particular our shareholders, clients and 
regulators; and

•  Support effective risk management and promote a positive 

client conduct culture.

There is one signiﬁcant change to the policy this year, which 
is the introduction of clawback on all variable remuneration 
for EDs. The cash bonus is subject to clawback for a period 
of three years from award. The deferred bonus vests in equal 
tranches over three years, and is subject to malus prior to 
vesting and clawback for three years from the date of grant. 

The LTIP is subject to malus for the three year period to the 
point of vesting, and is subject to clawback for four years 
from the date of grant. The Invested SMP shares are subject 
to malus until vesting and to clawback for three years from 
the date of grant, while the Matched SMP shares are subject 
to malus until vesting and to clawback for four years from the 
date of grant.

Close Brothers Group plc Annual Report 2015

61

The events which may trigger malus are as follows:
•  The ED’s employment has been terminated for misconduct 

The events which may trigger clawback are as follows:
•  Discovery of a material mis-statement resulting in an 

or the ED has been issued with a formal disciplinary 
warning for misconduct under the ﬁrm’s disciplinary policy; 
or

•  The ﬁrm suffers a material loss where the ED has operated 
outside the risk parameters or risk proﬁle applicable to their 
position and as such the Committee considers a material 
failure in risk management has occurred; or

•  The level of the award is not sustainable when assessing 

the overall ﬁnancial viability of the ﬁrm.

In the event that one of these is triggered, the Committee 
may, at its discretion, defer and/or reduce, in whole or in part 
any unvested award.

adjustment in the audited consolidated accounts of the 
company, or the audited accounts of any material 
subsidiary; or

•  The assessment of any performance target or condition in 

respect of an award was based on material error, or 
materially inaccurate or misleading information; or

•  The discovery that any information used to determine the 
bonus and number of shares subject to an award was 
based on material error, or materially inaccurate or 
misleading information; or

•  Action or conduct of a participant which, in the reasonable 

opinion of the board, amounts to fraud or gross 
misconduct.

In the event that one of these is triggered, the Committee 
may require the ED to repay all or part of a relevant award, 
and any associated dividend equivalents.

Remuneration Policy for EDs

Element and how it supports 
the company’s short-term and 
long-term strategic objectives
Base salary
Attracts and retains high 
calibre employees.

Reﬂects the employee’s 
role and experience.

Operation and maximum payable
Set annually based on the individual’s role and 
experience, pay for the broader employee 
population, and external factors, where 
applicable.

Increases normally take effect from 1 August.

Paid monthly in cash.

Increases will generally not exceed increases for 
the broader employee population unless there is 
a change in role or responsibility.

Performance framework, recovery and withholding
None.

Beneﬁts
Enables the EDs to 
perform their role 
effectively by contributing 
to their wellbeing and 
security.

Private medical cover.

Health screening.

Life assurance cover.

Income protection cover.

None.

Provides competitive 
beneﬁts consistent with 
the role.

Allowance in lieu of a company car.

The maximum allowance in lieu of a company 
car is £18,000 for the chief executive and
£12,000 for the other EDs.

Pension
Provides an appropriate 
and competitive level of 
personal and dependant 
retirement beneﬁts.

Other beneﬁts provided from time to time.

Cash allowance in lieu of employer pension 
contributions equal to 22.5% of base salary.

None.

The maximum is 22.5% of base salary and the 
absolute values will only increase in line with any 
base salary increases.

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62

Close Brothers Group plc Annual Report 2015

Report of the Board on Directors’ Remuneration 
continued

Element and how it supports 
the company’s short-term and 
long-term strategic objectives
Annual bonus
Rewards good 
performance.

Motivates employees 
to support the group’s 
goals, strategies and 
values over both the 
medium and long term.

Aligns the interests of 
senior employees and 
executives with those 
of key stakeholders, 
including shareholders, 
and increases retention 
for senior employees, 
through the use of 
deferrals.

Operation and maximum payable
Set annually based on the achievement of 
pre-determined objectives.

Annual bonus up to 100% of base salary is 
delivered in cash.

Annual bonus above 100% of base salary is 
deferred into group shares vesting one third  
per year over three years.

Shares may be called for at any time up to  
12 months from the date of vesting. When the 
shares are called for, the ED is entitled to the 
gross value of accumulated dividends in respect 
of the shares held under the deferred awards 
prior to calling.

The annual bonus for EDs is capped at 300%  
of base salary.

The annual bonus for the group head of legal 
and regulatory affairs is capped at 100% of base 
salary given that this is a control function, and so 
a lower proportion of the remuneration should 
be variable.

Performance framework, recovery and withholding
Individual bonuses are determined based on 
both ﬁnancial and non-ﬁnancial performance, 
including adherence to relevant risk and 
control frameworks.

The ﬁnancial measure used to determine the 
bonus is return on opening equity (“RoE”). The 
non-ﬁnancial metric is individual performance. 
This includes risk, compliance and control 
measures, and others applicable to each role. 
The actual performance targets will be set at 
the beginning of each ﬁnancial year, but will 
not be disclosed in advance for commercial 
sensitivity reasons.

The actual targets set for each year will be 
designed to align the interests of EDs with the 
key stakeholders over the medium term, be 
challenging but also provide an effective 
incentive for the EDs.

60% of the annual bonus for the chief 
executive, the Banking chief executive and the 
ﬁnance director will be determined based on 
RoE. 40% of the annual bonus for the group 
head of legal and regulatory affairs will be 
determined based on RoE. The remainder  
will be determined based on individual 
performance.

Threshold performance would result in a 
bonus of no more than one third of the 
maximum being paid for the chief executive, 
the Banking chief executive and the ﬁnance 
director, and no more than 60% of the 
maximum being paid for the group head  
of legal and regulatory affairs.

The deferred awards would be forfeited if the 
ED leaves employment in certain 
circumstances or is dismissed for cause 
before the relevant vesting date.

The cash and deferred bonuses are subject to 
clawback and/or malus conditions, as outlined 
on page 60.

Close Brothers Group plc Annual Report 2015

63

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Element and how it supports 
the company’s short-term and 
long-term strategic objectives
Long Term Incentive Plan
Motivates executives 
to achieve the group’s 
longer-term strategic 
objectives.

Aids the attraction and 
retention of key staff.

Aligns executive 
interests with those of 
shareholders.

Operation and maximum payable
Awards are made in the form of nil cost options 
or conditional shares.

Awards vest after three years subject to 
achieving absolute total shareholder return 
(“TSR”), adjusted earnings per share (“EPS”) 
growth and Risk Management objectives.

Performance framework, recovery and withholding
Awards vest after three years subject to 
achieving TSR, adjusted EPS growth and Risk 
Management objectives.

The weighting of the performance measures  
is 40% TSR, 40% adjusted EPS and 20% Risk 
Management objectives.

On vesting, EDs receive an amount (in cash or 
shares) equal to the dividends which would have 
been paid on vested shares during the period 
from the beginning of the performance period  
to the time that the ED calls for the award.

The TSR and adjusted EPS performance 
targets are determined at the time of each 
grant, are set to support the objectives of the 
LTIP and be challenging but achievable.

EDs are eligible to receive an annual award of 
shares with a face value of up to 200% of base 
salary, excluding dividend equivalents.

The group head of legal and regulatory affairs is 
eligible to receive an annual award of shares with 
a face value of up to 125% of base salary, 
excluding dividend equivalents, given that this is 
a control function, and so a lower proportion of 
remuneration should be variable.

The Risk Management objectives are: capital 
and balance sheet management; and risk, 
compliance and controls. These two elements 
have equal weighting.

For each element of the award, vesting starts 
at 25% for threshold performance, rising on  
a straight line basis to 100% for maximum 
performance.

The actual target ranges set for each grant 
and performance against the targets at vesting 
will be reported in the Annual Report on 
Remuneration for the relevant ﬁnancial years.

The LTIP awards will be forfeited if the ED 
leaves employment in certain circumstances 
or is dismissed for cause before the relevant 
vesting date.

The LTIP awards are subject to malus and 
clawback conditions, as outlined on page 61.

Share Matching Plan
Aligns the interests of 
executives with those  
of shareholders.

EDs can choose to invest up to a maximum 
value of 100% of base salary from their bonus 
into Close Brothers Group plc shares (“Invested 
Shares”) for three years.

The performance conditions for the Matching 
Shares are the same as the performance 
conditions in respect of the LTIP awards, 
outlined above.

Invested Shares are matched with free matching 
shares (“Matching Shares”) for every Invested 
Share.

The Invested Shares are released in full at the 
end of the three year deferral.

The Matching Shares are subject to 
performance conditions over the three year 
deferral period.

On vesting, EDs receive an amount (in cash or 
shares) equal to the dividends which would have 
been paid on vested shares during the period 
from the beginning of the performance period to 
the time that the ED calls for the award.

The maximum matching ratio will be two 
Matching Shares for each Invested Share.

For each performance element of the 
Matching Share award, vesting starts at 25% 
for threshold performance, rising on a straight 
line basis to 100% for maximum performance.

The actual target ranges set for each grant 
and performance against the targets at vesting 
will be reported in the Annual Report on 
Remuneration for the relevant ﬁnancial years.

The Invested Shares and Matching Shares are 
forfeited if the ED leaves employment in 
certain circumstances or is dismissed for 
cause before the relevant vesting date.

The Invested Shares and Matching Shares are 
subject to malus and clawback conditions, as 
outlined on page 61.

 
 
64

Close Brothers Group plc Annual Report 2015

Report of the Board on Directors’ Remuneration 
continued

Element and how it supports 
the company’s short-term and 
long-term strategic objectives
Save As You Earn 
(“SAYE”)
Aligns the interests of 
executives with those of 
shareholders through 
building a shareholding.

Share Incentive Plan
Aligns the interests of 
executives with those of 
shareholders through 
building a shareholding.

Shareholding requirement
Aligns the interests of 
executives with those of 
shareholders.

Other

Legacy arrangements

Operation and maximum payable
Employees save a ﬁxed amount per month over 
a three or ﬁve year time frame.

Performance framework, recovery and withholding
None as this is a voluntary scheme where 
employees have invested their own earnings.

At the end of the period employees can 
withdraw all of their savings, or use some or all of 
their savings to buy shares at the guaranteed 
option price.

The option price is set at the beginning of the 
participation period and is usually set at a 20% 
discount to the share price at invitation.

Employees can make total maximum 
contributions of £6,000 per annum, in line with 
HMRC rules.

The Committee reserves the discretion to 
increase the maximum contributions in line with 
any HMRC rule changes during the period of  
the policy.

Employees are able to contribute up to a 
maximum of £1,800 per year from pre-income 
tax and national insurance earnings to buy 
Partnership Shares.

At present the Committee has determined that 
employees have the ability to buy Partnership 
Shares; however it retains the discretion to offer 
Matching Shares of up to twice the number of 
Partnership Shares. This will be on the same 
basis for all employees should the Committee 
exercise this discretion.

Dividends paid on shares held in the SIP are to 
be reinvested to acquire further Dividend Shares.

The Committee reserves the discretion to 
increase the maximum contributions in line with 
any HMRC rule changes during the period of  
the policy.

The chief executive, the Banking chief executive 
and the ﬁnance director are required to build and 
maintain a shareholding of 200% of base salary 
over a reasonable timeframe. The group head of 
legal and regulatory affairs is required to build a 
shareholding of 100% of base salary, given that 
this is a control function. Short-term share price 
ﬂuctuations are disregarded for these 
calculations.

The company will pay legal, training and other 
reasonable and appropriate fees incurred by the 
EDs as a result of doing their job.

The company will have the ability to honour any 
commitments entered into with current or former 
directors that were disclosed to shareholders in 
remuneration reports prior to the 2014 
remuneration report.

The Committee reserves the right to allow 
awards to vest or make payments subject to 
arrangements that were granted or agreed 
before the individual became a director and not 
in contemplation of becoming a director.

None as this is a voluntary scheme where 
employees have invested their own earnings.

None.

None.

None.

Close Brothers Group plc Annual Report 2015

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Additional Details on the Remuneration Policy
Annual bonus: Performance measures and targets

Per cent 
determined 
by RoE
60%

Per cent 
determined by 
achievement 
against  

personal goals

Examples of personal goals

40% Strategic: Maintain discipline of the Banking model particularly as competition 

increases and maintain momentum in Asset Management.
People: Develop senior succession and support pipeline talent programmes.
Business delivery: Deliver versus key group metrics.

60%

40% Strategic: Maintain discipline of funding and lending models and progress strategic 

and tactical initiatives.
People: Develop senior succession and support pipeline talent programmes.
Business delivery: Deliver against key metrics, principally in the Banking division 
and maintain cost discipline and prioritise spending.

60%

40% Strategic: Manage the positioning of our strategy and results with investors 

and analysts.
Manage the level of group capital, including both regulatory and economic.

40%

60% Strategic: Play a leadership role in all regulatory issues, including advice on key 

decisions as we address PRA/FCA requirements and standards.
Risk and compliance: Ensure operation within the agreed risk appetite and continue 
to enhance the control environment and supporting infrastructure.

Role
Chief 
executive

Banking chief 
executive

Finance 
director

Group head 
of legal and  
regulatory 
affairs

The Committee chose RoE as a performance measure as it aligns the interests of the shareholders and the executives and it 
captures both proﬁt and capital management metrics. Individual performance was selected to ensure that the EDs are 
implementing and executing the groups’ strategies and objectives over the short and medium term. Risk, compliance and 
controls are included as part of the personal objectives to ensure that the EDs set the right tone from the top and ensure the 
company maintains the appropriate risk and compliance discipline.

The actual performance targets for each ﬁnancial year will be set at the beginning of the ﬁnancial year based on prior year 
performance, the budget for the following year, and other internal and external factors as appropriate.

LTIP and SMP: Performance measures
Adjusted EPS was chosen as a performance measure as the Committee believes it is the best measure of long-term 
performance for the group. Absolute TSR was selected as it is the key objective for most of our shareholders and it supports 
both the delivery of a good RoE for shareholders and strong alignment of interests between executives and shareholders. 
Capital and balance sheet management was included to ensure capital is used efﬁciently and in a disciplined way to support 
the long-term health of the group. Risk, compliance and controls was selected to ensure that the long-term interests of the 
group are protected and to support key requirements for our business such as good customer outcomes.

Additional details on performance measures for the annual bonus, LTIP and SMP
The Committee has the discretion to change the overall weighting of each category over the duration of the policy where it is 
deemed appropriate and reasonable to do so.

The Committee can also make adjustments to performance targets to reﬂect signiﬁcant one-off items which occur during the 
measurement period (for example a major transaction), where it is deemed appropriate and reasonable to do so. The 
Committee will make full and clear disclosure of any such adjustments within the Annual Report on Remuneration for the 
relevant ﬁnancial year.

Consistency of executive remuneration across the group
The pay and employment conditions of employees within the group were taken into consideration when setting the policy and 
pay of the EDs. The Committee does not formally consult with employees when setting the policy, however the employee 
opinion survey conducted every two years includes remuneration as one of the topics surveyed.

The principles of remuneration are applied throughout the group and are designed to support the group’s key attributes 
across our businesses, which are expertise, service and relationships. Remuneration structures and arrangements for 
employees below the EDs are based on the individual’s role, experience, performance and relevant market practice.

Annual bonuses for those below ED level are based on role, business performance, market conditions and individual 
performance. These bonuses are not capped; however highly remunerated employees have a portion of their bonus deferred. 
For the majority of employees the bonus deferral policy is in line with the EDs, although there are differing approaches in some 
parts of the group.

 
 
66

Close Brothers Group plc Annual Report 2015

Report of the Board on Directors’ Remuneration 
continued

A limited group of senior employees receive LTIP awards, generally on the same basis as the EDs, but the maximum face 
value of these awards is generally at or below the level of the employee’s base salary.

Members of the group Executive Committee who are not EDs are required to build and maintain shareholdings of at least one 
times base salary and as such are also eligible to participate in the SMP. No other employees have shareholding requirements 
or are eligible to participate in the SMP.

All employees are eligible to participate in the SAYE and SIP plans.

Illustrations of Application of Remuneration Policy for EDs

Preben Prebensen
£’000

Stephen Hodges
£’000

Jonathan Howell
£’000

Elizabeth Lee
£’000

5,000

4,000

3,000

2,000

1,000

£686

£4,466

49%

36%

£2,585

32%

42%

100%

26%

15%

0

5,000

4,000

3,000

2,000

1,000

£613

100%

0

£4,008

49%

36%

15%

£2,293

31%

42%

27%

5,000

4,000

3,000

2,000

1,000

0

£3,374

49%

36%

15%

£1,950

32%

42%

26%

£518

100%

5,000

4,000

3,000

2,000

1,000

0

£1,171
35%
25%
40%

£469
100%

£2,031

59%

18%
23%

Minimum On target Maximum

Minimum On target Maximum

Minimum On target Maximum

Minimum On target Maximum

The following assumptions were made in developing the scenarios:

Fixed remuneration

Annual bonus

Performance awards

Assumptions used

Element
Fixed remuneration Consists of 2016 base salary, 2016 beneﬁts and 2016 pension allowance.
Minimum
On target

No variable elements are awarded.
Annual bonus: Awarded at 200% of base salary for all EDs, with the exception of Elizabeth Lee, where 
the award is 80% of base salary.
LTIP: Awards with a face value of £1,000,000 for Preben Prebensen, £850,000 for Stephen Hodges, 
£750,000 for Jonathan Howell and £400,000 for Elizabeth Lee (the level of the ﬁnancial year 2015 
awards) and vesting at 53% (average level of vesting for the ﬁve years up to and including 2014).
SMP: The ED invests 50% of the policy maximum in the SMP, the investment is matched at two 
times the Invested Shares and vests at 53% (average level of vesting for the ﬁve years up to and 
including 2014).
Annual bonus: Awarded at policy maximum (300% of base salary for all EDs, with the exception of 
Elizabeth Lee, where the policy maximum is 100% of base salary).
LTIP: Maximum award with a face value equal to 200% of base salary for all EDs with the exception of 
Elizabeth Lee where the award is 125% of salary. Assumes 100% vesting.
SMP: The executive invests 100% of the maximum in the SMP (that is equal to 100% of base salary), 
the investment is matched at two times the Invested Shares and vests at 100%.
No adjustment for share price growth or dividends paid.

Maximum

Other

At maximum performance, the ratio of ﬁnancial to non-ﬁnancial measures for the EDs across the annual bonus, LTIP and SMP 
is approximately 70% to 30%. The Committee believes this combination provides a good balance of ﬁnancial and non-
ﬁnancial measures, supports the medium and long-term strategic objectives of the group, and alignment of EDs’ and 
shareholders’ interests.

 
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Approach to Recruitment Remuneration
The remuneration package for new EDs will comply with the Remuneration Policy for EDs outlined on pages 61 to 64. The 
Committee will seek to pay no more than is necessary to secure the right candidate. The Committee may seek to “buy out” 
remuneration that the director forfeits as a result of joining the company. In such cases, the Committee will seek to replace this 
with awards that match the quantum and terms of the forfeited awards as closely as possible. There may be situations where 
a new director has to relocate in order to take up the post with the company. In such situations reasonable ﬁnancial and, or, 
practical support will be provided to enable the relocation. This may include the cost of any tax that is incurred as a result of 
the move.

Service Contracts and Policy for Payment on Loss of Ofﬁce

Standard provision
Notice period

Policy
12 months notice from the company.
12 months notice from the ED.

Compensation for loss of 
ofﬁce in service contracts

No more than 12 months’ salary, pension 
allowance and beneﬁts.

Treatment of annual bonus 
on termination

The standard approach is no payment 
unless employed on date of payment.

Treatment of unvested 
deferred awards under the 
annual bonus plan and the 
Invested Shares under the 
SMP

The Committee has the discretion under 
the relevant plan rules to determine 
whether “good leaver” status should be 
applied on termination.
The current approach provides that 
discretion may be afforded in cases such 
as death, disability, retirement, redundancy 
or mutual separation.

Treatment of the LTIP and 
the Matched Shares under 
the SMP

All awards lapse except for “good leavers”.
The Committee has the discretion under 
the relevant plan rules to determine how 
“good leaver” status should be applied on 
termination.
The current approach provides that 
discretion may be afforded in cases such 
as death, disability, retirement, redundancy 
or mutual separation.

Outside appointments

EDs may accept external appointments.

Details
EDs may be required to work during the notice 
period or may be provided with pay in lieu of notice 
if not required to work the full period.
All EDs are subject to annual re-election by 
shareholders.

Payment will be commensurate with the 
company’s legal obligations and we will seek 
appropriate mitigation of loss by the ED.

The Committee may award a pro-rated bonus to 
“good leavers” (as determined by the Committee) 
in certain circumstances, although there is no 
automatic entitlement. “Good leaver” status may 
be granted in cases such as death, disability or 
retirement.
The Committee has discretion to reduce the 
entitlement of a “good leaver” in line with 
performance, the circumstances of the 
termination, and the malus conditions outlined in 
the policy table. The Committee also has the ability 
to recover annual bonuses in line with the 
clawback conditions outlined in the policy table.

Where the director is designated a “good leaver”, 
awards vest in full over the original schedule and 
remain subject to the malus conditions.
The deferred shares are released in full in the event 
of a change in control.
Awards lapse in the event the employee is 
declared bankrupt, joins another ﬁnancial services 
company within 12 months of termination (unless 
this condition is waived under “good leaver” 
status), or leaves and is not designated a “good 
leaver”.
These are also subject to the clawback conditions.

For “good leavers”, vesting is pro-rated for the 
period of employment during the performance 
period.
Vesting is subject to the achievement over the 
original performance period against the 
performance targets and is on the original 
schedule.
Awards remain subject to the malus and clawback 
conditions.
In the event of a change in control, the awards will 
vest subject to the service factor and the 
achievement against the performance targets at 
that point. However, the Committee retains the 
discretion to increase the amount vesting 
depending on the circumstances of the change in 
control.

Board approval must be sought before accepting 
the appointment.
The fees may be retained by the director.

 
 
68

Close Brothers Group plc Annual Report 2015

Report of the Board on Directors’ Remuneration 
continued

Standard provision
Chairman and non-
executive directors

Other

Policy
Engaged under letters of appointment for 
terms not exceeding three years.
Renewable by mutual agreement and can 
be terminated on one month’s notice.

Details
All non-executive directors are subject to annual 
re-election.
No compensation is payable if required to stand 
down.

The company may pay settlement 
payments, legal, training and outplacement 
fees incurred on exit, if appropriate.

Other notable provisions in 
service contracts

There are no other notable provisions in 
the service contracts.

Copies of the directors’ service contracts and letters of appointment are available for inspection at the company’s registered 
ofﬁce.

Dates of EDs’ Service Contracts

Name
Preben Prebensen
Stephen Hodges
Jonathan Howell
Elizabeth Lee

Date of service contract
9 February 2009
22 January 2001
8 October 2007
1 August 2012

Remuneration Policy for the Chairman and Independent Non-executive Directors

Element and how it supports 
the company’s short-term and 
long-term strategic objectives
Fees
Attract and retain a 
chairman and independent 
non-executive directors who 
have the requisite skills and 
experience to determine the 
strategy of the group and 
oversee its implementation.

Operation and maximum payable
Fees are paid in cash and are reviewed periodically.
Fees for the chairman and non-executive directors are set by the board based on a 
recommendation from the Nomination and Governance Committee. The non-executive 
directors do not participate in that discussion.
The chairman of the board receives a fee as chairman but receives no other fees for 
chairmanship or membership of any committees.
Non-executive directors receive a base fee.
The senior independent director receives an additional fee for this role.
Additional fees are paid for chairmanship of each of the Audit, Remuneration and Risk 
Committees.
Additional fees are paid for membership of committees, with the exception of the Nomination 
and Governance Committee, for which no additional fees are payable.
The chairman and non-executive directors are entitled to claim reimbursement for reasonable 
expenses incurred performing their duties for the company, including travel expenses.
Overall aggregate fees will remain within the £1 million authorised by our articles of 
association.
There is no performance framework, recovery or withholding.

Non-executive Directors’ Appointment Letters

Name
Bruce Carnegie-Brown
Oliver Corbett
Geoffrey Howe
Lesley Jones
Bridget Macaskill
Strone Macpherson

Date of initial appointment
22 June 2006
3 June 2014
4 January 2011
23 December 2013
21 November 2013
3 March 2003

Current letter of appointment start date

Date of resignation
20 November 2014

20 November 2014
20 November 2014
20 November 2014
20 November 2014
20 November 2014

Consideration of Shareholders’ Views
The chairman of the board consults our key shareholders on a regular basis on key issues, including remuneration. 
The Committee took issues of concern raised by shareholders in prior years into account when determining the policy.

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Annual Report on Remuneration
This section explains how our Directors’ Remuneration Policy was implemented during 2015.

Single Total Figure of Remuneration for EDs (Audited)

Name
Preben Prebensen
Stephen Hodges
Jonathan Howell
Elizabeth Lee

Salary

Beneﬁts

Annual bonus

Performance awards1

Pension

Total

2015 
£’000
528
475
400
360

2014 
£’000
513
462
390
350

2015 
£’000
20
13
14
13

2014 
£’000
24
14
14
16

2015 
£’000
1,552
1,405
1,135
335

2014 
£’000

2015 
£’000
1,539 3,833
2,312
1,386
1,125 1,848
791
300

2014 
£’000
5,220
3,132
2,954
901

2015 
£’000
119
107
90
81

2015 
2014 
£’000
£’000
115 6,052
4,312
104
88 3,487
79 1,580

2014 
£’000
7,411
5,098
4,571
1,646

1  The ﬁgures for the performance awards for 2014 have been recalculated using the actual share price on the dates of vesting for the Matching Share Award, LTIP and 
SMP Matched shares. These were £14.25 for Matching Share Award and £14.60 for LTIP and SMP Matched Shares. As highlighted in the 2014 report, the three 
month average to 31 July 2014 was used for the 2014 report given that the awards were vesting after publication of the report.

Link between reward and performance
The group’s ﬁnancial results have been strong this year, and over the past three years. Adjusted operating proﬁt has increased 
16% in the year to £224.9 million, and it has grown 68% or 19% per annum compounded over the last three ﬁnancial years. 
RoE has increased from 17.9% in 2014 to 19.5% this year, and it is up from 12.5% in 2012. Dividend growth was 9% this year 
and dividend cover has increased to 2.3 times, from 2.1 times last year and 1.6 times in 2012.

The strong RoE has been reﬂected in the EDs’ bonuses, with the element of the bonus determined based on RoE being 
97.7% of the potential maximum. The compounded adjusted EPS growth of 79.0% over the last three years has resulted in 
the EPS element of the LTIP vesting at 100%. The compounded TSR of 33.9% per annum has exceeded the maximum target 
under the LTIP and this has therefore also vested at 100%. The very strong approach to capital management combined with 
a good performance in risk, compliance and controls mean that the Risk Management objectives element vested at 86.7%. 
As a result, the LTIP will vest at 97.3% this year.

Additional Disclosures on the Single Total Figure of Remuneration for EDs Table (Audited)
Salary
The per annum salaries paid during the year are as shown in the single ﬁgure of remuneration table above. The increase was 
with effect from 1 August 2014. When reviewing salary levels, the Committee takes into account the individual’s role and 
experience, pay for the broader employee population, and external factors, where applicable. The increases for ﬁnancial year 
2015 for EDs were all less than the average increase for employees of 3%.

Benefits
The EDs each received an allowance in lieu of a company car. Preben Prebensen received £18,000 while the others received 
£12,000. These have not been increased since 2012. They also received private health cover. The discount to the share price 
on grant of SAYE options is included in the year of grant. Preben Prebensen and Elizabeth Lee elected to participate in SAYE 
in ﬁnancial year 2014.

Pension
The EDs all received a monthly cash pension allowance equivalent to 22.5% of base salary. They do not receive any additional 
pension provision.

Annual bonus: Achievement against targets
The bonuses for EDs were determined with reference to RoE targets and stretching personal goals relevant to each ED’s role 
and business accountabilities. The RoE for ﬁnancial year 2015 was 19.5% against a maximum target of 20%, warranting an 
award of 97.7% of the potential maximum bonus. Any annual bonus above the level of the 2015 base salary was deferred into 
group shares vesting one third per year over three years in line with the approach outlined in the Remuneration Policy on 
page 62.

Achievement Against Annual Bonus Targets

Name
Preben Prebensen
Stephen Hodges
Jonathan Howell
Elizabeth Lee

Financial target (RoE)

Personal objectives

Weighting
60%
60%
60%
40%

Potential 
maximum 
(’000s)
£950
£855
£720
£144

Actual 
per cent 
awarded
97.7%
97.7%
97.7%
97.7%

Actual 
amount 
awarded 
(’000s)
£928
£835
£703
£141

Weighting
40%
40%
40%
60%

Actual 
Potential 
per cent 
maximum 
awarded
(’000s)
98.5%
£634
£570 100.0%
90.0%
£480
90.0%
£216

Actual 
amount 
awarded 
(’000s)
£624
£570
£432
£194

Total bonus 
awarded 
(’000s)
£1,552
£1,405
£1,135
£335

 
 
70

Close Brothers Group plc Annual Report 2015

Report of the Board on Directors’ Remuneration 
continued

Annual bonus: Examples of personal goals for the 2015 financial year
All of the EDs have delivered very strong performance against their personal goals. The Committee assessed each ED against 
their personal objectives and determined that each would be granted the percentages of the maximum bonuses for the 
personal objectives indicated on page 69.

Examples of Personal Goals for the 2015 Financial Year

Name
Preben Prebensen

Stephen Hodges

Jonathan Howell

Elizabeth Lee

Examples of personal goals
Execute group strategy, including maintaining the discipline of the Banking model and the 
momentum in Asset Management.
Promote the importance of a sound risk culture, with appropriate governance and remain 
abreast of regulatory and legislative issues.

Maintain the discipline of funding and lending models.
Exploit growth opportunities consistent with the model.
Maintain cost discipline and prioritise spending.

Manage the level of group capital, including both regulatory and economic.
Manage the positioning of our strategy with investors and analysts.

Play a leadership role in all regulatory issues, including advice on key decisions as we address 
PRA/FCA requirements and standards.
Taking responsibility for management and oversight of all critical legal issues affecting the group.

Performance awards
The ﬁgures for the performance awards include the 2012 LTIP grant and the 2012 Matching Shares under the SMP. Both of 
these will vest on 2 October 2015.

The performance targets for the 2012 awards vesting in 2015 were weighted 40% adjusted EPS, 40% absolute TSR and 20% 
Risk Management objectives. The adjusted EPS targets were RPI +3% per annum to RPI +10% per annum and the absolute 
TSR targets were +10% per annum to +20% per annum. Compounded adjusted EPS growth over the three year period to 
2015 was a very strong 21.4% per annum, whilst the TSR was 33.9% per annum, meaning both elements will vest at 100%. 
The Risk Management objectives of the 2012 LTIP and SMP Matching Shares were assessed at 86.7% by the Committee. 
More details on the rationale for the assessment are provided in the table below. Accordingly, the 2012 LTIP and SMP 
Matching Shares will vest at 97.3%. The LTIP and SMP awards vested at 95% in 2014. 

The share price for the LTIP and SMP Matching Shares increased by 85% over the three year period from the date of grant to 
the end of the performance period. The average share price used to value the awards due to vest in October 2015 was 
1,556.8p (from 1 May 2015 to 31 July 2015, which was the performance measurement period). The 2012 LTIP and SMP 
awards were originally granted at 839.6p. As a result the EDs have been well rewarded and these rewards are aligned with 
shareholders who have also beneﬁted due to this signiﬁcant share price increase over the period.

The values for Preben Prebensen for 2014 include the ﬁnal tranche of his Matching Share Award (“MSA”) that was granted in 
2009. There are no further MSA awards outstanding for Preben Prebensen to be reported in future.

The performance awards also include the amount (in cash or shares) equal to the dividends which would have been paid 
during the period from the beginning of the performance period to the time that the awards vest. The strong, progressive 
dividend payout also contributed signiﬁcantly to the single ﬁgures for remuneration.

The Committee assessed performance against the Risk Management objectives after each of the three years of the LTIP 
performance period. The results of each assessment are shown below.

Details of the Assessment of the Risk Management Objectives for the LTIP and SMP

Performance measure
Capital and balance
sheet management

Risk, compliance
and controls

Year one 
assessment 
100%

Year two 
assessment 
100%

Year three 
assessment 
100%

Overall 
vesting  Comments
100% Capital, balance sheet management, funding and liquidity 

were very strong in ﬁnancial year 2015, and good progress 
was made over the year.
The prudent approach, strong ﬁnancial position and 
consistent track record resulted in Moody’s Investor 
Services upgrading our credit rating.
There were no negative incidents of any size during the year.

70%

70%

80% 73.3% Strong regulatory relationships.

Strengthened key leadership in risk and compliance, and IT.
The Committee recognised that there have been signiﬁcant 
improvements in risk, compliance and controls but are 
cognisant that the bar is rising.

Overall vesting

86.7%

Close Brothers Group plc Annual Report 2015

71

Details of the Overall Vesting for the LTIP and SMP

Performance measure
Adjusted EPS growth
TSR

Risk Management objectives
Overall vesting

Threshold target
RPI +3% p.a.
+10% p.a.

Maximum target
RPI +10% p.a.
+20% p.a.

n/a

n/a

Actual achieved
21.4% p.a.
33.9% p.a.
See table 
on page 70

Overall vesting 
100%
100%

86.7%
97.3%

Historical Vesting of LTIP Awards Compared to Adjusted EPS and Absolute TSR
The following graph and table show the level of LTIP vesting following performance testing for the last ﬁve years.

Adjusted EPS and 
absolute TSR growth

300

250

200

150

100

50

0

95%

97%

79%

33%

25%

2008 award
vested 20111

2009 award
vested 20122

2010 award
vested 20132

2011 award
vested 20142

2012 award
vested 20153

Absolute TSR

Adjusted EPS

LTIP vesting

LTIP vesting %

100

80

60

40

20

0

Note: This graph shows the vesting percentage of the LTIP compared with the adjusted EPS rebased to 100 at 31 July 2010, and the TSR based on £100 invested in 
Close Brothers Group plc on 31 July 2010.

LTIP Vesting for the Last Five Years

Year awarded
20081
20092
20102
20112
20123

Vesting percentage

Year vested
2011
2012
2013
2014
2015

Adjusted EPS
–
–
66%
100%
100%

TSR
100%
–
92%
100%
100%

Goals
n/a
76%
80%
85%
87%

Total
33%
25%
79%
95%
97%

1  Vesting was subject to two thirds adjusted EPS and one third TSR for all awards granted up to and including 2008.
2  Vesting was subject to one third adjusted EPS, one third absolute TSR and one third Strategic Goals for all awards granted between 2009 and 2011, inclusive.
3  Vesting was subject to 40% adjusted EPS, 40% absolute TSR and 20% Risk Management objectives for the 2012 award.

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72

Close Brothers Group plc Annual Report 2015

Report of the Board on Directors’ Remuneration 
continued

Performance Graph
The graph below shows a comparison of TSR for the company’s shares for the six years ended 31 July 2015 against the TSR 
for the companies comprising the FTSE 250 Index. TSR has been calculated assuming that all dividends are reinvested on 
their ex-dividend date. The index has been selected because the company has been a constituent of the index throughout the 
period. The closing mid-market price of the company’s shares on 31 July 2015 was 1,453p and the range during the year was 
1,247p to 1,664p.

300

250

200

150

100

50

0

July 2009

July 2010

July 2011

July 2012

July 2013

 July 2014 

 July 2015 

Close Brothers TSR

FTSE 250 TSR

Source: Thomson Reuters Datastream.

Note: This graph shows the value, by 31 July 2015, of £100 invested in Close Brothers Group plc on 31 July 2009 compared with the value of £100 invested in the  
FTSE 250 Index. The other points plotted are the intervening ﬁnancial year ends.

Chief Executive: Historical Information (Audited)

Preben Prebensen
Single ﬁgure of total remuneration (’000)2
Annual Bonus against maximum opportunity
LTIP, SMP and MSA vesting

2010

2011

2012

2013

20141

2015

£1,890
90%
33%

£2,187
95%
33%

£2,496
90%
25%

£5,748
100%
79%

£7,411
100%
95%

£6,052
98%
97%

1  The ﬁgures for the performance awards for 2014 have been recalculated using the actual share price on the dates of vesting for the MSA, LTIP and SMP Matched 

shares. These were £14.25 for MSA and £14.60 for LTIP and SMP Matched Shares. As highlighted in the 2014 report, the three month average to 31 July 2014 was 
used for the 2014 report given that the awards were vesting after publication of the report.

2  The ﬁgures for 2011 to 2014 include the MSA awards that were granted in 2009 at the time of Preben Prebensen’s appointment as chief executive. There are no 

further outstanding MSA awards to be reported in the future.

Close Brothers Group plc Annual Report 2015

73

Change in Remuneration of the Chief Executive
The following table shows how the remuneration of the chief executive increased compared to the general employee 
population for the 2015 ﬁnancial year. The Committee deemed it appropriate that the salary increase for Preben Prebensen 
should be approximately in line with that for the general employee population. The change in bonus for Preben Prebensen 
reﬂects the achievement against the RoE and personal goals targets, outlined on page 69. The reduction in average bonus for 
the general employee population primarily reﬂects the reduction in trading income in Winterﬂood, leading to a reduction in 
bonuses in that division. The average increase in bonus for the general employee population excluding Winterﬂood was 1%.

Preben Prebensen
All employee population

Average change 
in salary from
1 August 20141
3%
3%

Average change 
in beneﬁts from
1 August 20142
3%
3%

Average change
in annual bonus
for 20153
1%
(4)%

1  Calculated as the average percentage increase in salary for those eligible for an increase at 1 August 2014.
2  Calculated as the average percentage increase in beneﬁts for those eligible for a salary increase at 1 August 2014.
3  The percentage increase in the average bonus calculated as the total bonus spend divided by the average headcount for ﬁnancial years 2014 and 2015.

Relative Importance of Spend on Pay
The following table shows the total remuneration paid compared to the total distributions to shareholders.

Remuneration paid1
Distributions to shareholders2

1  2014 includes remuneration paid to Close Brothers Seydler (£11.8 million).
2  Interim dividend paid and ﬁnal dividend proposed for the ﬁnancial year.

2015 
£ million
248.4
79.1

2014 
£ million
243.9
71.8

Scheme Interests Awarded during the Year (Audited)
The face value and key details of the share awards granted in the 2015 ﬁnancial year are shown in the table below. These 
were all delivered as nil cost options. The Deferred Share Award (“DSA”) is a mandatory deferral of a portion of the annual 
bonus. The share price used to calculate the number of shares awarded was £14.294, the average mid-market closing price 
for the ﬁve days prior to grant.

Name
Preben Prebensen

Stephen Hodges

Jonathan Howell

Elizabeth Lee

Award type
DSA1
LTIP
SMP – Invested
SMP – Matching
DSA1
LTIP
SMP – Invested
SMP – Matching
DSA1
LTIP
SMP – Invested
SMP – Matching
DSA1
LTIP
SMP – Invested
SMP – Matching

Vesting period
1–3 years
3 years
3 years
3 years
1–3 years
3 years
3 years
3 years
1–3 years
3 years
3 years
3 years
1–3 years
3 years
3 years
3 years

Performance 
conditions
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes

Face value 
’000
£513
£1,000
£513
£1,026
£462
£850
£462
£924
£345
£750
£390
£780
–
£400
£200
£400

Percentage 
vesting at 
threshold
n/a
25%
n/a
25%
n/a
25%
n/a
25%
n/a
25%
n/a
25%
n/a
25%
n/a
25%

Number of 
shares

Vesting/
performance 
period end date
35,890 30 Sep 2017
69,960 30 Sep 2017
35,890 30 Sep 2017
71,779 30 Sep 2017
32,322 30 Sep 2017
59,466 30 Sep 2017
32,322 30 Sep 2017
64,643 30 Sep 2017
24,137 30 Sep 2017
52,470 30 Sep 2017
27,285 30 Sep 2017
54,569 30 Sep 2017
– 30 Sep 2017
27,984 30 Sep 2017
13,992 30 Sep 2017
27,984 30 Sep 2017

1  The DSA vests one third per year over three years.

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74

Close Brothers Group plc Annual Report 2015

Report of the Board on Directors’ Remuneration 
continued

Performance conditions
During the year, the Committee undertook an extensive review of the adjusted EPS and absolute TSR growth targets and 
determined that the targets for the LTIP and SMP Matching Share award grants this year should be unchanged from the 2014 
grants, as outlined in the table below. The Committee believes these are appropriately stretching and effectively align the 
executives’ interests with those of shareholders.

Element
Absolute TSR1
Adjusted EPS1

1  There is straight-line vesting between the threshold and maximum targets.

Threshold vesting
(25% vests)
+10% p.a.
RPI +3% p.a.

Maximum vesting
(100% vests)
+20% p.a. or greater
RPI +10% p.a. or greater

External Appointments
Jonathan Howell received £77,000 in fees (2014: £71,333) from The Sage Group plc during the Close Brothers ﬁnancial year 
2015. None of the other EDs held any external directorships during the year.

Payments to Past Directors (Audited)
There were no payments to past directors after they had left ofﬁce during the year.

Payments for Loss of Ofﬁce (Audited)
There were no payments made to directors for loss of ofﬁce during the year.

Statement of Voting on the Remuneration Report at the 2014 AGM

Directors Remuneration Policy
Annual Report on Remuneration

For
92.5%
89.0%

Against
7.5%
11.0%

Number of 
abstentions
5,247,011
766,968

The primary reasons cited for the votes against, and actions taken in response are as follows:

Reason
Adjusted EPS targets in the LTIP not
challenging enough against analyst
forecasts

Action taken by the Committee
The adjusted EPS targets were reviewed this year and not adjusted, as outlined 
above.  
The Committee believes these targets are challenging and align with the 
company’s long-term strategic objectives.
Analyst forecasts frequently assume a continuation of the current strong 
performance, and whilst they are used as a point of reference, they are not an 
appropriate measure to be used in isolation.

Level of disclosure on annual bonus
determination

We have improved the level of disclosure about the determination of annual 
bonuses. Please see pages 69 and 70.

EDs’ Shareholding and Share Interests (Audited)
The interests of the directors in the ordinary shares of the company at 31 July 2015 are set out below:

Name
Preben Prebensen
Stephen Hodges
Jonathan Howell
Elizabeth Lee

Number of 
shares
owned 
outright2
2015
700,028
776,616
263,596
54,917

Outstanding share  
awards not subject to 
performance conditions3

Outstanding share  
awards subject to  
performance conditions4

2015
202,683
176,909
115,276
33,273

2014
214,539
231,963
117,367
33,323

2015
540,919
407,323
347,403
150,992

2014
742,618
490,705
436,101
154,714

Shareholding 
requirement1
72,678
65,382
55,059
24,777

Outstanding options5

2015
1,745
–
–
1,745

2014
1,745
1,645
–
1,745

1  Based on the closing mid-market share price of 1,453p on 31 July 2015.
2  This includes shares owned outright by connected persons.
3  This includes DSA and SMP Invested Shares.
4  This includes LTIP awards, SMP Matching Shares and MSA (MSA only for Preben Prebensen in 2014).
5  This comprises SAYE options.

No EDs held shares that were vested but unexercised at 31 July 2015. There were no changes in notiﬁable interests between 
31 July 2015 and 11 September 2015, other than the purchase by Preben Prebensen within the SIP which increased his 
shareholding to 700,048 shares.

Close Brothers Group plc Annual Report 2015

75

Details of EDs’ Share Exercises During the Year (Audited)

Award type

Stephen Hodges

Held at 
1 August 
2014
Name
Preben Prebensen 2013 DSA
42,801
138,768
2011 LTIP
2011 SMP – Invested
69,384
2011 SMP – Matching 138,768
2009 MSA2
65,902
46,406
2009 DSA
1,131
2011 DSA
74,474
2013 DSA
112,767
2011 LTIP
47,362
2011 SMP – Invested
94,724
2011 SMP – Matching
29,105
2013 DSA
108,093
2011 LTIP
43,822
2011 SMP – Invested
87,644
2011 SMP – Matching
2011 LTIP3
37,282
2011 LTIP3
8,366
14,042
2011 SMP – Invested
14,042
2011 SMP – Matching

Jonathan Howell

Elizabeth Lee

Market price 
on award
p
1,168.2
684.6
684.6
684.6
643.0
793.0
684.6
1,168.2
684.6
684.6
684.6
1,168.2
684.6
684.6
684.6
684.6
684.6
684.6
684.6

Total value 
Market price 
on calling1
on calling
p
£
1,400.0
199,528
1,400.0 1,845,620
1,400.0
971,376
1,400.0 1,845,620
892,012
1,424.8
716,973
1,545.0
16,456
1,455.0
360,825
1,455.0
1,455.0 1,558,727
1,455.0
689,117
1,455.0 1,309,325
1,493.2
144,707
1,592.0 1,634,809
1,592.0
697,646
1,592.0 1,325,531
469,350
1,341.0
130,230
1,556.7
218,585
1,556.7
207,658
1,556.7

Dividends 
paid on 
vested shares
£
7,284
188,956
99,450
188,956
178,523
123,492
1,621
12,675
153,552
67,886
128,983
8,453
204,808
87,401
166,061
62,806
15,012
25,198
23,938

Lapsed
–
6,938
–
6,938
3,295
–
–
–
5,638
–
4,736
–
5,404
–
4,382
2,282
–
–
702

Called1
14,252
131,830
69,384
131,830
62,607
46,406
1,131
24,799
107,129
47,362
89,988
9,691
102,689
43,822
83,262
35,000
8,366
14,042
13,340

1  These are the actual number of shares and values realised on calling and may not sum due to rounding.
2  This is the fourth and ﬁnal tranche of the MSA which vested in September 2014.
3  Total 2011 LTIP award of 45,648 called over two separate occasions.

Notes to the details of directors’ share exercises during the year
The DSA is a mandatory deferral of a portion of the annual bonus.

The DSA, LTIP and SMP consist of the right for EDs to call for shares in the company from the employee beneﬁt trust or 
treasury shares, at nil cost, together with a cash amount representing accrued notional dividends thereon. The DSA, LTIP and 
SMP awards may be forfeited if the ED leaves employment in certain circumstances preceding the vesting date. They may be 
called for at any time up to 12 months from the date of vesting. The value of the awards is charged to the group’s income 
statement in the year to which the award relates for the DSA and SMP Invested Shares, and spread over the vesting period 
for the LTIP and SMP Matching Share awards.

The LTIP awards are held under the 2009 LTIP and are subject to the performance criteria described in the remuneration 
policy on page 63. The SMP Matching Shares are subject to the same performance criteria.

Preben Prebensen joined the group as chief executive on 1 April 2009. His remuneration package as agreed prior to the 
commencement of his employment included a MSA. The MSA was subject to a personal investment in shares of £500,000, 
satisfaction of the same performance conditions as the 2009 LTIP and continued employment until the vesting date. The ﬁnal 
annual tranche of Preben Prebensen’s MSA vested on 23 September 2014, with vesting subject to the 2011 LTIP award 
performance conditions. As outlined in the section Performance Awards on page 70, this vested at 95%.

Details of EDs’ Option Exercises during the Year (Audited)

Name
Stephen Hodges

Award type
2011 SAYE

Held at 
1 August 
2014
1,645

Exercised
1,645

Lapsed
–

Exercise 
price
547p

Market price 
on exercise
1,552p

Gain on 
calling
£16,532

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76

Close Brothers Group plc Annual Report 2015

Report of the Board on Directors’ Remuneration 
continued

Single Total Figure of Remuneration for Non-executive Directors (Audited)

Name
Bruce Carnegie-Brown1
Oliver Corbett2
Geoffrey Howe3
Lesley Jones4
Bridget Macaskill5
Strone Macpherson

Fees

Total

2015 
£’000
32
95
83
94
89
210

2014 
£’000
105
13
76
52
53
210

2015 
£’000
32
95
83
94
89
210

2014 
£’000
105
13
76
52
53
210

1  Bruce Carnegie-Brown resigned as a director on 20 November 2014.
2  Oliver Corbett was appointed a director on 3 June 2014.
3  Geoffrey Howe acted as interim chairman of the Audit Committee in July 2014 and was appointed senior independent director on 20 November 2014.
4  Lesley Jones was appointed a director on 23 December 2013.
5  Bridget Macaskill was appointed a director on 21 November 2013 and chairman of the Remuneration Committee in November 2014.

Notes to the single total figure of remuneration for non-executive directors
The fees payable to non-executive directors for the 2015 and 2016 ﬁnancial years are as follows:

Role
Chairman1
Non-executive director
Supplements
Senior independent director
Chairman of Audit Committee
Chairman of Remuneration Committee
Chairman of Risk Committee
Committee membership2

1  The chairman receives no other fees for chairmanship or membership of board committees.
2  No fees are payable to the chairman, or for membership, of the Nomination and Governance Committee.

Non-executive Directors’ Share Interests (Audited)
The interests of the directors in the ordinary shares of the company are set out below:

Name
Bruce Carnegie-Brown2
Oliver Corbett
Geoffrey Howe
Lesley Jones
Bridget Macaskill
Strone Macpherson

1  Or the date of retirement, if earlier.
2  Bruce Carnegie-Brown resigned as a director on 20 November 2014.

There were no changes in notiﬁable interests between 31 July 2015 and 11 September 2015.

2016
£220,000
£65,000

2015
£210,000
£60,000

£15,000
£25,000
£25,000
£25,000
£5,000

£10,000
£25,000
£25,000
£25,000
£5,000

Shares held 
beneﬁcially 
at 31 July 20151
20,000
–
5,000
–
2,500
13,300

Shares held 
beneﬁcially 
at 31 July 2014
20,000
–
5,000
–
2,500
13,300

Close Brothers Group plc Annual Report 2015

77

Advice
During the year under review and up to the date of this 
report, the Committee consulted and took advice from the 
following advisers and executives:
•  PwC;
•  Chairman of the board;
•  Chief executive;
•  Group head of human resources;
•  Head of reward and HR operations;
•  Group chief risk ofﬁcer; and
•  Group company secretary.

Where the Committee seeks advice from employees this 
never relates to their own remuneration.

PwC also provided consultancy services to the group during 
the ﬁnancial year and were originally engaged to advise on 
remuneration in 2008. PwC is a member of, and adheres to, 
the Remuneration Consultants Group Voluntary Code of 
Conduct. PwC were paid £103,825 in fees for remuneration 
services related to the 2015 ﬁnancial year. The Committee 
has satisﬁed themselves that the advice received from all 
parties named above was objective and independent.

Statement of Implementation of Remuneration Policy 
in the Following Financial Year
Salary
The Committee approved the following salary increases for 
the EDs with effect from 1 August 2015:
•  Preben Prebensen to £540,000 (2.3% increase);
•  Stephen Hodges to £485,000 (2.1% increase);
•  Jonathan Howell to £408,000 (2.0% increase); and
•  Elizabeth Lee to £367,500 (2.1% increase).

These were determined with reference to the ED’s role and 
experience, increases for the broader population and 
external factors. The Committee determined that it was 
appropriate for the increases for the EDs to be lower than  
the average for the general employee population of 
approximately 3%.

Benefits
The EDs will receive beneﬁts in line with those outlined in the 
Remuneration Policy table on page 61. There will be no 
increases to the allowances or beneﬁts, other than any 
potential increase in the cost of providing them.

Annual bonus
The annual bonuses will be subject to the caps and 
determined based on assessment against the performance 
measures outlined in the Remuneration Policy table on page 
62. Because of commercial sensitivity, the details of the 
performance targets and achievement against those will be 
outlined in the 2016 Annual Report on Remuneration.

Performance awards
The LTIP awards will be subject to the caps and determined 
in line with the objectives outlined in the Remuneration Policy 
table. The performance measures will be in line with those 
outlined in the Remuneration Policy table. The details of the 
achievement against performance targets will be outlined in 
the 2016 Annual Report on Remuneration.

Pension
The EDs will continue to receive a cash allowance in lieu of a 
pension equivalent to 22.5% of base salary. Given the small 
salary increases outlined above for ﬁnancial year 2016, the 
absolute values will increase slightly.

This report was approved by the board of directors on  
22 September 2015 and signed on its behalf by:

Bridget Macaskill
Chairman of the Remuneration Committee

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78

Close Brothers Group plc Annual Report 2015

Close Brothers Group plc Annual Report 2015

79

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Financial Statements

  80 

Independent Auditor’s Report to the  
Members of Close Brothers Group plc

  83  Consolidated Income Statement
  84  Consolidated Statement of  
Comprehensive Income
  85  Consolidated Balance Sheet
  86  Consolidated Statement of Changes in Equity
  87  Consolidated Cash Flow Statement
  88  Company Balance Sheet
  89  The Notes
132 
Investor Relations
132  Cautionary Statement

Photographed on location at Cosworth Ltd.

 
 
80

Close Brothers Group plc Annual Report 2015

Independent Auditor’s Report to the Members of  
Close Brothers Group plc

Opinion on Financial Statements of Close Brothers  
Group plc
In our opinion:
•  The ﬁnancial statements give a true and fair view of the 

state of the group’s and of the parent company’s affairs as 
at 31 July 2015 and of the group’s proﬁt for the year then 
ended;

•  The group ﬁnancial statements have been properly 
prepared in accordance with International Financial 
Reporting Standards (“IFRSs”) as adopted by the 
European Union;

•  The parent company ﬁnancial statements have been 

properly prepared in accordance with United Kingdom 
Generally Accepted Accounting Practice; and
•  The ﬁnancial statements have been prepared in 

accordance with the requirements of the Companies Act 
2006 and, as regards the group ﬁnancial statements, 
Article 4 of the International Accounting Standards (“IAS”) 
Regulation.

The ﬁnancial statements comprise the Consolidated Income 
Statement, the Consolidated Statement of Comprehensive 
Income, the Consolidated Balance Sheet, the Consolidated 
Statement of Changes in Equity, the Consolidated Cash Flow 
Statement, the Company Balance Sheet and the related 
notes 1 to 31. The ﬁnancial reporting framework that has 
been applied in the preparation of the group ﬁnancial 

statements is applicable law and IFRSs as adopted by the 
European Union. The ﬁnancial reporting framework that has 
been applied in the preparation of the parent company 
ﬁnancial statements is applicable law and United Kingdom 
Accounting Standards (United Kingdom Generally Accepted 
Accounting Practice).

Going concern
As required by the Listing Rules we have reviewed the 
directors’ statement contained within Corporate Governance 
that the group is a going concern. We conﬁrm that:
•  We have not identiﬁed any material uncertainties that may 
cast signiﬁcant doubt on the group’s ability to continue as 
a going concern; and

•  We have concluded that the directors’ use of the going 
concern basis of accounting in the preparation of the 
ﬁnancial statements is appropriate.

However, because not all future events or conditions can be 
predicted, this statement is not a guarantee as to the group’s 
ability to continue as a going concern.

Our assessment of risks of material misstatement
The assessed risks of material misstatement described 
below are those that had the greatest effect on our audit 
strategy, the allocation of resources in the audit and directing 
the efforts of the engagement team:

Risk
Loan impairment provisions
As detailed in note 2, Critical accounting estimates and 
judgements on page 94, loan impairment provisions in the 
Banking division reﬂect estimates of the amount and timing 
of future recoveries which require an assessment of matters 
such as future economic conditions and the value of 
collateral. Loan impairment provisions of £56.1 million 
represented approximately 1% of loans and advances to 
customers. The income statement charge for the year was 
£41.9 million.

Revenue recognition
Interest income and fee commission income is detailed in 
note 2, critical accounting estimates and judgements on 
page 94. The group’s revenue recognition policy is detailed 
in note 1, signiﬁcant accounting policies on page 90.
•  Interest income

Interest income on loans and advances made by the 
group is recognised using the effective interest rate 
method and any fees and direct transaction costs that 
form an integral part of the yield are included in the 
effective interest rate. The identiﬁcation of fees and direct 
costs to be included in the effective interest rate can be 
judgemental. The group’s net interest income was  
£399.3 million.

How the scope of our audit responded to the risk
Our procedures included understanding and testing the 
controls in respect of the group’s loan impairment process, 
such as the timely recognition of impairment provisions, the 
completeness and accuracy of reports used in the loan 
impairment process and management review process over 
the calculation of collective and speciﬁc provisions. We 
tested the inputs used in collective impairment models and 
considered whether those inputs reﬂected default and 
recovery experience across each of the Banking division’s 
portfolios appropriately adjusted to reﬂect current experience 
and economic conditions where relevant. We audited a 
sample of speciﬁc provisions against individually signiﬁcant 
impaired loans including challenging collateral values and 
discount rates assumed in the provisions and, where 
relevant, with the assistance of our property valuation 
specialists.

We audited the effective interest rate models by testing 
controls, challenging the assumptions used to estimate the 
effective interest rates used in determining interest income 
and reperforming a sample of effective interest rate 
calculations. This included using our computer audit 
specialists to test the extraction of data used in the 
calculations. We audited a sample of lending arrangements 
by agreeing them to loan agreements and cash receipts and 
we assessed whether the appropriate fees and costs had 
been reﬂected in the effective interest rate.

Close Brothers Group plc Annual Report 2015

81

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Risk
Revenue recognition continued
•  Fee and commission income

Fee and commission income primarily arises in the 
Banking and Asset Management divisions. The group’s 
fee and commission income was £192.9 million. 
The timing of recognition of fees can be judgemental. 
Fees may be recognised immediately or over a period 
depending on the nature of the service provided and 
determining accrued fees can involve the use of 
estimates.

•  Gains less losses arising from dealing in securities
Gains less losses arising from dealing in securities 
comprise realised and unrealised gains on securities 
which are recorded at fair value. Given the high volume 
nature of transactions in the Securities division, robust 
internal controls over trade recording, settlement, 
reconciliation and valuation are important to ensure the 
completeness and accuracy of revenues. Gains and 
losses arising from dealing in securities were £72.0  
million.

Goodwill impairment
As detailed in note 2, critical accounting estimates and 
judgements on page 94, the directors assess the carrying 
value of goodwill for impairment on an annual basis and 
when there are indicators of impairment. The carrying value 
of goodwill was £84.2 million. 

Determining whether goodwill is impaired requires 
estimation of the recoverable amount of the group’s cash 
generating units (“CGUs”). The recoverable amount is 
determined using forecast future cash ﬂows and growth 
rates discounted at a rate appropriate to the relevant 
business and hence involve a number of assumptions and 
estimates.

How the scope of our audit responded to the risk
We obtained a sample of Asset Management client 
agreements and checked that accrued fees had been 
calculated in accordance with the agreements, recognised 
appropriately and challenged related estimates.

We tested controls over revenue recognition in the Banking 
division. We audited a sample of lending fees receivable by 
agreeing them to loan agreements and cash receipts; and 
we assessed the accounting treatment and timing of 
recognition of the fee.

We tested the operating effectiveness of controls related to 
trade recording, settlement, reconciliation and valuation 
including related IT system controls.

We agreed positions in securities at the year end to central 
securities depositaries. We tested securities valuations using 
independently sourced market prices and we recalculated a 
sample of both realised and unrealised gains less losses 
from dealing in securities. Particular focus was given to gains 
and losses recorded around the year end to ensure they 
were recognised in the correct period.

We challenged management’s assumptions used in the 
impairment model for goodwill. This included challenging 
cash ﬂow forecasts and considering the accuracy of past 
cash ﬂow projections, and using our internal valuations 
specialists to independently derive discount rates, which we 
compared to those used by management. We also 
benchmarked discount and growth rates to available external 
peer group data. 

We performed sensitivity analysis and considered the impact 
of changes to each of the key assumptions used in 
management’s impairment model.

Management’s consideration of these risks is set out in 
note 2, Critical accounting estimates and judgements, on 
page 94. The Audit Committee’s consideration of these risks 
is set out on page 54.

Operating proﬁt before tax was used as the basis for 
determining materiality as we believe is the key metric used 
by members of the company in assessing ﬁnancial 
performance.

Our audit procedures relating to these matters were 
designed in the context of our audit of the ﬁnancial 
statements as a whole, and not to express an opinion on 
individual accounts or disclosures. Our opinion on the 
ﬁnancial statements is not modiﬁed with respect to any of the 
risks described above, and we do not express an opinion on 
these individual matters.

We agreed with the Audit Committee that we would report all 
audit differences in excess of £200,000 (2014: £200,000), as 
well as differences below that threshold that, in our view, 
warranted reporting on qualitative grounds. We also report to 
the Audit Committee on disclosure matters that we identiﬁed 
when assessing the overall presentation of the ﬁnancial 
statements.

Our application of materiality
We deﬁne materiality as the magnitude of misstatement in 
the ﬁnancial statements that makes it probable that the 
economic decisions of a reasonably knowledgeable person 
would be changed or inﬂuenced. We use materiality both in 
planning the scope of our audit work and in evaluating the 
results of our work.

We determined materiality for the group ﬁnancial statements 
as a whole to be £11.0 million (2014: £9.5 million) based on 
5% of operating proﬁt before tax (2014: 5% of operating proﬁt 
before tax). Materiality has increased in line with increases in 
the group’s proﬁts.

An overview of the scope of our audit
Our group audit scope focused on the three operating 
divisions of the group, all of which comprise subsidiaries 
which are subject to full scope audits for the year ended 
31 July 2015. Our audits of each subsidiary were planned 
using levels of materiality appropriate for each subsidiary on 
a standalone basis, up to a maximum of £8.3 million (2014: 
£7.5 million). Together with the group’s central functions, 
which were also subject to a full scope audit, our audit scope 
covered the entire group.

The group audit team worked closely with the divisional and 
subsidiary audit teams throughout the audit and the senior 
statutory auditor met with divisional senior management 
during the year.

 
 
82

Close Brothers Group plc Annual Report 2015

Independent Auditor’s Report to the Members of  
Close Brothers Group plc continued

Opinion on other matters prescribed by the Companies 
Act 2006
In our opinion:
•  The part of the Report of the Board on Directors’ 

Remuneration to be audited has been properly prepared  
in accordance with the Companies Act 2006; and
•  The information given in the Strategic Report and the 
Directors’ Report for the ﬁnancial year for which the 
ﬁnancial statements are prepared is consistent with the 
ﬁnancial statements.

Matters on which we are required to report by exception
Adequacy of explanations received and accounting 
records
Under the Companies Act 2006 we are required to report to 
you if, in our opinion:
•  We have not received all the information and explanations 

we require for our audit; or

•  Adequate accounting records have not been kept by the 
parent company, or returns adequate for our audit have 
not been received from branches not visited by us; or

•  The parent company ﬁnancial statements are not in 
agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

Directors’ remuneration
Under the Companies Act 2006 we are also required to 
report if in our opinion certain disclosures of directors’ 
remuneration have not been made or the part of the Report 
of the Board on Directors’ Remuneration to be audited is not 
in agreement with the accounting records and returns. We 
have nothing to report arising from our review.

Corporate Governance Statement
Under the Listing Rules we are also required to review the 
part of the Corporate Governance Statement relating to the 
company’s compliance with 10 provisions of the UK 
Corporate Governance Code. We have nothing to report 
arising from our review.

Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), 
we are required to report to you if, in our opinion, information 
in the annual report is:
•  Materially inconsistent with the information in the audited 

ﬁnancial statements; or

Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors’ 
Responsibilities, the directors are responsible for the 
preparation of the ﬁnancial statements and for being satisﬁed 
that they give a true and fair view. Our responsibility is to 
audit and express an opinion on the ﬁnancial statements in 
accordance with applicable law and International Standards 
on Auditing (UK and Ireland). Those standards require us to 
comply with the Auditing Practices Board’s Ethical Standards 
for Auditors. We also comply with International Standard on 
Quality Control 1 (UK and Ireland). Our audit methodology 
and tools aim to ensure that our quality control procedures 
are effective, understood and applied. Our quality controls 
and systems include our dedicated professional standards 
review team and independent partner reviews.

This report is made solely to the company’s members, as a 
body, in accordance with Chapter 3 of Part 16 of the 
Companies Act 2006. Our audit work has been undertaken 
so that we might state to the company’s members those 
matters we are required to state to them in an auditor’s 
report and for no other purpose. To the fullest extent 
permitted by law, we do not accept or assume responsibility 
to anyone other than the company and the company’s 
members as a body, for our audit work, for this report, or for 
the opinions we have formed.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and 
disclosures in the ﬁnancial statements sufﬁcient to give 
reasonable assurance that the ﬁnancial statements are free 
from material misstatement, whether caused by fraud or 
error. This includes an assessment of: whether the 
accounting policies are appropriate to the group’s and the 
parent company’s circumstances and have been 
consistently applied and adequately disclosed; the 
reasonableness of signiﬁcant accounting estimates made by 
the directors; and the overall presentation of the ﬁnancial 
statements. In addition, we read all the ﬁnancial and non-
ﬁnancial information in the annual report to identify material 
inconsistencies with the audited ﬁnancial statements and to 
identify any information that is apparently materially incorrect 
based on, or materially inconsistent with, the knowledge 
acquired by us in the course of performing the audit. If we 
become aware of any apparent material misstatements or 
inconsistencies we consider the implications for our report.

•  Apparently materially incorrect based on, or materially 

inconsistent with, our knowledge of the group acquired in 
the course of performing our audit; or

•  Otherwise misleading.

Robert Topley (Senior statutory auditor)
For and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom

In particular, we are required to consider whether we have 
identiﬁed any inconsistencies between our knowledge 
acquired during the audit and the directors’ statement that 
they consider the annual report is fair, balanced and 
understandable and whether the annual report appropriately 
discloses those matters that we communicated to the Audit 
Committee which we consider should have been disclosed. 
We conﬁrm that we have not identiﬁed any such 
inconsistencies or misleading statements.

22 September 2015

An audit does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes 
may have occurred to the ﬁnancial statements since ﬁrst published. These matters are the responsibility of the directors but no control procedures can provide absolute 
assurance in this area. Legislation in the United Kingdom governing the preparation and dissemination of ﬁnancial statements differs from legislation in other jurisdictions.

Close Brothers Group plc Annual Report 2015

83

Consolidated Income Statement
for the year ended 31 July 2015

Interest income
Interest expense

Net interest income

Fee and commission income
Fee and commission expense
Gains less losses arising from dealing in securities
Other income

Non-interest income

Operating income

Administrative expenses
Impairment losses on loans and advances
Total operating expenses before amortisation of intangible assets on acquisition
Operating proﬁt before amortisation of intangible assets on acquisition
Amortisation of intangible assets on acquisition

Operating proﬁt before tax
Tax

Proﬁt after tax from continuing operations
Proﬁt from discontinued operations, net of tax
Proﬁt after tax
Proﬁt attributable to non-controlling interests from continuing operations

Proﬁt attributable to shareholders

From continuing operations
Basic earnings per share
Diluted earnings per share

From continuing and discontinued operations
Basic earnings per share
Diluted earnings per share

Interim dividend per share paid
Final dividend per share

1  Restated – see note 7.

Note
4
4

4
4

4
11

15

6

7

8
8

8
8

9
9

2015 
£ million
528.8
(132.3)

20141
£ million
491.2
(139.1)

396.5

352.1

195.7
(30.2)
72.0
55.5

177.9
(27.4)
87.3
38.0

293.0

275.8

689.5

627.9

(422.7)
(41.9)
(464.6)
224.9
(5.0)

219.9
(45.4)

174.5
11.2
185.7
 – 

(390.1)
(44.1)
(434.2)
193.7
(4.9)

188.8
(43.2)

145.6
4.6
150.2
0.4

185.7

149.8

117.8p
116.5p

98.4p
96.9p

125.4p
124.0p

101.5p
100.0p

18.0p
35.5p

16.5p
32.5p

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84

Close Brothers Group plc Annual Report 2015

Consolidated Statement of Comprehensive Income
for the year ended 31 July 2015

Proﬁt after tax

Other comprehensive (expense)/income that may be reclassiﬁed to income statement  

from continuing operations

Currency translation losses
(Losses)/gains on cash ﬂow hedging
(Losses)/gains on equity shares classiﬁed as available for sale
Available for sale investment gains transferred to income statement on disposal
Tax relating to items that may be reclassiﬁed

Other comprehensive (expense)/income that will not be reclassiﬁed to income statement 

from continuing operations

Deﬁned beneﬁt pension scheme losses
Tax relating to items that will not be reclassiﬁed

Other comprehensive (expense)/income, net of tax from continuing operations
Other comprehensive expense, net of tax from discontinued operations

Total comprehensive income

Attributable to
Non-controlling interests
Shareholders

1  Restated – see note 7.

2015 
£ million
185.7

20141
£ million
150.2

(3.0)
(5.5)
(0.5)
(6.8)
2.5

(13.3)

(2.0)
0.4

(1.6)

(14.9)
(1.2)

(1.7)
4.7
0.4
–
(0.8)

2.6

(1.6)
0.3

(1.3)

1.3
(2.5)

169.6

149.0

–
169.6

0.4
148.6

169.6

149.0

Consolidated Balance Sheet
at 31 July 2015

Close Brothers Group plc Annual Report 2015

85

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Assets
Cash and balances at central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Debt securities
Equity shares
Loans to money brokers against stock advanced
Derivative ﬁnancial instruments
Intangible assets
Property, plant and equipment
Deferred tax assets
Prepayments, accrued income and other assets

Total assets

Liabilities
Settlement balances and short positions
Deposits by banks
Deposits by customers
Loans and overdrafts from banks
Debt securities in issue
Loans from money brokers against stock advanced
Derivative ﬁnancial instruments
Current tax liabilities
Accruals, deferred income and other liabilities
Subordinated loan capital

Total liabilities

Equity
Called up share capital
Share premium account
Retained earnings
Other reserves

Total shareholders’ equity

Non-controlling interests

Total equity

Total liabilities and equity

Note

2015 
£ million

2014 
£ million

10
11
12
13

14
15
16
6
17

18
19
19
19
19

14

17
20

21

1,038.0
398.3
84.6
5,737.8
149.5
41.2
38.4
19.7
144.2
148.4
39.4
117.8

1,171.8
465.8
87.4
5,289.7
94.2
76.1
63.9
27.8
146.3
117.0
31.7
128.7

7,957.3

7,700.4

404.3
35.1
4,481.4
381.2
1,365.0
–
7.1
17.9
209.0
46.4

494.0
49.6
4,513.7
9.4
1,354.4
28.4
19.5
24.1
212.5
77.2

6,947.4

6,782.8

37.7
284.0
694.4
(6.3)

37.7
283.8
589.8
5.2

1,009.8

916.5

0.1

1.1

1,009.9

917.6

7,957.3

7,700.4

Approved and authorised for issue by the Board of Directors on 22 September 2015 and signed on its behalf by:

P.S.S. Macpherson 
Chairman 

P. Prebensen
Chief Executive

Registered number: 520241

 
 
86

Close Brothers Group plc Annual Report 2015

Consolidated Statement of Changes in Equity
for the year ended 31 July 2015

Called up 
share capital 
£ million
37.7
–

Share 
premium 
account 
£ million
283.7
–

Available 
for sale 
movements 
reserve 
£ million
9.1
–

Retained 
earnings 
£ million
511.9
149.8

Other reserves

Share- 
based 
payments 
reserve 
£ million
(13.1)
–

Exchange 
movements 
reserve 
£ million
5.2
–

Cash ﬂow 
hedging 
reserve 
£ million
(1.7)
–

Total 
attributable 
to equity 
holders 
£ million
832.8
149.8

Non- 
controlling 
interests 
£ million
3.7
0.4

Total 
equity 
£ million
836.5
150.2

–

(1.3)

0.5

–

(4.2)

3.8

(1.2)

–

(1.2)

At 1 August 2013
Proﬁt for the year
Other 

comprehensive 
(expense)/income
Total comprehensive 
income/(expense) 
for the year

Exercise of options
Dividends paid
Shares purchased
Shares issued
Shares released
Other movements
Income tax

–

–
–
–
–
–
–
–
–

–
–
–
–
0.1
–
–
–

148.5
–
(67.1)
–
–
–
(5.7)
2.2

At 31 July 2014

37.7

283.8

589.8

Proﬁt for the year
Other 

comprehensive 
(expense)/income
Total comprehensive 
income/(expense) 
for the year

Exercise of options
Dividends paid
Shares purchased
Shares issued
Shares released
Other movements
Income tax

–

–

–
–
–
–
–
–
–
–

–

–

–
0.1
–
–
0.1
–
–
–

185.7

184.1
–
(74.3)
–
–
–
(8.3)
3.1

(1.6)

(6.3)

–
–
–
(7.8)
–
13.7
(0.3)
–

(7.5)

–

–

–
–
–
(18.2)
–
20.5
0.7
–

0.5
–
–
–
–
–
–
–

9.6

–

(6.3)
–
–
–
–
–
–
–

3.3

(4.2)
–
–
–
–
–
–
–

1.0

–

3.8
–
–
–
–
–
–
–

2.1

148.6
–
(67.1)
(7.8)
0.1
13.7
(6.0)
2.2

0.4
–
(0.2)
–
–
–
(2.8)
–

149.0
–
(67.3)
(7.8)
0.1
13.7
(8.8)
2.2

916.5

1.1

917.6

–

185.7

(3.8)

(4.4)

(16.1)

(3.8)
–
–
–
–
–
–
–

(4.4)
–
–
–
–
–
–
–

169.6
0.1
(74.3)
(18.2)
0.1
20.5
(7.6)
3.1

–

–

–
–
(0.1)
–
–
–
(0.9)
–

185.7

(16.1)

169.6
0.1
(74.4)
(18.2)
0.1
20.5
(8.5)
3.1

At 31 July 2015

37.7

284.0

694.4

(4.5)

(2.8)

(2.3) 1,009.8

0.1 1,009.9

Consolidated Cash Flow Statement
for the year ended 31 July 2015

Close Brothers Group plc Annual Report 2015

87

Net cash (outﬂow)/inﬂow from operating activities

Net cash (outﬂow)/inﬂow from investing activities
Purchase of:
Property, plant and equipment
Intangible assets – software
Equity shares held for investment
Non-controlling interests
Sale of:
Property, plant and equipment
Equity shares held for investment
Subsidiary

Net cash (outﬂow)/inﬂow before ﬁnancing activities

Financing activities
Issue of ordinary share capital, net of transaction costs
Purchase of own shares for employee share award schemes
Equity dividends paid
Dividends paid to non-controlling interests
Interest paid on subordinated loan capital and debt ﬁnancing

Net (decrease)/increase in cash
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

1  Restated – see note 7.

Note
28(a)

2015 
£ million
(18.0)

20141
£ million
339.6

28(b)

28(c)

28(d)

(14.8)
(19.1)
–
(1.0)

0.1
5.6
23.2

(5.9)
(19.9)
(0.1)
(7.5)

–
8.7
–

(6.0)

(24.7)

(24.0)

314.9

0.1
(18.2)
(74.2)
(0.1)
(18.6)

0.1
(7.8)
(67.1)
(0.2)
(18.6)

(135.0)
1,238.7

221.3
1,017.4

28(e) 1,103.7

1,238.7

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88

Close Brothers Group plc Annual Report 2015

Company Balance Sheet
at 31 July 2015

Fixed assets
Intangible assets
Property, plant and equipment
Investments in subsidiaries
Interest free loan to subsidiary

Current assets
Cash at bank
Amounts owed by subsidiaries
Other investments
Corporation tax receivable
Deferred tax assets
Other debtors

Creditors: Amounts falling due within one year
Accruals and deferred income
Provisions
Other creditors

Net current assets

Total assets less current liabilities
Creditors: Amounts falling due after more than one year:
Debt securities in issue

Net assets

Capital and reserves
Share capital
Share premium account
Proﬁt and loss account
Other reserves

Shareholders’ funds

Note

15
16
31

2015 
£ million

2014 
£ million

0.1
0.5
287.0
192.7

0.1
1.1
287.0
192.7

480.3

480.9

0.3
358.7
2.2
5.1
3.3
5.0

0.3
352.8
3.5
5.8
3.2
6.5

374.6

372.1

8.4
9.7
1.1

19.2

8.3
10.8
1.0

20.1

355.4

352.0

835.7

832.9

205.6

205.2

630.1

627.7

37.7
284.0
309.8
(1.4)

37.7
283.8
313.3
(7.1)

630.1

627.7

6

17

21

22
22

Approved and authorised for issue by the Board of Directors on 22 September 2015 and signed on its behalf by:

P.S.S. Macpherson 
Chairman 

P. Prebensen
Chief Executive

Close Brothers Group plc Annual Report 2015

89

The Notes

1. Signiﬁcant accounting policies
(a) Reporting entity
Close Brothers Group plc (“the company”), a public limited 
company incorporated and domiciled in the UK, together 
with its subsidiaries (collectively, “the group”), operates 
through three divisions: Banking, Securities and Asset 
Management, and is primarily located within the UK.

The company ﬁnancial statements (“the company accounts”) 
have been prepared and approved by the directors in 
accordance with Section 395 of the Companies Act 2006, 
the Large and Medium-Sized Companies and Groups 
(Accounts and Reports) Regulations 2008 and with 
applicable UK Generally Accepted Accounting Practice. The 
company has taken advantage of the exemption in Section 
408 of the Companies Act 2006 not to present its company 
income statement and related notes.

(b) Compliance with International Financial Reporting 
Standards
The consolidated ﬁnancial statements (“the consolidated 
accounts”) have been prepared and approved by the 
directors in accordance with all relevant IFRSs as issued by 
the International Accounting Standards Board, and 
interpretations issued by the IFRS Interpretations Committee, 
endorsed by the EU.

Standards and amendments adopted during year
In the current year, the group adopted the following 
standards, amendments, and interpretations:
•  IFRS 10 “Consolidated ﬁnancial statements”.
•  IFRS 11 “Joint arrangements”.
•  IFRS 12 “Disclosure of interests in other entities”.
•  IAS 27 “Separate ﬁnancial statements”.
•  IAS 28 “Investments in associates”.
•  IAS 32 “Presentation: Offsetting ﬁnancial assets and 

ﬁnancial liabilities”.
•  IFRIC 21 “Levies”.
•  IFRS Annual Improvements 2010 to 2012 and 2011  

to 2013.

The adoption of these standards, amendments and 
interpretations did not have a material impact on the ﬁnancial 
statements.

Standards issued with effective dates, subject to EU 
endorsement, which do not impact on these financial 
statements:
•  IFRS 15 “Revenue from contracts with customers” – 
Effective for annual periods beginning on or after  
1 January 2017.

•  IFRS 9 “Financial instruments” – Effective for annual 

periods beginning on or after 1 January 2018.

The impact of these standards on the ﬁnancial statements is 
being assessed by the group.

(c) Basis of preparation
The consolidated and company accounts have been 
prepared under the historical cost convention, except for the 
revaluation of ﬁnancial assets and liabilities held at fair value 
through proﬁt or loss, available for sale ﬁnancial assets and 
all derivative ﬁnancial instruments (“derivatives”).

The ﬁnancial statements are prepared on a going concern 
basis as disclosed in the Report of the Directors.

(d) Consolidation
Subsidiaries
Subsidiaries are all entities over which the group has control. 
The group controls an entity when it is exposed to, or has 
rights to variable returns from its involvement with the entity 
and has the ability to affect those returns through its power 
over the entity. Such power, generally accompanies a 
shareholding of more than one half of the voting rights. 
Subsidiaries are fully consolidated from the date on which 
the group effectively obtains control. They are de-
consolidated from the date that control ceases.

The acquisition method of accounting is used to account for 
the acquisition of subsidiaries. Under the acquisition method 
of accounting, with some limited exceptions, the assets, 
liabilities and contingent liabilities of a subsidiary are 
measured at their fair values at the date of acquisition. Any 
non-controlling interest is measured either at fair value or at 
the non-controlling interest’s proportion of the net assets 
acquired. Acquisition related costs are accounted for as 
expenses when incurred, unless directly related to the issue 
of debt or equity securities. Any excess of the cost of 
acquisition over net assets is capitalised as goodwill. All intra 
group balances, transactions, income and expenses are 
eliminated.

(e) Discontinued operations
The results of discontinued operations are shown as a single 
amount on the face of the consolidated income statement 
comprising the post-tax proﬁt or loss of discontinued 
operations and the post-tax gain or loss recognised either on 
measurement to fair value less costs to sell or on the 
disposal of the discontinued operation. A discontinued 
operation is a CGU or a group of CGUs that either has been 
disposed of, or is classiﬁed as held for sale, and represents a 
separate major line of business or geographical area of 
operations, is part of a single coordinated plan to dispose of 
a separate major line of business or geographical area of 
operations or is a subsidiary acquired exclusively with a view 
to resale.

(f) Foreign currency translation
For the company and those subsidiaries whose balance 
sheets are denominated in sterling which is the company’s 
functional and presentation currency, monetary assets and 
liabilities denominated in foreign currencies are translated 
into sterling at the closing rates of exchange at the balance 
sheet date. Foreign currency transactions are translated into 
sterling at the average rates of exchange over the year and 
exchange differences arising are taken to the consolidated 
income statement.

The balance sheets of subsidiaries denominated in foreign 
currencies are translated into sterling at the closing rates. 
The income statements for these subsidiaries are translated 
at the average rates and exchange differences arising are 
taken to equity. Such exchange differences are reclassiﬁed 
to the consolidated income statement in the period in which 
the subsidiary is disposed of.

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90

Close Brothers Group plc Annual Report 2015

The Notes continued

1. Signiﬁcant accounting policies continued
(g) Revenue recognition
Interest income
Interest on loans and advances made by the group, and fee
income and expense and other direct costs relating to loan 
origination, restructuring or commitments are recognised in 
the consolidated income statement using the effective 
interest rate method.

The effective interest rate method applies a rate that 
discounts estimated future cash payments or receipts 
relating to a ﬁnancial instrument to its net carrying amount. 
The cash ﬂows take into account all contractual terms of the 
ﬁnancial instrument including transaction costs and all other 
premiums or discounts but not future credit losses.

Fees and commissions
Where fees that have not been included within the effective 
interest rate method are earned on the execution of a 
signiﬁcant act, such as fees arising from negotiating or 
arranging a transaction for a third party, they are recognised 
as revenue when that act has been completed. Fees and 
corresponding expenses in respect of other services are 
recognised in the consolidated income statement as the right 
to consideration or payment accrues through performance 
of services. In particular, upfront commissions paid in 
respect of managing, as opposed to originating, fund 
products are initially included within “accruals and deferred 
income” and then recognised as revenue as the services are 
provided. To the extent that fees and commissions are 
recognised in advance of billing they are included as accrued 
income or expense.

Dividends
Dividend income is recognised when the right to receive 
payment is established.

Gains less losses arising from dealing in securities
Net gains arising from both buying and selling securities and 
from positions held in securities, including related interest 
income and dividends.

(h) Exceptional items
Items of income and expense that are material by size and/or 
nature and are non-recurring are classiﬁed as exceptional 
items on the face of the consolidated income statement. The 
separate reporting of these items helps give an indication of 
the group’s underlying performance.

(i) Financial assets and liabilities (excluding derivatives)
Classification
The group classiﬁes its ﬁnancial assets into the following 
measurement categories: (i) ﬁnancial assets held at fair value 
through proﬁt or loss; (ii) loans and receivables; and (iii) 
available for sale. Financial liabilities are classiﬁed as either 
held at fair value through proﬁt or loss, or at amortised cost 
using the effective interest method.

Management determines the classiﬁcation of its ﬁnancial 
assets and liabilities at initial recognition.

Financial assets and liabilities held at fair value through 
profit or loss
This category has two sub-categories: Financial assets and 
liabilities held for trading, and those designated at fair value 
through proﬁt or loss at inception. 

A ﬁnancial asset or liability is classiﬁed as trading if acquired 
principally for the purpose of selling in the short term, which 
for the group relates to Winterﬂood.

Financial assets and liabilities may be designated at fair value 
through proﬁt or loss when:
•  The designation eliminates or signiﬁcantly reduces a 

measurement or recognition inconsistency that would 
otherwise arise from measuring assets or liabilities on a 
different basis;

•  A group of ﬁnancial assets and/or liabilities is managed 
and its performance evaluated on a fair value basis; or
•  The assets or liabilities include embedded derivatives and 
such derivatives are required to be recognised separately.

Financial assets and liabilities held at fair value through proﬁt 
or loss are subsequently carried at fair value, with gains and 
losses arising from changes in fair value taken directly to the 
consolidated income statement.

Loans and receivables
Loans and receivables are non-derivative ﬁnancial assets 
with ﬁxed or determinable payments that are not quoted in 
an active market and it is expected that substantially all of the 
initial investment will be recovered, other than because of 
credit deterioration. Loans and receivables are subsequently 
carried at amortised cost using the effective interest method 
and recorded net of provisions for impairment losses.

Available for sale
Available for sale assets are those non-derivative ﬁnancial 
assets intended to be held for an indeﬁnite period of time, 
which may be sold in response to liquidity requirements or 
changes in interest rates, exchange rates or equity prices. 
Available for sale ﬁnancial assets are subsequently carried at 
fair value, with gains and losses arising from changes in fair 
value taken to a separate component of equity until the asset 
is sold, or is impaired, when the cumulative gain or loss is 
transferred to the consolidated income statement. 

The fair values of quoted ﬁnancial assets or ﬁnancial liabilities 
in active markets are based on current prices. If the market 
for a ﬁnancial asset or ﬁnancial liability is not active, or they 
relate to unlisted securities, the group establishes fair value 
by using valuation techniques. These include the use of 
recent arm’s length transactions, discounted cash ﬂow 
analysis, and other valuation techniques commonly used by 
market participants.

Derecognition
Financial assets are derecognised when the rights to receive 
cash ﬂows from the ﬁnancial assets have expired or where 
the group has transferred substantially all risks and rewards 
of ownership. If substantially all the risks and rewards have 
been neither retained nor transferred and the group has 
retained control, the assets continue to be recognised to the 
extent of the group’s continuing involvement. Financial 
liabilities are derecognised when they are extinguished.

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91

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(j) Impairment of financial assets
The group assesses at each balance sheet date whether 
there is any objective evidence that a ﬁnancial asset or group 
of ﬁnancial assets classiﬁed as available for sale or loans and 
receivables is impaired. A ﬁnancial asset or group of ﬁnancial 
assets is impaired and an impairment loss incurred if there is 
objective evidence that an event or events since initial 
recognition of the asset have adversely affected the amount 
or timing of future cash ﬂows from the asset.

Financial assets at amortised cost
If there is objective evidence that an impairment loss on a 
ﬁnancial asset or group of ﬁnancial assets classiﬁed as loans 
and receivables has been incurred, the group measures the 
amount of the loss as the difference between the carrying 
amount of the asset or group of assets and the present value 
of estimated future cash ﬂows from the asset or group of 
assets discounted at the effective interest rate of the 
instrument at initial recognition.

Impairment losses are assessed individually for ﬁnancial 
assets that are individually signiﬁcant and individually or 
collectively for assets that are not individually signiﬁcant. In 
making collective assessment of impairment, ﬁnancial assets 
are grouped into portfolios on the basis of similar risk 
characteristics.

For loans and receivables, the amount of the loss is 
measured as the difference between the loan’s carrying 
amount and the present value of estimated future cash ﬂows, 
excluding future credit losses that have not been incurred, 
discounted at the original effective interest rate. As the loan 
amortises over its life, the impairment loss may amortise. All 
impairment losses are reviewed at least at each reporting 
date. If subsequently the amount of the loss decreases as a 
result of a new event, the relevant element of the outstanding 
impairment loss is reversed. Interest on impaired ﬁnancial 
assets is recognised at the original effective interest rate 
applied to the carrying amount as reduced by an allowance 
for impairment.

For loans that are not considered individually signiﬁcant, the 
group adopts a formulaic approach which allocates a loss 
rate dependent on the overdue period. Loss rates are based 
on the discounted expected future cash ﬂows and are 
regularly benchmarked against actual outcomes to ensure 
they remain appropriate.

Financial assets carried at fair value
When a decline in the fair value of a ﬁnancial asset classiﬁed 
as available for sale has been recognised directly in equity 
and there is objective evidence that the asset is impaired, the 
cumulative loss is removed from equity and recognised in 
the consolidated income statement. The loss is measured as 
the difference between the amortised cost of the ﬁnancial 
asset and its current fair value. Impairment losses on 
available for sale equity instruments are not reversed through 
the consolidated income statement, but those on available 
for sale debt instruments are reversed, if there is an increase 
in fair value that is objectively related to a subsequent event.

(k) Settlement accounts
Settlement balance debtors and creditors are the amounts 
due to and from counterparties in respect of the group’s 
market-making activities, and are carried at amortised cost. 
The balances are short term in nature, do not earn interest 
and are recorded at the amount receivable or payable.

(l) Loans to and from money brokers against stock 
advanced
Loans to money brokers against stock advanced is the cash 
collateral provided to these institutions for stock borrowing 
by the group’s market-making activities, and is carried at 
amortised cost. Interest is paid on the stock borrowed and 
earned on the cash deposits advanced. The stock borrowing 
to which the cash deposits relate is short term in nature and 
is recorded at the amount receivable. Loans from money 
brokers against stock collateral provided is recorded at the 
amount payable. Interest is paid on the loans payable.

(m) Finance leases, operating leases and hire purchase 
contracts
A ﬁnance lease is a lease or hire purchase contract that 
transfers substantially all the risks and rewards incidental to 
ownership of an asset to the lessee. Finance leases are 
recognised as loans at an amount equal to the gross 
investment in the lease discounted at its implicit interest rate. 
Finance charges on ﬁnance leases are taken to income in 
proportion to the net funds invested.

Rental costs under operating leases and hire purchase 
contracts are charged to the consolidated income statement 
in equal instalments over the period of the leases. Rental 
income from operating leases is recognised in equal 
instalments over the period of the leases and included in 
other income in the consolidated income statement.

(n) Sale and repurchase agreements and other secured 
lending and borrowings
Securities may be sold subject to a commitment to 
repurchase them. Such securities are retained on the 
consolidated balance sheet when substantially all the risks 
and rewards of ownership remain with the group. The 
transactions are treated as collateralised borrowing and the 
counterparty liability is included within loans and overdrafts 
from banks. Similar secured borrowing transactions including 
securities lending transactions and collateralised short-term 
notes are treated and presented in the same way. These 
secured ﬁnancing transactions are initially recognised at fair 
value, and subsequently valued at amortised cost, using the 
effective interest rate method.

(o) Securitisation transactions
Where the group securitises its own ﬁnancial assets, this is 
achieved via the sale of these assets to special purpose 
entities, which in turn issues securities to investors. All 
ﬁnancial assets continue to be held on the group’s 
consolidated balance sheet and debt securities in issue are 
recognised for the proceeds of the funding transaction.

(p) Offsetting financial instruments
Financial assets and ﬁnancial liabilities are offset and the net 
amount presented on the consolidated balance sheet if, and 
only if, there is a legally enforceable right to set off the 
recognised amounts and there is an intention to settle on a 
net basis, or to realise an asset and settle the liability 
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92

Close Brothers Group plc Annual Report 2015

The Notes continued

1. Signiﬁcant accounting policies continued
(q) Derivatives and hedge accounting
In general, derivatives are used to minimise the impact of 
interest, currency rate and equity price changes to the 
group’s ﬁnancial instruments. They are carried on the 
consolidated balance sheet at fair value which is obtained 
from quoted market prices in active markets, including recent 
market transactions and discounted cash ﬂow models.

On acquisition, certain derivatives are designated as a hedge 
and the group formally documents the relationship between 
these derivatives and the hedged item. The group also 
documents its assessment, both at hedge inception and on 
an ongoing basis, of whether the derivative is highly effective 
in offsetting changes in fair values or cash ﬂows of hedged 
items. If a hedge was deemed partially ineffective but 
continues to qualify for hedge accounting, the amount of the 
ineffectiveness, taking into account the timing of the 
expected cash ﬂows where relevant, would be recorded in 
the consolidated income statement. If the hedge is not, or 
has ceased to be, highly effective the group discontinues 
hedge accounting.

For fair value hedges, changes in the fair value are 
recognised in the consolidated income statement, together 
with changes in the fair value of the hedged item. For cash 
ﬂow hedges, the fair value gain or loss associated with the 
effective proportion of the cash ﬂow hedge is recognised 
initially directly in equity and recycled to the consolidated 
income statement in the period when the hedged item 
affects income.

Some contracts (“hybrid contracts”) contain both a derivative 
(“embedded derivative”) and a non-derivative (“host 
contract”). Where the economic characteristics and risks of 
the embedded derivatives are not closely related to those of 
the host contract and the host contract itself is not carried at 
fair value through proﬁt or loss, the embedded derivative is 
bifurcated and reported at fair value and gains and losses 
are recognised in the consolidated income statement.

(r) Intangible assets
Computer software (acquired and costs associated with 
development) and intangible assets on acquisition (excluding 
goodwill) are stated at cost less accumulated amortisation 
and provisions for impairment. Amortisation is calculated to 
write off their cost on a straight-line basis over the estimated 
useful lives as follows:

Computer software 
Intangible assets on acquisition 

3 to 5 years
8 to 20 years

Goodwill on acquisitions of subsidiaries is included in 
intangible assets. Goodwill is assessed annually for 
impairment and carried at cost less any accumulated 
impairment.

(s) Property, plant and equipment
Property, plant and equipment is stated at cost less 
accumulated depreciation and provisions for impairment. 
Depreciation is calculated to write off their cost on a straight-
line basis over their estimated useful lives as follows:

Long leasehold property 
Short leasehold property 
Fixtures, ﬁttings and equipment 
Assets held under operating leases 
Motor vehicles 

40 years
Over the length of the lease
3 to 5 years
1 to 15 years
5 years

(t) Share capital
Share issue costs
Incremental costs directly attributable to the issue of new 
shares or options including those issued on the acquisition of 
a business are shown in equity as a deduction, net of tax, 
from the proceeds.

Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the 
period in which they are paid or, if earlier, approved by 
shareholders.

Treasury shares
Where the company or any member of the group purchases 
the company’s share capital, the consideration paid is 
deducted from shareholders’ equity as treasury shares until 
they are cancelled. Where such shares are subsequently 
sold or reissued, any consideration received is included in 
shareholders’ equity.

(u) Employee benefits
The group operates deﬁned contribution pension schemes 
for eligible employees as well as a deﬁned beneﬁt pension 
scheme which is closed to new members and further 
accrual.

Under the deﬁned contribution scheme the group pays ﬁxed 
contributions into a fund separate from the group’s assets. 
Contributions are charged in the consolidated income 
statement when they become payable.

The expected cost of providing pensions within the funded 
deﬁned beneﬁt scheme, determined on the basis of annual 
valuations using the projected unit method, is charged to the 
consolidated income statement. Actuarial gains and losses 
are recognised in full in the period in which they occur and 
recognised in other comprehensive income.

The retirement beneﬁt obligation recognised in the balance 
sheet represents the present value of the deﬁned beneﬁt 
obligation, as adjusted for unrecognised past service cost, 
and as reduced by the fair value of scheme assets at the 
balance sheet date. Both the return on investment expected 
in the period and the expected ﬁnancing cost of the liability, 
as estimated at the beginning of the period are recognised in 
the results for the period. Any variances against these 
estimates in the year form part of the actuarial gain or loss.

The assets of the scheme are held separately from those of 
the group in an independently managed fund.

Close Brothers Group plc Annual Report 2015

93

(v) Share-based payments to employees
The group operates ﬁve share-based award schemes, an 
annual bonus plan and four long-term incentive schemes 
(“Incentive Schemes”); the Share Matching Plan (“SMP”), the 
2009 Long Term Incentive Plan (“LTIP”), the 1995 Executive 
Share Option Scheme and the Inland Revenue approved 
Save As You Earn scheme.

The costs of the awards granted under the annual bonus 
plan are based on the salary of the individual at the time the 
award is made. The value of the share award at the grant 
date is charged to the group’s consolidated income 
statement in the year to which the award relates.

The cost of the Incentive Schemes is based on the fair value 
of awards on the date of grant. Fair values for market based 
performance conditions are determined using a stochastic 
(Monte Carlo simulation) pricing model for the SMP and LTIP 
and the Black-Scholes pricing model for the other schemes. 
Both models take into account the exercise price of the 
option, the current share price, the risk free interest rate, the 
expected volatility of the company’s share price over the life 
of the option award and other relevant factors. For non-
market based performance conditions, vesting conditions 
are not taken into account when measuring fair value, but are 
reﬂected by adjusting the number of shares in each award 
such that the amount recognised reﬂects the number that 
are expected to, and then actually do, vest. The fair value is 
expensed in the consolidated income statement on a straight 
line basis over the vesting period, with a corresponding 
credit to the share-based payments reserve. At the end of 
the vesting period, or upon exercise, lapse or forfeit if earlier, 
this credit is transferred to retained earnings. Further 
information on the group’s schemes is provided in note 27 
and in the Report of the Board on Directors’ Remuneration.

(w) Provisions and contingent liabilities
Provisions are recognised in respect of present obligations 
arising from past events where it is probable that outﬂows of 
resources will be required to settle the obligations and they 
can be reliably estimated.

Contingent liabilities are possible obligations whose 
existence depends on the outcome of uncertain future 
events or those present obligations where the outﬂows of 
resources are uncertain or cannot be measured reliably. 
Contingent liabilities are not recognised in the ﬁnancial 
statements but are disclosed unless they are remote.

(x) Taxes, including deferred taxes
Current tax is the expected tax payable on the taxable proﬁt 
for the year. Taxable proﬁt differs from net proﬁt as reported 
in the consolidated income statement because it excludes 
items of income and expense that are taxable or deductible 
in other years and items that are never taxable or deductible. 
The group’s liability for current tax is calculated using tax 
rates that have been enacted or substantively enacted by the 
balance sheet date.

To enable the tax charge to be based on the proﬁt for the 
year, deferred tax is provided in full on temporary timing 
differences, at the rates of tax expected to apply when these 
differences crystallise. Deferred tax assets are recognised 
only to the extent that it is probable that sufﬁcient taxable 
proﬁts will be available against which temporary differences 
can be set. All deferred tax liabilities are offset against 
deferred tax assets in accordance with the provisions of IAS 
12 “Income taxes”.

(y) Cash and cash equivalents
For the purposes of the cash ﬂow statement, cash and cash 
equivalents comprises cash and demand deposits with 
banks together with short-term highly liquid investments that 
are readily convertible to known amounts of cash.

(z) Segment reporting
Operating segments are reported in a manner consistent 
with the internal reporting provided to the Executive 
Committee which is considered the group’s chief operating 
decision maker. All transactions between business segments 
are conducted on an arm’s length basis, with intra-segment 
revenue and costs being eliminated on consolidation. 
Income and expenses directly associated with each segment 
are included in determining business segment performance.

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94

Close Brothers Group plc Annual Report 2015

The Notes continued

(b) Revenue
Interest income
The effective interest rate method applies a rate that 
discounts estimated future cash payments or receipts 
relating to a ﬁnancial instrument to its net carrying amount. 
The estimated future cash ﬂows take into account all 
contractual terms of the ﬁnancial instrument including 
transaction costs and all other premiums or discounts but 
not future credit losses. Models are reviewed at least 
annually to assess expected lives of groups of assets based 
upon actual repayment proﬁles.

Fee and commission income
Fee and commission income is recognised depending on 
the nature of service provided:
•  Income which forms an integral part of the effective 

interest rate is recognised as an adjustment to the effective 
interest rate and recorded in interest income;

•  Income earned from provision of services is recognised as 

the services are provided; and

•  Income earned on the execution of a signiﬁcant act is 

recognised when the act is completed.

(c) Goodwill impairment
The directors review goodwill for impairment at least annually 
or when events or changes in economic circumstances 
indicate that impairment may have taken place. The 
recoverable amounts of relevant CGUs are based on value in 
use calculations using management’s best estimate of future 
cash ﬂows and performance, discounted at a rate which the 
directors estimate to be the return appropriate to the 
business.

2. Critical accounting estimates and judgements
The reported results of the group are sensitive to the 
accounting policies, assumptions and estimates that underlie 
the preparation of its ﬁnancial statements. UK company law 
and IFRS require the directors, in preparing the group’s 
ﬁnancial statements, to select suitable accounting policies, 
apply them consistently and make judgements and 
estimates that are reasonable and prudent. The group’s 
estimates and assumptions are based on historical 
experience and expectation of future events and are 
reviewed periodically. The actual outcome may be materially 
different from that anticipated. The judgements and 
assumptions involved in the group’s accounting policies that 
are considered by the board to be the most important to the 
portrayal of its ﬁnancial condition are as follows:

(a) Loan impairment provisions
Allowances for loan impairment represent management’s 
estimate of the losses incurred in the loan portfolios at the 
balance sheet date. Changes to the allowances for loan 
impairment are reported in the consolidated income 
statement as impairment losses on loans and advances. 
Impairment provisions are made if there is objective evidence 
of impairment as a result of one or more subsequent events 
regarding a signiﬁcant loan or a portfolio of loans.

Individual impairment losses are determined as the 
difference between the carrying value and the present value 
of estimated future cash ﬂows, discounted at the loans’ 
original effective interest rate. Impairment losses determined 
on a portfolio basis are calculated using a formulaic 
approach which allocates a loss rate dependent on the 
overdue period. Loss rates are based on the discounted 
expected future cash ﬂows and are regularly benchmarked 
against actual outcomes to ensure they remain appropriate.

Estimating the amount and timing of future recoveries 
involves signiﬁcant judgement, and considers the level of 
arrears as well as the assessment of matters such as future 
economic conditions and the value of collateral. All 
impairment losses are reviewed at least annually.

Close Brothers Group plc Annual Report 2015

95

3. Segmental analysis
The Executive Committee, which is considered to be the 
group’s chief operating decision maker, manages the group 
by class of business as determined by the products and 
services offered and presents the segmental analysis on that 
basis. The group’s activities are organised in three primary 
operating divisions: Banking, Securities and Asset 
Management. A description of the activities, including 
products and services offered by these divisions, is given in 
the Strategic Report. The Group segment includes the 
group’s central functions which comprise Group Executive, 
Finance, Marketing, Communications, Investor Relations, 
Legal, Human Resources, Audit, Compliance, Corporate 
Development, Company Secretariat and Risk. Group 
administrative expenses include staff costs, legal and 
professional fees and property costs attributable to the 
central functions which support and assist the development 

of the divisions. Income within Group is typically immaterial 
and will include interest on cash balances at Group. In the 
segmental reporting information which follows, Group 
consists of the central functions described above as well as 
various non-trading head ofﬁce companies and consolidation 
adjustments, in order that the information presented 
reconciles to the consolidated income statement and 
balance sheet.

Divisions charge market prices for services rendered to other 
parts of the group. Funding charges between Banking 
businesses are determined by the Banking division’s 
Treasury operation taking into account commercial 
demands. Funding arrangements between other segments 
is limited. More than 90% of all the group’s activities, revenue 
and assets are located in the UK.

Summary Income Statement for the year 

ended 31 July 2015

Net interest income/(expense)
Non-interest income

Operating income

Administrative expenses
Depreciation and amortisation
Impairment losses on loans and advances

Banking
£ million

Securities
£ million

Asset
Management 
£ million

Group
£ million

Continuing
operations
£ million

Discontinued
operations
£ million

Total
£ million

396.5
102.1

(0.9)
95.5

498.6

94.6

(214.6)
(33.4)
(41.9)

(69.0)
(1.0)
–

0.2
95.4

95.6

(76.4)
(1.4)
–

0.7
–

0.7

396.5
293.0

689.5

–
11.7

396.5
304.7

11.7

701.2

(26.3)
(0.6)
–

(386.3)
(36.4)
(41.9)

(10.4)
–
–

(396.7)
(36.4)
(41.9)

Total operating expenses

(289.9)

(70.0)

(77.8)

(26.9)

(464.6)

(10.4)

(475.0)

Adjusted operating proﬁt/(loss)1
Amortisation of intangible assets on acquisition
Proﬁt on disposal of discontinued operations

Operating proﬁt/(loss) before tax
Tax
Non-controlling interests
Proﬁt/(loss) after tax and non-controlling 

interests

External operating income/(expense)
Inter segment operating (expense)/income

Segment operating income

208.7
(0.5)
–

208.2
(43.3)
–

164.9

511.8
(13.2)

498.6

24.6
–
–

24.6
(4.7)
–

19.9

94.6
–

94.6

17.8
(4.5)
–

13.3
(2.6)
–

(26.2)
–
–

(26.2)
5.2
–

224.9
(5.0)
–

219.9
(45.4)
–

1.3
–
10.3

11.6
(0.4)
–

226.2
(5.0)
10.3

231.5
(45.8)
–

10.7

(21.0)

174.5

11.2

185.7

96.5
(0.9)

95.6

(13.4)
14.1

689.5
–

11.7
–

701.2
–

0.7

689.5

11.7

701.2

1  Adjusted operating proﬁt/(loss) is stated before amortisation of intangible assets on acquisition, proﬁt on disposal of discontinued operations and tax.

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96

Close Brothers Group plc Annual Report 2015

The Notes continued

3. Segmental analysis continued
The following table provides further detail on operating income:

Banking
Retail
Commercial
Property
Treasury income
Securities
Market-making and related activities
Asset Management
Advice and other services
Investment management
Other income
Group

Operating income from continuing operations
Operating income from discontinued operations

Operating income

2015
£ million

2014
£ million

181.1
207.3
96.8
13.4

164.6
187.3
75.4
19.4

94.6

96.1

36.1
54.1
5.4
0.7

36.6
47.2
0.6
0.7

689.5
11.7

627.9
31.3

701.2

659.2

Summary Balance Sheet at 31 July 2015
Assets
Cash and loans and advances to banks
Settlement balances, long trading positions and loans to money 

brokers

Loans and advances to customers
Non-trading debt securities
Intangible assets
Other assets

Banking
£ million

Securities
£ million

Asset
Management 
£ million

Group
£ million

Total
£ million

1,080.8

20.6

–
5,737.8
135.4
65.7
283.4

481.9
–
–
25.5
10.7

20.9

–
–
–
52.9
27.3

0.3

1,122.6

–
–
–
0.1
14.0

481.9
5,737.8
135.4
144.2
335.4

Total assets

7,303.1

538.7

101.1

14.4

7,957.3

Liabilities
Settlement balances, short trading positions and loans from money 

brokers

Deposits by banks
Deposits by customers
Borrowings
Other liabilities
Intercompany balances

Total liabilities

Equity

–
35.1
4,481.4
1,583.7
140.8
351.0

404.3
–
–
3.3
35.5
23.7

–
–
–
–
41.9
11.6

–
–
–
205.6
15.8
(386.3)

404.3
35.1
4,481.4
1,792.6
234.0
–

6,592.0

466.8

53.5

(164.9) 6,947.4

711.1

71.9

47.6

179.3

1,009.9

Total liabilities and equity

7,303.1

538.7

101.1

14.4

7,957.3

Other segmental information for the year ended 31 July 2015
Property, plant, equipment and intangible asset expenditure
Employees (average number)

74.7
1,910

3.5
232

2.6
562

0.1
63

80.9
2,767

Close Brothers Group plc Annual Report 2015

97

Summary Income Statement for the year ended 

31 July 2014

Net interest income/(expense)
Non-interest income

Operating income

Administrative expenses
Depreciation and amortisation
Impairment losses on loans and advances

Banking
£ million

Securities
£ million

Asset
Management 
£ million

Group
£ million

Continuing
operations
£ million

Discontinued
operations
£ million

Total
£ million

352.9
93.8

(1.2)
97.3

446.7

96.1

(194.7)
(26.3)
(44.1)

(68.6)
(0.9)
–

(0.3)
84.7

84.4

(73.1)
(1.4)
–

0.7
–

0.7

352.1
275.8

–
31.3

352.1
307.1

627.9

31.3

659.2

(24.4)
(0.7)
–

(360.8)
(29.3)
(44.1)

(23.9)
(0.5)
–

(384.7)
(29.8)
(44.1)

Total operating expenses

(265.1)

(69.5)

(74.5)

(25.1)

(434.2)

(24.4)

(458.6)

Adjusted operating proﬁt/(loss)1
Amortisation of intangible assets on acquisition
Proﬁt on disposal of discontinued operations

Operating proﬁt/(loss) before tax
Tax
Non-controlling interests

181.6
(0.5)
–

181.1
(42.0)
(0.3)

Proﬁt/(loss) after tax and non-controlling interests

138.8

External operating income/(expense)
Inter segment operating (expense)/income

Segment operating income

459.5
(12.8)

446.7

26.6
–
–

26.6
(5.5)
–

21.1

96.1
–

96.1

9.9
(4.4)
–

5.5
(0.9)
–

(24.4)
–
–

(24.4)
5.2
(0.1)

193.7
(4.9)
–

188.8
(43.2)
(0.4)

6.9
–
–

6.9
(2.3)
–

200.6
(4.9)
–

195.7
(45.5)
(0.4)

4.6

(19.3)

145.2

4.6

149.8

85.5
(1.1)

84.4

(13.2)
13.9

627.9
–

31.3
–

659.2
–

0.7

627.9

31.3

659.2

1  Adjusted operating proﬁt/(loss) is stated before amortisation of intangible assets on acquisition, proﬁt on disposal of discontinued operations and tax.

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98

Close Brothers Group plc Annual Report 2015

The Notes continued

3. Segmental analysis continued

Summary Balance Sheet at 31 July 2014
Assets
Cash and loans and advances to banks
Settlement balances, long trading positions and loans to money 

brokers

Loans and advances to customers
Non-trading debt securities
Intangible assets
Other assets

Banking
£ million

Securities
£ million

Asset
Management 
£ million

Group
£ million

Total
£ million

1,225.1

16.2

–
5,289.7
45.6
61.7
251.6

634.8
–
–
28.1
19.6

17.5

–
–
–
56.4
34.0

0.4

1,259.2

–
–
–
0.1
19.6

634.8
5,289.7
45.6
146.3
324.8

Total assets

6,873.7

698.7

107.9

20.1

7,700.4

Liabilities
Settlement balances, short trading positions and loans from money 

brokers

Deposits by banks
Deposits by customers
Borrowings
Other liabilities
Intercompany balances

Total liabilities

Equity

–
49.6
4,510.3
1,229.7
145.5
330.6

522.4
–
3.4
6.0
40.8
27.1

–
–
–
–
52.7
18.8

–
–
–
205.3
17.1
(376.5)

522.4
49.6
4,513.7
1,441.0
256.1
–

6,265.7

599.7

71.5

(154.1) 6,782.8

608.0

99.0

36.4

174.2

917.6

Total liabilities and equity

6,873.7

698.7

107.9

20.1

7,700.4

Other segmental information for the year ended 31 July 2014
Property, plant, equipment and intangible asset expenditure
Employees (average number)

70.1
1,776

0.8
321

0.3
567

0.7
67

71.9
2,731

Close Brothers Group plc Annual Report 2015

99

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4. Operating proﬁt before tax

Interest income
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Other interest income

Interest expense
Deposits by banks
Deposits by customers
Borrowings
Other interest expense

Net interest income

1  Restated – see note 7.

Fee and commission income
Banking
Asset Management
Securities

Fee and commission expense

Net fee and commission income

1  Restated – see note 7.

2015
£ million

20141
£ million

4.9
0.5
521.4
2.0

5.0
–
484.4
1.8

528.8

491.2

0.3
83.5
39.3
9.2

0.4
93.7
42.9
2.1

132.3

139.1

396.5

352.1

2015
£ million

20141
£ million

83.3
95.7
16.7

78.1
90.2
9.6

195.7

177.9

(30.2)

(27.4)

165.5

150.5

Fee income and expense (other than amounts calculated using the effective interest rate method) on ﬁnancial instruments that 
are not at fair value through proﬁt or loss were £83.3 million (2014: £78.1 million) and £23.8 million (2014: £20.2 million) 
respectively.

Fee  income  and  expense  arising  from  trust  and  other  ﬁduciary  activities  amounted  to  £95.7  million  (2014:  £90.2  million)  and 
£6.0 million (2014: £6.8 million) respectively.

Administrative expenses
Staff costs:
Wages and salaries
Social security costs
Share-based awards
Pension costs

Depreciation and amortisation
Other administrative expenses

1  Restated – see note 7.

2015
£ million

20141
£ million

201.0
30.5
7.8
9.1
248.4
36.4
137.9

186.7
29.7
7.3
8.4
232.1
29.3
128.7

422.7

390.1

 
 
100

Close Brothers Group plc Annual Report 2015

The Notes continued

5. Information regarding the auditor

Fees payable
Audit of the company’s annual accounts
Audit of the company’s subsidiaries pursuant to legislation
Other services pursuant to legislation
Tax services
Other services

1  Restated – see note 7.

The auditor of the group is Deloitte LLP.

6. Taxation

Tax charged/(credited) to the income statement
Current tax:
UK corporation tax
Foreign tax
Adjustments in respect of previous years

Deferred tax:
Deferred tax credit for the current year
Adjustments in respect of previous years

Tax on items not (credited)/charged to the income statement
Current tax relating to:
Share-based transactions tax allowance in excess of expense recognised
Deferred tax relating to:
Cash ﬂow hedging
Deﬁned beneﬁt pension scheme
Financial instruments classiﬁed as available for sale
Share-based transactions tax allowance in excess of expense recognised
Currency translation losses

Reconciliation to tax expense
UK corporation tax for the year at 20.7% (2014: 22.3%) on operating proﬁt
Effect of different tax rates in other jurisdictions
Disallowable items and other permanent differences
Deferred tax impact of reduced UK corporation tax rate
Prior year tax provision

2015
£ million

20141
£ million

0.2
0.9
0.3
0.2
0.1

1.7

0.2
0.8
0.3
0.2
0.5

2.0

2015
£ million

20141
£ million

49.1
2.6
(0.2)
51.5

(6.5)
0.4

48.8
1.2
0.4
50.4

(7.2)
–

45.4

43.2

(4.1)

(3.0)

(1.1)
(0.4)
(1.0)
1.0
(0.4)

(6.0)

45.5
(0.8)
0.3
0.2
0.2

45.4

0.9
(0.3)
(0.1)
0.8
–

(1.7)

42.2
(0.6)
0.6
0.6
0.4

43.2

1  Restated – see note 7.

The effective tax rate for the year is 20.6% (2014: 22.9%) which is in line with the UK corporation tax rate of 20.7% (2014: 22.3%). 
On 8 July 2015, the Government proposed reductions in the UK corporation tax rate to 19% from April 2017 and 18% from 
April 2020, and an additional 8% tax surcharge on proﬁts of banking companies from January 2016. These proposals are 
expected to be enacted later in 2015. 

Close Brothers Group plc Annual Report 2015

101

Movements in deferred tax assets and liabilities were as follows:

Capital 
allowances
£ million

Pension 
scheme
£ million

Share-based 
payments 
and deferred 
compensation
£ million

Available for
sale assets
£ million

Cash ﬂow 
hedging
£ million

Intangible 
assets
£ million

Other
£ million

Total
£ million

Group
At 1 August 2013
Credit/(charge) to the income statement
Credit/(charge) to other comprehensive 

income

Charge to equity
Acquisition
At 31 July 2014
Credit/(charge) to the income statement
Credit/(charge) to other comprehensive 

income

Charge to equity
Acquisition

At 31 July 2015

21.2
6.6

–
–
–
27.8
4.9

0.4
–
–

(1.2)
(0.1)

0.3
–
–
(1.0)
–

0.4
–
–

11.9
(0.2)

–
(0.8)
–
10.9
0.3

–
(1.0)
–

(1.8)
–

0.1
–
–
(1.7)
–

1.0
–
–

33.1

(0.6)

10.2

(0.7)

0.4
–

(0.9)
–
–
(0.5)
–

1.1
–
–

0.6

(5.2)
1.0

–
–
–
(4.2)
0.9

–
–
(0.3)

0.5
(0.1)

–
–
–
0.4
–

–
–
–

25.8
7.2

(0.5)
(0.8)
–
31.7
6.1

2.9
(1.0)
(0.3)

(3.6)

0.4

39.4

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Company
At 1 August 2013
Credit/(charge) to the income statement
Credit to statement of recognised gains and losses
At 31 July 2014
(Charge)/credit to the income statement
Credit to statement of recognised gains and losses

At 31 July 2015

Capital 
allowances
£ million

Pension 
scheme
£ million

Share-based 
payments 
and deferred 
compensation
£ million

Total
£ million

0.2
0.1
–
0.3
–
–

0.3

(2.3)
(0.1)
1.4
(1.0)
–
0.4

(0.6)

4.6
(0.7)
–
3.9
(0.3)
–

3.6

2.5
(0.7)
1.4
3.2
(0.3)
0.4

3.3

As the group has been and is expected to continue to be consistently proﬁtable, it is appropriate to recognise the full deferred 
tax assets.

7. Discontinued operations
On 5 January 2015, the group completed the sale of Close Brothers Seydler (“Seydler”) to Oddo & Cie for a gross cash 
consideration of €46.5 million (£36.4 million), which includes a post year end adjustment of £0.5 million following ﬁnalisation of 
completion accounts. The proﬁt on disposal was £10.3 million.

Based in Frankfurt, Seydler provided equity and debt capital markets services, securities trading and research primarily in 
German small and mid-sized companies and was part of the Securities division.

The transaction fulﬁlled the requirements of IFRS 5 to be classiﬁed as “Discontinued operations” in the consolidated income 
statement, the results of which are set out below:

Results of discontinued operations

Operating income
Operating expenses
Operating proﬁt before tax
Tax

Proﬁt after tax

Proﬁt on disposal of discontinued operations, net of tax
Proﬁt from discontinued operations

1  Proﬁt after tax is up until the point of disposal.

20151
£ million
11.7
(10.4)
1.3
(0.4)

0.9

10.3
11.2

2014
£ million
31.3
(24.4)
6.9
(2.3)

4.6

–
4.6

 
 
102

Close Brothers Group plc Annual Report 2015

The Notes continued

7. Discontinued operations continued
Cash flow from discontinued operations

Net cash ﬂow from operating activities
Net cash ﬂow from investing activities
Net cash ﬂow from ﬁnancing activities

1  Up until the point of disposal.

20151
£ million
6.6
(0.1)
–

2014
£ million
(9.5)
(0.2)
–

8. Earnings per share
The calculation of basic earnings per share is based on the proﬁt attributable to shareholders and the number of basic 
weighted average shares. When calculating the diluted earnings per share, the weighted average number of shares in issue is 
adjusted for the effects of all dilutive share options and awards.

Continuing operations
Basic
Diluted
Adjusted basic2
Adjusted diluted2

Continuing and discontinued operations
Basic
Diluted

Discontinued operations
Basic
Diluted

1  Restated – see note 7.
2  Excludes amortisation of intangible assets on acquisition, discontinued operations and their tax effects.

Proﬁt attributable to shareholders
Less proﬁt from discontinued operations, net of tax
Proﬁt attributable to shareholders on continuing operations
Adjustments:
Amortisation of intangible assets on acquisition
Tax effect of adjustments

Adjusted proﬁt attributable to shareholders on continuing operations

1  Restated – see note 7.

Average number of shares
Basic weighted
Effect of dilutive share options and awards

Diluted weighted

9. Dividends

For each ordinary share
Final dividend for previous ﬁnancial year paid in November 2014: 32.5p (2013: 29.5p)
Interim dividend for current ﬁnancial year paid in April 2015: 18.0p (2014: 16.5p)

2015

20141

117.8p
116.5p
120.5p
119.2p

98.4p
96.9p
101.0p
99.5p

125.4p
124.0p

101.5p
100.0p

7.6p
7.5p

3.1p
3.1p

2015
£ million
185.7
11.2
174.5

20141
£ million
149.8
4.6
145.2

5.0
(1.0)

4.9
(1.0)

178.5

149.1

2015
million

2014
million

148.1
1.7

147.6
2.2

149.8

149.8

2015
£ million

2014
£ million

47.6
26.7

74.3

42.9
24.2

67.1

A ﬁnal dividend relating to the year ended 31 July 2015 of 35.5p, amounting to an estimated £52.4 million, is proposed. 
This ﬁnal dividend, which is due to be paid on 24 November 2015 to shareholders on the register at 16 October 2015, is not 
reﬂected in these ﬁnancial statements.

Close Brothers Group plc Annual Report 2015

103

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10. Loans and advances to banks

At 31 July 2015
At 31 July 2014

11. Loans and advances to customers

On demand
£ million
65.9
74.0

Within three 
months
£ million
7.4
2.1

Between 
three months 
and one year
£ million
–
3.8

Between 
one and 
two years
£ million
3.8
7.5

Between 
 two and 
 ﬁve years 
£ million
7.5
–

Total
£ million
84.6
87.4

At 31 July 2015
At 31 July 2014

On demand
£ million
45.4
60.9

Within three 
months
£ million
1,543.5
1,463.3

Between 
three months 
and one year
£ million
1,797.8
1,660.8

Between 
one and 
two years
£ million
1,108.2
1,038.3

Between 
two and 
ﬁve years
£ million
1,254.1
1,093.3

After  
more than 
ﬁve years
£ million
44.9
21.4

Impairment 
provisions
Total
£ million
£ million
(56.1) 5,737.8
(48.3) 5,289.7

Impairment provisions on loans and advances to customers
At 1 August
Charge for the year
Amounts written off net of recoveries

At 31 July

Loans and advances to customers comprise
Hire purchase agreement receivables
Finance lease receivables
Other loans and advances

At 31 July

2015
£ million

2014
£ million

48.3
41.9
(34.1)

61.9
44.1
(57.7)

56.1

48.3

2,552.9
473.0
2,711.9

2,341.4
466.5
2,481.8

5,737.8

5,289.7

At 31 July 2015, gross impaired loans were £162.3 million (31 July 2014: £159.9 million) and equate to 3% (31 July 2014: 3%) of 
the gross loan book before impairment provisions. The majority of the group’s lending is secured and therefore the gross 
impaired loans quoted do not reﬂect the expected loss.

The following table shows a reconciliation between gross investment in ﬁnance lease and hire purchase agreement 
receivables to present value of minimum lease and hire purchase payments:

Gross investment in ﬁnance leases and hire purchase agreement receivables due:
Within one year
Between one and ﬁve years
After more than ﬁve years

Unearned ﬁnance income

Present value of minimum lease and hire purchase agreement payments

Of which due:
Within one year
Between one and ﬁve years
After more than ﬁve years

2015
£ million

2014
£ million

1,318.8
2,193.5
26.0
3,538.3
(494.1)

1,239.6
2,023.4
18.3
3,281.3
(459.2)

3,044.2

2,822.1

1,134.6
1,887.4
22.2

1,066.1
1,740.3
15.7

3,044.2

2,822.1

The aggregate cost of assets acquired for the purpose of letting under ﬁnance leases and hire purchase agreements was 
£5,182.8 million (2014: £4,576.6 million). The average effective interest rate on ﬁnance leases approximates to 10.6% (2014: 
10.8%). The present value of minimum lease and hire purchase agreement payments reﬂects the fair value of ﬁnance lease 
and hire purchase agreement receivables before deduction of impairment provisions.

 
 
104

Close Brothers Group plc Annual Report 2015

The Notes continued

12. Debt securities

Long trading positions
Certiﬁcates of deposit
Gilts

At 31 July 2015

Long trading positions
Certiﬁcates of deposit
Gilts

At 31 July 2014

Movements on the book value of gilts and ﬂoating rate notes comprise:

At 1 August 2013
Disposals
Redemptions at maturity
Currency translation differences
Movement in value

At 31 July 2014

Disposals
Redemptions at maturity
Currency translation differences
Movement in value

At 31 July 2015

13. Equity shares

Long trading positions
Other equity shares

Held for 
trading
£ million
14.1
–
–

Available 
for sale
£ million
–
–
20.1

Loans and 
receivables
£ million
–
115.3
–

Total
£ million
14.1
115.3
20.1

14.1

20.1

115.3

149.5

Held for 
trading
£ million
48.6
–
–

Available 
for sale
£ million
–
–
45.6

Loans and 
receivables
£ million
–
–
–

Total
£ million
48.6
–
45.6

48.6

45.6

–

94.2

Available for sale

Gilts
£ million
46.7
–
–
–
(1.1)

45.6

–
(25.0)
–
(0.5)

20.1

Floating 
 rate notes
£ million
39.4
(37.8)
–
(1.6)
–

–

–
–
–
–

–

31 July
2015
£ million
31.1
10.1

Total
£ million
86.1
(37.8)
–
(1.6)
(1.1)

45.6

–
(25.0)
–
(0.5)

20.1

31 July
2014
£ million
56.5
19.6

41.2

76.1

Close Brothers Group plc Annual Report 2015

105

Available 
for sale
£ million
27.1
0.1
(8.2)
(1.8)

Fair value 
through  

proﬁt or loss
£ million
0.6
–
(0.5)
–

2.3

19.5

–
(8.1)
(0.4)

(1.0)

–

0.1

–
–
–

–

Total
£ million
27.7
0.1
(8.7)
(1.8)

2.3

19.6

–
(8.1)
(0.4)

(1.0)

10.0

0.1

10.1

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Movements on the book value of other equity shares held during the year comprise:

At 1 August 2013
Additions
Disposals
Currency translation differences
Movement in value of:
Equity shares classiﬁed as available for sale

At 31 July 2014

Additions
Disposals
Currency translation differences
Movement in value of:
Equity shares classiﬁed as available for sale

At 31 July 2015

14. Derivative ﬁnancial instruments
The group enters into derivative contracts with a number of ﬁnancial institutions as a principal only to minimise the impact of 
interest and currency rate changes to its ﬁnancial instruments. The group’s total derivative asset and liability position as 
reported on the consolidated balance sheet is as follows:

Exchange rate contracts
Interest rate contracts
Equity derivatives

31 July 2015

31 July 2014

Notional
value
£ million
170.1
3,979.2
–

Assets
£ million
0.8
18.9
–

Liabilities
£ million
0.9
6.2
–

Notional
value
£ million
254.6
4,245.7
128.1

Assets
£ million
4.8
8.0
15.0

Liabilities
£ million
0.3
3.8
15.4

4,149.3

19.7

7.1

4,628.4

27.8

19.5

Notional amounts of interest rate contracts totalling £2,386.2 million (31 July 2014: £3,127.6 million) and exchange rate 
contracts totalling £nil (31 July 2014: £nil) have a residual maturity of more than one year.

Included in the derivatives above are the following cash ﬂow and fair value hedges:

Cash ﬂow hedges
Interest rate contracts
Fair value hedges
Interest rate contracts

31 July 2015

31 July 2014

Notional
value
£ million

Assets
£ million

Liabilities
£ million

Notional
value
£ million

Assets
£ million

Liabilities
£ million

1,339.7

0.5

3.8

1,384.0

1,328.8

16.9

0.4

1,558.2

3.2

3.3

0.6

1.6

The cash ﬂow hedges relate to exposure to future interest payments or receipts on recognised ﬁnancial instruments and on 
forecast transactions for periods of up to eight (2014: eight) years; there was immaterial ineffectiveness. The cash ﬂow hedge 
amounts that were removed from equity and included in the consolidated income statement for the years ended 31 July 2015 
and 2014 were immaterial. The loss recognised in equity for cash ﬂow hedges during the year was £4.4 million (2014: £3.8 
million gain).

The fair value hedges hedge the interest rate risk in recognised ﬁnancial instruments; the loss on the hedged items was 
£14.9 million (2014: £5.2 million) which was largely offset by a gain of £15.0 million (2014: £5.3 million) on the hedging 
instrument.

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106

Close Brothers Group plc Annual Report 2015

The Notes continued

15. Intangible assets

Cost
At 1 August 2013
Additions
Disposals
Foreign exchange

At 31 July 2014
Additions
Disposals
Foreign exchange

At 31 July 2015

Amortisation and impairment
At 1 August 2013
Amortisation charge for the year
Disposals

At 31 July 2014
Amortisation charge for the year
Disposals

At 31 July 2015

Net book value at 31 July 2015

Net book value at 31 July 2014

Net book value at 1 August 2013

Goodwill
£ million

Software
£ million

Intangible
assets on
acquisition
£ million

Group total
£ million

Company
software
£ million

156.5
–
–
(0.4)

156.1
0.3
(10.4)
–

51.6
19.9
(2.7)
–

68.8
20.3
(8.1)
–

 42.4
–
–
–

42.4
1.5
–
–

250.5
19.9
(2.7)
(0.4)

267.3
22.1
(18.5)
–

146.0

81.0

43.9

270.9

 68.0
–
–

68.0
–
(6.2)

61.8

84.2

88.1

88.5

28.0
9.8
(2.6)

35.2
13.5
(6.5)

42.2

38.8

33.6

23.6

 12.9
4.9
–

17.8
5.0
(0.1)

108.9
14.7
(2.6)

121.0
18.5
(12.8)

22.7

126.7

21.2

144.2

24.6

146.3

29.5

141.6

0.3
0.1
–
–

0.4
–
–
–

0.4

0.2
0.1
–

0.3
–
–

0.3

0.1

0.1

0.1

Additions in goodwill of £0.3 million relate to the 100% acquisition of Mackay Stewart and Brown Limited, a Scottish 
Independent Financial Adviser with £72.0 million of client assets, for cash consideration of £1.1 million for the equity of the 
business. This acquisition is not regarded as material in the context of the group’s ﬁnancial statements and therefore 
information required for material acquisitions by IFRS 3 has not been disclosed.

The goodwill disposals of £10.4 million relate to the Seydler disposal of £4.2 million and the write off of fully impaired goodwill 
of £6.2 million relating to the wind up Fortune Asset Management Limited.

Intangible assets on acquisition relates to broker and customer relationships and are amortised over a period of eight to 
20 years.

In the 2015 ﬁnancial year, £5.0 million (2014: £4.9 million) of the amortisation charge is included in amortisation of intangible 
assets on acquisition and £13.5 million (2014: £9.8 million) of the amortisation charge is included in administrative expenses 
shown in the consolidated income statement.

Impairment tests for goodwill
At 31 July 2015, goodwill has been allocated to nine individual CGUs of which seven are within the Banking division, one is the 
Securities division and the remaining one is the Asset Management division.

Goodwill impairment reviews are carried out annually by assessing the recoverable amount of the group’s CGUs, which is the 
higher of fair value less costs to sell and value in use. The recoverable amounts for all CGUs were measured based on value in 
use.

A value in use calculation uses discounted cash ﬂow projections based on the most recent board approved budgets and 
three year plans to determine the recoverable amount of each CGU. The key assumptions underlying management’s three 
year plans, which are based on past experience and forecast market conditions, are expected market-making conditions in 
the Securities CGU, expected total client asset growth rate and revenue margin in the Asset Management CGU and expected 
loan book growth rates and net return on loan book in the Banking CGUs.

Close Brothers Group plc Annual Report 2015

107

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For cash ﬂows beyond the group’s three year planning horizon, a terminal value was calculated using a prudent annual growth 
rate of 0% (2014: 0%), except for the Close Brothers Asset Management CGU where a growth rate of 2% (2014: 2%) is 
considered more appropriate as the business is expected to grow at a steady rate in line with GDP growth rates.

These cash ﬂows are discounted using a pre-tax estimated weighted average cost of capital that reﬂects current market rates 
appropriate to the CGU as set out in the table below. For the 2015 calculation, the pre-tax discount rates have been adjusted 
in each year to reﬂect the expected future change in corporation tax rate in each CGU as announced by the Chancellor in his 
Summer Budget 2015. As such, the pre-tax discount rates in the table are an average of the rate used in that CGU.

At 31 July 2015, the results of the review indicate there is no goodwill impairment. The inputs used in the value in use 
calculations are sensitive, primarily to the impact of changes in the assumptions for future cash ﬂows, discount rates, and 
long-term growth rates. Having performed stress tested value in use calculations, the group believes that any reasonably 
possible change in the key assumptions which have been used would not lead the carrying value of any CGU to exceed its 
recoverable amount.

Details of the CGUs in which the goodwill carrying amount is signiﬁcant in comparison with total goodwill, together with the 
pre-tax discount rate used in determining value in use are disclosed separately in the table below:

Cash generating unit
Winterﬂood Securities
Close Brothers Asset Management
Close Brothers Asset Finance
Other

16. Property, plant and equipment

Group
Cost
At 1 August 2013
Additions
Disposals

At 31 July 2014
Additions
Disposals

At 31 July 2015

Depreciation
At 1 August 2013
Charge for the year
Disposals

At 31 July 2014
Charge for the year
Disposals

At 31 July 2015

Net book value at 31 July 2015

Net book value at 31 July 2014

Net book value at 1 August 2013

31 July 2015

31 July 2014

Pre-tax 
discount rate 
%
12.5
11.0
12.3
11.0 –12.5

Goodwill 
£ million
23.3
33.7
7.4
19.8
84.2

Pre-tax 
discount rate 
%
10.8
10.4
12.5
10.8 –12.5

Goodwill 
£ million
23.3
33.5
7.4
23.9
88.1

Leasehold 
property
£ million

Fixtures,
ﬁttings and
equipment
£ million

Assets
held under
operating
leases
£ million

Motor
vehicles
£ million

Total
£ million

9.3
0.8
–

10.1
7.4
(0.1)

40.9
4.6
(10.6)

34.9
7.7
(8.0)

99.1
46.1
(12.5)

132.7
43.7
(11.3)

1.2
0.5
(0.5)

1.2
–
(0.4)

150.5
52.0
(23.6)

178.9
58.8
(19.8)

17.4

34.6

165.1

0.8

217.9

4.4
1.3
–

5.7
1.6
(0.1)

7.2

32.6
4.5
(10.4)

26.7
4.5
(7.5)

23.1
13.9
(8.1)

28.9
16.7
(7.5)

23.7

38.1

10.2

10.9

127.0

4.4

4.9

8.2

8.3

103.8

76.0

0.7
0.3
(0.4)

0.6
0.1
(0.2)

0.5

0.3

0.6

0.5

60.8
20.0
(18.9)

61.9
22.9
(15.3)

69.5

148.4

117.0

89.7

 
 
108

Close Brothers Group plc Annual Report 2015

The Notes continued

16. Property, plant and equipment continued
Assets held under operating leases relate to our rentals businesses within the Banking division. In addition to the depreciation 
charged in the year of £16.7 million (2014: £13.9 million), these assets generated other income of £39.1 million (2014: £32.4 
million) and interest and fee expense of £12.5 million (2014: £11.1 million). The gains/(losses) from the sale of assets held under 
operating leases for the year ended 31 July 2015 was £nil (2014: £0.3 million gain).

Future minimum lease rentals receivable under non-cancellable operating leases
Within one year
Between one and ﬁve years
After more than ﬁve years

Company
Cost
At 1 August 2013
Additions

At 31 July 2014
Additions

At 31 July 2015

Depreciation
At 1 August 2013
Charge for the year

At 31 July 2014
Charge for the year

At 31 July 2015

Net book value at 31 July 2015

Net book value at 31 July 2014

Net book value at 1 August 2013

The net book value of leasehold property comprises:

Long leasehold property
Short leasehold property

31 July
2015
£ million

31 July
2014
£ million

24.0
48.4
0.2

72.6

Leasehold 
property
£ million

Fixtures,
ﬁttings and
equipment
£ million

2.6
0.5

3.1
0.1

3.2

1.6
0.5

2.1
0.7

2.8

0.4

1.0

1.0

1.3
0.1

1.4
–

1.4

1.2
0.1

1.3
–

1.3

0.1

0.1

0.1

22.4
40.0
–

62.4

Total
£ million

3.9
0.6

4.5
0.1

4.6

2.8
0.6

3.4
0.7

4.1

0.5

1.1

1.1

Group

Company

31 July
2015
£ million
0.7
9.5

31 July
2014
£ million
0.8
3.6

31 July
2015
£ million
–
0.4

31 July
2014
£ million
–
1.0

10.2

4.4

0.4

1.0

Close Brothers Group plc Annual Report 2015

109

17. Other assets and other liabilities

Prepayments, accrued income and other assets
Prepayments and accrued income
Trade and other receivables

Accruals, deferred income and other liabilities
Accruals and deferred income
Trade and other payables
Provisions

Provisions movement in the year:

Group
At 1 August 2013
Additions
Utilised
Released

At 31 July 2014
Additions
Utilised
Released

At 31 July 2015

Company
At 1 August 2013
Additions
Utilised
Released

At 31 July 2014
Additions
Utilised
Released

At 31 July 2015

31 July
2015
£ million

31 July
2014
£ million

83.5
34.3

79.5
49.2

117.8

128.7

116.3
71.3
21.4

111.9
78.6
22.0

209.0

212.5

Claims 
£ million

Property 
£ million

Other 
£ million

Total 
£ million

0.6
1.3
(0.6)
(0.6)

0.7
0.6
(0.3)
(0.6)

0.4

13.2
1.9
(2.2)
(2.0)

10.9
3.7
(2.4)
(1.0)

11.2

10.0
5.3
(4.5)
(0.4)

10.4
4.2
(4.7)
(0.1)

23.8
8.5
(7.3)
(3.0)

22.0
8.5
(7.4)
(1.7)

9.8

21.4

Property 
£ million

Other 
£ million

Total 
£ million

3.4
0.2
–
(1.4)

2.2
–
–
–

2.2

8.4
4.3
(4.1)
–

8.6
2.9
(4.0)
–

7.5

11.8
4.5
(4.1)
(1.4)

10.8
2.9
(4.0)
–

9.7

Claims and other items for which provisions are made arise in the normal course of business and include those related to 
employee beneﬁts. The timing and outcome of these claims and other items are uncertain. Property provisions are in respect 
of leaseholds where rents payable exceed the value to the group, in respect of potential dilapidations and onerous leases. 
These property provisions will be utilised and released over the remaining lives of the leases which range from one to 10 years.

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110

Close Brothers Group plc Annual Report 2015

The Notes continued

18. Settlement balances and short positions

Settlement balances
Short positions held for trading:
Debt securities
Equity shares

19. Financial liabilities

Deposits by banks
Deposits by customers
Loans and overdrafts from banks
Debt securities in issue

31 July
2015 
£ million
376.5

13.7
14.1
27.8

31 July
2014 
£ million
444.1

34.3
15.6
49.9

404.3

494.0

Between
three 
months
and one 
year
£ million
22.8
2,347.7
123.7
1.1

Within 
three
months
£ million
0.3
828.4
99.1
6.7

Between
one and 
two
years
£ million
0.5
851.2
59.9
747.8

Between
two and 
ﬁve
years
£ million
–
299.3
89.9
299.3

After
more than
ﬁve years
£ million
–
–
–
298.9

Total
£ million
35.1
4,481.4
381.2
1,365.0

On demand
£ million
11.5
154.8
8.6
11.2

At 31 July 2015

186.1

934.5

2,495.3

1,659.4

688.5

298.9

6,262.7

Deposits by banks
Deposits by customers
Loans and overdrafts from banks
Debt securities in issue

On demand
£ million
21.1
165.0
4.4
–

Within three
months
£ million
20.0
1,256.5
5.0
6.7

Between
three months
and one year
£ million
8.5
1,532.5
–
350.5

Between
one and two
years
£ million
–
1,399.3
–
227.8

Between
two and 
 ﬁve years
£ million
–
160.4
–
470.4

After
more than
ﬁve years
£ million
–
–
–
299.0

Total
£ million
49.6
4,513.7
9.4
1,354.4

At 31 July 2014

190.5

1,288.2

1,891.5

1,627.1

630.8

299.0

5,927.1

Of the debt securities in issue, £298.9 million mature on 27 June 2021, £199.4 million mature on 10 February 2017 and £847.7 
million relate to the insurance premium and motor loan receivables securitisations as discussed in note 29(c).

As discussed in note 29(c) the group has repurchase agreements at 31 July 2015 (2014: none) whereby £375.0 million 
Treasury Bills have been drawn and lent in exchange for cash which is included within loans and overdrafts from banks. 
Residual maturities of the repurchase agreements are as follows:

Between
three 
months
and one 
year
£ million

Between
one and 
two
years
£ million

Within 
three
months
£ million

On demand
£ million

Between
two and 
 ﬁve years
£ million

After
more than
ﬁve years
£ million

Total
£ million

At 31 July 2015

–

99.1

123.7

59.9

89.9

–

372.6

20. Subordinated loan capital

Final maturity date
2020
2026
2026

Prepayment
date

Initial
 interest
rate

31 July
2015
£ million

31 July
2014
£ million

2015
2021
2021

7.39%
7.42%
7.62%

–
15.5
30.9

46.4

30.8
15.5
30.9

77.2

All the subordinated loan capital has been issued by Close Brothers Limited (“CBL”) and is denominated in sterling. If CBL opts 
not to prepay at the prepayment date, the interest rate is reset to a margin over the yield on ﬁve year UK Treasury securities. 
In March 2015 CBL exercised its option to prepay £30.0 million of its subordinated loan capital.

Close Brothers Group plc Annual Report 2015

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31 July 2015

31 July 2014

million

£ million

million

£ million

150.6

37.7

150.6

37.7

Proﬁt and
loss account
£ million
306.1
80.8
(67.1)
–
–
(6.5)

313.3
79.9
(74.1)
–
–
(9.3)

Other
reserves
£ million
(11.6)
–
–
(7.8)
13.7
(1.4)

(7.1)
–
–
(18.2)
20.5
3.4

309.8

(1.4)

21. Share capital

Group and company
Allotted, issued and fully paid
Ordinary shares of 25p each

22. Company reserves

At 1 August 2013
Proﬁt attributable to shareholders
Dividends paid
Shares purchased
Shares released
Other movements

At 31 July 2014
Proﬁt attributable to shareholders
Dividends paid
Shares purchased
Shares released
Other movements

At 31 July 2015

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Movements in the group reserves are presented in the consolidated statement of changes in equity.

23. Capital
The group’s policy is to be well capitalised and its approach to capital management is driven by strategic and organisational 
requirements, while also taking into account the regulatory and commercial environments in which it operates.

The Prudential Regulation Authority (“PRA”) supervises the group on a consolidated basis and receives information on the 
capital adequacy of, and sets capital requirements for, the group as a whole. In addition, a number of subsidiaries are 
regulated for prudential purposes by either the PRA or the Financial Conduct Authority (“FCA”). The aim of the capital 
adequacy regime is to promote safety and soundness in the ﬁnancial system. It is structured around three “pillars”: Pillar 1 on 
minimum capital requirements; Pillar 2 on the supervisory review process; and Pillar 3 on market discipline. The group’s Pillar 
1 information is presented in the following table. Under Pillar 2, the group completes an annual self assessment of risks known 
as the “Internal Capital Adequacy Assessment Process” (“ICAAP”). The ICAAP is reviewed by the PRA which culminates in 
the PRA setting “Individual Capital Guidance” (“ICG”) on the level of capital the group and its regulated subsidiaries are 
required to hold. Pillar 3 requires ﬁrms to publish a set of disclosures which allow market participants to assess information on 
that ﬁrm’s capital, risk exposures and risk assessment process. The group’s Pillar 3 disclosures can be found on the group’s 
website www.closebrothers.com/investor-relations/investor-information/results-reports-and-presentations.

The group maintains a strong capital base to support the development of the business and to ensure the group meets the 
Pillar 1 capital requirements and ICG at all times. As a result, the group maintains capital adequacy ratios above minimum 
regulatory requirements. The group’s individual regulated entities complied with all of the externally imposed capital 
requirements to which they are subject for the years ended 31 July 2015 and 2014.

A full analysis of the composition of regulatory capital and Pillar 1 risk weighted assets is shown in the following table, 
including a reconciliation between equity and common equity tier 1 capital after deductions.

At 31 July 2015, the group’s common equity tier 1 capital ratio increased to 13.7% (31 July 2014: 13.1%).

Common equity tier 1 capital increased to £813.2 million (31 July 2014: £710.8 million) primarily due to growth in proﬁt 
attributable to shareholders.

Risk weighted assets increased to £5,932.1 million (31 July 2014: £5,445.8 million) as a result of growth in credit and 
counterparty risk associated with the loan book, which was partly offset by a reduction in market risk due to the disposal of 
Seydler as well as lower trading balances at Winterﬂood. Notional risk weighted assets for operational risk also increased 
reﬂecting increased performance over recent years.

 
 
112

Close Brothers Group plc Annual Report 2015

The Notes continued

23. Capital continued
The composition of capital remained broadly stable with 95.9% (31 July 2014: 91.1%) of the total capital consisting of common 
equity tier 1 capital.

Common equity tier 1 capital
Called up share capital
Share premium account
Retained earnings
Other reserves recognised for common equity tier 1 capital
Deductions from common equity tier 1 capital
Intangible assets, net of associated deferred tax liabilities
Foreseeable dividend1
Investment in own shares
Pension asset, net of associated deferred tax liabilities
Additional valuation adjustments

Common equity tier 1 capital

Tier 2 capital
Subordinated debt2
Unrealised gains on available for sale equity shares

Tier 2 capital

Total regulatory capital

Risk weighted assets (notional) – unaudited
Credit and counterparty credit risk
Operational risk3
Market risk3

Common equity tier 1 capital ratio
Total capital ratio

31 July
2015
£ million

37.7
284.0
694.4
18.3

(140.6)
(52.4)
(25.6)
(2.5)
(0.1)

31 July
2014
£ million

37.7
283.8
589.8
21.4

(142.1)
(47.7)
(27.9)
(3.9)
(0.3)

813.2

710.8

31.5
3.3

34.8

60.0
9.6

69.6

848.0

780.4

5,103.2
753.5
75.4

4,564.5
695.5
185.8

5,932.1

5,445.8

13.7% 13.1%
14.3% 14.3%

1  Under the Regulatory Technical Standard on own funds, a deduction has been recognised at 31 July 2015 and 31 July 2014 for a foreseeable dividend being the 

proposed ﬁnal dividend as set out in note 9.

2  Under the Capital Requirements Regulation’s transitional arrangements, 70% (31 July 2014: 80%) of the principal value of subordinated debt is recognised.
3  Operational and market risk include a notional adjustment at 8% in order to determine notional risk weighted assets.

The following table shows a reconciliation between equity and common equity tier 1 capital after deductions:

Equity
Regulatory deductions from equity:
Intangible assets, net of associated deferred tax liabilities
Foreseeable dividend1
Pension asset, net of associated deferred tax liabilities
Additional valuation adjustments
Other reserves not recognised for common equity tier 1 capital:
Available for sale movements reserve
Cash ﬂow hedging reserve
Non-controlling interests

Common equity tier 1 capital

31 July
2015
£ million
1,009.9

(140.6)
(52.4)
(2.5)
(0.1)

(3.3)
2.3
(0.1)

31 July
2014
£ million
917.6

(142.1)
(47.7)
(3.9)
(0.3)

(9.6)
(2.1)
(1.1)

813.2

710.8

1  Under the Regulatory Technical Standard on own funds, a deduction has been recognised at 31 July 2015 and 31 July 2014 for a foreseeable dividend being the 

proposed ﬁnal dividend as set out in note 9.

 
Close Brothers Group plc Annual Report 2015

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24. Contingent liabilities, guarantees and commitments
Contingent liabilities
Financial Services Compensation Scheme (“FSCS”)
A principal subsidiary of the group, CBL, by virtue of being a regulated deposit-taker, contributes to the FSCS which provides 
compensation to customers of ﬁnancial institutions in the event that an institution is unable, or is likely to be unable, to pay 
claims against it. The FSCS raises levies on UK licensed deposit-taking institutions to meet such claims based on their share 
of UK deposits on 31 December of the year preceding the scheme year (which runs from 1 April to 31 March). At 31 July 
2015, the group has accrued £1.9 million (2014: £2.2 million) for its share of levies that will be raised by the FSCS.

Compensation has previously been paid out by the FSCS funded by loan facilities provided by HM Treasury to FSCS in 
support of FSCS’s obligations to the depositors of banks declared in default. The facilities are expected to be repaid wholly 
from recoveries from the failed deposit takers, except for an estimated shortfall of £1.0 billion which the FSCS is recovering by 
levying the industry in three equal instalments beginning in 2013/2014, in addition to the ongoing interest charges on the 
outstanding loans.

The amount of future levies payable by the group depends on a number of factors including the potential recoveries of assets 
by the FSCS, the group’s participation in the deposit-taking market at 31 December, the level of protected deposits and the 
population of FSCS members.

Guarantees

Guarantees and irrevocable letters of credit

Group

Company

31 July
2015 
£ million
136.7

31 July
2014 
£ million
112.1

31 July
2015 
£ million
114.0

31 July
2014 
£ million
110.5

Where the group undertakes to make a payment on behalf of its subsidiaries for guarantees issued, such as bank facilities or 
property leases or as irrevocable letters of credit for which an obligation to make a payment to a third party has not arisen at 
the reporting date, they are included in these consolidated ﬁnancial statements as contingent liabilities.

Commitments
Undrawn facilities, credit lines and other commitments to lend

Within one year
After more than one year

31 July
2015
£ million
1,177.9
31.7

31 July
2014
£ million
1,250.4
12.7

1,209.6

1,263.1

Operating lease commitments
Minimum operating lease payments recognised in the consolidated income statement amounted to £10.8 million (2014: 
£10.9 million).

At 31 July 2015, the group had outstanding commitments for future minimum lease rentals payable under non-cancellable 
operating leases, which fall due as follows:

Within one year
Between one and ﬁve years
After more than ﬁve years

31 July 2015

31 July 2014

Premises
£ million
10.4
39.3
15.8

Other
£ million
2.7
3.8
–

Premises
£ million
10.6
35.1
9.2

Other
£ million
2.4
3.2
–

65.5

6.5

54.9

5.6

Other commitments
Subsidiaries had contracted capital commitments relating to capital expenditure of £15.1 million (2014: £3.2 million).

 
 
114

Close Brothers Group plc Annual Report 2015

The Notes continued

25. Related party transactions
Transactions with key management
Details of directors’ remuneration and interests in shares are disclosed in the Report of the Board on Directors’ Remuneration 
on pages 58 to 77.

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the 
activities of an entity; the group’s key management are the members of the group’s Executive Committee, which includes all 
executive directors, together with its non-executive directors.

The table below details, on an aggregated basis, key management personnel emoluments:

Emoluments
Salaries and fees
Beneﬁts and allowances
Performance related awards in respect of the current year:
Cash
Deferred

Share-based awards

2015
£ million

2014
£ million

3.6
0.7

3.4
3.0
10.7
5.7

16.4

3.6
0.6

3.2
3.1
10.5
5.4

15.9

Gains upon exercise of options by key management personnel, expensed to the income statement in previous years, totalled 
£20.3 million (2014: £16.2 million).

Key management have banking relationships with group entities which are entered into in the normal course of business. 
Amounts included in deposits by customers at 31 July 2015 attributable, in aggregate, to key management were £2.3 million 
(31 July 2014: £2.6 million).

Close Brothers Group plc Annual Report 2015

115

26. Pensions
The group operates deﬁned contribution pension schemes for eligible employees as well as a deﬁned beneﬁt pension scheme 
which is closed to new members and further accrual. Assets of all schemes are held separately from those of the group.

Defined contribution schemes
During the year the charge to the consolidated income statement for the group’s deﬁned contribution pension schemes was 
£9.3 million (2014: £8.9 million) representing contributions payable by the group and is included in administrative expenses.

Defined benefit pension scheme
The group’s only deﬁned beneﬁt pension scheme (“the scheme”) is a ﬁnal salary scheme which operates under trust law. The 
scheme is managed and administered in accordance with the scheme’s Trust Deed and Rules and all relevant legislation by a 
trustee board made up of trustees nominated by both the company and the members.

The scheme was closed to new entrants in August 1996 and closed to further accrual during 2012. At 31 July 2015 this 
scheme had 61 (2014: 64) deferred members and 35 (2014: 34) pensioners and dependants.

Funding position
The scheme’s most recent triennial actuarial valuation at 31 July 2012 identiﬁed a £6.0 million funding deﬁcit. The group 
contributed £3.3 million towards this deﬁcit during the year ended 31 July 2013 and has agreed to fund the remaining  
£2.7 million deﬁcit plus interest over the period to 31 July 2017 subject to the next triennial valuation at 31 July 2015.  
The contribution that is due to be made during the year to 31 July 2016 is £1.4 million.

IAS 19 (Revised) valuation at 31 July 2015
The following disclosures are reported in accordance with IAS 19 (Revised). Signiﬁcant actuarial assumptions used:

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Inﬂation rate (RPI)
Inﬂation rate (CPI)
Discount rate for scheme liabilities1
Expected interest/expected long-term return on plan assets
Mortality assumptions2:
Existing pensioners from age 65, life expectancy (years):
Men
Women
Non-retired members currently aged 50, life expectancy from age 65 (years):
Men
Women

2015
%
3.3
2.3
3.6
3.6

24.6
26.0

25.3
28.1

2014
%
3.3
2.3
4.2
4.2

24.5
25.9

25.2
28.0

1   Based on market yields at 31 July 2015 and 2014 on high quality sterling-denominated corporate bonds, adjusted to be consistent with the estimated term of the 

post employment beneﬁt obligation, using the Towers Watson model “Global RATE:Link”.

2   Based on standard tables SAPS S1 Light produced by the CMI Bureau of the Institute and Faculty of Actuaries with adjusted mortality multipliers for pensioners and 

non-pensioners, together with projected future improvements in line with the CMI 2011 core projection model with a long-term trend of 1.5% per annum.

The surplus of the scheme disclosed below has been accounted for as an asset of the group within note 17 Prepayments, 
accrued income and other assets.

The group has the unconditional right to any surpluses that arise within the scheme once all beneﬁts have been secured in full. 
As such no asset ceiling has been applied.

Fair value of scheme assets:
Equities1
Bonds1
Cash
Total fair value of scheme assets
Present value of scheme liabilities

Surplus/(deﬁcit)

1   These assets have quoted market prices.

2015
£ million

2014
£ million

2013
£ million

2012
£ million

2011
£ million

33.0
8.5
0.2
41.7
(38.6)

31.8
7.9
0.2
39.9
(35.0)

30.7
7.4
–
38.1
(31.9)

 28.1
 7.0
 –
 35.1
 (34.7)

 25.4
 6.6
 3.3
 35.3
 (39.9)

3.1

4.9

6.2

0.4

(4.6)

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116

Close Brothers Group plc Annual Report 2015

The Notes continued

26. Pensions continued
Movement in the present value of scheme liabilities during the year:

Carrying amount at 1 August
Interest expense
Beneﬁts paid
Actuarial losses

Carrying amount at 31 July

Movement in the fair value of scheme assets during the year:

Carrying amount at 1 August
Interest income
Beneﬁts paid
Return on scheme assets, excluding interest income

Carrying amount at 31 July

Historical experience of actuarial gains/(losses) are shown below:

2015
£ million
(35.0)
(1.4)
2.7
(4.9)

2014
£ million
(31.9)
(1.4)
1.6
(3.3)

(38.6)

(35.0)

2015
£ million
39.9
1.6
(2.7)
2.9

2014
£ million
38.1
1.7
(1.6)
1.7

41.7

39.9

Experience gains/(losses) on scheme assets
Experience (losses)/gains on scheme liabilities
Impact of changes in assumptions on scheme liabilities
Total actuarial (losses)/gains on scheme liabilities

2015
£ million
2.9
–
(4.9)
(4.9)

2014
£ million
1.7
(0.1)
(3.2)
(3.3)

2013
£ million
4.6
0.5
(2.7)
(2.2)

2012
£ million
 (0.8)
 0.6
 2.0
 2.6

2011
£ million
 1.3
 (1.8)
 (5.7)
 (7.5)

Total actuarial (losses)/gains

(2.0)

(1.6)

2.4

1.8

(6.2)

Total actuarial losses have been recognised in other comprehensive income. Income of £0.2 million (2014: £0.3 million) from 
the interest on the scheme surplus has been recognised within administrative expenses in the consolidated income statement.

The valuation of the scheme’s liabilities is sensitive to the key assumptions used in the valuation. The effect of a change in 
those assumptions in 2015 and 2014 is set out below. The analysis reﬂects the variation of the individual assumptions. The 
variation in price inﬂation includes all inﬂation-linked pension increases in deferment and in payment.

Impact on deﬁned beneﬁt obligation  
increase/(decrease)

2015

2014

Key assumption
Discount rate
Price inﬂation (RPI and CPI)
Mortality

Sensitivity
0.25% increase
0.25% increase
Increase in life expectancy at age 65 by one year

%
(5.0)
2.5
3.0

£ million
(1.9)
1.0
1.2

%
(5.0)
2.5
3.0

£ million
(1.7)
0.9
1.0

Changes in the assumptions used in the valuation due to external factors would affect the carrying value of the scheme. The 
most signiﬁcant risks are:
•  Market factors (movements in equity and bond markets): 79% of the scheme’s assets are invested in global equities and the 
scheme’s liabilities are measured with reference to corporate bond yields. The performance of both of these asset classes 
can be volatile. Underperformance of either of these markets would have an adverse impact on the carrying value of the 
scheme.

•  Inﬂation: Deferred pensions and pensions in payment increase at speciﬁed periods in line with inﬂation subject to certain 

caps and ﬂoors in place. Changes in inﬂation may impact scheme liabilities.

•  Life expectancy: Change in the life expectancy of the scheme’s members may impact scheme liabilities.

The weighted average duration of the beneﬁt payments reﬂected in the scheme liabilities is 20 years.

Close Brothers Group plc Annual Report 2015

117

27. Share-based awards
The 1995 Executive Share Option Scheme (“ESOS”), Save As You Earn (“SAYE”) scheme, 2009 Long Term Incentive Plan 
(“LTIP”), Deferred Share Awards (“DSA”) and Share Matching Plan (“SMP”) share-based awards have been granted under the 
group’s share schemes. The general terms and conditions for these share-based awards are described in the Report of the 
Board on Directors’ Remuneration on pages 58 to 77.

In order to satisfy a number of the awards below the company has purchased company shares into Treasury and the Close 
Brothers Group Employee Share Trust has purchased company shares. At 31 July 2015, 1.2 million (2014: 1.7 million) and  
1.7 million (2014: 2.1 million) of these shares were held respectively and in total £25.6 million (2014: £27.9 million) was 
recognised within the share-based payments reserve. During the year £20.5 million (2014: £13.7 million) of these shares were 
released to satisfy share-based awards to employees. The share-based payments reserve as shown in the consolidated 
statement of changes in equity also includes the cumulative position in relation to unvested share-based awards charged to 
the consolidated income statement of £21.1 million (2014: £20.4 million). The share-based awards charge of £7.8 million (2014: 
£7.3 million) is included in administrative expenses shown in the consolidated income statement.

Movements in the number of share-based awards outstanding and their weighted average share prices are as follows:

ESOS

SAYE

LTIP

DSA1

SMP

Weighted
average
exercise
price

Weighted
average
exercise
price

Number
Number
At 1 August 2013 361,389 689.5p 1,194,612
Granted
Exercised
Forfeited
Lapsed

–
(11,796) 714.1p
–
–
(215,937) 709.2p

708,536 1,041.4p
(459,850) 475.9p
(132,086) 654.9p
(10,872) 576.7p

Number
541.7p 2,316,359
494,604
(595,807)
–
(167,463)

–

Weighted
average
exercise
price
–
–
–
–
–

Number
928,766
305,294
(481,471)
–
(21,729)

Weighted
average
exercise
price

Number
– 1,489,378
392,918
–
(508,217)
–
–
–
(78,466)
–

Weighted
average
exercise
price
–
–
–
–
–

At 31 July 2014

133,656 655.6p 1,300,340

825.4p 2,047,693

Granted
Exercised
Forfeited
Lapsed

–

–
(13,147) 656.0p
–
–
(120,509) 655.5p

272,172 1,143.0p
(389,471) 559.0p
(37,614) 1,049.2p
(66,703) 940.5p

510,680
(796,622)
–
(52,932)

At 31 July 2015

–

– 1,078,724

– 1,708,819

Exercisable at:
31 July 2015
31 July 2014

–

–
133,656 655.6p

658
–

547.0p
–

13,878
16,030

–

–
–
–
–

–

–
–

730,860

– 1,295,613

276,675
(435,116)
–
(18,539)

–
–
–
–

373,938
(541,517)
–
(18,001)

553,880

– 1,110,033

38,471
171,754

–
–

–
–

–

–
–
–
–

–

–
–

1  Includes all awards made under the group’s DSA and Matching and Restricted awards granted to new employees on commencement of employment with the 

group.

The table below shows the weighted average market price at the date of exercise:

ESOS
SAYE
LTIP
DSA
SMP

2015

2014
1,430.0p 1,266.2p
1,513.4p 1,336.3p
1,480.9p 1,285.1p
1,463.2p 1,248.0p
1,470.5p 1,258.1p

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118

Close Brothers Group plc Annual Report 2015

The Notes continued

27. Share-based awards continued
The range of exercise prices and weighted average remaining contractual life of awards and options outstanding are as 
follows:

ESOS
Between £6 and £7
SAYE
Between £5 and £6
Between £6 and £7
Between £9 and £10
Between £11 and £12
LTIP
Nil
DSA
Nil
SMP
Nil

Total

2015 
Options outstanding

2014 
Options outstanding

Weighted
average
remaining
contractual
life
Years

Number
outstanding

Weighted
average
remaining
contractual
life
Years

Number
outstanding

–

–

133,656

71,327
141,035
304,139
562,223

1.4
1.1
2.5
3.0

421,680
197,054
337,873
343,733

1,708,819

2.1 2,047,693

553,880

1.4

730,860

1,110,033

2.2 1,295,613

4,451,456

2.1 5,508,162

0.2

1.1
1.8
3.4
3.9

2.0

2.2

1.7

2.0

For the share-based awards granted during the year, the weighted average fair value of those options at 31 July 2015 was 
945.2p (2014: 677.3p). The main assumptions for the valuation of these share-based awards comprised:

Exercise period
SAYE
1 December 2017 to 31 May 2018
1 December 2019 to 31 May 2020
LTIP
1 October 2017 to 30 September 2018
30 September 2019 to 29 September 2020
30 September 2020 to 29 September 2021
DSA
1 October 2015 to 30 September 2018
15 March 2016 to 15 March 2019
15 March 2016 to 15 March 2018
15 June 2016 to 15 June 2019
SMP
1 October 2017 to 30 September 2018

Share price
at issue

Exercise
price

Expected
volatility

Expected
option life
 in years

Dividend
yield

Risk free
interest rate

1,428.0p 1,143.0p
1,428.0p 1,143.0p

1,431.0p
1,446.0p
1,446.0p

1,431.0p
1,576.0p
1,446.0p
1,446.0p

1,431.0p

–
–
–

–
–
–
–

–

21.0%
22.0%

21.0%
22.0%
21.0%

–
–
–
–

21.0%

3
5

3
4
5

–
–
–
–

3

3.4%
3.4%

3.4%
3.4%
3.4%

–
–
–
–

1.0%
1.5%

1.3%
1.1%
1.3%

–
–
–
–

3.4%

1.3%

Expected volatility was determined mainly by reviewing share price volatility for the expected life of each option up to the date 
of grant.

Close Brothers Group plc Annual Report 2015

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28. Consolidated cash ﬂow statement reconciliation

(a) Reconciliation of operating proﬁt before tax to net cash inﬂow from operating activities
Operating proﬁt before tax from continuing operations
Proﬁt before tax on discontinued operations
Tax paid
Depreciation and amortisation
(Increase)/decrease in:
Interest receivable and prepaid expenses
Net settlement balances and trading positions
Net loans to/from money broker against stock advanced
Increase in interest payable and accrued expenses

Net cash inﬂow from trading activities
Decrease/(increase) in:
Loans and advances to banks not repayable on demand
Loans and advances to customers
Assets let under operating leases
Floating rate notes classiﬁed as available for sale
Certiﬁcates of deposit
Debt securities held for liquidity
Other assets less other liabilities
(Decrease)/increase in:
Deposits by banks
Deposits by customers
Loans and overdrafts from banks
Debt securities in issue, net of transaction costs

Net cash inﬂow from operating activities

(b) Analysis of net cash outﬂow in respect of the purchase of non-controlling interests
Cash consideration paid

(c) Analysis of net cash inﬂow in respect of the sale of a subsidiary
Cash consideration received
Cash and cash equivalents disposed of

(d) Analysis of changes in ﬁnancing activities
Share capital (including premium) and subordinated loan capital2:
Opening balance
Shares issued for cash

(e) Analysis of cash and cash equivalents3
Cash and balances at central banks
Loans and advances to banks repayable on demand

1  Restated – see note 7.
2  Excludes accrued interest.
3  Excludes Bank of England cash reserve account and amounts held as collateral.

31 July
2015 
£ million

31 July
20141
£ million

219.9
11.6
(53.4)
41.4

(4.2)
22.8
(2.9)
8.2

188.8
6.9
(35.3)
34.7

4.9
(8.8)
0.2
15.9

243.4

207.3

1.6
(448.1)
(39.8)
–
(115.3)
25.0
(19.1)

(14.5)
(23.0)
371.8
–

(2.6)
(644.1)
(41.4)
37.8
–
–
30.5

(17.0)
498.3
(28.2)
299.0

(18.0)

339.6

(1.0)

(7.5)

36.9
(13.7)

23.2

–
–

–

396.5
0.1

396.4
0.1

396.6

396.5

1,031.2
72.5

1,164.7
74.0

1,103.7

1,238.7

 
 
120

Close Brothers Group plc Annual Report 2015

The Notes continued

29. Financial risk management
As a ﬁnancial services group, ﬁnancial instruments are central to the group’s activities. The risk associated with ﬁnancial 
instruments represents a signiﬁcant component of those faced by the group and is analysed in more detail below.

The group’s ﬁnancial risk management objectives are summarised within the Risk and Control Framework in Corporate 
Governance on page 49 and 50. Details of the signiﬁcant accounting policies and methods adopted, including the criteria for 
recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class 
of ﬁnancial asset, ﬁnancial liability and equity instrument are disclosed in note 1.

(a) Classification
The following tables analyse the group’s assets and liabilities in accordance with the categories of ﬁnancial instruments in 
IAS 39.

Designated 
at fair value 
through 
proﬁt or 
loss 
£ million

Held for 
trading 
£ million

Available 
for sale 
£ million

Loans and 
receivables 
£ million

Other 
ﬁnancial 
instruments 
amortised 
cost 
£ million

Derivatives 
held for 
hedging 
£ million

At 31 July 2015
Assets
Cash and balances at central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Debt securities
Equity shares
Loans to money brokers against stock advanced
Derivative ﬁnancial instruments
Other ﬁnancial assets

Liabilities
Settlement balances and short positions
Deposits by banks
Deposits by customers
Loans and overdrafts from banks
Debt securities in issue
Loans from money brokers against stock 

advanced

Subordinated loan capital
Derivative ﬁnancial instruments
Other ﬁnancial liabilities

–
–
–
–
14.1
31.1
–
2.3
–

47.5

27.8
–
–
–
–

–
–
2.9
–

30.7

–
–
–
–
–
0.1
–
–
–

0.1

–
–
–
–
–

–
–
–
–

–

–
–
–
–
20.1
10.0
–
–
–

1,038.0
398.3
84.6
5,737.8
115.3
–
38.4
–
36.5

30.1

7,448.9

–
–
–
–
–

–
–
–
–

–

–
–
–
–
–

–
–
–
–

–

–
–
–
–
–
–
–
–
–

–

376.5
35.1
4,481.4
381.2
1,365.0

–
46.4
–
105.0

Total 
£ million

1,038.0
398.3
84.6
5,737.8
149.5
41.2
38.4
19.7
36.5

–
–
–
–
–
–
–
17.4
–

17.4

7,544.0

–
–
–
–
–

–
–
4.2
–

404.3
35.1
4,481.4
381.2
1,365.0

–
46.4
7.1
105.0

6,790.6

4.2

6,825.5

Close Brothers Group plc Annual Report 2015

121

At 31 July 2014
Assets
Cash and balances at central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Debt securities
Equity shares
Loans to money brokers against stock advanced
Derivative ﬁnancial instruments
Other ﬁnancial assets

Liabilities
Settlement balances and short positions
Deposits by banks
Deposits by customers
Loans and overdrafts from banks
Debt securities in issue
Loans from money brokers against stock 

advanced

Subordinated loan capital
Derivative ﬁnancial instruments
Other ﬁnancial liabilities

Designated 
at fair value 
through 
proﬁt or loss 
£ million

Held for 
trading 
£ million

Available for 
sale 
£ million

Loans and 
receivables 
£ million

Other 
ﬁnancial 
instruments 
amortised 
cost 
£ million

Derivatives 
held for 
hedging 
£ million

Total 
£ million

–
–
–
–
48.6
56.5
–
21.3
–

126.4

49.8
–
–
–
–

–
–
17.3
–

67.1

–
–
–
–
–
0.1
–
–
–

0.1

–
–
–
–
–

–
–
–
–

–

–
–
–
–
45.6
19.5
–
–
–

1,171.8
465.8
87.4
5,289.7
–
–
63.9
–
50.5

65.1

7,129.1

–
–
–
–
–

–
–
–
–

–

–
–
–
–
–

–
–
–
–

–

–
–
–
–
–
–
–
–
–

–

444.2
49.6
4,513.7
9.4
1,354.4

28.4
77.2
–
115.4

–
–
–
–
–
–
–
6.5
–

1,171.8
465.8
87.4
5,289.7
94.2
76.1
63.9
27.8
50.5

6.5

7,327.2

–
–
–
–
–

–
–
2.2
–

494.0
49.6
4,513.7
9.4
1,354.4

28.4
77.2
19.5
115.4

6,592.3

2.2

6,661.6

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(b) Valuation
The fair values of the group’s ﬁnancial assets and liabilities are not materially different from their carrying values, with the 
exception of subordinated loan capital, and the Close Brothers Group plc (“CBG”) and CBL bonds.

Subordinated loan capital
CBG bond
CBL bond

31 July 2015

31 July 2014

Fair  

value
56.9
219.7
315.4

Carrying 
value
46.4
205.6
311.2

Fair  

value
88.3
224.9
306.5

Carrying 
value
77.2
205.2
300.2

Valuation hierarchy
The group holds ﬁnancial instruments that are measured at fair value subsequent to initial recognition. Each instrument has 
been categorised within one of three levels using a fair value hierarchy that reﬂects the signiﬁcance of the inputs used in 
making the measurements. These levels are based on the degree to which the fair value is observable and are deﬁned as 
follows:
•  Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or 
liabilities where prices are readily available and represent actual and regularly occurring market transactions on an arm’s 
length basis. An active market is one in which transactions occur with sufﬁcient frequency to provide ongoing pricing 
information;

•  Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are 

observable for the asset or liability, either directly as prices or indirectly derived from prices; and

•  Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that 

are not based on observable market data (“unobservable inputs”).

Investments classiﬁed as Level 1 predominantly comprise UK government securities and listed equity shares.

Investments classiﬁed as Level 2 predominantly comprise investment grade corporate bonds, less liquid listed equities and 
over the counter derivatives.

 
 
122

Close Brothers Group plc Annual Report 2015

The Notes continued

29. Financial risk management continued
Investments classiﬁed as Level 3 predominantly comprise investments in unlisted equity shares including an entity offering 
post trade services in securities, a legacy investment property fund and the group’s residual shareholding in a derivatives 
market maker. The valuations of these investments are determined using generally accepted valuation techniques including 
discounted cash ﬂow models and net asset values. The group believes that there is no reasonably possible change to the 
inputs used in the valuation of these positions which would have a material effect on the group’s consolidated income 
statement.

The tables below show the classiﬁcation of ﬁnancial instruments held at fair value into the valuation hierarchy at 31 July 2015 
and 2014.

At 31 July 2015
Assets
Debt securities:
Long positions in debt securities held for trading
Gilts classiﬁed as available for sale
Equity shares:
Held for trading
Fair value through proﬁt or loss
Available for sale
Derivative ﬁnancial instruments

Liabilities
Short positions held for trading:
Debt securities
Equity shares
Derivative ﬁnancial instruments

At 31 July 2014
Assets
Debt securities:
Long positions in debt securities held for trading
Gilts classiﬁed as available for sale
Equity shares:
Held for trading
Fair value through proﬁt or loss
Available for sale
Derivative ﬁnancial instruments

Liabilities
Short positions held for trading:
Debt securities
Equity shares
Derivative ﬁnancial instruments

There were no signiﬁcant transfers between Level 1, 2 and 3 in 2015 and 2014.

Level 1 
£ million

Level 2 
£ million

Level 3 
£ million

Total 
£ million

12.6
20.1

31.1
–
–
–

63.8

11.3
14.1
–

25.4

1.5
–

–
0.1
–
19.7

21.3

2.4
–
7.1

9.5

–
–

–
–
10.0
–

10.0

–
–
–

–

14.1
20.1

31.1
0.1
10.0
19.7

95.1

13.7
14.1
7.1

34.9

Level 1 
£ million

Level 2 
£ million

Level 3 
£ million

Total 
£ million

45.9
45.6

56.5
–
–
0.4

148.4

31.1
15.6
–

46.7

2.7
–

–
–
–
27.4

30.1

3.2
–
19.5

22.7

–
–

–
0.1
19.5
–

48.6
45.6

56.5
0.1
19.5
27.8

19.6

198.1

–
–
–

–

34.3
15.6
19.5

69.4

Close Brothers Group plc Annual Report 2015

123

Movements in ﬁnancial assets categorised as Level 3 were:

At 1 August 2013
Total gains recognised in the consolidated income statement
Total gains recognised in other comprehensive income
Purchases and issues
Sales and settlements
Transfers out

At 31 July 2014
Total losses recognised in the consolidated income statement
Total losses recognised in other comprehensive income
Purchases and issues
Sales and settlements
Transfers out

At 31 July 2015

Equity shares

Available
for sale
£ million
27.1
–
0.5
0.1
(8.2)
–

19.5
(0.9)
(0.5)
–
(8.1)
–

10.0

Fair value
through
proﬁt/(loss)
£ million
0.6
–
–
–
(0.5)
–

0.1
–
–
–
–
(0.1)

–

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The losses recognised in the consolidated income statement relating to instruments held at the year end amounted to £0.9 
million (2014: £nil).

(c) Credit risk
Credit risk is the risk of a reduction in earnings and/or value, as a result of the failure of a counterparty or associated party with 
whom the group has contracted to meet its obligations in a timely manner and arises mainly from the lending and treasury 
activities of the Banking division.

The group’s lending activities are spread across asset classes, are generally short-term in nature with low average loan size in 
order to control concentration risk in the loan book and associated collateral. In addition the group applies consistent and 
prudent lending criteria mitigating credit risk. 

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The Banking division monitors the credit quality of the counterparties with whom the group places deposits, enters into 
derivative contracts or whose debt securities are held against established limits. Whilst these amounts may be material, the 
counterparties are all regulated institutions with high credit ratings assigned by international credit rating agencies and fall 
within the large exposure limits set by the regulatory requirements.

Credit risk in the Securities division is limited as Winterﬂood trade in the cash markets with regulated counterparties on a 
delivery versus payment basis such that any credit exposure is limited to price movements in the underlying securities. 
Counterparty exposure and settlement failure monitoring controls are in place.

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124

Close Brothers Group plc Annual Report 2015

The Notes continued

29. Financial risk management continued
Maximum exposure to credit risk
The table below presents the group’s maximum exposure to credit risk, before taking account of any collateral and credit risk 
mitigation, arising from its on balance sheet and off balance sheet ﬁnancial instruments at 31 July 2015. For off balance sheet 
instruments, the maximum exposure to credit risk represents the contractual nominal amounts.

On balance sheet
Cash and balances at central banks
Settlement balances
Loans and advances to banks
Loans and advances to customers
Debt securities
Loans to money brokers against stock advanced
Derivative ﬁnancial instruments
Other ﬁnancial assets

Off balance sheet
Undrawn commitments

Total maximum exposure to credit risk

31 July
2015
£ million

31 July
2014
£ million

1,038.0
398.3
84.6
5,737.8
149.5
38.4
19.7
36.5
7,502.8

1,171.8
465.8
87.4
5,289.7
94.2
63.9
27.8
50.5
7,251.1

1,209.6

1,263.1

8,712.4

8,514.2

Assets pledged and received as collateral
The group pledges assets for repurchase agreements and securities borrowing agreements which are generally conducted 
under terms that are customary to standard securitised borrowing contracts.

The group has securitised without recourse and restrictions £1,164.8 million (31 July 2014: £1,134.1 million) of its insurance 
premium and motor loan receivables in return for debt securities in issue of £847.7 million (31 July 2014: £848.6 million). As the 
group has retained exposure to substantially all the credit risk and rewards of the residual beneﬁt of the underlying assets it 
continues to recognise these assets in loans and advances to customers in its consolidated balance sheet.

In November 2014 the group accessed the Funding for Lending Scheme which enables it to borrow highly liquid UK Treasury 
Bills from the Bank of England in exchange for eligible collateral. At 31 July 2015, asset ﬁnance loan receivables of £705.6 
million were positioned. The term of these transactions is four years from the date of drawdown. The group also had 
repurchase agreements whereby £375.0 million Treasury Bills have been drawn and lent in exchange for cash included within 
loans and overdrafts from banks. The Treasury Bills are not recorded on the group’s consolidated balance sheet as ownership 
remains with the Bank of England. The risk and rewards of the loans and advances to customers remains with the group and 
continue to be recognised in the consolidated balance sheet.

Loans to money brokers against stock advanced of £38.4 million (31 July 2014: £63.9 million) is the cash collateral provided to 
these institutions for stock borrowing by Winterﬂood. The stock borrowing to which the cash deposits relate is short term in 
nature and is recorded at the amount payable.

The majority of loans and advances to customers are secured against speciﬁc assets. The security will correspond to the type 
of lending as detailed in the segmental loan book analysis on page 23 of the Strategic Report. Consistent and prudent lending 
criteria are applied across the whole loan book with emphasis on the quality of the security provided.

Close Brothers Group plc Annual Report 2015

125

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Financial assets: Loans and advances to customers
Credit risk management and monitoring
The overall credit risk appetite is set by the group board. The monitoring of credit policy is the responsibility of the Banking 
division’s risk and compliance committees. All large loans are subject to approval by the Banking division’s Credit 
Committees. Retail, Commercial and Property each use credit underwriting and monitoring measures appropriate to the 
diverse and specialised nature of their lending.

The Banking division has a dual approach to mitigating credit risk by:
•  Lending on a secured basis with emphasis on both the customers’ ability to repay and the quality of the underlying security 

to minimise any loss should the customer not be able to repay; and

•  Where the security collateralising a loan is less tangible, or in cases of higher loan to valuation (“LTVs”), greater scrutiny is 

applied both analytically and in terms of escalation of sanctioning authority.

The Banking division’s collections and recoveries processes are designed to provide a fair, consistent and effective operation 
for arrears management. The Banking division seeks to engage in early communication with borrowers experiencing difﬁculty 
in meeting their repayments, to obtain their commitment to maintaining or re-establishing a regular payment plan. 

The Banking division maintains a forbearance policy to support customers in ﬁnancial difﬁculty and ensures the necessary 
processes and policies are in place to enable consistently fair treatment of each customer. At the same time, the Banking 
division ensures these processes and policies do not restrict the ability to manage customers based on their individual 
circumstances. This includes considering whether it is appropriate to change the terms and conditions of a loan, e.g. by 
extending its term, changing the type of loan, deferring interest or by capitalising arrears to assist a customer in ﬁnancial 
difﬁculties. The Bank seeks to ensure that any forbearance results in a fair outcome for the customer and will not repossess 
an asset unless all other reasonable attempts to resolve the position have failed. The gross carrying amount of exposures with 
forbearance measures was £81.6 million at 31 July 2015.

Retail is predominantly high volume secured lending with a small average loan size. Credit issues are identiﬁed early via 
predominantly automated tracking processes. Remedial actions are implemented promptly to restore customers to a 
performing status or recovery methods are applied to minimise potential loss.

Commercial is a combination of several niche lending businesses with a diverse mix of loans in terms of assets ﬁnanced, and 
average loan size and LTV percentage. Credit quality is predominately assessed on an individual loan by loan basis. Recovery 
activity is executed promptly by experts in the specialised assets. This approach allows remedial action to be implemented at 
the appropriate time to minimise potential loss.

Property is a portfolio of higher value, low volume lending with credit quality assessed on an individual loan by loan basis. 
Loans are continually monitored to determine whether they are performing satisfactorily. Performing loans with elevated levels 
of credit risk may be placed on watch lists depending on the perceived severity of the credit risk.

Much of the Banking division’s lending is short term and average loan size is small with the result that individual loans have 
little capacity to materially impact the group’s earnings.

Credit risk reporting
Loans and advances to customers, as disclosed in note 11, are analysed between the following categories for credit risk 
reporting:

(i) Neither past due nor impaired
These loans and advances to customers reﬂect the application of consistent and conservative lending criteria on inception 
and the quality and level of security held. The contractual repayments are monitored to ensure that classiﬁcation as neither 
past due nor impaired remains appropriate and also demonstrates the short-term nature of the lending, with £3.1 billion (2014: 
£2.9 billion) having a contractual maturity of less than 12 months.

The following table shows the ageing of loans and advances to customers split by credit assessment method which are 
neither past due nor impaired.

Within one month
Between one and three months
Between three months and one year
Over one year

31 July 2015 
Loans and advances to customers

31 July 2014 
Loans and advances to customers

Individually
assessed
£ million
512.0
250.6
729.6
642.4

Collectively
assessed
£ million
269.4
385.3
960.2
1,660.4

Total
£ million
781.4
635.9
1,689.8
2,302.8

Individually
assessed
£ million
389.9
301.8
699.6
536.6

Collectively
assessed
£ million
254.0
408.8
865.7
1,514.4

Total
£ million
643.9
710.6
1,565.3
2,051.0

2,134.6

3,275.3

5,409.9

1,927.9

3,042.9

4,970.8

 
 
126

Close Brothers Group plc Annual Report 2015

The Notes continued

29. Financial risk management continued
(ii) Past due but not impaired
Loans and advances to customers are classiﬁed as past due but not impaired when the customer has failed to make a 
payment when contractually due but there is no evidence of impairment. This includes loans which are individually assessed 
for impairment but where the value of security is sufﬁcient to meet the required repayments. This also includes loans to 
customers which are past due for technical reasons such as delays in payment processing or rescheduling of payment terms.

The following table shows the ageing of loans and advances to customers split by credit assessment method which are past 
due but for which no impairment provision has been raised.

Within one month
Between one and three months
Between three months and one year
Over one year

31 July 2015 
Loans and advances to customers

31 July 2014 
Loans and advances to customers

Individually
assessed
£ million
31.1
61.9
41.9
13.9

Collectively
assessed
£ million
14.7
4.9
24.7
28.6

Total
£ million
45.8
66.8
66.6
42.5

Individually
assessed
£ million
43.3
65.4
17.3
8.2

Collectively
assessed
£ million
15.6
7.7
18.7
31.1

Total
£ million
58.9
73.1
36.0
39.3

148.8

72.9

221.7

134.2

73.1

207.3

(iii) Impaired
The factors considered in determining whether assets are impaired are outlined in the accounting policies in note 1(j). Impaired 
loans and advances to customers are analysed according to whether the impairment provisions are individually or collectively 
assessed.

Individually assessed provisions are determined on a case by case basis, taking into account the ﬁnancial condition of the 
customer and an estimate of potential recovery from the realisation of security. Typically this methodology is applied by the 
Property business and by the invoice ﬁnance business within Commercial.

Collectively assessed provisions are considered on a portfolio basis, to reﬂect the homogeneous nature of the assets.  
A percentage of the portfolio is impaired by evaluating the ageing of missed payments combined with the historical recovery 
rates for that particular portfolio as discussed in note 2(a). Typically this methodology is applied by the Retail businesses and 
the asset ﬁnance business within Commercial.

The gross impaired loans are quoted without taking account of any collateral or security held, which could reduce the 
potential loss. The application of conservative loan to value ratios on inception and the emphasis on the quality of the security 
provided are reﬂected in the low provision to gross impaired balance ratio (“coverage ratio”) of 35% (2014: 30%).

The following table shows gross impaired loans and advances to customers and the provision thereon split by assessment 
method.

Gross impaired loans
Provisions

Net impaired loans

31 July 2015 
Loans and advances to customers

31 July 2014 
Loans and advances to customers

Individually
assessed
£ million
69.7
(34.7)

Collectively
assessed
£ million
92.6
(21.4)

Total
£ million
162.3
(56.1)

Individually
assessed
£ million
89.6
(32.2)

Collectively
assessed
£ million
70.3
(16.1)

Total
£ million
159.9
(48.3)

35.0

71.2

106.2

57.4

54.2

111.6

The amount of interest income accrued on impaired loans and advances to customers was £14.6 million (31 July 2014: £13.4 
million).

Close Brothers Group plc Annual Report 2015

127

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The group holds collateral against loans and advances to customers in the form of residential and commercial property, 
charges over business assets such as equipment, inventory and accounts receivable. Analysis by LTV ratio is provided below 
based on the group’s lending facilities to customers where the exposure at origination exceeded £1.0 million, excluding 
Property facilities written pre 2009. Lending below this threshold has greater homogeneity predominately in the motor and 
premium ﬁnance businesses with typical LTV ratio between 80% to 90%. The value of collateral used in determining the LTV 
ratio is based upon data captured at loan origination, or where available, a more recent updated valuation.

Gross loans and advances to customers where exposure at origination exceeded £1.0 million:

LTV
Less than 70%
70% to 90%
Greater than 90%

At 31 July 2015

LTV
Less than 70%
70% to 90%
Greater than 90%

At 31 July 2014

Asset
ﬁnance
£ million

Invoice
ﬁnance
£ million

Property
£ million

Total
£ million

59.3
75.5
88.2

149.8
126.9
2.3

1,002.6
20.3
–

1,211.7
222.7
90.5

223.0

279.0

1,022.9

1,524.9

Asset
ﬁnance
£ million

45.9
44.5
54.5

Invoice
ﬁnance
£ million

156.5
102.4
5.1

Property
£ million

Total
£ million

850.3
18.2
4.0

1,052.7
165.1
63.6

144.9

264.0

872.5

1,281.4

Financial assets: Settlement balances
Credit risk management and monitoring
The credit risk presented by settlement balances in the Securities division is limited as such balances represent delivery 
versus payment transactions where delivery of securities occurs simultaneously with payment. The credit risk is therefore 
limited to the change in market price of a security between trade date and settlement date and not the absolute value of the 
trade. Winterﬂood is a market-maker and trades on a principal only basis with regulated counterparties including 
stockbrokers, wealth managers, institutions and hedge funds who are either authorised and regulated by the PRA and/or FCA 
or equivalent regulator in the respective country.

Credit risk reporting
Settlement balances are classiﬁed as neither past due nor impaired when the respective trades have not yet reached their 
settlement date. Settlement balances are classiﬁed as past due but not impaired when trades fail to be settled on their 
contractual settlement date. The credit risk presented by settlement balances which are past due is mitigated by the delivery 
versus payment mechanism, as well as by Winterﬂood trading only with regulated counterparties. Counterparty exposure and 
settlement failure monitoring controls are in place as part of an overall risk management framework and settlement balances 
past due are actively managed.

The following table shows the ageing of settlement balances:

Within one month
Between one and three months
Between three months and one year
Over one year

31 July 2015

31 July 2014

Neither past
due nor
impaired
£ million
378.9
–
–
–

Past due
but not
impaired
£ million
16.2
1.0
0.9
1.3

Neither past
due nor
impaired
£ million
445.3
–
–
–

Total
£ million
395.1
1.0
0.9
1.3

Past due
but not
impaired
£ million
14.7
1.9
2.9
1.0

Total
£ million
460.0
1.9
2.9
1.0

378.9

19.4

398.3

445.3

20.5

465.8

 
 
128

Close Brothers Group plc Annual Report 2015

The Notes continued

29. Financial risk management continued
(d) Market risk
Market risk is the risk that a change in the value of an underlying market variable, such as interest or foreign exchange rates, 
will give rise to an adverse movement in the value of the group’s assets and arises primarily in the Securities division.

Interest rate risk
The group’s exposure to interest rate ﬂuctuations relates primarily to the returns from its capital and reserves. The group’s 
policy is to match repricing characteristics of assets and liabilities naturally where possible or by using interest rate swaps 
where necessary to secure the margin on its loans and advances to customers. These interest rate swaps are disclosed in 
note 14.

The sensitivities below are based upon reasonably possible changes in interest rate scenarios, including parallel shifts in the 
yield curve. At 31 July 2015 changes in interest rates compared to actual rates would increase/(decrease) the group’s annual 
net interest income by the following amounts:

1.0% increase
0.5% decrease

2015
£ million
4.3
(2.2)

2014
£ million
4.2
(2.1)

At 31 July 2015 changes in interest rates compared to actual rates would increase/(decrease) the group’s equity by the 
following amounts:

1.0% increase
0.5% decrease

2015
£ million
11.3
(5.7)

2014
£ million
12.6
(6.3)

Foreign currency risk
The group has a limited number of currency investments and has chosen not to hedge these exposures. These investments 
are predominantly in euros. Foreign exchange differences which arise from the translation of these operations are recognised 
directly in equity.

At 31 July 2015 a change in the euro exchange rate would decrease the group’s equity by the following amounts:

20% strengthening of sterling against the euro

2015
£ million
(5.6)

2014
£ million
(5.3)

The group has additional material currency assets and liabilities primarily as a result of treasury operations in the Banking division. 
These assets and liabilities are matched by currency, using exchange rate derivative contracts where necessary. Details of these 
contracts are disclosed in note 14. Other potential group exposures arise from share trading settled in foreign currency in the 
Securities division, and foreign currency equity investments. The group has policies and processes in place to manage foreign 
currency risk, and as such the impact of any reasonably expected exchange rate ﬂuctuations would not be material.

Market price risks
Trading financial instruments: Equity shares and debt securities
The group’s trading activities relate to Winterﬂood. The following table shows the group’s trading book exposure to market 
price risk.

For the year ended 31 July 20151
Equity shares
Long
Short

Debt securities
Long
Short

1   2015 exposures exclude Seydler which was disposed of in January 2015.

Highest
exposure
£ million

Lowest
exposure
£ million

Average
exposure
£ million

Exposure
at 31 July
£ million

53.7
44.0

27.7
9.5

50.2
56.2

14.0
2.9

37.1
16.2

20.9

25.4
27.5

(2.1)

31.1
14.1

17.0

14.1
13.7

0.4

Close Brothers Group plc Annual Report 2015

129

For the year ended 31 July 2014
Equity shares
Long
Short

Debt securities
Long
Short

Highest
exposure
£ million

Lowest
exposure
£ million

Average
exposure
£ million

Exposure
at 31 July
£ million

70.4
34.3

37.1
11.0

91.3
100.3

27.4
21.8

53.5
17.6

35.9

47.6
55.1

(7.5)

56.5
15.6

40.9

48.6
34.3

14.3

With respect to the long and short positions on debt securities £nil and £nil (2014: £2.7 million and £5.1 million) were due to 
mature within one year respectively.

The average exposure has been calculated on a daily basis. The highest and lowest exposures occurred on different dates 
and therefore a net position of these exposures does not reﬂect a spread of the trading book.

Based upon the trading book exposure given above, a hypothetical fall of 10% in market prices would result in a £1.7 million 
decrease (2014: £4.1 million decrease) in the group’s income and net assets on the equity trading book and a £nil impact 
(2014: £1.4 million decrease) on the debt securities trading book. However, the group’s trading activity is mainly market-
making where positions are managed throughout the day on a continuous basis. Accordingly the sensitivity referred to above 
is purely hypothetical.

Non-trading financial instruments
Net gains and losses on non-trading ﬁnancial instruments are disclosed in notes 12 and 13.

(e) Liquidity risk
Liquidity risk is the risk that liabilities cannot be met when they fall due or can only be met at an uneconomic price and arises 
mainly in the Banking division.

i

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i

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i

The group has a prudent liquidity position with total available funding at 31 July 2015 of £7.5 billion (31 July 2014: £7.1 billion). 
This funding is signiﬁcantly in excess of its loans and advances to customers at 31 July 2015 of £5.7 billion (31 July 2014: £5.3 
billion). The group has a large portfolio of high quality liquid assets principally including cash placed on deposit with the Bank 
of England and gilts. The group measures liquidity risk with a variety of measures including regular stress testing and cash 
ﬂow monitoring, and reporting to both the group and divisional boards.

The following table analyses the contractual maturities of the group’s on-balance sheet ﬁnancial liabilities on an undiscounted 
cash ﬂow basis.

l

S
t
a
t
e
m
e
n
t
s

At 31 July 2015
Settlement balances
Deposits by banks
Deposits by customers
Loans and overdrafts from banks
Debt securities in issue
Loans from money brokers against stock 

advanced

Subordinated loan capital
Derivative ﬁnancial instruments
Other ﬁnancial liabilities

On
demand
£ million

In less
than three
months
£ million

In more 
than three 
months but 
not more 
than six 
months
£ million

In more 
than six 
months but 
not more 
than one 
year
£ million

In more 
than
one year 
but not 
more than 
ﬁve years
£ million

In more
than
ﬁve years
£ million

–
11.5
149.9
8.6
–

–
–
–
32.9

376.5
1.0
832.8
99.4
10.1

–
1.7
7.7
64.9

–
17.6
954.8
124.1
9.3

–
4.5
1,431.1
0.3
19.3

–
0.5
1,191.8
152.6
1,124.2

–
–
1.8
2.7

–
1.7
4.0
1.3

–
13.6
25.4
1.8

–
–
–
–
311.6

–
65.4
5.9
0.2

Total
£ million

376.5
35.1
4,560.4
385.0
1,474.5

–
82.4
44.8
103.8

Total

202.9

1,394.1

1,110.3

1,462.2

2,509.9

383.1

7,062.5

 
 
130

Close Brothers Group plc Annual Report 2015

The Notes continued

29. Financial risk management continued

At 31 July 2014
Settlement balances
Deposits by banks
Deposits by customers
Loans and overdrafts from banks
Debt securities in issue
Loans from money brokers against stock 

advanced

Subordinated loan capital
Derivative ﬁnancial instruments
Other ﬁnancial liabilities

On
demand
£ million

0.4
21.1
165.4
4.4
–

28.4
–
–
16.2

In less
than three
months
£ million

443.7
20.0
1,263.5
5.0
10.6

–
2.8
13.3
97.7

In more than 
three months 
but not more 
than six 
months
£ million

In more than 
six months 
but not more 
than one 
year
£ million

In more than 
one year but 
not more 
than ﬁve 
years
£ million

–
6.1
370.2
–
10.0

–
2.6
1,203.6
–
369.3

–
–
1,601.0
–
784.1

–
–
6.3
1.0

–
2.8
10.9
0.3

–
22.5
29.6
0.2

In more
than 
ﬁve years
£ million

–
–
–
–
323.4

–
103.3
13.6
–

Total
£ million

444.1
49.8
4,603.7
9.4
1,497.4

28.4
131.4
73.7
115.4

Total

235.9

1,856.6

393.6

1,589.5

2,437.4

440.3

6,953.3

Derivative ﬁnancial instruments in the table above includes net currency swaps. The following table shows the currency swaps 
on a gross basis:

At 31 July 2015
At 31 July 2014

In more than 
three months 
but not more 
than six 
months 
£ million
1.8
6.4

In more than 
six months 
but not more 
than one 
year 
£ million
4.0
47.9

In more than 
one year but 
not more 
than ﬁve 
years 
£ million
25.4
29.6

In less 
than three 
months 
£ million
174.3
210.3

On 
demand 
£ million
–
13.8

In more 
than 
ﬁve years 
£ million
5.9
13.6

Total 
£ million
211.4
321.6

30. Post balance sheet event
On 14 September 2015, the group agreed the sale of its corporate advice and investment management activities, which are 
part of the Asset Management division, to JLT Beneﬁt Solutions Ltd. The activities disposed of represented net assets of  
£0.3 million and operating proﬁt before tax of £0.7 million for the year ended 31 July 2015. The timing for completion is subject 
to the satisfaction of customary conditions.

Close Brothers Group plc Annual Report 2015

131

31. Investments in subsidiaries
In accordance with section 409 of the Companies Act 2006 the following is a list of the group’s subsidiaries at 31 July 2015 
which are all wholly-owned and incorporated in the UK unless otherwise stated.

Group
Close Brothers Holdings Limited
Close Derivatives Limited
Close Securities (Germany) Limited
Close Securities Holdings Limited

Banking
Air & General Finance Limited
Armed Services Finance Limited
Brook Funding (No.1) Limited1
CBM Holdings Limited
CLL I Limited
Close Asset Finance Limited
Close Brewery Rentals Limited
Close Brothers Asset Finance GmbH (Germany)
Close Brothers Factoring GmbH (Germany)
Close Brothers Finance plc
Close Brothers Limited
Close Brothers Military Services Limited
Close Business Finance Limited
Close Credit Management (Holdings) Limited
Close Finance (CI) Limited (Jersey)
Close International Bank Holdings Limited (Guernsey)
Close Invoice Finance Limited
Close Leasing Limited
Close Motor Finance Limited
Close PF Funding I Limited1
Close Trust Nominees Limited
Colomberie Finance Limited
Commercial Acceptances Limited
Commercial Finance Credit Limited
Commercial Vehicle Solutions Limited

Banking continued
Ecasks Limited
Kingston Asset Finance Limited
Kingston Asset Leasing Limited
Metropolitan Factors Limited
Micgate Holdings (UK) Limited
Rodney Road Car Park Limited
Surrey Asset Finance Limited

Securities
W.S. (Nominees) Limited
Winterﬂood Client Nominees Limited
Winterﬂood Gilts Limited
Winterﬂood Securities Holdings Limited
Winterﬂood Securities Limited

Asset Management
Cavanagh Financial Management Limited
Chartwell Private Client Limited
Close Asset Management Holdings Limited
Close Asset Management Limited
Close Asset Management (UK) Limited
Close Brothers Properties Guernsey Limited (Guernsey)
Close International Asset Management Holdings Limited 

(Guernsey)

Close Investments Limited
Close Portfolio Management Limited
Close Properties Jersey Limited (Jersey)
CPRM Limited (70%)
Lion Nominees Limited
Mackay Stewart and Brown Limited
OLIM Limited
Place Campbell Close Brothers Limited (50% joint venture)

1  The share capital of these securitisation vehicles is not owned by the group, but these vehicles are included in the consolidated ﬁnancial statements as they are 

controlled by the group.

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132

Close Brothers Group plc Annual Report 2015

Investor Relations

Financial calendar (provisional)

Event
Annual General Meeting
First quarter trading update
Final dividend payment
Country-by-country reporting1
Pre-close trading update
Half year end
Interim results
Third quarter trading update
Pre-close trading update
Financial year end
Preliminary results

Date
19 November 2015
November 2015
24 November 2015
31 December 2015
January 2016
31 January 2016
March 2016
May 2016
July 2016
31 July 2016
September 2016

1  In accordance with the Capital Requirements (country-by-country) Regulations 2013, the group will publish additional country-by-country information in respect of 

the year ending 31 July 2015, on or before 31 December 2015. This information will be available on our website.

The ﬁnancial calendar is updated on a regular basis throughout the year. Please refer to our website www.closebrothers.com 
for up to date details.

Cautionary Statement

Certain statements included or incorporated by reference within this report may constitute “forward-looking statements” in 
respect of the group’s operations, performance, prospects and/or ﬁnancial condition. Forward-looking statements are 
sometimes, but not always, identiﬁed by their use of a date in the future or such words as “anticipates”, “aims”, “due”, “could”, 
“may”, “will”, “should”, “expects”, “believes”, “intends”, “plans”, “potential”, “targets”, “goal” or “estimates”. 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 report should be construed as a proﬁt forecast. This report 
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 
report reﬂect the knowledge and information available at the time of its preparation. Liability arising from anything in this report 
shall be governed by English Law. Nothing in this report shall exclude any liability under applicable laws that cannot be 
excluded in accordance with such laws.

Auditor
Deloitte LLP

Solicitor
Slaughter and May

Corporate Brokers
J.P. Morgan Cazenove
UBS Investment Bank

Registrar
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Shareholder helpline: 0871 664 0300 (Calls cost 12p per minute plus your phone company’s access charge)  
From overseas: +44 (0)20 8639 3399
Lines are open from 9.00 am to 5.30 pm Monday to Friday, excluding UK public holidays
Email: shareholderenquiries@capita.co.uk
Website: www.capitashareportal.com

Registered Ofﬁce
Close Brothers Group plc
10 Crown Place
London EC2A 4FT

Telephone: +44 (0)20 7655 3100
Email: enquiries@closebrothers.com
Website: www.closebrothers.com

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Close Brothers Group plc
10 Crown Place
London EC2A 4FT
Tel: +44 (0)20 7655 3100

www.closebrothers.com

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