Enabling
opportunities
since 1878
Close Brothers Group plc
Annual Report 2024
Our Highlights
for the year ended 31 July 2024
Contents
Strategic Report
At a Glance
4
Chairman’s Statement
6
Chief Executive’s Statement
8
FCA’s Review of Historical Motor
Finance Commission Arrangements
10
Investment Case
12
Our Business Model
14
Operating Environment
16
Our Strategy
20
Key Performance Indicators
26
Stakeholder Engagement
29
Section 172 Statement
29
Sustainability Report
33
Task Force on Climate-related
Financial Disclosures Report
35
Non-Financial and Sustainability Information Statement
56
Financial Overview
57
Risk Report
74
Going Concern
117
Viability Statement
118
Governance Report
Chairman’s Introduction to Governance
120
Governance at a Glance
122
Board of Directors
124
Executive Committee
127
Corporate Governance Report
128
Nomination and Governance Committee Report
139
Audit Committee Report
143
Risk Committee Report
147
Directors’ Remuneration Report
150
Directors’ Report
176
Financial Statements
Independent Auditors’ Report
180
Consolidated Income Statement
192
Consolidated Statement of Comprehensive Income
193
Consolidated Balance Sheet
194
Consolidated Statement of Changes in Equity
195
Consolidated Cash Flow Statement
196
Company Balance Sheet
197
Company Statement of Changes in Equity
198
The Notes
199
Glossary and Definition of Key Terms
248
Investor Relations
252
Cautionary Statement
253
Company Information
254
1. Adjusted measures are presented on a basis consistent with
prior periods and exclude amortisation of intangible assets
on acquisition, to present the performance of the group’s
acquired businesses in a manner consistent with its other
businesses, and also exclude any exceptional and other
adjusting items which do not reflect underlying trading
performance. Please refer to Note 3 “Segmental Analysis”
for further details on items excluded from the adjusted
performance metrics.
2. Adjusted operating profit attributable to ordinary shareholders
divided by average total shareholders’ equity, excluding
intangible assets and other equity instruments.
3. The total Scope 1 and 2 emissions for 2023 has been restated.
4. Customer satisfaction score (“CSAT”).
5. Net promoter score (“NPS”).
Asset Finance
CSAT4
92%
2023: 92%
Customer Sentiment Scores
Property Finance NPS5
+98
2023: +88
Premium Finance (personal
lines) customer Net Ease
+80
2023: n/a
Adjusted1
Operating Profit
£170.6m
2023: £113.5m
Operating Profit
Before Tax
£142.0m
2023: £112.0m
Adjusted1 Basic
Earnings Per Share
76.1p
2023: 55.1p
Employee
Engagement
83%
2023: 86%
Return on
Average Tangible
Equity2
8.3%
2023: 5.9%
Total Scope 1 and 2
Emissions (market-
based) (tCO2e)
2,579
2023: 2,3843
Motor Finance
dealer NPS5
+67
2023: +75
Savings online CSAT43
75%
2023: 80%
Asset Management
Net Ease
+72
2023: n/a
At Close Brothers, we are
here to help the people and
businesses of Britain thrive
over the long term.
This means supporting our colleagues, customers and
clients, and the communities and environment in which
they operate. It means helping people and businesses
unlock their potential and plan for the future with
confidence, building relationships that stand the test
of time. It also means that we continue to be there
for the long term, whatever the economic climate,
making decisions that are right for today and for
generations to come.
1
Strategic Report
Governance Report
Financial Statements
Enabling opportunities
since 1878
1878
1968
1977
1972
1984
1987
1897
1978
1985
Close Brothers is founded
by William Brooks (WB)
Close and his brothers
Fred and James.
Century Factors Limited
established, now known
as Close Brothers
Invoice Finance.
Close Brothers Premium
Finance established.
Close Brothers starts
specialising as a lender
to smaller companies
often overlooked by
larger firms.
WB Close paid £10,000
to the US government for
the right to build a railway
from Skagway, Alaska into
the Yukon. Construction of
the White Pass and Yukon
Railway began in 1898.
Following the
merger with
Safeguard Industrial
Investments PLC,
a new Investment
Management team
was formed.
Close Brothers is listed on
the London Stock Exchange.
Close Brothers
Asset Finance
established.
A new Property
division was
formed.
Close Brothers centenary year.
Close Brothers embarks on
the first management buy-out
of a UK merchant bank.
At Close Brothers we enable opportunities for our customers and clients through our dedication
to fostering growth, empowering entrepreneurs and encouraging innovation – a commitment
deeply rooted in our history since William Brooks Close founded the company in 1878.
Timeless values and modern thinking are the backbone of our success. Throughout our
history, we have focused on delivering the highest levels of service and acting with integrity,
while providing straightforward products and services, maintaining a prudent approach
and strong financial position, and building long-term relationships.
We call it Modern Merchant Banking.
2
Close Brothers Group plc Annual Report 2024
2015
2018
1993
1991
2008
2016
2020
Winterflood
Securities
acquired.
Berisford Consumer Finance
(Eastern) Limited acquired,
now known as Close
Brothers Motor Finance.
Loan book
grows to over
£6 billion.
2023
Close Brothers opens
the market at the London
Stock Exchange.
Close Brothers
acquires Bluestone
Motor Finance (Ireland),
rebranded to Close
Brothers Motor Finance.
Commercial
Acceptances
acquired.
Adrian
Sainsbury
appointed
Chief
Executive.
Commercial
and Retail
businesses
formed.
2007
Close Brothers Brewery
Rentals established.
Close Brothers energy
team established.
Close Brothers
celebrates its
140th anniversary.
2024
Loan book
exceeds
£10 billion.
Close Brothers
entered into an
agreement to
sell CBAM to
funds managed by
Oaktree Capital
Management, L.P.
(“Oaktree”)1.
2011
Close Brothers
Commercial Finance
established in Ireland.
1. See Note 29: “Post Balance Sheet Event” for further information. The transaction is expected to complete in early 2025 calendar year and is conditional upon
receipt of certain customary regulatory approvals.
3
Strategic Report
Governance Report
Financial Statements
At a Glance
Who we are
Close Brothers is a leading UK merchant banking group providing lending,
deposit taking, wealth management services and securities trading.
Key highlights
What we do
c.4,000
employees
Constituent of the
FTSE 250
Serving approximately
three million
customers
64 offices
predominantly in the UK and Ireland
Asset Management
Close Brothers Asset Management (“CBAM”) is a
leading, vertically integrated wealth manager, providing
investment management and financial planning services
to private clients in the UK. On 19 September 2024, the
group announced that it entered into an agreement to sell
CBAM to Oaktree1.
Find out more on pages 70 to 72
£(1.7) million
of Operating Loss
Securities
Winterflood is a leading liquidity provider, also offering
corporate advisory services to investment trusts and
institutional sales trading. Winterflood Business Services
(“WBS”) provides outsourced dealing and custody solutions
to c.60 corporate clients.
Find out more on pages 72 to 73
£12.2 million
of Adjusted Operating Profit
£205.4 million
of Adjusted Operating Profit
Banking
Banking provides specialist lending and deposits across
three businesses: Commercial offers specialist and
predominantly secured lending principally to the SME
market; Retail provides intermediated finance through
motor dealers, motor finance brokers and insurance brokers,
and savings products for individuals and corporates;
and Property offers residential development finance to
established UK property developers, funding for commercial
properties, and bridging and refurbishment loans.
Find out more on pages 63 to 70
1. See Note 29: “Post Balance Sheet Event” for further information.
The transaction is expected to complete in early 2025 calendar year and
is conditional upon receipt of certain customary regulatory approvals.
4
Close Brothers Group plc Annual Report 2024
Underpinned by: Our Responsibility
To help address the social, economic and environmental challenges facing
our business, employees and clients, now and into the future.
The foundations of our success enable us to deliver on our purpose
Our Purpose: To help the people and businesses of Britain thrive over the long term
Our Values: Embody our distinctive culture and customer-centric approach
Deep
expertise
Consistent
service
Long-term
relationships
Prudence
Integrity
Teamwork
Enabling us to: Create value and deliver positive outcomes for our stakeholders
Colleagues
See page 30
See page 30
See page 31
See page 30
See page 31
See page 31
Regulators and
government
Customers, clients
and partners
Communities and
environment
Suppliers
Investors
Our Strategy: Focuses on ensuring our business model continues to deliver in the long term
To provide exceptional service to our customers and clients across lending, deposit taking,
wealth management services and securities trading.
Protect
Keeping it safe
Grow
Delivering disciplined growth
Sustain
Doing it responsibly
See pages 20 to 21
See pages 22 to 23
See pages 24 to 25
5
Strategic Report
Governance Report
Financial Statements
Chairman’s Statement
We have remained focused on safeguarding our valuable franchise and its core strengths
The 2024 financial year tested Close Brothers like never
before, marked by the significant uncertainty introduced
as a result of the FCA’s review of historical motor finance
commission arrangements announced in January.
The UK economy experienced a gradual recovery, with
growth stabilisation and easing of inflation from elevated
levels in the preceding year supporting a modest
improvement in sentiment. However, the period was not
without its challenges and political uncertainties, which
resulted in SME businesses and consumers continuing to
exercise a higher degree of caution in their investment and
borrowing decisions.
Throughout this period, we have remained focused on
safeguarding our valuable franchise and its core strengths.
Our financial performance demonstrates the resilience of our
business and the strength of our team. In the 2024 financial
year our lending business continued to deliver growth, albeit
at a reduced pace due to the measures taken to moderate
capital consumption. We maintained a strong net interest
margin and stable credit quality, while continuing to focus on
the delivery of a more efficient business. Our core Banking
business model remains as relevant as ever as we continue
to offer excellent and specialist service to our customers,
while maintaining our pricing and underwriting discipline.
In our market-facing divisions, CBAM continued to attract
client assets and generate market-leading net inflows.
However, short-term trading conditions remained challenging
for Winterflood, resulting in a loss in the period.
Decisive Leadership in Uncertain Times
The board’s overarching priority is to protect our valuable
franchise. Given the uncertainty surrounding the FCA’s
review, our primary focus has been to work closely with
the management team on developing and overseeing the
implementation of a robust capital plan to protect the
group. Our approach aligns with the group’s long-standing
commitment to maintaining a strong balance sheet
and exercising prudence in the management of
financial resources.
This challenging environment demanded a decisive and
strong leadership and difficult decisions had to be made
amidst uncertainty. This included the suspension of dividend
payments for the 2024 financial year, which was an
important step towards strengthening the group’s capital
position. The board is acutely aware of the paramount
importance of the group’s dividend to our shareholders.
The reinstatement of dividends in 2025 and beyond will be
reviewed once the FCA has concluded its process and any
financial consequences for the group have been assessed.
As announced in March 2024, the board has identified
a series of actions which, combined with the decision not
to pay a dividend in the 2024 financial year, have the
potential to strengthen the group’s CET1 capital by
approximately £400 million. We have made significant
progress on the delivery of these actions. These include
“The board’s overarching priority
is to protect our valuable franchise.
Given the uncertainty surrounding
the FCA’s review, our primary focus
has been to work closely with the
management team on developing
and overseeing the implementation
of a robust capital plan to protect
the group, leaving it well positioned
for a range of possible outcomes.”
Michael N. Biggs
Chairman
6
Close Brothers Group plc Annual Report 2024
a combination of selective loan book growth to optimise
risk weighted assets and significant risk transfer of assets,
as well as other potential management actions such
as a continued review of our businesses, including the
sale of portfolios.
While it is regrettable that we must temporarily moderate
our lending activities to preserve capital at this juncture in
the cycle, we are approaching this necessity with utmost
care and strategic consideration. Our commitment to serving
our customers remains unwavering, as we recognise the
critical importance of protecting our valuable franchise.
We have mobilised further cost management initiatives
expected to generate annualised savings of c.£20 million
by the end of the 2025 financial year, as previously outlined,
to partially offset the adverse impact from the capital actions
identified on the group’s profitability. The board recognises
the importance of further cost management initiatives and
believes that the group could emerge from these times as
a more efficient organisation.
Following a comprehensive strategic review, the board is
pleased to announce the agreed sale of CBAM to Oaktree.
The transaction is expected to increase the group’s common
equity tier 1 capital by approximately 100 basis points,
enhancing our position to navigate the current uncertain
environment. The board has unanimously approved the
transaction and believes that the agreed sale represents
competitive value for our shareholders, allowing us to
simplify the group and focus on our core lending business.
The uncertainties arising from the FCA’s review of historical
motor finance commission arrangements will inevitably be
with us for some months to come. Whilst the board cannot
change the environment that the group finds itself in, it is
taking a series of clear, proactive steps to ensure the group
is well positioned to take advantage of future opportunities.
Preserving Our Strong Culture
and Employee Engagement
While our customers are, without question, a critical part
of the group’s long-term success, Close Brothers’ culture
is equally fundamental. The expertise of our people and a
relentless focus on delivering excellent customer service
is the cornerstone of our business model. Recognising this,
we have made it a priority to preserve this vital pillar of our
organisation. Our latest employee opinion survey (“EOS”)
was conducted in February 2024 to monitor overall
engagement alongside colleague sentiment around inclusion,
speaking up and treating customers and clients fairly. The
board was pleased to see that we have retained high levels
of employee engagement at 83% (2023: 86%), evidencing
that our culture remains as resilient as ever, even in the face
of adversity. Despite the challenges that we have faced, we
have witnessed remarkable displays of teamwork, innovation
and dedication from our colleagues.
You can read more about our people on pages 49 to 52
of this report.
Board Changes
Oliver Corbett and Peter Duffy resigned as directors of the
board in November 2023 and February 2024, respectively.
On behalf of the board, I would like to express my sincere
gratitude to each of Oliver and Peter for their unwavering
commitment to the group and their valued expertise and
perspectives. Following Oliver’s resignation, Kari Hale has
been appointed as chair of the Audit Committee and as
whistleblowing champion.
The board is committed to diversity at all levels while
ensuring that its composition is consistent with the skills,
experience and expertise required at a particular point in
time. Our board is composed of 44% female directors which
includes one director from a minority ethnic background.
With this, we have met our own gender and ethnicity targets
and I am pleased that we align with the recommendations
of each of the FTSE Women Leaders and Parker Reviews in
terms of composition of the board. While we do not currently
meet the FCA Listing Rule requirement to have one of the
senior board positions occupied by a female, we remain
committed to ensuring that our board is able to meet the
needs of all relevant stakeholders. The board recognises
that the FCA Listing Rule requirement will be a consideration
for future appointments to these roles.
Further information on the composition of the board and its
diversity can be found on pages 122 to 126.
Playing Our Part in Addressing the Threat
of Climate Change
This year, we have maintained our focus on the group’s
sustainability agenda. As a group supporting many sectors
of the UK economy through our lending products and
investment services, we recognise the important role we
play in supporting our customers and clients transitioning
to a low carbon economy.
We continue to play our part in addressing the threat
of climate change from three angles: reducing our own
emissions; realigning our financed emissions; and enabling
the deployment of cleaner technologies through our green
growth lending strategy.
In September 2022 we joined the Net Zero Banking Alliance
(“NZBA”) and, in March 2024, we published our first
sector-based intermediate 2030 reduction ambition for
transport assets, the largest carbon-intensive sector in our
loan book. Furthermore, we committed to 18% of CBAM’s
assets under management being in line with net zero by
2050 as part of our initial target disclosure for the Net Zero
Asset Managers (“NZAM”) initiative. I am also pleased with
the progress made on our green growth lending strategy.
In September 2022, we set ourselves our first green growth
ambition to provide funding for at least £1 billion of battery
electric vehicles (“BEVs”) by 2027. In the first two years,
we have funded £316 million of BEVs.
You can read more about our climate disclosures on pages
35 to 47 of this report.
Gratitude and Commitment
Finally, I would like to take this opportunity to express my
deepest gratitude to our colleagues, the board and our wider
stakeholders for their hard work and dedication throughout
this challenging period. Together, I am confident that we will
emerge as a stronger organisation and will be well placed to
continue to deliver on our purpose.
Michael N. Biggs
Chairman
19 September 2024
7
Strategic Report
Governance Report
Financial Statements
Chief Executive’s Statement
The strengths of our model, being our long-term relationships, the deep expertise
of our people and our customer-centric approach, leave us well placed to navigate
the current uncertainty
This year’s performance demonstrates the group’s resilience.
In Banking, we grew our loan book with strong margins and
stable underlying credit quality, while progressing our cost
actions to improve future efficiency. Close Brothers Asset
Management delivered strong net inflows, although
Winterflood’s performance remained impacted by
unfavourable market conditions.
The FCA’s review of historical motor finance commission
arrangements announced in January introduced significant
uncertainty for the group. Against this backdrop, our top
priority has been to further strengthen our capital position
and protect our valuable franchise, whilst continuing to
support our nearly three million customers, including
c.350,000 SME businesses, by offering them borrowing
capacity to acquire essential assets.
Notwithstanding this uncertainty, we have made significant
progress in enhancing our business and customer offering
over the year. We have written healthy levels of new business
as demand from customers has remained strong; we
acquired Close Brothers Motor Finance in Ireland and are
re-establishing our presence in this strategic market; and we
have made key strategic hires across our business franchise,
as we further develop our capabilities. We have also taken
this opportunity to review many of our processes and
implement ways we can operate more efficiently in the
future. This continued focus on protecting and sustaining
our franchise means we are well positioned to take
advantage of future opportunities.
Financial Performance
Statutory operating profit before tax increased 27% to
£142.0 million (2023: £112.0 million). This was primarily
driven by the non-recurrence of the significant impairment
charges related to Novitas in the prior year. On an adjusted
basis, excluding the impact from certain items which do not
reflect the underlying performance of our business, the
group’s operating profit increased 50% to £170.6 million,
as the significant decrease in impairment charges and 1%
growth in income more than offset a 10% growth in adjusted
operating expenses.
In Banking, adjusted operating profit increased materially to
£205.4 million, driven by loan book growth of 6%, a strong
net interest margin of 7.4%, and a stable credit performance
when excluding the non-recurrence of prior year impairment
charges related to Novitas. Banking costs increased by 8%,
at the lower end of the 8-10% cost growth guidance range
outlined previously, driven mainly by inflationary-related
increases in staff costs, higher regulatory compliance and
assurance expenses and continued investment, partly offset
by the progress we have made on our tactical and strategic
cost management initiatives.
“Our top priority has been to further
strengthen our capital position and
protect our valuable franchise, whilst
continuing to support our nearly
three million customers, including
c.350,000 SME businesses, by
offering them borrowing capacity
to acquire essential assets.”
Adrian Sainsbury
Chief Executive
8
Close Brothers Group plc Annual Report 2024
We have made good progress on the delivery of the cost
management initiatives previously announced, such as
through our technology transformation programme, vacating
our Wimbledon Bridge House office and through the review
of our workforce. We recognise that there is more we
can achieve in enhancing our future cost efficiency.
Our focus remains on delivering annualised cost savings
of c.£20 million, with the full benefit expected in the 2026
financial year.
CBAM delivered strong net inflows of 8%, although profit
reduced, as income growth was more than offset by costs
primarily related to wage inflation and new hires to
support future growth.
Winterflood’s performance remained impacted by lower
trading income resulting from continued weakness in
investor appetite and market uncertainty, with an operating
loss of £1.7 million after incurring one-off dual-running
property costs of c.£3 million. WBS continued to see good
momentum, with income rising 17% to £17.3 million and
a 21% increase in AuA to £15.6 billion.
Our capital position was strong, with our CET1 capital ratio
at 12.8% (31 July 2023: 13.3%), significantly above our
applicable requirement of 9.7%. Total funding increased 5%
to £13.0 billion (31 July 2023: £12.4 billion), with 36% growth
in our retail deposit base, demonstrating the strength of our
Savings proposition. We maintained our prudent liquidity
position, with our Liquidity Coverage Ratio over 1,000%,
substantially exceeding regulatory requirements.
Continued Uncertainty Arising from the FCA’s
Review of the Motor Finance Industry
With respect to the FCA’s review of discretionary
commission arrangements in the motor finance market prior
to the 2021 ban on these models, on 30 July 2024, the FCA
announced that it now aims to set out next steps by the end
of May 2025, rather than by September 2024 as previously
expected. There remains significant uncertainty for the
industry and the group regarding any potential remedial
action as a result of the review. Close Brothers Motor
Finance (“CBMF”) has operated in the motor finance market
for over three decades, during which we have sought to
comply with the relevant regulatory requirements. There are
a range of possible outcomes and we remain focused on
further strengthening the group’s capital position, with the
priority of protecting and sustaining our valuable franchise.
We have a strong long-term dividend track record and the
decision taken in February 2024 not to pay a dividend for the
2024 financial year was not made lightly. The reinstatement
of dividends in 2025 and beyond will be reviewed once
the FCA has concluded its process and any financial
consequences for the group have been assessed.
As previously announced, we are implementing management
actions which, combined with the decision not to pay
a dividend in the 2024 financial year, have the potential
to strengthen the group’s available CET1 capital by
approximately £400 million by the end of the 2025
financial year.
We have made significant progress against these
management actions. Whilst the demand from customers
has remained strong, we have been selectively growing
our loan book to optimise risk weighted assets, alongside
working diligently to find alternatives for writing further
business with a lower capital consumption. Whilst we have
written c.£8 billion of new business in the 2024 financial year,
we estimate that at least c.£570 million in additional loans
meeting our credit and pricing requirements could have
been underwritten in the current environment.
Approximately £220 million of these loans would have
been drawn in the year. While this is disappointing, we are
confident that we will be well positioned to capture this
demand and accelerate the growth of our loan book as soon
as feasible. Additionally, we have concluded our work in
preparation for a significant risk transfer of assets through
motor finance securitisation and are ready to launch
a transaction at the optimal time.
“Whilst the demand from
customers has remained strong,
we have been selectively growing
our loan book to optimise risk
weighted assets, alongside working
diligently to find alternatives for
writing further business with a
lower capital consumption.”
We have continued to deliver against the additional cost
management initiatives previously announced. These
initiatives aim to generate annualised savings of
c.£20 million, reaching the full run rate by the end of the
2025 financial year. We are progressing a range of other
potential management actions, as previously outlined, which
include potential significant risk transfer of other portfolios
through securitisation and a continued review of our
business portfolios and other tactical actions.
Following a comprehensive strategic review, we are pleased
to announce the agreed sale of CBAM to Oaktree. The
transaction is expected to increase the group’s common
equity tier 1 capital ratio by approximately 100 basis points
on a pro forma basis, marking significant progress towards
the capital plan we outlined in March 2024. Additionally, the
agreed sale represents competitive value for our
shareholders and allows us to simplify the group, focusing
on our core lending business. CBAM has delivered
impressive growth over the past years and has developed
into a strong franchise. Under the new ownership, it will
benefit from additional resources to accelerate its growth
trajectory. I would like to thank our CBAM colleagues for
their dedication, professionalism and exceptional service to
our clients.
Outlook
We remain committed to executing our strategy and
protecting our valuable franchise. We are making significant
progress against the initiatives previously outlined to further
strengthen our capital position.
The strengths of our model, being our long-term
relationships, the deep expertise of our people and our
customer-centric approach, leave us well placed to navigate
the current uncertainty. We continue to be encouraged by
the strength of demand in our Banking business and see
good growth prospects for our core business.
Adrian Sainsbury
Chief Executive
9
Strategic Report
Governance Report
Financial Statements
FCA’s Review of Historical Motor
Finance Commission Arrangements
Impact on Close Brothers
The FCA review is progressing to determine whether there
has been industry-wide failure to comply with regulatory
requirements which has caused customers harm and, if so,
whether it needs to take any actions. Based on the status
at the end of the financial year and in accordance with the
relevant accounting standards, the board has concluded that
no legal or constructive obligation exists and it is currently
not required or appropriate to recognise a provision at
31 July 2024 in relation to this matter. The FCA has indicated
there could be a range of outcomes, with one potential
outcome being an industry-wide consumer redress scheme.
On 30 July 2024, the FCA indicated that, while no final
decisions have been made, it is more likely than when it
started its review that some kind of redress mechanism may
be necessary. The estimated impact of any redress scheme,
if required, is highly dependent on a number of factors
including, for example, the time period covered; the DCA
models impacted (the group operated a number of different
models during the period under review); appropriate
reference commission rates set for any redress; and
response rates to any redress scheme. As such, the timing,
scope and quantum of the potential financial impact on
the group, if any, remain uncertain and cannot be reliably
estimated at present. In addition, it is not currently
practicable to estimate or disclose any potential financial
impact arising from this issue.
The group is subject to a number of claims through the
courts regarding historical motor finance commission
arrangements. One of these, initially determined in the
group’s favour, was appealed by the claimant and the case
was heard in early July 2024 by the Court of Appeal together
with two separate claims made against another lender.
The Court’s decision is now awaited.
As of 31 August 2024, where individual cases were
adjudicated in County Court, the courts found that there
was no demonstrable customer harm and hence no
compensation to pay in the majority of decided cases for
Close Brothers. Nevertheless, there have been only a limited
number of adjudicated cases at this time.
There are also a number of complaints that have been
referred to the FOS for a determination. To date, no final FOS
decisions have been made upholding complaints against
Close Brothers. On 9 May 2024, the FOS announced that it
would be unlikely to be able to issue final decisions on motor
commission cases for some time due to the potential impact
of a judicial review proceeding started by another lender in
relation to one of its January 2024 decisions and also the
outstanding Court of Appeal decisions.
On 11 January 2024, the FCA announced it would use its
powers under section 166 of the Financial Services and
Markets Act 2000 to review historical motor finance
commission arrangements and sales at several firms,
following high numbers of complaints from customers.
The review followed the Financial Ombudsman Service
(“FOS”) publication of its first two decisions upholding
customer complaints relating to discretionary commission
arrangements (“DCAs”) against two other lenders
in the market.
The FCA issued an update to the market on 30 July 2024.
In the announcement, it stated that due to delays in
collecting and reviewing historical data, as well as relevant
ongoing litigation, it would not be able to set out the next
steps of its review by 24 September 2024 as it originally
planned. The FCA now aims to set out next steps by the
end of May 2025.
Overview of Commission Models Operated1
CBMF has operated in the motor finance market for over
three decades, during which we have sought to comply with
the relevant regulatory requirements.
Prior to 2016, CBMF operated an Upward Difference in
Charges (“DIC”) model. This allowed the dealer or broker
full discretion over the customer rate and the commission
earned on point-of-sale finance, subject to a hard cap on the
amount of commission. Under the DIC model, commission,
if any, was paid as a percentage of the total interest paid
by the customer.
From 2016, CBMF introduced a Downward Scaled
Commission (“DSM”) model, which capped both the interest
charged to the customer and commission paid to the dealer
or broker. This meant that CBMF set the headline rate
for the customer and the dealers could only reduce this
by decreasing their level of commission. Under the DSM
model, commission, if any, was paid as a percentage
of the loan size.
From 2021 onwards, CBMF introduced a Risk Adjusted
Pricing Model which set the rate for the customer and
adjusted the rate according to the customer risk profile.
Dealer discretion was removed entirely. Under the Risk
Adjusted Pricing Model, commission, if any, is paid as
a fixed percentage of the loan size.
All historical models included a “hard cap” on the
commission amount paid to the broker or dealer.
Commission disclosures were also reviewed and enhanced,
as required, over time.
1. For simplicity, dates shown above assume transition when substantially complete.
10
Close Brothers Group plc Annual Report 2024
Since the announcement by the FCA of its review of
historical motor finance commission arrangements in
January 2024, we have seen a further increase in enquiries
and complaints. We have also taken steps to enhance our
operational capabilities to respond to increased complaints
volumes and potential changes such as the implementation
of a consumer redress scheme, if required. This financial
year, we have incurred £6.9 million of costs associated with
complaints handling and other operational costs associated
with the FCA’s review. This included increased resourcing
in our complaints and legal teams, along with associated
investments in data, systems and business processes.
These costs are lower than our previous estimate of
c.£10 million as we remain focused on mitigating the impact
on resource expenses through outsourcing and deployment
of automated solutions to assist in triaging new complaints,
improving our processing speed. In the 2025 financial year,
we currently estimate these costs will be between
£10-15 million. We continue to monitor the impact on our
current handling of these complaints and are following the
playbooks in place to ensure we have the appropriate
resources to respond effectively.
Further Strengthening our Capital Base to
Continue to Support Customers and Protect our
Valuable Franchise
While there is no certainty regarding any potential financial
impact as a result of the FCA’s review, the board recognises
the need to plan for a range of possible outcomes. It is
a long-standing priority of the group to maintain a strong
balance sheet and prudent approach to managing its
financial resources. To that end, the board considers it
prudent for the group to further strengthen its capital
position, balancing this with the need to continue supporting
our customers and protecting our business franchise.
In March 2024, we announced a range of management
actions which have the potential to strengthen the group’s
available CET1 capital by approximately £400 million by
the end of the 2025 financial year (when compared to the
group’s projected CET1 capital ratio for 31 July 2025 at the
time of our Half Year results announcement, prior to any
management actions). We are now providing an update
on the progress made since then.
We have retained c.£100 million of CET1 capital in the 2024
financial year as a result of the group’s previously announced
decision not to pay a dividend for the 2024 financial year.
We announced steps to further strengthen the group’s
capital position by optimising risk weighted assets (“RWAs”).
We plan to reduce RWA growth by approximately £1 billion
through a combination of selective loan book growth,
partnerships and significant risk transfer of assets related
to our Motor Finance business through securitisations.
The combination of these actions could release
c.£100 million of CET1 capital by the end of the 2025
financial year. In the second half, we grew the loan book
selectively while maintaining support for our existing
customers, with the impact reflected in the lower loan book
growth of 2% in the six months since 31 January 2024.
We currently plan for low single-digit percentage growth in
the loan book in the 2025 financial year, with the associated
impact to be reflected in the group’s CET1 capital ratio over
the course of the 2025 financial year. We have concluded
the work in preparation for a significant risk transfer of assets
in Motor Finance. Subject to market conditions, we are ready
to launch a transaction at the optimal time to maximise the
peak capital benefit, aligned to the revised timetable for the
FCA’s work in the motor finance market.
We have progressed on the delivery of the additional cost
management initiatives previously announced to generate
annualised savings of c.£20 million, reaching the full run rate
by the end of the 2025 financial year. These initiatives
include the continued rationalisation of third-party suppliers
and simplification of our property footprint, as well as
adjustments to our workforce to drive increased efficiency.
We have partnered with a leading technology services
and consulting company to help us drive our technology
transformation programme, which has led to a headcount
reduction of c.100 as we made increased use of outsourcing
and the removal of over 115 IT applications to date.
We have served notice to vacate our Wimbledon Bridge
House office and establish a more suitable London footprint
to meet the needs of the business, resulting in the removal
of approximately 800 desks. As a result of the review of
our workforce, we have incurred £3.1 million of restructuring
costs, primarily relating to redundancy and associated costs.
We continue to progress a range of other potential
management actions which include potential risk transfer of
other portfolios through securitisation and a continued
review of our business portfolios and other tactical actions.
On 19 September 2024, the group announced that it entered
into an agreement to sell CBAM to Oaktree. The transaction
is expected to increase the group’s common equity tier 1
capital by approximately £100 million, further strengthening
our capital position.
Additionally, as our business continues to organically
generate capital through 2025, the retention of earnings
could potentially strengthen the group’s capital position by a
further £100 million, if required.
Subject to the execution of these management actions and
capital generation, we have the potential to increase the
group’s CET1 capital ratio to between 14% and 15% at
the end of the 2025 financial year (excluding any potential
redress or provision related to the FCA’s review of historical
motor finance commission arrangements).
While there remains considerable uncertainty regarding the
specifics of any potential redress scheme, if required, as well
as its timing, the board is confident that these actions leave
the group well positioned to navigate the current uncertain
environment.
11
Strategic Report
Governance Report
Financial Statements
Investment Case
Specialism, expertise and discipline, with a strong historical track record
Key points of difference at Close Brothers are our specialism and expertise, long-term
approach and the discipline behind our proven and resilient model. These ensure
we are well positioned to protect our valuable franchise and continue building on our
strong historical track record of growth, profitability and returns to our shareholders.
Prudent Management of
Financial Resources with
a Strong Balance Sheet
We have a strong balance sheet to support the delivery
of our strategy and take a prudent approach to managing
our financial resources.
Our disciplined underwriting criteria and the expertise of our
people give us confidence in the quality of our loan book,
which is diverse and over 90% secured or structurally
protected. Our funding base is well diversified, sourced from
both wholesale sectors and customer deposits, and has a
prudent maturity profile.
We follow the “borrow long, lend short” principle and take a
conservative approach to liquidity management, with liquidity
levels comfortably ahead of both internal risk appetite and
regulatory requirements.
A fundamental part of our business model is ensuring we
have a strong capital position which allows us to grow,
invest and meet all regulatory requirements. Our short-term
priority is to further strengthen our capital base and protect
our valuable franchise, whilst continuing to support
our customers.
Focused on Delivering
Disciplined Growth, Building on
Our Long History of Loan Book
Growth Through the Cycle
We have a strong track record of delivering disciplined
growth both through our existing book and in new markets.
We do not manage our business to a growth target but
instead prioritise consistency of our lending criteria in our
Banking division and maintaining strong returns across
the businesses. Historically, we have benefited from this
consistent application of our business model through
the cycle, reflecting the differing market and competitive
dynamics across our portfolio of businesses. We are there
for our clients, lending responsibly even when others
may pull back.
We continue to see significant opportunities for disciplined
growth across our businesses as we look to extend our
capabilities into new specialist sectors that fit with our model.
Specialism,
Service and
Expertise
92%
Asset Finance
CSAT1
+98
Property Finance
NPS2
+80
Premium Finance
(personal lines)
customer Net Ease
75%
Savings online
CSAT1
+72
Motor Finance
customer Net Ease
+72
CBAM Net Ease
+67
Motor Finance
dealer NPS2
A Diversified
Portfolio
Adjusted operating
profit1
1. Customer satisfaction score
(“CSAT”).
2. Net promoter score (“NPS”).
41%
18%
36%
(1%)
Securities
£(1.7) million
Banking:
Property
£78.0 million
6%
Asset
Management2
£12.2 million
Banking:
Retail
£37.9 million
Banking:
Commercial
£89.5 million
1. Excludes group (central
functions) net expenses.
2. On 19 September 2024,
the group announced that
it entered into an agreement
to sell CBAM to Oaktree.
See Note 29: “Post Balance
Sheet Event” for further
information on the
transaction, which is
expected to complete in
early 2025 calendar year.
12
Close Brothers Group plc Annual Report 2024
Generating Shareholder Value
Net loan book trend (£ million)
Strong capital, with CET1 capital ratio of 12.8%
• c.310bps headroom over applicable requirement.
Prudent liquidity position
• Liquidity coverage ratio over 1,000%.
Borrow long, lend short
• Average maturity of funding exceeds the average
loan book maturity by four months.
Return on average tangible equity (%)
Dividend per share (pence)1
Equity
£1.8bn
Unsecured funding
£1.1bn
TFSME funding
£0.1bn
Retail deposits
Non-retail deposits
£5.7bn
£3.0bn
Secured funding
£1.2bn
Whilst our short-term priority is to further strengthen our
capital base, which included the difficult decision taken
to not pay an ordinary dividend in the 2024 financial year,
we remain focused on protecting our valuable franchise
and ultimately resuming our track record of earnings
growth and returns.
1. As announced on 15 February 2024, given the significant uncertainty
regarding the outcome of the FCA’s review of historical motor finance
commission arrangements and any potential financial impact as a result,
the group will not pay a dividend on its ordinary shares for the 2024
financial year. The reinstatement of dividends in the 2025 financial year
and beyond will be reviewed once the FCA has concluded its processes
and any financial consequences for the group have been assessed.
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
18.4
20.4
21.8
21.0
19.9
19.6
17.9
9.4
16.5
12.2
5.9
8.3
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
44.5
49.0
53.5
57.0
60.0
63.0
66.0
40.0
60.0
66.0
67.5
0.0
£13.0 billion
Diverse funding base
(% of total funding)
2,000
4,000
6,000
8,000
10,000
12,000
0%
p.a.
+6%
avg. p.a.
+11%
avg. p.a.
+17%
avg. p.a.
Benign credit
Credit
crunch
Moderation
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
Covid-19
Selective
loan book
growth
6% p.a.
Numbers do not cast due to rounding.
13
Strategic Report
Governance Report
Financial Statements
Our Business Model
How we generate value
We are a leading UK merchant banking group
providing lending, deposit taking, wealth
management services and securities trading.
We focus on delivering excellent service in
specialist sectors we know and understand.
Banking
Specialist and secured lending and deposits for small
businesses and individuals
Our Banking offering includes: hire purchase; leasing and loans for capital
assets; debt factoring; invoice discounting; asset-based lending; other
specialist financing for SMEs; used car, motorcycle and light commercial
vehicle financing; insurance premium financing; development finance for
residential properties; funding for commercial properties; refurbishment and
bridging finance; and savings products for individuals and corporates.
Read more about Banking on pages 63 to 70
Close Brothers Asset Management1
A leading, vertically integrated UK wealth manager
Our CBAM offering includes: financial planning; bespoke investment
management; a socially responsible investment service; an inheritance tax
service; and investment solutions for both CBAM clients and distributed
through third-party IFAs.
Read more about CBAM on pages 70 to 72
Securities
A leading liquidity provider supporting clients in all market conditions
Our Securities offering includes Winterflood, which provides market making,
investment trusts advisory and broking services, and institutional sales
trading. It also includes Winterflood Business Services, which provides
outsourced custody and dealing services.
Read more about Securities on pages 72 to 73
We maintain a long-term
approach, applying this
consistently through
the cycle
Disciplined
pricing and
underwriting
Prudent
management
of financial
resources
Customer-
centric
approach
Conservative
approach
to risk
Diversified
portfolio of
banking
businesses
Our
distinctive
culture
What we do
How we do it
Enabled by the distinctive strengths of our model
Consistent
service
See page 28
Deep
expertise
See page 19
Long-term
relationships
See page 32
1. On 19 September 2024, the group announced that it entered into an agreement to sell CBAM
to Oaktree. See Note 29: “Post Balance Sheet Event” for further information on the transaction,
which is expected to complete in early 2025 calendar year.
14
Close Brothers Group plc Annual Report 2024
Colleagues
83%
employee engagement
Customers, clients
and partners
Strong customer
sentiment scores
92%
Asset Finance
CSAT
+98
Property
Finance NPS
Suppliers
70%
of our suppliers described
doing business with us as
“Easy” or “Very Easy”
Regulators and
government
12.8%
CET1 capital ratio
Communities
£100,000
donated to charities aligned
to our ESG goals
Environment
41.6%
reduction in Scope 1 and 2
emissions (market-based)
since 2019
Investors
8.3%
return on average
tangible equity
We apply our lending criteria and pricing discipline
consistently at all stages of the cycle, with the net
interest margin we generate reflecting the specialist
expertise of our teams. Our lending is predominantly
secured or structurally protected, with conservative
loan-to-value ratios, small loan sizes and short maturities.
A fundamental part of our model is having a strong
capital position and taking a conservative approach
to liquidity management and funding, as we focus
on diversity of funding and a prudent maturity profile.
We listen to our customers, putting their needs at the
heart of our business. We are there for our customers
across all market conditions and seek to build
long-lasting relationships with them.
Our prudent and conservative appetite to risk remains
unchanged throughout the cycle. We are committed
to sustaining high standards of business conduct and
adherence to all applicable regulations.
We lend in a variety of sectors and locations across
a diverse range of assets including transport, industrial
equipment, renewable energy, wholesale finance,
broker finance, used cars, light commercial vehicles
and residential property.
We see our distinctive culture as our most valuable
asset. Our culture, combined with our long-term
approach, is embodied by our values of service,
expertise, relationships, teamwork, integrity and
prudence. These values are embedded at all
levels across the organisation.
The value we create
15
Strategic Report
Governance Report
Financial Statements
Operating Environment
Adapting to changes in our operating environment
What we are seeing
• The climate agenda impacts all of our stakeholders and
the decisions they make, and it guides our activities and
operations as a business.
• With the change in government seen in the UK in July,
clarity on the direction of travel and pace of change is
elevating the focus on investments in green technologies.
• We recognise the important role we can play in helping
people and businesses transition to a lower carbon future,
as they invest in green assets including electric vehicles,
renewables, grid infrastructure and energy efficiency.
• We need to support our stakeholders in making decisions
by providing sufficient information on our climate strategy.
• Investors are increasingly taking ESG factors into
consideration as part of their investment decisions
and reporting standards require us to align our climate
reporting to the recommendations of the Task Force
on Climate-related Financial Disclosures (“TCFD”).
How we are responding
• Our group climate strategy, considering both our
operational impacts and the implications across our
financed activities, continues to develop.
• Under our climate commitment, aligned with the Net Zero
Banking Alliance (“NZBA”), we have set out our initial
sector-based intermediate 2030 emissions reduction
pathway for our lending on road vehicles.
• Our Asset Management division has recently set out its
sustainability strategy in its inaugural TCFD-aligned entity
report including its initial proportion of assets under
management to be managed in line with net zero.
• We have continued to address our operational emissions
including office optimisation (balancing with hybrid
working) and reaching the milestone this year of more
than half of our car fleet being fully electric.
Read more about our climate commitments in our TCFD
report on pages 35 to 47.
What we are seeing
• The UK regulatory environment continues to see
significant change.
• Operational and financial resilience, monitoring of material
outsourcing and robust recovery and resolution planning
continue to be priorities for the Prudential Regulation
Authority (“PRA”).
• Prudential monitoring of regulated firms takes place on an
ongoing basis through stress testing, capital and liquidity
requirements, increasing regulatory data reporting
requirements and regular supervisory meetings.
• The FCA’s Consumer Duty is leading to better customer
outcomes in the market and has driven improvements
in controls and arrangements in firms.
• The group has seen an increase in engagement with our
regulatory bodies, for example with the FCA on market-
wide reviews into historical discretionary commission
arrangements in the motor finance sector and Borrowers
in Financial Difficulty.
• The FCA continues to take steps to be a data-led
regulator, including market-wide data requests
and expansion of its Product Sales Data
reporting requirements.
• The PRA Policy Statement PS 9/24 Implementation of
the Basel 3.1 standards near-final part 2 was published
on 12 September 2024, with an implementation date
of 1 January 2026, six months later than previously
anticipated. We expect the implementation of Basel 3.1
to have a less significant impact on the group’s capital
headroom position than initially anticipated.
How we are responding
• We continually monitor the landscape for
regulatory change.
• We maintain an open and cooperative relationship with
our regulatory bodies, including the FCA and PRA, who
conduct regular monitoring of our position, including
reviewing our stress testing of our liquidity and
capital requirements.
• We have engaged constructively with our regulators
in respect of historical discretionary commission
arrangements in the motor finance sector.
• We have conducted a voluntary Past Business Review
of customer forbearance related to our motor finance
lending, with oversight from the FCA, as part of the FCA’s
market-wide Borrowers in Financial Difficulty review.
• Further to the FCA’s Consumer Duty, we have conducted
in-depth reviews across our businesses including a full
review of requirements to implement Consumer Duty for
books of business not open to new customers.
• We have recently completed our first Annual Assessment
of Customer Outcomes, where the board is required to
review and approve the assessment of delivering good
customer outcomes.
• Our focus now is on continuing to embed Consumer Duty
and staying abreast of new regulatory publications.
Climate agenda
Regulatory environment
16
Close Brothers Group plc Annual Report 2024
What we are seeing
• The expectations of customers continue to evolve,
with experience across the end-to-end journey key to
building loyalty.
• Customer service, clarity of communication, price and
value of products, the ease of doing business and how
customers feel about their experience are highly valued.
• Digital channels are perceived as the norm, particularly
for straightforward interactions. Yet the human element
continues to add value for customers and partners,
strengthening long-term relationships and providing
additional support.
• Customers seek to better understand their financial
position; for example, in the motor finance market,
consumers may research how much they can borrow
and balance that against a vehicle that suits their needs.
• Customers are increasingly supporting the transition
to net zero, with SME housebuilders making a
significant contribution.
How we are responding
• While we have a range of products, routes to market
and customer segments, we focus on good customer
outcomes, providing excellent service and building
long-term relationships.
• We have provided greater self-service functionality for our
personal savings customers such as through our online
calculator for visibility of early closure fees. Enhancements
are being made to ensure our online customer journeys
are more accessible.
• Our Asset Finance business has developed a new
technology portal which allows customers to update
details, view existing agreements and apply for
new finance.
• We have created a Writing for Customers Guide for
Premium Finance and Motor Finance, with the average
readability of our communications having improved
by over 35%.
• Our Motor Finance partnership with online credit broker
Zuto provides the customer with a decision in principle
on their finance application, without a hard search on
their credit profile.
• In Property, insights from our fourth State of Play Survey
alongside our partners, the Home Builders Federation and
Travis Perkins, help us better understand our customers’
needs and priorities.
Technology and
digital adoption
Customer behaviour
What we are seeing
• Technology is enhancing customer and employee
journeys, for example through the widespread use
of digital channels and self-service models, as well as
to create efficiencies, such as through automating
non-value-adding processes.
• The rate of technology change continues to advance, with
an increased use of Artificial Intelligence (“AI”), automation
and cloud-based infrastructure and applications.
• This increasing adoption of new technologies changes
the cyber threat landscape and increases the need for
continued investment in operational resilience.
How we are responding
• The investment in our multi-year Asset Finance
transformation programme has delivered seamless
connectivity and visibility between sales, credit
decisioning, origination, and billing and collections and
has led to a better customer and colleague experience.
• Our technology transformation programme is focused
on simplifying and modernising our technology estate,
removing unnecessary cost and increasing our use of
strategic partners, whilst creating a more digitally enabled,
modern and agile IT environment that is secure, resilient
and sustainable. We have partnered with Wipro, a leading
technology services and consulting company, to help us
drive our transformation.
• We continue to invest in exploring AI and developing
robotics and have built automated solutions to assist
in triaging new business imperatives whilst improving our
processing speed and increasing operational efficiency.
• We continuously assess the maturity and effectiveness
of our cyber security controls and make adjustments
as necessary to address new threats. We have also
completed a cyber incident exercise to enhance our
readiness for any potential incidents. We will remain
focused on enhancing our operational resilience
across our business.
17
Strategic Report
Governance Report
Financial Statements
Competitive landscape
What we are seeing
• In Banking, borrower confidence remains mixed,
with higher funding costs and the uncertain economic
outlook weighing on market sentiment.
• We have seen a number of mergers and larger
acquisitions in the banking sector in recent months.
We expect this trend of consolidation to extend into the
smaller and mid-market sector.
• The motor finance sector continues to be impacted in the
short term by the ongoing FCA review of historical motor
finance commission arrangements.
• The savings market remains highly competitive, with a
number of new entrants in recent years and more interest
being paid by high street banks, both from rising interest
rates and from the FCA’s market activities focusing
on fair value.
• In the wealth management industry, consolidation
remains a key theme, while Consumer Duty and FCA
market-wide activities relating to fair value continue to
be a major focus.
• Continued difficult market conditions have led to
challenges for market makers and brokers, with a focus
on managing costs and diversifying revenue streams.
How we are responding
• In Banking, we remain committed to our model of
maintaining margin and underwriting discipline,
notwithstanding competitor pricing. We continue to focus
on delivering excellent client service and building deep
relationships with our customers.
• Despite the current uncertainty, we continue to see
growth opportunities as we look to extend our capabilities
into new areas that fit with our model, either through
partnerships or bringing in specialist teams to
complement our expertise.
• Our Savings business has expanded its retail
customer proposition to include an Easy Access
Account, which constitutes a large proportion of the
potential deposit pool. We carefully monitor pricing to
help maximise opportunities, whilst ensuring fair
outcomes for consumers.
• To realise the potential value of CBAM in the medium-term
to the fullest extent possible, the group would need to
continue to invest to accelerate the business’ growth
strategy in the short and medium term, including via
acquisitions against a consolidating market backdrop.
Following a comprehensive strategic review, the group
announced that it entered into an agreement to sell CBAM
to Oaktree on 19 September 2024.
• In Winterflood, we continue to diversify our revenue
streams and explore growth opportunities, including
WRAP (Winterflood Retail Access Platform) which
provides retail investors access to primary and secondary
fundraisings, including new gilt auctions, through their
existing retail broker or wealth manager. Also, through
WBS, which has helped to balance the cyclicality seen
in the trading business.
Read more about the opportunities across our businesses
on pages 63 to 73
Economic environment
What we are seeing
• The market backdrop has been mixed this year.
The economy has proved resilient, with a general
improvement in macroeconomic indicators, low
unemployment and strong wage growth. Nevertheless,
uncertainty has persisted for both individuals and SMEs.
• Notwithstanding the reduction in the Bank of England
base rate in August 2024 and the improvement in some
economic indicators, headwinds remain, with interest
rates at higher levels, inflation proving more persistent
than expected and cost of living pressures continuing.
• The change in government seen in July 2024 is expected
to lead to changes in policy which could have an impact
on the UK’s economic outlook.
How we are responding
• We recognise the challenges affecting our customers
and continue to monitor the potential impact of ongoing
uncertainty closely, prudently assessing affordability
across lending proposals and offering additional support
to customers where needed.
• Our IFRS 9 models are regularly updated to reflect current
economic scenarios and forecasts from Moody’s, with
adjustments overlaid where needed to recognise
additional risk not captured by the model.
• We continue to be there for our customers, lending to
them on responsible terms and consistently applying our
prudent underwriting and pricing discipline.
Operating Environment continued
18
Close Brothers Group plc Annual Report 2024
Enabling
opportunities
through our
passion for
partnerships
“The knowledge and
the information provided
really helps. It was exactly
what I needed to help
grow my business.”
Anonymous, Farnborough.
Enhancing our face-to-face partnership offering
and supporting dealers through the introduction
of masterclasses
Close Brothers Motor Finance dealer masterclasses aim to
inform, educate and share expertise with our dealer partners
as we look for ways to add value to their business, enabling
them to improve efficiency and maximise profitability.
This year, 19 masterclasses were delivered reaching 300
dealer partners face-to-face, with sessions covering the use
of market insights and data trends.
Partners who attended a masterclass have since increased
the number of customers they arrange finance for by 11% on
average. Close Brothers Motor Finance has also approved
an additional 21 stock funding applications from attendees
to support their growth ambitions.
Feedback from our partners has been extremely positive.
88% of attendees said they would attend a future
masterclass, with an overall rating of 4.8 out of 5.
Deep expertise
19
Strategic Report
Governance Report
Financial Statements
Our Strategy: Protect
Keeping it safe
Maintaining and Enhancing the Key Strengths
of our Business Model
Our differentiated and resilient business model has
contributed to our long-term track record over many years.
Protecting this valuable model and our long-standing
business franchise is a key priority for the board as we
navigate the current period of uncertainty.
Our high levels of personal service and specialism are key
points of differentiation. Our people have deep knowledge
of the industry sectors and asset classes we cover, leading
to lending decisions informed by experts and faster access
to funds when our customers need them most.
We run our business prudently, maintaining a strong funding,
liquidity and capital position. Our loan book is predominantly
secured or structurally protected, with a focus on maintaining
strong credit quality. We adopt a consistent approach, as we
maintain pricing and underwriting discipline in our lending.
We ensure that we are operating efficiently and are
using technology that appropriately supports our
relationship-based model.
Whilst we constantly focus on the strict management of
costs, it is essential that we invest in protecting the key
attributes of our model, maintain regulatory compliance
and continually enhance our operational and cyber resilience.
Our investments and cost base support the generation of
our strong margins, enabling our operational and financial
resilience, while also supporting our ability to maximise
opportunities as they arise.
Our Strategic Objectives
• Maintaining a strong capital, funding and liquidity position.
• Consistently applying our prudent business model through
our disciplined approach to underwriting and pricing.
• Balancing investment needs and cost discipline.
• Maintaining regulatory compliance, whilst enhancing
operational and cyber resilience.
Progress During FY 2024
• Implemented actions to further strengthen the group’s
capital position given the significant uncertainty regarding
the outcome of the FCA’s review of historical motor
finance commission arrangements, which was announced
in January 2024.
• Focused on optimising the allocation of capital across our
portfolio of businesses, with selective loan book growth in
the second half of the year.
• Issued the group’s inaugural Additional Tier 1 (“AT1”) in a
£200 million transaction to optimise the capital structure,
provide further flexibility to grow the business and
strengthen the regulatory capital position.
• Strengthened our resilient funding base in the current
period of uncertainty.
• Continued to support our customers and lend on
responsible terms, adhering to our disciplined approach
to underwriting and pricing, whilst maintaining
a strong margin.
• Completed our Asset Finance transformation programme,
which has introduced a single technology platform
across the business, standardising processes,
increasing efficiencies and improving customer and
colleague experience.
• Made good progress on our strategic and tactical cost
management initiatives as we implement measures to
deliver annualised savings of c.£20 million, reaching the
full run rate by the end of the 2025 financial year.
• Partnered with Wipro, a leading technology services and
consulting company, to help us drive our technology
transformation programme. To date, we have reduced
our headcount by c.100 as we made increased use
of outsourcing and removed over 115 IT applications.
• Undertook work across the business to embed
compliance with the FCA’s Consumer Duty and
implement changes for books of business not open
to new customers.
• Continued to engage with the PRA as part of our Internal
Ratings Based (“IRB”) application.
• Further enhanced our operational and cyber resilience,
whilst undertaking a continuous cycle of improvements.
Future Priorities
• Continue to further strengthen our capital position,
whilst protecting and sustaining our valuable franchise.
• Retaining our strong funding and liquidity position.
• Continuing to focus on pricing and prudent underwriting
whilst lending through the cycle.
• Progressing further our cost management initiatives,
with a view to achieving positive operating leverage
in the 2026 financial year.
• Continuing preparations for a transition to the IRB
approach, although the timetable remains under
the direction of the PRA.
• Complying with regulatory changes, whilst further
strengthening our operational and cyber resilience.
• Continuing to embed our compliance with Consumer
Duty requirements.
• Monitoring and mitigating external threats, including
the heightened uncertainty in the economic and
geopolitical environment and competition from both
established and emerging players.
20
Close Brothers Group plc Annual Report 2024
1. Numbers are highly indicative. Relative to the group’s projected CET1 capital ratio for 31 July 2025 at the time of our Half Year 2024 results announcement,
prior to any management actions. Excludes any potential redress or provision related to the FCA’s review.
Management actions executed
Management actions in progress
Potential retention from FY25 earnings
Protecting our business:
Taking decisive actions to protect our valuable franchise
On 11 January 2024, the FCA announced it is using its
powers under section 166 of the Financial Services and
Markets Act 2000 to review historical motor finance
commission arrangements and sales at several firms,
following high numbers of complaints from customers.
The review follows the Financial Ombudsman Service
(“FOS”) publication of its first two decisions upholding
customer complaints relating to discretionary commission
arrangements (“DCAs”) against two other lenders
in the market.
The FCA review is progressing to determine whether there
has been industry-wide failure to comply with regulatory
requirements which has caused customer harm and, if so,
whether it needs to take any actions. The FCA now aims
to set out next steps by the end of May 2025.
There remains significant uncertainty for the industry and
the group regarding any potential remedial action as a result
of the review.
Notwithstanding this, the board recognises the need to plan
for a range of possible outcomes.
In March 2024, we announced a range of management
actions which have the potential to strengthen the group’s
available CET1 capital by approximately £400 million by the
end of the 2025 financial year.
We have retained c.£100 million of CET1 capital in the 2024
financial year as a result of the group’s previously announced
decision not to pay a dividend for the 2024 financial year.
We are making significant progress against the other
identified management actions. To optimise risk weighted
assets, we have been growing our loan book selectively, with
the impact reflected in both the loan book growth rate
delivered this year and the expected trajectory for the 2025
financial year.
We have concluded the work in preparation for a significant
risk transfer of assets in Motor Finance. Subject to market
conditions, we are ready to launch a transaction at the
optimal time to maximise the peak capital benefit, aligned to
the revised timetable for the FCA’s work in the motor finance
market.
We have continued to deliver against the cost management
initiatives previously announced and have also progressed a
range of other capital actions.
Following a comprehensive strategic review, we announced
the agreed sale of CBAM to Oaktree on 19 September 2024.
The transaction is expected to increase the group’s common
equity tier 1 capital ratio by approximately 100 basis points
on a pro forma basis, marking significant progress towards
the plan we outlined in March 2024 to strengthen our capital
position in the current uncertain environment.
The board remains confident that these actions leave the
group well positioned to navigate the current uncertainty.
Progress update on management actions as presented at H1 2024, which have the potential to strengthen
available CET1 capital by c.£400 million by July 20251
RWA optimisation and
additional cost actions
Progress update
Selectively grew the loan book
in H2 24
Ready to launch a significant
risk transfer transaction at the
optimal time to maximise the
peak capital benefit
Progressed the delivery
of the additional cost
management initiatives
Exploring use of partnerships
+ up to c.£100m
CET1 capital
FY24 dividend suspension
Progress update
In line with our previous
announcement, no dividend will
be paid in respect of the 2024
financial year
+ c.£100m
CET1 capital
Other potential
management actions
Progress update
Agreed sale of CBAM
Continue to review
portfolio of businesses and
restructuring options
Potential significant risk
transfer of other portfolios
through securitisation
Sale of portfolios
Tactical actions and other levers
+ c.£100m
CET1 capital
Potential retention
from FY25 earnings
Progress update
The reinstatement of dividends in
2025 and beyond will be reviewed
once the FCA has concluded its
process and any financial
consequences for the group have
been assessed
+ c.£100m CET1 capital
21
Strategic Report
Governance Report
Financial Statements
Our Strategy: Grow
Delivering disciplined growth
Maximising Opportunities in Existing
and New Markets
Our focus on delivering disciplined growth is critical in
enabling us to protect our model, whilst maximising
opportunities and taking the business forward. This focus
allows us to prioritise consistent and prudent underwriting
criteria and maintain strong returns across our businesses.
Whilst we are currently selectively growing the loan book as
we further strengthen our capital position, we do not typically
manage the group to a growth target; rather, loan book
growth is an output of the business model.
Notwithstanding our short-term focus on further
strengthening our capital position, we continually assess
existing and new markets for growth opportunities that fit
with our model. We also continue to review our portfolio of
businesses to ensure they each deliver attractive returns.
We have a long history of delivering disciplined growth and,
to support us in building on this track record, we developed
our “Model Fit Assessment Framework”. This framework
supports our review of opportunities, assessing their fit with
our model, culture and responsible way of doing business,
alongside their suitability from a strategic perspective.
Our Strategic Objectives
• Maximising opportunities available to us in the current
environment and capitalising on cyclical opportunities
in each business.
• Extending our product offering and launching initiatives in
line with our business model in new and existing markets.
Progress During FY 2024
• Delivered over £500 million of loan book growth
and a strong net interest margin reflecting continued
customer demand.
• Re-entered the Irish motor finance market with the
acquisition of Bluestone Motor Finance (Ireland), which
we have rebranded to Close Brothers Motor Finance.
• Continued success from our new initiatives in
Commercial, with the Agricultural Equipment and
Materials Handling teams writing healthy levels of new
business and completing our second syndication deal
in Invoice Finance.
• Approved to lend under the UK government’s Growth
Guarantee Scheme and the Irish Growth and Sustainability
Loan Scheme.
• Provided a further £152 million of funding for battery
electric vehicles, towards our £1 billion aim.
• Partnered with more finance technology providers
in Motor Finance, giving us access to a wider pool
of motor retailers.
• Evolved our Premium Finance proposition to best
meet the needs of our customers and to support
broker partners.
• Continued to grow and diversify our retail deposit base
in Savings, with Easy Access balances at c.£540 million.
• Continued to see success in Property in expanding in the
regions outside of London and the South East.
• Built on our strong track record of growth in CBAM as
we delivered strong net inflows of 8% and acquired IFA
business, Bottriell Adams.
• Further grew Winterflood Business Services, with assets
under administration (“AuA”) increasing to £15.6 billion.
Future Priorities
• Continue to capitalise on cyclical and structural growth
opportunities in each of our businesses.
• Assess opportunities in new and existing markets,
in line with the “Model Fit Assessment Framework”.
• Continue to review our portfolio of businesses.
• Provide further funding for battery electric vehicles,
as we progress towards our aim of £1 billion by FY 2027.
• Broaden our sustainability offering to capture demand
within the green lending space.
• Continue to grow WBS and target AuA of over £20 billion
by FY 2026, supported by our solid pipeline of clients.
Growing our Business
Delivering disciplined growth by ensuring the right fit
in line with our “Model Fit Assessment Framework”
The eight criteria are all factors that we consider when
assessing growth opportunities. They capture the key
strengths of our model, which means that by taking them
into account we ensure we are following a disciplined
approach to growth and preserving the attributes that
generate value for our shareholders.
Long-term
growth
prospects
Strong
margin
Conservative
funding
profile
Cultural
fit
Strong
track
record
Diversified
business
Prudent
underwriting
and secured
lending
Expert,
relationship-
based,
specialist
Assessing
growth
opportunities
22
Close Brothers Group plc Annual Report 2024
In October 2023, we completed the acquisition of Bluestone
Motor Finance (Ireland) DAC (“Bluestone Motor Finance”),
a motor finance specialist in Ireland, which has since been
rebranded to Close Brothers Motor Finance (“CBMF”).
CBMF is already a well-established brand in Ireland, with
over a decade of experience in this marketplace, having
helped over 130,000 customers finance vehicles through
a previous partnership, which ended in 2022.
The acquired business aligned closely with several of the
“Model Fit Assessment Framework” criteria that we consider
when assessing growth opportunities. In particular, there
was a strong cultural fit centring around high standards
of service for both partners and customers, making this
an ideal opportunity for CBMF to re-enter the Irish market.
Like CBMF, the acquired business has invested in its digital
capabilities and its online application. The technology is
industry-leading in Ireland, while partnerships with online car
distribution platforms provide substantial routes to market.
Through an established distribution network of over 650
dealer partners and an experienced sales and underwriting
team, we have exciting plans for colleagues, customers
and partners in Ireland in the months and years ahead.
Growing our business:
Re-entering the Irish motor finance
market through the acquisition of
Bluestone Motor Finance (Ireland)
Since acquiring the business, we have:
• Rebranded from Bluestone Motor Finance to Close
Brothers Motor Finance, including all colleague, customer
and partner-facing systems and materials.
• Integrated our new colleagues into the CBMF business,
including the equipment and technology they use, the
processes and procedures that underpin their activities,
and the full range of Close Brothers benefits.
• Aligned the business to our annual reporting processes.
• Implemented our pricing and underwriting standards
and credit risk appetite.
Looking ahead, we are planning to:
• Launch new products and services in the Irish market,
closely aligned to those already offered in the UK.
• Evolve the business vision and strategy, enabling us
to take advantage of opportunities in the Irish market.
• Grow the team by recruiting additional motor
finance experts.
23
Strategic Report
Governance Report
Financial Statements
Our Strategy: Sustain
Doing it responsibly
Securing the Long-term Future of our Business,
Customers and the World we Operate in
Our long-term approach is embedded throughout our
organisation and guides all of our decisions, so it is
important that we evolve our business to sustain
it for the long term.
For our customers, this involves recognising and
responding to changes in their behaviour, adapting our
business accordingly and improving our digital capabilities,
accessibility and the customer journey to enhance their user
experience. We continue to value the importance of long-
standing relationships with our customers, which allow us to
provide them with exceptional service and the deep industry
knowledge and expertise of our people.
For our people, this means maintaining our focus on
employee engagement to support the wellbeing and needs
of our colleagues. We will continue to work to attract and
recruit diverse talent into the organisation, enable growth for
our people, retain them and support them throughout their
careers, whilst also promoting an inclusive culture where our
people can thrive.
We are also focused on our impact. We create value in
our local communities by understanding the needs of SMEs
and helping them achieve their ambitions, and by creating
equal opportunities for all, regardless of background. We
maintain our focus on reducing our environmental impact
and responding to the risks and opportunities brought
by climate change.
Our Strategic Objectives
• Promoting an inclusive culture and social mobility.
• Ensuring our business model is sustainable for
the long term.
• Reducing our impact on the environment and responding
to the threats and opportunities of climate change.
• Promoting financial inclusion, helping borrowers
who might be overlooked and enabling savers and
investors to access financial markets and advice
to plan for their future.
• Supporting our customers, clients and partners
in the transition towards more sustainable practices.
Progress During FY 2024
• Positive results in our employee opinion survey reflect
a strong sense of inclusion felt by colleagues, with a new
question on “speaking up” receiving a high score of 92%.
• Continued to adapt our offering and introduced new digital
capabilities to support changing customer behaviour.
• Continued to support social mobility programmes,
hosting 35 interns across the group in partnership
with the 10,000 Interns Foundation and upReach.
• Our 15 apprentices, funded through the Close Brothers
SME Apprentice Programme, entered their second
year of training.
• Launched our Group Diversity and Inclusion Strategy.
• Organised events and talks through our Diversity and
Inclusion networks to mark events including National
Inclusion Week, Black History Month, World Menopause
Day, Remembrance Day, International Men’s and
Women’s Day, Neurodiversity Celebration Week, Mental
Health Week, National Carers Week, Pride Month and
Social Mobility Awareness Day.
• Launched our Employee Ambassador Programme,
with a cohort of over 30 colleagues, helping to promote
and enhance our employer brand, generating positive
awareness and engagement, and encouraging others
to do the same.
• Reached the milestone of delivering 1,000 reading
sessions to children through our partnership with
Bookmark.
• Offered employees access to our financial education
website, provided by CBAM.
• Reduced our Scope 1 and 2 emissions (market-based)
by 41.6% since 2019.
• Published our first intermediate 2030 ambitions for
transport assets as one of our commitments under
the NZBA.
• Committed to 18% of CBAM’s assets under management
(“AuM”) being in line with net zero by 2050 as part of our
initial target disclosure for the Net Zero Asset Managers
(“NZAM”) initiative.
Future Priorities
• Attract, develop and retain the best talent.
• Increase psychological safety to maintain our strong
inclusive culture.
• Deliver good, sustainable outcomes for our customers and
embed inclusion in our interactions with external partners.
• Expand our expertise in green and transition assets
and broaden our sustainability offering as we support
the transition to a net zero carbon economy.
• Become operationally net zero through our Scope 1 and 2
emissions by 2030.
• Set intermediate 2030 targets covering a significant
majority of our financed emissions in our loan book in line
with our NZBA commitment.
• Continue to adapt our offering based on horizon
scanning and trends in the marketplace, as well as
the evolving needs of our customers and clients,
while taking into account the feedback they provide.
24
Close Brothers Group plc Annual Report 2024
We recognise that to help the people and businesses we
work with thrive over the long term, we have a responsibility
to help address the social, economic and environmental
challenges facing our business, employees and customers.
Diversity and inclusion (“D&I”) are embedded into our values
and culture internally, and we also know that in a changing
external environment, embedding inclusion into our ways
of working with customers and external partners will become
increasingly important.
We designed a three-year strategy with focus areas,
priorities and an action plan. Our thinking was informed
by external research and internal insights from our employee
networks, data on the employee life cycle stages and our
employee opinion survey themes.
Sustaining our business:
Implementing our three-year
Group Diversity and
Inclusion Strategy
Our D&I strategy has three focus areas:
1. Attracting and recruiting more diverse talent, and
supporting colleagues throughout their careers.
2. Increasing psychological safety to maintain our strong
inclusive culture and promoting inclusive behaviours,
respect and teamwork.
3. Delivering good, sustainable outcomes for our customers,
and embedding inclusion in our interactions with
customers, suppliers, charities and corporate partners.
We have committed to leadership and management
engagement and accountability across all D&I actions.
By outlining our strategy and action plan, we are looking to
help address our business challenges through a D&I lens,
ensuring we are well positioned in the market and prepared
for a changing external landscape for D&I.
25
Strategic Report
Governance Report
Financial Statements
Key Performance Indicators
Tracking our progress
Our CET1 capital ratio is significantly
above the applicable requirements.
We have identified management
actions which could strengthen the
group’s capital position materially
and these are in the process of being
implemented. Maintaining a strong
capital position is a fundamental
component of our model.
Common Equity Tier 1 capital ratio
(%)
Our bad debt ratio (excluding Novitas)
remains below our long-term average
of 1.2%2. The consistent application
of our underwriting and responsible
lending criteria at all stages of the
economic cycle is fundamental to
our long-term approach.
Bad debt ratio, excluding Novitas1
(%)
We are focused on achieving positive
operating leverage in the 2026 financial
year and have mobilised additional
cost saving initiatives which are
expected to generate annualised
savings of c.£20 million, reaching the
full run rate by the end of the 2025
financial year.
Banking expense/income ratio (%)
Net interest margin is a key measure
of profitability and reflects both our
pricing discipline on new lending and
our funding costs. Prioritising margin
over volumes is a key facet of our
lending approach.
Net interest margin (%)
We adopt a conservative approach
to funding based on the principle
of “borrow long, lend short”, with a
prudent maturity profile. Our funding
base is diverse, enabling us to adapt
our position through the cycle, based
on market conditions and demand.
Total funding as a percentage of
loan book3 (%)
Our liquidity coverage ratio is
substantially above regulatory
requirements, as we continue to
adopt a conservative liquidity
position and prudently manage
our financial resources.
Liquidity coverage ratio, 12-month
average (%)
Loan book growth remains an output
of our business model, as we prioritise
our margins and credit quality. Whilst
we have a strong track record of
delivering disciplined growth, we are
currently focused on selectively
growing our loan book growth to
optimise risk weighted assets and
strengthen our capital position.
Loan book growth3 (%)
CBAM has a long track record
of generating healthy net inflows,
with a target range of 6% to 10%.
Net inflows (% of opening AuM)
Protect
Keeping it safe
Grow
Delivering disciplined
growth
2022
2023
2024
14.6
13.3
12.8
2022
2023
2024
7.8
7.7
7.4
2022
2023
2024
5
5
6
2022
2023
2024
5
9
8
2022
2023
2024
127
130
128
2022
2023
2024
924
1,143
1,034
2022
2023
2024
0.5
0.9
0.9
2022
2023
2024
52
55
58
Over the medium term, we are focused
on delivering for our shareholders and
resuming our track record of earnings
growth and returns through our focus
on disciplined growth, cost efficiency
and capital optimisation.
Return on average tangible equity
(%)
2022
2023
2024
12.2
5.9
8.3
26
Close Brothers Group plc Annual Report 2024
1. Bad debt ratio including Novitas of 1.0% in 2024, 2.2% in 2023 and 1.2% in 2022.
2. Long-term average bad debt ratio of 1.2% based on the average bad debt ratio for FY08-FY24, excluding Novitas.
3. Loan book including operating lease assets.
4. The total Scope 1 and 2 emissions for 2023 has been restated.
Winterflood Business Services
(“WBS”) has seen strong growth
in recent years, supported by a solid
pipeline of clients. The growth of
WBS supports the diversification
of income streams in Winterflood.
WBS assets under administration
(£ billion)
Over the medium term, we are
focused on delivering for our
shareholders and resuming our
track record of earnings growth and
increasing our adjusted basic earnings
per share growth through our focus
on disciplined growth, cost efficiency
and capital optimisation.
Adjusted basic earnings per share
(pence)
We are committed to fostering
a culture that attracts and retains
engaged and motivated employees.
Employee engagement
(%)
Customers are at the heart of our
model, as we focus on delivering high
levels of service and sharing our deep
industry expertise to meet their needs.
Customer sentiment scores
“As we navigate this period of significant uncertainty, our priority is to further strengthen our capital
position, while protecting and sustaining our valuable franchise. We acknowledge that this will have
an adverse impact on some of our metrics over the short term, and whilst this is disappointing,
we remain focused on resuming our track record of earnings growth and attractive returns.”
Adrian Sainsbury, Chief Executive
See pages 248 to 251 for the full definitions of these key performance indicators
Sustain
Doing it responsibly
2022
2023
2024
7.2
12.9
15.6
2022
2023
2024
86
86
83
92%
+67
+98
75%
2022
2023
2024
111.5
55.1
76.1
We have committed to become
operationally net zero across our
Scope 1 and 2 emissions by 2030.
In addition to energy efficiency, our
roadmap includes full electrification
of both our office buildings and
our car fleet and sourcing of
renewable energy.
Total Scope 1 and 2 emissions
(market-based) (tonnes CO2e)4
2022
2023
2024
1,964
2,384
2,579
Dividend per share
(pence)
Whilst we have a strong long-term
dividend track record, our current
priority is to further strengthen
the group’s capital position, which
includes the decision not to pay a
dividend on ordinary shares in the
2024 financial year. The reinstatement
of dividends in the 2025 financial year
and beyond will be reviewed once
the FCA has concluded its review of
historical motor finance commission
arrangements and any financial
consequences for the group have
been assessed.
2022
2023
2024
66.0
0.0
67.5
Savings online CSAT
Property Finance NPS
Asset Finance CSAT
Motor Finance dealer NPS
27
Strategic Report
Governance Report
Financial Statements
Enabling
opportunities
by supporting
innovation
Providing high levels of personal service and
specialism to help Noviniti Limited develop retail
space for the NHS.
Noviniti Limited specialises in the provision of commercial
spaces, predominantly for the healthcare sector at local,
regional and national level. Their unique business model
provides structures that allow the NHS Trust to obtain
non-clinical facilities which are fully funded without any
spend from government funds.
Working within a challenging timescale, Close Brothers
Property Finance provided a loan facility to support Noviniti
Limited in developing a new state-of-the-art main entrance
and retail facilities at Basildon University Hospital.
“If we were asked
whether we would use
Close Brothers again
on our future projects
I would say 100% yes.”
Jonathan Houlston
Chief Operating Officer, Noviniti Limited
Consistent service
Watch our video case study
with Noviniti Limited.
28
Close Brothers Group plc Annual Report 2024
Stakeholder Engagement
Delivering for our stakeholders
At Close Brothers, we have a long-term track
record of creating value and delivering positive
outcomes for all of our stakeholders.
We work hard to understand and meet the needs of
our different stakeholder groups, engaging with them
and adapting our service and offering to create value for
them. We undertake a comprehensive programme of
stakeholder engagement and consider the feedback
provided, embedding this in the decision-making process
throughout the group.
Section 172 Statement and Statement
of Engagement with Employees and
Other Stakeholders
Section 172(1) of the Companies Act 2006 requires the
directors of a company to act in a way that they consider,
in good faith, would be most likely to promote the success
of the company for the benefit of its members as a whole,
and in doing so have regard (amongst other factors) to
various other considerations and stakeholder interests:
• the likely consequences of any decision in the long term;
• the interests of the company’s employees;
• the need to foster the company’s business relationships
with suppliers, customers and others;
• the impact of the company’s operations on the community
and the environment;
• the desirability of the company maintaining a reputation
for high standards of business conduct; and
• the need to act fairly as between members
of the company.
The board is responsible for establishing and overseeing the
company’s values, strategy and purpose, all of which centre
around the interests of key stakeholders and other factors
set out in section 172(1).
The directors are conscious that their decisions and actions
have an impact on stakeholders, including employees,
customers, suppliers, communities and investors, and they
have had regard to stakeholder considerations and other
factors in section 172(1) during the year.
Regular engagement with stakeholders, both directly and
indirectly via management, has continued to be an important
focus for the board and has ensured that the directors are
aware of and have effective regard to the matters set out in
section 172(1). Throughout the year, the board received and
discussed stakeholder insight and feedback and it ensured
that stakeholder considerations were taken into account
in the board’s deliberations and decision-making.
Whilst the board acknowledges that, sometimes, it may have
to take decisions that affect one or more stakeholder groups
differently, it seeks to treat impacted groups fairly and with
regard to its duty to act in a way that it considers will be
most likely to promote the success of the company for the
benefit of its members as a whole, having regard to the
balance of factors set out in section 172(1).
Considerations relating to the factors in section 172(1) are
an important part of governance processes and decision-
making at both board and executive level, and more widely
throughout the group. For example, the schedule of matters
reserved to the board and the terms of reference for each
of the board’s committees emphasise the importance
of decision-making with regard to relevant factors under
section 172(1) and broader stakeholder considerations.
Necessarily in a large and regulated group, some decisions
are taken by management or the directors of subsidiary
companies. These decisions are taken within parameters
set by the board and there is a robust framework that
ensures ongoing oversight, monitoring and challenge by
the board and its committees (including certain decisions
and activities that are always reserved to the board or its
committees). The board has regard to relevant factors set
out in section 172(1) in its activities in these areas, including
considerations relating to the potential impact of delegated
decisions on the long-term success of the group as a
whole, the group’s reputation for high standards of business
conduct and the consequences of local decisions
on the group’s stakeholders.
Detail on the board’s engagement with, and consideration
of, the company’s stakeholders can be found on pages 137
and 138 of the Corporate Governance Report.
29
Strategic Report
Governance Report
Financial Statements
Stakeholder Engagement continued
Colleagues
With approximately 4,000 employees around the UK, in
Ireland, the Channel Islands and Germany, we have a diverse
and motivated workforce which delivers the highest levels
of service to our customers, clients and partners. We are
committed to the development of our colleagues, ensuring
they are supported and engaged.
Listening to our colleagues enables us to build an engaged
workforce, allowing us to develop and retain high levels of
expertise. We are able to ensure we are considering the
views of all colleagues and making sure everyone
feels included.
Key priorities of our colleagues
• A safe working environment.
• A fair and inclusive culture where employee feedback
is valued.
• Being appropriately rewarded for their contributions.
• Opportunities for training and development.
Our engagement during the year
• We conducted a pulse employee opinion survey, which
closed in February 2024, to gather feedback from our
colleagues anonymously. The results of this survey gave
us insight into key topics including customers and clients,
culture, a sense of belonging, and comfort in speaking up.
• Follow-up focus groups were conducted with different
teams to understand more around colleague sentiment,
with action plans created to ensure we are focusing on
the areas that matter most to our colleagues, as well as
ensuring we are meeting the needs of other stakeholders.
• We have eight employee-led inclusion networks which
act as a voice for our minority colleague groups.
• We held regular town halls, providing employees with
updates from across the business.
Regulators and government
We are committed to sustaining high standards of business
conduct in line with regulatory, governmental and legal
expectations and operate prudently within the laws and
regulations that apply to us.
We foster an open, transparent and cooperative relationship
with all our regulators, government authorities and trade
associations in the jurisdictions in which we operate. Active
engagement helps to ensure we are aware of and adapting
to the evolving regulatory framework.
Key priorities of our regulators and government
• Customer outcomes.
• Operational and financial resilience.
• Financial crime prevention.
• Diversity and inclusion.
• Digitisation and analytics.
Our engagement during the year
• We have engaged constructively with our regulators
during this period of heightened regulatory scrutiny.
We have provided information in support of the FCA’s
focus on the cost of living and their market-wide
review of Borrowers in Financial Difficulty, as well as
in connection with the FCA’s review of historical motor
finance commission arrangements.
• To align our approach with regulatory expectations,
we have actively monitored the FCA’s formal and informal
guidance of Consumer Duty including monitoring of
customer outcomes management information metrics
and the annual assessment of consumer outcomes.
• We continued to engage actively with the PRA on our
IRB approach application.
• We undertook reporting and analysis as requested,
enabling regulators to better understand our business
activities and how we are operating in a controlled and
prudent manner in line with their expectations.
Customers, clients and partners
Our long-term success depends on the strength of our
relationships with customers, clients and partners, our
specialist expertise and the maintenance of high standards
of service. Central to all decision-making is doing the right
thing for customers, clients and partners, by helping them
access financial solutions to meet their needs across all
market conditions. We engage with our customers throughout
their end-to-end journey and actively seek their feedback.
Key priorities of our customers, clients and partners
• Building and maintaining strong personal relationships
based on trust, understanding and specialist expertise.
• Understanding, treating and valuing them as individuals.
• Fair and equitable conduct of business.
• Receiving consistent, responsive and supportive service
delivered with simplicity, clarity and ease.
• Meeting their needs throughout changing economic cycles.
• Implementing customer-led propositions that meet their
individual needs.
Our engagement during the year
• We have extended the reach of our “Operational
Excellence Academy” customer-focused training
programme to further enable a culture of continuous
improvement to streamline processes and enhance
the customer experience.
• We continued to hold customer forums, with feedback
proactively reviewed and areas of improvement identified,
as well as actions being taken to meet our customers’
changing needs and support better outcomes.
• Our Vulnerable Customer working group is establishing
a charter that articulates our commitment and approach.
• We continue to invest in strengthening our capability to
capture, consolidate and act upon customer, client and
partner feedback by extending experience measurement
to more interaction points.
30
Close Brothers Group plc Annual Report 2024
Suppliers
Our business is supported by a broad range of suppliers,
enabling us to provide high standards of service to our
customers, clients and partners. We are focused on ensuring
we have transparent and sustainable working relationships
with our suppliers. Engagement is focused on driving an
open and collaborative approach with our suppliers, as we
work together to ensure services support us to meet our
goals, whilst considering areas for improvement.
Key priorities of our suppliers
• Strong and sustainable relationships with Close Brothers.
• Fair and equitable conduct of business.
• Appropriate and clear payment procedures.
• An understanding of the Close Brothers purpose
and strategy.
• Robust risk management framework.
Our engagement during the year
• We conducted our annual supplier survey to engage with
our suppliers on topics such as how they feel about doing
business with us, how likely they would be to recommend
us as a client and the transparency of our strategies and
priorities. This year’s survey has indicated that:
– 80% of our suppliers have described feeling
“Very Satisfied” or “Satisfied” by our approach to
supplier management.
– 30% of our suppliers have described our transparency
and fairness in doing business as “Extremely Clear”,
with an additional 45% voting “Very Clear”.
• Our Code of Conduct has been updated to reflect
feedback from our key strategic suppliers.
• Held regular review meetings with our suppliers, with
strategic meetings taking place at least quarterly with
our top-tier suppliers.
Communities and environment
Close Brothers is committed to contributing lasting value and
making a positive impact on the communities in which we
operate and the environment more broadly. This underpins
the growing range of programmes and initiatives we support
that benefit society and the environment.
Engaging with local communities helps the board and
our employees develop their understanding of our clients,
customers and partners so that we can support them
and help them to achieve their ambitions, whilst also
building employee engagement. We firmly believe that
environmental considerations should form an integral part
of our business decisions, and employees across the group
are actively engaged on responsible behaviours and
environmental issues.
Key priorities of our communities and the environment
• A suitable strategy for approaching sustainability issues.
• Support for community initiatives.
• Take active steps to ensure equity of opportunity,
regardless of background or experience.
• A long-term focus on addressing the impacts
of climate change.
Our engagement during the year
• Colleagues completed numerous volunteering activities to
positively impact local communities, including volunteering
at food banks and supporting youth groups such as Guides,
Scouts and Cadet groups and children’s sports teams.
• Several colleagues, including members of our Group
Executive Committee, continue to fulfil trustee roles for
various charities to support local communities.
• Extended our partnership with the University of Sheffield
AMRC Training Centre, with our 15 apprentices funded
through the Close Brothers SME Apprentice Programme
entering their second year of training.
• Continued to support social mobility programmes,
hosting 35 interns across the group in partnership with
the 10,000 Interns Foundation and upReach.
Investors
Close Brothers has a proven and resilient business model
and is focused on generating long-term, sustainable value for
its investors, while also maintaining a strong balance sheet.
Our investors are the providers of capital to our business so
it is important that we engage actively with them and listen
and respond to their feedback through an established and
comprehensive programme throughout the year.
Key priorities of our investors
• Strong returns and financial resilience through the cycle.
• Capital generation and distributions.
• Sustainable and consistent business model.
• Appropriate governance practices and regard for
environmental and social responsibility.
• Managing the potential impact on the group following the
FCA’s review on historical motor finance commission
arrangements, while protecting our business franchise.
Our engagement during the year
• We increased our comprehensive programme of
communication throughout the year, providing regular
market updates and, in total, hosting over 170 meetings
in the year with equity and debt investors. We held two
analyst presentations and attended sales desk briefings
and conferences.
• We undertook investor roadshows covering the UK,
Europe and North America, meeting more than 80 existing
and prospective shareholders.
• Our chairman held a corporate governance roadshow,
meeting with 10 of our largest shareholders.
• As part of the group’s inaugural AT1 capital issuance
in November 2023, we held a number of meetings with
existing debt holders and prospective investors.
• Welcomed retail investors at our AGM where they had the
opportunity to engage with board members.
• Following the announcement of the FCA’s review of
historical motor finance commission arrangements, we
engaged with 50% of our shareholder base (by holdings)
and all of our sell-side analyst followers, as well as our
credit rating agencies.
31
Strategic Report
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Financial Statements
Enabling
opportunities
by empowering
entrepreneurs
Creating a strong, long-term relationship with
Daily Dose to support innovation and growth
Daily Dose began in 2016 with founder George
Hughes-Davies making his own juices in his kitchen
and supplying them to a local cafe.
Having identified a gap in the market where using wonky
vegetables would reduce food waste and make for cheaper
supplies, George set about building relationships with
British farmers in the UK.
Sizeable upscaling happened between 2017 and 2020 to
meet growing demand. With this, Daily Dose recognised
invoice finance would play an important part to support
business growth.
Having built a relationship with our Asset Finance business
in their early years when funding for machinery was required,
Close Brothers Invoice Finance was able to support further
with an invoice discounting facility. Alongside a Recovery
Loan Scheme top-up, this provided Daily Dose with improved
cash flow to support the next stage of their expansion.
“Working with Close Brothers
has been really beneficial for
our business. As a start-up,
accessing funding can be
challenging as a ‘one-size-fits-all’
approach is rarely appropriate.
Having specialised teams that
can look at our business and
growth plans resulted in funding
that other banks were simply
unable to offer.”
George Hughes-Davies
Founder and Director of Daily Dose
Long-term relationships
32
Close Brothers Group plc Annual Report 2024
“We recognise the important
role we can play to support our
customers and clients on their
sustainability journeys, including the
transition to a low carbon economy.”
Adrian Sainsbury, Group Chief Executive
Sustainability Report
Our responsibility
Our Sustainability Objectives
Our purpose is to help the people and businesses of Britain
thrive over the long term, and we are here to support them
on that journey. Our strategy to achieve this purpose is built
on our responsibility, being to help address the social,
economic and environmental challenges facing our business,
our people, customers and clients, now and into the future.
In this Sustainability Report we have set out our approach
as well as progress across all elements of our sustainability
strategy. We will play our part in supporting our people,
customers and clients to achieve their best outcomes now
and in the future. We see responsibility as a core part of
our business and central to our success. It encourages us
to look at how we operate our business, as we focus on
achieving the best outcomes for our stakeholders whilst
making a positive impact on society and the environment.
We are committed to achieving net zero across our
operations, our supply chain and the activities we finance by
2050 or sooner. In September 2022 we joined the NZBA and
this year we developed our first sector-based intermediate
2030 emissions reduction pathways for cars and vans, the
largest carbon-intensive sectors in our loan book.
Our Asset Management division has recently set out its
sustainability strategy in its inaugural TCFD-aligned entity
report – supporting its commitment to align its operations
and investments to a more sustainable future. Earlier in the
financial year, the division announced its initial percentage
of AuM to be managed in line with net zero, following its
commitment to the Net Zero Asset Managers initiative.
A key enabler for our overall business success is our
inclusive culture. We are proud to create an environment
where colleagues can thrive and, in turn, deliver excellent
outcomes for customers. We invest in and promote a
range of diversity and inclusion initiatives. We have recently
set out our Group Diversity and Inclusion Strategy from
FY 2024 to 2027.
Central to all decision-making is doing the right thing for
customers, clients and partners, by helping them access
financial solutions to meet their needs across all market
conditions. We engage with our customers throughout their
end-to-end journey and actively seek their feedback.
Read our March 2024
Net Zero Update report.
Read our Asset Management division’s
inaugral TCFD-aligned entity report.
Promoting financial inclusion,
helping borrowers that might
be overlooked by larger finance
providers and enabling savers
and investors to access financial
markets and advice to plan for
their future
Reducing our impact on the
environment and responding
to the threats and opportunities
of climate change
Promoting an inclusive culture
in everything we do
Supporting our customers,
clients and partners in the
transition towards more
sustainable practices
33
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Financial Statements
Sustainability Report continued
What sustainability means at Close Brothers
At Close Brothers, we are here to help the people and businesses of Britain thrive
over the long term, working together to embrace change and capitalise on the
opportunities it presents. This means supporting our colleagues, customers and
clients, and the communities and environment in which we operate.
Environmental
Our communities
386
employees used their volunteering day
(2023: 200).
Our social mobility
Last summer, we welcomed 35 students to
complete six-week internships with us. 28
students joined us through the 10,000 Interns
Foundation and seven university students from
lower socioeconomic backgrounds joined us
through our partnership with upReach.
Social
Governance
Our green lending
£1 billion
lending ambition for zero emissions battery
electric vehicles over the five years to FY 2027.
2024: £152.4m
lending for zero emissions battery electric
vehicles achieved in this financial year and
a total of £316.4m in the first two years
of the five-year ambition period.
Our investments
67.8%
of companies within our equities and corporate
bonds investment portfolio align with the goal
of limiting temperature increases to below 2°C.
41.5%
of companies within our equities and corporate
bonds investment portfolio align with the
goal of limiting temperature increases to
below 1.5°C.
Our emissions
Scope 1 and 2 emissions (market-based)
41.6%
reduction since 2019 (2023: 46.0%).
51.1%
renewable energy as a proportion of our
energy use across our offices and Brewery
Rentals business (2023: 50.0%).
Our inclusivity
90%
of our colleagues feel included (2023: 96%).
Our alliances
As a signatory to the NZBA, we commit to
transition our lending and investment portfolios
to align with net zero pathways by 2050.
We work closely with the Partnership for Carbon
Accounting Financials and its local members in
developing accounting principles for financial
carbon emissions.
Our car fleet
Our car fleet is now
53.6%
battery electric with average stated emissions
now down to 19.1 gCO2/km.
2020
2021
2022
2023
2024
32.9
23.5
19.1
57.3
76.6
34
Close Brothers Group plc Annual Report 2024
We present our third Task Force on Climate-related Financial Disclosures (“TCFD”) report. Our disclosures comply with the
FCA’s Listing Rule 9.8.6R (8) and are consistent with the 2017 Recommendations of the Task Force on Climate-related
Financial Disclosures. We have also considered the additional 2021 Annexes where practical to do so.
TCFD recommendations
Our progress
Future focus
Sustainability
and Climate
Governance
• Board monitoring of climate-related risks
and opportunities enabled through clear
roles and responsibilities for the board and
board committees.
• Ongoing ESG and climate-specific training
delivered to board and all group employees.
• Group chief risk officer accountable under the
Senior Managers and Certification Regime for
identifying and managing the financial risks
associated with climate change.
• Continuous review of climate risk governance
framework to ensure that ongoing embedding
of climate risk within our risk management
framework is fully encompassed. Climate risk
actively embedded within management
decision-making.
• Board to oversee the
ongoing development
of transition pathway.
• Continue to build climate
knowledge at board and senior
management level.
• Enhance data provision by
decentralising to each business,
maximising data provision,
modelling and integration into
decision-making.
• Advance climate skills and
competencies across our staff
and stakeholders – with specific
focus on the rapid evolution in
technologies and deployment
in the UK market.
Describe the board’s oversight
of climate-related risks and
opportunities.
Describe management’s role in
assessing and managing
climate-related risks and
opportunities.
See pages 46 to 47
Climate Strategy
• Net zero roadmap developed with our main
facilities management partner for our office
estate to support our 2030 Scope 1 and 2 net
zero ambition.
• Climate engagement with some of our largest
suppliers across the group.
• Continued development of climate-related
scenario analysis to inform commercial
development and strengthen risk management.
• Focused ESG lending team developing new
products and partnerships across green assets.
• Enhanced data capabilities across our carbon-
intensive sectors.
• Assessment of intermediate net zero ambition in
key transport sectors.
• New product development to support five-year
ambition for funding battery electric vehicles.
• Climate risks and opportunities considered
within financial and strategic planning
processes, using the firm’s standard one
to three-year time horizon.
• Advance our net zero transition
plan for our Scope 1 and 2
emissions to 2030.
• Build on our climate supplier
engagement strategy to address
our operational emissions.
• Development of our transition
plan for our financed emissions.
• Continue to address key
challenges related to the
availability of climate data.
• Respond to evolving regulatory
requirements and developments
in the broader industry, including
the emergence of best practice.
• Continue to develop capabilities
to assess the resilience of our
business model.
Describe the climate-related
risks and opportunities the
organisation has identified
over the short, medium
and long-term.
Describe the impact of climate
risks and opportunities on the
organisation’s business strategy
and planning.
Describe the resilience of
the organisation’s strategy
taking into consideration
different climate-related
scenarios, including a 2ºC
or lower scenario.
See pages 36 to 37
Risk Management
• Further enhancements to data capabilities
to deliver oversight, visibility and measurement
of climate risk exposures.
• Embedded processes to continually assess
and monitor climate risk as a cross-cutting risk
to our principal risks.
• Transitional risk impacts monitored regularly
within our emerging risk management and
reporting processes.
• Evolving reporting capabilities of credit exposure
relative to climate-related risk impacts with
further exposures captured in-year.
• Other climate risk impacts embedded
in the group-wide Enterprise Risk
Management Framework.
• Continued tailoring of climate risk within risk
appetite statements.
• Enhancement of standards and
policies documents.
• Maturing climate risk culture and
acknowledgement of corporate responsibility.
• Determine opportunities to further
develop data to support
quantitative risk measurement
and commercial strategic
development.
• Continue the exercise to explore
expanded scenario analysis
to align and support our
stress-testing processes.
• Broaden our work with
customers, partners and
suppliers, assessing
climate-related impacts.
• Continued assessment of
climate impacts within our
resilience framework.
• Ongoing review of the analysis
of internal and external risks and
opportunities.
• Continued horizon scanning to
monitor for changes within the
regulatory landscape.
Describe the organisation’s
processes for identifying and
assessing climate-related risks.
Describe the organisation’s
processes for managing
climate-related risks.
Describe how processes for
identifying, assessing and
managing climate-related risks
are integrated into the
organisation’s overall risk
management.
See pages 38 to 41
Task Force on Climate-related Financial Disclosures Report
35
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Financial Statements
Sustainability Report continued | Task Force on Climate-related Financial Disclosures Report
TCFD recommendations
Our progress
Future focus
Metrics and
Targets
• Broadening of our climate strategy and targets
to cover both net zero and Scope 1 and 2
operational targets, as well as specific targets
relating to our financed emissions.
• Enhanced capabilities to measure the carbon
footprint for our operations, including
measurement across Scope 3 operational
emission categories.
• Further enhanced assessment of Scope 3
financed emissions (primarily our loan book)
using evolving Partnership for Carbon
Accounting Financials (“PCAF”) methodologies.
• Developing transition plans as part of our
commitment to net zero through the NZBA.
• Continued collaboration with industry body
forums including active engagement in PCAF
specialist working groups.
• Published our first sector-based intermediate
2030 emissions reduction pathways for cars
and vans representing some of our largest
carbon-intensive sectors of our loan book.
• Received a ‘B’ management rating from CDP,
a ‘AA’ ESG rating from MSCI, and a 22.8 ESG
risk score from Sustainalytics.
• Build on our current
operational emissions targets
to cover our wider Scope 3
operational emissions.
• Improved customer climate
data capabilities across our
portfolios to improve accuracy
of financed emissions
reporting, risk assessment
and business strategy.
• Progress further targets across
our lending and investment
activities to support our
transition pathway.
Disclose the metrics used
by the organisation to assess
climate-related risks and
opportunities in line with
its strategy and risk
management process.
Disclose Scope 1 and 2 and,
if appropriate, Scope 3
greenhouse gas emissions
and the related risks.
Describe the targets used by
the organisation to manage
climate-related risks and
opportunities and performance
against targets.
See pages 42 to 45
As a group supporting many sectors of the UK economy
through our lending products and investment services,
we understand our role in helping to enable the transition
to a low carbon future.
We are committed to working with all of our stakeholder
groups to meet the goals of the Paris Agreement. In 2022,
we became a signatory to NZBA, committing to transition
all operational and attributable greenhouse gas (“GHG”)
emissions from our lending and investment portfolios to align
with pathways to net zero by 2050 or sooner.
We provide expert financing solutions for UK SMEs, and will
need to align our lending with the transition pathways of our
customers. As businesses in the UK develop and deliver their
own transition plans to adopt clean technologies, greener
assets and new business models, we are ready to support
them by providing appropriate financing solutions; in doing
so, facilitating change and supporting the wider transition
of the economy.
Across the organisation we recognise the importance of
addressing the threat of climate change, and the urgency
needed in tackling the environmental, economic and social
impacts that it brings, noting that these extend across all
sections of society, affecting all key stakeholder groups.
Our ongoing work to identify the risks and opportunities
of climate change to our business model remains a key area
of strategic focus for the board and senior management.
Climate strategy
The Three Pillars of our Climate Strategy
1. Achieving net zero operations
Achieving net zero emissions and reducing supply chain
emissions, working with our partners and suppliers to
minimise operational impacts.
Addressing the impact our own emissions have on the
environment remains a key focus for us, demonstrating our
commitment to our wider net zero ambition.
We have previously set ourselves challenging net zero
aligned targets for our buildings and fleet – becoming
operationally net zero through our Scope 1 and 2 emissions
by 2030, and we have continued this year in developing our
plans across our buildings to meet these.
Further to meeting all of the mandatory reporting
requirements under the Streamlined Energy and Carbon
Reporting (“SECR”) standards, we provide enhanced
disclosure across our wider operational impacts. As set out
in our emissions reporting on page 43, we have assessed
our full operational footprint, covering Scope 1 and 2 as well
as all relevant Scope 3 categories.
We continue to advance our monitoring and calculation of
these operational impacts – improving the data quality and
availability. For example, this year, we have sourced reported
Scope 1 and 2 emissions for 27% of our supplier spend to
improve the quality of our Scope 3 category 1 disclosures.
We are seeing the benefits of supply chain engagement on
climate action both through our own engagement with our
largest suppliers as well as engagement with some of our
own business customers, where we represent a proportion
of their supply chain emissions.
36
Close Brothers Group plc Annual Report 2024
Our workplace team continue to work closely with our
facilities management contractor to progress our net zero
strategy for all of our properties (covering offices as well
as our industrial sites operated by our brewery keg rental
business). This has culminated in the team finalising our
net zero strategy to 2030 for our estate and to develop a
business case and investment options for the group to cover
energy efficiency, heating electrification and renewable
energy investments through this decade.
Our drive towards having a net zero emission car fleet has
continued this year though the pace of change has slowed a
little due to market dynamics in the UK’s electric car market.
With a recognised leading strategy of adopting battery
electric vehicles (“BEVs”) onto our fleet, this year we have
passed the 50% mark and, at July 2024, our car fleet is
53.6% fully electric vehicles.
Our efforts to transition our car fleet have driven our fleet
average emissions down further this year. The average
CO2 emissions for our car fleet is now 19.1 gCO2/km
(2023: 23.5 gCO2/km).
In 2022 we became a signatory to NZBA. We committed to
develop sector-based intermediate 2030 emissions reduction
pathways for the most carbon-intensive sectors in our
loan book. In March this year, we set out our initial sector
ambition covering road transport, specifically cars and light
commercial vehicles/vans (“LCVs”). In the coming financial
year, we will continue to expand our assessment across
other carbon-intensive sectors in our loan book with
likely next priorities in the power generation and
construction sectors.
During FY 2024, our Asset Management division has
continued to develop its climate strategy. In June, it
published its inaugural TCFD-aligned entity report as well
as TCFD-aligned reports for each of its funds. Through
its sustainability strategy, raising awareness, holistic
decision-making and continual sustainability assessment,
it is progressing towards embedding ESG principles across
all of its operations, reflecting a commitment to long-term
development in sustainability.
3. Financing the transition
Enabling the deployment of cleaner technologies and
business model adaptation through our green growth
lending strategy, leveraging our expertise and ensuring
alignment with agreed risk appetite.
We recognise the significant growth opportunities for green
asset lending across several of our existing asset classes,
as well as new ones. As a specialist, adaptable lender,
with deep understanding of our customers’ needs, we
can support our clients in their transition to new, cleaner
technologies to meet their own sustainability targets.
One of our largest lending sectors is road transport and
we are already seeing deployment of BEVs by our fleet
customers in both passenger and goods vehicles, as
they seek to reduce their costs, carbon emissions and
local air pollution.
In 2022, we set ourselves our first green growth ambition,
which was to provide funding for at least £1.0 billion of BEVs
in the five years from 2023 to 2027. In the first two years,
we have funded £316.4 million for BEVs, putting us close
to target to meet this ambition.
Our car fleet
2. Reducing our financed emissions
Supporting the goals of the Paris Agreement through
re-alignment of our financing and by assisting our
customers in meeting their transitional targets.
Understanding the climate impacts across all of our lending
and investments, alongside developing new green growth
opportunities in our current and future markets, are crucial
steps in us developing our climate transition plan and
aligning our financing to our net zero commitments.
This year, we have continued to develop our climate
assessment of the assets and businesses in our lending and
investment activities. A summary of our assessed Scope 3
financed emissions is set out on pages 44 to 45.
As members of PCAF, we work closely with other peer banks
to develop best practice data sourcing and carbon
accounting for our range of financing activities – improving
our understanding of the impacts of these assets and
businesses and supporting our ongoing development
of our climate strategy.
Battery electric
Plug-in hybrid
53.6%
44.9%
Petrol or diesel
1.5%
743
cars
37
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Financial Statements
Sustainability Report continued | Task Force on Climate-related Financial Disclosures Report
How we Identify, Assess and Manage Climate-related Risks
Our group Enterprise Risk Management Framework, as outlined on page 74 of the Risk Report, facilitates a consistent
application of all features of the group’s risk management approach to the risks associated with climate change. This extends
to both the physical risks, which are considered a cross-cutting risk impacting across our suite of principal risks, as well as
transitional risks, which are additionally measured and monitored in line with our emerging risks.
Description
Timeline
Potential impacts
Physical Climate Impacts
Extreme weather events
(including persistent
heat and severe flooding
events) as well as
long-term shifts in climatic
conditions. Increased
frequency and magnitude
of weather events.
Physical damage to customers’ assets.
Disruption to sector productivity (such
as labour impacts in our construction
sector customers, crop yields in
our agriculture customer base).
Medium to long term
Credit risk –
counterparty
and collateral.
Disruption or damage to our own
properties or those of our suppliers/
partners (such as data centres and
call centres).
Long term
Supply chain risk.
Business continuity
impacts and
disruption to
customers.
Transitional Climate Impacts
Changing markets through
the transition to a low
carbon economy – driven
by new regulation, policy,
technologies and
customer appetites.
Significant shift in a sector’s
technology – such as the current
impacts on some of our existing
transport activities.
Medium to long term
Credit risk –
counterparty and
collateral.
Uncertainty around
new and legacy
asset values.
Uncertainty and change in many
sectors in the UK where our SME
customer base operates. Changing
demands and expectations
from their customers. A growing
focus on energy efficiency and
environmental performance.
Medium to long term
Credit risk –
counterparty
and collateral.
Uncertainty in
markets could lead
to reduced
investment activity
by customers in
the short term.
Changing operating models for
customers and higher capital
investments in clean assets – such
as growing opportunity for businesses
to adopt onsite renewable generation,
energy storage and electric vehicle
charging assets. Leading to the
need for new products and
underwriting approaches.
Medium term
New business
models. Need for
new skills and
capabilities across
the bank.
Changing stakeholder
climate expectations.
Our stakeholders (including our
investors, customers, staff) scrutinising
our climate transition plan and delivery
against targets. Evolving market
appetites towards lending to high
carbon sectors (including fossil fuel
extraction, carbon intensive transport).
Medium to long term
Reputational risk
– ability to attract or
retain talent. Impact
on attractiveness to
investors and
savers.
Risk management
38
Close Brothers Group plc Annual Report 2024
Alignment of Group-wide Framework with
Climate-related Risks and Opportunities
The alignment of our risk management framework with
climate-related risks and opportunities remains a priority
as we continue to develop ongoing risk assessment and
monitoring of our banking book and impacts across other
principal risks. Continual enhancement of standards and
policies supports the increasing maturity of climate risk
within our end-to-end risk processes.
We recognise that this is a multi-year journey with the
impacts of physical and transitional risks, and supporting
frameworks to assess these, still evolving across the
industry. The impact of climate change across time horizons
and our proportional response will continue to be considered
within our wider risk assessment, financial planning and
strategy development.
Our business planning time horizons
Short term
(0-1 year)
Time horizon for annual budgeting and
capital assessment.
Medium term
(1-3 years)
Time horizon for business strategy and
financial planning. Also aligns with
typical ICAAP scenario analysis horizon.
Long term
(more than 3
years)
Time horizon beyond typical financial
planning cycle. Impacts primarily
assessed through the use of long-term
scenario analysis noting most
material climate risks will crystallise
in this horizon.
Risk culture and awareness
A risk culture with strong foundations runs throughout the
group, consistent with the group’s purpose, strategy, cultural
attributes and values. The management of climate risk and
opportunities is enveloped within this.
Specialist role-specific training on climate change impacts
is undertaken and all colleagues are offered training and
webinars to ensure they are kept abreast of regulatory
developments, expectations of corporate responsibility
and wider market sentiment.
Internal controls
To support ongoing embedding of climate risk in our
control environment, in-year enhancements have focused
on continuing to reinforce climate risk within our policy
documentation and on ensuring that internal process
is complemented by the activities of our key
suppliers and partners.
Governance
A key component of embedding climate risk into our
group-wide framework is a coherent three lines of defence
model. As our climate risk framework continues to mature,
it has afforded additional opportunities to further refine our
governance structure to manage an integrated approach
to both climate risks and opportunities and to ensure that
recent enhancements are fully encompassed. The structure
currently in place is on page 46.
Stress testing
Furthering our previous work on long horizon scenario
analysis, recent activities recognise the short tenor of our
loan book (15 months), and accordingly our focus is on
further integrating climate exercises into wider group stress
testing exercises, e.g. Internal Capital Adequacy Assessment
Process (“ICAAP”) and resilience scenarios. Specific
concentration focus is being placed on transport and
energy sectors.
Risk appetite
Consideration of climate risk is integrated into the group’s
risk appetite statements, which align risk management with
group strategy. While quantitative measures are, in the main,
currently included for monitoring purposes, we are continuing
to develop more tailored, formal risk appetites, particularly
for credit risk where measurement of quantifiable metrics
against limits specific to business considerations is more
readily achievable. We expect these to be based on sectoral
transition risk assessments, aligned to our ambition to meet
the goal of the Paris Agreement to reach net zero by 2050.
Addressing Data and Future Enhancements
Data quality remains a key challenge and we are committed
to developing enriched climate risk data that will support
more accurate measurement and monitoring. In turn, this
will support effective risk mitigation and strategic alignment.
Making progress in our climate and broader sustainability
reporting and management information capabilities
will facilitate more decision-useful insights, supporting
the evolution of the group’s strategy for managing risks
and opportunities and the development of more
tailored risk appetites.
39
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Sustainability Report continued | Task Force on Climate-related Financial Disclosures Report
A Cross-cutting Risk Impacting Across Multiple
Principal Risks
In assessing both the risks and opportunities of climate
impacts and in preparing our TCFD disclosures, we have
sought to provide sufficient granularity, proportionate to the
materiality of the climate-related risks identified across the
group. An extensive analysis of risks has been completed
across our risk universe which indicates we are not materially
exposed to loss or disruption over the short to medium term.
Over the long term, increased risk has been identified,
primarily driven by potential transitional impacts. In respect
of physical risk, we consider severe impacts are only likely to
present in the long term, albeit we recognise acute physical
events are already happening. Risks identified are largely
mitigated through our resilient business model, benefiting
from an average tenor of 15 months, and a customer base
that is predominantly in the UK and Republic of Ireland, with
strategic management actions to support our customers and
strategic partners on their own transition pathways.
Our focus remains primarily centred on credit and
operational risk impacts consistent with our view that these
represent greatest potential impact. We acknowledge that
developments which may have a transitional impact over the
medium to longer term could carry additional exposure
should appropriate, timely management actions not be taken
to maintain the resilience of our business operating model.
For more details of our management of emerging risks
please see page 84 of the Risk Report.
We anticipate incremental enhancements to
assessment, monitoring and reporting to support a
greater quantitative lens, augmenting the qualitative
assessment already established.
Credit risk
The focus remains largely on credit risk, given its materiality
to the Banking division and wider group, and importantly
its sensitivity to potential climate impacts, noting that both
physical and transitional drivers have the potential to impact
both counterparty and collateral risk.
Our current methodology deployed across £9.0 billion (88%)
of the Banking division loan book continues to identify
exposures deemed to have the most sensitivity to climate
change, noting it does not account for time horizons over
which climate impacts are expected to crystallise. It does,
however, prove useful in identifying those exposures deemed
as having the most potential sensitivity to climate change,
including energy-consuming assets such as motor vehicles
in our Motor Finance and Asset Finance businesses,
non-renewable energy generation assets, and general
business lending in high-impact sectors.
Sensitivity dashboards continue to be presented at regular
risk committees, ensuring engagement in the climate
risk agenda occurs vertically throughout the organisation.
For an overview of risk committees see pages 76-77.
Climate risk
E
m
e
r
g
i
n
g
ri
s
k
C
r
o
s
s
-
c
u
t
ti
n
g
ri
s
k
Risks identified across the group with
potential climate-related impacts
Impacts arising from the physical nature of
climate change have the potential to affect
several of our existing principal risks.
Noting the longer time horizons for some
transitional climate impacts to crystallise (such
as on policy and regulation) we track climate risk
as one of our core emerging risks.
See page 84
Credit
Counterparty and collateral impacts
Operational
Premises, people and third-party partners
Traded market
Regulatory
Conduct
Business/strategic
Funding/liquidity
Reputational
Climate-related data
(enhancement in progress)
Climate Cross-cutting Risks
40
Close Brothers Group plc Annual Report 2024
Operational risk
Recognising the potential for climate change to impact
buildings and service provision capabilities, the group has
conducted a review of its existing business continuity plans
as well as its broader approach to crisis management to
ensure potential impacts on our people, customers and
infrastructure have been assessed and that the group
is adequately prepared.
Relevant operational risk standards consider the causal
impacts presented by climate change, while work continues
to incorporate climate impact considerations within our
assessment of operational resilience for critical services
and change management risk assessments.
The group also recognises the potential for key third parties
and suppliers to be impacted by climate change (due either
to physical or transitional factors), causing disruption to
day-to-day business operations. To maintain pace with
the evolving regulatory landscape, the group’s third-party
management framework has been strengthened to include
enhanced supplier due diligence questionnaires to gather
climate and ESG data for all of our Tier 1 and Tier 2
suppliers, while our tendering process has been updated to
consider environmental and climate considerations alongside
sustainability innovation and performance. Our suppliers are
increasingly focused on reducing carbon emissions, aiming
for at least 50% reductions by 2030 as well as supporting
a low-carbon global economy.
Other risks
Work to integrate consideration of climate risk across other
identified risk areas continues to progress in line with climate
change, and the group’s response to it, forming an integral
part of our business strategy. This includes continued
assessment of the resilience of our model, to ensure we
are sufficiently prepared to manage the risks posed by it.
As outlined in the Governance section (pages 46-47) strong
oversight of strategic delivery is maintained through our
committee framework, with consideration of climate risks
now embedded within our strategic planning.
The rapidly evolving regulatory landscape also presents risk
and we recognise our responsibility to comply with new and
emerging requirements. Horizon scanning capabilities have
been enhanced in response, to ensure new requirements
are identified and assigned to the relevant functions.
Climate impacts are considered part of our overall
commitment and conduct responsibilities to deliver good
customer outcomes.
Funding and liquidity impacts are subject to ongoing
reassessment with regular updates provided to relevant
Treasury committees. Primary focus areas include
implications for debt capital markets, potential behavioural
changes in our investor base, and possible direct and
indirect reputational impacts, including those related to
evolving disclosure requirements.
We continue to assess traded market risk implications for
Winterflood, although the role of the business as a market
maker means we do not take long-term positions, mitigating
potential risk exposure.
Meanwhile, our Asset Management division has integrated
responsible investment practices into our investment
process to aid us in creating long-term value for clients and
beneficiaries. The practices include explicitly considering and
integrating the impact of material environmental, social and
governance factors on the long-term financial risk and return
of our investments. Our Asset Management division is a
signatory to the Principles for Responsible Investment and
has been accepted as a signatory to the Financial Reporting
Council’s Stewardship Code for the third year running,
illustrating our commitment to strong stewardship of
our clients’ capital.
The product offering for clients who wish to further align
their investments to their values continues to grow; we
offer ethical screening, sustainable funds and our socially
responsible investment service. Following its commitment
to NZAM in 2022, our Asset Management division set out its
climate strategy and ESG risk management in June 2024
when it published its inaugural TCFD disclosures.
Over the longer term, increased reputational risk could
crystallise, primarily driven by failure to address transitional
impacts such as changes to regulation, technological
advancement and the evolution of customer preferences.
We will continue to assess the climate impacts across the
whole spectrum of principal risks to ensure we meet the
expectations of our people, customers, clients, investors,
shareholders, regulators and other key stakeholder partners.
41
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Sustainability Report continued | Task Force on Climate-related Financial Disclosures Report
Our climate strategy, led by our commitment through the
NZBA, spans both our operational emissions as well as the
emissions related to our lending and investment portfolios.
Set out in this section are our targets, measurement and
reduction of our operational emissions on pages 42 to 44,
followed by our assessment and ambitions for our financed
emissions on pages 44 to 45.
Operational Emissions
Our approach to developing our carbon reduction plan
to achieve these net zero targets is set out in our strategy
section on pages 36 to 37.
Our methodology for calculating and disclosing our
GHG emissions and energy use is in accordance with the
requirements of the World Resources Institute GHG Protocol
Corporate Standard, GHG Protocol Corporate Value Chain
Accounting and the SECR standards. We report on all
material Scope 1 and 2 emissions associated with our
operations. Scope 1 includes fuel emissions from buildings
and company vehicles and Scope 2 includes our emissions
from electricity. We have also reported our indirect Scope 3
operational emissions across all categories where we have
any material emissions.
For our building emissions (including our industrial
processes in our Brewery Rentals sites) we have
continued to develop our energy efficiency plans for our
sites, working with our facilities management partner.
These plans consider our 2030 net zero ambition, ensuring
we make investment choices for each of our sites that lead
us towards that ambitious goal. Important considerations
include energy-efficient equipment, control and monitoring
infrastructure, electrification solutions and renewable
energy options.
We have continued to electrify our company car fleet (total of
743 cars). At the end of this financial year we have a car fleet
where 53.6% of the cars are fully electric, and with 98.5%
being either fully electric or plug-in hybrid.
Through this financial year, we have greatly enhanced our
in-house climate data capability, allowing us to enhance our
operational footprinting across all Scope 1 and 2 as well as
relevant Scope 3 categories. Our climate data working group
is working closely with all relevant departments internally
to fully operationalise these carbon accounting processes
and to allow more frequent climate-related management
information to be used across the group.
Metrics and targets
2020
2021
2022
2023
2024
32.9
23.5
19.1
57.3
76.6
Company car fleet (gCO2/km)
2020
2021
2022
2023
2024
4,518
3,501
3,625
3,622
3,184
90
5,982
10,144
Renewables
Non-renewables
3,518
3,367
Proportion of renewable energy used in our offices
and Brewery Rentals sites (MWh)
Our ambitions
Become operationally
net zero
through our Scope 1 and 2 emissions by 2030
42
Close Brothers Group plc Annual Report 2024
Our operational impacts
Market-based
Location-based
Greenhouse gas emissions1,2,4
Emissions source
2024
tCO2e
2023
tCO2e
2024
tCO2e
2023
tCO2e
Scope 1
Buildings – fuel and refrigerants3
341
373
370
417
Owned vehicles – fuel3
1,713
1,496
1,713
1,496
Total Scope 1
2,054
1,869
2,083
1,913
Of which UK total Scope 1
2,030
1,845
2,059
1,889
Scope 2
Buildings – electricity3
366
371
984
966
Owned vehicles – electricity3
159
144
159
144
Total Scope 2
525
515
1,143
1,110
Of which UK total Scope 2
496
487
1,108
1,075
Total Scope 1 and 2 (Operational)
2,579
2,384
3,226
3,023
Of which UK total Scope 1 and 2
2,526
2,332
3,167
2,964
Scope 3 (Operational)
Category 1 – Purchased goods
and services3
24,124
44,176
Category 2 – Capital goods3
9,507
3,921
Category 3 – Fuel and
energy-related emissions3
449
474
Category 4 – Upstream
transportation and distribution
94
278
Category 5 – Waste generated
in operations3
30
44
Category 6 – Business travel
829
750
Category 7 – Employee
commuting3
4,828
4,907
Category 9 – Downstream
transport and distribution3
391
448
Total Scope 3 (Operational)
40,252
54,998
Total Scope 1, 2 and 3
(Operational)
43,478
58,021
Energy use
2024 GWh
2023 GWh
Total energy use
15.86
15.21
Of which UK total energy use
15.17
14.79
Market-based tCO2e per
employee
Location-based tCO2e per
employee
Emissions intensity
2024
2023
2024
2023
Operational Scope 1 and 2 emissions intensity
0.65
0.59
0.81
0.74
Operational Scope 1, 2 and 3 emissions intensity
10.89
14.29
Calculated using: Average number of employees in year
3,994
4,060
3,994
4,060
1. We have reported on all emission sources required under the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018. Our reporting year runs from August 2023 to July 2024. The emissions reporting boundary is defined as all entities and facilities either
owned or under our operational control.
2. Emissions have been calculated using the Greenhouse Gas Protocol Corporate Standard and cover all greenhouse gases (converted to tCO2e). We have
used emissions factors published by the UK government’s Department for Business, Energy & Industrial Strategy, and the International Energy Agency.
3. During the year-end carbon accounting process we identified some adjustments needed to our 2023 comparable Scope 1,2 and 3 emissions. The 2023
Scope 1, 2 and 3 emissions above have been restated to ensure consistency with this year’s disclosed emissions methodologies as well as to address some
issues with the quality of the data collected last year for 2023.
4. These reported emissions have not been audited by a third party.
43
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Financial Statements
Sustainability Report continued | Task Force on Climate-related Financial Disclosures Report
Our ongoing approach across our operations of energy
efficiency and sourcing of renewable energy continues to
drive down our Scope 1 and 2 emissions. We have now
achieved a reduction of 41.6% in our Scope 1 and 2
emissions since 2019 under a market-based approach,
which demonstrates good progress towards becoming
operationally net zero by 2030.
In the 2024 financial year, our total Scope 1 and 2 location-
based GHG emissions were 3,226 tonnes of carbon dioxide
equivalent (tCO2e), equating to 0.81 tCO2e per employee,
up 6.7% overall and up by 8.6% per employee from 2023.
This increase is primarily due to increased activity in our
transport fleets, covering both our car fleet and our
commercial vehicles in our Brewery Rentals business.
Throughout the 2024 financial year, our premises have
continued to source renewable energy wherever under
our control. This has helped our market-based building
emissions to track 48% lower than our location-based
building emissions at just 707 tCO2e.
The continued challenge of rising energy prices and our
strategic journey towards a net zero portfolio of premises
has increased the focus on responsibly reducing our energy
consumption. Across the 2024 financial year, energy audits
have been completed within larger premises and are being
used to develop our carbon reduction roadmap out to 2030.
During the past year, our energy efficiency programme has
implemented a number of energy-saving initiatives across
our office estate, including:
• Disposal of our oversized Brighton office with a move
to a premises 50% smaller. This office is a modern,
sustainable build achieving BREEAM Excellent rating
with solar photovoltaic and low energy heating, ventilation
and air-conditioning (“HVAC”) systems. We anticipate
a reduction of emissions for this business by 60%.
• Full building modernisation and decarbonisation of our
Dundonald office. This has seen the removal of gas from
the property, substantial insulation improvements and
upgrade of our HVAC systems to fully electric heat
pump solutions. All lighting has been replaced with
modern LED. We expect to see an energy reduction
of 40% for this property.
• Replacement of the 10 Crown Place building management
system has enabled us to control our building services
closer, monitor consumption in more detail and identify
peaks in energy consumption for action.
Financed Emissions – Banking
The greatest opportunity we have to support reductions in
greenhouse gas emissions is by working with our customers
on their transition to a low carbon economy – helping them
to adopt energy-efficient and low carbon technologies. To
measure our progress requires us to measure the attributable
emissions of the assets and businesses in our loan book,
enabling us to meet our targets and ambitions within
our climate strategy.
Over the past three years we have developed our financed
emissions, improving our data quality and data availability.
Set out below is our assessment of financed emissions
relating to our loan book at 31 July 2024 and our initial
assessment of investee emissions relating to the activities
of our Asset Management division (at 31 July 2023).
Financed emissions in our Banking activities
In the past year, working alongside our peers in PCAF, we
have continued to improve our methodologies in assessing
our financed emissions – combining our own loan book data
with a number of external data sources, providing a more
accurate assessment of these emissions, especially across
our carbon-intensive sector of transport.
In our assessment of our loan book this year, we have used
the PCAF methodologies, applying their latest guidance from
their Financed Emissions Standard 2nd edition, and drawing
on three of their developed methodologies: business loans,
project financing and motor vehicle loans. On review, 94.6%
of our loan book is in scope of GHG assessment under the
current PCAF standard. Of this, 56.1% has been assessed
under the business loans methodology, and we have
apportioned an amount of emissions from these businesses
which is in line with the value we finance. A further 2.7% of
our total loan book has been assessed under the project
finance methodology. Here, we have accounted for the
apportioned emissions of the project due to our contribution.
The final 35.8% of our loan book has been assessed using
the motor vehicle loans methodology, and covers the annual
in-use emissions of the vehicles that we finance.
Our financed impacts – Banking2,4
Financed emissions
in loan book – bank
PCAF methodology
Proportion of
loan book
Financed
emissions1,2
tCO2e
PCAF data quality
score (1-high,
5-low)
Economic
emissions
intensity
ktCO2e/£m
Scope 3 (category 15 –
loan book only)
Motor vehicle loans
35.8%
595,124
2.8
0.17
Business loans
56.1%
326,655
5.0
0.06
Project finance
2.7%
242,849
5.0
0.91
Not assessed/out of scope3
5.4%
n/a
n/a
n/a
Scope 3 (category 13 –
downstream leased assets)
Relating to vehicle hire
270,948
1.0
Total emissions
1,435,576
1. Currently, our financed emissions calculations only include the customer or asset’s Scope 1 and 2 emissions. In the future, we will consider the wider
emissions related to financed assets and businesses. Initial sectors are likely to include (i) motor vehicles (upstream embedded emissions of manufacture) and
(ii) property construction finance (embedded emissions from materials and in-use emissions of housing).
2. PCAF data quality score in our first assessment in 2022 was around 5. We have made significant improvements to our data sourcing from both internal
systems and third-party sources. In particular, for motor vehicles, we have sourced vehicle-specific emissions and actual mileage from UK government agencies.
3. A small proportion of our loan book has not been assessed this year (or is out of scope) due to lack of market-agreed carbon accounting methodologies.
We continue to work with PCAF and other banks to consider these areas.
4. These reported emissions have not been audited by a third party.
44
Close Brothers Group plc Annual Report 2024
In March 2024 we published our initial sector-based
intermediate 2030 emissions reduction ambitions, covering
cars and vans. To align our ambition to a credible scenario,
and as the vehicles we finance are predominantly in the UK,
we chose the UK Climate Change Committee’s Balanced Net
Zero Pathway (“CCC BNZP”) from the Sixth Carbon Budget.
The average emission intensities of both cars and LCVs
in our loan book in 2023 are lower than the CCC BNZP.
The average emission intensity (gCO2e/km) for cars in our
loan book in 2023 is 130 gCO2e/km. This would need to
reduce by 41% to reach an average of 76 gCO2e/km by 2030
to align with the CCC BNZP.
The average emission intensity (gCO2e/km) for LCVs in our
loan book in 2023 is 190 gCO2e/km. This would need to
reduce by 39% to reach an average of 116 gCO2e/km by
2030 to align with the CCC BNZP.
Our ambitions
To reach net zero emissions
by 2050
across attributable GHG emissions from our
lending and investment portfolios.
Provide over
£1 billion
of lending for zero emission battery electric
vehicles over the five-year period 2023 to 2027.
Intermediate 2030 Sector Ambition (surface transport)
Baseline 2023 – financed emissions
Intermediate ambition 2030
Sector
Emission intensity
gCO2e/km
Total financed
emissions
ktCO2e
PCAF score
Sector ambition
Emission intensity
aligned to
CCC-BNZP
gCO2e/km
Cars
130
263
1.9
Reduction in the average
emission intensity of cars by
41% by 2030
76
LCVs
190
157
2.1
Reduction in the average
emission intensity of cars by
39% by 2030
116
Financed Emissions in our Asset Management Activities
In 2023, our Asset Management division made its inaugural climate target disclosure to the NZAM initiative. The disclosure
was based on the Net Zero Investment Framework. 18% of the division’s AuM was initially committed to its climate targets.
The targets disclosed were:
• Portfolio coverage target – 100% of AuM in material sectors will be considered net zero, aligned or aligning by 2050.
• Portfolio decarbonisation reference – target weighted average carbon intensity 50% below relevant benchmarks for each
portfolio by 2030 from a 2019 baseline.
• Engagement threshold target – by 2025, 70% of financed emissions (Scopes 1 and 2) are either aligned to a net zero
pathway or subject to direct or collective engagement and stewardship actions.
Our financed impacts: Asset Management
Other emissions related to investments
– Asset Management
Proportion of
investments
Financed
emissions
tCO2e
Scopes
Economic
emissions intensity
tCO2e/£m
Scope 3 (category
15 – investments only)
Listed equity and corporate
bonds
99%
410,754
1 and 2
59
99%
3,916,763
1,2 and 3
563
45
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Sustainability Report continued | Task Force on Climate-related Financial Disclosures Report
The Integration of Climate into our
Governance Structure
The group has an established governance framework into
which climate has been integrated. This ensures effective
oversight and delivery of our sustainability and climate
strategy, as well as climate risk.
As our climate risk framework matures and becomes further
embedded, during the year we have further refined our
governance structure to manage an integrated approach
to both climate risks and opportunities.
Oversight of climate-related risks and opportunities
continues to be supported by the establishment of clear
roles and responsibilities, extending across board and
executive committees, and the three lines of defence
more generally. Integral to this is the provision of
regular framework status updates to appropriate
committees and forums.
Reporting and management information are provided to
relevant committees, providing important insights to enable
climate considerations to be embedded within both strategic
planning and the setting of group-level risk appetites.
An established link exists between the delivery of the group’s
climate strategy and executive remuneration through the
inclusion of climate/ESG objectives within both the Executive
Committee’s scorecard and Long Term Incentive Plan.
Board Oversight
Board
The board is responsible for the long-term success
of the group and the delivery of sustainable value to its
shareholders and wider stakeholders. It discharges some
of its responsibilities directly and others through its
subsidiary committees.
In ensuring the long-term sustainability of the group, the
board is also responsible for the overall delivery of the firm’s
climate and ESG strategy. It reviews and approves the
strategy and receives regular updates on its execution
from relevant members of the executive team. The
board is also responsible for approving the group’s risk
appetite statements, including risk appetites associated
with climate risk.
Board Risk Committee
Operating on authority delegated by the board, the Board
Risk Committee (“BRC”) oversees the management of risk
across the group, including the risks presented by
climate change.
Sustainability and climate governance
Sustainability and Climate Governance
Strategy
Disclosures
Risk management
The board
Audit
Committee
Commercial
green growth
Operational
climate impacts
Asset
Management
– climate
strategy
Climate targets
and reporting
Climate risk
Climate data
Tooling
People
Partnerships
Group Climate Committee
Nomination and
Governance Committee
Group Executive
Committee
Risk Committee
Group Risk and
Compliance Committee
Credit Risk Management
Committee
Local Risk and Compliance
Committee
46
Close Brothers Group plc Annual Report 2024
The BRC provides oversight of the measures taken to
manage climate risk and receives regular updates on the
development and subsequent embedding of the firm’s
climate risk framework. This includes the ongoing review of
emerging portfolio management information, monitoring the
evolution of associated risk appetites and the consideration
of climate-related risks and opportunities via scenario
analysis exercises.
Audit Committee
Operating on authority delegated by the board, the Audit
Committee oversees the management of financial and
regulatory reporting across the group, as well as the firm’s
internal financial controls. The committee is responsible for
ensuring the clarity and completeness of environmental and
sustainability disclosures and climate commitments included
within the group’s Annual Report.
Nomination and Governance Committee
The Nomination and Governance Committee monitors
environmental, social and governance (“ESG”) and
sustainability developments relevant to the group (including
developments relating to climate change).
The role of management
The chief executive has ultimate responsibility for climate-
related issues affecting the group and its customers and
overall accountability to the board and shareholders for
ensuring sustainable and responsible practices, including
those associated with the environment. Accountability for the
group’s climate and ESG strategy similarly rests with the
chief executive, albeit with various responsibilities delegated
to members of the executive team as appropriate to ensure
strategic delivery and embedment within ways of working.
Within the Banking division, and in line with expectations
under the Senior Managers Regime, the group chief risk
officer (“GCRO”) is specifically responsible for climate risk
management. This includes:
• embedding climate change risks within business planning
and risk appetite statements;
• conducting scenario analysis over different time horizons;
• ensuring sufficient board-level visibility and a clear
allocation of roles/responsibilities; and
• considering risk materiality as part of the annual Internal
Capital Adequacy Assessment Process (“ICAAP”).
The GCRO is supported by the board and the executive
team who collectively oversee delivery of the firm’s climate
risk objectives and are also responsible for challenging and
approving the firm’s broader climate and ESG strategy.
Executive Committee
The Executive Committee evaluates and implements
initiatives to ensure a sustainable business model that
considers all risks and opportunities, including ESG
and climate.
Group Climate Committee
The Group Climate Committee oversees the development of
the group’s climate strategy, including the advancement of
climate ambitions, and associated operational and financing
activities, targets and metrics. It supports the group chief
executive and Executive Committee in their
recommendations to the board for approval.
The Group Climate Committee is supported by five working
groups focused on the different aspects of the group’s climate
strategy, each with its own Executive Committee sponsor.
Working group
Executive Committee sponsor
Commercial green growth
Divisional chief
executive officer
Operational climate impacts
(including supply chain emissions)
Group chief
operating officer
Climate strategy of the group’s
Asset Management business
Asset Management
chief executive
Climate risk
Group chief risk officer
Climate targets and reporting
Group finance director
Group Risk and Compliance Committee
At an executive level, climate risk management is primarily
overseen by the Group Risk and Compliance Committee
(“GRCC”), which is responsible for reviewing and challenging
the risk framework employed to manage the financial risks
from climate change. To support this, regular framework
updates are presented to the committee with relevant
climate risk MI also embedded within its long-established
risk reporting mechanisms.
Credit Risk Management Committee
The Credit Risk Management Committee (“CRMC”) is
specifically responsible for monitoring the group’s credit risk
profile. Accordingly, it is responsible for overseeing the
management of climate-related credit risk considerations.
Over the last year it has received regular updates on the
embedded Banking division’s credit risk assessment
framework, as well as the initial MI reporting stemming from
this, designed to illustrate the potential climate risk sensitivity
of different sectors and asset classes.
The committee has also periodically reviewed and approved
the integration of climate considerations within credit risk
policies and standards.
Training and competency
Both the board and executive team are committed to
building and embedding a requisite skill set across climate
and ESG competencies. The regular updates provided to the
board and management committees over the course of the
last year have played a key role in this regard, helping to
educate key populations on the risks and opportunities that
climate change presents, as well as the firm’s progress
in addressing these. This year, the board received training
sessions on (i) updates on sustainability reporting and
disclosures, and (ii) insights on the evolution of the UK
energy mix and electrification of road transport.
To support awareness more broadly across the organisation,
a new mandatory training module was issued to all
UK-based staff across the group during the year to support
the development of a core level of understanding of climate
risk considerations. Tailored updates on the group’s
sustainability and climate strategies were delivered to
relevant business and function-specific forums.
Going forward, additional capability and expertise will be
enabled through further training of our people, including the
undertaking of accredited climate qualifications where relevant.
This year, our climate data manager completed the new PCAF
academy’s learning programme for PCAF signatories to deepen
their knowledge of the application of the PCAF standards and
elevate their understanding of financed emission accounting.
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Sustainability Report continued
Our policies
We are committed to acting responsibly through all our ways
of working, and have a number of group-wide policies and
procedures in place to ensure we continue to operate in a
socially responsible and compliant manner.
Dignity at Work Policy
Our Dignity at Work Policy outlines the type of behaviour that
the company considers to be unacceptable and explains
what solutions there are if any employee has experienced or
believes someone else has experienced any discrimination,
harassment or bullying at work.
We ensure equal opportunities for all, including having a
commitment as part of our Dignity at Work Policy to ensure
no employee is subject to discrimination. This applies to all
work contexts, as well as all employee life cycle events, for
example in recruitment, training, promotion and flexible
working requests.
Additionally, our people with disabilities are encouraged to
share their impairment with us, to ensure any reasonable
adjustments can be made. We are also members of the
Business Disability Forum to support our inclusive approach
to hiring, retention, training, career development and
promotion of employees with disabilities.
Whistleblowing Policy
We provide a simple, transparent and secure environment
for our employees, shareholders and other stakeholders
to raise concerns about any potential wrongdoing
within the company.
We encourage our employees to report any activity that may
constitute a violation of laws, regulations or internal policy,
and reporting channels are provided to staff for this purpose
within the framework of a Whistleblowing Policy.
Employee Health and Safety Policy
Our Health and Safety Policy demonstrates our commitment
to ensuring our employees and visitors are safe and sets the
framework for our safety culture. We continue to provide a
safe and healthy working environment for our employees and
visitors in accordance with the Health and Safety at Work
etc. Act 1974 and the Management of Health and Safety at
Work Regulations 1999.
The Health and Safety Committee continues to meet on a
quarterly basis and we are proud of the ongoing progress in
successfully raising the profile of health and safety across
the business. This year we recorded 67 incidents across all
of our sites. Of these, two were reportable under the
Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations 2013. We continue to use an online risk
assessment tool to manage site-specific risks as appropriate
and our Display Screen Equipment risk assessment
programme. We also carry out annual audits of all premises
and monitor findings through a live dashboard.
Privacy Policy
Our Privacy Policy codifies our approach to protecting
personal information, in line with the General Data Protection
Regulation and UK Data Protection Act 2018. It sets out our
core principles for what personal information we collect and
process, and the controls to which the data is subject
through its life cycle.
We have a nominated Data Protection Officer who
is accountable for the firm’s approach to privacy
management, a Chief Information Security Officer
accountable for our approach to cyber security, and
a broader operating model in which the privacy and
security requirements are embedded in operations
throughout the organisation.
Financial Crime Policy
Our policies and standards are intended to prevent the
group, employees, clients and any other associations or
representatives from being used for the purposes of financial
crime, including, but not limited to, money laundering,
terrorist financing, facilitation of tax evasion and
circumvention of financial sanctions.
We are committed to carrying out business fairly, honestly
and openly, operating a zero-tolerance approach to bribery
and corruption. We are dedicated to ensuring full compliance
with all applicable anti-bribery and corruption laws and
regulations, including the UK Bribery Act 2010.
Human Rights and Modern Slavery Act
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. We are aware of our
responsibilities and obligations under the Modern Slavery
Act, with the appropriate policies and training in place to
enable compliance across the organisation.
The Banking division has also committed to the CIPS Ethical
Code of Conduct, which supports our commitment to
preventing modern slavery from existing within our supply
chain. Further details of our compliance with the Modern
Slavery Act can be found on our group website.
Tax Strategy
We are committed to complying with our tax obligations and
doing so in a manner consistent with the spirit as well as the
letter of tax laws. This includes a transparent and
cooperative relationship with the tax authorities. Our tax
obligations arise mainly in the UK where our operations and
customers are predominantly based. Our straightforward
business model reduces the complexity of our tax affairs and
helps us maintain a lower risk tax profile. Further details of
our approach to tax can be found on our website.
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Close Brothers Group plc Annual Report 2024
Our people
Valuing our People
We are committed to creating an environment where our
colleagues feel motivated, proud to work for us and can
reach their full potential. A key enabler for our overall
business success is our inclusive culture. We are proud
to create an environment where colleagues can thrive and,
in turn, deliver excellent outcomes for our customers,
clients and partners.
The “Close Brothers Way” Code of Conduct sets out the
values and behaviours we expect from our people. Our
culture is defined through our cultural attributes. These are
displayed by our senior leadership teams, setting the tone
from the top by which we operate. We continue to run
inclusive leadership training sessions for our managers,
senior managers and group executives, highlighting how
actions and behaviours can shape our inclusive culture.
We are signatories to a wide range of charters and
commitments across a broad spectrum of inclusion themes,
including: the Women in Finance Charter, Race at Work
Charter, The Valuable 500, Mental Health at Work
Commitment, Disability Confident Employer Scheme, and
the Armed Forces Covenant. We partner with leading
organisations and participate in wider membership bodies,
including Stonewall, the Business Disability Forum, Hidden
Disabilities and the Diversity Project, to help inform our
thinking and subsequent actions.
We are committed to attracting, developing and retaining the
best talent, and we actively seek diversity – it applies to all of
us and goes beyond visible or demographic characteristics.
It includes diversity of thought, working styles, skills and
experience. We continue to champion inclusive recruitment
practices and aim to attract a diverse group of candidates for
every open job role. We guide hiring managers in writing
inclusive job descriptions, for example the importance of
using non-gendered language.
We have also removed unnecessary criteria from our
recruitment processes. We aim for balanced shortlists when
recruiting both directly and through our partner agencies.
We also ensure our interview panels are diverse and
gender-balanced where possible. Hiring managers attend
our “Licence to Recruit” training where we educate them
about biases that can impact interviews and how to
manage them. We aim to promote flexibility through offering
positions as full time, part time or job share opportunities
where possible.
Portraying a genuine, authentic view of our culture externally
has been a real focus this year. We launched our Employee
Brand Ambassador programme with over 30 delegates
from across the bank attending a series of sessions over a
six-month period. The aim of the programme was to promote
and enhance our employer brand, generating positive
awareness and engagement, and encouraging others
to do the same.
We are proud of the enthusiasm, passion and hard work
of our eight executive-sponsored group-wide employee
inclusion networks, three working groups and multiple local
D&I forums. These include our newly launched Veterans
Network, which has received a bronze award from the
Defence Employer Recognition Scheme. Ongoing
collaboration across our networks helps create a deeper
level of understanding and supporting our commitment
to intersectionality.
We celebrate National Inclusion Week group-wide, as well
as culture weeks locally in our business areas. Our employee
networks, groups and forums further deliver excellent
sessions and employee engagement opportunities
throughout the year. Examples include Black History Month,
Social Mobility Day, Mental Health Awareness Week, book
and film clubs and bring your child to work days.
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Sustainability Report continued
Our Diversity and Inclusion Strategy
In May 2024, we launched our new Group Diversity and
Inclusion Strategy. Despite our best efforts across the group,
disappointingly we have not progressed towards meeting
our 2025 representation targets. The introduction of our new
Group Diversity and Inclusion Strategy outlines our priorities
and focus areas for the next three years.
The market for diverse talent remains competitive, with most
firms seeking to improve their representation. By outlining
our strategy and action plan, we will ensure we are well
positioned against our competitors and prepared for a
changing regulatory landscape for diversity and inclusion.
Our primary focus is to attract and recruit more diverse
talent, and to support colleagues throughout their careers.
We actively seek diversity and it is critical that we continue to
promote inclusive behaviours, respect and teamwork, to help
us maintain our inclusive culture.
Our second aim is to maintain an environment in which all
colleagues feel psychologically safe and provide targeted
support for minority groups in particular.
Finally, we take pride in helping small businesses and
individuals, through creating jobs and opportunities in local
communities across all our regions, and we take care to
ensure that environmental and social factors are considered
in the decisions we make as a business. That is why our third
diversity and inclusion focus area is to embed inclusion in
our interactions with external partners.
In support of our Group Diversity and Inclusion Strategy,
we launched our new Transgender Inclusion Policy,
and also shared improvements to our family-friendly
benefits, including:
• Increasing our maternity leave and adoption leave offering
from 18 to 22 weeks’ full pay.
• Providing up to two weeks’ paid time off for fertility
treatment and recovery (applicable to both partners).
• Offering two weeks’ paid time off for all forms of
pregnancy loss (applicable to both partners).
Gender diversity
31 July 2024
Male
Female
Number of board directors1
5
4
Number of subsidiary directors2
48
9
Number of senior managers other than
board directors3
218
105
Number of employees other than board
directors and senior employees
1,918
1,724
Total
2,189
1,842
1. Includes non-executive directors, excluded from group
headcount calculations.
2. Includes subsidiary directors who are excluded from group
headcount calculations.
3. Senior managers are defined as those managers with the line
management responsibility for a line manager, in accordance with the
representation shared in our gender pay gap report. They are generally
heads of departments, functions of larger teams. This figure excludes
40 male and 9 female employees who are reported under directors
or directors of subsidiaries.
Our executive-sponsored
inclusion networks
Accessibility Network
Angela Yotov
Unity Network
Rebekah Etherington
R.E.A.C.H (Race, Ethnicity
and Cultural Heritage)
Network
Naz Kazi
Social Mobility Network
Matt Roper
Veterans Network
Simon Jacobs
Mental Wellbeing Network
Ian Cowie
Gender Balance Network
Phil Hooper
Working Parents and
Carers Network
Eddy Reynolds
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Close Brothers Group plc Annual Report 2024
Engagement
Listening to the views of our colleagues is essential to drive
and maintain employee engagement, ensuring our culture
is one where everyone feels like they belong, can thrive and
is proud to work for us.
This year, we ran a group-wide pulse survey to monitor
overall engagement alongside colleague sentiment around
inclusion, speaking up and treating customers and clients
fairly. Our FY 2024 employee opinion scores remained
closely aligned to last year with overall engagement at 83%
(FY 2023: 86%). Introducing a new question around speaking
up, we were particularly pleased that 92% of colleagues feel
comfortable to contribute to meetings.
In addition to our group-wide survey this year, we have
focused on introducing more continual employee listening
through gathering data at different stages of the employee
life cycle. Our employee experience team engages directly
with colleagues at the point of joining, returning from
parental leave and when celebrating work anniversaries.
Colleagues are asked to complete short surveys to share
their views on company culture and their personal
experience of working at Close Brothers, with ‘inclusive’
and ‘friendly’ being the most commonly used words to
describe our culture.
Supporting our People
All employees have access to our 24/7 Employee Assistance
Programme, mental health first aiders and the Thrive app
that offers techniques for meditation and cognitive behavioural
therapy. Employees can also book one additional day
a year off to focus on their mental health and wellbeing.
Our Wellbeing network further supports us with education
and awareness raising initiatives.
Our benefits are regularly reviewed and publicised.
We support everyday flexible working – empowering
colleagues to achieve an optimal work/life balance. We are
seeking to enhance Close Brothers’ reputation as a family-
friendly workplace through the provision of benefits such
as emergency care cover. In response to feedback from
colleagues, this year we have expanded our private medical
plan to include menopause cover. We have an active
menopause colleague working group and in July 2024,
we were nominated as a finalist in the Menopause Friendly
Employer Awards for “Most Open Culture” and “Best
Peer-to-Peer Support” categories.
The group continues to pay all staff at or above the national
living wage. For members of the group’s pension plans,
we contribute between 6% and 10% towards colleagues’
pensions, which is above required levels. We offer both
a Save As You Earn scheme as well as a Buy As You Earn
share incentive plan, which allow employees to acquire
shares on a monthly basis out of pre-tax earnings.
Participation rates in our long-term ownership schemes
remain strong at 46% of all permanent and fixed term
employees who are eligible.
Development Programmes
We run two internship programmes in partnership with
10,000 Interns Foundation and upReach. These aim to
increase social mobility, accessibility and ethnic diversity
in our industry and organisation. We are building inclusion
through mutual mentoring where currently we are matching
members of our senior leadership team with junior
colleagues in some business areas. Externally, we partner
with Moving Ahead on mentorship programmes for women
and all under-represented groups.
Over the past nine years the Close Brothers SME Apprentice
Programme has helped to fund 110 apprenticeships by
partnering with the AMRC Training Centre, Make UK, the
Manufacturing Technologies Association and the Road
Haulage Association. As part of our responsibility to help
address the social and economic challenges facing
businesses today, the programme helps SMEs to fill skills
gaps, develop their future workforce and improve long-term
growth prospects, while providing a vital opportunity to
invest in local talent.
Developing our People
We provide a full range of training and development for
our people irrespective of where they are in their careers.
We work with our colleagues from induction through to
management, leadership, talent development programmes
and supporting professional development qualifications as
well as utilising the apprenticeship levy where appropriate.
Our workforce remains diverse, with 46% (2023: 45%)
female employees, and we have a broad age range of
employees, with 21% (2023: 22%) of our employees being
under 30 years old and 22% (2023: 21%) over 50.
All colleagues have access to our learning portal where they
can access a broad range of learning offerings including
practical tools and e-learning modules on a wide variety
of topics. The average number of training hours across the
group was 16 per employee during the year, reflecting an
increase in regulatory modules and delivering more training
online to make it more accessible.
We require all employees to complete relevant regulatory
training on an annual basis with further training offered
when required. This year, we achieved 100% completion
rate of mandatory training by the last working day of the
financial year.
Gender diversity awards
The “Women in Motor” group within Close Brothers
Motor Finance had two of its members nominated as
“Advocate of the Year” at the “Women in Credit
Awards”. This is in recognition of their efforts to
champion incredible women and those who empower
them across the entire credit and financial services
industry. Close Brothers Asset Management was also
highly commended for “Contribution to Gender
Diversity” at the “Women in Financial Advice Awards
2023” with one of our colleagues winning the Award
for Financial Adviser of the Year for the Northwest.
Neurodiversity pillar launch
This year we launched a neurodiversity pillar within our
Accessibility network. The group has run a number of
neurodiversity roundtables in multiple offices, and also
led a successful Neurodiversity Celebration Week
which received high levels of engagement with 3,500
views of related posts on our company intranet
in just one week.
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Sustainability Report continued
We continue to run open application processes for
cross- company mentoring schemes that are delivered in
partnership with Moving Ahead; these include both Mission
Include (supporting those who identify as being from a
minority background) and Gender Equity (with a focus
on supporting females in progressing to senior roles).
The formal development of our talent pipeline remains a key
focus. We continue to support our entry-level programmes
through our school leaver programme, Aspire, as our current
first year cohort move into their second year rotations and
those completing the programme are supported to find
permanent roles across the group. This two-year scheme
offers placements in two business areas within our Banking
division, where individuals rotate around client-facing and
front office teams whilst also having the opportunity to gain
an apprenticeship qualification. Upon completion, we offer
the option for Aspire trainees to complete apprenticeship
qualifications should they wish to do so. We also have our
2022 graduate cohort rolling off the scheme this year to fill
entry-level roles across the group.
To support our high potential colleagues, our FY 2024
emerging leaders programme saw 19 individuals across the
group taking part. 16% of the cohort received a promotion
either during or following completion of the programme.
To support our inclusive culture through further embedding
our code of conduct, we continue to ensure all our new
starters receive our “Close Brothers Way” e-learning module,
focusing on our cultural attributes and expected behaviours.
This year, we will be working with members of our employee
inclusion networks to further update the content for further
rollout in 2025 to all colleagues.
Employees in the Community
Creating long-term, lasting value in the communities
where we operate, remains a key priority for the group.
We understand that volunteers are often the driving force
behind many community and charity activities and we are
committed to supporting our employees to get involved
in these wherever possible.
As part of the relationships we have with our charity partners,
we encourage employee engagement through involvement
in the volunteering initiatives offered. For every hour of
volunteered time, we donate £13.15 directly to the charity
under our Matched Giving Scheme, and we also encourage
people to take advantage of one paid volunteering day each
year through our Employee Volunteering Policy.
In FY 2024, over 350 colleagues made use of their
volunteering day and a number of teams chose to use their
days to make a positive environmental impact.
Our partnership with the children’s literacy charity,
Bookmark, continues and in May 2024 we reached the
milestone of being the first corporate volunteering partner
to deliver over 1,000 reading sessions for the charity.
Our colleagues have also volunteered with our other
corporate charities including carrying out “Wild at Work”
days with The Wildlife Trusts.
Charity
Our two main corporate charity partners are chosen by our
colleagues as part of our employee opinion survey and these
remain Make-A-Wish Foundation, who grant wishes for
children with life-threatening illnesses, and Cancer Research
UK, which we have now supported for 11 consecutive years.
To date, we are delighted to have raised over £630,000 for
Cancer Research UK as well as donating clothing and items
to be sold across their 600 shops, nationwide.
Over the last five years, we have raised over £270,000 for
Make-A-Wish Foundation, enabling them to grant over
135 magical wishes for critically ill children and their families.
We have a dedicated committee for charitable and
community activities chaired by our group head of human
resources and supported by employees from across the
group. This committee meets regularly to discuss and
propose new initiatives with input from our control functions
when required. We also have several local committees which
plan and run initiatives to raise funds for local charities.
Alongside our group-wide charity week in May, we also ran
many other events throughout the year to raise funds for
other charitable causes. We supported “Bring your dog to
work day” raising money for Dogs for Good and we ran a
Christmas jumper day to raise money for Save the Children.
Several of our employee-led networks have encouraged
charitable giving alongside their events, with our Unity
Network raising money for the Terrance Higgins Trust,
our Accessibility network celebrating World Sight Day and
raising money for Guide Dogs and our R.E.A.C.H. Network
raising money for Sistah Space during Black History Month.
We also had over 80 colleagues sign up to donate blood as
part of an annual campaign, raising over £850 for the NHS
Blood and Transplant Charity Fund through Close Brothers
donating an amount for every colleague who signed up.
We match 50% of funds that our colleagues raise for
charities under the Close Brothers Matched Giving Scheme.
We also encourage our employees to collaborate on raising
money for causes that are most meaningful to them by
matching funds raised through locally organised fundraising
events and activities.
This year we have continued to support additional charities
that align with our ESG goals, donating a total of £100,000
to Stop Hate UK, The Wildlife Trusts, Smart Works and
Bookmark. In response to the conflict in Israel and Palestine,
the devastating flooding in Libya, the earthquake in Morocco
and the earthquake in Afghanistan, we have donated over
£11,000 to date, including matching 100% of colleague
donations, to the British Red Cross in support of their
politically neutral Disaster Fund.
Our Payroll Giving Scheme matches charitable contributions
while allowing employee donations to be made directly from
pre-tax salary. After 13 years of receiving the Payroll Giving
Quality Mark Gold Award, this year we have been given
a Platinum award in recognition of our overall engagement
in the scheme.
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Close Brothers Group plc Annual Report 2024
Motor Finance dealer NPS
+67
+75
Motor Finance customer Net Ease
+72
+71
Property NPS
+98
+88
Savings online CSAT
75%
80%
Premium (personal lines) customer Net Ease
+80
CBAM Net Ease
+72
Asset Finance CSAT
92%
92%
The needs and expectations of our customers, clients
and partners are accelerating. At Close Brothers we continue
to evolve to meet these needs and expectations whilst
ensuring fairness and good outcomes.
Our customer principles keep the customer at the heart of
all we do: we do the right thing for customers, clients and
partners; we are flexible, responsive and execute with speed;
we make decisions informed by our specialist expertise; and
we build relationships based on quality and trust.
This is supported by our Customer Commitment Framework
which sets out how we want our customers and our
colleagues to feel: valued, happy, understood, confident,
and that it is easy to do business with us.
This commitment embeds our customer-centric approach
across the group and helps us to “walk in the shoes of
customers”, designing and delivering products, services
and experiences for our customers, gaining their loyalty.
In Savings, in-person training has been delivered to all
front-line colleagues to embed the Customer Commitment
Framework into day-to-day tasks, using interactive scenario-
based exercises to promote good customer outcomes and
maintain customer loyalty. Colleagues can identify and relate
to the desired customer experience, whilst learning how to
better tailor the delivery of this experience. We measure the
success of this through customer experience metrics and
analyse what’s working well to support development of
future customer-first initiatives.
Voice of the Customer
Close Brothers continues to invest in strengthening its
capability around customer experience measurement so that
we listen, learn and act. We have been running our customer
forums for over 10 years and in that time we have been
developing our capabilities and governance to bring the
voice of the customer into our day-to-day decision-making
processes, which remains a key priority for Close Brothers.
Delivering excellent client experiences and outcomes is at
the heart of our business. To ensure Close Brothers Asset
Management continues to provide outstanding services to
our clients now and in the future, we have undertaken
research to better understand the evolving needs and
expectations of our clients. Using this insight, we have
worked with c.70 colleagues to document over 500 features
in a Service Design Blueprint that defines the future state
experience we will strive to deliver to meet client needs.
At Close Brothers, we have dedicated forums for complaints
and vulnerable customers. At a group level, we use these
forums to share best practice, collaborate and innovate on
opportunities to enhance the customer experience. We have
extended our “language line” to support Motor Finance
customers. This functionality, which is already available in
Premium Finance, is designed for customers where English
is not their first language. Changes have been made so that
we can identify vulnerable customers through automated
processes and additional training is provided to contact
centre colleagues.
We continue to monitor customer sentiment across each of
our business areas by gathering feedback regularly. We are
pleased with the strong responses from across our diverse
customer groups and our customer forums will continue to
review and act on customer sentiment.
Our customer commitment
2024
2023
Customer Sentiment Scores
Communication and Learning
Developing and strengthening the customer
experience skills within our teams, and
continually demonstrating how the Customer
Commitment supports our purpose to help the
people and businesses of Britain thrive over
the long term.
Rewards and Recognition
Our colleagues drive our success and
delivering good customer experience is
embedded within their objectives to help
support this.
Metrics
Evolving our customer metrics to better
identify where and how we can enhance
our customers’ experience and earn their
brand loyalty.
Governance
Anchoring the voice of the customer within the
heart of our structures, critical decisions and
forums to ensure we listen, act, and learn to
continue to deliver for our customers.
There are four key pillars
to our Customer Commitment:
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Financial Statements
Focusing on Continuously Improving the
Customer Experience
Across the group we are focused on continuous
improvement, supported by colleagues in each business
as well as our central Operational Excellence team.
By expanding the reach of our Lean Academy, we’ve
purposely enabled a culture of continuous improvement so
that opportunities to improve the customer experience are
identified and delivered. Our Operational Excellence team
diagnose where service can be improved and efficiencies
generated. They work closely with subject matter experts
in each area to balance process and colleague benefits with
enhanced customer, client and partner experiences.
This approach to continuous improvement shows how we
are delivering on our customer principles.
• Motor Finance: The Customer Support team saw a 31%
improvement in speed of answering calls by enhanced
standardisation of processes, automation of appropriate
tasks, and optimising how customers are routed through
the phone line. We’re now helping our customers faster
when they need us most.
• Premium Finance: Streamlining commercial large deal
underwriting delivered a 36% reduction in credit decision
time for large credit applications, whilst maintaining
appropriate risk appetite and prudence. The broker
experience has been improved by streamlining processes,
improving data quality and creating a workflow system
across sales and underwriting, further strengthening our
long-term strategic relationships.
• Property Finance: We have created an automated
workflow that runs monthly to summarise all transactions
across a customer’s live accounts, saving their accounting
team time and effort consolidating the same
information manually.
• Asset Management: Operations have launched a new
“Simply Better” initiative that provides colleagues with
the opportunity to raise and implement continuous
improvement ideas that enhance the customer
experience. In the last 12 months, Operations colleagues
have implemented 122 ideas, removed 108 pain points
and delivered 15 additional benefits.
The Way Ahead
• Looking forward, we are committed to continuously
improving our ability to capture, consolidate and act
upon customer, client and partner sentiment across
all end-to-end journeys that will help us to deliver a
differentiated experience and earn customer loyalty.
• We recognise the challenging macroeconomic
environment facing our customers, clients and
partners, and will continue to support them through high
standards of service, strong relationships and our
recognised expertise.
• We regularly measure and track customer
performance via several key customer metrics and will
continue to enhance these metrics so that we deliver good
customer experience and outcomes.
Sustainability Report continued
Property Finance:
Supporting zero-carbon homes
Citu are an award-winning, sustainable, urban property
developer, who use a modular approach to
construction, which uses less energy and is more cost
effective for the consumer. Citu creates amazing
spaces with thoughtful and innovative design and
technology, using low embodied carbon materials.
Property Finance are providing a revolving credit
facility for a scheme of 51 zero-carbon homes in Stall,
Leeds, which are being built to passive house standards
in Citu’s factory which is located near to the site.
Watch our video
case study with Citu.
Premium Finance: Pioneering data analytics
Foresight is our innovative data enrichment product
giving brokers insight about customer cancellation risk
at point of quote. Our models are built on large data
sets and use advanced machine learning techniques
resulting in accurate predictions. This enhances our
long-term relationships with brokers by providing
unique insights so they can reduce cancellation risk
and expand into new customer segments.
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Close Brothers Group plc Annual Report 2024
Championing diversity, inclusion and wellbeing
through our Employee Inclusion Networks
At Close Brothers we pride ourselves on building a diverse
and inclusive culture where everyone feels they belong and
are able to thrive.
We celebrate diversity and are proud of the enthusiasm,
passion and hard work of our eight group-wide Employee
Inclusion Networks, allies, multiple diversity and inclusion
working groups, and local forums.
Our networks have three primary objectives: to create
a safe space for our colleagues so they feel heard and
supported; to raise awareness about inclusion topics by
arranging events and activities throughout the year; and
to advocate for positive change, for example by reviewing
our policies and supporting our process reviews through
an inclusion lens.
We value our partnerships and pledges across a broad
spectrum of inclusion themes, many of which our networks
engage with to help inform our thinking and ensure our
approach to diversity, inclusion and wellbeing is developed
and understood.
Enabling
opportunities
through
supporting
colleagues
55
Strategic Report
Governance Report
Financial Statements
Non-Financial and Sustainability
Information Statement
Reporting requirement
Policies and standards
Information necessary to understand our impact and outcomes
Environmental
Matters
• Group Credit Risk Policy and Bank Credit
Risk Standards
• Environmental Policy
• Operating Environment, page 16 to 18
• Stakeholder Engagement, pages 29 to 31
• Our Strategy, pages 20 to 25
• Our Responsibility, page 33 to 34
• Sustainability Report, pages 33 to 54
• Climate-related Disclosures, pages 35 to 47
Employees
• Health and Safety Policy
• Whistleblowing Policy
• Key Customer Principles
• Equal Opportunity and Dignity at Work Policy
• Business Model, pages 14 to 15
• Stakeholder Engagement, pages 29 to 31
• Our Strategy, pages 20 to 25
• Our Responsibility, page 33 to 34
• Sustainability Report, pages 33 to 54
• Corporate Governance Report, pages 120 to 138
Social Matters
• Key Customer Principles
• Group Credit Risk Policy and Bank Credit
Risk Standards
• Volunteering Standards
• Matched Giving Guidelines
• Dignity at Work Policy
• Stakeholder Engagement, pages 29 to 31
• Our Strategy, pages 20 to 25
• Our Responsibility, page 33 to 34
• Sustainability Report, pages 33 to 54
• Corporate Governance Report, pages 120 to 138
Respect for
Human Rights
• Human Rights and Modern Slavery Act
• Data Protection Policy
• Cyber Security Policy
• Information Security Policy
• Third Party Management Policy
• Sustainability Report, page 33 to 54
• Risk Report, pages 74 to 116
Anti-Corruption
and Anti-Bribery
• Financial Crime Compliance Policy
• Anti-Bribery and Corruption Policy Statement
• External and Internal Fraud Policy Statement
• Cyber Security Policy
• Sustainability Report, page 33 to 54
Stakeholders
• Environmental Policy
• Key Customer Principles
• Third Party Management Policy
• Stakeholder Engagement, pages 29 to 31
• Sustainability Report, page 33 to 54
Description of
the Business
Model
• At A Glance, pages 4 to 5
• Investment Case, pages 12 to 13
• Business Model, pages 14 to 15
• Our Strategy, pages 20 to 25
Description of
Principal Risks
and Impact of
Business Activity
• Enterprise Risk Management Framework
• Principal Risks, pages 82 to 83
• Emerging Risks and Uncertainties, page 84
• Risk Committee Report, pages 147 to 149
Non-Financial
Key
Performance
Indicators
• Our Strategy, pages 20 to 25
• Key Performance Indicators, pages 26 to 27
• Sustainability Report, pages 33 to 54
Climate-related
Disclosures
Enterprise Risk Management Policy
• TCFD – Climate-related disclosures, pages 35 to 47
In line with the non-financial reporting requirements contained in sections 414CA and 414CB
of the Companies Act 2006, the table below contains references to non-financial information
intended to help our stakeholders understand the impact of our policies and activities.
56
Close Brothers Group plc Annual Report 2024
Financial Overview
Summary Group Income Statement1
2024
£ million
2023
£ million
Change
%
Operating income
944.2
932.6
1
Adjusted operating expenses
(674.8)
(615.0)
10
Impairment losses on financial assets
(98.8)
(204.1)
(52)
Adjusted operating profit
170.6
113.5
50
Banking
205.4
120.1
71
Banking excluding Novitas
205.6
226.7
(9)
Commercial
89.5
15.9
463
Of which: Novitas
(0.2)
(106.6)
(100)
Retail
37.9
34.7
9
Property
78.0
69.5
12
Asset Management
12.2
15.9
(23)
Winterflood
(1.7)
3.5
(148)
Group (central functions)
(45.3)
(26.0)
74
Adjusting items:
Complaints handling and other operational costs associated with the FCA’s
review of historical motor finance commission arrangements
(6.9)
–
–
Provision in relation to the BiFD review
(17.2)
–
–
Restructuring costs
(3.1)
–
–
Amortisation of intangible assets on acquisition
(1.4)
(1.5)
(7)
Statutory operating profit before tax
142.0
112.0
27
Tax
(41.6)
(30.9)
35
Profit after tax
100.4
81.1
24
Profit attributable to shareholders
100.4
81.1
24
Adjusted basic earnings per share2
76.1p
55.1p
Basic earnings per share2
59.7p
54.3p
Ordinary dividend per share
–
67.5p
Return on opening equity
6.9%
5.0%
Return on average tangible equity
8.3%
5.9%
1. Adjusted measures are presented on a basis consistent with prior periods and exclude amortisation of intangible assets on acquisition, to present the
performance of the group’s acquired businesses consistent with its other businesses; and any exceptional and other adjusting items which do not reflect
underlying trading performance. Further detail on the reconciliation between operating and adjusted measures can be found in Note 3 “Segmental Analysis”.
2. Refer to Note 7 “Earnings per Share” for the calculation of basic and adjusted earnings per share.
Basis of Presentation
Results are presented both on a statutory and an adjusted basis to aid comparability between periods. Adjusted
measures are presented on a basis consistent with prior periods and exclude costs associated with complaints handling
and other operational costs associated with the FCA’s review of historical motor finance commission arrangements,
provisions in relation to the Borrowers in Financial Difficulty review, restructuring costs and amortisation of intangible
assets on acquisition, to present the performance of the group’s acquired businesses consistent with its other businesses;
and any exceptional and other adjusting items which do not reflect underlying trading performance. The adjusting items
are presented within administrative expenses on a statutory basis. Please refer to Note 3 “Segmental Analysis” for further
details on items excluded from the adjusted performance metrics.
57
Strategic Report
Governance Report
Financial Statements
Statutory Operating Profit
Statutory operating profit before tax increased 27% to
£142.0 million (2023: £112.0 million), reflecting higher
profitability in the Banking division, driven primarily by
the non-recurrence of the significant impairment charges
incurred in relation to Novitas in the prior year. This was
partly offset by costs associated with the handling of
complaints and other operational costs associated with
the FCA’s review of historical motor finance commission
arrangements, a provision recognised in relation to the Past
Business Review and expected customer compensation
in respect of forbearance related to motor finance lending
following discussions with the FCA in relation to its market-
wide review of Borrowers in Financial Difficulty (“BiFD”),
and an increase in Group (central functions) net expenses.
Adjusted Operating Profit
Adjusted operating profit increased 50% to £170.6 million
(2023: £113.5 million), as the significant decrease in
impairment charges and 1% growth in income offset a 10%
growth in adjusted operating expenses. Excluding Novitas,
adjusted operating profit decreased to £170.8 million
(2023: £220.1 million).
Banking adjusted operating profit increased to £205.4 million
(2023: £120.1 million), with the prior year including an
impairment charge of £116.8 million taken in relation to
Novitas. Excluding Novitas, Banking adjusted operating
profit decreased to £205.6 million (2023: £226.7 million)
as higher income from loan book growth was more than
offset by cost growth in line with guidance. In the Asset
Management division, adjusted operating profit declined by
23% to £12.2 million (2023: £15.9 million) as higher income
was offset by an increase in costs as we invested in new
hires in our bespoke investment management business.
Winterflood delivered an operating loss of £1.7 million (2023:
operating profit of £3.5 million), primarily reflecting lower
trading income in a challenging market environment
and one-off dual-running property costs. Group (central
functions) net expenses, which include the central functions
such as finance, legal and compliance, risk and human
resources, increased to £45.3 million (H1 2024: £21.0 million,
H2 2024: £24.3 million, 2023: £26.0 million), driven primarily
by interest charges of £19.4 million (2023: £2.5 million)
incurred on the group’s £250 million senior unsecured bond
issued in June 2023 at an interest rate of 7.75% and an
increase in professional fees and expenses associated
with the potential impact on the group of the FCA’s review
of historical motor finance commission arrangements.
We expect Group (central functions) net expenses to
increase to between £55 million and £60 million in the
2025 financial year, primarily reflecting an elevated level of
professional fees and expenses associated with the potential
impact on the group of the FCA’s review of historical motor
finance commission arrangements and its revised timetable,
as well as a decline in interest income received from the
proceeds of the group bond being placed on deposit with
the reduction in interest rates.
Return on opening equity increased to 6.9% (2023: 5.0%)
and return on average tangible equity increased to 8.3%
(2023: 5.9%).
Operating Income
Operating income increased 1% to £944.2 million
(2023: £932.6 million), with growth in both Asset
Management and Banking offsetting a decline in Winterflood
and higher interest expenses from the group senior
unsecured bond.
Income in the Banking division increased 2%. This reflected
good loan book growth and strong, albeit reduced, margins
as we maintained our focus on pricing discipline and
optimising funding costs in the higher rate environment,
although experienced margin pressures and lower
activity-driven fee income in the Commercial businesses.
As previously highlighted, Banking income in the prior
year benefited from one-off items related to movements
through profit and loss from derivatives outside of a hedge
accounting relationship and Novitas income. Excluding the
impact of these items, Banking income grew 4%. Income
in Asset Management increased 9%, driven by higher
investment management income, reflecting growth in AuM
delivered by our bespoke investment management business.
Income in Winterflood reduced 3% as the decline in trading
income more than offset growth in WBS. Income decreased
in the Group (central functions) to £(11.5) million (2023: £(1.3)
million), driven by interest charges incurred on the group’s
£250 million senior unsecured bond issued in June 2023 at
an interest rate of 7.75%, partly offset by interest income
received from the proceeds being placed on deposit.
Operating Expenses
Adjusted operating expenses rose 10% to £674.8 million
(2023: £615.0 million), primarily driven by increased staff
costs across the group, as well as continued investment
in Banking. In the Banking division, costs grew 8%, at
the lower end of the guidance provided, as we incurred
inflationary-related increases in staff costs, higher regulatory
compliance and assurance expenses and continued to invest
in our strategic programmes. We also made good progress
on our strategic and tactical cost management initiatives as
we implement measures to deliver annualised cost savings
of c.£20 million, reaching the full run rate by the end of
the 2025 financial year, with the total benefit, in the 2026
financial year. Costs rose 13% in Asset Management, mainly
reflecting wage inflation and new hires to support future
growth. Winterflood’s costs increased 4%, primarily
reflecting one-off costs incurred by relocating premises.
Expenses in the Group (central functions) rose to £33.8
million (2023: £24.7 million), reflecting an increase in
professional fees and expenses associated with the potential
impact on the group of the FCA’s review of historical motor
finance commission arrangements, as well as performance-
driven compensation and share-based awards.
Overall, the group’s expense/income ratio increased to 71%
(2023: 66%), whilst the compensation ratio increased to 41%
(2023: 37%), reflecting inflation-related wage increases and
new hires in CBAM.
Impairment Charges and IFRS 9 Provisioning
Impairment charges decreased significantly to £98.8 million
(2023: £204.1 million), corresponding to a bad debt ratio
of 1.0% (2023: 2.2%) with the prior year including a charge
of £116.8 million in relation to Novitas. Overall, provision
coverage increased to 4.3% (31 July 2023: 3.9%).
Excluding Novitas, impairment charges rose 6% to £92.4
million (2023: £87.3 million), mainly driven by loan book
growth and the ongoing review of provisions and coverage
across our loan portfolios, partly offset by improvements to
the macroeconomic outlook. The bad debt ratio, excluding
Novitas, remained stable at 0.9% (2023: 0.9%) and remains
below our long-term bad debt ratio of 1.2%. The coverage
ratio increased slightly to 2.3% (31 July 2023: 2.1%),
excluding Novitas.
Since the 2023 financial year end, we have updated the
macroeconomic scenarios to reflect the latest available
information regarding the macroeconomic environment and
improved outlook, although the weightings assigned to them
Financial Overview continued
58
Close Brothers Group plc Annual Report 2024
remain unchanged. At 31 July 2024, there was a 30%
weighting to the strong upside, 32.5% weighting to the
baseline, 20% weighting to the mild downside, 10.5%
weighting to the moderate downside and 7% weighting
to the protracted downside.
Whilst we have not seen a significant impact on credit
performance, we continue to monitor closely the evolving
impacts of inflation and cost of living on our customers.
We remain confident in the quality of our loan book, which
is predominantly secured or structurally protected, prudently
underwritten, diverse, and supported by the deep expertise
of our people. Looking forward, we expect the bad debt ratio
for the 2025 financial year to remain below our long-term
average of 1.2%.
Adjusting Items
We recognised £28.6 million of adjusting items in the 2024
financial year, of which £2.9 million were incurred in the first
half (consisting of £0.6 million of amortisation of intangible
assets on acquisition and £2.3 million relating to complaints
handling expenses and other operational costs associated
with the FCA’s review of historical motor finance commission
arrangements, which have been recategorised as an
adjusting item).
We incurred £6.9 million of complaints handling expenses
and other operational costs associated with the FCA’s review
of historical motor finance commission arrangements.
As highlighted in the Q3 trading update, following
discussions with the FCA in relation to its market-wide
review of Borrowers in Financial Difficulty, which assessed
forbearance and related practices, the group has conducted
a Past Business Review of customer forbearance related to
its motor finance lending. This has now concluded and a
provision of £17.2 million has been recognised in respect of
the review and expected customer compensation. We have
commenced making compensation payments to customers,
with the resulting remediation programme expected to be
materially complete this calendar year. This provision, which
should sufficiently address the outcomes of the review,
is higher than previously estimated, reflecting our decision
to both widen the population of in-scope customers
and increase the assumptions for average distress and
inconvenience payments, in line with our commitment
to achieving fair customer outcomes.
In addition, we incurred £3.1 million of restructuring costs
in the 2024 financial year primarily relating to redundancy
and associated costs. We have made good progress
on streamlining the workforce, which has been achieved
through the consolidation of roles across our businesses and
functions, as well as through the management of vacancies.
Tax Expense
The tax expense was £41.6 million (2023: £30.9 million),
which corresponds to an effective tax rate of 29.3%
(2023: 27.6%).
The standard UK corporation tax rate for the financial year
is 25.0% (2023: 21.0%). The effective tax rate is above
the UK corporation tax rate primarily due to disallowable
expenditure, including expected customer compensation
following the BiFD review, partly offset by tax relief from
the Additional Tier 1 (“AT1”) securities coupon payments.
An additional banking surcharge of 3% (2023: 6.3%) applies
to banking company profits as defined in legislation, but
only above a certain amount, resulting in a nil (2023: 5.5%)
surcharge impact.
Earnings Per Share
Adjusted basic earnings per share (“EPS”) increased to
76.1p (2023: 55.1p) and basic EPS increased to 59.7p
(2023: 54.3p). Both the adjusted and basic EPS calculation
include the payment of the coupon related to the Fixed
Rate Resetting AT1 Perpetual Subordinated Contingent
Convertible Securities, at an annual rate of 11.125%, on
29 May 2024. The associated coupon is due on 29 May and
29 November of each year, with any AT1 coupons paid
deducted from retained earnings, reducing the profit
attributable to ordinary shareholders.
Dividend
Given the significant uncertainty regarding the outcome
of the FCA’s review of historical motor finance commission
arrangements and any potential financial impact as a
result, the board has considered it prudent for the group to
further strengthen its capital position, while supporting our
customers and business franchise. Therefore, as announced
on 15 February 2024, the group will not pay a dividend on
its ordinary shares for the 2024 financial year.
The reinstatement of dividends in the 2025 financial year
and beyond will be reviewed once the FCA has concluded
its process and any financial consequences for the group
have been assessed.
Summary Group Balance Sheet
31 July 2024
£ million
31 July 2023
£ million
Loans and advances to customers and operating lease assets1
10,098.7
9,526.2
Treasury assets2
2,300.9
2,229.4
Market-making assets3
691.8
787.6
Other assets
989.4
1,007.1
Total assets
14,080.8
13,550.3
Deposits by customers
8,693.6
7,724.5
Borrowings4
2,339.2
2,839.4
Market-making liabilities3
631.6
700.7
Other liabilities
573.9
640.8
Total liabilities
12,238.3
11,905.4
Equity5
1,842.5
1,644.9
Total liabilities and equity
14,080.8
13,550.3
1. Includes operating lease assets of £267.9 million (31 July 2023: £271.2 million).
2. Treasury assets comprise cash and balances at central banks and debt securities held to support the Banking division.
3. Market-making assets and liabilities comprise settlement balances, long and short trading positions and loans to or from money brokers.
4. Borrowings comprise debt securities in issue, loans and overdrafts from banks and subordinated loan capital.
5. Equity includes the group’s £200.0 million Fixed Rate Reset Perpetual Subordinated Contingent Convertible Securities (AT1 securities), net of transaction
costs, which are classified as an equity instrument under IAS 32.
59
Strategic Report
Governance Report
Financial Statements
The group maintained a strong balance sheet and a
prudent approach to managing its financial resources.
The fundamental structure of the balance sheet remains
unchanged, with most of the assets and liabilities relating
to our Banking activities. Loans and advances make up the
majority of assets. Other items on the balance sheet include
treasury assets held for liquidity purposes, and settlement
balances in Winterflood. Intangibles, property, plant and
equipment, and prepayments are included as other assets.
Liabilities are predominantly made up of customer deposits
and both secured and unsecured borrowings to fund
the loan book.
Total assets increased 4% to £14.1 billion (31 July 2023:
£13.6 billion), mainly reflecting growth in the loan book and
higher Treasury assets. Total liabilities were 3% higher at
£12.2 billion (31 July 2023: £11.9 billion), driven primarily
by higher customer deposits, partly offset by a reduction in
borrowings. Both market-making assets and liabilities, which
related to trading activity at Winterflood, were lower due to
a decrease in value traded at the end of the year.
Total equity increased 12% to £1.8 billion (31 July 2023: £1.6
billion), primarily reflecting the issuance of AT1 securities net
of transaction costs and profit in the year, which was partially
offset by dividend payments for the 2023 financial year
of £67.1 million (2023: £99.1 million) and the AT1 coupon
payment of £11.1 million (2023: £nil). The group’s return
on assets increased to 0.8% (2023: 0.6%).
Movements in Capital and Other
Regulatory Metrics
The CET1 capital ratio reduced from 13.3% to 12.8%, mainly
driven by loan book growth (-c.100bps), a decrease in IFRS
9 transitional arrangements (-c.20bps), Bluestone Motor
Finance (Ireland) DAC acquisition (-c.20bps) and AT1 coupon
(-c.10bps). This was partly offset by profits for the current
financial year (c.90bps).
CET1 capital increased 5% to £1,374.8 million (31 July 2023:
£1,310.8 million), mainly driven by £100.4 million of profits,
partly offset by the dividends paid and foreseen related to
the AT1 coupon of £15.0 million and a decrease in the
transitional IFRS 9 add-back to capital of £19.7 million.
Tier 1 capital increased 20% to £1,574.8 million (31 July
2023: £1,310.8 million), driven by the issuance of the group’s
inaugural AT1 in a £200 million transaction to optimise the
capital structure and provide further flexibility to grow the
business. The transaction strengthened the regulatory capital
position and was in line with the group’s strategy and capital
management framework.
Total capital increased 17% to £1,774.8 million (31 July
2023: £1,510.8 million), primarily reflecting the AT1 issuance.
RWAs increased 9% to £10.7 billion (31 July 2023: £9.8
billion), driven by loan book growth (c.£790 million) primarily
in Commercial and Property, the acquisition of Bluestone
Motor Finance (Ireland) DAC (c.£120 million), and a
decrease in operational risk RWAs (c.£40 million), reflecting
a reduction in average income in Winterflood partly offset
by loan book growth.
As a result, CET1, tier 1 and total capital ratios were 12.8%
(31 July 2023: 13.3%), 14.7% (31 July 2023: 13.3%) and
16.6% (31 July 2023: 15.3%), respectively.
The applicable CET1, tier 1 and total capital ratio
requirements, including Capital Requirements Directive
(“CRD”) buffers but excluding any applicable Prudential
Regulation Authority (“PRA”) buffer, were 9.7%, 11.4%
and 13.7%, respectively, at 31 July 2024. Accordingly,
we continue to have headroom significantly above the
applicable requirements of c.310bps in the CET1 capital
ratio, c.330bps in the tier 1 capital ratio and c.290bps
in the total capital ratio.
The group applies IFRS 9 regulatory transitional
arrangements which allow banks to add back to their capital
base a proportion of the IFRS 9 impairment charges during
the transitional period. Our capital ratios are presented on a
transitional basis after the application of these arrangements.
On a fully loaded basis, without their application, the CET1,
tier 1 and total capital ratios would be 12.7%, 14.6% and
16.5%, respectively.
The leverage ratio, which is a transparent measure of
capital strength not affected by risk weightings, increased
to 12.7% (31 July 2023: 11.4%) primarily due to the
increase in tier 1 capital.
The PRA Policy Statement PS 9/24 Implementation of
the Basel 3.1 standards near-final part 2 was published
on 12 September 2024, with an implementation date of
1 January 2026, six months later than previously anticipated.
The majority of rules applicable to the group remain
unchanged, including the proposed removal of the small and
medium-sized enterprises (“SME”) supporting factor, new
conversion factor for cancellable facilities and new market
risk rules. As a result, we continue to expect implementation
to result in an increase of up to c.10% in the group’s RWAs
calculated under the standardised approach. However,
the PRA has proposed to apply an SME lending adjustment
as part of Pillar 2a, to ensure that the removal of the SME
support factor does not result in an increase in overall capital
requirements for SME lending. Whilst this adjustment is
subject to PRA confirmation and a resulting restatement of
the group’s total capital requirements, we would reasonably
expect the UK implementation of Basel 3.1 to have a less
significant impact on the group’s capital headroom position
than initially anticipated.
As outlined at the Half Year 2024 results, following our
application (in December 2020) to transition to the Internal
Ratings Based (“IRB”) approach, the application has
successfully moved to Phase 2 of the process and
engagement with the regulator continues. Our Motor
Finance, Property Finance and Energy portfolios, where
the use of models is most mature, were submitted with
our initial application.
Further Strengthening our Capital Position
In March 2024, we announced a range of management
actions which have the potential to strengthen the group’s
available CET1 capital by approximately £400 million by
the end of the 2025 financial year (when compared to the
group’s projected CET1 capital ratio for 31 July 2025 at the
time of our Half Year results announcement, prior to any
management actions). While there remains considerable
uncertainty regarding the specifics of any potential redress
scheme, if required, as well as its timing, the board is
confident that these actions leave the group well positioned
to navigate the current uncertainty.
Subject to the execution of these management actions
and capital generation, we have the potential to increase
the group’s CET1 capital ratio to between 14% and 15%
at the end of the 2025 financial year (excluding any potential
redress or provision related to the FCA’s review of historical
motor finance commission arrangements). Over the medium
term, we remain committed to our previous CET1 capital
target range of 12% to 13%.
Financial Overview continued
60
Close Brothers Group plc Annual Report 2024
Our Treasury function is focused on managing funding and
liquidity to support the Banking businesses, as well as
interest rate risk.
Our conservative approach to funding is based on the
principle of “borrow long, lend short”, with a spread of
maturities over the medium and longer term, comfortably
ahead of a shorter average loan book maturity. We have
maintained a prudent maturity profile, with the average
maturity of funding allocated to the loan book at 20 months
(31 July 2023: 21 months), ahead of the average loan book
maturity at 16 months (31 July 2023: 16 months).
Our funding draws on a wide range of wholesale and deposit
markets including several public debt securities at both
group and operating company level, as well as public and
private secured funding programmes and a diverse mix
of customer deposits. This broad funding base reduces
concentration risk and ensures we can adapt our position
through the cycle.
Total funding increased by 5% over the year to £13.0 billion
(31 July 2023: £12.4 billion), which accounted for 128%
(31 July 2023: 130%) of the loan book at the balance sheet
date, as we actively sought to grow our customer deposit
base over the year. The average cost of funding in Banking
increased to 5.5% (2023: 3.2%) reflecting the stabilisation of
interest rates at a higher level and the corresponding impact
on deposit pricing pressure. With macroeconomic indicators
showing improvement in the second half of the financial
year, the Bank of England base rate cut in August 2024 and
further expectations of interest rate reductions, the pressure
on cost of funding has begun to ease in recent months.
We are well positioned to continue benefiting from our
diverse funding base.
Customer deposits increased 13% to £8.7 billion (31 July
2023: £7.7 billion). Of this, non-retail deposits decreased
15% to £3.0 billion (31 July 2023: £3.5 billion) and retail
deposits increased by 36% to £5.7 billion (31 July 2023: £4.2
billion), as we actively sought to grow our retail deposit base
and product offering. In line with our prudent and
conservative approach to funding, our deposits are
predominantly term, with only 8% of total deposits available
on demand and over 65% having at least three months to
maturity. At 31 July 2024, approximately 86% of retail
deposits were protected by the Financial Services
Compensation Scheme.
Secured funding decreased 28% to £1.2 billion (31 July
2023: £1.7 billion), with our fifth public Motor Finance
securitisation completed in November 2023 more than offset
by a £250 million repayment related to our Motor Finance
warehouse securitisation and the repayment of £490 million
of the Term Funding Scheme for Small and Medium-sized
Enterprises (“TFSME”) ahead of the scheduled maturity date.
This takes our remaining drawings under the scheme to £110
million (31 July 2023: £600 million), which will mature in
October 2025, and which we expect to replace in line with
our diverse funding profile, dependent on market conditions
and demand.
Unsecured funding, which includes senior unsecured and
subordinated bonds and undrawn committed revolving
facilities, reduced 7% to £1.2 billion (31 July 2023:
£1.3 billion).
Group Capital
31 July 2024
£ million
31 July 2023
£ million
Common Equity Tier 1 capital
1,374.8
1,310.8
Tier 1 capital
1,574.8
1,310.8
Total capital
1,774.8
1,510.8
Risk weighted assets
10,701.2
9,847.6
Common Equity Tier 1 capital ratio (transitional)
12.8%
13.3%
Tier 1 capital ratio (transitional)
14.7%
13.3%
Total capital ratio (transitional)
16.6%
15.3%
Leverage ratio1
12.7%
11.4%
1. The leverage ratio is calculated as tier 1 capital as a percentage of total balance sheet assets excluding central bank claims, adjusting for certain
capital deductions, including intangible assets, and off-balance sheet exposures, in line with the UK leverage framework under the UK Capital
Requirements Regulation.
Group Funding1
31 July 2024
£ million
31 July 2023
£ million
Customer deposits
8,693.6
7,724.5
Secured funding
1,205.1
1,676.6
Unsecured funding2
1,219.1
1,308.6
Equity
1,842.5
1,644.9
Total available funding3
12,960.3
12,354.6
Total funding as a percentage of loan book4
128%
130%
Average maturity of funding allocated to loan book5
20 months
21 months
1. Numbers relate to core funding and exclude working capital facilities at the business level.
2. Unsecured funding excludes £55.7 million (31 July 2023: £44.3 million) of non-facility overdrafts included in borrowings and includes £140.0 million
(31 July 2023: £190.0 million) of undrawn facilities.
3. Includes £250 million of funds raised via a senior unsecured bond with a five-year tenor by Close Brothers Group plc, the group’s holding company,
in June 2023, with proceeds currently used for general corporate purposes.
4. Total funding as a percentage of loan book includes £267.9 million (31 July 2023: £271.2 million) of operating lease assets in the loan book figure.
5. Average maturity of total available funding, excluding equity and funding held for liquidity purposes.
61
Strategic Report
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Financial Statements
The investment in our customer deposit platform continues
to deliver tangible benefits and provide us with scalability.
Deposits held through this platform have now grown to over
£6.3 billion and we have continued to expand and diversify
our products, with Easy Access complementing our existing
offering of Notice Accounts and Fixed Rate Cash ISAs. The
introduction of Easy Access provides us access to a large
potential deposit pool, with balances of c.£540 million (at
31 July 2024). We have also recently onboarded an
additional depositor aggregator partner, which has provided
another avenue for us to secure fixed retail funding. We
remain focused on growing our retail funding base from a
variety of segments, further optimising our cost of funding
and maturity profile.
Our Savings business provides simple and straightforward
savings products to both individuals and businesses, whilst
being committed to providing the highest level of customer
service. In the second half of the financial year, we
conducted a review aimed at enhancing operational
efficiency and supporting our retail deposit growth
ambitions. As a result, our Savings business has been
integrated into the Retail business. This strategic move will
leverage established shared operations, supporting the
continued expansion of the business.
Our credit ratings continue to reflect the group’s inherent
financial strength, diversified business model and consistent
risk appetite. Moody’s Investors Services (“Moody’s”) ratings
for CBG and CBL are A3/P2 and A1/P1 respectively (at
14 August 2024) with a negative outlook. Moody’s ratings for
Close Brothers Group’s senior unsecured and subordinated
debt is A3 (at 14 August 2024). Fitch Ratings (“Fitch”) Issuer
Default Ratings (“IDRs”) for CBG and CBL are BBB+/F2 with
a “negative outlook” (at 20 February 2024).
Group Liquidity
The group continues to adopt a conservative stance on
liquidity, ensuring it is comfortably ahead of both internal risk
appetite and regulatory requirements.
In light of the significant uncertainty regarding the outcome
of the FCA’s review of historical motor finance commission
arrangements, we have deliberately maintained a higher
level of liquidity. We have continued to diversify our large,
high quality liquid asset portfolio held mainly in cash and
government bonds. Over the year, treasury assets increased
3% to £2.3 billion (31 July 2023: £2.2 billion) and were
predominantly held on deposit with the Bank of England.
We regularly assess and stress test the group’s liquidity
requirements and continue to exceed the liquidity coverage
ratio (“LCR”) regulatory requirements, with a 12-month
average LCR to 31 July 2024 of 1,034% (31 July 2023:
1,143%). In addition to internal measures, we monitor
funding risk based on the CRR rules for the net stable
funding ratio (“NSFR”). The four-quarter average NSFR
to 31 July 2024 was 134.4% (31 July 2023: 126.0%).
Post Balance Sheet Event
Following a comprehensive strategic review, on
19 September 2024 the group announced that it entered into
an agreement to sell CBAM to Oaktree for an equity value
of up to £200 million.
The upfront proceeds would increase the group’s common
equity tier 1 (“CET1”) capital ratio by approximately 100
basis points on a pro forma basis. This calculation is based
on a net asset value of £121.8 million at 31 July 2024, a
tangible net asset value of £66.1 million, and assumes an
immediate reduction in credit risk weighted assets (“RWAs”)
associated with the CBAM business. It does not include any
immediate reduction in operational risk RWAs and excludes
any capital impact in respect of the contingent deferred
consideration. This estimate is subject to change
before completion.
The transaction is expected to complete in early 2025
calendar year and is conditional upon receipt of certain
customary regulatory approvals.
Further details of the financial impacts of the sale agreement
on the group can be found in Note 29: “Post Balance
Sheet Event”.
Financial Overview continued
Group Liquidity
31 July 2024
£ million
31 July 2023
£ million
Cash and balances at central banks
1,584.0
1,937.0
Sovereign and central bank debt
383.7
186.1
Supranational, sub-sovereigns and agency (“SSA”) bonds
145.5
–
Covered bonds
187.7
106.3
Treasury assets
2,300.9
2,229.4
62
Close Brothers Group plc Annual Report 2024
Banking
Key Financials
2024
£ million
2023
£ million
Change
%
Operating income
724.9
713.8
2
Adjusted operating expenses
(420.6)
(389.7)
8
Impairment losses on financial assets
(98.9)
(204.0)
(52)
Adjusted operating profit
205.4
120.1
71
Adjusted operating profit, pre provisions
304.3
324.1
(6)
Adjusting items:
Complaints handling and other operational costs associated with the FCA’s
review of historical motor finance commission arrangements
(6.9)
–
–
Provision in relation to the BiFD review
(17.2)
–
–
Restructuring costs
(3.1)
–
–
Amortisation of intangible assets on acquisition
(0.2)
(0.1)
100
Statutory operating profit
178.0
120.0
48
Net interest margin
7.4%
7.7%
Expense/income ratio
58.0%
54.6%
Bad debt ratio
1.0%
2.2%
Return on net loan book
2.1%
1.3%
Return on opening equity
10.6%
6.6%
Closing loan book and operating lease assets
10,098.7
9,526.2
6
Key Financials (Excluding Novitas)
2024
£ million
2023
£ million
Change
%
Operating income
713.9
694.9
3
Adjusted operating expenses
(415.8)
(381.0)
9
Impairment losses on financial assets
(92.5)
(87.2)
6
Adjusted operating profit
205.6
226.7
(9)
Adjusted operating profit, pre provisions
298.1
313.9
(5)
Net interest margin
7.3%
7.6%
Expense/income ratio
58.2%
54.8%
Bad debt ratio
0.9%
0.9%
Closing loan book and operating lease assets
10,036.3
9,466.3
6
Robust Profit Performance Reflecting our Focus
on Costs and Pricing Discipline
Whilst the market backdrop was mixed in the first half of
the year, with the continued uncertainty testing the resilience
of SMEs and consumers, we saw an overall improvement
in sentiment in the second part of the year as inflation fell
and interest rates peaked, with the Bank of England base
rate reduced in August 2024.
In Commercial, we have delivered good loan book growth
of 6% and are starting to benefit from the investment in our
Asset Finance transformation programme. Net interest
margin has declined to 6.6%, driven by a combination of
pressure on new business margins in the higher interest rate
environment, a reduction in activity-driven fee income and
a higher proportion of growth in some of our portfolios with
larger loan sizes and lower margin. Whilst the Retail business
has faced a challenging regulatory backdrop, we have
remained focused on providing excellent service for our
customers and delivered a 9% increase in adjusted
operating profit. Motor Finance has continued to see good
customer demand in the UK and is rebuilding its presence in
the Irish market, with the loan book up 3%. Premium Finance
has delivered a strong performance overall, notwithstanding
a 3% decline in the loan book. The Property business has
had a strong year, with profitability up 12% and the loan
book at c.£2 billion, as optimism returns to the UK property
market and we continue to build customer advocacy through
our relationship-led model. This resilient performance has
been delivered notwithstanding the challenging regulatory
backdrop, as we have sought to balance supporting our
customers whilst protecting our franchise.
Banking adjusted operating profit increased to £205.4 million
(2023: £120.1 million), with the prior year including an
impairment charge of £116.8 million in relation to Novitas.
Excluding Novitas, Banking adjusted operating profit
decreased 9% to £205.6 million (2023: £226.7 million),
as growth in income, driven by good loan book growth and
a strong, albeit reduced, net interest margin, was more than
offset by higher costs and an increase in impairment charges.
On a statutory basis, operating profit increased to £178.0
million (2023: £120.0 million), notwithstanding £27.4 million
of adjusting items which included £6.9 million of costs
associated with the handling of complaints and other
operational costs associated with the FCA’s review of
historical motor finance commission arrangements, including
increased resourcing in our complaints and legal teams and
£3.1 million of restructuring costs.
63
Strategic Report
Governance Report
Financial Statements
In addition, in respect of the FCA’s market-wide review
of BiFD, which is focused on providing a stronger framework
for firms to protect customers facing payment difficulties
and covers matters such as affordability, forbearance and
vulnerable customers, we have conducted a Past Business
Review of customer forbearance related to motor finance
lending. This was a voluntary review undertaken with
oversight from the FCA. A provision of £17.2 million has been
recognised in respect of the review and expected customer
compensation. We have commenced making compensation
payments to customers, with the resulting remediation
programme expected to be materially complete this
calendar year.
The loan book grew 6% over the year to £10.1 billion (31 July
2023: £9.5 billion), reflecting healthy drawdowns in Property
and strong new business in Invoice Finance, as well as good
demand in Motor Finance and in Asset Finance, driven by
the Leasing business. This was partly offset by a decline in
Premium Finance and the run-off of the legacy Republic of
Ireland Motor Finance loan book. Overall, the loan book grew
4% in the first half of the year and slowed to 2% in the
second half, reflecting the selective loan book actions
identified at the Half Year 2024 results.
Excluding the businesses in run-off, Novitas and the legacy
Republic of Ireland Motor Finance business, the loan book
grew 7% to £9.9 billion (31 July 2023: £9.3 billion).
Operating income increased 2% to £724.9 million
(2023: £713.8 million), reflecting good loan book growth and
strong, albeit reduced, margins. As previously highlighted,
the prior year benefited from Novitas income (£19 million
in 2023 versus £11 million in 2024) and movements
through profit and loss from derivatives outside of a hedge
accounting relationship (£2 million benefit in 2023 versus
£5 million adverse impact in 2024). Excluding the impact
of Novitas and these movements in derivatives, operating
income rose 4%, driven by loan book growth.
Whilst the net interest margin remained strong as we
maintained our focus on pricing discipline and optimising
funding costs in the higher rate environment, it decreased
to 7.4% (2023: 7.7%), with c.12bps of margin reduction
reflecting the movements through profit and loss from
derivatives outside of a hedge accounting relationship
and Novitas income benefiting the prior year. Excluding the
impact of these items, the net interest margin decreased
by c.16bps, primarily reflecting margin pressures and lower
activity-driven fee income in the Commercial businesses,
partly offset by the pass through of higher rates in Retail.
We are well positioned to sustain the net interest margin
delivered in the second half of the 2024 financial year of 7.2%.
Adjusted operating expenses increased 8% to £420.6 million
(2023: £389.7 million), driven mainly by inflationary-related
increases in staff costs, higher regulatory compliance and
assurance expenses and continued investment, partly offset
by the progress we have made on our tactical and strategic
cost management initiatives. This also included £6.5 million
(2023: £0.8 million) of costs related to the acquisition,
integration and running of Close Brothers Motor Finance
in Ireland, which completed in October 2023, and spend
of £4.8 million (2023: £8.7 million) related to Novitas as
we continue to wind down the business. The expense/
income ratio increased to 58.0% (2023: 54.6%) and the
compensation ratio rose to 32% (2023: 30%), reflecting
inflation-related wage increases.
Overall Banking cost growth was at the lower end of the
8-10% guidance range provided at the Full Year 2023 results
on a like-for-like basis, with an 8% increase to £421.0 million
(2023: £388.9 million), when including £6.9 million (2023: £nil)
of costs associated with the handling of complaints and
other operational costs associated with the FCA’s review
of historical motor finance commission arrangements and
excluding £6.5 million (2023: £0.8 million) related to Close
Brothers Motor Finance in Ireland.
Over the year, we have continued to make good progress
on our strategic cost management initiatives. Our technology
transformation programme, initiated in 2023, is focused on
simplifying and modernising our technology estate, removing
unnecessary cost and increasing our use of strategic
partners, whilst creating a more digitally enabled and agile
IT environment that is secure, resilient and sustainable.
We have partnered with Wipro, a leading technology services
and consulting company, to help us drive our transformation.
To date, we have reduced our headcount by c.100, as we
made increased use of outsourcing, and removed over
115 IT applications.
As outlined at the Half Year 2024 results, we have also
mobilised additional cost management initiatives to support
the ongoing profitability of the business, particularly in
light of the capital actions and their expected impact on
future income. These initiatives are expected to generate
annualised savings of c.£20 million, reaching the full run
rate by the end of the 2025 financial year, with the total
benefit in the 2026 financial year. These include rationalising
our third-party suppliers and property footprint and adjusting
our workforce to drive increased efficiency and effectiveness.
In recent months, we have served notice to vacate our
Wimbledon Bridge House office and establish a more
suitable London footprint to meet the needs of the business,
resulting in the removal of approximately 800 desks.
We have incurred £3.1 million of restructuring costs, which
have been recognised as an adjusting item in the 2024
financial year, primarily relating to redundancy and associated
costs. We expect to incur £5-10 million of restructuring costs
in the 2025 financial year as we continue to implement cost
management actions to improve future efficiency.
We expect income and adjusted operating expenses growth,
excluding the impact of adjusting items which do not reflect
the underlying performance of our business, to be aligned
in the 2025 financial year and to deliver positive operating
leverage in the 2026 financial year.
Impairment charges decreased significantly to £98.9 million
(2023: £204.0 million), corresponding to a bad debt ratio
of 1.0% (2023: 2.2%) with the prior year including a charge
of £116.8 million in relation to Novitas. Overall, provision
coverage increased to 4.3% (31 July 2023: 3.9%).
Excluding Novitas, impairment charges rose 6% to £92.5
million (2023: £87.2 million), mainly driven by loan book
growth and the ongoing review of provisions and coverage
across our loan portfolios, partly offset by improvements to
the macroeconomic outlook. The bad debt ratio, excluding
Novitas, remained stable at 0.9% (2023: 0.9%) and remains
below our long-term bad debt ratio of 1.2%. The coverage
ratio increased slightly to 2.3% (31 July 2023: 2.1%),
excluding Novitas.
Whilst we have not seen a significant impact on credit
performance, we continue to monitor closely the evolving
impacts of inflation and cost of living on our customers.
We remain confident in the quality of our loan book, which
is predominantly secured or structurally protected, prudently
underwritten, diverse, and supported by the deep expertise
of our people. Looking forward, we expect the bad debt
ratio for the 2025 financial year to remain below our
long-term average.
Financial Overview continued
64
Close Brothers Group plc Annual Report 2024
Update on Progress Relating to Novitas
The decision was made to wind down Novitas and withdraw
from the legal services financing market following a strategic
review in July 2021, which concluded that the overall risk
profile of the business was no longer compatible with our
long-term strategy and risk appetite. As announced in H1
2023, we have accelerated our efforts to resolve the issues
surrounding this business and continue to pursue formal
legal action issued against one of the After the Event (“ATE”)
insurers in November 2022. We are actively seeking recovery
from a second insurer and entered into a settlement with
another smaller ATE insurer in July 2023.
During the year, we recognised impairment charges of £6.4
million (2023: £116.8 million) in relation to Novitas, primarily
as a result of increased time to recovery assumptions and
legal costs associated with the insurer disputes. While we
will continue to review provisioning levels in light of future
developments, including the experienced credit performance
of the book and the outcome of the group’s initiated legal
action, we believe the provisions adequately reflect the
remaining risk of credit losses for the Novitas loan book
(c.£62 million net loan book at 31 July 2024).
In addition, in line with IFRS 9 requirements, a proportion
of the expected credit loss is expected to unwind, over
the estimated time to recovery period, to interest income.
The group remains focused on maximising the recovery of
remaining loan balances, either through successful outcome
of cases or recourse to the customers’ ATE insurers, whilst
complying with its regulatory obligations and always
focusing on ensuring good customer outcomes.
Good Loan Book Growth from Continued
Customer Demand
The loan book grew 6% over the year to £10.1 billion (31 July
2023: £9.5 billion), reflecting healthy drawdowns in Property
and strong new business in Invoice Finance, as well as good
demand in Motor Finance and in Asset Finance, driven by
the Leasing business. This was partly offset by a decline in
Premium Finance and the run-off of the legacy Republic of
Ireland Motor Finance loan book. Overall, the loan book grew
4% in the first half of the year and slowed to 2% in the
second half, reflecting the selective loan book actions
identified at the Half Year 2024 results.
Loan Book Analysis
31 July 2024
£ million
31 July 2023
£ million
Change
%
Commercial
5,101.6
4,821.3
6
Commercial – Excluding Novitas
5,039.2
4,761.4
6
Asset Finance1
3,655.4
3,481.3
5
Invoice and Speciality Finance1
1,446.2
1,340.0
8
Invoice and Speciality Finance – Excluding Novitas1
1,383.8
1,280.1
8
Retail
3,041.9
3,001.8
1
Motor Finance2
2,016.0
1,948.4
3
Premium Finance
1,025.9
1,053.4
(3)
Property
1,955.2
1,703.1
15
Closing loan book and operating lease assets3
10,098.7
9,526.2
6
Closing loan book and operating lease assets – Excluding Novitas
10,036.3
9,466.3
6
1. The Asset Finance and Invoice and Speciality Finance loan books have been re-presented for 31 July 2023 to reflect the recategorisation of Close Brothers
Brewery Rentals (“CBBR”) from Invoice and Speciality Finance to Asset Finance.
2. The Motor Finance loan book includes £92.8 million (31 July 2023: £206.7 million) relating to the Republic of Ireland Motor Finance business, which is in
run-off following the cessation of our previous partnership in the Republic of Ireland from 30 June 2022.
3. Includes operating lease assets of £267.9 million (31 July 2023: £271.2 million).
Excluding the businesses in run-off, Novitas and the legacy
Republic of Ireland Motor Finance business, the loan book
grew 7% to £9.9 billion (31 July 2023: £9.3 billion).
The Commercial loan book grew 6% to £5.1 billion (31 July
2023: £4.8 billion). Asset Finance delivered loan book growth
of 5%, reflecting good demand in the Leasing business
particularly from the Contract Hire, Energy and Materials
Handling portfolios, notwithstanding a stabilisation in the
second half of the year. Invoice and Speciality Finance grew
8% over the year, despite the typical seasonal decline seen
in the first half, driven by strong new business volumes and
higher level of utilisations. Excluding Novitas, the Commercial
book increased 6% to £5.0 billion (31 July 2023: £4.8 billion).
The Retail loan book grew 1% to £3.0 billion (31 July 2023:
£3.0 billion). Motor Finance grew 3% as strong new business
volumes in the UK Motor Finance business more than offset
the run-off of the legacy Republic of Ireland loan book.
Following the acquisition of Bluestone Motor Finance (Ireland)
DAC, which completed in October 2023, this business has
been rebranded as Close Brothers Motor Finance and had
a loan book of £38.8 million at 31 July 2024. The Premium
Finance loan book contracted 3%, reflecting the competitive
market environment and marginally reduced demand from
business customers in the higher interest rate environment.
The legacy Republic of Ireland Motor Finance business
accounted for 5% of the Motor Finance loan book
(31 July 2023: 11%) and 1% of the Banking loan book
(31 July 2023: 2%).
The Property loan book grew 15% as we saw healthy
drawdowns from our new business pipeline, as the market
benefited from the stabilisation of interest rates and
improving market sentiment.
Whilst we remain focused on delivering disciplined growth
over the medium term, our priority in the short term is to
further strengthen our capital position through identified
management actions, including selective loan book growth.
Within Commercial and Property, we are exploring the use of
partnerships and capital efficient government lending schemes.
Across our businesses, we are continuing to prioritise pricing
discipline and credit quality and are centred on optimising
the allocation of capital across our portfolio of businesses.
As a result, we currently plan for low single-digit percentage
growth in the loan book for the 2025 financial year.
65
Strategic Report
Governance Report
Financial Statements
Banking: Commercial
2024
£ million
2023
£ million
Change
%
Operating income
329.6
347.8
(5)
Adjusted operating expenses
(208.4)
(194.4)
7
Impairment losses on financial assets
(31.7)
(137.5)
(77)
Adjusted operating profit
89.5
15.9
463
Adjusted operating profit, pre provisions
121.2
153.4
(21)
Adjusting items:
Provision in relation to the BiFD review
(0.6)
–
–
Restructuring costs
(2.2)
–
–
Amortisation of intangible assets on acquisition
–
(0.1)
(100)
Statutory operating profit
86.7
15.8
449
Net interest margin
6.6%
7.4%
Expense/income ratio
63.2%
55.9%
Bad debt ratio
0.6%
2.9%
Closing loan book and operating lease assets1
5,101.6
4,821.3
6
Asset
Finance
Loan book
£3.7 billion
Average loan size
c.£53,000
Typical loan maturity
3-4 years
Invoice and
Speciality Finance
Loan book
£1.4 billion
Average loan size
c.£635,000
Typical loan maturity
3 months
Banking – Commercial:
At a Glance
Commercial lends to more than 28,000 small
and medium-sized enterprises and 35,000
individuals through our in-house teams,
where loans are originated via our direct
sales force or introduced by third-party
distribution channels.
Asset Finance provides commercial asset
financing, hire purchase and leasing
solutions for a diverse range of assets and
sectors. Invoice and Speciality Finance
works with small businesses to provide debt
factoring, invoice discounting and asset-
based lending and includes some of our
smaller specialist businesses.
Financial Overview continued
Commercial Key Metrics Excluding Novitas
2024
£ million
2023
£ million
Change
%
Operating income
318.6
328.9
(3)
Adjusted operating expenses
(203.6)
(185.7)
10
Impairment losses on financial assets
(25.3)
(20.7)
22
Adjusted operating profit
89.7
122.5
(27)
Adjusted operating profit, pre provisions
115.0
143.2
(20)
Net interest margin
6.5%
7.2%
Expense/income ratio
63.9%
56.5%
Bad debt ratio
0.5%
0.5%
Closing loan book and operating lease assets1
5,039.2
4,761.4
6
1. Operating lease assets of £267.9 million (31 July 2023: £271.2 million).
66
Close Brothers Group plc Annual Report 2024
Continued Demand in Commercial, Reflecting
the Diversity of our Offering
The Commercial businesses provide specialist,
predominantly secured lending principally to the SME
market and include Asset Finance and Invoice and Speciality
Finance. We finance a diverse range of sectors, with Asset
Finance offering commercial asset financing, hire purchase
and leasing solutions across a broad range of assets
including commercial vehicles, machine tools, contractors’
plant, printing equipment, company car fleets, energy project
finance, and aircraft and marine vessels, as well as our
Vehicle Hire and Brewery Rentals businesses. The Invoice
and Speciality Finance business provides debt factoring,
invoice discounting and asset-based lending, and also
includes Novitas. As previously announced, Novitas ceased
lending to new customers in July 2021.
Whilst market uncertainty has continued over the year,
we have seen the resilience of SME businesses. Customer
demand has remained relatively robust, notwithstanding
the competitive marketplace, reflecting the diversity of our
offering and the strength of our customer relationships.
Our growth initiatives continue to prove successful, with
healthy new business volumes written by both our Materials
Handling and Agricultural Equipment teams and our second
syndication deal completed in Invoice Finance. We have also
been approved to lend under the UK government’s Growth
Guarantee Scheme, launched in July 2024, and the Irish
Growth and Sustainability Loan Scheme, which launched
in August 2024.
During the year, we completed an internal restructure and
created a Broker and Professional Solutions business to
simplify and improve our offering to the broker market.
Adjusted operating profit for Commercial increased to £89.5
million (2023: £15.9 million), reflecting a significant decrease
in impairment charges. On a pre-provision basis, adjusted
operating profit reduced 21% to £121.2 million (2023: £153.4
million), reflecting both a decline in income and cost growth.
Excluding Novitas, adjusted operating profit decreased 27%
to £89.7 million (2023: £122.5 million).
On a statutory basis, operating profit increased to £86.7
million (2023: £15.8 million) and includes £2.8 million of
adjusting items. These primarily relate to £2.2 million of
restructuring costs and a £0.6 million provision in relation
to the Past Business Review and expected customer
compensation in respect of customer forbearance related
to motor finance lending.
Operating income reduced 5% to £329.6 million
(2023: £347.8 million) as loan book growth was more than
offset by pressure on new business margins and activity-
driven fee income, as well as reduction in Novitas income.
The net interest margin declined to 6.6% (2023: 7.4%),
reflecting both lower fee income and the need to balance the
repricing of new business written in Asset Finance with our
focus on maintaining support to our customers impacted by
the higher interest rate environment, as highlighted in the first
half. Furthermore, we saw a higher proportion of loan book
growth in some of our portfolios with larger loan sizes and
lower margin. Excluding Novitas, the net interest margin
decreased to 6.5% (2023: 7.2%).
Adjusted operating expenses grew 7% to £208.4 million
(2023: £194.4 million), mainly driven by increased staff costs
and investment spend, which has been partly offset by lower
costs in relation to Novitas. As a result, the Commercial
expense/income ratio increased to 63.2% (2023: 55.9%).
During the year, we completed the Asset Finance
transformation programme, which has introduced a
single technology platform across the business that has
standardised processes, increased efficiencies and improved
customer and colleague experience.
Impairment charges decreased materially to £31.7 million
(2023: £137.5 million), with £116.8 million incurred in relation
to Novitas in the prior year. Provision coverage increased
marginally to 5.7% (31 July 2023: 5.2%).
Excluding Novitas, there was an increase in impairment
charges to £25.3 million (2023: £20.7 million), reflecting
loan book growth and the ongoing review of provisions and
coverage, including a slight uptick in arrears in Asset Finance
as we enter a more normalised credit environment. This
corresponded to a bad debt ratio of 0.5% (2023: 0.5%)
and a stable coverage ratio (excluding Novitas) of 1.4%
(31 July 2023: 1.4%).
67
Strategic Report
Governance Report
Financial Statements
Banking: Retail
2024
£ million
2023
£ million
Change
%
Operating income
262.4
248.1
6
Adjusted operating expenses
(177.3)
(164.4)
8
Impairment losses on financial assets
(47.2)
(49.0)
(4)
Adjusted operating profit
37.9
34.7
9
Adjusted operating profit, pre provisions
85.1
83.7
2
Adjusting items:
Complaints handling and other operational costs associated with the FCA’s
review of historical motor finance commission arrangements
(6.9)
–
–
Provision in relation to the BiFD review
(16.6)
–
–
Restructuring costs
(0.6)
–
–
Amortisation of intangible assets on acquisition
(0.2)
–
–
Statutory operating profit
13.6
34.7
(61)
Net interest margin
8.7%
8.2%
Expense/income ratio
67.6%
66.3%
Bad debt ratio
1.6%
1.6%
Closing loan book1
3,041.9
3,001.8
1
1. The Motor Finance loan book includes £92.8 million (31 July 2023: £206.7 million) relating to the legacy Republic of Ireland Motor Finance business, which is
in run-off following the cessation of our previous partnership in the Republic of Ireland from 30 June 2022.
Focus on Maintaining our Margins
and Underwriting Discipline in a
Challenging Backdrop
The Retail businesses provide intermediated finance, through
motor dealers, motor finance brokers and insurance brokers.
Finance is provided to both individuals and to a broad
spectrum of UK businesses.
Whilst the market backdrop has presented challenges, with
significant uncertainty in relation to the FCA’s motor finance
work, we have seen good demand over the year and have
remained focused on providing excellent service to our
customers and partners. In Motor Finance, we have seen
strong volumes as we have benefited from expanding our
routes to market and our ability to partner with more finance
technology providers, such as iVendi and AutoConvert,
as part of our strategy to be where the consumer chooses
finance. Whilst the Premium Finance business operates in a
mature and competitive market, in which we have continued
to deepen and evolve our proposition to best meet the needs
of our customers and to support broker partners in simplifying
premium finance in their businesses. More broadly across
our Retail businesses, we have been focused on monitoring
our delivery of good customer outcomes in respect
of Consumer Duty.
We completed the acquisition of Bluestone Motor Finance
(Ireland) (DAC) in October 2023 and have since rebranded
the business to Close Brothers Motor Finance. This year, we
have focused on the integration and alignment of our pricing
and underwriting standards and credit risk appetite. Demand
has been healthy and, looking forward, we plan to launch
new products and services, enabling us to take advantage
of opportunities in the Irish market.
During the second half of the financial year, we integrated
our Savings business, which provides simple and
straightforward savings products to both individuals and
businesses, into Retail. This strategic move will leverage
established shared operations, supporting the continued
expansion of our retail deposit offering. The presentation
of the Retail business financial performance is not impacted
by this move.
Adjusted operating profit for Retail rose to £37.9 million
(2023: £34.7 million), as growth in income and lower
impairment charges were partly offset by higher costs.
On a pre-provision basis, adjusted operating profit increased
2% to £85.1 million (2023: £83.7 million).
Financial Overview continued
Motor Finance
Loan book
£2.0 billion
Average loan size
c.£7,000
Typical loan maturity
4 years
Premium Finance
Loan book
£1.0 billion
Average loan size
c.£600
Typical loan maturity
11 months
Banking – Retail:
At a Glance
Retail provides finance to individuals
and businesses through a network
of intermediaries.
Motor Finance provides several products
at point of sale in a dealership, or online
via a broker, which allow consumers to buy
vehicles from over 4,250 retailers in the
UK and 650 in Ireland.
Premium Finance helps make insurance
payments more manageable for people and
businesses, by allowing them to spread the
cost over fixed instalments. It works with
c.1,300 insurance brokers in the UK
and Ireland.
68
Close Brothers Group plc Annual Report 2024
On a statutory basis, operating profit decreased to £13.6
million (2023: £34.7 million) and was driven mainly by £6.9
million of costs associated with the handling of complaints
and other operational costs associated with the FCA’s
review of historical motor finance commission arrangements,
a £16.6 million provision in relation to the Past Business
Review and expected customer compensation in respect
of customer forbearance related to motor finance lending
and £0.6 million of restructuring costs.
Operating income increased 6% to £262.4 million
(2023: £248.1 million), driven by both growth in Retail loan
book and a strengthening of the net interest margin to 8.7%
(2023: 8.2%), as we focused on pricing discipline in the
higher rate environment.
Adjusted operating expenses grew 8% to £177.3 million
(2023: £164.4 million), driven primarily by the acquisition
of Close Brothers Motor Finance in Ireland, higher staff costs
and increased regulatory costs. As a result, the expense/
income ratio increased to 67.6% (2023: 66.3%).
As previously outlined, the FCA is conducting a review of
historical motor finance commission arrangements and sales
at several firms, following high numbers of complaints from
customers. The estimated impact of any redress scheme,
if required, is highly dependent on a number of factors and
as such, at this early stage, the timing, scope and quantum
of a potential financial impact on the group, if any, cannot
be reliably estimated at present. Since the announcement by
the FCA of its review of historical motor finance commission
arrangements in January 2024, we have seen a further
increase in enquiries and complaints. We have also taken
steps to enhance our operational capabilities to respond to
increased complaints volumes and potential changes such
as the implementation of a consumer redress scheme,
if required. We remain focused on mitigating the impact
on resource expenses through outsourcing and deployment
of automated solutions to assist in triaging new complaints,
improving our processing speed. We continue to monitor
the impact on our current handling of these complaints and
are following the playbooks in place to ensure we have the
appropriate resources to respond effectively.
Impairment charges decreased marginally to £47.2 million
(2023: £49.0 million), driven primarily by an improvement
in the macroeconomic outlook compared to the prior year.
As previously highlighted, in Motor Finance, arrears
levels have stabilised at a higher level than pre-pandemic,
reflecting the continued cost of living pressures on our
customers. The bad debt ratio remained stable at 1.6%
(2023: 1.6%), with the provision coverage ratio increasing
modestly to 3.0% (31 July 2023: 2.9%).
We remain confident in the credit quality of the Retail loan
book. The Motor Finance loan book is predominantly
secured on second hand vehicles which are less exposed
to depreciation or significant declines in value than new cars.
Our core Motor Finance product remains conditional sale
and hire-purchase contracts, with less exposure to residual
value risk associated with Personal Contract Purchase
(“PCP”), which accounted for c.10% of the Motor Finance
loan book at 31 July 2024 (31 July 2023: c.9%). The
Premium Finance loan book benefits from various forms of
structural protection including premium refundability and, in
most cases, broker recourse for the personal lines product.
Loan book
£1.9 billion
Average loan size
c.£1.9 million
Typical development
loan maturity
12-24 months
Banking – Property:
At a Glance
Property provides residential development
finance, bridging finance and commercial
development loans to experienced property
developers and investors across mainland
UK and Northern Ireland, through its two
brands, Close Brothers Property Finance
and Commercial Acceptances. Lends to
c.700 professional property developers with
a focus on small to medium-sized residential
developments.
Banking: Property
2024
£ million
2023
£ million
Change
%
Operating income
132.9
117.9
13
Adjusted operating expenses
(34.9)
(30.9)
13
Impairment losses on financial assets
(20.0)
(17.5)
14
Adjusted operating profit
78.0
69.5
12
Adjusted operating profit, pre provisions
98.0
87.0
13
Adjusting items:
Restructuring costs
(0.3)
–
–
Statutory operating profit
77.7
69.5
12
Net interest margin
7.3%
7.4%
Expense/income ratio
26.3%
26.2%
Bad debt ratio
1.1%
1.1%
Closing loan book
1,955.2
1,703.1
15
69
Strategic Report
Governance Report
Financial Statements
Managed assets
£19.3 billion
Total client assets
£20.4 billion
Clients
c.22,000
Asset Management:
At a Glance
Close Brothers Asset Management
(“CBAM”) is a leading, vertically integrated
wealth manager, providing investment
management and financial planning
services to private clients in the UK. CBAM
operates out of 15 offices with more than
170 investment professionals and
c.870 employees.
Financial Overview continued
Healthy Drawdowns Driving Strong Loan
Book Growth
Property comprises Property Finance and Commercial
Acceptances. The Property Finance business is focused
on specialist residential development finance to established
SME housebuilders and professional developers in the UK.
Property Finance also provides funding for commercial
properties, housing associations and refurbishment and
bridging finance. Commercial Acceptances provides bridging
and short-term loans for auction properties, refurbishment
projects and small residential development projects.
Although the backdrop has been mixed over the year,
with SME housebuilders having faced a challenging period,
we have seen positive sentiment return to the UK property
market. The economic environment is more stable,
housebuilding is a focus area for the new UK government
and the mortgage market remains competitive. We
delivered a strong financial performance, supported by our
relationship-led proposition and excellent customer service.
Our focus on expanding in the regions outside of London
and the South East is continuing to prove successful, and
our pipeline remains healthy at c.£850 million (2023: c.£1
billion). We are also seeing a benefit through our initiatives
including Tomorrow’s Developer.
Adjusted operating profit rose 12% to £78.0 million
(2023: £69.5 million), as the business achieved neutral
operating leverage. On a pre-provision basis, operating
profit increased 13% to £98.0 million (2023: £87.0 million).
On a statutory basis, operating profit also increased 12% to
£77.7 million (2023: £69.5 million) and included £0.3 million
of restructuring costs.
Operating income rose 13% to £132.9 million (2023: £117.9
million), driven by strong loan book growth, although the net
interest margin decreased marginally to 7.3% (2023: 7.4%),
mainly reflecting one-off early redemptions benefiting the
prior year and lower fee yields due to the higher utilisation
of loan facilities.
Adjusted operating expenses also rose 13% to £34.9 million
(2023: £30.9 million), reflecting an increase in staff costs and
a higher apportionment of indirect central resources in line
with loan book growth. The expense/income ratio remained
stable at 26.3% (2023: 26.2%).
Impairment charges increased to £20.0 million (2023:
£17.5 million), corresponding to a bad debt ratio of 1.1%
(2023: 1.1%). This was driven primarily by loan book growth
and an ongoing review of provisions and coverage, which
included increased specific provisions relating to legacy
facilities. The provision coverage ratio increased to 3.0%
(31 July 2023: 2.4%).
The Property loan book is conservatively underwritten.
We work with experienced, professional developers,
predominantly SMEs with a focus on delivering mid-priced
family housing, and have minimal exposure to the prime
central London market, with our regional loan book making
up over 50% of the Property Finance portfolio. Our long
track record, expertise and quality of service ensure the
business remains resilient to competition and continues
to generate high levels of repeat business.
Building on our Successful Growth
Track Record
Close Brothers Asset Management provides personal
financial advice and investment management services to
private clients in the UK, including full bespoke management,
managed portfolios and funds, distributed both directly via
our advisers and investment managers, and through
third-party financial advisers.
Total operating income rose 9% to £157.8 million
(2023: £144.8 million), reflecting positive net inflows and
market movements, with growth in AuM delivered by our
bespoke investment management business resulting in
higher investment management income. This was partially
offset by a decrease in income from advice and other
services due to a shift in product mix and an increase
in higher value clients where an initial fee is typically
not charged. The revenue margin reduced to 82bps
(2023: 84bps) primarily due to a change in the mix of
business into more lower margin passive and fixed income
products and a move to larger client size with a typically
lower fee margin.
Adjusted operating expenses increased 13% to £145.6
million (2023: £128.8 million), reflecting wage inflation and
new hires to support future growth. Of this, £10.4 million
(2023: £4.7 million) of costs related to the hiring of
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Close Brothers Group plc Annual Report 2024
investment managers and the associated AuM in the
bespoke investment management business. The expense/
income ratio grew to 92.3% (2023: 89.0%), with the
compensation ratio also increasing to 64% (2023: 59%).
Adjusted operating profit in CBAM decreased 23% to
£12.2 million (2023: £15.9 million) as income growth was
more than offset by higher costs, reflecting investment in
new hires. The operating margin reduced to 8% (2023: 11%),
corresponding to 14% (2023: 14%) when excluding the
costs related to the hiring of investment managers and the
associated AuM in the bespoke investment management
business. Statutory operating profit before tax was
£11.0 million (2023: £14.4 million).
CBAM has a strong track record of growth, with net inflows
delivered through successfully servicing existing clients
and attracting new clients, as well as through selective
in-fill acquisitions. In March, we completed the acquisition
of Bottriell Adams, an IFA business based in Dorset with
c.£220 million of assets, as we expand our regional presence
in the South West. During the year, we also hired 12 bespoke
investment managers (H1 2024: nine, H2 2024: three,
2023: 14) and following a period of strong growth in our
Bespoke business, our priority in this channel is to now
strengthen our position and maximise opportunities
to accelerate our profitability.
Strong Net Inflows Delivered in a Mixed
Macroeconomic Environment
Whilst the backdrop has been fairly mixed and presented
challenges over the year, the general improvement in
economic indicators in the second half of the year has led
to a strengthening in equity markets and positive investor
sentiment. Over the year, net inflows remained healthy at
£1.3 billion (2023: £1.3 billion) and delivered a net inflow rate
of 8% (2023: 9%), with the bespoke investment management
business contributing significantly to the overall inflow rate.
Total managed assets increased 18% to £19.3 billion
(31 July 2023: £16.4 billion), driven by strong net inflows
and positive market performance. Total client assets, which
includes advised and managed assets, also increased by
18% to £20.4 billion (31 July 2023: £17.3 billion) and includes
the associated client assets following the acquisition
of Bottriell Adams.
Fund Performance
Our funds and segregated bespoke portfolios are designed
to provide attractive risk-adjusted returns for our clients,
consistent with their long-term goals and investment
objectives. Fund performance has been good across asset
classes, with all our funds delivering positive absolute returns
during the period and 13 out of 15 outperforming their peer
group and delivering first and second quartile returns,
demonstrating the strength of our investment team.
Our Sustainable Funds and
Net Zero Commitment
At CBAM, we continue to look at how to develop and
enhance our sustainable proposition as more of our
clients seek to make a difference with their investments.
Complementing our Socially Responsible Investment
Service and the ethical screening we can offer our Bespoke
clients, we are growing our range of Sustainable Funds.
Our Sustainable Select Fixed Income Fund, which utilises
a sustainable investment methodology to target a reduction
in CO2 emissions intensity versus its benchmark, continues
to see healthy net inflows. Over the last five years to the
end of July 2024, the fund returned 16.8% against its
benchmark of 8%.
We became signatories to the Net Zero Asset Managers
(“NZAM”) initiative in September 2022 and as part of our
initial target disclosure, committed to 18% of our AuM
(as at 31 July 2022) being in line with net zero by 2050.
We have also been developing a stewardship and
engagement strategy focused on our NZAM targets and are
developing a climate risk management process to track and \
support the achievement of these targets. We also published
our first Task Force on Climate-related Financial Disclosures
(“TCFD”) aligned entity report in June 2024, along with
product-level disclosures aligned with TCFD
recommendations.
Asset Management
Key Financials1
2024
£ million
2023
£ million
Change
%
Investment management
126.9
113.3
12
Advice and other services
28.4
29.9
(5)
Other income2
2.5
1.6
56
Operating income
157.8
144.8
9
Adjusted operating expenses1
(145.6)
(128.8)
13
Impairment losses on financial assets
–
(0.1)
(100)
Adjusted operating profit
12.2
15.9
(23)
Adjusting items:
Amortisation of intangible assets on acquisition
(1.2)
(1.5)
(20)
Statutory operating profit
11.0
14.4
(24)
Revenue margin (bps)
82
84
Operating margin
8%
11%
Return on opening equity3
7.3%
12.0%
1. Adjusted measures are presented on a basis consistent with prior periods and exclude amortisation of intangible assets on acquisition, to present the
performance of the group’s acquired businesses consistent with its other businesses; and any exceptional and other adjusting items which do not reflect
underlying trading performance. Further detail on the reconciliation between operating and adjusted measures can be found in Note 3 “Segmental Analysis”.
2. Other income includes net interest income and expense, income on principal investments and other income.
3. Prior year comparative has been restated following a misstatement. The figure reported in the prior year was 15.5%.
71
Strategic Report
Governance Report
Financial Statements
The FCA Sustainability Disclosure Requirements (“SDR”)
regulations for fund managers came into force during 2024
which included anti-greenwashing rules and a name and
labelling regime for sustainable investment funds. We are
working through these regulations to align our sustainable
funds with the SDR regulations for the December 2024
implementation date.
Well Placed to Strengthen CBAM’s Position
Following a period of strong growth and investment, our
focus is to strengthen our position and maximise
opportunities to accelerate profitability through providing
excellent service, building on the strength of our client
relationships. In the Bespoke business, we are shifting our
focus to only selective hiring of investment managers. We
continue to target net inflows in the range of 6-10%.
Sale Agreement with Oaktree
Following a comprehensive strategic review, on
19 September 2024, the group announced that it entered
into an agreement to sell CBAM to Oaktree for an equity
value of up to £200 million.
CBAM is a well-regarded UK wealth management franchise
with a strong track record of growth, healthy net inflows and
significant growth potential. To realise the potential value of
the business in the medium-term to the fullest extent
possible, the group would need to continue to invest to
accelerate CBAM’s growth strategy in the short and medium
term, including via acquisitions against a consolidating
market backdrop.
The transaction marks significant progress towards the plan
we outlined in March 2024 to strengthen our capital base.
Additionally, this sale represents competitive value for the
group’s shareholders and allows us to simplify the group,
focusing on our core lending business.
The transaction will also enable CBAM to accelerate its
growth strategy under Oaktree’s ownership, which
recognises CBAM’s value and its potential to become a
leading UK wealth manager of scale. In order to achieve this,
Oaktree intends to provide CBAM with the incremental
investment required to increase its profitability and presence
in the wealth management sector.
The transaction is expected to complete in early 2025
calendar year and is conditional upon receipt of certain
customary regulatory approvals. The details regarding the
transaction can be found in the relevant announcement
published on 19 September 2024, available on the Investor
Relations website.
Further details of the financial impacts of the sale agreement
on the group can be found in Note 29: “Post Balance Sheet
Event”.
Average bargains per day
c.55,000
Investment trust corporate
broking and advice clients
50
WBS assets under
administration
£15.6 billion
Securities: At a Glance
Winterflood is a leading UK liquidity
provider, delivering high-quality execution
services to over 500 stockbrokers, wealth
managers, institutional investors and other
market counterparties. It also provides
corporate advisory services to investment
trusts and institutional sales trading.
Winterflood Business Services (“WBS”)
provides outsourced dealing and custody
solutions to over 60 corporate clients.
Financial Overview continued
Movement in Client Assets
31 July 2024
£ million
31 July 2023
£ million
Opening managed assets
16,419
15,302
Inflows
3,231
2,729
Outflows
(1,928)
(1,411)
Net inflows
1,303
1,318
Market movements
1,609
(201)
Total managed assets
19,331
16,419
Advised only assets
1,091
907
Total client assets1
20,422
17,326
Net flows as percentage of opening managed assets
8%
9%
1. Total client assets include £5.3 billion of assets (31 July 2023: £4.9 billion) that are both advised and managed.
72
Close Brothers Group plc Annual Report 2024
Winterflood
Key Financials
2024
£ million
2023
£ million
Change
%
Operating income
73.0
75.3
(3)
Operating expenses
(74.8)
(71.8)
4
Impairment gains on financial assets
0.1
–
–
Operating (loss)/profit
(1.7)
3.5
(148)
Average bargains per day (‘000)
55
60
Operating margin
(2)%
5%
Return on opening equity
(2.5)%
2.6%
Loss days
3
1
Winterflood Business Services assets under administration (£ billion)
15.6
12.9
21
Uncertain Macroeconomic Outlook Continued
to Negatively Affect Trading Performance
Winterflood is a leading UK liquidity provider, delivering
high-quality execution services to platforms, stockbrokers,
wealth managers and institutional investors, as well as
providing corporate advisory services to investment trusts
and outsourced dealing and custody services via Winterflood
Business Services (“WBS”).
Over the year, uncertainty in the macroeconomic
environment, combined with geopolitical concerns, have
continued to weigh on domestic markets and impact investor
appetite. With investors currently able to achieve equity-like
returns from money markets and debt instruments, which
have a lower risk profile, we have seen a reduction in trading
volumes and subdued Investment Trusts corporate activity.
As a result, Winterflood experienced a reduction in trading
income in the year and delivered an operating loss of £1.7
million (2023: operating profit of £3.5 million), after incurring
one-off dual-running property costs of c.£3 million.
Operating income reduced 3% to £73.0 million
(2023: £75.3 million), as lower trading volumes have driven
a decline in trading income, which more than offset
growth in WBS.
Trading income decreased 12% to £51.8 million
(2023: £58.6 million) reflecting the unfavourable market
conditions, particularly in the first quarter where we incurred
three loss days (2023: one loss day), as equity and bond
prices declined. Whilst there was an improvement in general
market conditions in the second half of the year, AIM, Small
Cap and FTSE 350 trading sectors recorded a decline
against the prior year. Average daily bargains for the year
were 55k, down 8% year-on-year (2023: 60k) and marginally
lower than pre-pandemic levels (2019: 56k).
Notwithstanding low issuance and transaction volumes in the
year, income from the Investments Trusts corporate business
increased 60% to £4.0 million (2023: £2.5 million).
WBS continued to see good momentum, with income rising
17% to £17.3 million (2023: £14.8 million). AuA increased
21% to £15.6 billion (H1 2024: £13.8 billion, 2023: £12.9
billion), supported by net inflows and positive market
movements as equity markets improved in the second
half of the year.
Operating expenses increased 4% to £74.8 million
(2023: £71.8 million), primarily driven by one-off dual-running
property costs of c.£3 million incurred by relocating
premises. As highlighted in the Half Year 2024 results, we
have undertaken a cost review during the year to right-size
elements of the business, to ensure we are appropriately and
efficiently organised to meet current business requirements,
whilst remaining scalable for future growth. This cost review
will result in annualised fixed cost savings of £4.0 million
from the 2025 financial year onwards, with the impact in
2024 of £0.9 million, helping to offset inflationary pressures.
We continue to explore growth opportunities which are
additive to the trading business, whilst remaining focused on
driving efficiencies and optimising organisational resilience
which maintains the strengths of the franchise. WBS remains
focused on developing its client relationships and investing
in its award-winning proprietary technology to provide highly
scalable and bespoke solutions for clients. WBS is well
positioned for further growth, both organically and supported
by a healthy pipeline of clients, and expects to grow AuA to
over £20 billion by 2026.
We have also developed Winterflood Retail Access Platform
(“WRAP”) using in-house technology and expertise. This is
an end-to-end retail distribution platform that enables retail
investors to participate in capital markets transactions such
as initial public offerings and secondary fundraisings through
retail intermediaries, across both equity and fixed income
instruments. Since inception, WRAP has raised over £47
million from retail investors, across both equity and gilt
offerings. In 2024, WRAP has been mandated on 17
transactions, representing approximately a third of the total
retail platform offers executed in the UK market. WRAP
combines the expertise of Winterflood’s whole of retail
market reach with comprehensive in-house delivery across
implementation, order aggregation and settlement.
While short-term trading conditions remain challenging,
we are confident that Winterflood remains well positioned
to retain its market position and benefit when investor
appetite returns.
73
Strategic Report
Governance Report
Financial Statements
Effective management of the risks we face is
central to everything we do.
The group faces a number of risks in the normal course
of its business providing lending, deposit taking, wealth
management services and securities trading. To manage
these effectively, a consistent approach is adopted based
on a set of overarching principles, namely:
• adhering to our established and proven business model,
as outlined on pages 14 to 15;
• implementing an integrated risk management approach
based on the concept of three lines of defence; and
• setting and operating within clearly defined risk appetites,
monitored with defined metrics and limits.
This Risk Report provides a summary of our approach
to risk management, covering each of the key aspects
of the group’s Enterprise Risk Management Framework.
Information on each of the group’s principal risks, including
an overview of the frameworks in place to manage them,
is also included, together with an overview of current
emerging risks and uncertainties.
All disclosures in the Risk Report are unaudited unless
otherwise stated.
Risk Report
Enterprise Risk Management
An enterprise-wide framework designed to
provide the board and senior management with
oversight of the group’s financial position as well
as the risks that might adversely affect it
The framework details the core risk management
components and structures used across the group,
and defines a consistent and measurable approach
to identifying, assessing, controlling and mitigating,
reviewing and monitoring, and reporting risk – the risk
process life cycle.
This sets out the activities, tools, techniques and
organisational arrangements designed to identify the
principal and emerging risks facing the group; and that
appropriate responses are in place to mitigate these
risks and prevent detriment to its customers and
colleagues. This is an enabler for the group to meet
its goals and enhance its ability to respond to new
opportunities.
The framework is purposely designed to allow the
capture of business opportunities whilst maintaining
an appropriate balance of risk and reward within the
group’s agreed risk appetite.
Enterprise Risk Management Framework
Principal and
emerging risks
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74
Close Brothers Group plc Annual Report 2024
Open escalation
channels
Locally
embedded
Risk and reward
Independent
second line
Risk Culture
Locally embedded
Risks managed in an open, transparent
and objective manner.
Independent second line
Providing oversight, advice and assurance.
Open escalation channels
Escalation of risks and concerns encouraged;
driving individual accountability.
Risk and reward
Regular evaluations encourage long-term
stewardship behaviours.
Risk Culture and Awareness
An effective risk culture is embedded throughout
the group
Maintenance of an effective risk management culture
is integral to the group in meeting its regulatory conduct
requirements and assisting the accomplishment
of key strategic goals.
The risk culture:
• supports the group and its directors in meeting their
legal and regulatory obligations, particularly with respect
to the identification and management of risks and the
need for a robust control environment;
• underpins the group’s purpose, strategy, cultural
attributes and divisional values;
• provides enhanced awareness of risk in business
operations by highlighting strengths and weaknesses and
their materiality to the business and, in turn, facilitating
informed decision-making;
• optimises business performance by facilitating challenge
of ineffective controls and improving the allocation
of resources;
• improves the group’s control environment; and
• assists in the planning and prioritisation of key
projects and initiatives.
While risk management is led centrally, it is embedded
locally within our businesses. Managers actively promote
a culture in which risks are identified, assessed, managed
and reported in an open, transparent and objective manner,
and staff conduct is viewed as critical.
All members of staff are responsible for risk identification
and reporting within their area of responsibility and are
encouraged to escalate risks and concerns where necessary,
either through line or business management or by following
the provisions of the group Whistleblowing Policy.
The group risk management function operates independently
of the business, providing oversight and advice on the
operation of the risk framework, assurance that agreed
processes operate effectively and that a risk and conduct
culture is embedded within the business.
The relationship between risk and reward is also a
key priority with all staff evaluated against both agreed
objectives (the “what”) and desired behaviours (the “how”).
This encourages long-term stewardship behaviours together
with a strong and appropriate risk and conduct culture.
For further information on our approach to remuneration for
the group’s directors see pages 150 to 175.
75
Strategic Report
Governance Report
Financial Statements
Risk Report continued
Risk Committee Structure
The board
Executive committees
Group Risk and Compliance
Committee
Model Governance Committee
Capital Adequacy Committee
Bank Asset and Liability
Committee
Group Asset and Liability
Committee
Risk-specific committees
Credit Risk Management
Committee
Group Credit Committee
Impairment Adequacy
Committee
Operations and Technology
Risk Committee
Divisional committees
Divisional risk and
compliance committees
Together, these committees facilitate an effective flow
of key risk information, as well as functioning to support
appropriate risk management at each stage of the risk
process life cycle. They also provide an escalation channel
for any risks or concerns, supporting the maintenance of an
effective risk culture. The group’s risk governance framework
is designed to enable the group to respond to changes in the
risk and the broader regulatory environment in a considered
and effective manner, with oversight from the board.
During the year the effectiveness of these committees
was reviewed to ensure they remain fit for purpose and all
committees continue to work efficiently and effectively.
During 2024, further enhancements have been made to the
risk reporting packs and management information to support
strengthened risk evaluation and management.
Risk Committee
Role of the Board
The board retains overall responsibility for overseeing the
maintenance of a system of internal control, to ensure that
an effective risk management framework and oversight
process operate across the group. The risk management
framework and associated governance arrangements are
designed to ensure a clear organisational structure with
distinct, transparent and consistent lines of responsibility
and effective processes to identify, manage, monitor and
report the risks to which the group is, or may become,
exposed. On an annual basis, the board reviews the
effectiveness of the group’s risk management and internal
control systems. Further details on the board review
of risk management and internal controls is provided
on pages 128 and 129.
Risk management across the group is overseen by the
Risk Committee. The committee is responsible for reviewing
risk appetite, monitoring the group’s risk profile against this
and reviewing the day-to-day effectiveness of the risk
management framework. In addition, the committee
is responsible for overseeing the maintenance and
development of an appropriate and supportive risk
culture and for providing risk input into the alignment of
remuneration with performance against risk appetite.
The committee’s key areas of focus over the last financial
year are set out on pages 147 to 149.
The group closely monitors its risk profile to ensure
that it continues to align with its strategic objectives as
documented on pages 20 to 25. The board considers that
the group’s current risk profile remains consistent with its
strategic objectives.
Risk governance
76
Close Brothers Group plc Annual Report 2024
Risk Committee Overview
Aligned to these core principles, the governance framework operates through various delegations of authority from the board
downwards, with a number of committees focused on risk management. The delegations of authority cover both individual
authorities as well as authorities exercised via the group’s risk committee structure.
Group Risk and
Compliance Committee
Provides oversight of the group’s risk profile, alignment to risk appetite and effectiveness
of the risk management and compliance framework.
Model Governance
Committee
Provides oversight of the group’s exposure to model risk through the review, approval
and monitoring of all high-materiality models.
Capital Adequacy
Committee
Monitors group and bank capital adequacy, incorporating capital planning, stress testing,
governance, processes and controls.
Bank Asset and Liability
Committee
Provides oversight of the Banking division’s risk management and internal controls
and its subsidiaries across liquidity, funding and non-traded market risk.
Group Asset and Liability
Committee
Provides oversight of the company and wider group’s risk management and internal
controls across liquidity, funding and market risk.
Credit Risk Management
Committee
Monitors the group’s credit risk profile, examining current performance and key portfolio
trends, ensuring compliance with risk appetite.
Group Credit Committee
Reviews material credit transactions and exposures from a credit, reputational, funding
structure and business risk perspective.
Impairment Adequacy
Committee
Governs the Banking division’s impairment process, reviewing the financial position
relating to impairment and ensuring adequate coverage is held across the portfolio.
Operations and
Technology Risk
Committee
Monitors and oversees group-wide operational resilience, including technology, security,
supplier and operational risk appetite, examining industry, regulatory and technical risks.
Divisional risk and
compliance committees
Provide oversight of risk profile, alignment to risk appetite and effectiveness of the risk
management and compliance framework at a divisional or business level.
Three Lines of Defence
The group’s risk management approach is underpinned by a strong governance framework founded on a three lines
of defence model.
The governance framework is considered appropriate to both the size and strategic intentions of the group. The key principles
underlying this approach are that:
• business management owns all the risks assumed throughout the group and is responsible for their day-to-day
management to ensure that risk and reward are balanced;
• the board and business management together 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.
77
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Governance Report
Financial Statements
Three Lines of Defence
The businesses
Group Risk and Compliance Committee
(reports to the Risk Committee)
The chief executive delegates to divisional and operating
business chief executives the 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:
• identifying and assessing risks;
• managing and controlling risks;
• measuring risk (key risk indicators/early
warning indicators);
• mitigating risks, including controls framework and
effectiveness;
• reporting risks;
• committee structure and reporting; and
• management and self-assessment of operational
resilience capabilities.
First line of defence
Key features
• Promotes a strong risk culture and focus
on sustainable risk-adjusted returns.
• Implements the risk framework.
• Promotes a culture of adhering to limits
and managing risk exposures and ongoing
self-assessment.
• Promotes a culture of focus on good
customer outcomes.
• Promotes responsibility for ongoing
monitoring of positions and management and
control of risks and controls effectiveness,
including testing of controls, alongside
portfolio optimisation.
Risk Report continued
Risk and compliance
Risk Committee (reports to the board)
The Risk Committee delegates day-to-day responsibility for
oversight and challenge on risk-related issues to the group
chief risk officer.
Risk functions (including compliance) provide support,
assurance and independent challenge on:
• the design and operation of the risk framework and
methodologies;
• risk assessment;
• risk appetite and strategy;
• risk reporting;
• adequacy of mitigation plans and effectiveness of risk
decisions taken by business management;
• group risk profile; and
• committee governance and challenge.
Second line of defence
• Oversees embedding of the risk framework and
supporting methodologies, taking an integrated
approach to risk and compliance (qualitative
and quantitative).
• Promotes a strong and effective risk and control
culture across the group.
• Undertakes compliance monitoring and risk
assurance activities.
• Supports through developing and advising
on risk and compliance strategies.
• Facilitates constructive check and challenge.
• Oversight of business conduct and
customer outcomes.
Key features
Internal audit
Audit Committee (reports to the board)
The Audit Committee mandates the group head
of internal audit with day-to-day responsibility for
independent assurance.
Internal audit provides independent assurance on:
• first and second lines of defence;
• appropriateness/effectiveness of internal controls; and
• effectiveness of policy implementation.
Third line of defence
• Draws on deep knowledge of the group
and its businesses.
• Provides independent assurance on the
activities of the group, including the risk
management framework.
• Assesses the appropriateness and effectiveness
of internal controls.
• Incorporates review of culture, conduct and
customer outcomes.
Key features
78
Close Brothers Group plc Annual Report 2024
Risk Management and Internal Controls
Supporting the foundation of a strong risk
management structure
Aligned to the risk governance framework, oversight across
the group is supported by the maintenance of a range of
internal controls. These cover risk, compliance, and financial
management and reporting and control processes. The
controls are designed to ensure the accuracy and reliability
of the group’s financial information and financial and
regulatory reporting.
The main features of these controls with respect to financial
reporting include consistently applied accounting policies,
clearly defined lines of responsibility and processes for the
review and oversight of disclosures within the Annual Report.
These controls are overseen by the Audit Committee.
The group policy framework, overseen by the board, is a
key component of the group’s Enterprise Risk Management
Framework, supporting the foundation of a strong risk
management structure. Group policies are supported by
group standards, and by divisional/business-level policies
and procedures which, together, outline the way in which
policy is implemented and detail the process controls in
place to ensure compliance. The accounting policies form
part of this broader policy framework, alongside policies
and standards relating to the group’s principal risks.
This structure establishes a link between group strategy and
day-to-day operations in a manner consistent with agreed
risk appetite. Simultaneously they facilitate board and
executive-level oversight and assurance as to the application
of the strategy via conformance with underlying policy and
standard requirements.
Review of effectiveness of risk management and
internal control systems
Throughout the year, the board, assisted by the Risk
Committee and the Audit Committee, actively monitors the
group’s risk management and internal control systems and
reviews their effectiveness to ensure the maintenance of an
effective risk management and internal control framework.
A review of the effectiveness has been performed, covering
all material controls, including financial, operational
and compliance controls. Further detail on the board
review of the risk management and internal controls
is provided on page 129.
Risk Appetite
Enabling key risk decisions in delivering the group’s
strategic objectives
Risk appetite forms a key component of the group’s risk
management framework and refers to the sources and levels
of risk that the group is willing to assume in order to achieve
its strategic objectives and business plan. It is managed
via an established framework that facilitates ongoing
communication between the board and management with
respect to the group’s evolving risk profile. This enables key
decisions concerning the allocation of group resources to
be made on an informed basis.
Risk appetite is set on a top-down basis by the board
with consideration to business requests and executive
recommendation. Appetite measures, both qualitative and
quantitative, are applied to inform both decision-making and
monitoring and reporting processes. Early-warning triggers
are also employed to drive required corrective action before
overall tolerance levels are reached.
The group conducts a formal review of its risk appetites
annually to align risk-taking with the achievement of strategic
objectives. Adherence is monitored through the group’s
risk committees on an ongoing basis, with interim updates
to individual risk appetites considered as appropriate
through the year.
Stress Testing
Assessing and understanding future levels of risk
Stress testing represents another core component of the
risk management framework and is employed, alongside
scenario analysis, to support assessment and understanding
of the risks to which the group might be exposed in the
future. As such, it provides valuable insight to the board
and senior management, playing an important role in the
formulation and pursuit of the group’s strategic objectives.
All stress testing activities are overseen by the Scenario
Planning Forum, who consider the various risks impacting
the business and recommend actions required to enhance
the group’s stress testing ability.
Stress testing activity within the group is designed to meet
three principal objectives:
1. inform capital and liquidity planning – including liquidity
and funding risk assessment, contingency planning and
recovery and resolution planning;
2. support ongoing risk and portfolio management –
including risk appetite calibration, strategic decisioning
and planning, risk and reward optimisation and business
resilience planning; and
3. provide a check on the outputs and accuracy of risk
models – including the identification of non-linear effects
when aggregating risks.
To support these objectives, stress testing is designed
to cover the group’s most material risks, with activity
conducted at various levels, ranging from extensive group-
wide scenario analysis to simple portfolio sensitivity analysis.
Stress testing also represents a critical component of both
the group’s Internal Capital Adequacy Assessment Process
(“ICAAP”) and Internal Liquidity Adequacy Assessment
Process (“ILAAP”), with scenario analysis additionally
employed as part of the group’s Recovery Plan.
Group Policy Framework
Procedures
Divisional and business policies
Group standards
Group policies
Enterprise Risk Management Framework
79
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Financial Statements
Principal Risks
At the core of the Enterprise Risk Management Framework
and risk process life cycle sits the group’s suite of
principal risks.
These are the risks which have been identified as those
most material in the delivery of the group’s strategic
objectives. This suite is subject to ongoing review to
ensure that the framework remains aligned to the prevailing
risk environment.
The group’s activities, business model and strategy remain
unchanged; as a result, following review and challenge,
it has been determined that at present the principal risks
themselves remain broadly consistent with those detailed
in our prior year’s report, although the underlying risk drivers
may have changed and our approach to mitigating these has
evolved in step with them.
The table on pages 82 and 83 gives an overview of these
principal risks and possible impacts, as well as the outlook
pertaining to these. More detailed information on each
of these follows on pages 85 to 116 which set out the
frameworks in place to manage these risks.
This should not be regarded as a complete and
comprehensive statement of all potential risks faced by the
group but reflects those which the group currently believes
could have a significant impact on its future performance.
Climate Risk
Running alongside the suite of principal risks is climate risk,
which the group categorises as a cross-cutting risk, as
the impacts arising from climate change have the ability to
impact across the spectrum of principal risks. In addition,
transitional risks from climate change which may have a
medium to longer-term impact on the group’s product
offering, operations and strategic direction are captured
in the group’s emerging risks. For further information on the
group’s climate risk response, see the group Sustainability
Report on pages 33 to 54.
Climate risk represents a continued area of focus, and
the group continues to closely monitor government and
regulatory developments in parallel to managing its own
carbon footprint and supporting its customers to manage
their climate risk impacts. The short-dated tenor of the
lending book and strong business model resilience
capabilities mitigate current risk exposure while the
continued embedding of the climate framework will enable
the group to review the evolution of the risk landscape
on an ongoing basis.
Emerging Risks
The group’s suite of principal risks is accompanied by
a portfolio of emerging risks reflecting broader market
uncertainties. The group defines an emerging risk as a risk
that may potentially become material in the delivery of the
group’s strategic objectives but the risk and its applicability
to the group may not yet be fully understood or assessed.
This incorporates input and insight from both a top-down
and bottom-up perspective:
Top-down: identified by directors and executives at a group
level via the Group Risk and Compliance Committee
(“GRCC”) and the board.
Bottom-up: identified at a business level and escalated,
where appropriate, via risk updates to the GRCC.
The established framework for monitoring these risks
supports the group’s organisational readiness to respond.
Group-level emerging risks are monitored by the GRCC and
Risk Committee on an ongoing basis, with agreed mitigating
actions in place to ensure the group’s preparedness should
a risk crystallise. Ongoing monitoring also tracks several
sub-risks to support identification of key themes and any
patterns of deterioration or potential risk crystallisations.
Emerging risks are considered on both an internal and
external basis with careful consideration given to likely
emergence periods. Additionally, active monitoring of the
correlation impacts across emerging risks, uncertainties
and principal risks is undertaken.
During the year, to reflect the evolving nature of risks that
accompany the implementation of group strategy, supply
chain risk and legal and regulatory change risk have been
removed as emerging risks and will continue to be monitored
under business as usual cadence. In line with changes to
the Corporate Governance Code, published by the Financial
Reporting Council (“FRC”) in 2024, the group continues
to progress a programme of work to enhance the risk and
controls management framework and monitoring of existing
and horizon emerging risks.
Risk Report continued
Principal and emerging risks
80
Close Brothers Group plc Annual Report 2024
Emerging risks
E1:
Economic uncertainty
E2:
Geopolitical uncertainty
E3:
Medium to long-term transitional climate risks
E4:
Strategic disruption
E5:
Change execution risk
Risk emergence time frame
Short term
Medium term
Long term
Emerging risks key
Internal
External
E1
E5
E4
E2
E3
Em
erg
in
g r
isk
s
Fin
an
cia
l
Op
er
atio
nal
Str
ate
gic
Cro
ss-
cutt
ing
Pr
in
ci
p
al
r
is
k
s
Business and strategic
Capital
Conduct
Credit
Funding and liquidity
Legal and regulatory
Non-traded market
Operational
Reputational
Traded market
Cli
ma
te
ri
sk
is
a
c
ro
ss
-c
utt
in
g r
is
k
ac
ro
ss
a
ll
pri
nc
ip
al
ris
k t
yp
es
Principal and Emerging Risks
81
Strategic Report
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Financial Statements
Principal risk
Outlook
Business and Strategic Risk
The risk of realising lower than anticipated profits
or experiencing a loss rather than a profit due to
failure to adapt to changing market conditions,
pursuing an ineffective strategy or ineffective
implementation of strategy.
See page 85.
• Whilst in the continued uncertain macroeconomic environment the
group’s business model remains proven and resilient, there is
uncertainty in relation to the FCA’s review of historical motor finance
commission arrangements.
• We continue to focus on supporting our customers, maintaining
underwriting standards and investing to support future income
generation, maintain operational resilience and generate operational
efficiency and cost savings.
• A number of management actions are in train and actively
progressing to leave the group well placed to navigate the current
uncertainty, as referenced in the H1 2024 announcement.
• We continue to be encouraged by the strength of demand in our
Banking business and see good growth prospects for the group,
as we focus on resuming our track record of earnings growth and
attractive returns.
• The group remains prepared for a range of different economic and
business scenarios to help ensure it has the resources and
operational capability to perform effectively.
Capital Risk
The risk that the group has insufficient regulatory
capital (including equity and other loss-absorbing
debt instruments) to operate effectively, including
meeting minimum regulatory requirements, and
to operate within board-approved risk appetite
and support its strategic goals.
See page 86.
• The FCA’s review of historical motor finance commission
arrangements may result in the need to raise a customer redress
provision.
• The PRA Policy Statement PS9/24 (“Implementation of the Basel
3.1 standards near-final part 2”) could have an impact on the
group’s capital ratio.
Conduct Risk
The risk that the group’s behaviours, or those
of its colleagues, whether intentional or
unintentional, result in poor outcomes for
customers or the markets in which it operates.
It is rooted in the importance of delivering good
customer outcomes at every stage of the
customer journey.
See page 89.
• As Consumer Duty continues to be embedded within the
businesses, the group will continue to keep abreast of regulatory
guidance and developments to enable adherence to regulatory
expectations in relation to the delivery of good customer outcomes.
• The external macroeconomic environment continues to increase
financial pressure on consumers.
Credit Risk
The risk of a reduction in earnings and/or value
due to the failure of a counterparty or associated
party, with whom the group has contracted or is
exposed as part of its operations, to meet its
obligations in a timely manner.
See page 90.
• Notwithstanding signs of resilience in the economy over the last 12
months, uncertainty has remained for both individuals and SMEs.
This could result in higher credit losses in the future.
• The loan book continues to display resilience resulting from the
application of consistent prudent lending criteria and risk appetite.
Protect
Grow
Sustain
Risk decrease
Risk increase
Stable
Risk Report continued | Principal Risks
82
Close Brothers Group plc Annual Report 2024
Principal risk
Outlook
Funding and Liquidity Risk
Funding risk is the risk of loss caused by the
inability to raise funds at an acceptable price
or to access markets in a timely manner or
any decrease in the stability of the current
funding base.
Liquidity risk is defined as the risk that the group,
or any of its entities, do not have sufficient liquid
assets to meet liabilities as they come due during
normal and disrupted markets.
See page 104.
• The group has a long-standing approach based on the principle
of “borrow long, lend short” and the group continues to benefit from
the diverse funding mix and prudent maturity profile.
• Consistent with the funding plan, growth in retail deposits is
expected to continue.
Legal and Regulatory Risk
The risk of non-compliance with laws and
regulations which could give rise to fines,
litigation, sanctions and/or direct claims by
customers and the potential for material adverse
impact upon the group.
See page 106.
• The inherent risk arising in financial services as an industry in the
jurisdictions in which we operate continues to increase.
• Notwithstanding the strong controls in effect limiting residual risk
exposure arising from regulatory expectations, external changes
may have a follow-on impact to the group’s residual exposure.
• Legal risks such as the approach from the Financial Ombudsman
Service (“FOS”) relating to motor commissions, and uncertainty
of: the outcome of the FCA’s review of historical motor finance
commission arrangements; position of the courts in relation to
litigation and the Judicial Review of FOS (issued by Barclays); and
the increase of activity from claim management companies, is likely
to increase costs to the business and may give rise to potential
future obligations to compensate customers.
Non-traded Market Risk
Is the current or prospective risk to the group’s
capital or earnings, arising from changes
in interest rates, credit spreads and foreign
exchange rates applied to the group’s
non-trading book.
See page 107.
• The group expects exposure to interest rate risk, credit spread risk
and foreign exchange (“FX”) risk to remain broadly stable.
Operational Risk
Operational risk is the risk of loss or customer
harm resulting from inadequate or failed internal
processes, people and systems or external
events. This includes the risk of being unable
to recover systems quickly and maintain
critical services.
See page 109.
• In addition to the continuing investment required to sustain the
group’s systems and processes, an accelerating pace of external
technology and market changes is increasing the imperative for the
group to evolve and adapt its processes, risks and controls and the
associated necessary staff capabilities.
• Possible outcomes of the FCA’s review of historical motor finance
commission arrangements could strain operations and technology
capacity, notwithstanding advance preparatory work.
• Allocation of capital investment funding and change delivery
capacity continue to be areas of management focus, to enable safe
delivery of change programmes that enable the group’s strategy
and associated technology transformation.
Reputational Risk
The risk of detriment to stakeholder perception of
the group, leading to impairment of its reputation
and future goals, due to any action or inaction
of the company, its employees or associated
third parties.
See page 113.
• Established group-wide and employee-level focus on responsibility
and sustainability enables an approach in all businesses that aligns
to a range of stakeholder expectations, which is supported by
group-level oversight.
• Increased media attention, including in relation to the FCA’s review
of historical motor finance commission arrangements, may lead to
an adverse perception of the group.
Traded Market Risk
The risk that a change in the value of an
underlying market variable will give rise to an
adverse movement in the value of the group’s
trading assets and liabilities.
See page 115.
• The external macroeconomic environment may continue to impact
market volumes and suppress some market valuations.
83
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Financial Statements
Emerging risk/uncertainty
Mitigating actions and key developments
Cross-cutting Risks
Geopolitical
uncertainty
The risk that UK or
global political events
result in disruption to
the business or
negatively impact
business performance
or prospects.
• The group operates predominantly in the UK and Republic of Ireland, covering approximately
98% of the loan book exposure. Nevertheless, monitoring is in place to track changes in the
geopolitical landscape that could impact the group’s operations, customers and supply chain.
• The group has a strong financial position, maintaining capital and liquidity levels in excess
of regulatory minima.
• Regular stress testing is undertaken on performance and financial position in the event
of various adverse conditions to test the robustness and resilience of the group.
• Risk appetite is regularly reviewed to ensure it remains appropriate in the prevailing
geopolitical and macroeconomic environment.
Medium to long-
term transitional
climate risks
The risk that the move
to a low carbon
economy impacts
demand for the
group’s products
and services.
• Transitional climate risks across the medium to long term may potentially impact the group’s
product offering, operations and strategic direction. Monitoring is in place to continually
identify and assess climate risks and opportunities, supported by annual consideration
of climate-related scenario analysis.
• Regular updates are provided to the Group Climate Committee and Risk Committee, which
retains oversight responsibility, while senior management responsibility is assigned to the
group chief risk officer.
• The group continues to evolve its intermediate green lending ambitions, aligning to its wider
net zero commitments under NZBA.
Financial Risks
Economic
uncertainty
The risk that changes
in the external
macroeconomic
environment or
consumer sentiment
negatively impact
on the group’s
performance
or prospects.
• Persisting national or international macroeconomic uncertainty (for example, from financial
volatility or changes to macroeconomic policies) can impact business, customer and broader
market confidence.
• The group’s business model aims to enable it to trade successfully and support clients in
a wide range of economic conditions. By maintaining a strong financial and capital position,
the group aims to be able to absorb short-term economic downturns, respond to any
change in activity or market demand, and in so doing build long-term relationships by
supporting clients when it really matters.
• The group focuses on credit quality and returns rather than overall growth or market share
and continues to invest in the business for the long term, to support customers and clients
through the cycle.
• Risk appetite is regularly reviewed to ensure it remains appropriate in the prevailing
macroeconomic environment. Regular stress testing is undertaken on performance and
financial position in the event of various adverse conditions to test the robustness and
resilience of the group.
Strategic Risks
Change execution
risk
Strategic, reputation,
regulatory or financial
risk as a result of
failure to execute,
embed and deliver
the outcomes of
change successfully.
• The group faces the risk that poorly executed change, or failure to deliver the outcomes and
benefits of change, results in the failure to deliver good customer outcomes or meet
strategic objectives and regulatory obligations.
• Various large, complex projects and initiatives executed concurrently can place high demand
on the group’s operational capacity, increasing potential failure in achieving the required
outcomes. The execution of a large portfolio of change could place demand on key subject
matter experts and cause disruption and uncertainty to colleagues across the business.
• Regular portfolio and project updates are provided to senior management, supporting
oversight and governance of execution risks and ensuring appropriate resources are
deployed to promote successful delivery.
Strategic disruption
The risk that changes
in competition,
technology,
competitor business
models or client
expectations
negatively impact
on demand for the
group’s products
and services.
• Strategic disruption may arise from technological change or new business models that may
impact the group’s market position and future profitability.
• While regulation remains a barrier to entry for many potential competitors, consumer
expectations continue to evolve, challenging existing capabilities and traditional approaches.
• Competitors are adapting in response, while new financial technology companies develop
alternative business models. For example, cloud-delivered solutions reduce barriers to entry
and new product time to market, allowing new competitors and start-ups to compete in
the marketplace more rapidly.
• The growing prevalence of AI increases the effectiveness and efficiency in delivering
customer-centric products and services for those competitors unable to deploy solutions
at scale. The group acknowledges the benefits of investment in technology platforms and
will consider the exploitation of new capabilities such as cloud and AI solutions where
possible within capacity and financial constraints.
• Market developments are closely monitored through horizon scanning to identify emerging
dynamics as well as evolving preferences of the group’s customers. The group prides itself on
its knowledge of its customers, clients and the industries and sectors in which they operate.
Short-term emergence
Medium-term emergence
Long-term emergence
Risk Report continued | Emerging risks
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Close Brothers Group plc Annual Report 2024
Business and strategic risk
Business and strategic risk is the risk of realising lower
than anticipated profits or experiencing a loss rather
than a profit, due to failure to adapt to changing market
conditions, pursuing an ineffective strategy or ineffective
implementation of strategy.
Exposure
The group operates in an environment where it is exposed to
various independent influencing factors. Its profitability can
be impacted by: the broader UK economic climate; front-line
sales performance; changes in technology, regulation and
customer behaviour; cost movements; and competition from
traditional and new players. All of these can vary in both
nature and extent across its divisions.
Changes in these factors may affect the Banking division’s
ability to advance loans or products as it seeks to maintain
its desired risk and reward criteria, result in lower new
business levels in Close Brothers Asset Management, impact
levels of trading activity at Winterflood, or result in additional
investment requirements and higher costs across the group.
Risk Appetite
The group seeks to address business and strategic risk
through executing a sustainable business model based on:
• focusing on specialist markets where the group can
build leading market positions based on service, expertise
and relationships;
• focusing on credit quality and returns rather than loan
book growth or market share;
• investing in the business for the long term;
• maintaining a strong balance sheet and prudently
managing the group’s financial resources;
• consistently supporting our customers and clients; and
• acting sustainably and responsibly, considering the
interests of all stakeholders and growing demand for
sustainable products and services.
Measurement
Business and strategic risk is measured through a number
of key performance metrics (including those set out on pages
26 and 27) and risk indicators at a business, divisional and
group level which provide transparency on progress and
execution against strategy. These indicators are typically
reported monthly via relevant committees, with oversight via
the board, most notably through its review of key financial
metrics and underlying performance trends.
The status of key group initiatives and projects is also
tracked and discussed, noting the importance of their
successful delivery to the group’s strategic trajectory.
Mitigation
To support the management of its strategy, and help mitigate
potential business and strategic risk, the group maintains a
comprehensive and rigorous framework of consideration and
approval covering the design and endorsement of strategy,
and the ongoing monitoring of its implementation.
The group’s strategic pillars are regularly reviewed to ensure
continued focus on strategic priorities that support the
business model and enable the group to adapt to changes
and expectations in the operating environment. Whilst these
pillars remain unchanged, the group’s strategic priority in the
short term is to further strengthen the capital position, while
protecting our business franchise.
Notwithstanding the current focus on optimising risk
weighted assets, in part through selective loan book growth,
the group’s long track record of successful growth and
profitability is supported by a consistent and disciplined
approach to pricing and credit quality. This allows the group
to support customers throughout the financial cycle.
The group builds and maintains long-term relationships with
its clients and intermediaries based on:
• speed and flexibility of services;
• its local presence and personal approach;
• the experience and expertise of its people; and
• an offering of tailored and client-driven product solutions.
This differentiated and consistent approach combining our
focus on credit quality and relationships with our clients
results in strong customer engagement and high levels
of repeat business.
The group is further protected by the diversity of its
businesses and products, which provides resilience against
competitive pressure or market weakness in any of the
sectors it operates in.
Monitoring
On an ongoing basis, strategy is formulated and managed
at an individual business level through local executive
committees with top-down oversight maintained through
the group’s Executive Committee. Outputs also feed into
the group’s annual budgeting and planning process which
typically operates on a three-year time horizon. The group’s
budget and plan are subject to review and challenge,
initially at a business level and subsequently by the group’s
Executive Committee, ahead of submission to the board,
which reviews, challenges and agrees the group’s budget
for the following year.
The ongoing strategic planning process is supplemented
by an annual board strategy day, which takes a thematic
approach to the review and challenge of group and
business-level strategic priorities. Additionally, a deep dive
on strategy for each business is presented to the board for
discussion regularly.
New growth initiatives and potential acquisitions are
assessed against the group’s strategic objectives and its
Model Fit Assessment Framework, to ensure consistency
with the group’s strategic priorities and the key attributes
of its business model.
Capital and liquidity adequacy planning conducted as part
of both the annual ICAAP and ILAAP is used to assess the
resilience of the group’s current strategy and business
model in the event of different stress scenarios. Although
not formally linked, outputs and analysis from both exercises
are used to guide strategic planning.
The annual risk appetite statement review also ensures the
group’s risk appetite and supporting key risk indicators are
aligned with the financial and strategic plan. Agreed appetite
is communicated throughout the group through the review
and approval of divisional risk appetite statements and
business-level key risk indicators.
The group conducts monitoring focused on the external
environment (for example, key market indices, and growth
of sustainable products and services). Within credit risk, all
Banking businesses monitor agreed external early warning
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Governance Report
Financial Statements
Risk Report continued | Principal Risks
indicators (for example, movement in housing indices) with a
view to supporting the early identification of negative trends,
and enhancing the group’s ability to respond appropriately,
minimising potential impact on performance.
In addition, emerging risks are also monitored and debated
on an ongoing basis at all levels of the group and across all
functions. These include developments in areas such as
technology, regulation and sustainability, which could
present both opportunities and threats. Within the risk
function, reporting capabilities continue to be enhanced to
further support the group’s ability to identify and respond
effectively to changes in the external environment and in
customer behaviours with a view to mitigating any potential
impact on business performance.
Outlook
Whilst in the continued uncertain macroeconomic
environment our business model remains proven
and resilient, there is significant uncertainty in relation
to the FCA’s review of historical motor finance
commission arrangements.
We continue to focus on supporting our customers,
maintaining underwriting standards and investing to
support future income generation, maintain operational
resilience and generate operational efficiency
and cost savings.
A number of management actions are in train and actively
progressing to leave the group well placed to navigate
the current uncertainty.
We continue to be encouraged by the strength of demand
in our Banking business and see good growth prospects
for the group, as we focus on resuming our track record
of earnings growth and attractive returns.
The group remains prepared for a range of different
economic and business scenarios to help ensure it has
the resources and operational capability to
perform effectively.
For further details on emerging risks and uncertainties see
page 84. In addition, further commentary on the market
environment and its impact on each division is outlined
on pages 57 to 73.
Capital risk
Capital risk is the risk that the group has insufficient
regulatory capital (including equity and other loss-absorbing
debt instruments) to operate effectively, including meeting
minimum regulatory requirements, operating within board-
approved risk appetite and supporting its strategic goals.
Exposure
The group’s exposure to capital risk principally arises from
its requirement to meet minimum regulatory requirements
set out in the Capital Requirements Regulation (“CRR”) and
PRA requirements and guidelines and is usually specified
in terms of minimum capital ratios which assess the level
of regulatory capital and RWAs. The group operates a
prudent business model which results in comparatively low
levels of leverage and so risk-based capital requirements
are, and are likely to remain, the group’s binding constraint.
The 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 FCA. The group’s Pillar 1 information
is presented in the first table of the “Measurement”
section. Under Pillar 2, the group completes an annual
self-assessment of risks known as the ICAAP. The ICAAP
is reviewed by the PRA, which culminates in the PRA setting
a Total Capital Requirement (“TCR”) that the group and its
regulated subsidiaries are required to hold at all times.
During the 2024 financial year the PRA reset the group’s
Pillar 2a requirements from 1% of RWAs to 1.3%. The TCR
is now set at 9.3%, of which 5.2% needs to be met with
Common Equity Tier 1 (“CET1”) capital. This includes the
Pillar 1 requirements (4.5% and 8% respectively for CET1
and total capital) and a Pillar 2a component of 1.3%,
of which 0.7% needs to be met with CET1 capital.
There are no planned increases to the UK countercyclical
buffer (“CCyB”) at this time, and the rate remains at 2%.
During the 2024 financial year, a planned increase of 1%
to the Ireland CCyB rate has come into effect, with an
applicable rate of 1.5% in effect from 7 June 2024.
This change had a minimal impact on the group’s CCyB,
which remains at 1.9%.
Pillar 3 requires firms to publish a set of disclosures which
allow market participants to assess information on the
firm’s capital, risk exposures and risk assessment process.
The group’s Pillar 3 disclosures, which are unaudited, can
be found on the group’s website at www.closebrothers.com/
investor-relations/investor-information/results-reports-
and-presentations.
Risk Appetite
The group maintains a strong base level and composition
of capital, sufficient to support the development and growth
of the business, continue to meet Pillar 1 requirements, TCR,
additional Capital Requirements Directive (“CRD”) buffers
and leverage ratio requirements, and be able to withstand
a severe but plausible stress scenario with satisfactory
capital and leverage ratios.
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. Accordingly, a prudent capital position is a core
part of the group’s business model, allowing it to grow
and invest in the business, support paying dividends to
shareholders and meet regulatory requirements.
Capital triggers and limits are maintained within the risk
appetite framework and are approved by the board
at least annually.
The group has set a management target for the CET1 capital
ratio to operate in a range between 12.0% and 13.0% in the
medium term, which provides for a significant surplus
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Close Brothers Group plc Annual Report 2024
amount of capital to support the group’s capital risk policy.
Given the capital headwinds the group is facing, actions are
being taken to build and preserve capital strength.
Measurement
The group maintains a strong capital base to support the
development of the business and to ensure the group meets
the TCR and additional regulatory buffers at all times. As a
result, the group maintains capital adequacy ratios above
minimum regulatory requirements, which are currently set
at a minimum CET1 capital ratio of 9.7% and a minimum
total capital ratio of 13.7%. The minimum CET1 capital
requirements are inclusive of the capital conservation buffer
(2.5% of RWAs) and the CCyB (currently 1.9% of RWAs),
and exclusive of any applicable PRA buffer.
Analysis of the composition of regulatory capital and
Pillar 1 RWAs and a table showing the movement in
CET1 capital during the year are shown on the following
pages. A comprehensive analysis of the composition
of regulatory capital and RWAs is provided in the group’s
Pillar 3 disclosures.
The CET1 capital ratio reduced from 13.3% to 12.8%,
mainly driven by growth in loan book (-c.100 bps), a
decrease in IFRS 9 transitional arrangements (-c.20 bps),
the Bluestone acquisition (-c.20 bps) and AT1 coupon
(-c.10 bps). This was partly offset by profits for the current
financial year (c.90 bps).
CET1 capital increased by 5% to £1,374.8 million (31 July
2023: £1,310.8 million) mainly driven by £100.4 million
of profits, partly offset by the dividend paid and foreseen
related to AT1 coupon of £15.0 million and a decrease in
the transitional IFRS 9 add-back to capital of £19.7 million.
Tier 1 capital increased 20% to £1,574.8 million (31 July
2023: £1,310.8 million), driven by the issuance of the group’s
inaugural AT1 in a £200 million transaction to optimise the
capital structure and provide further flexibility to grow the
business. The transaction strengthened the regulatory capital
position and was in line with the group’s strategy and capital
management framework.
Total capital increased 17% to £1,774.8 million (31 July
2023: £1,510.8 million), primarily reflecting the AT1 issuance.
RWAs increased 9% to £10.7 billion (31 July 2023: £9.8
billion), driven by loan book growth (c.£790 million)
primarily in Commercial and Property, and the acquisition
of Bluestone Motor Finance (Ireland) DAC (c.£120 million),
and a decrease in operational risk RWAs (c.£40 million)
reflecting a reduction in average income in Winterflood,
partly offset by loan book growth.
As a result, CET1, tier 1 and total capital ratios were 12.8%
(31 July 2023: 13.3%), 14.7% (31 July 2023: 13.3%) and
16.6% (31 July 2023: 15.3%), respectively.
Composition of regulatory capital and Pillar 1 RWAs (unaudited)
31 July 2024
£ million
31 July 2023
£ million
CET1 capital
Shareholders’ equity per balance sheet
1,842.5
1,644.9
Regulatory adjustments to CET1 capital
Contingent convertible securities recognised as AT1 capital1
(197.6)
–
Intangible assets, net of associated deferred tax liabilities
(264.0)
(262.8)
Foreseeable dividend2
(3.8)
(67.0)
Cash flow hedging reserve
(13.0)
(34.4)
Pension asset, net of associated deferred tax liabilities
(0.6)
(1.0)
Prudent valuation adjustment
(0.8)
(0.4)
Insufficient coverage for non-performing exposures3
–
(0.4)
IFRS 9 transitional arrangements4
12.1
31.9
CET1 capital5
1,374.8
1,310.8
Additional Tier 1 capital
200.0
–
Total Tier 1 capital5
1,574.8
1,310.8
Tier 2 capital – subordinated debt
200.0
200.0
Total regulatory capital5
1,774.8
1,510.8
RWAs
Credit and counterparty credit risk
9,548.4
8,655.4
Operational risk5
1,044.5
1,084.0
Market risk5
108.3
108.2
10,701.2
9,847.6
CET1 capital ratio5
12.8%
13.3%
Tier 1 capital ratio5
14.7%
13.3%
Total capital ratio5
16.6%
15.3%
1. The contingent convertible securities are classified as an equity instrument for accounting but treated as AT1 for regulatory capital purposes, note 20
to the financial statements.
2. Under CRR Article 26, a deduction for a foreseeable dividend and charges has been recognised at 31 July 2024 and 31 July 2023. The deduction
at 31 July 2024 reflects charges for the coupon on the group’s contingent convertible securities.
3. In line with the amendment to Own Funds Part of the PRA Rulebook confirmed in PS 14/23, CET1 capital at 31 July 2024 no longer includes a regulatory
deduction for insufficient coverage for non-performing exposures as this is no longer applicable (31 July 2023: £0.4 million).
4. The group has elected to apply IFRS 9 transitional arrangements for 31 July 2024, which allow the capital impact of expected credit losses to be phased
in over the transitional period.
5. Shown after applying IFRS 9 transitional arrangements and the CRR transitional and qualifying own funds arrangements in force at the time. Without their
application, at 31 July 2024 the CET1 capital ratio would be 12.7%, tier 1 capital ratio 14.6% and total capital ratio 16.5% (31 July 2023: CET1 capital ratio
13.0% and total capital ratio 15.1%).
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Movement in CET1 capital during the year (unaudited)
2024
£ million
2023
£ million
CET1 capital at 1 August
1,310.8
1,396.7
Profit in the period attributable to shareholders
100.4
81.1
Dividends paid and foreseen
(15.0)
(100.5)
IFRS 9 transitional arrangements
(19.7)
(51.1)
Increase in intangible assets, net of associated deferred tax liabilities
(1.2)
(12.1)
Other movements in reserves recognised for CET1 capital
(0.8)
(7.3)
Other movements in adjustments from CET1 capital
0.3
4.0
CET1 capital at 31 July
1,374.8
1,310.8
Outlook
With respect to the FCA’s review of discretionary
commission arrangements in the motor finance market
prior to the 2021 ban on these models, on 30 July 2024,
the FCA announced that it now aims to set out next
steps by the end of May 2025, rather than by September
2024 as previously expected. Therefore, there remains
significant uncertainty for the industry and the group
regarding any potential remedial action as a result of the
review. There are a range of possible outcomes and we
remain focused on further strengthening the group’s
capital position, with the priority of protecting and
sustaining our valuable franchise.
As previously announced, we are implementing
management actions which include selective loan book
growth initiatives, potential risk transfer through
securitisation, a continued review of our business
portfolios, capital retention opportunities and identified
cost savings, which, combined with the decision not to
pay a dividend in the 2024 financial year, have the
potential to strengthen the group’s available CET1 capital
by approximately £400 million by the end of the 2025
financial year.
Following a comprehensive strategic review, the group
announced that it entered into an agreement to sell CBAM
to Oaktree on 19 September 2024. The transaction is
expected to increase the group’s CET1 capital ratio by
approximately 100 basis points on a pro forma basis.
Nevertheless, there remains considerable uncertainty
regarding the specifics of any potential redress scheme,
if required, as well as its timing. Subject to the execution
of management actions and capital generation, we have
the potential to increase the group’s CET1 capital ratio
to be between 14% and 15% at the end of the 2025
financial year (excluding any potential redress or provision
related to the FCA’s review of historical motor finance
commission arrangements).
The PRA Policy Statement PS 9/24 Implementation of
the Basel 3.1 standards near-final part 2 was published
on 12 September 2024, with an implementation date
of 1 January 2026, six months later than previously
anticipated. The majority of rules applicable to the group
remain unchanged, including the proposed removal of the
small and medium-sized enterprises (“SME”) supporting
factor, new conversion factor for cancellable facilities and
new market risk rules. As a result, we continue to expect
implementation to result in an increase of up to c.10%
in the group’s RWAs calculated under the standardised
approach. However, the PRA has proposed to apply an
SME lending adjustment as part of Pillar 2a, to ensure that
the removal of the SME support factor under Pillar 1 does
not result in an increase in overall capital requirements for
SME lending. Whilst this adjustment is subject to PRA
confirmation and a resulting restatement of the group’s
TCR, we would reasonably expect the UK implementation
of Basel 3.1 to have a less significant impact on the
group’s overall capital headroom position than
initially anticipated.
Mitigation
The group has a range of capital risk mitigants available
including the cancellation of dividends, RWA optimisation
activities and efficiency savings which support the strong
organic capital-generating capacity of the group. In February
2024, the group announced that it will not pay any dividends
on its ordinary shares for the current financial year.
In addition, the group has a strong track record of access to
capital markets including issuance of £200 million Additional
Tier 1 capital in November 2023, noting that currently there
is an opportunity to optimise the group’s capital position
further through the issuance of Tier 2.
Monitoring
Both actual and forecast capital adequacy, including the
potential impact of capital headwinds, are reported monthly
through the group’s governance framework, with oversight
from the Capital Adequacy Committee (“CAC”), GRCC and
the Risk Committee. Annually, as part of the ICAAP, the
group also undertakes its own assessment of its capital
requirements against its principal risks (Pillar 2a) together
with an assessment of how capital adequacy could be
impacted in a range of stress scenarios (Pillar 2b). Under
both assessments, the group ensures that it maintains
sufficient levels of capital adequacy.
The CAC is responsible for the management of capital risk
and for the allocation of capital across the group, which
includes the setting of the group’s capital strategy and the
setting and monitoring of a comprehensive capital risk
appetite framework. These are managed through a series
of group policies, standards and methodology documents
and supported by capital reporting and planning control
frameworks. The CAC, whose membership consists of
finance, business and risk executives, is responsible for
measuring and monitoring the actual and forecast capital
position on a monthly basis. Key capital metrics are reported
to the board on a regular basis, with any changes to the
capital structure of the group reserved for the group board.
The CAC also monitors actual, forecast and stressed capital
metrics using an IRB approach in order to prepare for
anticipated future transition to this approach.
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Close Brothers Group plc Annual Report 2024
Conduct risk
Conduct risk is the risk that the group’s behaviours,
or those of its colleagues, whether intentional or
unintentional, result in poor outcomes for customers or the
markets in which it operates. It is rooted in the importance
of delivering good customer outcomes at every stage of
the customer journey.
Exposure
The group is exposed to conduct risk in its provision of
products and services to customers either directly or via its
distributors, and through other business activities that enable
delivery. The regulatory change agenda continues at pace
and is expected in the near term to continue to enhance
consumer protection given the macroeconomic environment.
Regulatory expectations, including with respect to retail
customer savings and borrowing, wealth advisory, and
trading activities continue to evolve, with impact on the
group’s businesses in each of these markets. Failure to
evidence delivery of good customer outcomes may lead
to reputational harm, legal or regulatory sanctions and/or
customer redress.
Risk Appetite
The group recognises the importance of delivering good
customer outcomes and seeks to reasonably avoid customer
detriment or foreseeable harm resulting from inappropriate
judgements or behaviours in the creation and execution
of business activities. To support this, it strives to maintain
a culture aligned to its values which places the customer
at the heart of the business model and remains dedicated to
addressing customer dissatisfaction or detriment in a timely
and fair manner to ensure good customer outcomes.
The group is committed to maintaining the integrity of the
markets in which it operates, avoiding any abusive or
anti-competitive behaviour.
Measurement
Conduct risk is measured throughout the Enterprise Risk
Management Framework by management information and
risk indicators. A number of quantitative and qualitative key
risk indicators are determined at an individual business level,
with reporting to and oversight via the relevant divisional
Risk and Compliance Committee (“RCC”). Performance
against the key risk indicators is reported to the GRCC
and the Risk Committee.
Customer outcome monitoring metrics are key contributors
to conduct risk monitoring. Customer outcome monitoring
metrics are designed to identify potential or actual poor
customer outcomes. Where potential or actual customer
harm is identified via outcome monitoring, businesses
are required to consider and deploy, where appropriate,
remedial actions.
For businesses with products in scope of the FCA’s
Consumer Duty, indicators feed into the local and group
reporting (RCCs/GRCC) and into the quarterly Customer
Outcomes Report which is shared with the board.
The aforementioned report supports the annual assessment
of customer outcomes where the board is required to review
and approve an assessment of whether the firm is delivering
good customer outcomes.
Conduct Risk Framework
Mitigation
The following controls and procedures are in place to help
mitigate conduct risk:
• The group takes steps to proactively identify conduct risks
and encourages all individuals across the organisation to
feel responsible for managing conduct risks within their
business area and/or function.
• The group provides support to colleagues to enable them
to improve the conduct of their business or function,
including group-wide and specialist training
where required.
• The group’s remuneration strategy is designed to
incentivise good behaviours and due consideration is
given to individual conduct as part of any remuneration.
• Policies and standards set out expectations of employees
and key controls to ensure conduct risk is managed within
the agreed risk appetite, including for essential areas such
as dealing with clients, dealing with markets, complaint
handling, vulnerable customers and conflicts of interest.
Mandatory staff training on key conduct areas is provided
on a regular basis.
• All products are subject to a robust risk-based product
development and review process.
Implementation activities for Consumer Duty continued
with further embedding and enhancements to processes
introduced in 2023 for open book products and completion
of work in relation to closed book products in 2024.
The board has actively engaged with the Consumer Duty
journey of each division in the light of each unique market
and considers the distinct conduct risks that present across
the business lines. The board has oversight of each
regulated entity and their own annual assessment of
customer outcomes.
On an ongoing basis, the board actively oversees
Consumer Duty, including through engagement with regular
management information to identify risks to these outcomes,
and through monitoring the status of work to improve
outcomes where necessary.
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Outlook
Conduct risk remains elevated as the macroeconomic
environment continues to place financial pressure on
customers as a result of the cost of living and interest
rates. Whilst there has been moderation in inflation within
the past financial year, the medium to long-term outlook
remains uncertain. This may increase the stresses on
individuals and businesses requiring credit. As a result,
the importance of appropriate support for customers
in financial difficulty, including vulnerable customers,
is expected to remain elevated. The group is focused
on maintaining its culture which enables tailoring its
approach to supporting customers to drive good
customer outcomes.
The group’s regulators continue to evolve market-wide
expectations for firms to deliver good customer
outcomes. The group continues to engage with its
regulators in an open and cooperative manner, including
with respect to this evolving agenda. Where it becomes
evident that good customer outcomes may not have been
achieved, the group has moved to understand where any
shortcomings may have arisen and to address those,
such as through the recent Past Business Review of
forbearance practices and associated redress relating to
the group’s motor finance lending.
Monitoring
Risk identification and timely management action are
undertaken by management and employees as the first
line of defence. The risk and compliance functions provide
support, review and independent challenge to ensure
conduct risk reporting is robust, remains fit for purpose,
and agreed management actions appropriately mitigate
the identified risks.
The compliance monitoring function undertakes regular
reviews of key areas, such as complaint handling, vulnerable
customer processes and customer communications, to
confirm customers are experiencing good outcomes. Group
internal audit provides independent assurance on the
adequacy, completeness and control effectiveness of key
areas using a risk-based approach. Compliance monitoring
and audit findings assist with early detection of potential
conduct risk or poor customer outcomes in order that
appropriate action plans can be put in place.
All RCCs are required to review conduct risk reporting
and outputs and consider any required action. Where
appropriate, issues may be escalated to both the GRCC
and the Risk Committee.
Conduct risk reporting has continued to mature, providing
increased transparency and visibility aiding management’s
monitoring of conduct risk. With the introduction of the
enhanced regulatory requirements of the FCA’s Consumer
Duty for retail customers, reporting has been evolved and
enhanced. Metrics will continue to be evaluated with the
introduction of new regulatory requirements.
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 as they fall due. Credit risk across
the group arises mainly through the lending and treasury
activities of the Banking division.
The Banking division applies consistent and prudent lending
criteria to mitigate credit risk. Its lending activities are
predominantly secured across a diverse range of asset
classes. This ensures concentration risk is controlled in both
the loan book and associated collateral. Credit risk appetites
are set around unsecured and structurally protected
lending to ensure portfolios remain predominantly secured.
At 31 July 2024, secured lending accounts for 90.0%
(31 July 2023: 90.4%) of the loan book.
The group has established limits for all financial
counterparties with whom it places deposits, enters into
derivative contracts or whose debt securities are held,
and the credit quality of the counterparties is monitored.
While these amounts may be material, the counterparties are
all regulated institutions with investment grade credit ratings
assigned by international credit rating agencies and are
monitored in accordance with the regulatory large
exposures framework.
The group’s principal credit risk exposure is to the loan book,
which is the focus of the credit risk part of the Risk Report.
Managing Credit Risk
Exposure
As a lender to businesses and individuals, the group is
exposed to credit losses if customers are unable to repay
loans and outstanding interest and fees. At 31 July 2024,
gross loans and advances to customers was £10.3 billion
(31 July 2023: £9.6 billion).
Further details on loans and advances to customers and
debt securities held are in notes 10 and 11 to the Financial
Statements. Further commentary on the credit quality
of the loan book is outlined on pages 93 to 103.
Risk appetite
The group seeks to maintain the discipline of its lending
criteria, both to preserve its business model and to maintain
an acceptable return that appropriately balances risk and
reward. This is underpinned by a strong customer focus
and credit culture that extend across people, structures,
policies and principles. This in turn provides an environment
for long-term sustainable growth and low, predictable
loan losses.
To support this approach, the group maintains a credit risk
appetite framework to define and align credit risk strategy
with its overall appetite for risk and business strategies,
as defined by the board.
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• To operate strong control and governance within
the lending businesses, overseen by a central group
credit risk team.
Ultimate responsibility for the approval and governance
of the group CRAS lies with the board, on recommendation
from the GRCC, with support from the Credit Risk
Management Committee (“CRMC”). Performance is
monitored against agreed appetites on a monthly basis.
The CRAS is embedded into business unit credit risk
management through a hierarchy of local triggers and limits,
which are approved by the chief credit officer (“CCO”) and
noted at CRMC. Performance is also monitored monthly via
divisional RCCs. Material breaches are escalated via
established governance channels.
CRAS metrics are closely aligned with the group’s overall
strategy to facilitate monitoring of the composition and
quality of the loan book to ensure it remains within
defined appetite.
The group Credit Risk Appetite Statement (“CRAS”) outlines
the specific level of credit risk that the group is willing to
assume, utilising defined quantitative limits and triggers
against agreed measures, and covers both credit
concentration and portfolio performance measures.
The measures supporting the group CRAS are based on the
following key principles:
• To lend within familiar asset classes, in well-known and
understood markets.
• To operate as a predominantly secured, or structurally
protected, lender against identifiable and accessible
assets, and maintain conservative loan-to-value (“LTV”)
ratios across the Banking division’s portfolios.
• To maintain a diversified loan portfolio (by business, asset
class and UK geography), as well as a short average tenor
and low average loan size.
• To rely on local underwriting expertise, with authority
delegated from the Risk Committee, and ongoing
central oversight.
• To maintain rigorous and timely collections and arrears
management processes.
Credit Risk Governance Framework
Risk Committee
Divisional Risk Committees
Risk-specific committees
Impairment
Adequacy
Committee
Credit Risk
Management
Committee
Group Risk and
Compliance
Committee
Group
Credit
Committee
Model
Governance
Committee
Policy and governance
Credit Risk Appetite Statements/
Early warning indicators
Exceptions and large deals
Third-line oversight
Group internal audit
Measurement
A consolidated central credit reporting framework is in
place and facilitates effective credit risk management
and measurement by the central group credit risk team.
The framework enables the identification, measurement,
monitoring and control of all material credit risks within the
lending portfolios, setting clear credit risk appetite within
which all lending is originated and ensuring that asset
portfolios are grown responsibly and profitably.
A centralised framework incorporates:
• the use of common data definitions across all
business units;
• consistent and controlled extraction and housing of credit
data from the bank’s core business systems;
• dynamic credit risk management to improve strategic
policy decision-making;
• oversight and control of the profile of the lending book
to manage credit risk appetite; and
• identification, monitoring and control of material credit
risks against a clear and communicated CRAS.
Mitigation (Audited)
Credit assessment and lending criteria
The Banking division’s general approach to credit mitigation
is based on the provision of affordable lending on a secured
or structurally protected basis, against assets that are known
and understood. These assets are typically easily realisable
with strong secondary markets and predictable values,
and spread across a broad range of classes within
established sectors.
Whilst diverse, the businesses adhere to a set of common
lending principles resulting in stable portfolio credit quality
and consistently low loss rates through the cycle.
The common lending principles are as follows:
• Predominantly secured lending: 97.6% of loan book
secured or structurally protected.
• Short average tenor: portfolio residual maturity
of 15 months.
• Small average loan size and low single-name
concentration risk: balance for the top 10 facility limits
represents less than 6% of book.
• Further diversification by sector, asset class and
UK geography.
• Local underwriting expertise with central oversight:
focus on assets that are known and understood.
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Risk Report continued | Principal Risks
All lending criteria and assessment procedures are
thoroughly documented in robust credit policies
and standards, at both a bank and business level.
Expertise
Across the various businesses, credit risk employees are
specialists in their area and can support loan book growth
in a manner that is consistent with both risk strategy and
appetite. This business-level distribution allows the formation
of strong relationships with customers and intermediaries
based on a deep understanding of their needs and the
markets in which they operate. Consistent underwriting
discipline and lending against assets that are known
and understood benefits customers through the cycle
and allows maintenance of a track record of strong
margins and profitability.
Governance Framework and Oversight
Lending is underpinned by a strong control and governance
framework both within the lending businesses and through
oversight via a central group credit risk team.
Credit underwriting is undertaken either centrally or through
regional office networks, depending on the nature of the
business and the size and complexity of the transaction.
Underwriting authority is delegated from the Risk
Committee, with lending businesses approving lower-risk
exposures locally subject to compliance with credit policy
and risk appetite.
Local risk directors assure the quality of underwriting
decisions for all facilities within the business’ delegated
sanctioning authority level via a quality assurance
programme. This programme samples new business
underwritten, with a particular focus on lending hotspots:
for example, long-tenor agreements, new asset classes or
high LTVs. Outputs are reported biannually with consolidated
summaries presented to the CRMC.
These underwriting approaches are reinforced by
timely collections and arrears management, working in
conjunction with the customer to ensure the best possible
outcome for customers.
The local model is supported by central oversight and
control. An independent central group credit risk team
provides ongoing monitoring of material credit risks
through regular reviews of appetite and policy.
Monitoring
High-level requirements are outlined in documented
standards covering the identification, monitoring and
management of customers in financial difficulty, with detailed
credit policy and guidance formalised within local credit
policies, including guidelines on the identification and
treatment of vulnerable customers.
Documented policy includes business-specific definitions
for identifying customers in, or likely to experience, financial
difficulty. There are accompanying courses of action outlined
that protect the group’s position, taking account of the
terms/covenants of facilities, security enforcement
options, legal remedies and third-party intervention
(for example, brokers).
This process is owned by the risk directors, ensuring that
prompt action is taken to review the financial conditions
of customers when warning signs indicate deterioration
in financial health, credit quality, covenant compliance
or asset strength/coverage. Where possible, credit limits
are amended where there is evidence of delinquency
or deteriorating financial condition/capacity to repay.
The credit risk framework aligns with the broader three lines
of defence approach, with a governance structure flowing
from local first-line business teams up to second-line risk
directors (and key oversight committees such as credit
committees, divisional RCCs, the CRMC, the Model
Governance Committee (“MGC”) and the Risk Committee)
overlaid with a third line formed by the group internal
audit function.
First line of defence: Credit risk management
Banking businesses have primary responsibility for ensuring
that a robust risk and control environment is established as
part of day-to-day operations, and that good-quality credit
applications are brought forward for consideration.
They are also responsible for ensuring that their activities are
compliant with the rules and guidance set out in local credit
policies and processes. Each business unit has its own
formalised credit risk appetite and policy documents,
approved by divisional RCCs. This risk culture is facilitated
by local profit and loss ownership, ensuring a long-term
approach is taken, with an understanding of how loans
will be repaid.
Second line of defence: Risk oversight and control
The second line of defence has three tiers: business-aligned
risk directors and their teams, the central group credit risk
team, and oversight committees. The risk directors in the
bank, who report to the CCO, are responsible for setting and
communicating credit risk strategy, identifying exceptions
and ensuring local compliance. Similarly, the risk heads in
the Asset Management and Securities divisions, and the
asset and liability management function, ensure that their
respective operations are performed in line with the group
financial institution and non-banking financial institution
credit risk standards and also report up through their
divisional RCCs. The central group credit risk team provides
a further layer of oversight and approval, supported by credit
committees, and the CRMC, MGC, GRCC and Risk
Committee. Together, the second line of defence provides
a clear tactical and strategic understanding of credit risk,
proposing enhancements to the credit risk framework for
ongoing effective management and control.
Third line of defence: Internal audit
The third line of defence is the group internal audit function.
This team uses both a risk-based approach and a rolling
programme of reviews to ensure that the first and second
lines of defence are working effectively.
Banking Overview
The Commercial business is a combination of several
specialist, predominantly secured, lending businesses.
The nature of assets financed varies across the businesses.
The majority of the loan book comprises loans of less than
£2.5 million. Credit quality is assessed predominantly on an
individual loan-by-loan basis. During and after the Covid-19
pandemic, the Commercial business has provided additional
support to customers using the CBILS, Coronavirus Large
Business Interruption Loan Scheme (“CLBILS”) and RLS
products, which benefit from UK government guarantees.
Collection and recovery activity is executed promptly
by experts with relevant experience in specialised assets.
This approach allows remedial action to be implemented at
the appropriate time to minimise potential loss and support
good and fair customer outcomes.
The Retail business is predominantly high-volume secured
or structurally protected lending. The majority of the loan
book comprises loans less than £20,000 and includes both
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Credit Risk Highlights (Audited)1
31 July 2024
£ million
31 July 2023
£ million
Gross loans and advances to customers
Property business
2,015.4
1,744.8
Retail business
3,136.8
3,091.2
Commercial business
5,112.6
4,799.6
Of which Novitas:
283.1
244.0
Excluding Novitas:
4,829.5
4,555.6
Total gross loans and advances to customers
10,264.8
9,635.6
Impairment provisions
Property business
60.2
41.7
Retail business
94.9
89.4
Commercial business
290.7
249.5
Of which Novitas:
220.7
184.1
Excluding Novitas:
70.0
65.4
Total impairment provision
445.8
380.6
Provision coverage ratio
Property business
3.0%
2.4%
Retail business
3.0%
2.9%
Commercial business
5.7%
5.2%
Novitas only:
78.0%
75.5%
Excluding Novitas:
1.4%
1.4%
Total impairment coverage ratio
4.3%
3.9%
Part and non-performing loans
Loans in Stage 2
1,128.8
1,062.0
Of which Novitas:
1.0
1.3
Loans in Stage 3
725.5
583.4
Of which Novitas:
282.1
241.7
Stage 2 coverage
2.8%
3.0%
Excluding Novitas:
2.7%
3.0%
Stage 3 coverage
49.9%
49.8%
Excluding Novitas:
32.2%
31.2%
1. The credit risk highlights table relates to assets held at amortised cost, which excludes £11.8 million of loans held at fair value through profit and loss
(“FVTPL”) under IFRS 9.
Outlook
Expected credit losses increased in the year to 31 July
2024, primarily resulting from loan book growth across all
divisions, Novitas Stage 3 interest accrual plus changes
to time to recover assumptions, increases to existing
impaired accounts and migrations into Stage 3. This
increase is set against a backdrop of ongoing market
uncertainty, which continues to be monitored closely.
The market backdrop has been mixed this year.
The economy has proved resilient, with a general
improvement in macroeconomic indicators, low
unemployment and strong wage growth. Nevertheless,
uncertainty has persisted for both individuals and SMEs.
Notwithstanding the reduction in the Bank of England
base rate in August 2024 and the improvement in some
economic indicators, headwinds remain, with interest
rates at higher levels, inflation proving more persistent
than expected and cost of living pressures continuing, all
of which could result in higher credit losses in the future.
The change in government seen in July 2024 is expected
to lead to changes in policy which could have an impact
on the UK’s economic outlook.
Risk appetite has remained consistent, maintaining the
Banking division’s prudent, through-the-cycle
underwriting standards.
Forborne balances have increased year-on-year. They
remain lower than peaks observed during the pandemic;
however, they are above pre-pandemic levels.
Further details on loans and advances to customers and
debt securities held are in notes 10 and 11 to the
Financial Statements.
regulated and unregulated agreements. Credit issues are
identified via largely automated monitoring and tracking
processes. Collections processes and actions, focused
on good and fair customer outcomes, are designed and
implemented to restore customers to a performing status,
with recovery methods applied to minimise potential loss.
The Property business is predominantly a low-volume,
specialised lending portfolio with credit quality assessed
on an individual loan-by-loan basis. The majority of the loan
book comprises residential development loans of less than
£10 million. All loans are regularly reviewed to ensure that
they are performing satisfactorily, with Residential
Development facilities monitored monthly by independently
appointed project monitoring surveyors to certify build
payments and the residual cost to complete. This ensures
the thorough supervision of all live developments and
facilitates the monthly checking of on-site progress against
the original build plan.
In the Commercial and Property businesses, performing
loans with elevated levels of credit risk may be placed
on watch lists depending on the perceived severity of
the credit risk.
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Risk Report continued | Principal Risks
Disclosures are provided for loans and advances to
customers held at amortised cost under IFRS 9. This
excludes £11.8 million of loans and advances to customers
measured at fair value through profit or loss which are
managed on a consistent basis as detailed on pages 90 to
92, but do not attract an ECL under IFRS 9. Stage allocation
of loans and advances to customers has been applied
in line with the definitions set out in note 1 to the
Financial Statements.
During the year the staging profile of loans and advances
to customers deteriorated, primarily as a result of stage
migrations in Asset Finance, Motor Finance and Property
Finance offsetting strong Stage 1 loan book growth in the
Leasing and Property Finance businesses.
At 31 July 2024, 81.9% (31 July 2023: 82.9%) of gross loans
and advances to customers were Stage 1. Stage 2 loans and
advances to customers remained stable at 11.0% (31 July
2023: 11.0%). The remaining 7.1% (31 July 2023: 6.1%) of
loans and advances to customers were deemed to be
credit-impaired and were classified as Stage 3.
Overall impairment provisions increased to £445.8 million
(31 July 2023: £380.6 million), following regular reviews of
staging and provision coverage for individual loans and
portfolios. The movement in impairment provisions was
mainly driven by Novitas Stage 3 interest accrual in line with
the requirement under IFRS 9 to recognise interest on a net
basis, plus changes to time to recover assumptions.
Excluding Novitas, impairment provisions increased across
the Banking division to £225.1 million (31 July 2023: £196.5
million), reflecting overall loan book growth, increases to
existing impaired accounts and migrations into Stage 3.
These factors are set against the backdrop of persistent
external pressures resulting from uncertainty in the
macroeconomic environment.
As a result, there has been an increase in provision coverage
to 4.3% (31 July 2023: 3.9%).
Provision Coverage Analysis by
Business (Audited)
In Commercial, the impairment coverage ratio increased to
5.7% (31 July 2023: 5.2%), reflecting the impacts of Novitas
Stage 3 interest accrual in line with the requirement under
IFRS 9 to recognise interest on a net basis.
Excluding Novitas, the Commercial provision coverage ratio
remained stable at 1.4% (31 July 2023: 1.4%) as strong
Stage 1 new business levels offset the impacts of migrations
into Stages 2 and 3 during the financial year.
In Retail, the provision coverage ratio increased to 3.0%
(31 July 2023: 2.9%), reflecting resilient portfolio
performance in light of sustained macroeconomic uncertainty
and heightened levels of arrears and forbearance in the
Motor Finance business as a result of persistent cost of living
pressures on customers.
In Property, the provision coverage ratio increased to 3.0%
(31 July 2023: 2.4%), as a result of migrations to Stage 3 and
increased individual provisions for some existing impaired
accounts during the financial year.
See note 10 to the Financial Statements for full staging
tables and analysis, and pages 97 to 99 for additional detail
on changes to macroeconomic forecasts that have impacted
provisions during this financial year.
Measuring Credit Risk Across Our Businesses
To assess credit risk effectively across the Banking division,
a number of judgements and estimates are used. These are
based on historical experience and reasonable expectations
of future events and are reviewed on an ongoing basis.
In particular, the calculation of the group’s expected credit
loss provision under IFRS 9 requires the group to make
a number of judgements, assumptions and estimates,
which have a material impact on the accounts.
This assessment, which requires judgement, is unbiased
and probability-weighted and uses historical, current and
forward-looking information. The most significant
judgements and estimates are set out below.
While the impact of climate change represents a source
of uncertainty, the group does not consider climate-related
risks to be a critical accounting judgement or estimate at
31 July 2024. Climate risk continues to be a key area of
focus for the group and the Banking division continues to
assess the sensitivity of assets and customers to climate-
related risks as part of regular credit monitoring. Transitional
climate risks are considered to be largely mitigated by
short average loan book tenors (15 months), conservatively
secured and diversified portfolios, and the rigorous
underwriting, monitoring and control processes that
are in place.
Use of Judgements (Audited)
In the application of the group’s accounting policies,
which are described in note 1 to the Financial Statements,
judgements that are considered by the board to have the
most significant effect on the amounts in the Financial
Statements are as follows.
Significant increase in credit risk
Assets are transferred from Stage 1 to Stage 2 when there
has been a significant increase in credit risk since initial
recognition. Typically, the group assesses whether a
significant increase in credit risk has occurred based on a
quantitative and qualitative assessment, with a “30 days past
due” backstop.
Due to the diverse nature of the group’s lending businesses,
the specific indicators of a significant increase in credit risk
vary by business and may include some or all of the
following factors:
• quantitative assessment: the lifetime probability of default
(“PD”) has increased by more than an agreed threshold
relative to the equivalent at origination. Thresholds are
based on a fixed number of risk grade movements which
are bespoke to each business to ensure that the increased
risk since origination is appropriately captured;
• qualitative assessment: events or observed behaviour
indicate credit deterioration. This includes a wide range of
information that is reasonably available, including
individual credit assessments of the financial performance
of borrowers as appropriate during routine reviews, plus
forbearance and watch list information; or
• backstop criteria: the “30 days past due” backstop is met.
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Definition of default
The definition of default is an important building block for
expected credit loss models and is considered a key
judgement. A default is considered to have occurred if any
unlikeliness to pay criterion is met or when a financial asset
meets a “90 days past due” backstop. While some criteria
are factual (e.g. administration, insolvency or bankruptcy),
others require a judgemental assessment of whether the
borrower has financial difficulties which are expected to have
a detrimental impact on their ability to meet contractual
obligations. A change in the definition of default may have
a material impact on the expected credit loss provision.
Use of Estimates (Audited)
Expected credit loss provisions are a key source of
estimation uncertainty which, depending on a wide range of
factors, could result in a material adjustment to the carrying
amounts of assets and liabilities in the next financial year.
The accuracy of expected credit loss provisions can be
impacted by unpredictable effects or unanticipated changes
to modelled estimates. In addition, forecasting errors could
also occur due to macroeconomic scenarios or weightings
differing from actual outcomes observed. Regular model
monitoring, validations and provision adequacy reviews are
key mechanisms to manage estimation uncertainty across
model estimates. Provisions relating to Novitas loans are
also sensitive to specific estimation uncertainty associated
with case failure rates, expected recovery rates and time to
recover periods. Further detail on these most significant
estimates is set out in the following section.
Modelled estimates
The calculation of expected credit losses (“ECL”) for loans
and advances to customers, either on a 12-month or lifetime
basis, is based on the PD, the exposure at default (“EAD”)
and the loss given default (“LGD”) and includes forward-
looking macroeconomic information where appropriate.
PD, EAD and LGD parameters are projected over the
remaining life of each exposure. ECL is calculated for each
future quarter by multiplying the three parameters and is
then discounted back to the reporting date and summed.
The discount rate used in the ECL calculation is the
effective interest rate.
IFRS 9 risk parameters are estimated using historical data
wherever possible, and in the absence of sufficient loss
history an expert judgement approach is considered for
some parameters.
Probability of default
PD estimates represent the likelihood of a borrower
defaulting on their financial obligation. Bespoke model-
based approaches to estimate PDs are employed across the
Commercial, Retail and Property businesses. The framework
applied typically includes an economic response model to
quantify the impact of macroeconomic forecasts and a risk
ranking mechanism (e.g. a scorecard) to quantify obligor-
level likelihood of default. Risk characteristics that feed
into the PD model framework include current and past
information related to borrowers, transaction and payment
profiles, and future economic forecasts. Statistical
techniques, based on evidence observed in historical data,
and business knowledge are used to determine which
characteristics are predictive of default behaviour.
Exposure at default
EAD represents the amounts expected to be owed at the
time of default and is estimated using an amortising
schedule for the large majority of exposures, or a credit
conversion factor, depending on the nature of lending.
Loss given default
LGD represents an expectation of the extent of loss on a
defaulted exposure after taking into account cash recoveries,
including the value of collateral held and other credit risk
mitigants. LGD methodologies vary by the nature of assets
financed and can include estimates for the likelihood of
collateral recovery and a separate calculation for the likely
loss on recovery. For some businesses, LGDs are estimated
using liquidation curves based on historical cash flows.
Recoveries are adjusted to account for the impact of
discounting using the effective interest rate.
Novitas loans
Novitas provided funding to individuals who wished to
pursue legal cases. The majority of the Novitas portfolio,
and therefore provision, relates to civil litigation cases.
To protect customers in the event that their case failed,
it was a condition of the Novitas loan agreements that an
individual purchased an After the Event (“ATE”) insurance
policy which covered the loan.
As previously announced, following a strategic review,
in July 2021 the group decided to cease permanently the
approval of lending to new customers across all of the
products offered by Novitas and withdraw from the legal
services financing market. Since that time, the Novitas loan
book has been in run-off, and the business has continued to
work with solicitors and insurers, with a focus on supporting
existing customers and managing the existing book to
ensure good customer outcomes, where it is within
Novitas’ ability to do so.
In the financial year under review, management has
maintained its assumptions for expected case failure rates,
and expected recovery rates which continue to appropriately
reflect experienced credit performance and ongoing dialogue
with customers’ insurers. Within the 2024 financial year
impairment charge for Novitas of £6.4 million, an adjustment
has been made for extended time to recovery assumptions
from insurers. This reflects management’s latest assessment
of negotiations with customers’ insurers and the current
timeline of litigation proceedings.
Based on the current position, the majority of loans in the
portfolio continue to be assessed as credit-impaired and are
considered Stage 3. Expected credit losses for the portfolio
have been calculated by comparing the gross loan balance
to expected cash flows discounted at the original effective
interest rate, over an appropriate time to recovery period.
In line with IFRS 9, a proportion of the expected credit loss
is expected to unwind, over the estimated time to recover
period, to interest income, which reflects the requirement to
recognise interest income on Stage 3 loans on a net basis.
Since 31 July 2023, expected credit loss provisions
have increased by £36.6 million to £220.7 million (31 July
2023: £184.1 million). This increase is a primarily a result
of interest accrual on civil litigation accounts, for which
a full loss provision is applied, and the update to the time
to recover assumption.
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Given that the majority of the Novitas portfolio is in Stage 3,
the key sources of estimation uncertainty for the portfolio’s
expected credit loss provision are time to recover periods
and recovery rates for the civil litigation portfolio. On this
basis, management assessed and completed sensitivity
analysis when compared to the expected credit loss
provision for Novitas of £220.7 million (31 July 2023:
£184.1 million).
At 31 July 2024, a 10% absolute deterioration or
improvement in recovery rates would increase or decrease
the ECL provision by £13.4 million. Separately, a 12-month
improvement in the time to recover period will reduce the
ECL provision by £13.4 million, while a 12-month delay in
the time to recover period will increase the ECL provision
by £11.0 million.
Further detail on the impairment provision is included in note
10 to the Financial Statements.
Forward-looking information
Determining expected credit losses under IFRS 9 requires
the incorporation of forward-looking macroeconomic
information that is reasonable, supportable and includes
assumptions linked to economic variables that impact losses
in each portfolio. The introduction of macroeconomic
information introduces additional volatility to provisions.
In order to calculate forward-looking provisions, economic
scenarios are sourced from Moody’s Analytics. These
cover a range of plausible economic paths that are used in
conjunction with PD, EAD and LGD parameters for each
portfolio to assess expected credit loss provisions across
a range of conditions. An overview of these scenarios using
key macroeconomic indicators is provided on pages 97 to
99. Ongoing benchmarking of the scenarios to other
economic providers is carried out monthly to provide
management with comfort on Moody’s Analytics
scenario paths.
Five different projected economic scenarios are currently
considered to cover a range of possible outcomes. These
include a baseline scenario, which reflects the best view of
future economic events. In addition, one upside scenario and
three downside scenario paths are defined relative to the
baseline. Management assigns the scenarios a probability
weighting to reflect the likelihood of specific scenarios, and
therefore loss outcomes, materialising, using a combination
of quantitative analysis and expert judgement.
The impact of forward-looking information varies across the
group’s lending businesses because of the differing sensitivity
of each portfolio to specific macroeconomic variables.
This is reflected through the development of bespoke
macroeconomic models that recognise the specific response
of each business to the macroeconomic environment.
The modelled impact of macroeconomic scenarios and
their respective weightings is reviewed by business experts
in relation to stage allocation and coverage ratios at the
individual and portfolio level, incorporating management’s
experience and knowledge of customers, the sectors
in which they operate, and the assets financed.
This includes assessment of the reaction of the ECL in the
context of the prevailing and forecast economic conditions,
for example where currently higher interest rates and
inflationary conditions exist compared to recent periods.
Economic forecasts have evolved over the course of 2024
and reflect the mixed external backdrop observed in the
year. Forecasts deployed in IFRS 9 macroeconomic models
are updated on a monthly basis. At 31 July 2024, the latest
baseline scenario forecasts gross domestic product (“GDP”)
growth of 1.0% in calendar year 2024 and an average base
rate of 5.1% across calendar year 2024. Consumer Price
Index (“CPI”) inflation is forecast to be 2.5% in calendar year
2024 in the baseline scenario, with 0.7% forecast in the
protracted downside scenario over the same period.
At 31 July 2024, the scenario weightings were: 30% strong
upside, 32.5% baseline, 20% mild downside, 10.5%
moderate downside and 7% protracted downside. As
economic forecasts are considered to appropriately
recognise developments in the macroeconomic environment,
no change has been made to the weightings ascribed to the
scenarios since 31 July 2023.
Given the current economic uncertainty, further analysis has
been undertaken to assess the appropriateness of the five
scenarios used. This included benchmarking the baseline
scenario to consensus economic views, as well as
consideration of an additional forecast related to stagflation,
which could be considered as an alternative
downside scenario.
Compared to the scenarios in use in the expected credit
losses calculation, the stagflation scenario includes a longer
period of higher interest rates coupled with a shallower but
extended impact on GDP. Due to the relatively short tenor of
the portfolios, the stagflation scenario is considered to be of
less relevance than those deployed. This is supported by the
fact that, due to the higher severity of recessionary factors in
the existing scenarios, using the stagflation scenario instead
of the moderate or protracted downside scenario would
result in lower expected credit losses.
The final scenarios deployed reflect general improvement
in the UK economic outlook relative to 31 July 2023. Under
the baseline scenario, UK headline CPI inflation is expected
to stabilise at current levels as a result of sustained base
rate increases in 2022 and 2023 and eased supply chain
pressures. Aligned to recent reductions in inflation, the Bank
of England base rate is forecast to gradually reduce in all
scenarios. House price outlook has improved across all
scenarios, recognising more resilient housing market
performance than previously anticipated. Unemployment
rate forecasts have marginally deteriorated compared to
31 July 2023.
96
Close Brothers Group plc Annual Report 2024
The tables on pages 97 to 98 show economic assumptions within each scenario, and the weighting applied to each at 31 July
2024. The metrics shown are key UK economic indicators, chosen to describe the economic scenarios. These are the main
metrics used to set scenario paths, which then influence a wide range of additional metrics that are used in expected credit
loss models. The first tables show the forecasts of the key metrics for the scenarios utilised for calendar years 2024 and 2025.
The subsequent tables show averages and peak-to-trough ranges for the same key metrics over the five-year period from
2024 to 2028.
Scenario forecasts and weights
Baseline
Upside (strong)
Downside (mild)
Downside (moderate)
Downside (protracted)
2024
2025
2024
2025
2024
2025
2024
2025
2024
2025
At 31 July 2024
UK GDP growth
1.0%
1.2%
1.8%
3.9%
0.3%
(1.4)%
(0.1)%
(3.9)%
(0.3)%
(5.4)%
UK unemployment
4.4%
4.5%
4.2%
4.0%
4.5%
4.9%
4.7%
6.6%
4.8%
7.8%
UK HPI growth
0.7%
3.2%
7.1%
13.3%
(2.3)%
(2.6)%
(4.1)%
(9.2)%
(6.0)%
(16.4)%
BoE base rate
5.1%
4.2%
5.2%
4.4%
5.0%
3.5%
5.0%
2.9%
4.8%
2.3%
Consumer Price Index
2.5%
2.1%
2.6%
2.2%
1.6%
0.4%
1.1%
(0.5)%
0.7%
(1.0)%
Weighting
32.5%
30%
20%
10.5%
7%
Baseline
Upside (strong)
Downside (mild)
Downside (moderate)
Downside (protracted)
2023
2024
2023
2024
2023
2024
2023
2024
2023
2024
At 31 July 2023
UK GDP growth
0.5%
0.3%
1.3%
3.0%
(0.2)%
(2.3)%
(0.6)%
(4.8)%
(0.8)%
(6.2)%
UK unemployment
4.1%
4.4%
3.9%
3.9%
4.2%
4.8%
4.4%
6.5%
4.5%
7.7%
UK HPI growth
(6.3)%
(1.4)%
(0.4)%
8.3%
(9.1)%
(6.9)%
(10.8)%
(13.2)%
(12.6)%
(20.1)%
BoE base rate
4.9%
5.5%
4.9%
5.7%
4.8%
4.8%
4.7%
4.2%
4.5%
3.6%
Consumer Price Index
5.2%
2.2%
4.8%
2.2%
3.8%
1.2%
3.0%
(0.3)%
1.5%
(2.3)%
Weighting
32.5%
30%
20%
10.5%
7%
Notes:
UK GDP growth: National Accounts Annual Real Gross Domestic Product, Seasonally Adjusted – year-on-year change (%).
UK unemployment: ONS Labour Force Survey, Seasonally Adjusted – Average (%).
UK HPI growth: Average nominal house prices, Land Registry, Seasonally Adjusted – Q4-to-Q4 change (%).
BoE base rate: Bank of England base rate – Average (%).
Consumer Price Index: ONS, All items, annual inflation – Q4-to-Q4 change (%).
Five-year average (calendar years 2024 to 2028)
Baseline
Upside
(strong)
Downside
(mild)
Downside
(moderate)
Downside
(protracted)
At 31 July 2024
UK GDP growth
1.5%
2.3%
1.1%
0.6%
0.4%
UK unemployment
4.6%
4.0%
4.8%
6.6%
7.4%
UK HPI growth
2.5%
4.2%
0.9%
(1.0)%
(3.5)%
BoE base rate
3.5%
3.6%
3.2%
2.5%
2.0%
Consumer Price Index
2.1%
2.2%
1.5%
1.2%
0.8%
Weighting
32.5%
30%
20%
10.5%
7%
Five-year average (calendar years 2023 to 2027)
Baseline
Upside
(strong)
Downside
(mild)
Downside
(moderate)
Downside
(protracted)
At 31 July 2023
UK GDP growth
0.9%
1.7%
0.5%
0.0%
(0.1)%
UK unemployment
4.4%
3.9%
4.6%
6.4%
7.3%
UK HPI growth
0.5%
2.1%
(1.1)%
(2.9)%
(5.4)%
BoE base rate
3.8%
3.8%
3.5%
2.8%
2.3%
Consumer Price Index
2.6%
2.6%
2.1%
1.6%
0.7%
Weighting
32.5%
30%
20%
10.5%
7%
Notes:
UK GDP growth: National Accounts Annual Real Gross Domestic Product, Seasonally Adjusted – CAGR (%).
UK unemployment: ONS Labour Force Survey, Seasonally Adjusted – Average (%).
UK HPI growth: Average nominal house prices, Land Registry, Seasonally Adjusted – CAGR (%).
BoE base rate: Bank of England base rate – Average (%).
Consumer Price Index: ONS, All items, annual inflation – CAGR (%).
97
Strategic Report
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Financial Statements
Risk Report continued | Principal Risks
The forecasts represent an economic view at 31 July 2024,
after which there have been further economic developments,
including the Bank of England base rate cut to 5.0%.
These developments, including the potential for further rate
reductions, and their impact on scenarios and weightings,
are subject to ongoing monitoring by management.
These periods have been included as they demonstrate
the short, medium and long-term outlooks for the key
macroeconomic indicators which form the basis of the
scenario forecasts. The portfolio has an average residual
maturity of 15 months, with 99% of loan value having
a maturity of five years or less.
The following charts on pages 98 to 99 represent the
quarterly forecast data included in the above tables
incorporating actual metrics up to 31 July 2024. The dark
blue line shows the baseline scenario, while the other lines
represent the various upside and downside scenarios.
The tables below provide a summary for the five-year period
(calendar years 2024 to 2028) of the peak-to-trough range
of values of the key UK economic variables used within the
economic scenarios at 31 July 2024 and 31 July 2023.
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
Real Gross Domestic Product (Annual % Change)
2023
2028
2027
2029
2026
2025
2024
GDP Growth (percentage change
in quarter from previous year)
Baseline
Mild Downside
Moderate Downside
Protracted Downside
Upside
0
2
4
6
8
10
Unemployment Rate (%)
2023
2028
2027
2029
2026
2025
2024
Unemployment Rate
(end of quarter percentage values)
Baseline
Mild Downside
Moderate Downside
Protracted Downside
Upside
Five-year period (calendar year 2024 to 2028)
Baseline
Upside (strong)
Downside (mild)
Downside (moderate)
Downside (protracted)
Peak
Trough
Peak
Trough
Peak
Trough
Peak
Trough
Peak
Trough
At 31 July 2024
UK GDP growth
7.7%
0.7%
11.8%
0.7%
5.5%
(1.4)%
2.8%
(4.2)%
2.2%
(6.3)%
UK unemployment
4.8%
4.3%
4.3%
3.7%
4.9%
4.3%
7.4%
4.3%
8.6%
4.3%
UK HPI growth
13.3%
0.7%
27.2%
0.7%
4.4%
(5.7)%
0.9%
(14.2)%
0.9%
(23.4)%
BoE base rate
5.3%
2.5%
5.3%
2.5%
5.3%
2.1%
5.3%
1.1%
5.3%
0.6%
Consumer Price Index
3.6%
2.0%
3.6%
2.0%
3.6%
(0.4)%
3.6%
(1.1)%
3.6%
(2.0)%
Weighting
32.5%
30%
20%
10.5%
7%
Five-year period (calendar year 2023 to 2027)
Baseline
Upside (strong)
Downside (mild)
Downside (moderate)
Downside (protracted)
Peak
Trough
Peak
Trough
Peak
Trough
Peak
Trough
Peak
Trough
At 31 July 2023
UK GDP growth
4.6%
0.1%
8.7%
0.1%
2.5%
(3.0)%
0.3%
(5.9)%
0.3%
(8.1)%
UK unemployment
4.6%
3.9%
4.1%
3.7%
4.9%
3.9%
7.3%
3.9%
8.5%
3.9%
UK HPI growth
2.6%
(7.8)%
12.9%
(3.1)%
(0.5)%
(15.4)%
(0.5)%
(24.0)%
(0.5)%
(32.1)%
BoE base rate
5.8%
2.3%
5.9%
2.3%
5.4%
2.2%
5.2%
1.3%
5.2%
0.6%
Consumer Price Index
10.2%
1.8%
10.2%
1.8%
10.2%
0.8%
10.2%
(1.0)%
10.2%
(3.8)%
Weighting
32.5%
30%
20%
10.5%
7%
Notes:
UK GDP growth: Maximum and minimum quarterly GDP as a percentage change from start of period (%).
UK unemployment: Maximum and minimum unemployment rate (%).
UK HPI growth: Maximum and minimum average nominal house price as a percentage change from start of period (%).
BoE base rate: Maximum and minimum Bank of England base rate (%).
Consumer Price Index: Maximum and minimum inflation rate over the five-year period (%).
98
Close Brothers Group plc Annual Report 2024
When performing sensitivity analysis there is a high degree
of estimation uncertainty. On this basis, 100% weighted
expected credit loss provisions presented for the upside and
downside scenarios should not be taken to represent the
lower or upper range of possible and actual expected credit
loss outcomes. The recalculated expected credit loss
provision for each of the scenarios should be read in
the context of the sensitivity analysis as a whole and in
conjunction with the disclosures provided in note 10 to
the Financial Statements. The modelled impact presented
is based on gross loans and advances to customers at
31 July 2024; it does not incorporate future changes relating
to performance, growth or credit risk. In addition, given
the change in the macroeconomic conditions, underlying
modelled provisions and methodology, and refined approach
to adjustments, comparison between the sensitivity results
at 31 July 2024 and 31 July 2023 is not appropriate.
The economic environment remains uncertain and future
impairment charges may be subject to further volatility,
including from changes to macroeconomic variable forecasts
impacted by sustained cost of living pressures, policy
changes resulting from the recent change in government
and ongoing geopolitical tensions.
0
1
2
3
4
5
6
Bank of England Base Rate (%)
2023
2028
2029
2027
2026
2025
2024
Base Rate
(end of quarter percentage values)
Baseline
Mild Downside
Moderate Downside
Protracted Downside
Upside
-20
-15
-10
-5
0
5
10
15
20
House Price Index – Current Prices
(Annual % Change)
2023
2028
2027
2029
2026
2025
2024
HPI Growth (percentage change
in quarter from previous year)
Baseline
Mild Downside
Moderate Downside
Protracted Downside
Upside
-2
0
2
4
6
8
10
12
Consumer Price Index (Annual % Change)
2023
2028
2029
2027
2026
2025
2024
Baseline
Mild Downside
Moderate Downside
Protracted Downside
Upside
Consumer Price Index Inflation
(percentage change in quarter
from previous year)
Scenario Sensitivity Analysis
The expected credit loss provision is sensitive to judgements
and estimations made with regard to the selection and
weighting of multiple economic scenarios. As a result,
management has assessed and considered the sensitivity
of the provision as follows:
• For the majority of the portfolios, the modelled expected
credit loss provision has been recalculated under the
upside strong and downside protracted scenarios
described above, applying a 100% weighting to each
scenario in turn. The change in provision requirement
is driven by the movement in risk metrics under each
scenario and resulting impact on stage allocation.
• Expected credit losses based on a simplified approach,
which do not utilise a macroeconomic model and
require expert judgement, are excluded from the
sensitivity analysis.
• In addition to the above, key considerations for the
sensitivity analysis are set out below, by segment:
– In Commercial, the sensitivity analysis excludes
Novitas, which is subject to a separate approach,
as it is deemed more sensitive to credit factors than
macroeconomic factors.
– In Retail, the sensitivity analysis does not apply further
stress to the expected credit loss provision on loans
and advances to customers in Stage 3, because the
measurement of expected credit losses is considered
more sensitive to credit factors specific to the borrower
than macroeconomic scenarios.
– In Property, the sensitivity analysis excludes individually
assessed provisions, and certain sub-portfolios which
are deemed more sensitive to credit factors than the
macroeconomic scenarios.
Based on the above analysis, at 31 July 2024, application
of 100% weighting to the upside strong scenario would
decrease the expected credit loss by £21.3 million whilst
application of 100% weighting to the downside protracted
scenario would increase the expected credit loss by £40.1
million, driven by the aforementioned changes in risk metrics
and stage allocation of the portfolios.
99
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Financial Statements
Risk Report continued | Principal Risks
Use of Adjustments (Audited)
Limitations in the group’s expected credit loss models
or input data may be identified through ongoing
model monitoring and validation of models. In certain
circumstances, management make appropriate adjustments
to model-calculated expected credit losses. These
adjustments are based on management judgements or
quantitative back-testing to ensure expected credit loss
provisions adequately reflect all known information.
These adjustments are generally determined by considering
the attributes or risks of a financial asset which are not
captured by existing expected credit loss model outputs.
Management adjustments are actively monitored, reviewed
and incorporated into future model developments
where applicable.
Macroeconomic forecasts continue to react to a range of
external factors including the recent change in government,
the ongoing conflict in Ukraine, policies aimed at addressing
cost of living and inflationary pressures, and long-term
impacts of the Covid-19 pandemic. In response, our use
of adjustments has evolved.
In particular, adjustments were applied in the previous
financial year in response to improvements in
macroeconomic forecasts that resulted in releases in
modelled provisions. A number of these releases were
considered premature or counterintuitive by management
and adjustments were made as a result. Portfolio
performance has been closely monitored during the financial
year under review, over which modelled provisions have
increased and external forecasts have remained broadly
stable. As a result, adjustments have gradually reduced
in recognition of the portfolio and models appropriately
reacting to changes in the external environment.
The approach to adjustments continues to reflect the use
of expert management judgement which incorporates
management’s experience and knowledge of customers,
the areas in which they operate, and the underlying
assets financed.
The need for adjustments will continue to be monitored
as new information emerges which might not be recognised
in existing models.
At 31 July 2024, £(1.5) million (31 July 2023: £17.0 million)
of the expected credit loss provision was attributable to
adjustments, which reflects a combination of positive and
negative adjustments depending on the adjustment purpose
or model requirement. Adjustments include £2.4 million held
to reflect ongoing economic uncertainty.
Other Credit Risk Tables (Audited)
Segmental credit risk
The table on page 101 sets out loans and advances
to customers, trade receivables and undrawn facilities
by the group’s internal credit risk grading and illustrates
the allocation of these per IFRS 9 staging category for
comparative purposes. The analysis of lending has been
prepared based on the following risk categories:
• Low risk: The credit risk profile of the borrower is
considered acceptable with the borrower considered likely
to meet obligations as they fall due. Standard monitoring
is in place.
• Medium risk: Evidence of deterioration in the credit risk
profile of the borrower exists which requires increased
monitoring. Potential concerns over their ability to meet
obligations as they fall due may exist.
• High risk: Evidence of significant deterioration in the credit
risk profile of the borrower exists which requires enhanced
management. Full repayment may not be achieved, with
potential for loss identified.
Low risk loans and advances to customers have reduced to
84% of the overall portfolio (31 July 2023: 87%), reflective
of stage deterioration and the impacts of macroeconomic
pressures during the financial year.
77% (31 July 2023: 80%) of total advances were classified
as low risk Stage 1. Low risk Stage 2 represented 7%
(31 July 2023: 7%) of loans and advances to customers,
largely comprising early arrears cases, or agreements which
have triggered a significant increase in credit risk indicator,
or the “30 days past due” backstop. Low risk Stage 3 loans
and advances to customers primarily related to agreements
which have triggered the “90 days past due” backstop but
where full repayment is expected.
Medium risk loans account for 8% (31 July 2023: 7%) of
total loans and advances to customers, of which the majority
were spread across Stages 1 and 2. Medium risk Stage 1
increased to 5% (31 July 2023: 3%). Medium risk Stage 2
represented 4% (31 July 2023: 3%) of the overall portfolio.
Loans and advances to customers reflected as medium risk
Stage 3 primarily related to agreements that have triggered
the “90 days past due” backstop in addition to other
significant increases in credit risk triggers.
High risk loans accounted for 8% (31 July 2023: 6%) of
total loans and advances to customers, with the majority
corresponding to Stage 3. This increase primarily reflected
the impacts of stage migrations and Novitas Stage 3 interest
accrual over the course of the financial year.
100
Close Brothers Group plc Annual Report 2024
Forbearance
Forbearance occurs when a customer is experiencing
difficulty in meeting their financial commitments and a
concession is granted, by changing the terms of the financial
arrangement, which would not otherwise be considered.
This arrangement can be temporary or permanent,
depending on the customer’s circumstances. The Banking
division reports on forborne exposures as either performing
or non- performing in line with regulatory requirements.
A forbearance policy is maintained to ensure the necessary
processes are in place to enable consistently fair treatment
of all customers and that each is managed based on their
individual circumstances. The arrangements agreed with
customers will aim to create a sustainable and affordable
financial position, thereby reducing the likelihood of suffering
a credit loss. The forbearance policy is periodically reviewed
to ensure it remains effective.
The Banking division offers a range of concessions to
support customers which vary depending on the product
and the customer’s status. Such concessions include
an extension outside terms (for example, a higher LTV
or overpayments) and refinancing, which may incorporate
an extension of the loan tenor and capitalisation of arrears.
Furthermore, other forms of forbearance such as moratorium,
covenant waivers and rate concessions are also offered.
Loans are classified as forborne at the time a customer in
financial difficulty is granted a concession and the loan will
remain treated and recorded as forborne until the following
exit conditions are met:
• the loan is considered as performing and there is
no past-due amount according to the amended
contractual terms;
• a minimum two-year probation period has passed from
the date the forborne exposure was considered as
performing, during which time regular and timely
payments have been made; and
• none of the customer’s exposures with Close Brothers
are more than 30 days past due at the end of the
probation period.
At 31 July 2024, the gross carrying amount of exposures
with forbearance measures was £363.8 million (31 July
2023: £214.6 million). The key driver of this increase has
been higher forbearance in our Asset Finance and Leasing,
Motor Finance and Property Finance businesses reflecting
continued macroeconomic challenges and enduring cost
of living pressures on customers.
Stage 1
£ million
Stage 2
£ million
Stage 3
£ million
Total
£ million
At 31 July 2024
Gross loans and advances to customers1
Low risk
7,943.3
679.6
15.4
8,638.3
Medium risk
474.6
360.6
16.2
851.4
High risk
4.4
88.6
693.9
786.9
Total
8,422.3
1,128.8
725.5
10,276.6
Undrawn commitments
Low risk
1,025.1
18.3
–
1,043.4
Medium risk
–
1.2
–
1.2
High risk
–
–
3.1
3.1
Total
1,025.1
19.5
3.1
1,047.7
Gross trade receivables2
Low risk
11.8
–
–
11.8
Medium risk
–
1.5
–
1.5
High risk
–
–
3.2
3.2
Total
11.8
1.5
3.2
16.5
Stage 1
£ million
Stage 2
£ million
Stage 3
£ million
Total
£ million
At 31 July 2023
Gross loans and advances to customers
Low risk
7,702.4
693.9
23.2
8,419.5
Medium risk
278.7
313.1
48.8
640.6
High risk
9.1
55.0
511.4
575.5
Total
7,990.2
1,062.0
583.4
9,635.6
Undrawn commitments
Low risk
1,202.3
21.5
0.1
1,223.9
Medium risk
–
2.7
–
2.7
High risk
–
–
1.9
1.9
Total
1,202.3
24.2
2.0
1,228.5
Gross trade receivables2
Low risk
10.1
–
–
10.1
Medium risk
–
0.7
–
0.7
High risk
–
–
2.5
2.5
Total
10.1
0.7
2.5
13.3
1. Gross loans and advances to customers include £11.8 million of loans and advances held at FVTPL, presented as Stage 1 Low risk based on management
judgement.
2. Lifetime expected credit losses are recognised for all trade receivables under the IFRS 9 simplified approach. The figures presented are on a gross basis
before deducting for expected credit losses of £2.7 million (31 July 2023: £2.0 million) relating to predominantly Stage 3 receivables.
101
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Risk Report continued | Principal Risks
Government lending schemes
Over the pandemic period, following accreditation,
customers were offered facilities under the UK government-
introduced CBILS, the CLBILS and the Bounce Back Loan
Scheme (“BBLS”), thereby enabling the Banking division to
maximise its support to small businesses. At 31 July 2024,
there are 2,887 (31 July 2023: 4,364) remaining facilities,
with residual balance of £202.3 million (31 July 2023: £456.3
million) following further repayments across the
Commercial businesses.
The Banking division also received accreditation to offer
products under the various Recovery Loan Schemes (“RLS”),
the recent Growth Guarantee Scheme (“GGS”) and schemes
in the Republic of Ireland. At 31 July 2024, there are 1,321
(31 July 2023: 943) live facilities, with balances of £340.7
million (31 July 2023: £276.2 million), and a further 73
(31 July 2023: 58) approved facilities with limits of £17.7
million (31 July 2023: £14.3 million).
The Banking division maintains a regular reporting cycle
of these facilities to monitor performance. To date, a number
of claims have been made and payments received under
the government guarantee.
Collateral held
The group mitigates credit risk through holding collateral
against loans and advances to customers. The group has
internal policies on the acceptability of specific collateral
types, the requirements for ensuring effective enforceability
and monitoring of collateral in-life. Internal policies define,
amongst other things, legal documentation requirements,
the nature of assets accepted, LTV and age at origination,
and exposure maturity and in-life inspection requirements.
An asset valuation is undertaken as part of the loan
origination process.
The principal types of collateral held by the group against
loans and advances to customers in the Property and
Commercial businesses include residential and commercial
property and charges over business assets such as
equipment, inventory and accounts receivable. Within Retail,
the group holds collateral primarily in the form of vehicles
in Motor Finance and refundable insurance premiums
in Premium Finance, where an additional layer of protection
may exist through broker recourse.
The Banking division’s collateral policies have not materially
changed during the reporting period. There has been an
increase in the proportion of exposures in higher LTV bands
as exposures backed by government lending schemes have
run-off and been replaced by more normalised LTV profiles.
Analysis of gross loans and advances to customers by LTV
ratio is provided on page 103. The value of collateral used
in determining the LTV ratio is based upon data captured at
loan origination or, where available, a more recent valuation.
An analysis of forborne loans is shown in the table below:
31 July 2024
31 July 2023
Gross loans and advances to customers (£ million)
10,276.6
9,635.6
Forborne loans (£ million)
363.8
214.6
Forborne loans as a percentage of gross loans and advances to customers (%)
3.5%
2.2%
Provision on forborne loans (£ million)
89.4
56.1
Number of customers supported
13,166
6,996
The following is a breakdown of forborne loans by segment:
31 July 2024
£ million
31 July 2023
£ million
Commercial business
118.5
38.0
Retail business
42.8
28.8
Property business
202.5
147.8
Total
363.8
214.6
The following is a breakdown of the number of customers supported by segment:
31 July 2024
Number of
customers
supported
31 July 2023
Number of
customers
supported
Commercial business
839
243
Retail business
12,275
6,700
Property business
52
53
Total
13,166
6,996
The following is a breakdown of forborne loans by concession type:
31 July 2024
£ million
31 July 2023
£ million1
Extension outside terms
101.7
52.6
Refinancing
28.0
10.4
Moratorium
147.0
66.1
Deferring collections/recoveries activity
85.1
82.9
Other modifications
2.0
2.6
Total
363.8
214.6
1. Comparatives have been updated to present deferring collections/recoveries activity category in a separate line based on categorisation as at 31 July 2024.
102
Close Brothers Group plc Annual Report 2024
Commercial
£ million
Retail
£ million
Property
£ million
Total
£ million
LTV1
60% or lower
828.3
143.4
1,100.1
2,071.8
>60% to 70%
552.7
150.1
667.1
1,369.9
>70% to 80%
575.3
332.7
56.2
964.2
>80% to 90%
848.5
1,056.9
56.5
1,961.9
>90% to 100%
1,451.4
550.3
27.3
2,029.0
Greater than 100%
326.0
419.9
107.6
853.5
Structurally protected2
329.3
445.8
–
775.1
Unsecured
212.9
37.7
0.6
251.2
Total at 31 July 20243
5,124.4
3,136.8
2,015.4
10,276.6
Commercial
£ million
Retail
£ million
Property
£ million
Total
£ million
LTV1
60% or lower
1,021.0
150.3
1,083.9
2,255.2
>60% to 70%
588.6
152.4
475.3
1,216.3
>70% to 80%
468.7
336.3
84.0
889.0
>80% to 90%
777.9
1,067.5
12.3
1,857.7
>90% to 100%
1,285.2
505.0
14.1
1,804.3
Greater than 100%
226.5
387.7
74.7
688.9
Structurally protected2
265.5
452.0
–
717.5
Unsecured
166.2
40.0
0.5
206.7
Total at 31 July 2023
4,799.6
3,091.2
1,744.8
9,635.6
Gross loans and advances to customers which are credit-impaired split by LTV ratio:
Commercial
£ million
Retail
£ million
Property
£ million
Total
£ million
LTV
60% or lower
39.2
1.8
12.3
53.3
>60% to 70%
5.6
2.5
11.3
19.4
>70% to 80%
5.8
8.2
24.6
38.6
>80% to 90%
13.9
23.2
52.1
89.2
>90% to 100%
35.2
28.1
27.3
90.6
Greater than 100%
12.6
19.4
107.1
139.1
Structurally protected2
274.4
5.4
–
279.8
Unsecured
13.5
1.4
0.6
15.5
Total at 31 July 2024
400.2
90.0
235.3
725.5
Commercial
£ million
Retail
£ million
Property
£ million
Total
£ million
LTV
60% or lower
48.7
1.7
31.7
82.1
>60% to 70%
4.6
2.3
15.9
22.8
>70% to 80%
4.2
6.9
23.9
35.0
>80% to 90%
8.9
19.3
9.1
37.3
>90% to 100%
19.2
22.2
13.6
55.0
Greater than 100%
4.7
15.7
74.7
95.1
Structurally protected2
229.5
5.0
–
234.5
Unsecured
19.6
1.5
0.5
21.6
Total at 31 July 2023
339.4
74.6
169.4
583.4
1. Government lending scheme facilities totalling £543.0 million (31 July 2023: £732.4 million) are allocated to a low LTV category reflecting the nature
of the government guarantee and resultant level of lending risk.
2. Exposures are considered structurally protected when, in management’s judgement, they have characteristics which mitigate the credit risk of the exposure
to a significant extent, in spite of not representing tangible security.
3. Total gross loans and advances to customers includes £11.8 million of loans and advances held at FVTPL.
103
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Governance Report
Financial Statements
Risk Report continued | Principal Risks
Funding risk is the risk of loss caused by the inability to
raise funds at an acceptable price or to access markets
in a timely manner or any decrease in the stability of the
current funding base.
Liquidity risk is the risk that the group or any of its entities
do not have sufficient liquid assets to meet liabilities as
they come due during normal and disrupted markets.
Exposure
Funding and liquidity are managed on a legal entity basis
with each of the group’s divisions (Banking, CBAM and
Winterflood) responsible for ensuring it maintains sufficient
liquidity for its own purposes. The group’s divisions operate
independently of each other with no liquidity reliance
between them.
The company has relatively few cash requirements and all
requirements are known in advance, for example external
dividends. It meets its cash requirements through deposits
placed with the Banking division and its committed
borrowing facilities.
The Banking division’s funding profile comprises a broad
range of channels. Its diversified approach to funding
includes secured funding, unsecured funding, retail deposits
and non-retail deposits. Funding risk exposure primarily
arises if the Banking division is unable to obtain the
necessary funding to support its asset positions for the
expected maturity. Unsustainable or undiversified funding
bases, such as an over-reliance on short-term deposits, can
increase the level of risk and can lead to a deviation from the
funding plan. In turn, this can increase the costs of raising
new funds, reducing the bank’s ability to originate new
assets and potentially leading to negative market or
customer perception.
The Banking division’s ILAAP covers potential event drivers
from a range of stress testing scenarios, including
idiosyncratic examples. This ensures liquidity management
remains a source of strength and features a robust and
prudent approach to assessing and maintaining liquidity
requirements. The Banking division’s ILAAP is combined
with Internal Capital Adequacy and Risk Assessments
(“ICARA”) from Winterflood and CBAM, alongside the
company considerations, to form the group ILAAP.
Funding and liquidity risk in Winterflood is driven by four
primary sources: long trading book risk positions; overnight
and intraday settlements; margin requirements; and multi-
day client orders. Winterflood maintains risk appetites
sufficient to ensure continued compliance with the rules
under the Investment Firm Prudential Regulation (“IFPR”).
For CBAM, funding and liquidity risks are managed through
the division’s cash flow forecasting, ensuring that sufficient
liquidity is maintained to cover the next three months of
outflows. CBAM also has specific requirements under ICARA
in relation to liquidity which are monitored against.
Further detail on the group’s funding and liquidity exposure
is provided on pages 61 and 62 of the Financial Overview
and Note 26 ”Financial Risk Management”.
Risk Appetite
The group adopts a conservative approach to funding and
liquidity risk and seeks to maintain a funding and liquidity
position characterised by preserving a simple and
transparent balance sheet, sustaining a diverse range of
funding sources and holding a prudent level of high-quality
liquidity. As such, the weighted average maturity of its
funding is longer than the weighted average maturity of its
lending portfolio.
These objectives form the basis for the group’s Funding and
Liquidity Risk Appetite Statement, approved annually by the
board, which outlines the levels of funding and liquidity risk
that the group is willing to assume. Given the materiality
of the Banking division, this is primarily focused on the levels
of risk assumed within the bank.
Measurement
A variety of metrics are used to measure the Banking
division’s funding and liquidity position to ensure compliance
with both external regulatory requirements and internal risk
appetite. These metrics cover both the short and long-term
view of liquidity and funding and have limits and early
warning indicators in place that are approved via the Asset
and Liability Committee (“ALCO”). These metrics include
term funding as a percentage of loan book, weighted
average tenor of loan book versus weighted average tenor
of funding, available cash balance with the Bank of England,
and liquid to total assets ratio.
Funding is measured and monitored in accordance with
the Banking division’s funding plan, which seeks to ensure
that the bank maintains a balanced and prudent approach
to its funding risk that is in line with risk appetite. The
funding plan is supplemented by metrics that highlight any
funding concentration risks, funding ratios and levels of
encumbrance. The Net Stable Funding Ratio (“NSFR”) was
implemented by the PRA on 1 January 2022. The four-
quarter average ratio to 31 July 2024 was 134.4% (31 July
2023: 126.0%), comfortably in excess of the binding
minimum requirement of 100%.
Liquidity is managed in accordance with regulatory
requirements and the ILAAP which is approved by the board.
The group’s liquidity coverage ratio (“LCR”) is significantly
above the regulatory requirement. This is because the nature
of the funding model means that it holds higher inflows
compared to outflows within the 30-day period and
significantly more high quality liquid assets (“HQLA”) than
is required under regulatory metrics. The group’s 12-month
average LCR to 31 July 2024 was 1,034% (31 July
2023: 1,143%).
In addition to regulatory metrics, the Banking division also
uses a suite of internally developed liquidity stress scenarios
to monitor its potential liquidity exposure daily and determine
its HQLA requirements. This ensures that the Banking
division remains within risk appetite and identifies potential
areas of vulnerability. The outcomes of these scenarios are
formally reported to the ALCO, GRCC and board.
Funding and liquidity risk
104
Close Brothers Group plc Annual Report 2024
Outlook
In January 2024, the FCA announced a review of historical motor finance commission arrangements. The immediate
market reaction to the announcement was limited, largely comprising of a number of enquiries from savers and a small
value of deposits being withdrawn, notice given, or renewed but on a shorter duration than previously. Further to this,
the Banking division expects to lose a number of rate-sensitive corporate customers over the course of the coming year.
The expected attrition from this segment has been replaced with retail deposits, reflecting the strength of the retail
deposit franchise. The Banking division continues to access wholesale funding, for example, in November 2023 our
wholesale funding portfolio was further enhanced by the AT1 transaction. During the 2025 financial year, focus will
be on renewing and increasing securitisation programmes. The funding model continues to provide robust support,
and the strength of our “borrow long, lend short” business model provides significant funding resilience, resulting
in a stable funding base.
Monitoring
Funding and liquidity are measured and monitored on a daily basis with monthly reports forming standing items for discussion
at both the ALCO and GRCC, with the Risk Committee maintaining overall oversight. Any liquidity and funding issues are
escalated as required to the ALCO, and then onwards to the GRCC and Risk Committee.
The Banking division operates a three lines of defence model with the treasury function responsible for the measurement and
management of the bank’s funding and liquidity position and asset and liability management risk providing independent review
and challenge. ALCO provides oversight of funding and liquidity and supports the relevant senior managers in discharging their
senior management function responsibilities.
Mitigation (Audited)
This funding approach is based on the principles of “borrow long, lend short” and ensuring a diverse range of sources
and channels of funding. Economic uncertainty has continued over the last 12 months, increasing market competitiveness.
Despite the challenges this has presented, the Banking division’s ability to fund the loan book has been largely unaffected.
The Banking division has actively sought to grow the retail deposit base and optimise the funding mix in light of market
conditions. These deposits continue to remain diverse in terms of source, type and tenor, ensuring flexibility and greater
optionality. Retail and corporate customer funding is supported by wholesale funding programmes including unsecured
medium-term notes and securitisation programmes. The bank has also drawn against the Bank of England’s Term Funding
Scheme (“TFSME”), that was introduced to support lending in the then prevailing low interest rate environment. Two
repayments of the TFSME have been made this year totalling £490 million, with £110 million remaining to be repaid in the
coming year. Despite movements in the Banking division’s funding base, the balance sheet and subsequent funding plan
continues to remain well within internal risk appetites and total available funding is kept well in excess of the loan book
funding requirement to ensure funding is available when needed as shown by the NSFR metrics.
The following tables analyse the contractual maturities of the group’s on-balance sheet financial liabilities on an undiscounted
cash flow basis.
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
Total
£ million
At 31 July 2024
Deposits by banks
0.9
53.2
86.1
–
–
–
140.2
Deposits by customers
708.9
2,309.5
1,502.1
2,008.7
2,474.8
–
9,004.0
Loans and overdrafts from banks
46.7
9.9
1.4
2.7
111.7
–
172.4
Debt securities in issue
–
40.0
119.3
195.4
1,541.7
409.8
2,306.2
Subordinated loan capital
–
2.0
–
2.0
16.0
209.0
229.0
Total
756.5
2,414.6
1,708.9
2,208.8
4,144.2
618.8
11,851.8
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
Total
£ million
At 31 July 2023
Deposits by banks
10.3
43.7
89.7
–
–
–
143.7
Deposits by customers
175.1
1,838.3
1,972.9
1,869.6
2,140.6
–
7,996.5
Loans and overdrafts from banks
31.8
25.2
7.6
243.8
383.2
–
691.6
Debt securities in issue
–
46.7
132.3
168.1
1,705.1
416.3
2,468.5
Subordinated loan capital
–
2.0
–
2.0
16.0
213.0
233.0
Total
217.2
1,955.9
2,202.5
2,283.5
4,244.9
629.3
11,533.3
105
Strategic Report
Governance Report
Financial Statements
Risk Report continued | Principal Risks
Legal and regulatory risk is the risk of non-compliance
with laws and regulations which could give rise to fines,
litigation, sanctions and the potential for material adverse
impact upon the group.
Exposure
The group is subject to the laws and regulations of the
various jurisdictions in which it operates. This exposure
includes risks of breaching financial services regulations and
laws, as well as action resulting from contractual breach and
litigation (including direct customer claims based on
regulatory breaches).
Failure to comply with existing legal or regulatory
requirements, or to adapt to changes in a timely fashion in
the course of the provision of products and services, may
result in legal and regulatory risk.
Changes could also affect our financial performance, capital
liquidity and access to markets in which we operate.
With an increased regulatory focus on protecting customers,
any failure to implement and/or adapt to these changes
quickly may expose the group to reputational harm, legal or
regulatory sanctions and/or customer redress requirements.
Risk Appetite
The group has minimal appetite for legal and regulatory
risk, seeking to operate to high ethical standards and
expecting its staff to operate in accordance with the laws,
regulations and voluntary codes which impact the group
and its activities.
The group seeks to avoid knowingly operating in a manner
which is contrary to the provisions of the regulatory system
and has no tolerance for knowingly transacting business
outside the scope of its regulatory permissions or
relevant legislation.
The group will respond in an appropriate, risk-based and
proportionate manner to any changes to the legal and
regulatory environment, as well as changes driven by any
strategic initiatives.
Measurement
The group monitors and manages its legal, regulatory
and compliance risks through regular engagement and
interaction across the organisation, and the implementation
of appropriate policies, standards and procedures. This
includes reliance on a formal horizon scanning capability to
identify changes, as well as regular management information
which enables oversight and challenge via RCCs.
Mitigation
The group’s Enterprise Risk Management Framework,
including its suite of policies and standards and the
associated three lines of defence operating model,
sets common control objectives across risk disciplines.
This consistent approach to setting and embedding control
expectations acts to mitigate the likelihood and impact
of events which could give rise to legal and regulatory risk.
Clear accountability and ownership for meeting regulatory
requirements is overseen by business heads, thus driving
oversight and action.
Dedicated specialist legal and compliance teams with
relevant knowledge and experience provide advice, support
and challenge to the group’s businesses, enabling alignment
with legal and regulatory requirements. These teams further
have the ability to consult with external experts on technical
or otherwise complex matters as appropriate.
Internal change and investment processes consider
regulatory and legal inputs, such that sufficient funding can
be allocated to deliver system and process changes in line
with evolving regulatory and legal expectations.
Monitoring
In line with the group’s three lines of defence model,
businesses monitor their alignment with standards on
an ongoing basis. Relevant management information,
including the output of quality assurance activities,
is reviewed by the RCCs.
An independent compliance monitoring team undertakes
assurance to assess compliance with key regulations and the
effectiveness of associated controls. Reports are provided to
management and any remedial actions identified are tracked
to completion.
Legal and compliance teams monitor for external
developments through both structured horizon scanning
activity, regular external updates on relevant issues and
engagement in industry forums.
Legal and regulatory risk
106
Close Brothers Group plc Annual Report 2024
Outlook
Legal and regulatory risk is inherently elevated in financial
services as an industry. The UK government’s current
proposals to reform UK financial services regulation and
potential divergence between the UK and EU regulatory
regimes could affect and provide further challenges for
the group.
The inherent risk exposure for the group continues
to increase across the jurisdictions in which it operates.
The nature and scale of any risk exposure related to
Consumer Duty by the FCA remains to be seen as it
continues to embed across the industry. Separately, the
group’s retail lending offerings in the Republic of Ireland
operate in an environment with increasing regulatory
activity – the Central Bank of Ireland continues to embed
further regulatory expectations with respect to operational
resilience and securing customer interests.
The group operates strong controls which limit residual
risk exposure arising from regulatory expectations,
however the external drivers increasing inherent risk may
have a follow-on impact to the group’s residual exposure.
The group faces legal risks that could result in substantial
monetary damages or fines. Specifically, the group has
received a number of complaints, some of which are with
the Financial Ombudsman Service, and is subject to a
number of claims through the courts regarding historical
commission arrangements with intermediaries on its
Motor Finance products. This inflow of complaints
commenced following the FCA’s 2021 changes to its
Handbook rules after its consideration of historical motor
finance commission arrangements and has increased
following the January 2024 publication of three FOS
decisions (against Barclays, Lloyds and BMW Financial
Services) on this topic, and the FCA’s simultaneous
announcement of a review of this sector. There are
currently cases considering some of the issues involved in
historic motor commission claims (i.e. prior to the FCA’s
2021 Handbook rule changes) before the superior courts.
The group is a party to one of these court cases, but they
will be of general application. Given the significance of
these cases, they may ultimately be determined by an
Appeal Court.
Depending on the final outcome of the courts’ rulings
and/or the outcome of the FCA’s review work, there may
be a potential future obligation to compensate customers
with historic claims. It is not currently possible to estimate
the financial impact (if any) or scope of these or any future
related claims as it is not currently possible to assess
whether the group’s conduct pre 2021 may be considered
by one of these decision-makers to have been in breach
of the relevant FCA Handbook rules at that time and/or
general legal requirements. The group considers that it
has been compliant with the relevant Handbook rules and
general legal requirements at all times.
Non-traded market risk is the current or prospective risk
to the group’s capital or earnings arising from changes in
interest rates, credit spreads and foreign exchange rates
applied to the group’s non-trading book.
Exposure
The group’s non-traded market risk exposure consists
of interest rate risk in the banking book (“IRRBB”),
credit spread risk in the banking book (“CSRBB”) and
foreign exchange risk.
IRRBB is predominantly incurred in the Banking division as
a result of its lending and funding activities and from funding
activities for the group holding company. Interest rate risk
in the other divisions is immaterial.
CSRBB arises from the HQLA portfolio held in the
Banking division.
Foreign exchange risk is incurred across the group
and arises from foreign currency loan commitments;
translating foreign currency assets, liabilities and profits;
and non-sterling investments.
Risk Appetite
The group has a restricted appetite for interest rate risk
which is limited to that required to operate efficiently. The
group’s policy is to match repricing characteristics of assets
and liabilities naturally. Where this is not possible, vanilla
interest rate swaps are used to hedge the risk within
prescribed limits.
The group has a limited appetite for credit spread risk which
occurs due to the HQLA portfolio. The portfolio primarily
comprises of highly rated UK and European supranational
debt, sovereign debt, agency bonds and UK covered bonds.
The group has a restricted appetite for foreign exchange risk.
It avoids large open positions and sets individual currency
limits to mitigate the risk.
Measurement
Interest rate risk
The group recognises three main sources of IRRBB which
could adversely impact future income or the value of the
balance sheet:
• repricing risk – the risk presented by assets and liabilities
that reprice at different times;
• embedded optionality risk – the risk presented by
contractual terms embedded into certain assets and
liabilities; and
• basis risk – the risk presented by a mismatch in the
reference interest rate for assets and liabilities.
IRRBB is assessed and measured on a behavioural basis
by applying key behavioural and modelling assumptions
including, but not limited to, those related to fixed rate loans
subject to prepayment risk, the behaviour of non-maturity
assets and liabilities, the treatment of own equity, and the
expectation of embedded interest rate options. This
assessment is performed across a range of regulatory
prescribed and internal interest rate shock scenarios
approved by the bank’s ALCO.
Non-traded market risk
107
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Governance Report
Financial Statements
Risk Report continued | Principal Risks
Credit spread risk in the banking book
The group’s HQLA portfolio is held for the purpose of
liquidity management. The table below sets out the total
exposure to each asset class held within the HQLA portfolio
by the Banking division.
Credit spread risk arises on the bonds held in the HQLA
portfolio and specifically to the change in the value of a bond
relating to a change in a bond’s credit spread, which is the
difference between a bond’s total interest rate and the
corresponding risk-free interest rate, and represents the
perceived creditworthiness of that bond.
In the HQLA portfolio, each bond’s interest rate exposure
is hedged, leaving the residual credit spread, which
is monitored, assessed and measured. Measurement
techniques include a historical stress methodology that
is consistent with PRA requirements. The historical stress
estimate is monitored against an internal risk appetite
limit. Credit spread risk is only realised if the bond is sold
and the swap hedging the interest rate risk is cancelled
before maturity.
31 July 2024
£ million
31 July 2023
£ million
Cash and balances at central banks
1,584.0
1,937.0
Sovereign and central bank debt
(LCR Level 1)
383.7
186.1
Covered bonds (LCR Level 1)
187.7
106.3
Supranational bonds (LCR Level 1)
145.5
–
Total treasury liquid asset
holdings
2,300.9
2,229.4
At 31 July 2024, the Banking division did not hold
any encumbered assets in its HQLA portfolio or any
encumbered UK government debt in its sovereign and
central bank debt holdings.
Foreign exchange risk (audited)
The group recognises three categories of FX risk:
1. transaction risk: the risk relating to foreign currency
loan commitments;
2. translation risk: the risk relating to converting foreign
currency balances and profits into sterling;
3. structural FX risk: the risk relating to the potential impact
on capital ratios relating to non-GBP exposures.
Transaction risk is measured daily within treasury based on
net cash flows and contracted future exposures. Treasury’s
strategy is to hedge the FX risk as soon as it arrives,
and to have zero FX transaction exposure each day at
close of business.
Translation risk is monitored within each business monthly,
translating non-UK profits regularly to mitigate fluctuations in
foreign exchange rates. The group’s largest FX exposure is
from its euro lending and funding activities. A change in the
euro exchange rate would increase the group’s equity by the
following amounts:
31 July 2024
£ million
31 July 2023
£ million
15% strengthening of sterling
against the euro
0.5
0.3
The bank seeks to match its assets and liabilities by
currency; any remaining gaps are hedged using exchange
rate derivative contracts. Details of these derivatives are
disclosed in Note 13 ”Derivative Financial Instruments”.
Structural FX risk is assessed at least annually as part of the
group’s ICAAP and is deemed to be immaterial.
Two measures are used for measuring IRRBB, namely
Earnings at Risk (“EaR”) and Economic Value (“EV”):
• EaR measures short-term impacts to earnings,
highlighting any earnings sensitivity, should interest rates
change unexpectedly.
• EV measures longer-term earnings sensitivity due to
interest rate changes, highlighting the potential future
sensitivity of earnings, and any risk to capital.
No material exposure exists in the other parts of the group,
and accordingly the analysis below relates to the Banking
division and company.
EaR impact (audited)
The table below sets out the assessed impact on group net
interest income over a 12-month period from interest rate
changes. The results shown are for an instantaneous and
parallel change in interest rates at 31 July 2024:
31 July 2024
£ million
31 July 2023
£ million
0.5% increase
0.1
4.5
2.5% increase
0.5
22.6
0.5% decrease
(0.1)
(4.5)
2.5% decrease
(0.8)
(22.8)
The group also monitors any potential earning exposure from
basis mismatches between its lending and funding activities
on a monthly cadence. To provide a clearer assessment
of the group’s exposure to interest rate changes, basis risk
is excluded from the EaR numbers.
The group’s EaR at 31 July 2024 reflects its policy to ensure
exposure to interest rate shocks is managed within the
group’s risk appetites. The EaR measure is a combination
of the group’s repricing profile and the embedded optionality
risk, which is negligible in the current interest rate
environment.
The decrease in EaR reflects the bank’s strategy to
manage and minimise interest rate risk, to that required
to operate efficiently.
EV impact (audited)
The table below sets out the assessed impact on group EV,
which measures the potential change in the balance sheet
value following an instantaneous and parallel change in
interest rates at 31 July 2024:
31 July 2024
£ million
31 July 2023
£ million
0.5% increase
3.5
4.4
2.5% increase
17.2
21.5
0.5% decrease
(3.5)
(4.4)
2.5% decrease
(14.4)
(21.9)
The group’s EV at 31 July 2024 reflects its policy to ensure
exposure to interest rate shocks is managed within the
group’s risk appetites. The EV measure is a combination
of our repricing profile and the embedded optionality to
cover interest rate floors within the bank’s lending and
borrowing activities.
108
Close Brothers Group plc Annual Report 2024
Outlook
The group expects exposure to interest rate risk, credit
spread risk and foreign exchange risk to remain
broadly stable.
The group also has exposures which arise from share trading
settled in foreign currency in Winterflood 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.
Mitigation (Audited)
The group maintains a limited appetite for interest rate risk
with simple hedging strategies in place to mitigate risk. The
Banking division’s treasury is responsible for hedging the
non-traded interest rate risk. Any residual risk which cannot
be naturally matched is hedged utilising vanilla derivative
transactions to remain within prescribed risk limits. The
Group Asset and Liability Committee (“GALCO”) and ALCO
are respectively responsible for approving any changes to
hedging strategies before implementation for the company
and bank.
Derivative transactions can only be undertaken with
approved counterparties and within the respective credit risk
limits assigned to those counterparties.
All marketable securities are “hold to collect and sell” and
have their interest rate exposure hedged on a back-to-back
basis with vanilla interest rate swaps. The exception to this is
the £250 million group bond held in company, which is
hedged as part of the portfolio mix.
Foreign exchange exposures are generally hedged using
foreign exchange forwards or currency swaps with
exposures monitored daily against approved limits.
Monitoring
The GALCO monitors the non-traded market risk exposure
across the group’s balance sheet. ALCO monitors the
non-traded market risk exposure for the Banking division.
Treasury is responsible for day-to-day management of all
non-traded market risks. Day-to-day oversight is exercised
via a combination of daily reporting by the treasury finance
team, and divisional RCC review and challenge. Further
independent oversight is provided via the second line of
defence through the asset liability management risk team
(“ALM Risk”), with monthly reporting into ALCO and GALCO.
Banking businesses have operational processes and controls
in place to monitor their exposure to IRRBB and ensure it
remains within approved local risk appetites. Any exceptions
are reported to ALM Risk on the same working day. Residual
IRRBB that is not transferred into treasury for central
management through the Banking division’s funding
transference process, is monitored by the businesses
through their respective RCCs, treasury’s first line of
defence, and ALM Risk.
ALM Risk is responsible for maintaining processes and
controls to monitor the group position and report exposures
to ALCO and GALCO, and subsequently to GRCC and the
Risk Committee. An ALM system is deployed as the primary
source for IRRBB reporting and risk measurement.
Operational risk
Operational risk is the risk of loss or customer harm
resulting from inadequate or failed processes, people and
systems or external events. This includes the risk of being
unable to recover systems quickly and maintain critical
services.
Exposure
Operational risks arise from day-to-day business activities,
many of which have the potential to result in direct or indirect
financial loss or adverse impact, including impact to the
group’s financial performance, levels of customer care or
reputation.
The group strives to deliver operational efficiency in the
implementation of its objectives and accepts that a level of
loss may arise from operational failure. Implementing key
controls and monitoring ensures that risks are managed, and
losses remain within acceptable limits.
Impacts to the business, customers, third parties and the
markets in which the group operates are considered within a
maturing framework for resilient delivery of our important
business services and setting of impact tolerances. Ongoing
work will further enhance stress testing requirements.
Operational risk is a core component of the Enterprise Risk
Management Framework and is embedded in day-to-day
business activities. Requirements and responsibilities are set
out in the Operational Risk Policy and supporting standards
and procedures as part of the framework to identify, assess,
mitigate, monitor and report the operational risks, events and
issues that could impact the achievement of business
objectives or impact core business processes.
Businesses are responsible for the day-to-day management
of operational risk, with oversight from the risk and
compliance function, and independent assurance activities
undertaken by group internal audit.
The group’s exposure to operational risk is impacted through
the need to engage with innovative, dynamic third parties;
delivery of new products and services; and effective use of
reliable data in a changing external environment, to support
delivery of the group’s strategic objectives.
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Financial crime and fraud risk
The risk that the group’s products and services are
used to facilitate financial crime and fraud against the
group, its customers and third parties. If the group
does not take measures to minimise the impact of
financial crime and fraud risk, or adhere with the
relevant laws and regulations, it risks financial loss,
regulatory fines and reputational damage.
The group has an established control framework to
both prevent and mitigate the financial crime fraud
risks, including risk appetite statements, policies,
standards and procedures that are consistent with the
group’s purpose and designed to safeguard the
interest of customers.
Whilst external environmental drivers may now be
easing cost of living causal factors, the opportunism
and sophistication of individuals and groups, and
the technology to support financial crime and fraud,
is increasing.
How this risk is managed
The group has established a framework of systems
and controls to prevent and detect financial crime and
fraud. The framework is continuously evolving and
enhancing its controls to prevent its products and
services being used to facilitate financial crime and
fraud and it takes advantage of new technologies to
combat emerging threats.
Alongside ongoing risk and control monitoring, operational
risk oversight is aligned across the following risk categories:
Third-party risk
The risks associated with ensuring that the group’s
outsourced and offshoring arrangements are controlled
effectively, including the risk of failure which may
impact customer service; the potential cessation of
specific activities; the risk of personally identifiable
information or group sensitive data being exposed or
exploited; and the risk of financial, reputational and
regulatory censure should the third party enter into any
illegal or unethical activities.
In line with the group’s increased strategic appetite for
material outsourcing to provide greater agility to meet
strategic goals, most notably the outsourcing of our
technology services to a third party in the last 12
months, our risk frameworks are evolving to maintain
effective risk management.
How this risk is managed
The group continues to enhance its third-party risk
and controls framework, and oversight approach, with
ongoing performance management and due diligence
undertaken, to ensure that supplier relationships are
controlled effectively.
Cyber and information security risk
The risks arising from inadequate internal and
external information and cyber security, where failures
impact the confidentiality, integrity and availability
of electronic data.
How this risk is managed
The group uses an industry-standard framework
to anchor its cyber risk management, continually
assessing and developing its maturity. The group
maintains robust cyber and information security
standards and policies, and controls are in place and
operating, with periodic assurance completed. This
includes threat intelligence, education and awareness,
partnerships with strategic partners and effective
deployment across the three lines of defence model to
manage and undertake assurance of controls within
the group and our third parties.
IT resilience risk
The group’s ability to adapt to disruptions, while
maintaining continuous operations on critical
processes and safeguarding technology in the face
of severe but plausible adverse events, operational
disruptions or incremental changes. The group
recognises the significant regulatory focus on
resilience with increased reliance on remote working,
use of third parties, cloud solutions and automated
digital solutions.
How this risk is managed
The group has invested to respond to new regulations
and standards and develops technology and
implements change with resilience inbuilt as a
principle. The priority is to improve the experience
of, and minimise harm to, customers in the event of
operational disruption and we remain on track to
meet our regulatory commitments.
A multi-year programme of work continues to maintain,
enhance and embed a sustainable approach to
resilience through continuous monitoring, alongside
disaster recovery testing, to minimise the impacts
on our customers and key stakeholders. Additionally,
the group tests critical business recovery and
contingency plans.
Workplace risk (property, physical and
personal security risk)
The risk to the safety and protection of colleagues,
customers and physical assets arising from
unauthorised access to buildings, theft, robbery,
intimidation, blackmail, sabotage, terrorism and other
physical security risks.
How this risk is managed
Physical and personal security standards are managed
by the group’s Property and Workplace team. Controls
are in place to protect physical assets, as well as the
security of colleagues and customers.
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People risk
People risk is defined as the risk of not having sufficiently
skilled, capable and engaged colleagues, who are clear
on their responsibilities and accountabilities and who
behave in an ethical way. This could lead to inappropriate
decision-making that is detrimental to customers,
colleagues, other key stakeholders or shareholders and
could ultimately lead to regulatory sanction.
How this risk is managed
The group has a range of key risk indicator (“KRI”) metrics
in place which help to measure and report people risk.
Operational controls are designed to mitigate the risks
associated throughout each element of the colleague life
cycle. Group-wide systems provide tools and online
guidance to all colleagues to support them in discharging
their accountabilities and creating a culture in which
everyone can thrive. Periodic employee engagement
surveys are completed.
Model risk
The group has adopted the PRA’s SS1/23 definition
of a model, defined as “a quantitative method,
system, or approach that applies statistical, economic,
financial, or mathematical theories, techniques, and
assumptions to process input data into output”.
Model input data could be quantitative and/or
qualitative, or expert judgement-based, and model
outputs are quantitative or qualitative.
The use of models invariably presents an element of
model risk, and the group has adopted the European
Directive 2013/36/EU (Article 3(1)(11)) definition of
model risk i.e. “the potential loss an institution may
incur, as a consequence of decisions that could be
principally based on the output of internal models, due
to errors in the development, implementation or use of
such models.” Model risk increases with greater model
complexity, higher uncertainty around inputs and
assumptions, broader use, and larger potential impact.
If left unmitigated, model risk may lead to poor
decision-making, misreporting or a failure to
identify risks.
How this risk is managed
The group has a robust model risk framework
embedded across the group and deploys a risk-based
approach to classify each model according to
materiality. This is underpinned by a Model Risk Policy
and various supporting standards and procedures.
The group has adopted a three lines of defence
approach to the management of model risk, with
the first line formed by model owners and model
developers focusing on the build, maintenance and
monitoring of models. The second line of defence
is composed of two teams: the group model risk
management and the risk operations and governance
teams. The former is responsible for the model risk
policy and associated standards along with the
independent validation exercises across the group.
The latter teams are responsible for the management
of the model inventory (master source of the group’s
model management information) and the aggregate
model risk reporting (based on governance status and
performance of models). Finally, the third line of
defence is formed by our internal audit function
performing independent audits.
The Model Governance Committee is the primary
model approval authority and body responsible for
overseeing the framework used to manage model risk.
Change risk
The risks associated with a failure to execute and
deliver business and technology change that could
result in an inability to meet our strategic objectives,
including failing to meet our customer, regulator,
colleague or shareholder expectations, as a group
and within individual businesses.
How this risk is managed
The group has processes and procedures which cover
all levels of change management to ensure appropriate
prioritisation, oversight and decision-making across
the investment portfolio.
This approach ensures that the risks are managed
effectively, and that investment and capacity are
prioritised to minimise the overall risks to the group
in line with risk appetite.
Data management
Poor-quality data can lead to loss, customer
disruption, potential misrepresentation in regulatory
reporting, non-compliance with General Data
Protection Regulations (“GDPR”) and
unnecessary rework.
Quality data underpins decision-making at all levels
of the organisation.
The group views data risk holistically through the life
cycle from acquisition to usage and eventual disposal.
Ongoing development and enhancement of the
group’s data strategy, methodology, framework and
governance to identify, assess, treat and report risk
and issues across our critical data elements continues.
How this risk is managed
The group has a maturing data management
framework governing the creation, storage,
distribution, usage and retirement of data, aligned
with data management industry standards and GDPR
requirements. Our current focus is on enhancing and
maturing our data governance frameworks.
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Risk Report continued | Principal Risks
Risk Appetite
The group is prepared to tolerate a level of operational risk
exposure within agreed thresholds and limits but has limited
appetite for operational risks with significant residual
exposure and as such requires a near-term mitigation
strategy for any such identified risks.
A level of resilience risk from internal and external events
is tolerated; however, immediate steps are taken to minimise
customer disruption through recovery within pre-defined
parameters and timelines. In line with the group’s
conservative approach to risk management, controls are
implemented in a manner that reduces the likelihood of
higher-impact risk events crystallising. Further, the group
monitors aggregate loss trends and seeks to limit aggregate
losses arising in any given year.
Measurement
Operational risk is measured through key risk indicators,
observed impact of risk events, periodic risk and control
self-assessments and scenario analysis.
Material operational risk events are identified, reviewed and
escalated in line with criteria set out in the Enterprise Risk
Management Framework and a supporting suite of standards
and policies and use of common systems.
Each key risk within operational risk has a set of defined
KRIs which are regularly monitored via local, divisional and
group committees with exceptions reported to GRCC and
the Risk Committee.
Lessons are learned and root cause analysis is undertaken,
with appropriate management action plans implemented.
Losses may result from both internal and external events and
are categorised using risk categories defined as part of the
taxonomy deployed within our risk management tool.
Mapping to the Basel II categories is disclosed to support
industry data and trends analysis. Due to the nature of
risk events, losses and recoveries can take time to crystallise
and therefore may be restated for prior or subsequent
financial years.
External fraud continues to be volumes of facility misuse,
driven by economic pressures rationalising fraudulent
behaviour. Cifas data indicates an increase of 55% across
asset finance sectors in the last Fraudscape report.
The table below outlines the operational risk losses by
Basel category.
The table below outlines the operational risk losses by Basel category:
% of total volume
% of total losses
Operational risk losses by Basel category1, 2, 3
2024
2023
2024
2023
Business disruption and system failures
1%
1%
1%
1%
Clients, products and business practices
6%
4%
23%
11%
Execution, delivery and process management
21%
16%
28%
27%
External fraud
72%
78%
48%
61%
Internal fraud
0%
0%
0%
0%
Employment practices and workplace safety
0%
0%
0%
0%
Damage to physical assets
0%
0%
0%
0%
1. Losses greater than or equal to gross £5,000, excluding unexpected losses (e.g. remediation).
2. Historical loss amounts can change due to the dynamic and ongoing reporting of recoveries.
3. Percentages have been rounded where appropriate.
Mitigation
The group seeks to deliver its strategic objectives and
maintain operational resilience, and accepts a level of loss
may arise from operational failure. Key to this is continued
management of operational risks and key controls,
monitoring and governance, with appropriate escalation and
oversight to manage operational risks and losses within
acceptable limits.
We operate controls over the group’s most significant
operational risks ensuring there are near-term mitigation
strategies where risks are greatest and ensure these are
sufficient to prevent material disruption of our service to
customers and/or our businesses.
Monitoring
The board delegates authority to the GRCC to manage the
group’s operational risk framework on a day-to-day basis
and provide oversight of its exposure. The committee
is supported by the Operations and Technology Risk
Committee which is responsible for oversight of technology,
information security, third-party and certain other resilience-
related risks. Regular management information is presented
to and discussed by these committees and additionally local
business RCCs.
The Risk function has a dedicated operational risk team
which is responsible for maintaining the framework, tool
sets and reporting necessary for effective operational risk
management. The group has identified, assessed and
monitored all key operational and resilience risks, including
undertaking a biannual assessment of control effectiveness,
monitoring key risk indicator trends and escalating events,
in accordance with policy and standard requirements.
In the second line, operational risk managers are aligned
to businesses, with an additional technical second line of
defence team providing specialist oversight of technology,
information security, data, resilience and third-party risks.
Monitoring of all operational risk domains is conducted via
divisional RCCs with escalation to the GRCC and Risk
Committee as appropriate.
The delivery of a standardised framework and management
information across all operating risks is complemented by
periodic thematic reviews conducted on key focus areas and
reviewed by the GRCC and Risk Committee. In the last year
these have included change execution, including technology
services material outsourcing, the Asset transformation
programme, third party risk, operational resilience, and fraud.
Further independent assurance is obtained through reviews
conducted by the compliance monitoring team and specialist
external partners (e.g. cyber risk management) and
group internal audit.
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Outlook
Established group-wide operational risk frameworks
and methodologies are embedded, with enhancements
planned as part of a multi-year investment in process,
risk and controls transformation.
In addition to the continuing investment required to
sustain the group’s systems and processes, an
accelerating pace of external technology and market
changes are increasing the imperative for the group to
evolve and adapt its processes, risks and controls and
the associated necessary staff capabilities.
Possible outcomes of the FCA’s review of historical
motor finance commission arrangements could strain
operations and technology capacity, notwithstanding
advance preparatory work.
Allocation of capital investment funding and change
delivery capacity continue to be areas of management
focus, to enable safe delivery of change programmes.
Changing internal and external environment raises
challenges and impacts managing our people.
The group continues to plan and predict resource
needs to support its strategy, change execution and
wider technology and information transformation,
however continued management strain is anticipated.
Financial crime and fraud risks are inherent in doing
business in financial services, necessitating the
requirement to maintain effective systems and controls.
Additionally, the group has an embedded Whistleblowing
Policy which sets out the high level framework for meeting
regulatory requirements in relation to the handling of
reportable concerns by whistleblowers. The policy and
supporting standard sets out the process to raising
aspects of concerns by all employees, past and current,
across the group.
Furthermore, the Risk function performs a level of oversight
of the group’s business planning process, including analysis
of industry trends or forward-looking threats that could lead
to material impact on our ability to deliver on the strategic
objectives or result in a significant impact on assessment
of operational risk capital.
Stress Testing
The group develops and maintains a suite of operational risk
scenarios using internal and external data. These scenarios
provide insights into the stresses the business could be
subject to given plausible but severe circumstances.
Scenarios cover material operational risks across key risk
domains and are developed by businesses and senior
management across the group with the process facilitated
by the Risk function, GRCC and the Risk Committee, as part
of the ICAAP process, and support the setting of operational
risk Pillar 2a capital. Management actions are agreed and
monitored and linked with business resilience and continuity
testing where appropriate.
Reputational risk is the risk of detriment to stakeholder
perception of the group, leading to impairment of its
reputation and its future goals, due to any action
or inaction of the company, its employees or
associated third parties.
Exposure
Protection and effective stewardship of the group’s
reputation are fundamental to its long-term success.
Detrimental stakeholder perception could lead to impairment
of the group’s current business and future goals. The group
remains exposed to potential reputational risk in the course
of its usual activities, such as through employee, supplier
or intermediary conduct, the provision of products and
services, crystallisation of another risk type, or as a result
of changes outside its influence.
Risk Appetite
The group has a strong reputation which it has built over
many years and considers it a valuable asset, managing it
accordingly through consistent focus on a set of cultural and
ethical attributes. The group has no tolerance for behaviours
that contradict these attributes in a manner that could
harm it, and avoids engaging with third parties, markets or
products that would inhibit the group’s adherence to them.
The group seeks to operate in a responsible manner that
has client outcomes at the heart of everything that it does.
Protection of the group’s reputation is firmly embedded in
its business-as-usual activities, and the group, as part of its
overall strategy, adopts a prudent approach to risk taking.
The group also recognises that its reputation is linked to
broader responsibilities to help address social, economic
and environmental challenges, and maintains appropriate
sustainable objectives that the group sets itself as a business.
Reputational risk
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Measurement
Risk identification and subsequent management actions are
embedded within business-as-usual activities.
Additionally, the group actively monitors for changes in the
business, legal, regulatory and social environment in which it
operates to ensure the timely identification, assessment and
mitigation of any potential reputation concerns that may arise
following changes in the expectations of key stakeholders.
Mitigation
Reputational risk management is embedded through the
organisation, including via:
• focus on employee conduct, with cultural attributes
embedded throughout the group;
• supplier and intermediary conduct management through
the relationship life cycle;
• new product approval and existing product review
processes for business products and services;
• a proactive approach to environmental, social and
governance matters;
• embedding of reputational risk management within the
management frameworks of other risk types; and
• proactive communication and engagement with investors,
analysts and other market participants.
In addition, the group maintains policies and standards that
serve to protect the group’s reputation, most notably those
covering anti-bribery, conflicts of interest, dignity at work
and high-risk client policies. These are regularly reviewed
and updated with staff receiving annual training to reinforce
understanding of their obligations.
The group crisis management team supports management
of cases where there is a potential risk of reputational impact
on the group on an exceptional basis. A communications
plan also forms part of the group’s Recovery Plan, which
sets out core principles to ensure fair and transparent
communication, to control the risk of misinformation and
minimise any negative reaction to the implementation
of recovery options.
Outlook
Established group-wide and employee-level focus
on responsibility and sustainability enables an
approach in all businesses that aligns to a range
of stakeholder expectations, which is supported
by group-level oversight.
Increased media attention, including in relation to the
FCA’s review of historical motor finance commission
arrangements, may lead to an adverse perception
of the group.
Core Drivers of Reputational Risk
Reputational
risk
Employee conduct
Supplier and
intermediary conduct
Products and services
Changes in business/
societal context
Crystallisation of another risk type
Customers and clients
Intermediaries
Employees
Suppliers
Communities and the environment
Regulators and government
Investors
I
m
p
a
c
t
a
r
e
a
s
D
ri
v
e
r
s
Monitoring
Reputational risk is considered across all three lines
of defence as part of oversight and assurance activities.
Adherence to the group’s cultural framework is monitored
through the culture dashboard, which is reported to the
board on a quarterly basis and includes key metrics in
relation to culture across the group and each of its divisions.
Customer forums are also in place across the group,
reinforcing its commitment to favourable client outcomes.
Regular engagement with investors also enables open
communication with this stakeholder group.
A series of sustainability forums and committees operate
at a divisional and group level to ensure that the group
appropriately addresses its sustainable and responsible
priorities and expectations of wider stakeholder groups.
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Traded market risk is the risk that a change in the value
of an underlying market variable will give rise to an adverse
movement in the value of the group’s trading assets
and trading liabilities.
Exposure
Traded market risk in the group only arises in Winterflood,
whose core business is to provide liquidity and interact with
the market on a principal basis, holding positions in financial
instruments as a result of its client facilitation activity.
Winterflood operates as a market maker in equities,
exchange-traded products, investment trusts and sovereign
and corporate bonds, operating across three primary
markets: the United Kingdom, North America and Europe.
For hedging purposes, derivatives are also traded, although
these are limited to listed futures in UK equity and fixed
income markets and FX forwards.
Risk Appetite
Winterflood’s strategic objectives and business plan are
centred on its ability to continue transacting in the markets in
which it operates, in the manner it has historically. The group
sets its risk appetite accordingly, acknowledging that an
acceptable level of traded market risk must be incurred for
the business to operate effectively.
Winterflood maintains sufficient levels of capital and liquidity
to cover its traded market risk exposure.
Measurement
Traded market risk is measured against a set of defined
risk limits set at global, desk and individual stock levels,
on both an intraday and end-of-day basis. These limits are
monitored via a combination of internally developed and
external systems on an intraday and overnight basis against
a limit framework aligned to the group’s risk appetite.
The framework incorporates:
• market risk appetite being managed via trading book
exposure limits. The limits are set on gross cash positions,
also the sterling value of a basis point (“SV01”) for
products with interest rate exposure;
• adoption of a real-time limit monitoring system, along with
end-of-day summary reports to track equity, fixed income
and FX exposures against agreed limits; and
• minimal exposure to derivatives (limited to hedging
of interest rate exposures and hedging of FX positions
resulting from positions in securities settling in
foreign currency).
Mitigation (Audited)
The management of traded market risk is fully embedded
within Winterflood’s training and governance framework.
Key attributes include:
• the provision of training to all new joiners and newly
certified staff by the Business and Trading Controls team.
This training includes certain market risk considerations
as well as details on order entry controls;
• the maintenance of risk mandates for all traders, detailing
the business’ market-making strategy, controls
frameworks and policies and procedures;
• oversight of all risk issues, including traded market risk,
via Winterflood’s RCC. Management information and key
risk indicators are reported to the committee on a monthly
basis with escalation to the GRCC and Risk Committee
where needed;
• the maintenance of a group Market Risk Policy and a
specific Traded Market Risk Standard at Winterflood,
outlining minimum governance requirements and
escalation. Implementation of these requirements is
achieved through documented front office procedures
and risk procedures; and
• order entry controls in place across the trading floor
limiting, amongst other trading variables, the executable
value per order (these are documented in a front
office procedure).
Monitoring
Building on the use of real-time limit monitoring, the
monitoring of traded market risk is embedded across all
three lines of defence. Top-down visibility is exercised via
Winterflood’s RCC, which retains oversight of core traded
market risk management information and key risk indicators,
as well as stress testing outputs, policies and standards.
The Winterflood risk team works in conjunction with
the Business and Trading Controls team to ensure the
management of traded market risk is correctly aligned
to applicable controls. To support this, management
information dashboards are utilised alongside daily reporting
to help manage market risk on a daily and intraday basis.
Traded market risk
Outlook
Several themes have driven markets over the past
12 months: inflation, high interest rates, supply chain
issues, industrial action, geopolitical uncertainty and
the knock-on impacts these factors have had on the
economy. These factors, coupled with a new
administration in the UK and a potential new
administration in the US, will continue to be themes
over the next 12 months, with the potential to
keep market liquidity low and suppress some
market valuations.
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Financial Statements
Trading Financial Instruments: Equity Shares and Debt Securities (Audited)
The group’s trading activities relate to Winterflood. The following table shows the group’s trading book exposure to market risk:
Highest
exposure
£ million
Lowest
exposure
£ million
Average
exposure
£ million
Exposure at
31 July 2024
£ million
For the year ended 31 July 2024
Equity shares
Long
54.9
19.0
26.0
25.8
Short
35.1
3.8
7.2
9.3
Net position
18.8
16.5
Debt securities
Long
31.9
4.7
12.9
16.0
Short
12.5
1.9
4.4
5.5
Net position
8.5
10.5
Highest
exposure
£ million
Lowest
exposure
£ million
Average
exposure
£ million
Exposure at
31 July 2023
£ million
For the year ended 31 July 2023
Equity shares
Long
68.3
21.8
28.3
27.8
Short
20.1
4.7
7.7
6.4
Net position
20.6
21.4
Debt securities
Long
37.4
10.6
15.8
15.2
Short
11.8
3.6
6.4
3.5
Net position
9.4
11.7
With respect to the long and short positions on debt securities, £11.1 million and £0.1 million (2023: £11.0 million and
£0.3 million) were due to mature within one year respectively.
The average exposure has been calculated on a daily basis. The highest and lowest exposure columns reflect the absolute
maximum and minimum long and short debt and equity exposures across the relevant period (rather than the maximum
and minimum net position).
Based upon the 31 July 2024 trading book exposure given above, a hypothetical fall of 10% in equity prices would result
in a £1.7 million decrease (31 July 2023: £2.1 million decrease) in the group’s income and net assets. A hypothetical 10%
fall across the fixed income desk would result in a £1.1 million decrease (31 July 2023: £1.2 million decrease) in the group’s
income and net assets.
Risk Report continued | Principal Risks
116
Close Brothers Group plc Annual Report 2024
Going Concern
The directors have assessed whether it considers it
appropriate that the company and the group adopt the
going concern basis of accounting in preparing the financial
statements. For the purposes of going concern, in line with
IAS 1 requirements, the board has focused on a period of
at least 12 months from the date of approval of the financial
statements, being 15 months to December 2025.
As part of the directors’ consideration of the appropriateness
of adopting the going concern basis, a range of
forward-looking scenario analyses have been considered.
These include the 3 Year Strategic Plan (“3YSP”), a stressed
going concern scenario, downside sensitivity to the stressed
going concern scenario and the 2023 Internal Liquidity
Adequacy Assessment Process (“ILAAP”) and 2023
Internal Capital Adequacy Assessment Process (“ICAAP”).
These were reviewed together with a number of key risks
which are set out in the Risk Report under the heading
Principal risks and uncertainties: funding and liquidity
on pages 104 to 105 and capital position on pages 86 to 88.
The group’s stressed going concern scenario builds
on the 3YSP, which includes the impact to market and
operational RWAs of part one of the near-final rules on the
UK implementation of Basel 3.1 standards in July 2025. The
stressed going concern scenario overlays the impact of a
hypothetical severe but plausible motor finance commissions
redress provision in May 2025 and credit risk RWA impact
of Basel 3.1 (part two) standard in July 2025, partly offset
by management actions. The PRA published final rules
on 12th September which has delayed overall Basel 3.1
implementation to January 2026; the delay in implementation
does not change any of the presented conclusions.
In determining a severe but plausible motor finance
commissions redress provision, if it were to become
required, consideration has been given to the key variables
that would inform the magnitude along with the likelihood
and scale. The assumptions considered include:
• the time period for which commissions structures are
considered to need redress;
• the commission models and commission rates applied
during this period;
• the extent and structure of any redress required;
• customer response rates to any redress program;
• associated execution costs; and
• the timing of recognition of any provision, assumed to
be the earliest possible date of May 2025, when the FCA
anticipate being able to announce next steps.
The modelling output of the stressed going concern scenario
highlights the resilient capital position in relation to minimum
regulatory requirements excluding any applicable Prudential
Regulation Authority (“PRA”) buffer (“minimum regulatory
requirements”), and capacity to absorb losses and increases
in RWAs beyond the severe but plausible motor finance
commissions redress provision and implementation of Basel
3.1, strengthened by modelled management actions,
including cancellation of the 2025 financial year dividend.
A further downside scenario for the 2025 financial year was
also prepared, which applied an earnings reduction to the
stressed going concern scenario. In Banking, the assumed
deteriorating credit environment increased the bad debt
charge and the bad debt ratio. Difficult trading conditions
were assumed to persist into the 2025 financial year for
market-facing businesses with a negative impact on income
generated, with Winterflood adjusted operating profit also
reflecting a formulaic reduction in performance-related pay.
The two stress testing scenarios modelled for the group’s
most recent ICAAP, approved by the board in 2023, were
used to provide additional context for the directors alongside
the going concern assessment. The ICAAP forms part of the
group’s overall capital risk framework, outlined on page 74.
The group continues to have a strong and conservative
business model, lending in a variety of sectors across a
diverse range of assets. The group remains well positioned in
each of its businesses, is soundly funded, and has strong
levels of liquidity. The group maintains strong headroom to
minimum regulatory requirements to withstand the downside
scenario elements. In making their going concern
assessment, the directors have also considered the
operational agility and resilience of the company and the
group. The directors continually expect to maintain a high
level of operational and system performance.
Under all scenarios, the group continues to operate with
sufficient levels of capital for the next 15 months from the
reporting date, with the group’s capital ratios comfortably
in excess of minimum regulatory requirements.
Separately from managing the group capital position, the
group adopts a conservative approach to funding and
liquidity risk and seeks to maintain a funding and liquidity
position characterised by preserving a simple and
transparent balance sheet, sustaining a diverse range of
funding sources and holding a prudent level of high-quality
liquidity. As such, the weighted average maturity of its
funding is longer than the weighted average maturity of its
lending portfolio. The board reviewed these factors when
concluding upon going concern.
These objectives form the basis for the group Funding and
Liquidity Risk Appetite Statement, approved annually by the
board, which outlines the levels of funding and liquidity risk
that the group is willing to assume. Given the materiality of
the Banking division, this is primarily focused on the levels
of risk assumed within the bank.
As part of the liquidity management process, the Banking
division also uses a suite of internally developed liquidity
stress scenarios to monitor its potential liquidity exposure
daily and determine its HQLA requirements. This ensures
that the Banking division remains within risk appetite and
identifies potential areas of vulnerability. These stresses are
formally approved by the ALCO, GRCC and board and cover
both idiosyncratic and market-wide stresses. The bank
adopts the most severe stress to determine the amount
of liquidity it needs to hold. At 31 July 2024 the bank held
sufficient liquidity resources to meet the applicable stress.
In conclusion, the directors have determined that they have
a reasonable expectation that the company and the group,
as a whole, have adequate resources to continue as a going
concern for a period of at least 12 months from the date
of approval of the financial statements. Accordingly, they
continue to adopt the going concern basis in preparing
the Annual Report.
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Governance Report
Financial Statements
Viability Statement
Consideration
In accordance with provision 31 of the UK Corporate
Governance Code, the board has assessed the prospects of
the group and confirms that it has a reasonable expectation
that the company and group will continue to operate and
meet their liabilities, as they fall due, for the three-year period
up to 31 July 2027.
Strategic and Financial Outlook
The board has considered the longer-term viability of the
group and considers three years to be an appropriate period
for the assessment to be made. A period of three years has
been chosen because it is the period covered by the group’s
well-embedded strategic planning cycle. A three-year period
aligns with the group regulatory and internal stress testing
processes, including: (i) group-wide internal forecasting and
stress testing, which have undergone significant review and
challenge, to confirm the viability of the group; (ii) the ICAAP,
which assesses capital requirements; and (iii) ILAAP, which
identifies liquidity requirements.
Risk Management and Risk Profile
In making its assessment, the board has identified and
assessed the principal and emerging risks facing the group
and these are highlighted on pages 82 to 84. The group’s
approach to monitoring and managing the principal risks
faced by the group’s business, including financial, business,
market and operational risks, has remained consistent
given the group’s activities, business model and strategy
are unchanged.
The group utilises an established risk management
framework to identify and monitor its portfolio of emerging
risks incorporating the group’s “bottom up” and “top down”
approach. These approaches are monitored by the local and
group risk and compliance committees. Key emerging risks
can be found in the Risk Report on page 84.
Assessment
The group will continue to monitor and assess these risks,
by: adhering to its established business model as outlined
on pages 14 and 15; implementing an integrated risk
management approach based on the concept of “three lines
of defence”; and setting and operating within clearly defined
and monitored risk appetites.
As outlined in the going concern statement, a key area
of focus for the financial year has been the FCA review
of historical motor finance commission arrangements and its
impact on the group’s activities and principal and emerging
risks. There is significant uncertainty around the outcome
of the FCA’s review, and the group recognises the need to
plan for a range of possible outcomes. The board has placed
considerable focus on its review and challenge of the
group’s 3YSP and the results of key scenario modelling.
The group’s business model has worked well through a
range of economic, social and environmental conditions over
multiple economic cycles and this is projected to continue
over the medium term. Taking into account the group’s
lending in a variety of sectors across a diverse range of
assets, the board considers medium-term economic, social,
environmental and technological trends at the individual
business unit level as part of the strategic planning cycle.
This includes focusing on the long-term strategic approach
to protect, grow and sustain the group business model, with
key priorities outlined on pages 20 to 25.
The board has also assessed the group’s viability by
considering several forward-looking scenarios, namely the
ICAAP and ILAAP, as well as the stressed going concern
scenario that was used for the going concern assessment.
These have been extended out over the three-year
period, with no additional headwinds or management
actions included.
Various macroeconomic assumptions have been assessed
across the scenarios including GDP growth, inflation,
interest rates, unemployment, residential house prices and
equity prices (refer to the Risk Report on pages 96 to 99).
The modelling considers the group’s future projections of
profitability, cash flows, capital requirements and resources,
and other key financial and regulatory ratios over the period.
In the modelled scenarios, it has been assumed that no
significant structural changes to the company or group
will be required.
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Close Brothers Group plc Annual Report 2024
The group’s stressed going concern scenario has been
extended out to the 2027 financial year in order to support
the viability assessment, with overlays to the 3YSP, which
includes the impact to market and operational RWAs of
part one of the near-final rules on the UK implementation of
Basel 3.1 standards in July 2025, noting the implementation
timings are not finalised. The stressed going concern
scenario overlays the impact of a hypothetical severe but
plausible motor finance commissions redress provision in
May 2025 and credit risk RWA impact of Basel 3.1 (part two)
standard in July 2025, partly offset by management actions.
Headroom to minimum regulatory requirement was
maintained on all capital ratios in this scenario,
demonstrating the group’s capacity to absorb losses.
Across the divisions, the limited financial impact of each
downside scenario demonstrates the resilience of the group
business model. In addition, the directors have reviewed the
key management actions which would be taken in the event
of a downside scenario, in order to mitigate the stress, and
the viability of these actions.
The group maintains capital ratios significantly above
the applicable requirements, which are currently set at
a minimum Common Equity Tier 1 ratio of 9.6% and a
minimum total capital ratio of 13.7%, including CRD buffers
but excluding any applicable Prudential Regulation Authority
buffer. In all scenarios, the company and group continue
to operate with sufficient levels of capital, with the group’s
capital ratios and funding and liquidity positions in excess
of minimum regulatory requirements.
In making this assessment, the directors have considered
a wide range of information, including:
• the board’s risk appetite and robust assessment of the
principal and emerging risks which could impact the
performance of the group, and how these are managed
– please refer to the Risk Report on pages 74 to 116;
• the group’s current financial position and prospects
– please refer to the Financial Overview section on pages
57 to 73; and
• the group’s business model and strategy – please refer
to the Business Model section on pages 14 to 15, and
the Strategy and Key Performance Indicators sections
on pages 20 to 27.
The directors have also considered the results of the most
recent iterations of the following reviews:
• the annual review of the Recovery Plan, which included
employing a number of scenarios to test the group
Recovery Plan, the wide range of risk indicators and the
recovery options available to the group;
• the 2023 group ICAAP, which included both stress testing
and scenario analysis. At a group level, two severe stress
test scenarios were assessed representing protracted
downside scenarios. These took account of the scope and
likely effectiveness of mitigating actions that could be
taken by management to avoid or reduce the impact
or occurrence of underlying risks. As part of the ICAAP,
reverse stress testing was also undertaken to support
the identification of potential adverse circumstances and
events; and
• the 2023 ILAAP, which was reviewed to assess the
group’s liquidity across a range of market-wide and
idiosyncratic scenarios. This confirmed the ongoing
strength of the group’s funding and liquidity model.
Please refer to note 26 “Financial Risk Management” for
further details.
This forward-looking Viability Statement made by the board
is based on information and knowledge of the group at
19 September 2024. Unexpected risks and uncertainties may
arise from future events or conditions, such as economic
changes and business conditions, which are beyond the
group’s control and could cause the group’s actual
performance and results to differ from those anticipated.
In conclusion, the directors have determined that they have
a reasonable expectation that the group and company will be
able to continue their operations and meet their liabilities as
they fall due over the three-year period of the assessment.
The Strategic Report was approved by the board and signed
on its behalf by
Mike Morgan
Finance Director
19 September 2024
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Financial Statements
Chairman’s Introduction to Governance
Focused on delivering stakeholder value
Dear Shareholder
On behalf of the board, I am pleased to introduce the
Corporate Governance Report for the year ended
31 July 2024.
The following pages explain the group’s corporate
governance arrangements and the key activities undertaken
by the board during the year to ensure effective decision-
making and stewardship of the group’s strategy, business
model and performance. The report describes how we have
complied with the UK Corporate Governance Code 2018
(the “Code”) during the year.
We are firmly committed to high standards of corporate
governance which are critical as we lead the group to
enhance the strategy, performance and long-term
sustainable success of the business for all of our
stakeholders. This has been even more important in the past
12 months, as we have navigated the FCA’s review of
historical motor finance commission arrangements, while
being mindful of the impact on our stakeholders, particularly
employees and shareholders. Effective corporate
governance has been at the forefront of the board’s mind,
given the need for strong decision-making in light of the
pending outcome of the FCA’s review.
Strategic Priorities and Culture
This year was particularly challenging for the board and the
group, against a backdrop of external uncertainty and our
unwavering focus on matters of critical strategic importance
to protect, grow and sustain our successful business model.
The board leveraged its collective skills and expertise to
navigate the industry uncertainty arising from the FCA’s
review of historical motor finance commission arrangements.
In response, the board developed and communicated to the
market clear actions to preserve and further strengthen the
group’s capital position. In considering the range of possible
outcomes of the FCA’s review and to ensure a prudent
approach to safeguarding our valuable franchise and
ensuring the group’s resilience, the board took the difficult
decision not to pay a dividend in respect of the financial year
ended 31 July 2024. Following a comprehensive strategic
review, we are pleased to announce the agreed sale of
CBAM to Oaktree. The transaction is expected to enhance
our position to navigate the current environment and marks
an important step towards the delivery of the capital plan we
outlined in March 2024. The board has unanimously
approved the transaction and believes that the agreed sale
represents competitive value for our shareholders, allowing
us to simplify the group and focus on our core lending
business.
Throughout the financial year, I have once again been
pleased to see that our strong and distinctive culture remains
firmly embedded within the organisation. Our employees
have consistently demonstrated their commitment to
supporting our customers, clients, partners and each other.
More information on the board’s oversight of culture can
be found on page 138.
Michael N. Biggs
Chairman
“We are firmly committed to
high standards of corporate
governance which are critical
as we lead the group to enhance
the strategy, performance and
long-term sustainable success
of the business for all of
our stakeholders.”
Michael N. Biggs, Chairman
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Close Brothers Group plc Annual Report 2024
Stakeholder Engagement
Our understanding of the views of our stakeholders is critical
to the success of the group. We have taken great care to
assess the potential impact of industry-wide uncertainty
resulting from the FCA’s review of historical motor finance
commission arrangements and our robust response to it.
The board remains committed to open dialogue with all of
our key stakeholders, being our shareholders, colleagues,
regulators and partners, and has taken these views into
consideration in decision-making throughout the year.
During the year, the board met with a number of stakeholder
groups, and considered a wide range of stakeholder
interests. Our formal statement in relation to Section 172
of the Companies Act 2006, together with further detail
regarding how the directors have engaged with and had
regard to the interests of stakeholders, can be found on
pages 29 and 137.
Board Composition and Succession Planning
The board is mindful of the need to refresh its membership
at the appropriate time. Each of Oliver Corbett and Peter
Duffy resigned as directors of the board in November 2023
and February 2024, respectively. On behalf of my fellow
directors, I sincerely thank both Oliver and Peter for their
unwavering commitment to the group and their valued
expertise and perspectives.
Following Oliver’s resignation, Kari Hale has been appointed
as chair of the Audit Committee and as whistleblowing
champion. The board now stands at nine members,
which includes two executive directors. See page 122
for further detail.
The board is committed to diversity at all levels of the group
and comprises directors from a range of backgrounds. Our
board is composed of 44% female directors and includes
one director from a minority ethnic background. With this,
we have met our own gender and ethnicity targets and the
recommendations of each of the FTSE Women Leaders and
Parker Reviews in terms of the composition of the board.
Though the composition of the board does not currently
meet the FCA Listing Rule requirement to have one of
the senior board positions occupied by a female director,
the board recognises that this Listing Rule will be a
consideration for future appointments to these roles. We
remain committed to ensuring that our board is able to meet
the needs of all relevant stakeholders. We shall continue to
consider all types of diversity when making future board
appointments, while ensuring that this is consistent with the
skills, experience and expertise required at a particular point
in time. Further information on the composition of the board
and its diversity can be found on pages 122 and 141 to 142.
During the year, the board has also successfully overseen a
number of new appointments to key roles on our Executive
Committee. Further detail on the board’s approach to
succession planning can be found on page 141.
Board Effectiveness
This year’s annual board and committee effectiveness
evaluation was conducted by an external facilitator.
In accordance with the recommendations of the Code
and best practice, the evaluation process was formal and
rigorous and covered a broad range of elements relevant to
the effectiveness and performance of the board and its
committees. The findings are set out on page 135 and the
board will shortly be developing an action plan to identify
opportunities to implement these findings during
the year ahead.
Sustainability, ESG and D&I
During the year, the board and its committees considered
a number of sustainability and people matters relevant
to the group and its operations. This included regular
discussions about the group’s climate strategy and
landscape through frequent environmental, social and
governance (“ESG”) updates. An enhanced climate risk
governance framework has been adopted during the
financial year and is supported at management level by
a climate committee underpinned by five distinct working
groups, each with an Executive Committee sponsor.
The board has continued to monitor closely and support
the enhancement of diversity and inclusion at all levels of
the organisation. This has included oversight of the group’s
refreshed diversity and inclusion strategy and three-year
implementation plan to promote and continue the
development of a diverse and inclusive talent pipeline below
board level. Further information on the board’s approach to
diversity and inclusion can be found on pages 141 and 142.
Engagement with Shareholders
Engagement and dialogue with shareholders remains a key
priority of the board, and this year I have been pleased to
meet with a number of our shareholders during the year to
discuss a range of topics in order to ensure that the board
is aware of, and can take into account, our shareholders’
views. Importantly, this has included a heightened level
of shareholder engagement following the FCA’s initial
announcement regarding its review of historical motor
finance commission arrangements and the subsequent
announcement by the company of the decisions not to pay
a dividend for FY 2024 and to initiate a number of actions
to preserve and grow capital. Such engagement has been
highly valuable to me and to the board. Now, more than
ever, the views of our shareholders form a critical part
of decision-making in the boardroom at this very important
time for us as an organisation.
This year’s AGM will be held on 21 November 2024.
Further details will be set out in the Notice of AGM sent
to shareholders in due course.
On behalf of the board, I would like to thank shareholders
for their continued support. My fellow directors and I look
forward to continuing to engage with you in the year ahead.
Michael N. Biggs
Chairman
19 September 2024
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Strategic Report
Governance Report
Financial Statements
Governance at a Glance
Board Statistics
A summary of the key board statistics is set out below. More
information on how the composition of the board is regularly
reviewed in order to ensure that the board continues to be
comprised of individuals with the appropriate skill sets and
experience to serve the group’s current and future needs can
be found on page 140, while detailed diversity reporting can
be found on pages 141 and 142.
Gender
diversity
Ethnic
diversity
Board
tenure
Balance of
the board
The UK Corporate Governance Code 2018, published by
the Financial Reporting Council (“FRC”), applied to the
company throughout the financial year ended 31 July 2024.
A copy of the Code can be found on the FRC’s website at
www.frc.org.uk.
It is the board’s view that, throughout the year, the company
has applied the principles and complied in full with the
provisions set out in the Code. The following table sets
out the relevant sections of our Annual Report, where
shareholders can read in more detail how we have
embedded governance principles and specific provisions
of the Code across our organisation.
Female
White/White British
0-3 years
Executive Directors
4
8
5
2
Male
Asian/Asian British
4-6 years
Non-Executive Directors
5
1
3
7
7-9 years
1
Board leadership
Page 128
Division of responsibilities
Page 133
Composition, succession and evaluation
Page 139
Audit, risk and internal control
Page 143
Remuneration
Page 150
The FRC has recently published a revised UK Corporate
Governance Code 2024, the provisions and principles of
which shall apply to the group with effect from 1 August
2025. The group is in the process of evaluating its practices
and internal governance arrangements to ensure continued
compliance upon adoption of the new UK Corporate
Governance Code 2024. More information on the work done
so far in anticipation of the UK Corporate Governance Code
2024 can be found on page 146.
Compliance with the UK Corporate Governance Code 2018
Non-executive Directors’
Skills and Experience
All appointments to the board follow a robust search
process. Our view is that the board possesses the right
balance of skills and experience to navigate the challenges
ahead and to deliver long-term, sustainable growth.
The effectiveness of the board and its committees has been
assessed this financial year by an external evaluator, which
confirmed that the board and its committees continue to be
effective. The findings of the annual board evaluation can be
found on page 135.
Broad financial services
7/7
Finance, audit and accounting
7/7
People and culture
7/7
Risk
7/7
Regulatory framework
7/7
ESG
7/7
Technology, digital and operations
5/7
Strategy
7/7
Leadership
7/7
Listed company governance
7/7
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Close Brothers Group plc Annual Report 2024
The Board
Executive Committee
Management Committees
Nomination and
Governance Committee
See page 139
Audit
Committee
See page 143
Risk
Committee
See page 147
Remuneration
Committee
See page 150
Overview of the Board’s Work this Year
Protecting the group’s valuable franchise while supporting sustainable growth against a backdrop
of industry-wide challenges. The board took decisive action in order to build and preserve capital.
As a result, the group continues to be well placed to navigate the current uncertainty arising from
the FCA’s review of historical motor finance commission arrangements.
Kari Hale succeeded Oliver Corbett on 16 November 2023 as chair of the Audit Committee.
Oversight of key appointments to the Executive Committee.
Delivery of multi-year cost saving programmes, including successfully partnering with an IT
outsourced provider, while ensuring that any investment was responsible and proportionate, having
regard to the industry-wide challenges that the group is facing into.
Oversight of an Asset Finance transformation programme and the introduction of a new cloud
platform within the business.
Spending time with colleagues across the group, including a two-day visit to the group’s new and
sustainable Brighton office, which provided an extended opportunity for the board to meaningfully
engage with colleagues.
Undertaking a rigorous and thorough external board evaluation. Details can be found on page 134.
Responsibility for inaugural Consumer Duty assessment, which was the culmination of an extensive
programme of work across the group, overseen by the board providing extensive check and
challenge throughout the course of the year.
Board Priorities for Next Year
Continuing to identify opportunities and implement actions to further build, manage and preserve
the group’s capital position.
Exploring strategic opportunities within the group to deliver increased value for shareholders.
Overseeing the further design and embedding of enhanced internal controls processes ahead of
the implementation of the UK Corporate Governance Code 2024 applicable to the financial year
commencing 1 August 2025.
Implementing the recommendations of the externally facilitated board evaluation.
Continuing to react and respond to the ever-changing macroeconomic and regulatory landscape
within which we operate, with the core priorities being the interests of our stakeholders.
Our Governance Framework
The Board’s principal responsibilities are to promote the long-term success of the group and to create and deliver value for
shareholders, while protecting the interests of other stakeholders. The board sets the group’s strategy and has responsibility
for the governance, performance, culture and risk management and internal controls of the group.
Grow
Sustain
Protect
Colleagues
Investors
Customers, clients and partners
Suppliers
Regulators and government
Communities and environment
123
Strategic Report
Governance Report
Financial Statements
Board of Directors
Appointed: non-executive director
March 2017; chairman May 2017
Experience and competencies
Mike has more than 40 years’
experience within the financial services
sector, gained in both executive and
non-executive roles. He has extensive
experience as a listed company
chairman and uses his broad skills and
deep knowledge to lead the board and
ensure that it operates effectively.
Mike’s considerable experience
of engaging with key stakeholders,
including major shareholders and
regulators, makes him well placed to
lead the board and drive the strategy
and culture of the group. Mike is an
Associate of the ICAEW.
External roles
Current – none
Past
• Direct Line Insurance Group
plc, chairman*
• Resolution Limited, chairman
• Resolution plc, chief executive
officer and group finance director*
• Aviva plc, finance director*
Mike Biggs
Chairman
Adrian Sainsbury
Chief Executive
Appointed: executive director
September 2020
Experience and competencies
Adrian’s broad experience in the
banking industry makes him qualified
to lead Close Brothers. Having joined
the group in 2013, Adrian was
appointed to the board as chief
executive in September 2020. Prior to
this, Adrian was managing director of
Close Brothers’ Banking division from
2016 to 2020. Adrian has served as a
director of Close Brothers Limited, the
group’s principal banking subsidiary,
since August 2013. He has deep
knowledge and experience of the
group and the wider UK banking
sector. His strong leadership and
commercial expertise support his
valuable contribution to the board,
ensuring that the group continues
delivering for its stakeholders in the
years to come.
External roles
Current – none
Past
• UK Finance, board member
• Asset Based Finance
Association, chairman
• Barclays, various executive roles
• RBS, various executive roles
• Bank of Ireland, head of global
specialised finance
• ANZ, chief executive of Europe
Appointed: executive director
November 2018
Experience and competencies
Between 2010 and 2018 Mike was
chief financial officer of Close Brothers’
Banking division, and since 2010 he
has been a director of Close Brothers
Limited, the group’s principal banking
subsidiary. Mike is a chartered
accountant and his combined
extensive experience of financial
services and financial leadership, as
well as his strong understanding of the
group and its businesses, are an asset
to the board. He is an experienced
finance director and his financial
expertise plays a fundamental role
in driving strategy.
External roles
Current
• Member of the finance, audit and
risk committee of Battersea Dogs
& Cats Home
Past
• ICAEW Financial Services Faculty
Board, chair
• RBS, divisional finance director
• Scottish Provident, various
senior roles
Mike Morgan
Finance Director
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Close Brothers Group plc Annual Report 2024
Mark Pain
Senior Independent Director (“SID”)
Appointed: non-executive director and
SID January 2021
Experience and competencies
Mark brings to the board more than 30
years’ finance, risk management and
commercial experience. He has held
executive and non-executive roles in
both listed and private financial services
companies, including in retail banking
and insurance. Mark has experience
as a SID and makes a highly valuable
contribution to the board. He was
previously finance director of Barratt
Developments plc and Abbey National
plc and this experience equips him to
support the chair as SID.
External roles
Current
• AXA UK plc, chairman
• Empiric Student Property plc,
non-executive chairman*
Past
• Barratt Developments plc,
finance director*
• Abbey National plc, finance director*
• Yorkshire Building Society, senior
independent director
• London Square Limited,
non-executive chairman
• Ladbrokes Coral Group plc,
non-executive director*
• Punch Taverns plc,
non-executive director*
• Spirit Pub Company plc,
non-executive director*
• Johnston Press plc,
non-executive director*
• Aviva Insurance Limited,
non-executive director
Audit
Risk
Remuneration
Nomination and Governance
Chair
Committee membership
*
Directorship of publicly
listed organisation
Appointed: non-executive director
March 2022
Experience and competencies
Tracey brings to the board significant
executive leadership experience from
organisations in the financial and
business services sectors, both in the
UK and internationally. She is an
experienced non-executive director,
having served on a number of listed
company boards across a range of
financial services sectors. She is an
experienced remuneration committee
chair and has extensive experience
serving as a senior independent
director. Tracey’s significant
commercial, operational and customer
service insights are of great benefit
to the board.
External roles
Current
• Nationwide Building Society, SID
• DiscoverIE Group plc, SID*
• LINK Scheme Limited,
non-executive director
Past
• Royal London Mutual Insurance
Society Limited, non-executive
director
• Ibstock plc, SID*
• AXA Insurance plc, director
of customer services
• Talaris Limited, chief
executive officer
• De La Rue plc, various
executive roles
• HSBC, various senior positions
Tracey Graham
Independent Non-executive Director
Appointed: non-executive director
28 June 2023
Experience and competencies
Kari brings to the board extensive audit
and commercial expertise and a deep
understanding of the audit and
governance environment, drawing on
his many years in senior audit roles at
Deloitte, including membership of its
financial services industry board. His
expertise includes leading sensitive
and complex audits of high-profile
organisations. Kari has deep
experience of the financial services
sector and served as a senior adviser
to the Financial Reporting Council,
having previously been an executive
director at the Financial Services
Authority. Kari also brings experience
of chairing audit committees at large
financial services organisations,
making him qualified to chair the Audit
Committee of the group.
External roles
Current
• AXA UK plc, non-executive director
Past
• Deloitte, senior audit partner
• Financial Reporting Council,
senior adviser
• Financial Services Authority,
executive director
Kari Hale
Independent Non-executive Director
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*
Directorship of publicly
listed organisation
Appointed: non-executive director
January 2020
Experience and competencies
Sally brings extensive risk, regulatory
and governance experience to the
board, having held senior executive
positions at Marsh, National Australia
Bank and Aviva. Prior to that, Sally
held roles at PwC in both their risk
management and audit teams, over a
period of 15 years. She is a chartered
accountant, and also has significant
experience chairing audit committees.
The board benefits from Sally’s
considerable experience of the broader
UK financial services and insurance
sectors, and her understanding of
risk management, compliance and
audit matters.
External roles
Current
• Lancashire Holdings Limited,
non-executive director*
• Family Assurance Friendly
Society Limited (OneFamily),
non-executive director
• Ovarian Cancer Action, trustee
Past
• Marsh Ltd, director of risk
and governance
• National Australia Bank, head
of risk, London
• Aviva, group risk and
governance director
• PwC, director, risk management
Appointed: non-executive director July
2021
Experience and competencies
Tesula brings to the board extensive
finance and commercial expertise,
drawing on over 25 years’ experience
which includes senior executive and
advisory roles in the banking,
insurance and pension fund sectors.
Tesula qualified as a chartered
accountant with PwC and held
managing director roles at JP Morgan
and at UBS, specialising in corporate
finance for financial institutions and
pension fund risk management. She
was a founding member of the
management team of Paternoster, the
specialist bulk annuity insurer, where
she was a member of the executive
committee. Since then, she has
worked as an independent financial
consultant advising on business
plans and capital raising. Tesula’s
considerable financial services
expertise gained in a broad range of
organisations, from investment banks
to start-ups, supports the board’s
leadership of the group and makes her
well positioned to serve the board.
External roles
Current
• RAC Group, non-executive director
• NHBC (National House Building
Council), non-executive director
• Variety, the Children’s
Charity, trustee
Past
• JP Morgan, managing director
• UBS, managing director
Sally Williams
Independent Non-executive Director
Tesula Mohindra
Independent Non-executive Director
Audit
Risk
Remuneration
Nomination and Governance
Chair
Committee membership
Further information on the role of each board member can be found on page 132.
Board of Directors continued
Appointed: non-executive director
August 2021
Experience and competencies
Patricia brings considerable risk and
commercial expertise to the board.
She has more than 30 years’
experience in risk management across
the investment, corporate and retail
banking sectors, including serving as
chief risk officer in financial services
organisations. Her deep understanding
of the regulatory, risk and governance
environment is immeasurably valuable
and supports the board’s leadership of
the group. Her experience qualifies her
to chair the Risk Committee.
External roles
Current – none
Past
• Santander UK, chief risk officer
• GE Capital International Holdings
Limited, chief risk officer
• Deutsche Bank, credit risk
managing director
• Barclays Capital, various senior risk
management roles
Patricia Halliday
Independent Non-executive Director
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Close Brothers Group plc Annual Report 2024
Adrian Sainsbury
Group Chief Executive
Rebekah Etherington
Group Head of Human Resources
Ian Cowie
Chief Executive Officer Retail
Matt Roper
Chief Executive Officer Commercial
Mike Morgan
Group Finance Director
Simon Jacobs
Group Chief Operating Officer
Phil Hooper
Chief Executive Officer Property
Robert Sack
Group Chief Risk Officer
Bradley Dyer
Winterflood Chief Executive
Naz Kazi
Group Head of Internal Audit
Eddy Reynolds
Asset Management Chief Executive
Angela Yotov
Group General Counsel
Executive Committee
The biographies of the Executive Committee members can be found at www.closebrothers.com/who-we-are.
The role of the Executive Committee is described on page 128, and the process for succession planning and appointments
to the Executive Committee is overseen by the Nomination and Governance Committee as described on page 141.
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Corporate Governance Report
Board governance and activities
Board Leadership
The board’s primary role is to provide effective leadership
and stewardship for the group as a whole. The board sets
the group’s purpose and strategic objectives and monitors
management’s performance against those objectives,
ensuring alignment with the group’s culture and core
stakeholder expectations. The board oversees the group’s
risk management and internal controls systems which enable
risk to be appropriately assessed and managed.
When considering strategic issues and the group’s business
model, the board regularly engages directly with executives
and members of senior management on performance against
strategic goals, as well as external experts on relevant trends
and developments in the wider market, including from
a regulatory perspective. While considered in the context
of all decision-making, this year a range of specific activities
enabled the board to focus on areas of strategic importance.
This included a dedicated strategy session in May 2024,
as well as targeted discussions at board and committee
meetings, with detailed briefings from the relevant
executives. The board also participated in a series of deep
dive sessions on key matters of strategic, regulatory and
stakeholder importance as described on page 129.
2024 Board Strategy Day
• The board held a strategy event focusing on,
amongst other things, the short-term priorities for
the group to strengthen its capital position, as well
as the longer-term financial plan and opportunities
for delivering growth and shareholder returns.
• The board carefully considered various matters
to support long-term value creation, focusing
on cost efficiency, disciplined growth and
capital optimisation.
• As part of the strategy day, the board assessed a
range of strategic opportunities relating to specific
business divisions against the group’s desired
operating model.
Risk Management, Internal Controls and
Whistleblowing
The board is responsible for, and actively monitors, the
group’s risk management and internal control systems.
Detailed information in respect of the risk management and
internal controls systems is provided within the Risk Report
on pages 74 to 116.
The board considers a range of matters in relation to risk
management and internal controls, and the group chief risk
officer attends all scheduled board meetings to report to the
board on risk management activities across the group.
Governance Framework
Our governance framework, as illustrated on page 123,
supports the delivery of the group’s strategy through
effective decision-making, long-term shareholder value and
contribution to wider society.
Certain matters are reserved for the board, primarily
in relation to:
• setting and monitoring strategy for the group;
• corporate structure, capital and ensuring adequate
financial resources;
• financial reporting and controls;
• oversight of risk management, regulatory compliance,
internal controls and whistleblowing;
• significant financial matters including acquisitions,
disposals and investments;
• shareholder, market and regulatory communications;
• board and committee membership;
• delegation of authority; and
• corporate governance matters.
The matters reserved for the board, which are periodically
reviewed, are available at www.closebrothers.com/investor-
relations/investor-information/corporate-governance. When
carrying out its duties, the board acts in accordance with
relevant legislative and regulatory requirements while at all
times having regard to the directors’ duties set out in the
Companies Act 2006, including the duty pursuant to s.172 of
the Companies Act 2006, being the duty to promote the
success of the company for the benefit of its members as a
whole. Stakeholder considerations are a core focus of all
board decisions, about which you can read more on page
137.
The board delegates responsibility for certain matters to its
committees. Each committee has terms of reference, which
are available at www.closebrothers.com/investor-relations/
investor-information/corporate-governance. The chair of
each committee reports at each subsequent board meeting
on matters discussed at committee meetings. All non-
executive directors have access to committee papers and
have a standing invitation to attend any committee meeting.
Reports from the board’s committees are set out later in
this Annual Report and they include further detail on each
committee’s role and responsibilities, along with a summary
of the activities undertaken during the year.
The board delegates the execution of the group’s strategy
and the day-to-day management of the business to the
Executive Committee, which is led by the chief executive
and supported by management committees.
Robust governance is embedded throughout the
organisation, and numerous committees at management
level provide oversight across day-to-day operations.
Management committees ensure that matters are sufficiently
developed and challenged as they are escalated upwards.
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Close Brothers Group plc Annual Report 2024
During the year under review, the board considered
and approved:
• the group’s ICAAP and ILAAP statements;
• the annual compliance plan;
• the Enterprise Risk Management Framework;
• the group risk appetite statements, updated and
expanded to reflect the current and emerging risks faced
by the group; and
• enhancements to the risk management policies supporting
the group’s risk management framework, which this year
included a new policy on operational resilience.
Particular attention was given this year to capital risk and the
internal controls in place throughout the group to support
capital management, which has resulted in enhanced capital
reporting to the board and strengthened capital management
processes being embedded through the group. Further
information on the board’s work throughout the year can be
found on page 130.
Effectiveness of risk management and internal
control systems
The board has reviewed the effectiveness of the group’s
risk management and internal control systems and considers
that the group has in place adequate and effective risk
management and internal control systems with regard to
its risk profile and strategy.
The board’s assessment is supported by the work of the
Risk Committee and the Audit Committee which together
keep under review the effectiveness of the systems of risk
management and internal control via a range of mechanisms.
This includes receipt of regular risk management metrics,
review and challenge of audit and risk self-assessments,
oversight of internal audit activity, and review and challenge
of various risk-related processes and plans.
Further information on risk management and internal controls
can be found in the Risk Report on pages 74 to 116 and in
the Risk Committee report on pages 147 to 149.
Principal and emerging risks
The board has performed a robust assessment of the
principal and emerging risks facing the group, including
those that would threaten the group’s business model,
future performance, solvency or liquidity. These principal
and emerging risks are regularly reviewed and challenged
by the Risk Committee and at management-level governance
forums, via risk management information and commentary
provided by the group chief risk officer. The risk
management information provides a view of the risk
profile of the group, performance in line with risk appetite,
an assessment of the group-level emerging risks and
mitigating actions to ensure the group’s preparedness
should a risk crystallise. The process for identifying,
managing and mitigating these risks forms a core part of
the Enterprise Risk Management Framework and further
detail is provided in the Risk Report on pages 74 to 116.
The board confirms that throughout the year ended 31 July
2024 and up to the date of approval of this Annual Report,
there have been rigorous processes in place to identify,
evaluate and manage the principal and emerging risks faced
by the group. The board has also assessed the likelihood
of a risk crystallising and the costs of control in accordance
with the Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting
published by the FRC.
Further information on the group’s principal and emerging
risks can be found in the Risk Report on pages 74 to 116.
Deep Dives
• A number of deep dive sessions were held during
the year. These focused on key areas of business
or regulatory importance or on topics of increasing
significance. Where relevant, external experts
supported the delivery of the sessions to bring a
wider perspective which was overlaid on the specific
organisational context for the group.
• Highlights this year have included sessions on:
– cyber resilience and responding to
cyber breaches;
– developments in artificial intelligence and the
relevance to financial services;
– regulatory perspectives on industry-wide
challenges, including the FCA’s review
of historical motor finance commission
arrangements;
– significant risk transfer transactions; and
– customer perspectives on green
financing products.
• The board attended the regular refresher training
sessions on directors’ duties and the Senior
Managers and Certification Regime. This provided
an opportunity for the directors to consider their
responsibilities both in a broad sense but also by
reference to the specific challenges currently facing
the financial services industry.
Further information on areas of specific focus can be
found on page 130.
Whistleblowing arrangements
The board oversees the group’s whistleblowing
arrangements, which include channels through which a
person may raise matters anonymously. It monitors the
operation and effectiveness of these arrangements,
ensuring that processes are in place for the proportionate
and independent investigation of matters raised through
the mechanisms available and for follow-up action.
During the year, the board received half-yearly updates
from the group head of operational risk and compliance.
These updates covered:
• an overview of the group’s whistleblowing arrangements
across all jurisdictions in which the group operates and an
assessment of the effectiveness of those arrangements;
• information on steps taken by the group to ensure the
protection of those using the group’s whistleblowing
arrangements; and
• a summary of whistleblowing events, outcomes and any
follow-up actions.
In addition, the board appoints one of the directors to act
as the group’s whistleblowing champion and this is currently
Kari Hale. In this role, Kari engages with the group head
of operational risk and compliance regularly in relation to
whistleblowing matters during the course of the year.
For more details about the company’s whistleblowing
procedures, see page 48.
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Financial Statements
Board activities during the year
Our customer focus includes oversight and challenge of affordability strategies in the various businesses across the group,
implementation of the Asset Finance transformation programme to deliver significant customer benefits and review of the
Customer Commitment Framework. During the year we have also continued to embed Consumer Duty across the business
and undertaken our first Consumer Duty annual assessments.
Area of focus
Summary of the board’s work in this area
Strategy
Considered the FY 2025 budget and the longer-term three-year strategic plan for the group.
Considered various commercial opportunities and scenarios against the group’s Model Fit
Assessment Framework which is kept under review and challenged as appropriate.
Cost management
Considered, challenged and approved programmes to deliver significant multi-year cost savings,
including the delivery of group-wide outsourcing of IT infrastructure whilst maintaining operational
resilience, and the reduction of the group’s physical office footprint.
Capital actions
Took decisive and prudent action to strengthen the group’s capital position. This included the
decision not to pay a dividend in respect of FY 2024, as part of the wider capital action plan to
ensure the group is well positioned to navigate the current uncertainty arising out of the FCA’s
review of historical motor finance commission arrangements.
Capital management
Undertook a detailed review of the group’s capital management framework, reporting and
governance. Oversaw enhancements including the expansion of specialist knowledge within
the group and the adoption of revised capital risk appetite statements.
Capital structure
Built on the success of the bond issuance in the prior year, with an inaugural issue of
AT1 securities in a £200 million transaction to optimise the capital structure and provide
further flexibility to grow the business, in line with the group’s strategy and capital
management framework.
External reporting
Acting upon the recommendation of the relevant committees, the board approved various
external reports and announcements, including the Annual Report 2023 and trading updates
during the year as well as communication of the decision not to pay a dividend for FY 2024.
Customer focus
Customer focus included oversight and challenge of affordability strategies in the various
businesses across the group, implementation of the Asset Finance transformation programme to
deliver significant customer benefits and review of the Customer Commitment Framework. During
the year, the board has also continued to embed Consumer Duty across the business and has
undertaken its first Consumer Duty annual assessment.
Succession planning
Oversaw changes to committee composition including Kari Hale’s succession as chair of
the Audit Committee and supported a number of appointments to the Executive Committee
during the year.
Board and committee
evaluation
Commissioned the externally led board and committee evaluation and is developing an action
plan to implement the findings of the evaluation. The board also supported and contributed
to the annual review of the chairman’s performance by the senior independent director.
Corporate
governance reforms
Supported the commencement of a number of workstreams on enhancements to the internal
controls environment and reporting in preparation for the new UK Corporate Governance Code
2024, which will apply to the group with effect from the financial year beginning 1 August 2025.
Regulatory matters
Continued engagement with the PRA and FCA during the year as well as other relevant
regulators, and received updates on management-level interaction with the PRA and FCA.
Focused on further strengthening the group’s relationships with regulators and embedding
regulatory expectations within the business.
Strategic growth
Oversaw the acquisition of Bluestone Motor Finance in Ireland (now Close Brothers Motor
Finance Ireland). The strategic acquisition aligned to the group’s commitment to Ireland as
an important market and represents an important milestone in our commitment to delivering
disciplined growth in our Retail business.
People and culture
Received regular updates on culture and people across the group, particularly in response to
challenges affecting colleagues during the year. Discussed a detailed analysis of the results of
the periodic employee engagement survey. Oversaw the implementation of the three-year group
diversity and inclusion strategy. Met with a range of colleagues across the group to hear from
them about their experience of working at Close Brothers.
Corporate Governance Report continued
During the year, the board and its committees undertook a
range of activities to drive forward the group’s purpose and
strategy aimed at protecting, growing and sustaining the
group’s valuable franchise. Key events and areas of focus
this year are set out below.
Grow
Sustain
Protect
Colleagues
Investors
Customers, clients
and partners
Suppliers
Regulators and government
Communities and environment
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Close Brothers Group plc Annual Report 2024
Site Visit to Close Brothers’
Brighton Office
Workforce engagement provides directors with
first-hand insight into the group’s day-to-day
operations and an opportunity to meet and engage
directly with colleagues across the group.
In July 2024, the board held its meetings at the
office of the Invoice Finance business in Brighton.
The Brighton-based team had recently been relocated
to new premises, which have significantly reduced
the group’s carbon footprint in the region, contributing
to the group’s cost-saving initiatives and better
supporting collaborative working.
During the course of the two-day visit, the board
met informally with business leadership and other
colleagues, enjoyed an employee-led tour of the new
premises to learn about the building’s sustainability
credentials and held an informal mingling session to
which all Brighton-based employees were invited.
The board was able to discuss directly with employees
various topics including career development, work/life
balance and culture across the group.
The board also attended a deep dive session from
the Invoice Finance leadership team covering strategy,
technological investment, customer experience and
key performance indicators.
The Brighton visit was well received by both the board
and the local workforce and was an opportunity for the
board to interact with a diverse group of colleagues.
As a result of the visit, the board gained a better
understanding of how the group’s culture is embedded
within the wider organisation. The visit also enhanced
the board’s understanding of employee interests and
colleague experiences, while providing the board with
the opportunity to see the business in action.
In addition, the two-day visit served as a further
opportunity for board members to engage with
one another outside of the boardroom and in a less
formal setting.
September 2023
• Full-year results and roadshows
• Publication of Annual Report 2023
• Publication of 2023 Pillar 3
disclosures
January 2024
June 2024
November 2023
• Announcement by the FCA of its
review of historical motor finance
commission arrangements
May 2024
• European investor roadshow
• Q3 trading update
• First AT1 coupon payment
• Chairman’s governance roadshow
• Annual General Meeting 2023
• Q1 trading update
• AT1 issuance
April 2024
March 2024
• US investor roadshows
February 2024
• Half-year results and UK roadshow
• Further detail of capital
strengthening actions announced
• Announcement of a series of capital
strengthening actions, including the
decision not to pay a dividend for
the financial year
Financial
calendar
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Financial Statements
Attendance at scheduled board and committee meetings during FY 2024
Board
Nomination and
Governance
Committee
Risk Committee
Audit Committee
Remuneration
Committee
Mike Biggs
8/8
5/5
–
–
5/5
Adrian Sainsbury
8/8
–
–
–
–
Mike Morgan
8/8
–
–
–
–
Mark Pain
8/8
5/5
5/6
–
4/5
Tracey Graham
8/8
5/5
6/6
–
5/5
Kari Hale1
8/8
1/1
5/6
5/5
–
Patricia Halliday
8/8
–
6/6
5/5
–
Tesula Mohindra
8/8
–
6/6
5/5
–
Sally Williams
8/8
–
6/6
5/5
–
Former directors
Peter Duffy2
4/4
3/3
4/4
–
2/2
Oliver Corbett2
3/3
2/2
2/2
2/2
–
1. Kari Hale was appointed a member of the Nomination and Governance Committee with effect from 26 June 2024.
2. Oliver Corbett and Peter Duffy resigned as non-executive directors with effect from 16 November 2023 and 15 February 2024, respectively.
Meetings of the Board
The annual schedule of board and committee meetings
is agreed a significant length of time in advance of the
meetings in order to ensure, so far as possible, the
availability of all directors. In the event that directors are
unable to attend a meeting, they receive papers as usual and
have the opportunity to relay their comments and questions
in advance of the meeting, as well as follow up with the
chairman if necessary. The same process applies with
respect to the board committees. Board and committee
papers include dedicated reporting on stakeholder
considerations where appropriate, and senior manager
insights with regard to employee and customer sentiment
and culture across the group are of particular value. Each
scheduled board meeting includes dedicated time for
discussion between the chairman and the non-executive
directors, without the executive directors present.
The board has appointed Sally Williams to act as the
Banking division’s Consumer Duty champion. Sally
challenges senior management with regard to consumer
outcomes. She has played an active role as Consumer Duty
champion and contributed to the development of the
Banking division’s inaugural Consumer Duty annual
assessment, providing appropriate and robust challenge
to senior management on matters relating to Consumer
Duty throughout the year.
In addition to the scheduled board and committee meetings
as detailed in the table below, there were a number
of ad hoc board meetings this year, to afford the board
opportunities to consider a number of particularly dynamic
issues arising during the year.
The board also continued to assess the basis on which the
group generates and preserves value over the long term and
consider how opportunities and risks to the future success of
the group are addressed via a range of other engagement
mechanisms:
• The board held a strategy day in May 2024, details
of which can be found on page 128.
• The board met with local employees and interacted with
staff informally through a range of opportunities, as
detailed on page 138.
• Members of the board met with significant shareholders,
as set out on page 138.
Board governance and activities
Corporate Governance Report continued
Roles and Responsibilities
In line with the Code, the role of the chairman is distinct and
separate from that of the chief executive and there is a clear
division of responsibilities between the two. The roles of the
chairman, chief executive and senior independent director,
as approved by the board in July 2024, can be found on
the company’s website at www.closebrothers.com/investor-
relations/investor-information/corporate-governance.
A summary of various board roles is set out below.
In addition, the chairman, chief executive, finance director
and each of the committee chairs have various prescribed
responsibilities under the Senior Managers and Certification
Regime, overseen by the FCA. Other board members also
take on additional responsibilities required by legislation
such as whistleblowing champion or Consumer Duty
champion, although responsibility for oversight of these
matters remains with the whole board.
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Close Brothers Group plc Annual Report 2024
Division of Responsibilities
Role
Responsibilities
Mike Biggs
Chairman
– Responsible for leading the board and ensuring that it operates effectively, observing the highest
standards of corporate governance.
– Promotes balanced and effective decision-making and challenge of executive management with
sufficient time for constructive debate and discussion.
– Ensures that the board as a whole is responsible for developing the group’s strategy and
assessing and monitoring culture across the group.
– Promotes effective engagement between the board, its shareholders and other stakeholders.
– Chairs the Nomination and Governance Committee, monitors the board’s composition and
succession planning, and leads the annual board evaluation process.
Adrian Sainsbury
Chief Executive
– Executes the group’s strategy as agreed with the board.
– Leads the Executive Committee in the day-to-day management of the group.
– Ensures that the group’s business is conducted with the highest standards of integrity aligned
with the group’s culture.
– Manages the group’s risk exposure in line with board policies and risk appetite.
– Leads the group’s investor relations activities.
Mark Pain
Senior Independent
Director
– Provides a sounding board for the chairman.
– Provides an alternative channel of communication for shareholders and other stakeholders.
– Meets with non-executive directors annually without the chairman present to appraise the
chairman’s performance.
Non-executive
Directors
– Provide constructive challenge and scrutiny of the performance of management.
– Bring external perspective, knowledge and experience to the board.
– Assist in the development of strategy and the decision-making process.
– Promote the highest standards of integrity and governance.
– Through membership of the group’s committees, determine appropriate levels of remuneration,
review the integrity of the financial statements, review succession plans for the board and the
Executive Committee and monitor the risk profile of the group.
– Gather the views of the workforce through attendance at key business events and through
employee engagement.
Sarah Peazer-
Davies
Company Secretary
– Advises the directors on corporate governance, legal matters and the discharge of their duties.
– Ensures the board receives high-quality information and in sufficient time.
– Supports relationship-building and the flow of information between the board and the
Executive Committee.
– Facilitates board inductions, the annual board evaluation and ongoing development.
– Available to provide advice and support to all directors on matters of corporate governance.
– Organises all board and committee meetings as well as the Annual General Meeting (“AGM”).
• whether the proposed external appointment would be
likely to compromise the director’s ability to dedicate
appropriate time and diligence to their existing
responsibilities to the group.
Time Commitment
The non-executive directors’ letters of appointment set out
the time commitment expected of them, and all directors
must seek prior board approval before taking on significant
additional commitments. The board is satisfied that each
non-executive director continues to and is able to dedicate
sufficient time to the company’s affairs. The directors’
attendance at scheduled meetings is on page 132.
Election and Re-election of Directors at the
2024 AGM
In accordance with the Code, all directors retire and
submit themselves for election or re-election at each
AGM. The board will only recommend to shareholders that
executive and non-executive directors be proposed for
election or re-election at an AGM after evaluating the
performance of the individual directors and considering
their suitability, time commitment and ability to continue to
contribute to the board.
The board has determined that all directors continue to
be effective and demonstrate sufficient commitment to
their role. At the recommendation of the Nomination and
Governance Committee, the board will therefore be
recommending that all serving directors be elected or
re-elected by shareholders at the 2024 AGM.
Directors’ Independence
The board considers that each non-executive director is
independent under provision 10 of the Code. The chairman,
Mike Biggs, was considered to be independent on
appointment in line with the provisions of the Code.
The board annually reviews the directors’ independence.
Conflicts of Interest
The board, with the support of the company secretary,
regularly reviews actual or potential conflicts of interest of
each of the directors. Directors are responsible for notifying
the chairman and the company secretary of any changes to
the nature of their interests and are reminded of this at the
start of each board and committee meeting. The company
secretary maintains a register of directors’ interests,
including those conflicts authorised by the board, and the
board annually reviews each non-executive director’s
external interests.
As required by the Code, the board’s practice is to assess
whether directors’ external appointments should be
approved in advance of proposed additional appointments
being taken on by any of our directors, with significant
consideration given to the following factors:
• whether the external appointment is likely to give rise to
any actual or potential conflicts of interest;
• how any such conflicts could be managed or mitigated;
and
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Board induction, training and evaluation
Induction
On appointment, all new directors receive a comprehensive
and personalised induction programme. The programme
is developed and overseen by the company secretary to
familiarise new directors with the group.
Induction programmes are tailored to each director and
typically include visits to local offices, one-to-one meetings
with executive directors, the company secretary and senior
management, and a meeting with the external auditor.
Directors also receive guidance on their statutory and
regulatory responsibilities, together with a range of relevant
current and historical information about the group and its
business. A key aim of the induction is to ensure that new
board members are equipped to contribute to the group
and the work of the board as quickly as possible.
Kari Hale was appointed to the board in June 2023 and
became chair of the Audit Committee in November 2023.
His induction programme during the year included sessions
with the executive directors and senior management to
discuss strategic, regulatory and corporate governance
matters and a meeting with the lead audit partner of the
group’s external auditor.
Corporate Governance Report continued
Markets
Opportunities
Culture
Strategy
Forecast and budget
Investor views
Audit
Financial
Risk management
Regulatory landscape
Corporate governance
Regulatory
Director induction programme
Ongoing Development
A tailored development programme for the directors was
reviewed and approved by the Nomination and Governance
Committee. The programme covers topics of strategic,
regulatory and operational relevance. Where appropriate,
external advisers facilitate sessions to offer an external
perspective on emerging themes, or to support the directors’
consideration of strategic opportunities. Further information
on sessions held during the year can be found on page 129.
The directors also receive annual training on the Senior
Managers and Certification Regime as well as their directors’
duties and listed company obligations. The company
secretary is available to advise all directors on all matters
of corporate governance.
Board Evaluation
In line with recognised best practice and the
recommendations of the Code, the board undertakes
a formal and rigorous evaluation annually to assess
the effectiveness of the board and to identify areas for
improvement. The evaluation process is externally facilitated
at least every three years by an independent provider.
This year the board appointed Lintstock Ltd to conduct
an external review of the effectiveness of the board and its
committees. Lintstock is an advisory firm that specialises
in board effectiveness reviews and has no other connection
with the company or its individual directors. Lintstock is
accredited by the UK Chartered Governance Institute and
the board evaluation was undertaken in line with the 2023
Code of Practice for Board Reviewers. Lintstock have not
provided any other services to the company and have had
advanced sight of the disclosures set out below.
The Nomination and Governance Committee oversaw the
board evaluation process, having considered proposals from
external firms on the basis of cost, experience, and the
proposed scope of the evaluation and subsequent reporting.
In addition, Mark Pain, the senior independent director, met
with two of the external providers under consideration to
discuss their proposed approach. The Committee selected
Lintstock to undertake the external evaluation on the basis
that Lintstock were thought to be the best provider given
their holistic approach, and would consider the effectiveness
of the board within the current external corporate
governance framework, while also being mindful of the
specific challenges the board is facing.
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Board evaluation methodology
Completion of surveys
April 2024
Board members and selected members of the Executive Committee and senior
management completed bespoke surveys assessing the performance of the board
and each of its committees. Each director also completed a self-assessment
questionnaire assessing their own performance.
Board discussion
Lintstock’s findings were shared with the chairman and were discussed initially
with each of the chairman and the senior independent director. The board is in
the process of considering the recommendations of the report, which will be
considered further at a targeted session in the coming weeks.
Analysis and delivery
of reports
June 2024
Lintstock analysed the surveys and interviews and delivered focused reports
documenting the findings, including a number of recommendations to ensure
continued effectiveness.
Interviews
May 2024
In-depth interviews with board members were conducted by two Lintstock
partners. The findings from the survey enabled Lintstock to focus discussions
on the key priorities and comments of each director.
Scoping and tailoring
February – March 2024
The scope and objectives of the evaluation were agreed following a briefing
meeting with Lintstock. Lintstock collaborated with the chairman and the company
secretary to design a review process tailored to the business needs of the group.
As well as covering core aspects of governance such as provision of information,
composition and dynamics of the board and its committees, the evaluation
considered people, strategy and risk areas relevant to performance. It had
a particular focus on:
• the board dynamics and communication;
• the board’s response to the FCA’s review of historical motor finance
commission arrangements; and
• the board’s oversight of risk, including horizon scanning.
Findings of the evaluation
The evaluation found that the board and its committees
continue to operate effectively. In particular, the board
provides effective oversight of the overall business, is well
led and provides valuable counsel to management. The
dynamics inside and outside the boardroom, including the
relationship with key leaders, received particularly positive
feedback, and there was good consensus regarding the
strategic priorities facing the group.
A number of priorities for the board in the upcoming year
were identified, including:
• continued refinements to the board’s oversight of
risk, strategy and people, ensuring that appropriate
mechanisms are in place to deal with any
emerging challenges;
• maintaining alignment with management in key areas
and ensuring continued focus on the overarching priorities
for the group and its capacity to deliver on plans; and
• reviewing the decision-making process and the way in
which lessons are drawn from past decisions, ensuring
these are captured to support future success.
As part of the review, Lintstock provided an analysis of
the board’s effectiveness relative to other organisations,
specifically within financial services, putting the findings into
context. The effectiveness of the board ranked favourably
as compared with other companies included in Lintstock’s
comparator index.
A detailed review of the findings will be undertaken and the
board, together with the company secretary, will develop
an action plan to build on and address the recommendations
of the evaluation.
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Implementation of the Findings of the FY 2023 Evaluation
The board has also considered its progress against the findings of the FY 2023 evaluation.
Key recommendations
Progress made
Greater consideration of board composition and
succession planning at executive director and Executive
Committee level.
Board size reduced to nine directors and committee
composition adjusted throughout the year to ensure
appropriate diversity of skills and experience. The
Nomination and Governance Committee significantly
increased its focus on succession planning at Executive
Committee level.
Meeting agendas to allow for longer discussion on key
topics, and reporting to the board and committees to be
more targeted.
Deep dives held on relevant matters to allow greater
discussion, and additional board meetings convened during
the year. Board agendas reviewed throughout the year to
optimise available time. The company secretary ran
sessions with senior management to focus board reporting
with updated board paper templates.
Greater focus on stakeholder engagement and the extent
to which the group contributes to wider society.
Greater time has been allocated to dedicated ESG sessions,
and the board continues to increase its engagement with a
variety of stakeholder groups. Work in this area will continue
in FY 2025.
Corporate Governance Report continued
Directors’ Performance
In addition to the formal evaluation, the chairman holds
regular meetings with individual directors at which, among
other things, their individual performance is discussed.
Informed by the chairman’s continuing observation of
individual directors during the year, these discussions
form part of the basis for recommending the election and
re-election of directors at the company’s AGM, and include
consideration of the director’s performance and contribution
to the board and its committees, their time commitment and
the board’s overall composition.
Chairman’s Performance
As in previous years, Mark Pain, in his role as the senior
independent director, led the annual assessment of the
chairman’s performance. This involved discussions with
the other non-executive directors individually, without the
chairman being present, and consultation with the chief
executive and group finance director. The senior
independent director subsequently provided feedback
to the chairman.
Directors’ Fitness and Propriety
In line with its regulatory obligations, the group undertakes
annual reviews of the fitness and propriety of all those in
senior manager functions, including all of the company’s
directors and a number of other senior executives.
This process comprises assessments of individuals’
honesty, integrity and reputation, financial soundness,
competence and capability, and continuing professional
development. This year’s reviews have confirmed the fitness
and propriety of all of the company’s directors and other
senior executives who perform senior management
functions. Consideration of matters relating to fitness
and propriety also form an important part of the board’s
recruitment process for non-executive directors.
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Capital Action Plan
Suspension of FY 2024 dividend
The FCA announced a review of historical motor
finance commission arrangements in January 2024.
This review gave rise to a range of possible outcomes
and resulted in industry-wide uncertainty. Following
the FCA’s announcement and the subsequent volatility
in the group’s share price, the board took prudent and
decisive action to strengthen the group’s capital
position and reassure the market.
The board considered an extensive list of potential
actions to strengthen capital, assessing the merits of
each action in terms of ease of execution, impact on
the core business franchise and the potential impact
on a range of stakeholders, including shareholders.
After extensive debate and due consideration, the
board made the decision not to pay a dividend for the
2024 financial year, as announced in February 2024.
In making this decision, the board carefully considered
the impact that this would have on shareholders and
their investment strategies, as well as the need to
balance near-term shareholder returns with protecting
the business and franchise and, hence, profitability in
the longer term. Consequently, the board concluded
not to pay a dividend for the financial year under
review and that this would promote the long-term
success of the company in light of the uncertainty
surrounding the outcome of the FCA’s review, which
persists today.
Capital action plan
Following the announcement of the decision not to pay
a dividend, the board announced a range of additional
actions to further strengthen the group’s available
capital. These actions, some of which have already
been implemented, included selective loan book
growth to optimise risk weighted assets, supported
by additional cost management initiatives, and the
potential for significant risk transfer of assets.
In deciding to optimise risk weighted assets, the board
was mindful of the impact on customers and those
employees whose core objective is to deliver growth
and consequently sought to distribute the impact
of such optimisation across the lending businesses
in an appropriate way.
Management have provided regular updates to the
board on the impact and delivery of the capital action
plan, which has provided important feedback to the
board as the plan has continued to evolve.
Capital Management
The board has always been mindful of the need to
ensure that the group’s capital management oversight
remains appropriate and complies with both regulatory
expectations and good practice, given the activities of
the group and the ever-evolving regulatory landscape.
In the summer of 2023, the board commissioned a
review of the group’s capital management framework,
reporting and governance. This was designed to
benchmark capital management practices against
evolving good practice and to determine what, if any,
improvements could be made. As part of this exercise,
management re-assessed the group’s capital risk
appetite limits, capital triggers and related reporting.
The review led to the board adopting revised capital
risk appetite triggers and limits and revisions to the
format and frequency of capital-related management
information. This refreshed capital management
framework has provided considerable support to the
board during 2024 when considering the range of
potential impacts of, and responding to the uncertainty
posed by, the FCA’s review of historical motor finance
commission arrangements.
A key stakeholder relevant to the board in its decision-
making with respect to the adoption of a revised
capital management framework is the group’s primary
regulators, with whom the board, via management,
has always maintained a regular dialogue.
Stakeholder engagement
The board recognises that the group’s stakeholders have different values and priorities. It is important for the board to
understand and consider the interests of stakeholders. Further information about the company’s key stakeholder groups, as
well as the company’s Section 172 Statement, can be found in the Strategic Report on pages 29 to 31.
Board Decision-Making
The board assesses stakeholder views and takes them into account when making decisions. For example, management
regularly updates the group’s primary regulators on board decisions to engage proactively and maintain a positive relationship.
The two case studies shown on this page provide practical examples of how the board takes into account the company’s
different stakeholders as an integral part of its decision-making process.
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Culture and Workforce Engagement
Culture and values
The board recognises the importance of our unique and
distinctive culture for the long-term success of the group.
The board plays a key role in establishing, monitoring and
assessing culture and leading by example to promote the
desired culture. The board spends time monitoring, and
satisfying itself as to, the alignment of the group’s purpose,
values and strategy with its culture.
During the year, the board monitored, assessed and
promoted the group’s culture in the following ways:
• The board received updates from the group head of HR
on the results of the anonymous employee opinion survey
which tracks against our own and sector-wide cultural
markers, in addition to a quarterly culture dashboard
which includes external stakeholder considerations.
This reporting is used by the board to assess the extent
to which desired behaviours are embedded across the
employee population.
• The chief executive’s updates to the board included
dedicated reporting on people and culture within each
division to allow the board to consider cultural issues with
suitable granularity.
• Site visits and attendance by the non-executive directors
at various employee events and management committees,
as well as structured site visits with dedicated employee
engagement sessions, such as the visit to the Brighton
offices, more information about which can be found
on page 131.
• The Remuneration Committee considered culture,
behaviour and conduct issues and the inclusion
of culture-related objectives as part of the executive
directors’ performance assessment (further detail
on which can be found in the Directors’ Remuneration
Report on page 168).
• The board reviewed the group’s whistleblowing
arrangements. See page 129 for further detail.
• This year’s board evaluation provided the board with an
external and independent perspective of its own culture,
which supports the board as it endeavours to set the right
“tone from the top”.
Engagement with employees
The board’s engagement with employees is mutually
beneficial. It allows the board to monitor the group’s culture
and maintain an engaged and motivated workforce to
support the group in delivering a high level of service to our
customers. Our values of service, expertise, relationships,
teamwork, integrity and prudence form an important part
of who we are.
As permitted by the Code, the board has put in place its
own arrangements to engage with employees across the
group. With oversight from the Nomination and Governance
Committee, a programme to facilitate board engagement is
managed by the company secretary. The board, through the
work of the Nomination and Governance Committee, keeps
its workforce engagement arrangements under review to
ensure they remain appropriate to the group.
The board values opportunities for directors to engage
with employees, across regional locations and at events
of different levels of formality. This allows the board to
engage with the group’s workforce authentically and for the
workforce to raise topics which they might not otherwise
have the opportunity to discuss with the board. The board
acknowledges the benefits of meaningful engagement
with senior management, who play an important role
in embedding the group’s culture through the business
and in reporting to the board on employee sentiment
within the businesses.
Examples of engagement and consultation in the year with
employees included:
• In July 2024, the board visited the new Brighton office,
as described on page 131.
• Non-executive directors’ participation at local governance
fora and events which are attended by significant numbers
of employees and can include Q&A sessions.
• Participation by directors in focused initiatives
operated by the group’s diversity and inclusion networks
through the year.
• Informal networking events hosted by the directors and
which are open to smaller groups of employees to attend.
The board considers that its employee engagement activities
during the year have been effective, have allowed the
directors to engage widely with employees across a broad
manner of settings and engagement styles, and afford the
board meaningful insight as to employee sentiment to ensure
employee interests are embedded in board decision-making.
Engagement with Shareholders
The board believes it is important to maintain an open
and constructive relationship with shareholders in order
to provide shareholders with reliable and timely information.
In addition to the investor engagement undertaken by the
chief executive and group finance director during the year,
examples of engagement and consultation with our
shareholders included:
• The AGM, which is an opportunity for shareholders
to engage with and question the directors and
senior management.
• Debt investor views in relation to the group’s inaugural
Additional Tier 1 capital (“AT1”) issuance in November
2023, were also communicated to the board.
• The chairman met with a number of institutional
shareholders, covering c.50% of the share register by
holding, to discuss matters such as strategy, corporate
governance, succession planning and the board’s actions
to strengthen the group’s capital position.
• Frequent updates on shareholder engagement and
investor feedback following results announcements
and investor roadshows.
Additionally, the Remuneration Committee chair is available
to discuss remuneration matters and the senior independent
director is available to meet with shareholders.
Corporate Governance Report continued
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Close Brothers Group plc Annual Report 2024
Nomination and Governance
Committee Report
Dear Shareholder
On behalf of the board, I am pleased to present the
report of the Nomination and Governance Committee
(the “Committee”) for 2024. The report sets out an overview
of the Committee’s role and responsibilities and its key
activities during the year.
Board effectiveness and composition remained an important
focus for the Committee during the year, with a view to
ensuring an appropriate balance of skills, knowledge,
independence, experience, time commitment and diversity
in order for the board to operate effectively. The need for the
right skills around the board table has been ever-more acute,
given the external challenges facing the group.
In addition to leading the annual board evaluation process,
which this year was conducted by an external evaluator and
is described on pages 134 and 135, the Committee reviewed
the board’s collective skill set and the time commitment
required of the non-executive directors. The Committee also
oversaw Kari Hale’s succession as chair of the Audit
Committee in November 2023 and reviewed and refreshed
the composition of the board’s committees.
Succession planning and talent management at Executive
Committee level and below has been a key focus during the
financial year. This has included identifying, retaining and
motivating potential successors to develop the group’s
talent pipeline.
Building on the Committee’s work in prior years,
the Committee continued to monitor sustainability
and environmental, social and governance (“ESG”)
developments relevant to the group, with a particular focus
on diversity and inclusion at all levels of the organisation.
The Committee also oversaw the proposals for workforce
engagement during the financial year, including the
successful board visit to the group’s office in Brighton.
ESG will remain a key focus of the Committee in coming
years as the group seeks to build on its now well-established
sustainability framework and strategy.
Michael N. Biggs
Chair of the Nomination and Governance Committee
19 September 2024
Membership
Mike Biggs (Chair), Tracey Graham, Kari Hale and
Mark Pain.
Other regular attendees by invitation
• Chief executive
• Group head of human resources
Meetings
• Number of scheduled meetings: five
• For details of attendance, see page 132
Interaction with other committees
The Nomination and Governance Committee
makes recommendations to the board and all other
committees regarding the appointment and removal
of their members and chair.
How time was spent
Succession planning
22%
Diversity and inclusion
10%
ESG
29%
Board composition
and governance
39%
Michael N. Biggs
Chairman
2024 highlights
• Led the external board evaluation process,
described on pages 134 and 135.
• Considered board and committee composition and
implemented changes, including appointing Kari
Hale as chair of the Audit Committee and a member
of the Nomination and Governance Committee.
Patricia Halliday was also appointed as a member
of the Remuneration Committee.
• Reviewed the group’s approach to succession
planning with particular focus on executive and
senior management roles.
• Oversight of activities to support and encourage
the development of a diverse and inclusive
talent pipeline.
• Monitored sustainability and ESG developments
and considered their implications for the group.
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Corporate Governance Report continued
Key Responsibilities of the Committee
• Regularly reviewing the structure, size and composition
of the board and its committees, and making
recommendations to the board with regard to
any changes.
• Considering the leadership needs of the group now and
in the future and succession planning of directors and
senior management.
• Overseeing the group’s approach to the development
of a diverse talent pipeline.
• Reviewing the continued independence of the
non-executive directors and assessing the board’s
balance of skills, knowledge and experience.
• Evaluating the skills, knowledge and experience required
for a particular appointment, where appropriate with the
assistance of external advisers, to facilitate the search
for suitable candidates.
• Leading the board’s annual evaluation process,
including the appointment of an external board evaluator,
when appropriate.
• Monitoring ESG and sustainability developments relevant
to the group (including diversity and inclusion and
developments relating to climate change and associated
reporting requirements).
Appointments to the Committee
Following a review of the Committee’s composition,
Kari Hale was appointed as a member of the Committee
in the year. Given his extensive financial services and
governance experience, Kari will bring valuable perspectives
to the Committee.
Board Effectiveness and Non-executive
Directors’ Skills
During the year, the Committee led the annual board
evaluation process. The Committee supported the chairman
and the company secretary in agreeing the scope of the
evaluation and oversaw the process to select Lintstock as
independent board evaluator. Further information can be
found on page 134.
The Committee also conducted its annual review of the
individual and collective skills possessed by members of
the board, and reaffirmed that the non-executive directors
continue to possess the relevant skills and expertise,
including extensive experience within financial services and
in regulated or listed companies, to be effective in their roles.
Where areas for further enhancement were identified, either
from the findings of the prior year’s board evaluation or as a
result of horizon scanning, these were incorporated into the
deep dive sessions and annual training programme overseen
by the company secretary with input from the chairman and
the chief executive and approved by the Committee.
The chart on page 122 indicates the key skills expected
of the board and possessed by the non-executive directors.
Further information on the background and experience
of each of the non-executive directors can be found in their
biographies on pages 124 to 126. Given the regulated
environment within which the group operates, directors are
also required to undergo an annual fitness and propriety
assessment, pursuant to the Senior Managers and
Certification Regime.
During the year, the Committee carried out a review of the
expected time commitment of each director based on their
committee membership, other board roles and industry
benchmarking. This resulted in non-executive directors’
letters of appointment being updated to reflect an increased
time commitment, given the increased regulatory oversight
and industry challenges which the board spent a great deal
of time navigating collectively. In addition, the Committee
approved the issue of new letters of appointment for further
terms for both the chairman and senior independent director,
following consideration of their respective competencies and
contribution to the board, and approval of their re-election
at the 2023 AGM.
Board Roles and Responsibilities
The Committee undertook a review of the responsibilities
of the chairman, senior independent director and the
chief executive to ensure these remain fit for purpose and
reflective of the expectations of these roles. The Committee
recommended a number of incremental enhancements
to the stated responsibilities which were subsequently
approved by the board. In accordance with the Code,
a statement of responsibilities can be found at
www.closebrothers.com/investor-relations/investor-
information/corporate-governance and further detail
is available on page 132.
Changes to Board and Committee Composition
As part of the Committee’s considered and orderly approach
to succession planning, it oversaw the succession of Kari
Hale as chair of the Audit Committee in November 2023.
Kari has deep and extensive audit experience within financial
services and is very well qualified to perform the role of
Audit Committee chair.
In June 2024, the Committee also considered and
recommended the appointment of Kari Hale as a member
of the Nomination and Governance Committee, given his
broad financial services expertise and understanding of
the governance environment, and Patricia Halliday as a
member of the Remuneration Committee, in order to further
strengthen the Remuneration Committee’s oversight of
risk-related remuneration matters.
The Committee adopts a proactive and structured approach
to succession planning and remains mindful of board
changes that will occur in the future as directors reach
the end of their term of office and of the need to ensure
continuity of knowledge and experience within the board as
a whole. The Committee notes the chairman’s tenure, which
is now at seven years, and is aware of the need to ensure the
orderly succession of his role in the near future.
The composition of each committee is as follows:
Nomination
and
Governance
Committee
Audit
Committee
Risk
Committee
Remuneration
Committee
Mike Biggs
Chair
•
Mark Pain
•
•
•
Tracey Graham
•
•
Chair
Kari Hale
•
Chair
•
Patricia Halliday
•
Chair
•
Tesula Mohindra
•
•
Sally Williams
•
•
Election and Re-election of Directors at the
2024 AGM
The Committee is responsible for considering and making
recommendations to the board concerning the election and
re-election of directors, having regard to their performance,
suitability, time commitment and ability to continue to
contribute to the board. Following this year’s review, the
Committee has recommended to the board that all serving
directors be re-elected at the AGM.
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Close Brothers Group plc Annual Report 2024
You can read more about the board’s recommendation
that all directors be elected or re-elected at the 2024 AGM
on page 133.
Senior Management Talent Development and
Succession Planning
The Committee spent considerable time during the year
considering the group’s succession planning at Executive
Committee level and below. During the year, the Committee
oversaw a number of key appointments to the Executive
Committee, including the appointment of a new chief
operating officer, and new chief executives in the Retail and
Property businesses. To support Executive Committee
succession planning, the Committee oversaw a rigorous
recruitment process and considered a range of candidates
with extensive sector experience.
Recognising that investing in our workforce and nurturing
talent is critical to the future success of the group, the
Committee also paid particular attention to succession
planning below the level of Executive Committee. It
monitored initiatives to ensure that there is a suitably
experienced pipeline in place for internal promotion to senior
management roles in future years. Activities undertaken
by the Committee included a formal review of senior
management succession planning, assessing the capability
and potential of incumbents in key roles and the succession
pipeline across the group as well as monitoring attrition rates
across the group.
Ensuring that the group continues to attract, retain and
develop skilled, high-potential individuals will remain an
important focus in future years. All non-executive directors
are invited to attend Committee meetings which consider
talent and development, in order to provide them with full
visibility of the succession pipeline.
Further information on talent and succession planning can
be found in the Sustainability Report on pages 49 to 52.
Diversity and Inclusion
Diversity and inclusion remains a priority of the Committee,
whether at board level, senior management or within our
wider workforce. The Committee recognises the importance
of ensuring that the board and its committees collectively
possess the appropriate range and balance of skills,
knowledge and expertise, and embrace the advantages to
be derived from having diversity of gender, social and ethnic
backgrounds represented on the board, bringing different
perspectives and the challenge needed to ensure effective
decision-making.
It is recognised that the group’s stakeholders are diverse
and they have a variety of needs. These needs are met
by the diversity of thought, culture, background and
perspectives that are reflected within our board through
an inclusive environment which allows different perspectives
to be given due consideration in strategic matters, and
enables the board to consider the needs and expectations
of all stakeholders.
The Committee considers that the board remains diverse,
with directors from a range of backgrounds, but will seek to
take opportunities to further improve the diversity of the
board, where this is consistent with the skills, experience
and expertise required at a particular point in time.
During the year, the Committee undertook its annual review
of the board diversity policy, which applies to both the board
and its committees. The policy sets out specific objectives
with regard to diversity and inclusion in the boardroom,
the recruitment of new directors, and longer-term targets,
as well as corresponding governance responsibilities. The
Committee noted that a number of enhancements in line with
the FTSE Women Leaders Review (previously the Hampton-
Alexander Review) and the Parker Review had been made to
the policy in the prior year, and the Committee considered
that the policy remains appropriate and that no further
updates were required at this stage. The board diversity
policy is available at www.closebrothers.com/investor-
relations/investor-information/corporate-governance.
The Committee also considered the group’s diversity in the
context of the Listing Rule requirements on diversity metrics
and reporting. At 31 July 2024, being the reference date
for the purposes of Listing Rule 9.8.6R(9)(a), which requires
the disclosure of certain diversity statistics, and as shown
in the tables below:
• the board met its target of having 40% female directors;
• the board met its target of having one director from a
minority ethnic background; and
• the board does not currently meet the requirement to
have one of the senior board positions (chair, senior
independent director, chief executive or chief financial
officer) occupied by a female director. The directors who
hold these roles were appointed following formal, rigorous
and transparent procedures and are the most suitable
and experienced individuals for their roles and the
group’s needs. The board recognises that this will be
a consideration for future appointments to these roles.
In accordance with Listing Rule 9.8.6R(11), the data for the
above disclosure is as disclosed by the relevant individuals
at 31 July 2024.
The tables below illustrate the gender and ethnic diversity
of the executive management population, which comprises
the Executive Committee and company secretary, but
excludes administrative or support staff, pursuant to
Listing Rule 9.8.6R(10).
The Committee takes seriously its role in overseeing the
development of a diverse pipeline for senior management
positions and the link between diversity and inclusion and
delivery of the company’s purpose and strategic aims. To
that end, the Committee considered updates during the year
in relation to diversity and inclusion initiatives across the
group and oversaw the group’s refreshed three-year diversity
and inclusion plans, focusing on attraction and retention of
diverse talent, enhancing the culture of the group, and
shaping the group’s inclusive brand and embedding
inclusion in all interactions with stakeholders.
Gender identity reporting1 under LR9.8.6R(10)
Number of
board
members
Percentage of
the board
Number of senior
positions on the
board (CEO, CFO,
SID and Chair)
Number in
executive
management
Percentage of
executive
management
Men
5
56%
4
10
77%
Women
4
44%
–
3
23%
Not specified/prefer not to say
–
–
–
–
–
141
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Financial Statements
Workforce Engagement
The Committee keeps the board’s workforce engagement
arrangements, which are described on page 138, under
review. During the year, the Committee considered the range
of proposed workforce engagement opportunities for FY
2024 and discussed their suitability and effectiveness.
Following a successful couple of days engaging with
employees in the Brighton office, the board looks forward to
arranging similar engagement programmes in the coming
financial year.
Environmental, Social and Governance Matters
and Sustainability
Throughout the year, the Committee received and
considered dedicated updates on ESG matters relevant to
the group. The group’s head of sustainability attended the
Committee’s meetings on a regular basis to provide updates
on the group’s activities in this area. The Committee’s
consideration of ESG matters throughout the year covered
a wide range of topics and was informed by, among
other things, engagement with shareholders and other
stakeholders, legislative and regulatory initiatives and wider
market developments.
Areas of focus this year included:
• consideration of the group’s climate disclosures including
the group’s Net Zero Banking Alliance (“NZBA”) reporting
and assessing the group’s portfolio against its NZBA
targets specifically in relation to vehicle emissions, climate
disclosure peer benchmarking, and oversight of the Asset
Management division’s inaugural TCFD reporting;
• oversight of the group’s sustainability strategy including
green lending growth aligned to existing businesses
and customers;
Corporate Governance Report continued
• reviewing the group’s sustainability credentials and
climate ranking and stakeholders’ perception of the
group’s climate strategy;
• consideration of the legislative and government-backed
climate changes following changes to the UK political
landscape; and
• receiving updates on the group’s charitable and
community involvement including colleague-led
donations and group-initiative donations to corporate
charity partners.
The Committee recognises and welcomes the continuing
and increasing focus on sustainability and the contribution
that the group makes to the wider community. The
Committee will continue to consider ESG and broader
sustainability matters in the year ahead and make such
recommendations to the board as it considers necessary.
Further information on the group’s approach to sustainability
can be found in the Sustainability Report on pages 33 to 54
of this Annual Report.
Committee Effectiveness
An external evaluation of the effectiveness of the board and
its committees was undertaken during the year in line with
the requirements of the UK Corporate Governance Code,
as described on page 134. The evaluation found that the
Committee continues to operate effectively.
The Committee considers that it has access to sufficient
resources to enable it to carry out its duties and it has
continued to perform effectively.
1. Comprises all members of the Executive Committee as shown on page 127 and the company secretary, as well as their direct reports.
2. Comprises all employees of the group including senior management.
Senior management1
Workforce diversity2
Board diversity
Female
Female
Female
44%
39%
46%
Male
Male
Male
56%
61%
54%
Ethnic background reporting1 under LR9.8.6R(10)
Number of
board
members
Percentage of
the board
Number of senior
positions on the
board (CEO, CFO,
SID and Chair)
Number in
executive
management
Percentage of
executive
management
White British or other White (including minority-white groups)
8
89%
4
10
77%
Mixed/Multiple Ethnic Groups
–
–
–
1
8%
Asian/Asian British
1
11%
–
2
15%
Black/African/Caribbean/Black British
–
–
–
–
–
Other ethnic group, including Arab
–
–
–
–
–
Not specified/prefer not to say
–
–
–
–
–
1. The numerical data detailing gender identity and ethnic background is as disclosed by the relevant individuals at 31 July 2024, being the chosen reference
date for the purposes of LR9.8.6R(9)(a), and reflects the composition of the board and executive management at that date.
The Committee continues to monitor the approach to diversity and inclusion across the group. Please see the charts below
for a breakdown of the group’s gender diversity. More detail on the group’s approach to diversity and inclusion can be found
in the Sustainability Report on pages 49 to 52.
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Close Brothers Group plc Annual Report 2024
Business and
accounting updates
21%
External audit
13%
Internal audit
36%
Other governance matters
(including administration)
5%
Financial and
regulatory reporting
25%
Audit Committee Report
Dear Shareholder
On behalf of the board, I am pleased to present the report
of the Audit Committee (“the Committee”) for 2024, outlining
how the Committee discharged its responsibilities and
met its objectives.
The Committee oversees and challenges the group’s
financial reporting and maintenance of an effective internal
control environment. This year the Committee’s schedule
has been full, with focus on the key accounting judgements
and estimates set out on the following pages, assessing the
integrity and fair presentation of the group’s financial
reporting and reviewing the group’s internal controls.
Looking ahead to 2025, along with the core responsibilities,
the Committee will continue to remain focused on the
implications of the FCA review into motor commission
arrangements and the resultant accounting and reporting
impacts across the group, and readiness for the corporate
governance and audit reform changes.
Kari Hale
Chair of the Audit Committee
19 September 2024
2024 highlights
• Challenging key accounting judgements with focus on
expected credit loss provisions, impairment assessments
of goodwill, revenue recognition, and the implications of
the FCA review in to motor commission arrangements.
• Assisting in the 2024 dividend recommendation which
took into account the group’s capital position and
going concern assessment.
• Reviewing the integrity of the group’s financial
reporting and considering key disclosure matters.
• Assisting with the determination of the appropriateness
of adopting the going concern basis of accounting
and in performing the assessment of the viability of
the group.
• Monitoring the group’s readiness for the revised
UK Corporate Governance Code.
• Reviewing, challenging and approving the annual
internal audit plan and internal audit reports.
• Overseeing the effectiveness and continuous
improvement of internal control.
• Overseeing and challenging the external audit plan
and reports, including materiality, risk assessments
and scope.
Membership
Kari Hale (Chair), Patricia Halliday, Tesula Mohindra
and Sally Williams.
Other regular attendees by invitation
• Chairman of the board
• Executive directors
• Group head of internal audit
• Group chief risk officer
• Group financial controller
• Group financial planning and analysis director
• Group head of operational risk and compliance
• External auditor
Meetings
• Number of scheduled meetings: five
• For details of attendance, see page 132
Interaction with other committees
The chair of the Audit Committee must be a member
of the Risk Committee. The Audit Committee jointly
oversees, along with the Risk Committee, the
recommendations of the Group’s internal and external
auditors and the effectiveness of the Group’s internal
control and risk management systems.
How time was spent
Kari Hale
Chair of the Audit Committee
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Financial Statements
Key Responsibilities
The Committee’s key responsibilities, on behalf of the board,
are to:
• monitor significant accounting judgements and estimates;
• monitor the integrity of financial reporting including
recommending to the board whether it is fair, balanced
and understandable;
• oversee the effectiveness of the group’s internal controls;
• review the activities and effectiveness of the group internal
audit function;
• review the effectiveness and quality of the external audit
process and the independence of the external auditor;
• recommend the external auditor of the group and their
fees; and
• review the plan and findings of the audit with the
external auditor.
The Committee reports to the board on how it discharges its
responsibilities and makes recommendations to the board,
all of which have been accepted during the year.
Committee Composition, Operation and
Effectiveness
The Committee acts independently of management to
ensure the interests of shareholders are properly protected
in relation to financial reporting and internal control.
On 16 November 2023, Oliver Corbett resigned as a director
of the board . Following Oliver’s resignation, Kari Hale was
appointed Chair of the Committee.
The Committee members continue to bring a diverse range
of experience in finance, risk, control and business, with
particular experience in the financial services sector. The
board has confirmed that the members of the Committee
have the necessary expertise to provide effective challenge
to management; this includes the chair. The qualification for
each of the members is outlined on pages 124 to 126.
During the course of the year, the Committee held separate
sessions with the internal and external audit teams, without
management present.
An external evaluation of the board and its committees was
undertaken during the year in line with the requirements of
the UK Corporate Governance Code, as described on page
134. The evaluation found that the Committee continues to
operate effectively. The Committee considers that it has
access to sufficient resources to enable it to carry out
its duties and it has continued to perform effectively.
External Audit
The Committee oversees the relationship with
PricewaterhouseCoopers LLP (“PwC”), its external auditor,
covering engagement terms, fees and independence.
The Committee and the external auditor have policies and
procedures designed to protect independence and objectivity.
PwC has been auditor to the group since August 2017, following
the group’s last competitive tender during the financial year
ended 31 July 2017. Heather Varley has been the group’s lead
audit partner since March 2022. Heather attended all meetings
of the Committee. Matters discussed with PwC are set out in its
report on pages 180 to 191.
External Auditor Effectiveness and Appointment
The Committee assesses the independence and objectivity,
qualifications and effectiveness of the external auditor on an
annual basis as well as making a recommendation on the
reappointment of the auditor to the board. The evaluation
includes consideration of quality, independence and objectivity,
technical competence and auditor challenge.
The process was facilitated by a group-wide survey, a survey of
the PwC senior audit team and a review of audit and non-audit
fees. Overall, the Committee has concluded that PwC remains
independent, and it was satisfied with the auditor’s performance
and recommended to the board a proposal for reappointment at
the AGM. Looking ahead, subject to shareholder approval, PwC
will undertake the audit of the company and the group for the
year ending 31 July 2025.
In conformance with the required provisions and UK Corporate
Governance Code in respect of audit tendering and rotation, the
group will be required to tender for the external audit in the 2027
financial year end. Rotation of senior members of the audit team
from 2022 onwards has reduced the potential familiarisation
threat and therefore a tender has not been completed. Instead
during the 2025 financial year, the Committee will commence
planning for the next tender, taking into account shareholder
interests as well as the FRC’s Audit Committees and the
External Audit: Minimum Standard.
Financial Reporting and Critical Accounting
Judgements and Estimates
The Committee spent considerable time reviewing the Interim
Report and Annual Report. The Committee discussed and
challenged the key accounting judgements made by
management in preparing the financial statements. This also
included consideration of the internal controls over financial
reporting. The Committee noted that there were no new material
standards, or amendments to standards, relevant to the group
that became effective for the reporting period. The Audit
Committee reviewed and challenged the accounting and
disclosure considerations surrounding the non-adjusting post
balance sheet event for the agreed sale of CBAM.
Summary of Financial Reporting and Critical Accounting Judgements and Estimates
Key issue
Committee review and conclusion
Expected credit loss
(“ECL”) provision
31 July 2024: £445.8 million
31 July 2023: £380.6 million
The group’s ECL provision is
dependent on management’s
judgements and estimates.
Given the materiality of the group’s
loan book, ensuring that the group’s
ECL models and related IFRS 9
judgements and disclosures are
appropriate remains a key priority
for the Committee.
Regular IFRS 9 updates were provided to the Committee throughout the year. The
Committee challenged the level of provisions held by the group, and the judgements
and estimates used to calculate these provisions. Particular focus was given to:
• the latest macroeconomic backdrop and the extent to which models are able
to capture these risks;
• the ongoing use, approval and exiting of model adjustments;
• whether coverage levels continue to reflect the economic risks for customers
and the credit risk in the loan book; and
• single name loss risks and appropriateness of specifically assessed provisions.
Credit risk and provision disclosures were discussed to ensure they gave a balanced
articulation of the group’s credit risk profile, and key drivers of the ECL charge.
Conclusion: the Committee was satisfied that the impairment provision
and the disclosures provided in the financial statements were appropriate.
Corporate Governance Report continued
144
Close Brothers Group plc Annual Report 2024
Key issue
Committee review and conclusion
Goodwill
31 July 2024: £102.9 million
31 July 2023: £94.6 million
Goodwill is allocated to nine
(31 July 2023: eight) cash
generating units (“CGUs”),
all of which must be tested
annually for impairment.
This assessment is based
on management judgement.
The Committee was presented with goodwill impairment assessments throughout the
course of the year. The Committee challenged the appropriateness of the assessment,
conclusions and resulting disclosures. Particular focus was given to the cash flow
assumptions for Winterflood Securities, which continued to record lower profits driven
by difficult market conditions, and Motor Finance where the market and regulatory
backdrop is expected to present challenges to the future cash flows.
Committee updates included comprehensive information on the impairment assessment
methodology, results and sensitivity analysis. Enhancements to the methodology were
discussed and challenged including the cash flow approach which takes into account
capital requirements as well as the timing and extent of cash flow recovery for certain
CGUs, the discount rate used, and the assessment of allocation of central assets to
CGU carrying values.
Conclusion: the Committee was satisfied that there was no impairment and the
disclosures provided in the financial statements were appropriate.
Revenue recognition
The group offers a range of
products and services for which
revenue is recognised under
IFRS 9, IFRS 15 and IFRS 16.
Appropriate recognition is a key
focus of the Committee.
The Committee reviewed management’s approach to revenue recognition, highlighting
the key areas where judgement is required across interest, fee and commission income.
The Committee noted the consistency of approach with prior years and the detailed
assessment that is performed by management and challenged by PwC.
Conclusion: the Committee was satisfied that revenue recognition for each of the
group’s key businesses is appropriate.
Motor finance
commission
arrangements
During the 2024 financial year
the accounting judgements
surrounding the FCA’s review
of historical motor finance
commission arrangements was
identified as a critical
accounting judgement.
The FCA review of historical motor finance commission arrangements is progressing
to determine whether there has been industry-wide failure to comply with regulatory
requirements which has caused customers harm and, if so, whether it needs to
take any actions.
Taking into account all available information, significant judgement is required in
determining whether the criteria for recognition of a provision or a contingent liability
under IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” have been met.
The Committee was presented with detailed analysis comparing the current facts and
circumstances with the decision tree contained within IAS 37. In addition, the Committee
discussed and challenged the qualitative disclosure approach for the contingent liability
and the conclusion it was also not practicable at this early stage to estimate or disclose
any financial impact range arising from this issue.
Conclusion: the Committee was satisfied with the matter being disclosed as
a contingent liability and the qualitative disclosures provided in the financial
statements were concluded to be appropriate.
Going concern and
Viability Statement
The directors are required to
confirm whether they have a
reasonable expectation that the
company and the group will be
able to continue to operate and
meet their liabilities as they fall
due for a specified period.
The Viability Statement must
also disclose the basis for the
directors’ conclusions and
explain why the period chosen
is appropriate.
The Committee assisted the board in determining the appropriateness of adopting
the going concern basis of accounting and in performing the assessment of the viability
of the group.
The Committee reviewed and challenged papers which were in support of the going
concern basis and the longer-term viability of the group. The analysis took in to account
a severe but plausible scenario for the outcome of the FCA’s review into motor finance
commission arrangements and downside risks, including consideration of wider impacts
such as economic deterioration, Basel 3.1, cost of funding, and liquidity. In addition to
these factors, the capital action plan disclosed in the interim results announcement and
the underlying performance of the group were taken into account. The Committee
focused on the strong capital loss absorption capacity of the group and the sound
liquidity position in a range of scenarios. The Committee reviewed the disclosures,
including the information provided on a severe but plausible scenario.
Conclusion: the Committee concluded that it remained appropriate to prepare
the accounts on a going concern basis, advised the board that three years was
a suitable period of review for the Viability Statement, and recommended the
Viability Statement to the board for approval, as set out on pages 117 to 119.
145
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Financial Statements
Financial reporting controls
Risk management and internal controls
In conjunction with the Risk Committee, we have satisfied
ourselves that the group’s internal financial control framework
is effective and adequately aligned with the group’s risk
profile. We are also satisfied that internal financial controls are
appropriately designed and effective in identifying risks faced
by the group. Full details of the internal control framework are
given within the Risk management section on pages 74 to 79.
At each meeting the Committee is presented with a report
from the head of internal audit, and reviews major findings
relating to control weaknesses and management’s response.
In addition, metrics and updates are provided to the
Committee throughout the year covering the Group Financial
Control Framework.
Revised UK Corporate Governance Code 2024
The Committee received a number of updates through the
course of the year covering the group’s preparations for
the revised UK Corporate Governance Code 2024.
Committee discussions particularly focused on controls
transformation requirements.
Group Internal Audit
The Committee continued to have oversight of Group Internal
Audit through quarterly reports provided to the Committee
and through one-to-one meetings with the group head of
internal audit. The Chair also met members of the function
through a roundtable discussion.
The Committee reviewed, challenged and approved the
six-monthly internal audit plans and amendments made during
the year. It also approved an updated internal audit charter,
which sets out the mandate and remit of the function.
It received regular reports on internal audit activities across
the group, including thematic root cause analysis, detailing
areas identified during audits for strengthening across the
group’s risk management and internal control framework and
management’s progress on remediation of issues. On
occasion, the Committee invited relevant members of
management to attend the Committee and provide progress
updates on remediation of issues.
The annual internal audit assessment, which found the
governance and risk and control framework of the group to
be generally effective, was received by the Committee in
accordance with the Chartered Institute of Internal
Auditors’ guidance.
The Committee completed its annual review of the
effectiveness of the internal audit function and its level of
independence. The evaluation for the year under review was
completed internally and supported by feedback from the
Committee and Executive Management. The internal audit
function was found to be working well with a good culture
of engagement between management and internal audit.
In addition to reviewing the internal audit function’s
effectiveness, the Committee assessed the level of internal
audit resource and the appropriateness of the skills and
experience of the internal audit function. It concluded the
function was adequately resourced with additional co-source
available for specialist skills.
Non-audit Services
The Committee oversees the group’s policy on the provision
of non-audit services by the external auditor, which
incorporates the Financial Reporting Council’s Revised Ethical
Standard from March 2020.
The group’s policy is that permission to engage the external
auditor will always be refused where there is an actual or
potential threat to independence. However, the Committee will
give permission where the service complies with the group
policy and where work is closely related to the audit, a
detailed understanding of the group is required and the
external auditor can provide a higher quality and/or better
value service. The group follows the mandatory regulatory cap
requirement of 70% which compares the annual value of
non-audit services to the average of three years’ audit fees.
During the year, total audit fees amounted to £5.0 million
(2023: £3.9 million) while total non-audit fees including those
relating to services required by legislation amounted to
£1.4 million (2023: £0.8 million), representing 28% (2023: 21%)
of the current year audit fee. This includes non-audit services
not required by legislation of £0.7 million (2023: £0.2 million),
14% (2023: 5%) of the audit fee, predominantly relating to the
review of the group’s interim financial statements and funding
assurance work.
The Committee was satisfied that these fees, individually and
in aggregate, were consistent with the non-audit services
policy and did not believe that they posed a threat to the
external auditor’s independence.
Statutory Audit Services Order Compliance
The company confirms compliance with the provisions of the
Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilities) Order 2014
for the year to 31 July 2024.
Key issue
Committee review and conclusion
Fair, balanced and
understandable
Under the UK Corporate
Governance Code, the board
is required to perform an
assessment of fair, balanced
and understandable reporting.
On behalf of the board, the Committee reviewed the Annual Report as a whole to assess
whether they were fair, balanced and understandable. Ahead of presentation to the
Committee, a robust review process was conducted to ensure disclosures were
balanced and accurate.
The Committee reviewed the group’s performance in light of the principal and emerging
risks, along with the uncertainties surrounding the FCA’s review in to motor finance
commission arrangements and the capital plan. Challenge was given the use of adjusted
measures. The Committee discussed and challenged the balance and fairness of the
overall report with management and considered the views of the external auditor.
Conclusion: the Committee was satisfied that the Annual Report, taken as a
whole, could be regarded as fair, balanced and understandable and proposed
that the board approved the Annual Report in that respect.
Corporate Governance Report continued
146
Close Brothers Group plc Annual Report 2024
Principal risks
and monitoring
39%
Business updates
28%
Regulatory matters
24%
Other governance matters
(including administration)
4%
Policy and risk appetite
5%
Risk Committee Report
Dear Shareholder
On behalf of the board, I am pleased to introduce the
Risk Committee report for the year ended 31 July 2024.
I would also like to thank the Committee members for
their contributions and commitment during the last year.
The report sets out an overview of the Risk Committee’s key
responsibilities and the principal areas of risk we have
focused on during the year.
Over the last 12 months, the external economic environment
remained challenging for our customers and together with an
expansive regulatory agenda this presented an evolving risk
profile for the Committee’s consideration and focus. Key
topics for the Committee included reviews of the ongoing
impact of cost of living pressures, inflation and interest rate
trends. Time was also focused on reviewing progress on
capital planning in line with the measures announced at our
interim results, as we considered regular updates in relation
to the FCA’s review of historical motor finance commission
arrangements. Noting the continued uncertainty and wide
range of potential outcomes of this review, this will remain a
key agenda item for the Committee to review and evaluate in
the coming year. The Committee also continued its ongoing
oversight of progress in the management of risks that are
key to supporting our customers, maintaining our operational
resilience and meeting our regulatory commitments where
we continued to receive progress updates on key
remediation programmes. Further details on our risk
management approach and the internal controls are
provided in the Risk Report on pages 74 to 116.
These dynamic regulatory and macroeconomic environments
are likely to remain in focus in the year ahead as we continue
to engage proactively with our regulators and review updates
from management on capital planning scenarios as we
receive more information on the FCA’s review of historical
motor finance commission arrangements in particular.
We will continue to monitor for signs of stress amongst our
borrower population and other key factors influencing our
principal areas of risk.
Patricia Halliday
Chair of the Risk Committee
19 September 2024
Membership
Patricia Halliday (Chair), Kari Hale, Tracey Graham,
Tesula Mohindra, Mark Pain and Sally Williams.
Other regular attendees by invitation
• Chairman of the board
• Executive directors
• Group head of internal audit
• Group chief risk officer
• General counsel
• Group head of operational risk and compliance
• External auditor
Meetings
• Number of scheduled meetings: six
• For details of attendance, see page 132
Interaction with other committees
The Risk Committee must include, as one of its members,
the chair of the Audit Committee. It jointly oversees,
along with the Audit Committee, the recommendations
of the group’s internal and external auditors and the
effectiveness of the group’s internal control and risk
management systems. It also provides advice and input to
the Remuneration Committee on remuneration policies
and performance objectives.
How time was spent
2024 highlights
• Review of the status of the first annual assessment
of Consumer Duty as well as the embedding
of reporting enhancements providing enhanced
visibility for senior management.
• Reviewed, challenged and approved the first annual
self-assessment on operational resilience detailing
the current position towards the regulatory
requirement of March 2025. Close monitoring
and focus on the achievement of our cyber
maturity objectives.
• Credit management across all portfolios through
the prevailing macroeconomic environment.
• Enhanced planning on incorporating climate risk
into our wider stress testing programme.
• Ongoing oversight of the implication of the FCA’s
review on historical motor finance commission
arrangements. Focus and coverage on the
implementation and monitoring of the various capital
planning measures as outlined in our half-year
results announcement.
Patricia Halliday
Chair of the Risk Committee
147
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Financial Statements
Key Responsibilities
The Risk Committee’s principal roles and responsibilities
are to support the board in its oversight of risk management
across the group. The identification, management and
mitigation of risk is fundamental to the success of the
group. The Risk Committee also plays an important role
in setting the tone and culture that promotes effective risk
management across the group. The Risk Committee’s
key responsibilities are to:
• oversee the maintenance and development of a
supportive culture and “tone from the top” in relation
to the management of risk;
• review and recommend to the board for approval the
group’s 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
risk appetite;
• review the effectiveness of the risk management
framework in ensuring that key risks are identified and
appropriately managed;
• provide input from a risk perspective into the alignment
of remuneration with performance against risk appetite
(through the Remuneration Committee); and
• undertake a robust assessment of both the principal and
emerging risks facing the group over the course of the
year, and review reports from the risk and compliance
functions on the effectiveness of the processes that
support the management and mitigation of those risks.
Overview of Main Activities During the Year
The regulatory agenda has naturally determined a large
portion of material considered and monitored by the
Committee. In addition to ensuring that we keep aligned
to the supervisory priorities of our regulatory bodies, risk
responses to singular regulatory initiatives and any resulting
actions feature accordingly. The FCA’s market-wide
review of Borrowers in Financial Difficulty, which assessed
forbearance and related practices, has been the focus of
regular updates to the Committee as it has considered the
output of the Past Business Review undertaken and this
will continue to feature regularly on our agenda as we head
into the next financial year.
Last year the Committee was regularly apprised of
enhancements made to meet Consumer Duty requirements
for open book products. This year the Committee has
been kept regularly updated on further embedding
of these processes, together with updates on additional
enhancements made this year, including those relating to
closed book products. The Committee has also received and
reviewed regular monitoring reports of customer outcomes
and reviewed and approved on behalf of the board an annual
assessment of outcomes received by retail customers.
The embedding of operational resilience throughout the
organisation into business practices, including considering
the potential impact on clients and markets, has been
of keen interest to the Committee; the self-assessment
on operational resilience undertaken being brought to the
Risk Committee for consideration and sign off.
The Committee has similarly maintained an appropriate
focus on the risks associated with cybercrime and has
been briefed on progress towards achieving the group’s
Capability Maturity Model Index target, which was achieved
delivering heightened levels of resilience. The established
rolling testing schedule will see us well-equipped to monitor
the effectiveness of the resilience in an ever-evolving
external environment.
In the context of ongoing macroeconomic uncertainty,
overall, our loan book has continued to display resilience,
demonstrating the positive beneficial impact of our prudent
lending criteria, secured nature of lending and application
of a consistent risk appetite.
Some lagging impact of the cost of living pressures and
run-off of various government schemes has been seen with
early signs of credit stress in some pockets of our lending
book. Our vigilance and early engagement approach
facilitates an ability to react as required and as such the
impact thus far is immaterial with overall provision coverage
ratios remaining stable.
In addition to our usual schedule of client monitoring,
we maintain a rolling programme of credit portfolio reviews
which are presented to the Committee. Oversight of key
lending portfolios including motor, property, energy, and
invoice finance have been regular features on the Risk
Committee agenda this year.
During this financial year we have continued to revisit our
stress event planning activities; our annual stress testing
exercises continue to demonstrate our resilience and
sufficient resources of both capital and liquidity. This year
has also seen advancements in consideration of how to
further incorporate climate risk enhancements into our stress
testing programme. Overall, throughout the year we have
continued to maintain robust and healthy liquidity levels
consistent with our conservative approach to funding based
on the principle of “borrow long, lend short.” The Committee
maintains regular oversight and visibility of funding
and liquidity risk.
Since the FCA’s announcement of its review of historical
motor finance commission arrangements the Committee
has closely monitored the capital and liquidity position
with focus and challenge on the progress and the impact
of management’s implementation of the various capital
optimisation actions outlined in our half-year results.
This has accompanied regular review throughout the year
of enhancements in the group’s capital management
framework, including processes, reporting, governance and
capital risk appetite statements. The firm continues to
prudently plan for a range of possible outcomes, but noting
the uncertainty that remains until further information is
available to refine the assumptions made.
As previously, the linkage between culture, risk and
compensation remains an important one and the Risk
Committee and the group chief risk officer have provided
input to the Remuneration Committee again this year to
ensure that risk behaviours and the management of
operational risk incidents over the course of the financial
year are appropriately reflected in decisions taken about
performance and reward.
Corporate Governance Report continued
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Close Brothers Group plc Annual Report 2024
Looking Ahead to 2025
We expect the regulatory agenda and current areas of
activity to feature heavily on the Committee’s agenda into
2025. We expect to receive and review updates on the
completion of the Past Business Review of customer
forbearance processes related to motor finance lending
during the year.
In line with recent communication provided by the FCA,
we expect an update on the FCA’s review of historical motor
finance commission arrangements in the final quarter of the
next financial year. It remains difficult to anticipate what
future updates will include, however it is expected that the
content and any associated workstreams will form a focal
point for the Risk Committee and executive more widely.
We will continue to focus on our forecasting of capital and
liquidity throughout the period to ensure we are monitoring
appropriately in line with our capital planning measures.
Our focus on Consumer Duty will continue, with regular
customer outcomes reporting and updates on areas where
we are continuing to make further enhancements. Progress
in 2024 on operational resilience and cyber maturity will
continue to be built upon and will be monitored keenly by the
Committee. Market trends observed on cybercrime indicate
a wider adverse trend and therefore focus into 2025 will
remain critical.
Notwithstanding recent improving indicators in some of
the core macroeconomic indicators that we track, instability
in the overall economic environment remains from a period
of substantial volatility. Vigilance, monitoring and controlled
risk appetite will continue to be key as we move forward.
Identification of emerging risks and possible emergence
periods form part of the regular monthly reporting suite to
our risk committees. This, along with our business-as-usual
horizon scanning activities, should ensure that we are able
to anticipate and take appropriate management actions.
Central to our ability to do this is our established risk
measurement, monitoring and reporting framework.
Our focus on products and markets we know and
understand aligns with a consistent risk appetite against
which we measure ourselves.
As we look ahead to the next financial year I look forward
to seeing the climate risk agenda featuring at the Risk
Committee in line with our revised governance arrangements.
Combined with our culture dashboard and monitoring of
people risk, this ensures that we maintain sustainability
considerations at the forefront of all we do whilst we support
our businesses in serving our customers.
Committee Effectiveness
An external evaluation of the effectiveness of the board and
its committees was undertaken during the year in line with
the requirements of the UK Corporate Governance Code,
as described on pages 134 and 135. The evaluation found
that the Committee continues to operate effectively.
The Committee considers that it has access to sufficient
resources to enable it to carry out its duties and it has
continued to perform effectively.
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Financial Statements
Directors’ Remuneration Report
Dear Shareholder
I am pleased to present the Directors’ Remuneration Report
for the 2024 financial year. I would like to thank my fellow
Remuneration Committee members, including Peter Duffy
who stepped down from the board and the Remuneration
Committee on 15 February 2024, for their support and
contribution to the work of the Remuneration Committee
during the year.
This report sets out our pay decisions for the year, including
how we implemented the Remuneration Policy approved
by shareholders at the 2021 AGM. It also provides detail
on our proposed approach to the triennial renewal of the
existing Remuneration Policy (the “Policy”), which is due
at the November 2024 AGM, and our proposed approach
to executive remuneration for the 2025 financial year.
The Remuneration Committee believes that in the ordinary
course of events the current Policy is fit for purpose and
provides fair balance between the interests of all our
stakeholders, while rewarding the management team for
delivery against the group’s key strategic priorities. We are
therefore not proposing to make any substantive changes
to our “ordinary course” go-forward Policy that will
apply until 2027.
However, we are proposing to add flexibility to operate an
interim Restricted Stock incentive model, which replaces
both the annual bonus for 2025 and the performance share
award grant under the Long-Term Incentive Plan in 2025.
This intended Restricted Stock award will be granted at a
discount of c.65% to the face value of the normal annual
bonus and performance share award LTIP opportunities. This
level of discount is higher than the market standard discount
of 50%, and materially higher than the level of discount
accepted in the wider market. Further details are set out on
page 152. This reflects the unprecedented circumstances
faced by the business given the range of potential
outcomes from the FCA’s review of historical motor finance
commission arrangements and continued uncertainty about
the timing, scope and quantum of any potential financial
impact on the group. On 20 July 2024, the FCA announced
that it now aims to set out steps by the end of May 2025,
rather than by September 2024 as previously expected.
In advance of finalising our proposed approach, we
consulted with all of our major shareholders, covering c.80%
of our shareholder register. We had written responses or held
Membership
Tracey Graham (Chair), Mike Biggs, Mark Pain and
Patricia Halliday (appointed 1 August 2024).
Other regular attendees by invitation
• Chief executive
• Head of human resources
• Head of reward and HR operations
Meetings
• Number of scheduled meetings: five
• For details of attendance, see page 132
Interaction with other committees
The Remuneration Committee works with the Audit
Committee and Risk Committee chairs on the design
and implementation of remuneration policies and
the determination of remuneration outcomes.
This report sets out our approach to remuneration for
the group’s employees and directors for the 2024
financial year.
The Directors’ Remuneration Report is divided into
three sections:
• Annual Statement from the Remuneration
Committee Chair – pages 150 to 153
• Directors’ Remuneration Policy – pages 154 to 164
• Annual Report on Remuneration – pages 164 to 175
How time was spent
2024 highlights
• Considered the Remuneration Committee’s
approach to the triennial renewal of the existing
Remuneration Policy, which is due at the 2024 AGM.
• Consultation with over 40 of our major shareholders
to discuss the proposed 2024 Directors’
Remuneration Policy.
• Conducted the 2024 annual compensation review
for executive directors and the wider workforce.
• Undertook regulatory matters including Material Risk
Takers framework, annual internal audit of
remuneration and group risk adjustment.
• Reviewed statutory and regulatory remuneration
disclosures including gender pay gap report.
Tracey Graham
Chair of the Remuneration Committee
Remuneration Policy
and disclosure
39%
Risk and reward
39%
Annual remuneration
disclosure
13%
Other governance matters
(including administration)
9%
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Close Brothers Group plc Annual Report 2024
meetings with 24 shareholders who wished to discuss
the proposals in more detail. The majority of our larger
shareholders who provided feedback have advised that they
are minded to support the proposal. This is in recognition
of the unprecedented uncertainty impacting the business
requiring a simple and effective model to retain and motivate
executive talent. As part of the consultation exercise a
number of shareholders expressed a strong preference for
all of the award to be subject to a two-year holding period,
extending the award over a total of five years. A number of
shareholders noted the substantial discount of 65% on face
value of the normal annual bonus and performance share
award LTIP but also requested reassurance that the
Remuneration Committee retain discretion on vesting
outcomes to ensure alignment with the shareholder
experience. We have refined our approach to address this
feedback. As set out below, both executive directors will
revert back to participating in the normal course annual
bonus and LTIP as soon as practicable. The Committee
agreed to go forward with this Policy in the context of this
shareholder support during consultation.
How the Group Performed During the 2024
Financial Year
2024 has presented material challenges for the group, with
significant uncertainty introduced by the FCA’s review of
historical motor finance commission arrangements
announced in January. Against this backdrop, our top priority
has been to further strengthen our capital position and
protect our valuable franchise. We have made significant
progress against the capital actions previously outlined.
As described in the Chairman’s and Chief Executive’s
Statements, this year’s performance demonstrates the
group’s resilience. In Banking, we grew our loan book
with strong margins and stable underlying credit quality,
while progressing our cost actions to improve efficiency.
CBAM delivered strong net inflows, though Winterflood’s
performance remained impacted by the unfavourable
market conditions.
As a result, on an adjusted basis, excluding the impact
from certain items which do not reflect the underlying
performance of our business, the group’s operating profit
increased 50% to £170.6 million (2023: £113.5 million)
as the significant decrease in impairment charges and 1%
growth in income more than offset a 10% growth in adjusted
operating expenses. The group’s return on opening equity
increased to 6.9% (2023: 5.0%).
We have maintained our strong balance sheet position,
with our Common Equity Tier 1 (“CET1”) ratio of 12.8% at
31 July 2024 (31 July 2023: 13.3%), significantly above our
applicable requirement of 9.7%. Total funding increased 5%
to £13.0 billion (31 July 2023: £12.4 billion), with 36% growth
in our retail deposit base, demonstrating the strength of our
Savings proposition. We maintained our prudent liquidity
position, with our Liquidity Coverage Ratio over 1,000%,
substantially exceeding regulatory requirements.
In March 2024, we announced a range of management
actions which have the potential to strengthen the group’s
available CET1 capital by approximately £400 million by the
end of the 2025 financial year. We have retained
c.£100 million of CET1 capital in the 2024 financial year as a
result of the group’s previously announced decision not to
pay a dividend for the 2024 financial year. To optimise risk
weighted assets, we have been growing our loan book
selectively and have concluded the work in preparation for a
significant risk transfer of assets in Motor Finance. We have
continued to deliver against the cost management initiatives
previously announced and have also progressed a range of
other capital actions. Following a comprehensive strategic
review, the group announced that it entered into an
agreement to sell CBAM to Oaktree on 19 September 2024.
The transaction is expected to increase the group’s CET1
capital ratio by approximately 100 basis points. The board
remains confident that these actions leave the group well
positioned to navigate the current uncertainty.
The table below sets out an overview of our one-year and
three-year key performance indicators which provide context
for the Remuneration Committee’s decisions taken this year.
Key performance indicator
2024
2023
Return on average tangible equity
8.3%
5.9%
Average return on opening equity over
three years1
7.5%
10.0%
CET1 capital ratio
12.8%
13.3%
Adjusted operating profit (£ million)
170.6
113.5
Adjusted earnings per share growth over
three years1
(45.8)%
(26.0)%
Distributions to shareholders (£ million)2
–
100.5
1. For the three-year periods ended 31 July 2024 and 31 July 2023.
2. For the 2024 financial year, no dividend was paid.
We have a track record of applying restraint on executive
pay. The table below summarises the level of annual bonus
and LTIP vesting since 2021.
Financial
year
Annual bonus
LITP
2021
78% of maximum.
40% of maximum.
2022
46.7% of maximum.
27.5% of maximum
– downwards
discretion applied,
in agreement with
the executives, to
reduce vesting to
20.6% of maximum.
2023
31.8% and 35.8% of
maximum opportunity for
Adrian Sainsbury and Mike
Morgan, respectively. In light
of the shareholder
experience, the executive
directors advised the
Remuneration Committee
that they wished to forgo
their bonus for the 2023
financial year. Downwards
discretion applied to reduce
vesting to 0% of maximum.
35.3% of maximum
opportunity
– downwards
discretion applied,
in agreement with
the executives, to
reduce vesting to
0% of maximum.
2024
As described below, 28% of
maximum opportunity for
Adrian Sainsbury and Mike
Morgan – downwards
discretion applied, in
agreement with the executive
directors, to reduce vesting
to 0% of maximum.
The LTIP granted in
2021 which vested
in respect of
performance over
the three years to
the end of the 2024
financial year vested
at 22.0%.
As we navigate this period of unprecedented uncertainty, the
Remuneration Committee is seeking to balance rewarding
and retaining our people, including our executive directors,
in order to safeguard the future of our strong franchise, with
the experience of all of our stakeholders. Further details
regarding the actions we have taken for the wider workforce
are set out on page 153.
Executive Director Remuneration Outcomes
for the 2024 Financial Year
As disclosed at the start of the year, the Committee made
a number of changes to the performance assessment
approach for the annual bonus for 2024. We added a costs
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Financial Statements
metric (cost:income ratio (“C:I”)) and a profit metric (adjusted
operating profit (“AOP”)) to the annual bonus for the 2024
financial year with the aim of ensuring executive focus on
resuming the group’s track record of earnings growth and
returns, while focusing on cost efficiency. These measures
each had a weighting of 15%. We also updated our return
measure to be based on return on average tangible equity
(“RoTE”), meaning the return measure is based on the equity
profile of the group across the performance period, with
a weighting of 30%. The balance of the annual bonus was
based on the strategic scorecard, worth 40% of the
overall bonus.
As well as introducing changes to our measures, we disclosed
an adapted approach to target setting for 2024, with bonus
targets set to be dynamic year-to-year and set taking into
account market conditions, as well as budgetary outlook and
market forecasts. This is to better align with typical market
practice, and ensures the bonus is appropriately calibrated to
motivate management outperformance.
The financial performance targets on the annual bonus were
not met. The out-turn under the strategic scorecard element of
the bonus, which represents 40% of the maximum
opportunity, was 70% for both the chief executive and finance
director. This reflects the continued progress against key
strategic, people, customer and risk priorities, including the
actions being taken to build our capital strength, leaving the
group in a strong position to continue to support our
customers and protect our valuable franchise. This would
have resulted in an annual bonus of 28% of the maximum
opportunity for Adrian Sainsbury and Mike Morgan. However,
in recognition of the shareholder experience, the executive
directors and the Remuneration Committee have agreed that
no bonus will be paid.
The 2021 LTIP was based on adjusted EPS growth (35%),
return on opening equity (“RoE”) (35%) and a scorecard of risk
management objectives (30%). The financial metrics were not
met, reflecting the impact of the legacy issues that crystallised
in the performance period. The risk management objectives
over the three years to 2024 were partially met. The
Committee approved a vesting out-turn of 22%. Further detail
on the LTIP outcome is set out on page 169.
The Remuneration Committee is mindful that we currently
have limited lock-in for the executive team. The decision
to apply downward discretion in both the annual bonuses
for 2023 and 2024 means there are limited deferred share
awards outstanding. Furthermore, the downward discretion
exercised in respect of the LTIPs vesting in respect of the
three-year performance periods ending in the 2022 and
2023 financial years means there are limited LTIP shares
in a holding period. This also means that the shareholdings
of the executive team are currently 77% and 104% for our
chief executive and finance director respectively.
Policy Review
Our last Policy was approved by shareholders in November
2021 and was widely supported by our shareholders. At the
November 2024 AGM, we are due to renew our Directors’
Remuneration Policy in line with the usual three-year cycle. No
changes are proposed to the current Policy, which would be
operated in the ordinary course of events.
• The maximum 2:1 variable:fixed pay cap will continue to
apply, with the maximum opportunities for both directors
under the annual bonus and Long Term Incentive Plan
(“LTIP”) remaining 95% and 125% of salary respectively.
• Clawback periods on variable pay will continue to be seven
years, extendable to 10 years.
• Pension contributions for executive directors will continue
to be in line with the rate paid to all employees (this
currently equates to a 10% contribution).
• There will be no changes to deferral or retention periods for
the annual bonus or LTIP.
• In-employment and post-employment shareholding
requirements will remain at 200% of salary.
The FCA’s review of historical motor finance commission
arrangements in the motor finance market, and range
of potential outcomes and timeframes, presents an
unprecedented challenge setting robust performance metrics.
The Remuneration Committee has therefore reviewed a range
of approaches to ensure that the incentive framework
continues to align the reward outcomes for our executives
with the long-term interests of our shareholders. The
conclusion of this review was that:
• There is significant uncertainty around target ranges given
the extended timeframe of the FCA’s review.
• Adjusting performance targets for in-flight awards would
not be aligned with good practice.
• Using our “business as usual” annual bonus and LTIP
structure with re-balanced performance metrics and/or
increasing the weighting on non-financial metrics would
add complexity to the challenge of setting transparent
performance targets that are aligned with the creation
of shareholder value.
We are therefore proposing to add flexibility to operate an
interim Restricted Stock incentive model. Instead of using a
framework and performance measures designed for typical
market conditions, the long-term nature of this interim
approach with no short-term cash element is aligned with:
• Retaining and motivating an executive team focused
on executing our strategy and protecting our
valuable franchise.
• Operating a simple interim incentive framework that will
allow our executive team to concentrate on navigating
through this period of unprecedented circumstances.
• Increasing the executive directors’ equity stake in
the business in the long-term interests of all of
our stakeholders.
The proposed Restricted Stock award in 2025 will:
• replace both the annual bonus for 2025 and performance
share award grant under the LTIP in 2025;
• be granted at a discount of c.65% of the face value of the
normal annual bonus and performance share award LTIP
opportunities. This level of discount is higher than the
market standard discount of 50%. This higher discount has
been proposed taking into account a number of factors
including: i) the need to mitigate the risk of windfall gains at
vesting taking into account the current share price; ii) the
fact that the Restricted Stock award is replacing both an
annual bonus and LTIP; and iii) the need to ensure that we
can reward and retain the executive directors and to protect
our strong franchise;
• be subject to performance underpins;
• the Restricted Stock awards would vest 100% after year
three subject to assessment against the performance
underpins. We had originally proposed that 50% of the
award would also be subject to a two-year holding period.
Taking into account the feedback from shareholders,
our revised approach is that 100% of the award will be
subject to a two-year holding period. This reflects that the
current LTIP has a five-year time horizon and shareholder
preference for the entirety of the award to be aligned with
the long-term sustainable success of the business; and
• consistent with the normal course Policy, clawback periods
will continue to be seven years, extendable to 10 years.
Consistent with the current Policy and risk adjustment
framework, the Remuneration Committee will continue to have
overriding discretion to adjust vesting outcomes where it
considers appropriate, taking into account the wider
Directors’ Remuneration Report continued
152
Close Brothers Group plc Annual Report 2024
stakeholder experience. While the significant discount is
intended to proactively address the risk of potential windfall
gains, the Remuneration Committee will nonetheless retain
discretion on vesting outcomes in the event of a significant
increase in our share price to ensure the value delivered
to executives is appropriate in the context of the overall
business performance and the wider stakeholder experience.
This interim Restricted Stock incentive model is expected to
apply for the 2025 financial year. Given the revised timetable
for the FCA’s work in the motor finance market, in the event
that the extraordinary circumstances continue beyond the
2025 financial year, this interim Restricted Stock model may
be operated in future years. The maximum Restricted Stock
awards that may be granted will be capped at 80% of fixed
pay, excluding pension and benefits in lieu of any annual
bonus and performance share LTIP grant. We would keep
shareholders updated in the event we extend the use of the
interim pay model beyond 2025. Both executive directors will
revert back to participating in the normal course annual bonus
and LTIP as soon as practicable. We would not envisage a
return to the interim pay model once we have reverted to our
normal Policy.
The full Policy is set out on pages 154 to 164 and will be
subject to a binding shareholder vote at the 2024 AGM.
Proposed Implementation of the Policy for the
2025 Financial Year
For the 2025 financial year, the Remuneration Committee has
decided to apply 2% and 2.1% salary increases to the chief
executive and finance director, respectively. These increases
are below the average increase of 3.4% awarded to the wider
workforce.
There will be no change to the level of pension provision,
which will remain aligned with the wider workforce at
10% of salary.
As set out on the opposite page, the executive directors
will not be entitled to receive an annual bonus for the 2025
financial year, and they will not be granted a performance
share award in the 2025 financial year (i.e. no 2024 LTIP
grant). In lieu of the normal course annual bonus and
performance share LTIP, it is our intention to grant a
Restricted Stock award over shares with a value of £750k
for the chief executive and £450k for the finance director. This
equates to less than 80% of their respective base salaries.
This is a c.65% discount to the aggregate normal annual
bonus and performance share LTIP opportunities of 220%
of base salary (which would equate to a normal aggregate
maximum face value at award of c.£2,130k for the chief
executive and c.£1,283k for the finance director).
The Restricted Stock award will be subject to the following
performance underpins for the 2025 financial year, which
would be assessed after the three-year vesting period:
• Individual: At least strong personal performance rating,
as rated by the Chairman of the Board in consultation
with the Board;
• Financial: The group achieving a CET1 of at least 1% above
regulatory requirement at vesting, calculated on
a standardised basis;
• Non-financial: Satisfactory progress against strategic
objectives designed to promote the long-term success
of the business, as judged by the Chairman of the Board
in consultation with the Board; and
• Risk: No material regulatory censure relating to the
executive director’s time in office.
Consistent with the current Policy and risk adjustment
framework, the Remuneration Committee will continue to have
overriding discretion to adjust vesting outcomes where it
considers appropriate taking into account the wider
stakeholder experience.
Supporting the Wider Workforce
The Remuneration Committee’s aim is to always consider the
wider workforce, our shareholders and other stakeholders by
taking a fair, prudent and balanced approach to remuneration.
The Remuneration Committee is particularly focused on
ensuring that Close Brothers supports its broader workforce
and demonstrates its ethos as a responsible business. We are
committed to paying all staff at or above the national living
wage, which is in excess of the national minimum wage. The
average salary increase for the wider workforce for the 2025
financial year is 3.4%.
During this period of uncertainty, Close Brothers have been
mindful of the need to retain and motivate our talented
workforce to continue to protect the franchise, support our
customers and to operate the business within our risk
appetite. Recognising this context, we have continued to fund
the bonus pool for colleagues guided by affordability, and will
pay bonuses to eligible employees, excluding the executive
directors.
We remained dedicated to closing the gender pay gap
through increasing female representation at all levels.
Our focus on closing the gender pay gap is through increasing
female representation at all levels by setting representation
targets and supporting development programmes. Whilst
gender pay provides the most direct link to remuneration, our
broader focus on inclusion ensures we prioritise fairness and
equality for all colleagues. We are signatories to a wide range
of charters and commitments across a broad spectrum of
inclusion themes. We partner with leading organisations and
participate in wider membership bodies, to help inform our
thinking and subsequent actions. We have eight executive
sponsored inclusion networks which actively lead internal
events and initiatives to raise awareness across the group.
Objectives to support inclusion are linked to executive pay
through risk management objectives within our executives’
long-term incentive plan. We are pleased that our employees
continue to feel that we are an inclusive organisation, as
demonstrated by responses to this question in the employee
opinion survey of 90% (2023: 96%) and we continue to push
forward and implement activities and initiatives in this sphere
to ensure we are building an inclusive environment where all
our colleagues feel proud to work for us.
Looking Ahead – Key Focus Areas
for the Remuneration Committee for 2025
The Committee intends to continue its openness to dialogue
with shareholders in the coming year, recognising that pay
remains in focus for our investors. We will continue to
consider the experiences of colleagues, our shareholders and
other stakeholders and to remunerate executives fairly and
appropriately. We remain committed to a responsible
approach to executive pay, as I hope this Directors’
Remuneration Report demonstrates.
I hope that you will find this report on the directors’
remuneration accessible and clear, and that you agree with
the decisions we have taken, which balance the interests of all
stakeholders. I look forward to receiving your support on the
Directors’ Remuneration Report and Directors’ Remuneration
Policy resolutions at the forthcoming AGM.
Tracey Graham
Chair of the Remuneration Committee
19 September 2024
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Strategic Report
Governance Report
Financial Statements
This section of the report sets out the group’s proposed
Remuneration Policy for directors and explains each element
and how it will operate. This Directors’ Remuneration Policy
will be subject to a binding shareholder vote at our AGM
in November 2024 and, if approved, will apply from the
date of the AGM.
As set out in the Remuneration Committee Chair’s letter, the
Remuneration Committee believes that in the ordinary course
of events the current Policy is fit for purpose and provides
a fair balance between the interests of all our stakeholders,
while rewarding the management team for delivery against
the group’s key strategic priorities. We are therefore not
proposing to make any substantive changes to our “ordinary
course” go-forward Policy that will apply until 2027. Minor
changes to the detailed text have been made to improve
the operation and function of the Policy.
However, we are proposing to add flexibility to operate an
interim Restricted Stock incentive model. In any financial
year where this award is made, the Restricted Stock grant
would replace both the annual bonus and the performance
award LTIP grant in that year. Further detail is set out
below and in the Remuneration Committee Chair’s letter.
The interim Restricted Stock incentive model is intended
to provide a simple and transparent incentive framework
that motivates and retains our executive team through this
period of uncertainty, and that increases the executive
directors’ equity stake in the business, thereby enhancing
shareholder alignment.
In developing the Policy, input was sought from the
management team, while ensuring that conflicts of
interest were suitably mitigated. An external perspective
was provided by our major shareholders and
independent advisers.
The reward structure aims to:
• attract, motivate and retain high calibre
executive directors;
• reward good performance;
• promote the achievement of the group’s annual plans
and its long-term strategic objectives;
• align the interests of executive directors with those
of all key stakeholders, in particular our shareholders,
clients and regulators; and
• support effective risk management and promote a positive
corporate culture and appropriate conduct to both
employees and clients.
Directors’ Remuneration Policy
Directors’ Remuneration Report continued
Remuneration Policy for Executive Directors
The below table sets out the “ordinary course” go-forward Directors’ Remuneration Policy
Element and how it supports the
group’s short-term and
long-term strategic objectives
Operation and maximum payable
Performance framework, recovery and
withholding
Base salary
Attracts and retains
high calibre
employees.
Reflects the
employee’s role
and experience.
Salaries are based on the individual’s role, skills and
experience and external factors, as applicable.
Typically paid monthly in cash.
Salaries will be reviewed annually or when there is a
change in role or responsibility. Any changes normally
take effect from 1 August and will generally not
exceed those for the broader employee population.
Increases may be made above this level in certain
circumstances, such as:
• a change in the regulatory environment;
• progression within the role;
• increase in scope and responsibility of the role;
• increase in experience where an individual has been
recruited on a lower salary initially; and
• increase in size and complexity of the company.
Not applicable.
Changes from previous Policy: No change from the previous approach.
Benefits
Enables the executive
directors to perform
their roles effectively
by contributing to their
wellbeing and security.
Provides competitive
benefits consistent
with the role.
Any benefit allowances will typically be paid monthly
and will not form part of pensionable salary.
Benefits may include:
• private medical cover;
• health screening;
• life assurance cover;
• income protection cover;
• directors’ and Officers’ liability insurance;
• allowance in lieu of a company car. Currently the
maximum allowance is £18,000 for the chief executive
and £12,000 for other executive directors; and
• other benefits or payments in lieu of benefits
may also be provided in certain circumstances
(such as relocation expenses).
Not applicable.
Changes from previous Policy: Limited change. Flexibility to calibrate allowance to market levels.
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Close Brothers Group plc Annual Report 2024
Element and how it supports the
group’s short-term and
long-term strategic objectives
Operation and maximum payable
Performance framework, recovery and
withholding
Pension
Provides an
appropriate and
competitive level of
personal and
dependent retirement
benefits.
Executive directors will receive a level of pension
contribution (in the form of a cash allowance or
contribution to a pension arrangement) that is in line
with the wider workforce.
The Remuneration Committee retains the discretion
to determine the methodology and basis used in
calculating the pension rate available to the wider
workforce, including the jurisdictions deemed
as relevant for comparison. The definition of the
wider workforce will be as determined by the
Remuneration Committee.
Not applicable.
Changes from previous Policy: Limited change to detailed provision.
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.
60% of the annual bonus will usually be deferred into
shares (in the form of nil cost options or conditional
awards) and will usually vest in equal tranches
over three years, subject to remaining in service.
The remaining annual bonus will be delivered
immediately in cash.
The annual bonus is capped at 95% of base salary.
At the Remuneration Committee’s discretion, dividend
equivalents will usually be paid in cash or additional
shares when the deferred awards vest.
Individual bonuses are determined
based on both financial and non-
financial performance measures in the
financial year, including adherence to
relevant risk and control frameworks.
Recovery and withholding
The cash element is subject to
clawback and the deferred element
is subject to malus and clawback
conditions, as outlined on page 159.
Weightings
At least 60% of the annual bonus
opportunity will be based on financial
performance.
The non-financial element will be
determined based on performance
measured against a balanced
scorecard, including (but not
limited to):
• strategic objectives; and/or
• people objectives; and/or
• customer metrics; and/or
• risk, conduct and compliance
measures; and/or
• personal/individual objectives.
The Remuneration Committee
maintains discretion to vary the
measures and their respective
weightings within each category.
Performance targets and objectives
will typically be set at the beginning
of each financial year but will not be
disclosed prospectively due to
commercial sensitivity reasons. They
will be designed to align the interests
of executive directors with the key
stakeholders over the medium term,
be challenging and also provide an
effective incentive for the executive
directors. The Committee has
overriding discretion to adjust the
bonus outcome where it considers the
application of formulaic performance
conditions to be inappropriate, guided
by factors such as overall business
or individual performance and risk.
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Financial Statements
Element and how it supports the
group’s short-term and
long-term strategic objectives
Operation and maximum payable
Performance framework, recovery and
withholding
Annual bonus
continued
Performance assessment will usually
be in respect of the full financial year
although the Remuneration Committee
retains discretion, in exceptional
circumstances, to assess performance
over an alternative period.
Performance against the objectives
that comprise the balanced scorecard
and their weightings will typically be
disclosed retrospectively on an annual
basis as part of the Annual Report
on Remuneration.
Normally, the amount payable for
threshold performance will be no
more than one third of maximum,
and the amount payable for target
performance will be no more than
50% of maximum.
Changes from previous Policy: No change from the previous approach.
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.
Awards are made in the form of nil cost options or
conditional awards and usually vest after three years
subject to achieving performance conditions and
remaining in service.
On vesting, awards will usually be subject to a further
two-year post-vesting retention period before options
can be exercised by, or conditional awards paid
to, executive directors.
At the Remuneration Committee’s discretion, dividend
equivalents will usually be paid in cash or additional
shares when LTIP awards are released.
Executive directors are eligible to receive an annual
award of shares with a face value of up to 125%
of base salary, excluding dividend equivalents.
Measures and weightings
Individual awards vest based
on performance against both
financial and non-financial
performance measures.
At least 70% of the award will
be based on performance
against financial measures.
The remainder will be based
on non-financial performance.
The Remuneration Committee
maintains discretion to vary the
measures and their respective
weightings within each category.
The choice of measures, relevant
target ranges and their respective
weightings will be typically disclosed
as part of the Annual Report on
Remuneration. Performance against
target ranges will typically be reported
annually at vesting.
The Remuneration Committee has an
overriding discretion to adjust vesting
outcomes where it considers the
application of formulaic performance
conditions to be inappropriate.
Amount payable for threshold
performance
For each element of the award,
vesting starts at 25% for
threshold performance, rising on
a straight-line basis to 100% for
maximum performance.
Recovery and withholding
LTIP awards are subject to malus
and clawback provisions, as outlined
on page 159.
Changes from previous Policy: No material changes.
Directors’ Remuneration Report continued
156
Close Brothers Group plc Annual Report 2024
Element and how it supports the
group’s short-term and
long-term strategic objectives
Operation and maximum payable
Performance framework, recovery and
withholding
Save As You Earn
(“SAYE”)
Aligns the interests
of executives with those
of shareholders through
building a shareholding.
Executive directors have the option to save a fixed
amount per month over a three or five-year timeframe.
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.
Executive directors can make total maximum
contributions of up to £6,000 per annum, or up to the
maximum permitted by HMRC rules at any given time.
The Remuneration Committee reserves the discretion
to increase the maximum contributions in line with any
HMRC rule changes during the period of the Policy.
Not applicable, as this is a voluntary
scheme where executive directors
have invested their own earnings.
Changes from previous Policy: No material changes.
Share Incentive
Plan (“SIP”)
Aligns the interests
of executives with those
of shareholders through
building a shareholding.
Executive directors are able to contribute up to
a maximum of £1,800 per annum from pre-tax
income and national insurance earnings to buy
Partnership Shares.
At present the Remuneration Committee has
determined that EDs have the ability to buy Partnership
Shares. Currently there is no match, but the
Remuneration Committee retains the discretion to
offer Matching Shares of up to twice the number of
Partnership Shares and/or award free shares. This will
be on the same basis for all employees should the
Remuneration Committee exercise this discretion.
Dividends paid on shares held in the SIP are reinvested
to acquire further Dividend Shares.
The Remuneration Committee reserves the discretion
to increase the maximum contributions in line with any
HMRC rule changes during the period of the Policy.
Not applicable, as this is a voluntary
scheme where executive directors
have invested their own earnings.
Changes from previous Policy: None.
Shareholding
requirement
Aligns the interests
of executives with those
of shareholders through
building a shareholding.
Executive directors are expected to build and maintain
a holding of company shares equal to at least 200%
of base salary.
Executive directors will normally be expected to
maintain a minimum shareholding of 200% of base
salary for the first two years after stepping down
as an executive director.
The Remuneration Committee retains discretion to
waive this guideline if it is not considered appropriate
in the specific circumstances.
Not applicable.
Changes from previous Policy: None.
Other
The group will pay legal, training and other reasonable
and appropriate fees, including any relevant tax
liabilities, incurred by the executive directors as
a result of doing their job.
Changes from previous Policy: None.
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Financial Statements
Interim Remuneration Policy Features – Extraordinary Circumstances
Element and how it supports the
group’s short-term and
long-term strategic objectives
Operation and maximum payable
Performance framework, recovery
and withholding
Restricted Stock
Interim arrangement
to retain and motivate
the executive directors
during this period of
uncertainty. Restricted
Stock will increase the
executive directors’
equity stake and
promote stewardship
to protect our valuable
franchise. This would be
in lieu of the normal
course annual bonus
and performance award
LTIP grant in the
financial year.
Awards are made in the form of nil cost options or
conditional awards and usually vest after three years
subject to achieving performance underpins and
remaining in service.
On vesting, 100% of awards will usually be subject to
a further two-year post-vesting retention period before
options can be exercised by, or conditional awards
paid to, executive directors.
At the Remuneration Committee’s discretion, dividend
equivalents will usually be paid in cash or additional
shares when awards are released.
The maximum award level is 80% of fixed pay,
excluding pension and benefits. For the 2025 financial
year, the intention is that awards with a face value
of £750,000 for the chief executive and £450,000 for
the finance director will be granted.
Restricted Stock may only be awarded in a financial
year in which the executive directors are not eligible for
an annual bonus, and do not receive a performance
award LTIP grant.
Awards would be subject to a
performance underpin, which would
be assessed at vesting.
For the awards to be granted in 2025,
the following performance underpins
will apply:
• Individual: At least strong personal
performance rating, as rated by
the Chairman of the Board in
consultation with the Board.
• Financial: Company achieving
a CET1 of at least 1% above
regulatory requirement, calculated
on a standardised basis.
• Non-financial: Satisfactory progress
against strategic objectives
designed to promote the long-term
success of the business, as judged
by the Chairman of the Board in
consultation with the Board.
• Risk: No material regulatory censure
relating to the executive director’s
time in office.
The Remuneration Committee has an
overriding discretion to adjust vesting
outcomes where it considers it
appropriate taking into account the
wider stakeholder experience.
Changes from the previous Policy: The ability to make Restricted Stock awards is a new addition to the Policy. This is
intended as a structure to incentivise and retain the executive directors through the period of significant uncertainty currently
impacting the group. This would be in lieu of the normal course annual bonus and performance award LTIP grant in the
financial year. Both executive directors will revert back to participating in the normal course annual bonus and LTIP as soon
as practicable.
Additional Details on the Directors’
Remuneration Policy
The Remuneration Committee may amend the performance
conditions or underpins applying to a performance award
LTIP or Restricted Stock award if an event or a series
of events happens as a result of which the Remuneration
Committee considers it fair and reasonable to make the
change, provided that the performance conditions are not
made either materially easier or materially more difficult to
achieve than when the award was originally granted.
The power to change includes the power to adjust the
existing performance conditions, underpins or to impose
a new performance condition or objective condition.
The Remuneration Committee will make full and clear
disclosure of any such adjustments within the Annual Report
on Remuneration for the relevant financial year.
The Remuneration Committee has an overriding discretion,
notwithstanding any performance conditions, to adjust
vesting outcomes where it considers the application of
formulaic performance conditions to be inappropriate.
The Remuneration Committee will make full and clear
disclosure of any such adjustments within the Annual
Report on Remuneration for the relevant financial year.
The Remuneration Committee may make minor amendments
to this Policy (for regulatory, exchange control, tax or
administrative purposes, to correct clerical errors or to take
account of a change in legislation) without obtaining
shareholder approval for that amendment.
In the event of a variation of share capital, demerger, special
dividend, distribution or any other corporate event which
may affect the current or future value of a share award,
the Remuneration Committee may adjust an award
as appropriate.
Rationale for Choice of Performance Conditions
The Remuneration Committee selects financial and
non-financial performance measures that strengthen the
alignment of the remuneration arrangements with the
business model and the interests of our shareholders.
Under the ordinary course Policy, at maximum performance,
the ratio of financial to non-financial measures for the chief
executive and finance director across the annual bonus and
performance award LTIP is approximately two-thirds. The
Remuneration 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, is consistent with regulatory requirements and
provides alignment with shareholders’ interests.
The actual performance targets will typically be set at the
beginning of each financial year based on prior year
performance, expected performance, strategic priorities for
the year and other internal and external factors as appropriate.
All targets will be set at levels that are stretching but remain
achievable within the context of our model and the broader
external environment.
Directors’ Remuneration Report continued
158
Close Brothers Group plc Annual Report 2024
Performance underpins that apply to the Restricted Stock
award are set to appropriately mitigate risk and ensure
satisfactory financial, non-financial and individual performance.
Malus and Clawback
The LTIP rules, which also cover the grant of the Restricted
Stock awards, and the rules which apply to the deferred
element of the annual bonus contain malus and clawback
provisions that allow the Remuneration Committee to reduce
or recover a payment or an award. The cash element of the
annual bonus is also subject to clawback provisions.
Malus is the adjustment of performance award LTIP awards,
Restricted Stock awards or the deferred element of the
annual bonus because of the occurrence of one or more
circumstances listed below. The adjustment may result
in the value being reduced, including to nil.
Clawback is the recovery of the cash element of the annual
bonus, vested performance award LTIP award and
Restricted Stock awards (including adjustments in respect of
dividends) and/or vested awards over the deferred element
of the annual bonus (including adjustments in respect of
dividends) as a result of the occurrence of one or more
circumstances listed below. Clawback may apply to all or
part of a payment and may be effected, among other means,
by requiring the transfer of shares, payment of cash or
reduction of other awards or bonuses.
In 2020/21 the company extended the circumstances in
which malus and clawback can be applied, to align the terms
between the performance award LTIP, Restricted Stock and
annual bonus (cash and deferred elements). The company
has applied the extended malus and clawback conditions for
LTIP awards granted in 2020 onwards and applied the
extended malus and clawback conditions for the annual
bonus awards from 2021 onwards.
In determining whether to exercise its discretion to apply
malus and clawback, the Remuneration Committee will have
regard to all relevant circumstances, which will typically
include (where relevant) an assessment of the extent to
which the executive director was responsible for the
events in question.
The cash element of the annual bonus is subject to clawback
for a period of seven years from the award date, extendable
to 10 years by the Remuneration Committee where there is
an ongoing investigation. The deferred element vests in
equal tranches over three years, and is subject to malus
prior to vesting and clawback for seven years from the date
of grant, extendable to 10 years by the Remuneration
Committee where there is an ongoing investigation.
Performance award LTIP and Restricted Stock awards are
subject to malus for the three-year period to the point of
vesting, and are subject to clawback for seven years from
the date of grant (four years after vesting), extendable to
10 years by the Remuneration Committee where there
is an ongoing investigation.
Malus triggers
The Remuneration Committee may apply malus to unvested
LTIP awards (including Restricted Stock awards) granted
on or after 21 September 2020 and to annual bonus awards
granted on or after 23 September 2021 in the following
circumstances:
• the assessment of any performance target or condition,
the related bonus and/or the number of shares subject
to an award was based on material error, or materially
inaccurate or misleading information;
• the executive director’s employment is terminated for
misconduct, or if the executive has been issued with
a formal disciplinary warning for misconduct under the
company’s disciplinary policy (or, if the executive director
has left employment, the Remuneration Committee
becomes aware of circumstances that would have led to
their employment being terminated for misconduct or to
the issue of a formal disciplinary warning for misconduct
had the executive director still been in employment);
• the company or a material proportion of the group
become(s) insolvent or suffer(s) a corporate failure so that
ordinary shares in the company no longer have material
value, and for which the Remuneration Committee
determines the executive director was wholly or partly
responsible;
• an event has occurred which has caused, or in the opinion
of the Remuneration Committee is reasonably likely to
cause, serious reputational damage to the company or
any member of the group, and for which the Remuneration
Committee determines the executive director was wholly
or partly responsible;
• the company suffers a material loss, financial or otherwise,
where the executive director has operated outside the risk
parameters or risk profile applicable to their position and
for which the Remuneration Committee determines the
executive director was wholly or partly responsible; and
• the payment of the award in whole or in part is not
sustainable when assessing the overall financial viability
of the company.
Clawback triggers
The Remuneration Committee may apply clawback to LTIP
awards (including Restricted Stock awards) granted on or
after 21 September 2020 and to annual bonus awards
granted on or after 23 September 2021 in the following
circumstances:
• discovery of a material misstatement resulting in an
adjustment in the audited consolidated accounts of the
group, or the audited accounts of any material subsidiary;
• the assessment of any performance target or condition,
the related bonus and/or the number of shares subject to
an award was based on material error, or materially
inaccurate or misleading information;
• action or conduct which, in the reasonable opinion of the
board, amounts to fraud or gross misconduct (or, if the
executive director has left employment, the Remuneration
Committee becomes aware of circumstances that would
have amounted to fraud or gross misconduct had the
executive director still been in employment);
• the company or a material proportion of the group become(s)
insolvent or suffer(s) a corporate failure so that ordinary
shares in the company no longer have material value, and
for which the Remuneration Committee determines the
executive director was wholly or partly responsible;
• an event has occurred which has caused, or in the opinion
of the Remuneration Committee is reasonably likely to
cause, serious reputational damage to the company or
any member of the group, and for which the Remuneration
Committee determines the executive director was wholly
or partly responsible; and
• the company suffers a material loss, financial or otherwise,
where the executive director has operated outside the
risk parameters or risk profile applicable to their position
and for which the Remuneration Committee determines
the executive director was wholly or partly responsible.
Consistency of Executive Directors’
Remuneration with Wider Employee Population
The pay and terms and conditions of employment of
employees within the group were taken into consideration
when setting the Policy and pay of the executive directors.
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Financial Statements
The Remuneration Committee does not formally consult with
employees when setting the Policy, although the employee
opinion survey conducted every year includes remuneration
as one of the topics surveyed. The Remuneration Committee
also receives feedback from engagement with, and
communication to, employees on matters relating to
remuneration issues, which it uses to inform its broader
approach to remuneration, including with respect to the
alignment between executive remuneration and the approach
to compensation for employees across the group. The
Remuneration Committee frequently reviews a “Remuneration
Dashboard” containing metrics, analysis and other
information, which the Committee uses as part of its decision-
making, including as part of the annual compensation
process. It covers a wide range of areas throughout the year,
such as workforce demographics, pay and reward at different
levels across the group, gender pay and SAYE participation.
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
all employees are based on the individual’s role, experience,
performance and relevant market practice.
Annual bonuses are based on role, business performance,
market conditions and individual performance. These
bonuses are not capped; except for executive directors and
group and bank Material Risk Takers. All highly remunerated
employees have a portion of their bonuses deferred.
A limited group of senior employees typically receive
performance award LTIP awards, generally on the same basis
as the executive directors, but the maximum face value of
these awards is generally materially lower. Restricted Stock
awards will be granted in the coming financial year to senior
employees to reflect the current uncertainty impacting the group.
Members of the group Executive Committee who are not
executive directors are required to build and maintain
shareholdings of at least one times base salary.
Employees receive the same level of pension contributions
(in the form of a cash allowance or contribution to a pension
arrangement) as executive directors.
All UK employees are eligible to participate in the SAYE
and SIP plans.
Illustrations of Application of Remuneration
Policy for the Executive Directors
The scenario charts below provide illustrations of potential
remuneration outcomes for our executive directors in 2025,
based on the proposed 2024 Remuneration Policy set out
on pages 154 to 158, and on the assumptions provided
in the tables on the opposite page.
Directors’ Remuneration Report continued
Chief Executive: Adrian Sainsbury
Normal “go-forward” Remuneration Policy
Interim Remuneration Policy
Interim Remuneration Policy
0
1,000
2,000
3,000
4,000
89%
11%
£2,156
£1,091
£3,220
£3,825
45%
6%
21%
28%
30%
4%
28%
38%
25%
3%
24%
32%
16%
Maximum + share
price growth
Maximum
On-target
Minimum
0
1,000
2,000
3,000
4,000
£1,091
£1,841
£2,216
89%
11%
52%
7%
41%
44%
5%
34%
17%
Maximum + share
price growth
On-target and
Maximum
Minimum
0
1,000
2,000
3,000
4,000
£647
£1,097
£1,322
90%
10%
53%
6%
41%
44%
5%
34%
17%
Maximum + share
price growth
On-target and
Maximum
Minimum
0
1,000
2,000
3,000
4,000
90%
10%
£1,288
£647
£1,929
£2,294
45%
5%
29%
21%
30%
3%
38%
29%
25%
3%
32%
16%
24%
Maximum + share
price growth
Maximum
On-target
Minimum
Salary
Annual Bonus
LTIP/Restricted Stock
Allowances, Benefits and Pensions
Maximum
Finance Director: Mike Morgan
Normal “go-forward” Remuneration Policy
(£’000s)
(£’000s)
(£’000s)
(£’000s)
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Close Brothers Group plc Annual Report 2024
Normal “Go-Forward” Remuneration Policy
Element
Assumptions used
Fixed remuneration
Consists of 2025 base salary (chief executive £968,000; finance director £583,000), 2025
benefits and 2025 pension allowance (10% of salary).
Minimum
No variable elements are awarded.
On target
Annual bonus: Awarded at 47.5% of base salary for the chief executive and the finance
director (50% of maximum potential).
LTIP: Awards with face value of 125% of salary for the chief executive and the finance
director and assumed 50% vesting.
Maximum
Annual bonus: Awarded at 95% of base salary for the chief executive and the finance
director (100% of maximum potential).
LTIP: Awards with face value of 125% of salary for the chief executive and the finance
director and assumed 100% vesting.
Maximum (with share
price growth)
Maximum scenario with assumed 50% share price growth on the LTIP element.
Other
No adjustment to dividend equivalents.
Interim Remuneration Policy
Element
Assumptions used
Fixed remuneration
Consists of 2025 base salary (chief executive £968,000; finance director £583,000), 2025
benefits and 2025 pension allowance (10% of salary).
Minimum
No variable elements are awarded.
On target and Maximum
Restricted Stock: Awards with face value of £750,000 for the chief executive and
£450,000 for the finance director and assumed 100% vesting, based on the proposed
grant levels for 2025.
Maximum (with share
price growth)
Maximum scenario with assumed 50% share price growth on the LTIP element.
Other
No adjustment to dividend equivalents.
Approach to Recruitment Remuneration
The remuneration package for new executive directors
will comply with the Policy for executive directors outlined
on pages 154 to 158 and as varied by the following
paragraphs. The Remuneration Committee will seek to pay
no more than is necessary to secure the right candidate.
The Remuneration Committee may, to the extent permitted
by the Listing Rules and any other regulatory requirements to
which the group is subject, seek to “buy out” remuneration
or any other compensation arrangements with another
employer that the director forfeits as a result of joining the
group. In such cases, the Remuneration 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 group. 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. Flexibility is also
retained for the Remuneration Committee to pay for legal
fees and other role-appropriate costs incurred by the
individual in relation to their appointment.
In the event that an internal appointment is made, or where
an executive director is appointed as a result of transfer
into the group on an acquisition of another company,
the Remuneration Committee may continue with existing
remuneration provisions for any such individual
where appropriate.
If considered appropriate, the Remuneration Committee may
apply different performance measures, underpins and/or
targets to an executive director’s first incentive awards
in their year of appointment.
In the event of an interim appointment being made to fill an
executive director role on a short-term basis or if exceptional
circumstances require that the Chairman or a non-executive
director takes on an executive function on a short-term
basis, the Remuneration Committee retains discretion to
make appropriate remuneration decisions outside the normal
“go-forward” Remuneration Policy or interim Remuneration
Policy to meet the individual circumstances of recruitment
or appointment.
Legacy Awards
The Remuneration Committee reserves the right to make
any remuneration payments and/or payments for loss
of office (including exercising any discretion available to
it in connection with such payments) notwithstanding that
they are not in line with the Policy set out above where the
terms of the payment were agreed (i) before this Policy came
into effect, provided that the terms of the payment were
consistent with the shareholder-approved policy in force at
the time they were agreed; or (ii) at a time when the relevant
individual was not a director of the company and, in the
opinion of the Remuneration Committee, the payment was
not in consideration for the individual becoming a director
of the company. For these purposes “payments” includes
the Remuneration Committee satisfying awards of variable
remuneration and, in relation to an award over shares,
the terms of the payment are “agreed” at the time the
award is granted.
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Financial Statements
Policy for Payment on Loss of Office
Standard provision
Policy
Details
Notice period
12 months’ notice from
the company.
12 months’ notice from the
executive director.
• Executive directors may be required to work during the notice
period, may be placed on garden leave or may be provided
with pay in lieu of notice if not required to work the full period.
• All executive directors are subject to annual re-election
by shareholders.
Compensation for
loss of office in
service contracts
No more than 12 months’ salary,
pension allowance and benefits.
• Payment will be commensurate with the company’s legal
obligations and we will seek appropriate mitigation of loss
by the executive director.
Treatment of
annual bonus on
termination
No bonus is paid unless the
executive director is employed
on date of payment (unless the
Remuneration Committee
determines otherwise).
• The Remuneration Committee may award a pro-rated bonus to
executive directors who work for part of the year or are “good
leavers” (as determined by the Remuneration 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 Remuneration Committee has discretion to reduce the
entitlement of a “good leaver” in line with performance, the
circumstances of the termination, and the malus conditions
applicable to the annual bonus. In determining the level of bonus
to be paid, the Remuneration Committee may, at its discretion,
take into account performance up to the date of cessation
or over the financial year as a whole based on appropriate
performance measures as determined by the
Remuneration Committee.
• The bonus may, at the Remuneration Committee’s discretion,
be paid entirely in cash.
Treatment of
unvested deferred
awards under the
annual bonus plan
Deferred awards will usually be
released on the normal release
date, unless the Remuneration
Committee elects to release
the shares on an earlier date.
• An executive director’s deferred shares will lapse (unless the
Remuneration Committee determines otherwise) if their
employment ends for cause or by reason of their bankruptcy
or because they join another financial services company within
12 months of termination. In all other circumstances, deferred
shares will be released to a departing executive director on the
normal release dates (unless the Remuneration Committee elects
to release the shares on an earlier date).
• The deferred shares are released in full in the event of a change
in control unless the Committee determines otherwise in
circumstances specified in the incentive plan rules.
Treatment of the
performance
award LTIP and
Restricted Stock
awards
Vested awards will usually be
released on the normal release
date, unless the Remuneration
Committee elects to release
the shares on an earlier date.
Unvested awards lapse unless
the individual is a “good leaver”
(leaves employment because
of death, retirement, ill-health,
injury or disability, redundancy,
their employing company
transfers out of the group or the
business for which the individual
works transfers out of the group,
or otherwise at the discretion of
the Remuneration Committee).
• For “good leavers”, unvested awards are, unless the
Remuneration Committee determines otherwise, usually
pro-rated for the period of employment during the performance
period. Unless the Remuneration Committee determines
otherwise, the extent of vesting will be based on the original
performance condition assessed over the full
performance period.
• Unless the Remuneration Committee determines otherwise in
circumstances specified in the incentive plan rules, in the event
of a change in control, unvested awards will vest normally
subject to time pro-rating and the achievement against the
performance targets at that point (or such other date that
the Remuneration Committee determines). However, the
Remuneration Committee retains the discretion to adjust the
extent to which any such unvested awards vest taking into
consideration other relevant factors, including the circumstances
of the change in control.
Outside
appointments
Executive directors may accept
external appointments.
• Board approval must be sought before accepting
the appointment.
• The fees may be retained by the director.
Chairman and
non-executive
directors
Engaged under letters of
appointment for terms not
exceeding three years.
Renewable by mutual agreement
and can be terminated on one
month’s notice.
• All non-executive directors are subject to annual re-election.
• No compensation is payable if required to stand down.
Directors’ Remuneration Report continued
162
Close Brothers Group plc Annual Report 2024
Standard provision
Policy
Details
Other
The Remuneration Committee
reserves the right to make any
other payments in connection
with a director’s cessation of
office or employment where the
payments are made in good
faith in discharge of an existing
legal obligation (or by way of
damages for breach of such an
obligation) or by way of a
compromise or settlement of
any claim arising in connection
with the cessation of a director’s
office or employment. Any such
payments may include, but are
not limited to, paying any fees
for outplacement assistance
and/or the director’s legal and/
or professional advice fees and/
or reasonable relocation costs in
connection with cessation of
office or employment.
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 group’s
registered office.
Dates of Executive Directors’ Service Contracts
Name
Date of service contract
Adrian Sainsbury
1 May 2020
Mike Morgan
15 November 2018
Remuneration Policy for the Chairman and Non-executive Directors
Element and how it supports the
group’s short-term and long-term
strategic objectives
Operation and maximum payable
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.
• Fees are paid in cash and are reviewed periodically.
• Fees for the chairman and non-executive directors are set by the board.
The non-executive directors do not participate in decisions to set their own remuneration.
• 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.
• Additional fees may be payable for other additional board responsibilities and/or
time commitments.
• The chairman and non-executive directors are entitled to claim reimbursement for
reasonable expenses and associated tax liabilities incurred in connection with the
performance of their duties for the company, including travel expenses.
• Overall aggregate fees will remain within the limit as authorised within the articles
of association, which may change from time-to-time.
• There is no performance framework, recovery or withholding.
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Governance Report
Financial Statements
Non-executive Directors’ Appointment Letters
Name
Date of appointment
Current letter of appointment start date
Mike Biggs
14 March 2017
21 November 2023
Mark Pain
1 January 2021
1 January 2024
Kari Hale
28 June 2023
26 June 2024
Tracey Graham
22 March 2022
1 January 2024
Patricia Halliday
1 August 2021
1 August 2024
Tesula Mohindra
15 July 2021
1 January 2024
Sally Williams
1 January 2020
1 January 2024
Statement of Consideration of Shareholder Views
The Chairman of the Board and the Chair of the Remuneration Committee consult our major shareholders on a regular
basis on key issues, including remuneration, and welcome feedback from shareholders at any point throughout year.
Where the Committee proposes to make any significant changes to the Remuneration Policy, or the manner in which the
Policy is operated, we would seek major shareholders’ views and take these into account. A formal consultation exercise was
undertaken during 2021 during the development of the previous Policy with our major shareholders and shareholder advisory
bodies. Engagement with investors on matters relating to executive pay has continued in subsequent years, including in 2023
when a number of changes were made to the implementation of the existing Policy.
Upon agreement of the proposed approach to executive remuneration for 2025, as detailed in the Remuneration Committee
Chair’s letter, a letter was sent to major shareholders in August 2024 setting out the intended approach and inviting feedback.
We consulted with over 40 of our major shareholders, covering c.80% of our shareholder register. We had responses from
24 shareholders and held meetings with those shareholders who wished to discuss the proposals in more detail. The majority
of our larger shareholders, who provided feedback, have advised that they are minded to support the proposal. As part of
the consultation exercise, a number of shareholders expressed a strong preference for all of the Restricted Stock award to
be subject to a two-year holding period, extending the award over a total of five years. A number of shareholders noted the
substantial discount of c.65% on face value of the normal annual bonus and performance share award LTIP but also requested
reassurance that the Remuneration Committee will retain discretion on vesting outcomes to ensure alignment with the
shareholder experience. We therefore refined our approach to address this feedback. The Committee intends to continue to
consult with shareholders going forward, particularly when the Committee anticipates any substantial change to the
remuneration framework.
Annual Report on Remuneration
Remuneration Committee
The Remuneration Committee’s main responsibilities are to:
• review and determine the total remuneration packages of executive directors and other senior executives, including group
Material Risk Takers and senior control function staff 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;
• 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.
Remuneration Committee effectiveness
An external evaluation of the effectiveness of the board and its committees was undertaken during the year in line with the
requirements of the UK Corporate Governance Code, as described on page 134. The evaluation found that the Remuneration
Committee continues to operate effectively.
The Remuneration Committee considers that it has access to sufficient resources to enable it to carry out its duties and
it has continued to perform effectively.
Directors’ Remuneration Report continued
164
Close Brothers Group plc Annual Report 2024
Membership activity in the 2024 financial year
There were five meetings of the Remuneration Committee held during the year. There is a standing calendar of items which is
supplemented by other significant issues that arise during the year. The key matters addressed during the year were as follows:
September
2023
January
2024
April
2024
June
2024
July
2024
Remuneration Policy and disclosures
Annual remuneration governance review
•
Annual review of Total Reward Principles
•
Review and approve Remuneration Policy Statement for 2023
•
Review and approve Directors’ Remuneration Report and
the remuneration section of the Pillar 3 disclosure for 2023
•
Review of Directors’ Remuneration Policy for 2024
•
•
•
•
Gender pay gap review
•
Risk and reward
Review and approve risk-adjustment process/outcomes
•
•
•
•
Annual review whether to apply malus and clawback
to remuneration
•
Material Risk Takers identification for 2024
•
•
•
•
Annual remuneration discussions
Approve group LTIP financial and non-financial targets for 2024
•
Review and determine 2024 EDs’ annual bonus outcome
•
•
•
•
Review and approve 2021 group LTIP vesting
•
•
Review and approve approach to year-end compensation
•
•
Year-end all-employee group-wide salary and bonus analysis/
proposals for 2024
•
•
Review proposed 2024 compensation for Material Risk Takers
•
•
Initial review of EDs’ annual bonus targets and objectives for 2025
•
Review of formulaic incentive schemes and approval
of schemes for 2025
•
•
UK Corporate Governance Code
We continue to be compliant with the executive pay provisions of the 2018 UK Corporate Governance Code. Our pay
arrangements are also consistent with the following principles set out in the Code:
Clarity
This Directors’ Remuneration Report provides open and transparent disclosure of our
executive remuneration arrangements for our internal and external stakeholders.
Predictability
Our incentive arrangements contain maximum opportunity levels with outcomes varying
depending on the level of performance achieved against specific measures. The charts
on page 160 of the report provide estimates of the potential total reward opportunity for
the executive directors under the Policy.
Simplicity and alignment
to culture
Under our ordinary course Policy, incentive arrangements for our executives are
straightforward, with individuals eligible for an annual bonus and, at more senior levels,
a single performance-based long-term incentive plan. As part of the new Policy, an
interim pay model based on restricted stock may be operated in lieu of an annual bonus
and grant of performance-based LTIP. Performance measures or underpins used in
these plans are designed to support delivery of the group’s key strategic priorities and
our commitment to adopt a responsible, sustainable business model, in line with our
purpose and values.
Proportionality and risk
Our variable remuneration arrangements are designed to provide a fair and proportionate
link between group performance and reward. In particular, partial deferral of the annual
bonus into shares, five-year release periods for LTIP awards and stretching shareholding
requirements that apply during and post-employment provide a clear link to the ongoing
performance of the group and therefore long-term alignment with stakeholders. We are
also satisfied that the variable pay structures do not encourage inappropriate risk-taking.
Notwithstanding this, the Remuneration Committee retains an overriding discretion that
allows it to adjust formulaic annual bonus and/or LTIP/Restricted Stock outcomes so as
to guard against disproportionate out-turns. Malus and clawback provisions also apply to
both the annual bonus and LTIP/Restricted Stock and can be triggered in circumstances
outlined in the Policy.
165
Strategic Report
Governance Report
Financial Statements
Advice
During the year under review and up to the date of this
report, the Remuneration Committee consulted and received
input from the chairman of the board, the chief executive,
the group head of human resources, the head of reward and
HR operations, the group chief risk officer and the company
secretary. Where the Remuneration Committee seeks advice
from employees, this never relates to their own remuneration.
The Remuneration Committee’s remuneration advisers are
Deloitte LLP (a member of the Remuneration Consultants
Group) who were appointed by the Remuneration Committee
following a competitive tendering process. During the year,
separate teams within Deloitte provided advice and
support in a range of areas, including operations, corporate
development and regulatory compliance. The Remuneration
Committee is satisfied that the provision of these other
services does not affect the objectivity and independence
of the remuneration advice provided by Deloitte as the other
services are unrelated to reward matters. Total fees paid
to Deloitte were £79,350 during the 2024 financial year,
calculated on a time and material basis.
Slaughter and May provided legal advice on the company’s
equity scheme rules and the fees paid were £18,000,
calculated on a time and material basis. The Remuneration
Committee is satisfied with of the independence
of the advice.
Statement of Voting on the Directors’ Remuneration Policy at the 2021 AGM
For
Against
Number of
abstentions
Directors’ Remuneration Policy
84.2%
15.8%
3,218,903
Statement of Voting on the Directors’ Remuneration Report at the 2023 AGM
For
Against
Number of
abstentions
Directors’ Remuneration Report
95.4%
4.6%
10,040
Implementation of the Policy in 2024
The single total figure of remuneration for executive directors for the years ended 31 July 2024 and 31 July 2023 is set out in
the tables below. (Audited1)
2024
Salary
£’000
Benefits
£’000
Pension
£’000
Total fixed
remuneration
£’000
Annual
bonus2
£’000
Performance
awards3
£’000
Total variable
remuneration
£’000
Total
remuneration
£’000
Adrian Sainsbury
949
31
95
1,075
–
108
108
1,182
Mike Morgan
571
12
57
640
–
65
65
705
2023
Salary
£’000
Benefits
£’000
Pension
£’000
Total fixed
remuneration
£’000
Annual
bonus2
£’000
Performance
awards3
£’000
Total variable
remuneration
£’000
Total
remuneration
£’000
Adrian Sainsbury
930
30
93
1,053
–
–
–
1,053
Mike Morgan
560
8
56
624
–
–
–
624
1. All disclosures in the Directors’ Remuneration Report are unaudited unless otherwise stated.
2. 60% of Adrian Sainsbury’s and Mike Morgan’s annual bonus is deferred into shares.
3. The figures for the performance awards for 2024, granted in 2021, have been calculated using the three-month average to 31 July 2024. As this share price
is lower than the grant date share price, none of this value relates to share price appreciation.
Link Between Reward and Performance
In the financial year 2024, the group delivered a resilient performance in an uncertain environment. In Banking, the adjusted
operating profit performance increased 71% to £205.4 million. This reflected higher income, driven by loan book growth of 6%,
a strong net interest margin of 7.4% (2023: 7.7%), and a stable underlying credit performance, with a bad debt ratio of 0.9%
excluding Novitas (2023: 0.9%). Banking costs increased by 8%, driven mainly by inflationary-related increases in staff costs,
higher regulatory compliance and assurance expenses and continued investment spend, partly offset by the progress we have
made on our tactical and strategic cost management initiatives. CBAM delivered strong net inflows of 8%, although profit
reduced, as income growth was more than offset by costs primarily related to wage inflation and new hires to support future
growth. Winterflood’s performance remained impacted by lower trading income resulting from continued weakness in investor
appetite and market uncertainty, with an operating loss of £1.7 million.
As a result, the group’s adjusted operating profit increased 50% to £170.6 million (2023: £113.5 million). The group’s return
on opening equity increased to 6.9% (2023: 5.0%).
In line with our previous announcement, no dividend will be paid in respect of the 2024 financial year.
There remains significant uncertainty for the industry and the group regarding any potential remedial action as a result of the
FCA’s work in the motor finance market. We are making significant progress against the initiatives previously outlined to further
strengthen our capital position.
Whilst there has been strong progress against non-financial objectives in the annual bonus, due to shareholder experience,
the Remuneration Committee applied downward discretion, in agreement with the executive directors, to reduce vesting from
28% of maximum to zero for the 2024 financial year. The 2021 Long-Term Incentive Plan vesting this year achieved good
performance against risk management objectives (see page 169 for further details), resulting in 22% overall vesting
of maximum of potential.
Directors’ Remuneration Report continued
166
Close Brothers Group plc Annual Report 2024
Additional Disclosures on the Single Total Remuneration Figure for Executive Directors Table (Audited)
Salary
The per annum salaries paid during the year are as shown in the single total remuneration figure table above. When reviewing
salary levels, the Remuneration Committee takes into account the individual’s role and experience, pay for the broader
employee population, market and external factors, where applicable. For the 2024 financial year the Remuneration Committee
applied 2% salary increases to both the chief executive and finance director, whilst the average increase for the general
employee population was 3.8%.
Benefits
Adrian Sainsbury received an £18,000 allowance in lieu of a company car. Mike Morgan does not receive an allowance
in lieu of a company car. They also received private health cover. The discount to the share price on grant of SAYE options
is included in the year of grant. In line with disclosure requirements, taxable expenses are included.
Pension
Adrian Sainsbury and Mike Morgan received a pension allowance equivalent to 10% of base salary, in line with the upper
limit contribution the general employee population can elect to receive.
Annual bonus
As set out in the Remuneration Committee Chair’s letter, notwithstanding the good performance delivered against the
group-wide strategic scorecard, in light of shareholder experience, the executive directors and Remuneration Committee
determined that, as with the 2023 financial year annual bonus, the executive directors would forgo their bonus for the 2024
financial year. However, details of the targets that applied and performance against these are set out below.
Annual bonus in respect of 2024
Financial metric
Weighting
Threshold
(33.3% of
maximum)
Target
(50% of
maximum)
Maximum
(100% of
maximum)
2024
outcome
%
achieved
Bonus outcome
after weighting
(% of max)
RoTE
30%
10.0%
12.0%
14.0%
8.3%
0.0%
0.0%
AOP
15%
£183m
£229m
£275m
£170.6m
0.0%
0.0%
C:I
15%
69.4%
68.0%
66.6%
71.0%
0.0%
0.0%
Total financial metrics
60%
0.0%
Adrian
Sainsbury
Mike
Morgan
Group-wide strategic
scorecard1
40%
28.0%
28.0%
Percentage of maximum
annual bonus awarded
100%
28.0%
28.0%
Assessed outcome
£252,328
£151,939
Discretionary adjustment
(-100%)
(£252,328)
(£151,939)
Bonus out-turn (including
application of discretion)
£0
£0
1. The group-wide strategic scorecard objectives relating to the 2024 bonus can be found on pages 168 and 169.
Group-wide performance and executive directors’
objectives for the 2024 financial year
Annual performance objectives are determined by the
Remuneration Committee at the start of each financial year,
and are designed to support the group’s wider strategic
priorities to “Protect”, “Grow” and “Sustain” our
business model.
The table on pages 168 and 169 sets out examples of the
strategic scorecard objectives which were in place in 2024,
performance metrics against these objectives where
appropriate, and an overview of the factors that the
Remuneration Committee has taken into account when
assessing the performance of the executives.
The Remuneration Committee determines the overall
outcome of the balanced scorecard and, if appropriate,
adjusts the final individual rating to take into account the
individual contributions to successful outcomes of the
scorecard objectives. This year, overall performance
against the strategic scorecard was rated at target or above
target for all goals. The outcome, before the discretionary
downward adjustment, was assessed as 70% of the
maximum award for both Adrian Sainsbury and
Mike Morgan.
For reasons of commercial sensitivity, not all performance
criteria and factors taken into consideration by the
Remuneration Committee have been disclosed.
167
Strategic Report
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Financial Statements
Performance assessment against strategic scorecard objectives
Objective
Measured through
reference to
Progress
Objective
achieved?
Strategic: 28% of 40%
Strategic
initiatives
• CET1 capital ratio.
• In March 2024, we announced a range of management actions
which have the potential to strengthen the group’s available CET1
capital by approximately £400 million by the end of the 2025
financial year.
• Significant progress has been made against these management
actions. See page 9 for an update on the progress since March
2024.
• On track
• Funding and capital.
• Successful AT1 issuance in November 2023.
• On track
• Cost imperative.
• As announced in March 2024, additional cost management
initiatives have been mobilised, which are expected to generate
annualised savings of c.£20 million, reaching the full run rate by
the end of the 2025 financial year, with the total benefit in the
2026 financial year.
• Good progress on strategic cost management initiatives. As part
of the group’s Technology transformation programme initiated in
2023, we have partnered with Wipro, a leading technology
services and consulting company. To date, we have reduced our
headcount by c.100 and removed over 115 IT applications.
• Ahead
of track
• Major investment.
• The Asset Finance transformation programme was completed in
the 2024 financial year, introducing a single technology platform
across the business that has standardised processes, increased
efficiencies and improved customer and colleague experience.
• On track
• Medium-term
growth.
• Acquisition of Bluestone Motor Finance (Ireland) (DAC) completed
in October 2023 and have since rebranded the business to Close
Brothers Motor Finance. Integration and alignment of our pricing
and underwriting standards and credit risk appetite is progressing
well.
• Growth initiatives in our Commercial business continue to prove
successful, with healthy new business volumes written by both
our Materials Handling and Agricultural Equipment teams and our
second syndication deal completed in Invoice Finance.
• The group has been approved to lend under the UK government’s
Growth Guarantee Scheme, launched in July 2024, and the Irish
Growth and Sustainability Loan Scheme, which launched in
August 2024.
• On track
People: 4% of 40%
• Maintain strong
engagement scores.
• Latest employee opinion survey (“EOS”) was conducted
in February 2024 to monitor overall engagement alongside
colleague sentiment around inclusion, speaking up and treating
customers and clients fairly. We have retained high levels of
employee engagement at 83% (2023: 86%).
• On track
Customer: 4% of 40%
• Complaint levels.
• Complaint levels in line or below relevant sector benchmarks.
• Since the announcement by the FCA of its review of historical
motor finance commission arrangements in January 2024, we
have seen a further increase in enquiries and complaints. We
have deployed automated solutions to assist in new complaints,
improving our processing speed, as well as outsourcing.
• On track
• Maintain high level
of customer
satisfaction.
• Asset Finance CSAT at 92%.
• Motor Finance NPS at +67.
• Property Finance NPS at +98.
• Premium Finance (personal lines) customer Net Ease at +80.
• Savings online CSAT at 75%.
• CBAM Net Ease at +72.
• Ahead
of track
Directors’ Remuneration Report continued
168
Close Brothers Group plc Annual Report 2024
Long-term performance awards (Audited)
The overall vesting of the 2021 LTIP grant is outlined in the table below.
Details of the overall vesting for the LTIP
Performance measure
Threshold target1
Maximum target
Actual achieved
Overall vesting
Adjusted EPS growth2 (35% weighting)
10%
30%
(46.0)%
0.0%
RoE3 (35% weighting)
10%
18%
7.5%
0.0%
Risk management objectives (“RMO”) (30% weighting)
n/a
n/a
73.3%
22.0%
Overall vesting (including application of discretion)
22.0%
1. 25% of the awards vest for satisfying the threshold target.
2. Over three years.
3. Average over three-year performance period.
In addition to the overall vesting of the performance measures, both share price and dividend equivalents affect the payout
from the LTIP.
The share price during the relevant performance period for the LTIP decreased by 69% 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
2024 was 475.2p from 1 May 2024 to 31 July 2024, which was the measurement period. The 2021 LTIP award was originally
granted at 1,545.8p.
The performance awards also include the amount (in cash or shares) equal to the dividend which would have been paid during
the period from the beginning of the performance period to the time that the awards vest.
Details of the assessment of the risk management objectives for the LTIP
The Remuneration Committee considers it to be of critical importance that remuneration arrangements continue to
incentivise discipline in the management of the firm’s capital and balance sheet and in the delivery of the business model.
The Remuneration Committee undertakes a robust assessment of performance against the risk management objectives
to ensure that payments to executive directors are fair and appropriate with consideration for individual and corporate
performance. In doing so, the Remuneration Committee assesses performance against a number of key measures in making
its determination.
Performance was assessed after each of the three years of the LTIP performance period, with each year’s review carrying a
weighting of one-third towards the overall vesting for the award, ensuring a fair assessment of progress over the three-year period.
Year one and year two assessments were set out in the 2022 and 2023 Directors’ Remuneration Reports respectively. The year
three performance assessment is detailed below.
Year three performance assessment against risk management objectives
Objective
Measured through reference to
Progress
Objective
achieved?
Risk and operational resilience: 10% of 30%
Corporate
governance
reform
• Compliance with corporate
audit and governance
reforms.
• The group has initiated several workstreams aimed
at enhancing the internal controls environment and
reporting, in preparation for the new UK Corporate
Governance Code 2024. This includes commissioning
of an externally led board and committee evaluation.
• On track
Cyber
security
• Continued assessment of
our cyber security controls
and score against internal
targets.
• The maturity and effectiveness of our cyber security
controls were assessed, with the relevant scores in line
with the agreed targets.
• A cyber incident exercise to enhance our readiness for
any potential incidents has been conducted.
• On track
Operational
resilience
• Compliance with operational
resilience regulatory
requirements.
• The annual self-assessment of operational resilience
capabilities has been completed, and remediation
actions have been agreed with the board and are
progressing as planned.
• On track
Objective
Measured through
reference to
Progress
Objective
achieved?
Risk, conduct and compliance: 4% of 40%
• Effectively embed
regulatory
requirement in
respect of
Consumer Duty.
• Implementation activities for Consumer Duty were successfully
delivered ahead of the relevant FCA deadlines, including the
completion of the group’s first Annual Assessment of Customer
Outcomes.
• Full review of requirements to implement Consumer Duty for books of
business not open to new customers completed.
• On track
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Strategic Report
Governance Report
Financial Statements
Objective
Measured through reference to
Progress
Objective
achieved?
ESG: 10% of 30%
Sustainability
• Operation emissions targets.
– Progress against green
growth ambition to
provide funding for at
least £1 billion of battery
electric vehicles by 2027.
• The group’s first sector-based intermediate 2030
reduction ambition for transport assets, the largest
carbon-intensive sectors in our loan book, was published
in March 2024.
• Funded £316 million of BEVs since September 2022.
• On track
People
• Progress against the
group’s diversity targets by
31 July 2025:
– 36% female senior
managers.
– 14% managers from an
ethic minority.
• 31% female senior managers at 31 July 2024.
• 10% of managers from an ethnic minority at
31 July 2024.
• The group’s Diversity and Inclusion Strategy outlining our
priorities and focus areas for the next three years has
been introduced.
• Behind
track
Financials: 10% of 30%
Capital
• Maintain a strong capital
position, ahead of regulatory
requirements and in line with
the group’s medium-term
CET1 capital target range
of 12% to 13%.
• The group’s CET1 capital ratio was 12.8% at 31 July
2024 (31 July 2023: 13.3%), significantly above our
applicable requirement of 9.7%.
• On track
Dividend
• Maintain a progressive
dividend that is sustainable
over the medium term.
• In light of the uncertainty regarding any potential financial
impact as a result of the FCA’s review of historical motor
finance commission arrangements, the group decided not
to pay a dividend on its ordinary shares for the 2024 financial
year. The decision is one of the management actions
identified to further build the group’s CET1 capital position.
• Behind
track
Funding
• Maintain a prudent amount
of term funding that
supports our “borrow long,
lend short” strategy.
• Maintain appropriate net
stable funding.
• Surplus tenor of allocated funding of 4.1 months at
31 July 2024, and behaviouralisation work completed,
which if adopted would add c.3 additional months.
• The four-quarter average NSFR to 31 July 2024 was
134.4% (31 July 2023: 126.0%).
• Ahead
of track
Liquidity
• Maintain liquid assets at or
above 10% of total assets
in line with our risk appetite.
• Maintain a prudent level
of headroom to LCR.
• Treasury assets, predominantly held on deposit with the
Bank of England, increased 3% to £2.3 billion (31 July
2023: £2.2 billion) and represented 16.3% of total assets
at 31 July 2024.
• We regularly assess and stress test the group’s liquidity
requirements and continue to exceed the LCR regulatory
requirements, with a 12-month average to 31 July 2024
LCR of 1,034% (31 July 2023: 1,143%).
• Ahead
of track
The table below summarises the Remuneration Committee’s assessment of performance against the risk management
objectives after each of the three years of the LTIP performance period. For the 2024 financial year, we added ESG metrics
as a distinct category to the risk management objectives.
Element
Year one
assessment
Year two
assessment
Year three
assessment
Overall
vesting
Capital and balance sheet management
95.0%
95.0%
37.5%
75.8%
Risk and operational resilience
75.0%
75.0%
75.0%
75.0%
ESG1
n/a
n/a
37.5%
37.3%
Overall vesting2
85.0%
85.0%
50.0%
73.3%
1. The ESG element in years one and two was incorporated within the risk and operational resilience element, whilst in year three it was agreed ESG would
be a separate element.
2. The overall vesting percentage is calculated on the average of the overall vesting per element per year.
Implementation of the Policy in 2025
Base salary
Salary
effective from
1 August 2024
Increase
Chief executive – Adrian Sainsbury
£968,000
2.0%
Finance director – Mike Morgan
£583,000
2.1%
Directors’ Remuneration Report continued
170
Close Brothers Group plc Annual Report 2024
Base salaries were determined with reference to the executive director’s role, increases for the broader population and
external factors. For the 2025 financial year the Remuneration Committee has decided to apply 2% and 2.1% salary increases
to the chief executive and the finance director, respectively. These base salary increases are lower than the average salary
increase approved for the wider employee population at 3.4%.
Adrian Sainsbury and Mike Morgan’s allowance in lieu of pension will be 10% of base salary, in line with the upper limit
contribution the general employee population can elect to receive. The executive directors will receive benefits in line with
those outlined in the Remuneration Policy table on page 154. There will be no other increases to allowances or benefits other
than any potential increase in the cost of providing them.
2024 Restricted Stock award (for the 2025 to 2027 cycle)
The proposed 2024 Restricted Stock awards due to be granted in November 2024 are shown in the table below.
Chief executive
Adrian Sainsbury
Finance director
Mike Morgan
2024 Restricted Stock award
£750,000
£450,000
2024 Restricted Stock award as a percentage of proposed 2025 salary
77%
77%
As advised in the Remuneration Committee Chair’s letter, and subject to approval of the proposed Remuneration Policy,
in lieu of the normal course annual bonus and performance share LTIP, it is proposed that for 2025 a Restricted Stock award
is granted over shares with a value at grant of £750,000 for the chief executive and £450,000 for the finance director.
This equates to less than 80% of their respective base salaries. This is a c.65% discount to the aggregate normal annual
bonus and performance share LTIP opportunities of 220% of salary (which would equate to a normal aggregate maximum face
value at award of c.£2,130k for the chief executive and c.£1,283k for the finance director).
This level of discount is higher than the market standard discount of 50%. This higher discount has been proposed taking into
account a number of factors including i) the need to mitigate the risk of windfall gains at vesting taking into account the current
share price; ii) the fact that the Restricted Stock award is replacing both an annual bonus and LTIP; and iii) the need to ensure
that we can reward and retain the executive directors and to protect our strong franchise.
The award would be subject to the following performance underpins:
• Individual: At least strong personal performance rating as rated by the Chairman of the Board in consultation with the Board;
• Financial: Company achieving a CET1 of at least 1% above regulatory requirement, calculated on a standardised basis;
• Non-financial: Satisfactory progress against strategic objectives designed to promote the long-term success of the
business, as judged by the Chairman of the Board in consultation with the Board; and
• Risk: No material regulatory censure relating to the ED’s time in office.
Consistent with the current Policy and risk adjustment framework, the Remuneration Committee will continue to have
overriding discretion to adjust vesting outcomes where it considers this appropriate taking into account the wider stakeholder
experience. While the significant discount is intended to proactively address the risk of potential windfall gains,
the Remuneration Committee will nonetheless retain discretion on vesting outcomes in the event of a significant increase
in our share price to ensure the value delivered to the executive directors is appropriate in the context of the overall business
performance and the wider stakeholder experience.
The Restricted Stock awards would vest 100% after year three subject to assessment against the performance underpins.
100% of the award would also be subject to a two-year holding period. This is to reflect shareholder preference for the holding
period to apply for the entirety of the award and that the current LTIP has a five-year time horizon.
Consistent with the normal course Policy, clawback periods will continue to be seven years, extendable to 10 years.
Both executive directors will revert back to participating in the normal course annual bonus and LTIP as soon as practicable.
In the event that the extraordinary circumstances continue beyond the 2025 financial year, the maximum Restricted Stock
awards that may be granted will be capped at 80% of fixed pay, excluding pension and benefits in lieu of any annual bonus
or performance share LTIP grant.
Relative Spend on Pay
The following table shows the total remuneration paid compared to the total distributions to shareholders. No dividend will
be paid in 2024, and the increase in remuneration paid to employees reflects inflation-related wage increases, a normalisation
of performance-driven bonuses and new hires.
2024
£ million
2023
£ million
Percentage
change
Remuneration paid
382.0
347.0
10.2%
Distributions to shareholders1
–
100.5
(100)%
1. For the 2024 financial year, no dividend was paid.
Changes in Remuneration of the Directors and all Employees
The table on the following page shows how the remuneration for the directors changed compared to employees of the parent
company of the group and the average group-wide employee population for each year between the 2020 and 2024 financial years.
The year-on-year movement in fees and salary for the directors, average group employee and average group-wide employee
reflects the annual review implemented in August 2023 and ad hoc salary changes throughout the financial year ended 31 July 2024.
171
Strategic Report
Governance Report
Financial Statements
Kari Hale’s year-on-year fee increase also relates to his change of responsibilities (appointment as chair of the Audit
Committee) during the 2024 financial year. The change to benefits relates to costs of providing private medical cover and
the inclusion of the discount of share price for a SAYE option granted. Due to the attractive discounted share price, a larger
number of employees elected to participate in the 2024 SAYE option scheme.
2024
2023
2022
2021
2020
Salary/
Fee
Benefits1
Bonus
Salary/
Fee Benefits1
Bonus
Salary/
Fee Benefits1
Bonus
Salary/
Fee Benefits1
Bonus
Salary/
Fee
Benefits1
Bonus
Average
group
employee2
6.9%
10.7%
1.8%
7.0%
16.2%
(11.7)%
5.8%
21.3%
29.5%
2.4%
6.6%
34.3%
11.7%
2.3%
(32.9)%
Average
employee3
3.8%
19.2%
7.9%
4.7%
4.7%
(27.6)%
5.7%
5.7% (32.8)%
0.0%
0.0%
21.2%
1.8%
1.8%
13.1%
Executive directors4
Adrian
Sainsbury5
2.0%
2.9%
0.0%
0.0%
2.7%
(100.0)%
95.7%
62.2% (51.1)%
–
–
–
–
–
–
Mike
Morgan6
2.0%
7.9%
0.0%
0.0%
(0.1)%
(100.0)%
40.0%
30.8% (54.9)%
0.0%
20.2%
152.2%
0.0%
0.0%
(54.7)%
Chairman and non-executive directors7
Mike Biggs
0.0%
–
–
0.0%
–
–
0.0%
–
–
0.0%
–
–
0.0%
–
–
Oliver
Corbett
0.9%
–
–
0.0%
–
–
(1.7)%
–
–
(0.1)%
–
–
5.6%
–
–
Peter Duffy
2.4%
–
–
0.0%
–
–
7.7%
–
–
2.8%
–
–
0.0%
–
–
Sally
Williams
2.4%
–
–
0.0%
–
–
3.8%
–
–
0.0%
–
–
–
–
–
Mark Pain
1.7%
–
–
0.0%
–
–
27.5%
–
–
–
–
–
–
–
–
Patricia
Halliday8
0.9%
–
–
23.9%
–
–
–
–
–
–
–
–
–
–
–
Tracey
Graham8
0.9%
–
–
23.9%
–
–
–
–
–
–
–
–
–
–
–
Tesula
Mohindra
2.4%
–
–
0.0%
–
–
–
–
–
–
–
–
–
–
–
Kari Hale9
25.5%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1. Non-executive directors have received other benefits that relate to reimbursement for expenses incurred in the course of duties. Reimbursement of these
expenses does not provide an accurate comparison to benefits received by employees and they are therefore not included.
2. Changes for employees of the parent company excluding executive directors.
3. Changes for group-wide employees, as this is more representative of changes across the wider workforce, excluding executive directors.
4. Calculated using the data from the single figure table in the Annual Report on Remuneration excluding reimbursement for expenses incurred in the course
of duties. For Adrian Sainsbury and Mike Morgan, their expenses were £5,330 and £6,437 for the 2024 financial year, £6,020 and £6,328 for the 2023
financial year and £16,441 and £5,939 for the 2022 financial year respectively.
5. Adrian Sainsbury was appointed as group executive director in September 2020 and his 2021 figures are pro-rated based on part-year. Adrian’s 2022 salary
and benefits increase is driven by the part-year in 2021 and the compensation mix adjustment awarded during the 2022 financial year.
6. Mike Morgan’s 2022 benefits increased 30.8%; this is driven by an increase in pension allowance based on the compensation mix adjustment awarded
during the 2022 financial year.
7. Calculated using the fees from the single figure table for non-executive directors on page 175. Where non-executives have pro-rated fees, the prior year
has either been pro-rated up or down accordingly.
8. Patricia Halliday and Tracey Graham’s fees increased year-on-year between 2022 and 2023; this is driven by their appointment to the chair of the Risk
Committee and the chair of the Remuneration Committee respectively during the 2023 financial year.
9. Kari Hale’s fees have increased year-on-year and this is driven by his appointment to the chair of the Audit Committee during the 2024 financial year.
Pay Ratios
The table below compares the chief executive’s single total remuneration figure to the remuneration of the group’s UK
employees at 31 July, over the last five financial years. The Remuneration Committee is satisfied that the median ratio
is consistent with the pay, reward and progression policies for our employee population.
The ratio for 2024 has marginally increased on the previous year. This is largely as a result of the 2021 LTIP award vesting
this year.
Year
Method
25th
percentile
Median
75th
percentile
Lower quartile employee
Median employee
Upper quartile employee
Total
remuneration
Salary
Total
remuneration
Salary
Total
remuneration
Salary
2024
A
31: 1
19: 1
12: 1
£38,440
£31,500
£61,270
£55,700
£96,856
£61,730
2023
A
29: 1
18: 1
11: 1
£36,093
£30,000
£59,000
£50,000
£92,969
£72,600
2022
A
48: 1
28: 1
17: 1
£33,571
£26,314
£56,952
£40,983
£93,459
£85,000
2021
A
79: 1
37: 1
29: 1
£32,437
£28,820
£54,729
£38,500
£89,927
£70,000
2020
A
64: 1
38: 1
23: 1
£32,194
£27,167
£54,245
£36,950
£90,029
£75,000
Our ratios have been calculated using the most robust methodology option “A” prescribed under the UK Companies
(Miscellaneous Reporting) Regulations 2018. Under this option, the ratios are calculated using the following:
• the full-time equivalent salaries and allowances for employees in the UK;
• pensions and benefits paid during the financial years;
• annual bonus awarded for the financial years;
• actual and projected gains realised from exercising awards from taxable employee share plans;
• sales incentives paid during the financial years; and
• projection of vested performance awards.
Directors’ Remuneration Report continued
172
Close Brothers Group plc Annual Report 2024
0
1,000
2,000
3,000
4,000
5,000
6,000
Chief Executive’s single
total remuneration figure (’000)
31 July
2015
31 July
2016
31 July
2017
31 July
2018
31 July
2019
31 July
2020
31 July
2021
31 July
2021
31 July
2022
31 July
2023
31 July
2024
Value of £100 invested
on 31 July 2014
Close
Brothers
FTSE 250
Index
Preben
Prebensen
Adrian
Sainsbury
0
50
100
150
200
250
300
The Chief Executive’s Total Remuneration Over the Past 10 Years
The chart below illustrates the chief executive’s single total remuneration figure over the past 10 years and compares it
to the total shareholder return of the company’s shares and the FTSE 250 over this period. Further detail on the single total
remuneration figure outcomes and how variable pay plans have paid out each year is shown in the table below.
Preben Prebensen
Adrian Sainsbury
2015
2016
2017
2018
2019
2020
20211
20212
20223
2023
2024
Single figure of
total remuneration
(’000)
£5,962
£3,995
£3,337
£2,541
£2,770
£2,043
£860
£1,720
£1,602 £1,053 £1,182
Annual bonus
against maximum
opportunity
98%
95%
91%
86%
82%
40%
78%
78%
47%
0%
0%
LTIP, SMP and
Matching Share
Award vesting4
97%
68%
51%
19%
30%
42%
40%
40%
21%
0%
22%
1. Preben Prebensen’s remuneration for the 2021 financial year was time pro-rated to 21 September 2020, the day he stepped down as chief executive.
2. Adrian Sainsbury was appointed chief executive on 21 September 2020 and his remuneration included in the single figure for the 2021 financial year was time
pro-rated accordingly.
3. The 2019 LTIP award vested in the 2022 financial year at 20.6%, the assessed outcome before the 25% discretionary reduction was 27.5%.
4. SMP and Matching Share Awards were last granted in the 2016 financial year.
Scheme Interests Granted During the Year (Audited)
The face value and key details of the share awards granted in the 2024 financial year are shown in the table below. These were
all delivered as nil cost options. The share price used to calculate the number was £8.719, the average mid-market closing
price for the five days prior to grant (3 October 2023).
Name
Award type1
Vesting period
Performance
conditions
Face value
‘000
Percentage
vesting at
threshold
Number of
shares
Vesting end date
Adrian Sainsbury
LTIP2,3
3 years
Yes
£1,186
25%
135,997
4 October 2026
Mike Morgan
LTIP2,3
3 years
Yes
£714
25%
81,891
4 October 2026
1. The awards are all delivered as nil cost options.
2. Performance targets are detailed in the 2023 Annual Report on page 180.
3. LTIPs vested from 2020 have an additional two-year holding period.
External Appointments
No executive directors held external directorships during the financial year other than vesting of outstanding share awards
as disclosed in previous remuneration reports.
Payments for Loss of Office and Past Directors (Audited)
There were no payments for loss of office or payments to past directors during the year other than vesting of outstanding share
awards as disclosed in previous remuneration reports.
173
Strategic Report
Governance Report
Financial Statements
Executive Directors’ Shareholding and Share Interests (Audited)
The interests of the directors in the ordinary shares of the group at 31 July 2024 are set out below:
Name
Shareholding
requirement
Number of
shares owned
outright2
Outstanding options not subject
to performance conditions3
Outstanding options subject to
performance conditions4
20241
2024
2024
2023
2024
2023
Adrian Sainsbury
371,273
142,424
33,212
73,476
315,931
383,452
Mike Morgan
223,562
115,865
21,874
38,592
190,239
204,929
1. Based on the closing mid-market share price of 511p on 31 July 2024.
2. This includes shares owned outright by closely associated persons and SIP.
3. This includes DSA and SAYE options.
4. This includes LTIP awards.
No executive directors held shares that were vested but unexercised as at 31 July 2024. There were no changes in notifiable
interests between 1 August 2024 and 6 September 2024, other than the purchase of shares by Adrian Sainsbury within the SIP
which increased his shareholding to 142,484 shares.
Executive Directors’ Shareholding
The chart below compares the current executive directors’ shareholding versus shareholding policy, as a percentage of salary.
At the end of the 2021 financial year, both executive directors exceeded the minimum requirement under the Directors’
Remuneration Policy. Following the implementation of the compensation mix adjustments in response to CRD V in the 2022
financial year, Adrian Sainsbury and Mike Morgan are building up their shareholding over a reasonable time frame to meet
the revised minimum requirement. Neither have sold shares since taking office, except to cover tax liabilities, and have
no ability to do so, until the threshold is met.
Directors’ Remuneration Report continued
Adrian Sainsbury
200%
104%
200%
77%
Mike Morgan
Policy
Actual
Details of Executive Directors’ Share Exercises During the Year (Audited)
Name
Award type
Held at
1 August
2023
Called1
Lapsed
Market price
on award
p
Market price
on calling
p
Total value
on calling1
£
Dividends
paid on
vested shares
£
Adrian Sainsbury
2019 DSA
5,489
5,489
–
1,366.4
832.0
45,668
12,762
2020 DSA
2,362
2,362
–
987.9
832.0
19,652
4,452
2020 DSA
2,362
2,362
–
987.9
785.0
18,542
5,515
2021 DSA
11,359
11,359
–
1,545.8
832.0
94,507
14,824
2021 DSA
11,359
11,359
–
1,545.8
785.0
89,168
19,935
2022 DSA
8,933
8,933
–
923.1
785.0
70,124
9,960
2017 LTIP
21,663
21,663
–
1,459.0
832.0
180,236
77,445
2018 LTIP
18,693
18,693
–
1,588.8
785.0
146,740
63,837
Mike Morgan
2020 DSA
4,421
4,421
–
987.9
429.0
18,966
10,323
2021 DSA
7,128
7,128
–
1,545.8
429.0
30,579
12,510
2022 DSA
5,379
5,379
–
923.1
429.0
23,076
5,998
2018 LTIP
15,154
15,154
–
1,588.8
790.0
119,717
51,751
1. These are the actual number of shares and values realised on calling. Any variances in totals are due to rounding.
Notes to the details of executive directors’ share exercises during the year
The DSA is a mandatory deferral of a portion of the annual bonus.
The DSA and LTIP give executive directors the right 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. They may be called
for at any time up to 12 months from the date of vesting. The DSA and LTIP awards may be forfeited in certain circumstances
if the executive director leaves employment before the vesting date. 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 spread over the vesting period for the LTIP award.
Details of Executive Directors’ Option Exercises During the Year (Audited)
No executive director exercised options during the 2024 financial year.
174
Close Brothers Group plc Annual Report 2024
Single Total Figure of Remuneration for Non-executive Directors (Audited)
Name
2024
2023
Basic
fee1
£’000
Committee
chair
£’000
Committee
member
£’000
Senior
independent
director
£’000
Benefits2
£’000
Total
£’000
Basic
fee1
£’000
Committee
chair
£’000
Committee
member
£’000
Senior
independent
director
£’000
Benefits2
£’000
Total
£’000
Mike Biggs
300
–
–
–
30
330
300
–
–
–
22
322
Oliver Corbett3
21
10
2
–
1
34
71
34
6
–
1
112
Peter Duffy4
39
–
7
–
–
46
71
–
12
–
1
84
Sally Williams
71
–
14
–
–
85
71
–
12
–
2
85
Mark Pain
71
–
14
34
1
120
71
–
12
34
1
118
Tesula Mohindra
71
–
14
–
1
86
71
–
12
–
1
84
Patricia Halliday
71
34
7
–
–
112
71
24
8
–
1
104
Tracey Graham
71
34
7
–
1
113
71
24
8
–
2
105
Kari Hale5
71
24
9
–
1
105
7
–
1
–
–
8
1. Non-executive director fees were last increased with effect from 1 August 2021.
2. Benefits include travel-related expenses in respect of attendance at board meetings which are taxable. Amounts disclosed have been grossed up using
the appropriate tax rate as the company pays the non-executive directors’ tax.
3. Oliver Corbett resigned as a non-executive director on 16 November 2023.
4. Peter Duffy resigned as a non-executive director on 15 February 2024.
5. Kari Hale was appointed chair of the Audit Committee on 16 November 2023.
Notes to the single total figure of remuneration for non-executive directors
The fees payable to non-executive directors for the 2024 and 2025 financial years are as follows:
Role
2025
2024
Chairman1
£300,000
£300,000
Non-executive director2
£71,000
£71,000
Supplements
Senior independent director
£34,000
£34,000
Chair of Audit Committee
£34,000
£34,000
Chair of Remuneration Committee
£34,000
£34,000
Chair of Risk Committee
£34,000
£34,000
Committee membership3,4
£7,000
£7,000
1. The chairman receives no other fees for chairmanship or membership of board committees and the chairman’s fee has remained the same since 2018.
2. The non-executive director, senior independent director and committee chair fees have remained the same since 2022.
3. The committee membership fee was last increased in 2024.
4. 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 non-executive directors in the ordinary shares of the company are set out below:
Name
Shares held
beneficially at
31 July 2024
Shares held
beneficially at
31 July 2023
Mike Biggs
6,500
3,500
Oliver Corbett1
–
–
Peter Duffy2
848
848
Sally Williams
1,062
–
Mark Pain
4,000
–
Tesula Mohindra
500
–
Patricia Halliday
500
–
Tracey Graham
1,000
1,000
Kari Hale
–
–
1. Oliver Corbett’s shareholding is at 16 November 2023, the date he resigned as a non-executive director.
2. Peter Duffy’s shareholding is at 15 February 2024, the date he resigned as a non-executive director.
There were no changes in notifiable interests between 1 August 2024 and 6 September 2024.
This report was approved by the board of directors on 19 September 2024 and signed on its behalf by:
Tracey Graham
Chair of the Remuneration Committee
175
Strategic Report
Governance Report
Financial Statements
Directors’ Report
The directors of the company present their report for the year
ended 31 July 2024.
The Strategic Report, together with the Corporate
Governance Report which includes the reports of the
committees and the Directors’ Remuneration Report, include
information that would otherwise need to be included in this
Directors’ Report. Readers are also referred to the cautionary
statement on page 253 of this Annual Report.
Disclosures by Reference
Additional information, which is incorporated into this
Directors’ Report by reference, including information
required by the Companies Act 2006, the Large and
Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008, Disclosure and Transparency
Rule 7.2, and Listing Rule 9.8.4R, can be located by page
reference elsewhere in this Annual Report as follows:
Content
Page reference
Strategic Report
Business activities
4
Likely future developments
20 to 25
Business relationships
30 and 31
Employment, human rights and environmental matters
Assessing and monitoring culture
51 and 138
Employment practices and approach
to disabled employees
48 to 52
Employee engagement
30 and 51
Approach to diversity and inclusion
49 to 52
Investing in and rewarding the
workforce
51
Charitable donations
52
Greenhouse gas emissions
43 to 45
Climate-related financial disclosures
44 and 45
Directors
Biographical details
124 to 126
Induction and continuing professional
development
134
Agreements for loss of office
162 and 173
Remuneration, including waiver of
emoluments
150 to 175
Contracts or service agreements
163
Interests in share capital
174
Miscellaneous
Section 172 Statement
29
Going concern
117
Viability Statement
118
Corporate governance statement
120 to 142
Risk management objectives
and policies
74 to 116
Credit, market and liquidity risks
90 to 105 and
115 to 116
Financial instruments
Note 13 “Derivative
Financial Instruments”
Shareholder dividend waivers
178
Results and Dividends
The consolidated results for the year are shown on
page 192 of the Financial Statements. The directors do not
recommend a final dividend for the year and did not declare
an interim dividend during the year.
Further information on the directors’ decision not to pay
a dividend in respect of the financial year can be found
on page 59.
Directors
The names of the directors of the company at the date of this
report, together with biographical details, are given on pages
124 to 126. All the directors listed on those pages were
directors of the company throughout the year. Oliver Corbett
and Peter Duffy resigned as directors on 16 November 2023
and 15 February 2024 respectively.
In accordance with the UK Corporate Governance Code,
all serving directors will retire at the 2024 AGM and offer
themselves for re-election at that meeting.
Powers of Directors
The directors 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 2023 AGM.
Appointment and Removal of Directors
The appointment and removal 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 a general meeting or
appointed by the board of directors in accordance with the
provisions of the articles of association. The company’s
articles of association may only be amended by a special
resolution of the shareholders in a general meeting.
Directors’ Indemnities and Insurance
In accordance with its articles of association, the company
has granted a deed of indemnity to each of its directors
on terms consistent with the applicable statutory provisions.
The deeds indemnify the directors in respect of liabilities
(and associated costs and expenses) incurred in connection
with the performance of their duties as directors of the
company or any associated company. 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 at the date of approval of the
Directors’ Report. The company also maintains directors’
and officers’ liability insurance.
176
Close Brothers Group plc Annual Report 2024
Share Capital
The company’s share capital comprises one class of ordinary
share with a nominal value of 25p per share.
At 31 July 2024, 152,060,290 ordinary shares were in issue,
of which 1,572,747 were held by the company in treasury.
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 2006, 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.
Details of directors’ authorities approved by shareholders
at the 2023 AGM can be found in the 2023 Notice of AGM
and subsequent results announcement.
Since the date of the company’s 2023 AGM, with the
exception of the authority to make market purchases, the
directors have not used these authorities. Details of market
purchases of the company’s ordinary shares during the year
can be found in the purchase of own shares section below.
The existing authorities to allot and purchase shares given
to the company at the last AGM will expire at the conclusion
of the forthcoming AGM. At this AGM, shareholders will be
asked to renew these authorities. Details of the relevant
resolutions to be proposed will be included in the 2024
Notice of AGM.
New Issues of Share Capital
No ordinary shares were allotted or issued during the year.
Specifically, no ordinary shares were allotted or issued
during the year 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 24 “Share-based Awards”
of the Financial Statements.
Rights Attaching to Shares
The company’s articles of association set out the rights
and obligations attaching to the company’s ordinary shares.
All of the ordinary shares rank equally in all respects. 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.
The articles of association and applicable legislation provide
that the company can decide to restrict the rights attaching
to ordinary shares in certain circumstances (such as the
right to attend or vote at a shareholders’ meeting), including
where a person has failed to comply with a notice issued by
the company under section 793 of the Companies Act 2006.
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 articles of association set out certain
circumstances in which the directors of the company
can refuse to register a transfer of ordinary shares.
The company is not aware of any arrangements between
its shareholders that may result in restrictions on the transfer
of shares and/or voting rights.
Directors and employees of the group are required to comply
with applicable legislation relating to dealing in the
company’s shares as well as the company’s share dealing
rules. These rules restrict employees’ and directors’ ability
to deal in ordinary shares at certain times, and require the
employee or director to obtain permission prior to dealing.
Some of the group’s employee share plans also contain
restrictions on the transfer of shares held within those plans.
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”).
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.
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
will be included in the 2024 Notice of AGM.
Awards under the company’s employee share plans have
historically been met from shares purchased in the market
(and held either in treasury or in the employee share trust),
however the company’s share hedging procedures
are kept under review.
During the year, the company did not make any market
purchases of Treasury Shares. It transferred 28,728 shares
out of treasury to satisfy share option awards, with an
aggregate nominal value of £7,102 and representing 0.02%
of the company’s issued share capital, for a total
consideration of £0.23 million.
At 31 July 2024, the company held 1,572,747 Treasury
Shares with a nominal value of £0.39 million and representing
1.03% of its issued share capital. The maximum number
of Treasury Shares held at any time during the year was
1,601,475, with a nominal value of £0.4 million and
representing 1.05% of its issued share capital.
177
Strategic Report
Governance Report
Financial Statements
Significant Shareholdings
The table below sets out details of the interests in voting
rights notified to the company under the provisions of the
Financial Conduct Authority’s Disclosure Guidance and
Transparency Rules. Information provided by the company
pursuant to the Disclosure Guidance and Transparency
Rules is publicly available via the regulatory information
services and on the company’s website.
9 September
2024
Voting rights
31 July 2024
Voting rights
abrdn plc
10.20%
10.20%
Royal London Asset
Management
5.31%
5.31%
M&G plc
4.85%
4.85%
FIL Limited
4.66%
4.66%
Substantial shareholders do not have different voting rights
from those of other shareholders.
Employee Share Trust
Ocorian Trustees (Jersey) 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 will only vote on those
shares in accordance with the instructions given to the
trustee and in accordance with the terms of the trust deed.
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 24 “Share-based Awards” of the
Financial Statements. The trustee has waived its right to
dividends on all shares held within the trust. During the year,
the Close Brothers Group Employee Share Trust made
market purchases of 456,174 ordinary shares.
Auditor
PricewaterhouseCoopers LLP (“PwC”) has expressed its
willingness to continue in office as the company’s external
auditor. Resolutions to reappoint PwC and to determine its
remuneration will be proposed at the forthcoming AGM. The
full text of the relevant resolutions will be set out in the 2024
Notice of AGM.
Significant Agreements Affected by a Change
of Control
A change of control of the company, following a takeover
bid, may cause a number of agreements to which the
company is a party to take effect, alter or terminate.
These include certain insurance policies, bank facility
agreements and employee share plan rules.
The group had committed facilities totalling £1.03 billion at
31 July 2024 which contain clauses requiring lender consent
for any change of control. Should consent not be given,
a change of control would trigger mandatory repayment
of those facilities.
All of the company’s employee share plan rules contain
provisions relating to a change of control. Outstanding
awards and options may vest and become exercisable
on a change of control, subject, where applicable, to the
satisfaction of any performance conditions at that time
and pro-rating of awards.
Research and Development Activities
During the normal course of business, the group continues
to invest in new technology and systems and to develop new
products and services to improve operating efficiency and
strengthen its customer proposition.
Post-Balance Sheet Events
Following a comprehensive strategic review, on
19 September 2024, the group announced that it entered
into an agreement to sell CBAM to Oaktree for an equity
value of up to £200 million.
The transaction is expected to complete in early 2025
calendar year and is conditional upon receipt of certain
customary regulatory approvals.
Further details of the financial impacts of the sale agreement
on the group can be found in Note 29: “Post Balance Sheet
Event”.
Political Donations
No political donations were made during the year (2023: £nil).
Branches
The company has no branches outside the UK.
Disclosure of Information to the 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 reasonable 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.
The Directors’ Report has been approved by the board and
signed by order of the board by:
Sarah Peazer-Davies
Company Secretary
19 September 2024
Directors’ Report continued
178
Close Brothers Group plc Annual Report 2024
Statement of Directors’ Responsibilities in
Respect of the Financial Statements
The directors, whose names and functions are listed on
pages 124 to 126, are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law,
the directors have prepared the group financial statements
in accordance with UK-adopted international accounting
standards and the company financial statements in
accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 102 “The Financial Reporting
Standard applicable in the UK and Republic of Ireland”,
and applicable law).
Under company law, directors must not approve the financial
statements unless they are satisfied that they give a true
and fair view of the state of affairs of the group and company
and of the profit or loss of the group and the company for
that period. In preparing the financial statements, the
directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable UK-adopted international
accounting standards have been followed for the group
financial statements, and United Kingdom Accounting
Standards comprising FRS 102 have been followed
for the company financial statements, subject to any
material departures disclosed and explained in the
financial statements;
• make judgements and accounting estimates that are
reasonable and prudent; and
• prepare the group and company financial statements
on the going concern basis unless it is inappropriate
to presume that the group and company will
continue in business.
The directors are responsible for safeguarding the assets
of the group and company and hence for taking reasonable
steps for the prevention and detection of fraud and
other irregularities.
The directors are also responsible for keeping adequate
accounting records that are sufficient to show and explain
the group’s and company’s transactions and disclose with
reasonable accuracy at any time the financial position of
the group and company and enable them to ensure that
the financial statements and the Directors’ Remuneration
Report comply with the Companies Act 2006.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website. Legislation in the United
Kingdom governing the preparation and dissemination
of financial statements may differ from legislation
in other jurisdictions.
Directors’ Confirmations
Each of the current directors, whose names and functions
are listed on pages 124 to 126, confirms that, to the best
of his or her knowledge:
• the group financial statements, which have been prepared
in accordance with UK-adopted international accounting
standards, give a true and fair view of the assets,
liabilities, financial position and profit of the group;
• the company financial statements, which have been
prepared in accordance with United Kingdom Accounting
Standards comprising FRS 102, give a true and fair
view of the assets, liabilities, financial position and profit
of the company;
• the Strategic Report, together with the Directors’ Report
and the Corporate Governance Report, includes a fair
review of the development and performance of the
business and the position of the group and company,
together with a description of the principal risks and
uncertainties that they face; and
• the Annual Report and financial statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
group’s and company’s position and performance,
business model and strategy.
Signed on behalf of the board by:
Michael N. Biggs
Mike Morgan
Chairman
Finance Director
19 September 2024
179
Strategic Report
Governance Report
Financial Statements
Report on the audit of the financial statements
Opinion
In our opinion:
• Close Brothers Group plc’s group financial statements and company financial statements (the “financial statements”) give a
true and fair view of the state of the group’s and of the company’s affairs as at 31 July 2024 and of the group’s profit and the
group’s cash flows for the year then ended;
• the group financial statements have been properly prepared in accordance with UK-adopted international accounting
standards as applied in accordance with the provisions of the Companies Act 2006;
• the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, including FRS 102 “The Financial Reporting Standard
applicable in the UK and Republic of Ireland”, and applicable law); and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the consolidated and company
balance sheets as at 31 July 2024; the consolidated income statement, the consolidated statement of comprehensive income,
the consolidated cash flow statement, and the consolidated and company statements of changes in equity for the year then
ended; and the notes to the financial statements, comprising material accounting policy information and other explanatory
information.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not
provided.
Other than those disclosed in note 5, we have provided no non-audit services to the company or its controlled undertakings in
the period under audit.
Independent auditors’ report to the members of Close Brothers Group plc
180
Close Brothers Group plc Annual Report 2024
Our audit approach
Overview
Audit scope
• The scope of our audit and the nature, timing and extent of audit procedures performed were determined by our risk
assessment, the financial significance of components and other qualitative factors (including history of misstatement through
fraud or error).
• We performed audit procedures over components considered financially significant in the context of the group (full scope
audit) or in the context of individual primary statement account balances (audit of specific account balances).
• We performed other procedures including analytical review procedures to mitigate the risk of material misstatement in the
residual components.
Key audit matters
• Determination of expected credit losses on loans and advances to customers (group)
• Assessment of impairment in relation to valuation of goodwill held in relation to Winterflood Securities and Close Brothers
Limited (group)
• Consideration of the contingent liability for motor dealer commissions (group)
• Assessment of the going concern basis of preparation, specifically in relation to capital (group and company)
Materiality
• Overall group materiality: £10.6m (2023: £11.6m) based on 5% of 4 year average adjusted profit before tax (PBT) (2023: 5%
of 3 year average adjusted PBT).
• Overall company materiality: £13.8m (2023: £12.8m) based on 1% of Total Assets.
• Performance materiality: £8.0m (2023: £8.7m) (group) and £10.35m (2023: £9.6m) (company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or
not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Consideration of the contingent liability for motor dealer commission and Assessment of the going concern basis of
preparation, specifically in relation to capital are new key audit matters this year. Otherwise, the key audit matters below are
consistent with last year.
181
Strategic Report
Governance Report
Financial Statements
Determination of expected credit losses (“ECL”) on loans and
advances to customers (group)
As at 31 July 2024, the Group has gross loans and advances
to customers of £10,276.6m, with ECL provisions of £445.8m
held against them.
The determination of ECL provisions is inherently judgemental
and involves setting assumptions using forward looking
information reflecting the Group’s view of potential future
economic events. This can give rise to increased estimation
uncertainty.
There has been improvement in some economic indicators,
however ECL provisions by their nature are uncertain, and the
interest rate environment remains heightened. This, and other
economic developments, may impact the credit performance
of the lending book.
The model methodology in relation to the Novitas Loans
business remains the same. However, this remains subjective
in the current year and the ECL is sensitive to potential
outcomes and estimated time to recovery.
Models are used to collectively assess and determine ECL
allowances on loans and advances. We consider the following
elements of the determination of modelled ECL to be
significant:
• The application of forward-looking economic scenarios
used in the models and the weightings assigned to those
scenarios;
• The sufficiency and completeness of post-model
adjustments which may be considered in order to take into
account economic risks not captured by the models;
• In respect of the Novitas portfolio, the appropriateness of
assumptions used in the determination of the recoveries
from insurers and the estimated time to recover; and
• The Loss Given Default (“LGD”) component for the Asset
Finance and Leasing business, given that the LGD model
was developed over a period with more benign
macroeconomic conditions than the expected conditions
over the forecast period.
ECL provisions on individually large exposures to
counterparties who are in default at the reporting date, are
estimated on an individual basis. We consider that only the
individually assessed loans of the Property business
constitute a significant risk in the current year. The risk relates
to the assumptions made on the amount and timing of the
expected future cash flows under multiple probability
weighted scenarios.
Relevant disclosure references:
• Note 2 - Critical accounting estimates and judgements; and
• Note 10 - Loans and advances to customers.
With the support of our credit risk modelling specialists and
economics experts, we performed the following procedures:
For collectively assessed ECL provisions:
• We understood and critically assessed the appropriateness
of the ECL accounting policy and model methodologies
used by management;
• We independently replicated ECL models for the Asset,
Leasing, Motor Finance and Invoice businesses, using
management’s model methodology and assumptions;
• We tested model performance through review and
replication of key model monitoring tests. We assessed the
performance of key model elements, including LGD, and
considered if they indicated that the models continued to
perform appropriately or if any post-model adjustments
were required;
• We critically assessed the reasonableness of
management’s selected economic scenarios and
associated scenario weightings, giving specific
consideration to current and future economic uncertainty.
We assessed their reasonableness against known or likely
economic events;
• We compared the severity and magnitude of the
assumptions used in the base scenario to external
forecasts and historic trends;
• Based on our knowledge and understanding of the
limitations in management’s models and emerging industry
risks, we evaluated the completeness and sufficiency of the
post model adjustments proposed by management;
• We evaluated the LGD model performance for the Asset
Finance & Leasing business and the sufficiency of the
extent to which LGD is impacted by macroeconomic
factors; and
• We evaluated management’s model used to derive the
Novitas Loans ECL and critically assessed the assumptions
for recovery rate and time to recover. We met with
management's external legal counsel to corroborate
assumptions.
Individually assessed provisions:
For a sample of individually assessed loans in default and
related ECL allowances in the Property business, we:
• Evaluated the basis on which the allowances were
determined and the evidence supporting the analysis
performed by management;
• Independently challenged whether the key assumptions
used, such as the recovery strategies, timing of the
expected future cash flows, collateral values and ranges of
potential outcomes were appropriate given the borrower’s
circumstances;
• Re-performed management’s provision calculation,
critically assessing key inputs including expected future
cash flows, discount rates, valuations of collateral held and
the weightings applied to scenario outcomes; and
• Considered the extent to which the exposure is impacted
by economic conditions including raised interest rate levels
and whether these factors had been appropriately reflected
in the ECL provision.
We tested and evaluated the reasonableness of relevant
disclosures made in the financial statements.
Based on the evidence obtained, we concluded that the
methodologies, modelled assumptions and management
judgements used in the determination of collective and
individually assessed expected credit losses to be
appropriate.
Key audit matter
How our audit addressed the key audit matter
Independent auditors’ report to the members of Close Brothers Group plc continued
182
Close Brothers Group plc Annual Report 2024
Assessment of impairment in relation to valuation of goodwill
held by Group in relation to Winterflood Securities and Close
Brothers Limited (group)
The Group has a total goodwill balance of £102.9m, of which
£23.3m relates to the Winterflood Securities (“Winterflood”)
and £36.1m to Close Brothers Limited (the “Bank”).
Winterflood is considered a Cash Generating Unit (“CGU”)
while the Bank has a number of CGUs under IAS 36
Impairment of Assets (“IAS 36”) which require annual
impairment assessments of the goodwill associated for each
CGU.
Management performs the assessment by comparing the
recoverable amount of each CGU with the current carrying
value of the CGU (including the goodwill associated with the
CGU). Management estimated the recoverable amount using
the higher of value in use (‘ViU’) and fair value less cost to
sell.
i) Winterflood
Winterfloods’ financial performance is largely driven by the
performance of the equity markets in which it operates and
levels of trading activity. Poor and unpredictable market
conditions have negatively impacted Winterflood’s financial
performance in the period, and there continues to be
heightened uncertainty as to the timing and extent of the
recovery of the performance of relevant equity markets and
trading activity in light of ongoing political and economic
volatility.
This leads to increased levels of judgement in management’s
determination of the cash flows projected for the next five
years used in the annual impairment assessment of the
goodwill held in relation to Winterflood, in particular, those
cash flows related to trading activity
ii) Bank
For the Bank, the fall in market value of the group and the risk
associated with the ongoing FCA review of the motor
commission arrangements, provide potential indicators of
impairment within the Bank, including in the Motor Finance
CGU. The methodology used to estimate the recoverable
amount is dependent on various assumptions, both short
term and long term in nature. These assumptions, which are
subject to estimation uncertainty, are derived from a
combination of management’s judgement and third party
data.
The significant assumptions where we focused our audit were
those with greater levels of management judgement and for
which variations had the most significant impact on the
recoverable amount. These included the compliance of the
chosen methodology with IAS 36, and the Bank’s 5 year cash
flow forecasts, in particular the impact of the ongoing FCA
review of motor commissions arrangements of the Bank on
the future forecasts of certain CGU's.
Relevant disclosure references:
• Note 2 - Critical accounting estimates and judgements; and
• Note 14 - Intangible assets.
We performed the following audit procedures for the
Winterflood and Bank models:
• With the support of our valuation and accounting
specialists, we evaluated management’s impairment
methodology with reference to IFRS requirements for a
value in use model. This included adjustments made to the
cash flow forecasts to comply with IAS 36;
• We critically assessed the reasonableness of the
assumptions underlying management’s five year cash flow
forecasts, in particular relating to trading activity in
Winterflood and lending activities in the Bank (in particular
the Motor Finance business). For the Bank this included
assessing the approach for allocating a capital charge to
each CGU;
• We performed a look-back analysis comparing the cash
flow projections made in prior years to the actual results
achieved to assess the accuracy of the budgeting and
forecasting process; and
• We assessed the reasonableness of management’s
allocation of central costs.
For Winterflood, in assessing the reasonableness of
management assumptions on the timing and the extent of
market recovery, we independently researched the
expectation of future market conditions and developed
alternative scenarios to assess the impact of a range of
outcomes on the forecast trading revenues. We also
assessed the reasonableness of the non-trading revenue
forecasts.
For the Bank:
• We obtained an understanding of management’s capital
and board approved forecasts, including the impact of
uncertainties and judgements associated with the FCA
review of motor commission as relevant to a VIU
assessment; we then evaluated the reasonableness of
management’s forecast cash flows from lending activity in
light of this.
• We engaged our regulatory experts in assessing the
reasonableness of the risk weighted asset and capital
requirements included in management’s forecasts.
In addition, we performed the following tests of details,
amongst others for the Winterflood and Bank models:
• We obtained evidence of Board approval of the three year
plan and agreed these plans were appropriately reflected in
the cash flow forecasts in management’s models;
• With support of our internal experts, we evaluated the
appropriateness of the discount rate range determined by
management’s expert;
• We verified the mathematical accuracy of the goodwill
impairment assessments, including the discounted cash
flow projections;
• We compared the long term growth rate used to the UK
long term inflation rate; and
• We verified the appropriate application of management’s
accounting policy and the adequacy of the information
disclosed in the consolidated annual accounts.
Based on the procedures performed we were satisfied with
management’s conclusion that the goodwill is not impaired
and that disclosures included in the consolidated annual
accounts are reflective of critical judgements made by
management.
Key audit matter
How our audit addressed the key audit matter
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Financial Statements
Consideration of the contingent liability for motor dealer
commissions (group)
We evaluated and challenged management’s assessment in
the context of the requirements of IAS 37 Provisions,
Contingent liabilities and Contingent Assets. Our work
included the following:
• We made inquiries of management’s Compliance and Legal
functions.
• We understood the status of the FCA review of the industry
and the status of judicial reviews brought in the industry.
We understood the status of specific matters related to the
Group in relation to the FCA, FOS rulings and the litigation
status in the courts.
• We evaluated management’s assessment of the potential
outcomes and associated likelihood with regard to
requirement for a provision. Specifically we evaluated the
advice received from managements’ external legal experts.
We held discussions with these experts to confirm our
understanding of their views on certain judgements applied
by management and obtained a written confirmation of the
key facts.
Based on the procedures performed and evidence obtained,
we found management’s conclusions to be reasonable.
Given the uncertainty associated with the recognition of a
contingent liability, we evaluated the disclosures made in the
financial statements. In particular, we focused on challenging
management as to whether the disclosures were sufficiently
clear in highlighting the uncertainties. We considered the
completeness of the information in the disclosures (in
particular given that management concluded it was not
practicable to form an estimate or disclose any potential
financial impact). We found the disclosures to be appropriate
in relation to IAS 37 requirements.
Refer to note 21, where the group has disclosed a contingent
liability in accordance with IAS 37 ‘Provisions, Contingent
Liabilities and Contingent Assets’ in relation to the ongoing
FCA review of the motor commission arrangements.
There is significant uncertainty surrounding the outcome of
the FCA’s review and at the same time the group has a
number of cases with the FOS and cases going through the
courts. Management has applied significant judgement
including involving management experts to ascertain:
• whether any present obligation (legal or constructive)
exists; and if so
• the probability of outflow of resources.
There can be a wide range of possible outcomes, particularly
in relation to legal and regulatory investigations, and as a
result management have considered whether it is practicable
to form and disclose an estimate of the potential financial
effect of the contingent liability.
Given the uncertainty around motor commission and the
extent of management judgement required we considered
this area to be a significant area for our audit. Disclosures of
critical judgments and estimates can be found in note 2.
Assessment of the going concern basis of preparation,
specifically in relation to capital (group and company)
See section on Going concern below in the audit opinion
Refer to the directors’ assessment of going concern.
On 11th January 2024, the Financial Conduct Authority
(“FCA”) announced a review of historical motor finance
commission arrangements.
As described in the Key Audit Matter on Motor Finance
commission, there is significant uncertainty about the
outcome of the FCA’s review, and the timing, scope and
quantum of any potential financial impact.
The board of directors’ is planning for a range of possible
outcomes and is seeking to accrete capital, including through
the cancellation of dividends for FY24 and optimising risk
weighted assets through management of the loan book.
In performing their assessment of going concern the directors
have utilised significant judgement in determining the extent
of risk relating to a severe but plausible outcome in relation to
the FCA review of motor commissions for the Bank, along
with sensitivities to that scenario, and considering the impact
on capital headroom. Within these scenarios the directors’
also evaluated related risks, including their ability to manage
liquidity events, should these occur, and other downsides
associated with credit risk.
The directors’ have set out their critical judgments in their
going concern disclosures.
Key audit matter
How our audit addressed the key audit matter
Independent auditors’ report to the members of Close Brothers Group plc continued
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How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the group and the company, the accounting processes and
controls, and the industry in which they operate.
We performed a risk assessment, giving consideration to relevant external and internal factors, including climate change,
economic risks, relevant accounting and regulatory developments, as well as the group’s strategy. We also considered our
knowledge and experience obtained in prior year audits. We continually assessed the risks and updated the scope of our audit
where necessary.
The group is structured into three primary components being the Close Brothers Limited Group (also referred to as the Bank),
Winterflood Securities and Asset Management. The consolidated financial statements are a consolidation of these
components. The Bank is a subgroup of Retail, Commercial and Property business segments.
In establishing the overall approach to the group audit, we determined the type of work that is required to be performed over
the components by us, as the group engagement team, or auditors within the PwC network of firms operating under our
instruction (‘component auditors’). Where the work was performed by component auditors, we determined the level of
involvement we needed to have in their audit work to be able to conclude whether sufficient appropriate audit evidence had
been obtained as a basis for our opinion on the consolidated financial statements as a whole. This included regular
communication with the component auditors throughout the audit, the issuance of instructions and a review of the results of
their work on the key audit matters. Any components which were considered individually financially significant in the context of
the group’s consolidated financial statements (defined as components which represent more than or equal to 15% of the total
profit before tax of the consolidated group) were considered full scope components. We considered the individual financial
significance of other components in relation to primary statement account balances. Our scoping also considered the
presence of any significant audit risks and other qualitative factors (including history of misstatements through fraud or error).
For our group audit, the Bank is the only financially significant component. Specific account balances and disclosures were
scoped in for Winterflood Securities and Asset Management based on their financial significance and risk. Certain account
balances were audited centrally by the group engagement team mainly where the processes are centralised. The remaining
balances and components, in our judgement, did not present a reasonable possibility of a risk of material misstatement either
individually or in aggregate. We performed other procedures such as tests of information technology controls and group level
analytical review procedures.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on the
Group’s financial statements, and we remained alert when performing our audit procedures for any indicators of the impact of
climate risk. As part of considering the impact of climate change in our risk assessment, we evaluated management's
assessment of the impact of climate risk, which is set out in the Sustainability Report, including their conclusion that there is no
material impact on the financial statements. In particular, we considered management’s assessment of the impact on ECL on
loans and advances to customers, being the financial statement line item we determined to be most likely to be impacted by
climate risk. Management’s assessment gave consideration to a number of matters, including the exposure of underlying
portfolios to transition risk. Management’s conclusion that there is no material impact is consistent with our audit findings.
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Financial Statements
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements - group
Financial statements - company
Overall
materiality
£10.6m (2023: £11.6m).
£13.8m (2023: £12.8m).
How we
determined it
5% of 4 year average adjusted PBT (2023: 5% of 3 year average
adjusted PBT)
1% of Total Assets.
Rationale for
benchmark
applied
PBT is a primary measure used by the shareholders in assessing
the performance of the group and is a generally accepted
benchmark for determining audit materiality.
We have determined it appropriate to select the 4 year average
adjusted PBT (2023: 3 year average adjusted PBT) as the most
appropriate benchmark considering that it normalises the trading
performance volatility experienced in recent years across the
Group. We have extended this to a 4 year average to incorporate
recent years that include this volatility. We have adjusted the PBT
used in this assessment to remove the impact of significant one-off
items in relation to Novitas in 2023.
We have selected total assets
as an appropriate benchmark
for company materiality, as it is
an investment holding
company.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality.
The range of materiality allocated across components was between £2.3m and £10.1m. Certain components were audited to a
local statutory audit materiality that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of
our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% (2023: 75%) of overall materiality, amounting to £8.0m (2023:
£8.7m) for the group financial statements and £10.35m (2023: £9.6m) for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range
was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.5m
(group audit) (2023: £0.5m) and £0.5m (company audit) (2023: £0.5m) as well as misstatements below those amounts that, in
our view, warranted reporting for qualitative reasons.
Independent auditors’ report to the members of Close Brothers Group plc continued
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Close Brothers Group plc Annual Report 2024
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group's and the company’s ability to continue to adopt the going concern
basis of accounting included:
• Understanding the Directors’ going concern assessment process, including the preparation and approval of the Board
approved forecast covering the period of the going concern assessment to December 2025. We evaluated the forecasting
method adopted by the Directors in assessing going concern, including considering a severe but plausible downside
scenario and sensitivities to that scenario;
• Evaluation of management’s financial and regulatory capital forecasts. We checked the mathematical accuracy of the model
and evaluated the key assumptions using our understanding of the group and external evidence where appropriate. We used
our Prudential Regulatory experts to consider the Bank’s risk weighted assets and forecast capital requirement assumptions.
We also considered historic budgeting accuracy;
• Evaluating management’s assumptions by performing independent stress testing to determine whether a reasonable
alternative stressed scenario would result in a breach of the Bank’s minimum regulatory requirements;
• Our evaluation included considering the capital capacity projected for the Bank and Group and the ability to absorb a severe
but plausible outcome in relation to the FCA review of motor commissions;
• Reviewing management’s stress testing of liquidity and evaluation of the impact on liquidity of past stress events. We
substantiated the liquid resources held, and liquidity facilities available to the group, for example, with the Bank of England;
• Reviewing correspondence between the group and its regulators to evidence the current regulatory capital position. We met
with the PRA during the audit and understood the PRA’s perspectives on the group’s risks and its capital position; and
• Assessing the adequacy of disclosures in the Going Concern statement in the Consolidated and Company Financial
Statements and within the Going Concern section of the Strategic Report and found these to be appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group's and the company’s ability to continue as a going concern
for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, 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 conclusion is not a guarantee as to the group's and
the company's ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
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Financial Statements
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and Directors' Report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions
and matters as described below.
Strategic Report and Directors' Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Directors' Report for the year ended 31 July 2024 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the Strategic Report and Directors' Report.
Directors’ Remuneration
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Independent auditors’ report to the members of Close Brothers Group plc continued
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Close Brothers Group plc Annual Report 2024
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part
of the corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate
Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement
as other information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement, included within the Corporate Governance Report is materially consistent with the financial statements
and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or mitigated;
• The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of any material uncertainties to the group’s and company’s
ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
• The directors’ explanation as to their assessment of the group's and company’s prospects, the period this assessment
covers and why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in
operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the group and company was substantially less in
scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statement;
checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and
considering whether the statement is consistent with the financial statements and our knowledge and understanding of the
group and company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the
audit:
• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess the group’s and company's position, performance, business
model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems;
and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s
compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the
Listing Rules for review by the auditors.
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Financial Statements
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements and the audit
As explained more fully in the Statement of directors’ responsibilities in respect of the financial statements, the directors are
responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied
that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic
alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with
our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to
which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and
regulations related to breaches of laws and regulations principally those determined by the Prudential Regulatory Authority
("PRA") and the Financial Conduct Authority ("FCA"), and we considered the extent to which non-compliance might have a
material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the
financial statements such as the Companies Act 2006, UK tax legislation and the Listing Rules of the FCA. We evaluated
management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of
override of controls), and determined that the principal risks were related to posting inappropriate manual journal entries to
manipulate financial performance, management bias in the application of judgements and assumptions in significant
accounting estimates and significant one-off or unusual transactions. The group engagement team shared this risk assessment
with the component auditors so that they could include appropriate audit procedures in response to such risks in their work.
Audit procedures performed by the group engagement team and/or component auditors included:
• Enquiries with management, compliance, internal audit and those charged with governance including consideration of
known or suspected instances of non-compliance with laws and regulation and fraud;
• Assessment of matters reported on the Group’s whistleblowing helpline and the results of management’s investigation of
such matters;
• Evaluating assumptions and judgements made by management in their significant accounting estimates, in particular in
relation to the allowance for ECL, certain impairment assessments for non-financial assets and considering the contingent
liability for motor commissions;
• Identifying and testing any higher risk journal entries;
• Incorporating unpredictability into the nature, timing and/or extent of our testing; and
• Reviewing key correspondence with the FCA and PRA in relation to compliance with regulatory requirements.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or
through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete
populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases,
we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
Independent auditors’ report to the members of Close Brothers Group plc continued
190
Close Brothers Group plc Annual Report 2024
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received
from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the directors on 17 May 2017 to audit the
financial statements for the year ended 31 July 2018 and subsequent financial periods. The period of total uninterrupted
engagement is 7 years, covering the years ended 31 July 2018 to 31 July 2024.
Other matter
The company is required by the Financial Conduct Authority Disclosure Guidance and Transparency Rules to include these
financial statements in an annual financial report prepared under the structured digital format required by DTR 4.1.15R -
4.1.18R and filed on the National Storage Mechanism of the Financial Conduct Authority. This auditors’ report provides no
assurance over whether the structured digital format annual financial report has been prepared in accordance with those
requirements.
Heather Varley (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
19 September 2024
191
Strategic Report
Governance Report
Financial Statements
Interest income
4 1,156.8
897.5
Interest expense
4
(565.5)
(304.9)
Net interest income
591.3
592.6
Fee and commission income
4
271.2
262.9
Fee and commission expense
4
(22.8)
(17.9)
Gains less losses arising from dealing in securities
53.2
58.6
Other income
4
132.7
114.2
Depreciation of operating lease assets and other direct costs
15
(81.4)
(77.8)
Non-interest income
352.9
340.0
Operating income
944.2
932.6
Administrative expenses before amortisation of intangible assets on acquisition, provision in
relation to the Borrowers in Financial Difficulty (“BiFD”) review, restructuring costs and
complaints handling and other operational costs associated with the FCA's review of historical
motor finance commission arrangements
(674.8)
(615.0)
Amortisation of intangible assets on acquisition
14
(1.4)
(1.5)
Provision in relation to the BiFD review
16
(17.2)
—
Restructuring costs
16
(3.1)
—
Complaints handling and other operational costs associated with the FCA's review of historical
motor finance commission arrangements
21
(6.9)
—
Total administrative expenses
4
(703.4)
(616.5)
Impairment losses on financial assets
10
(98.8)
(204.1)
Total operating expenses
(802.2)
(820.6)
Operating profit before tax
142.0
112.0
Tax
6
(41.6)
(30.9)
Profit after tax
100.4
81.1
Attributable to
Shareholders
89.3
81.1
Other equity owners
20
11.1
—
100.4
81.1
Basic earnings per share
7
59.7p
54.3p
Diluted earnings per share
7
59.5p
54.2p
Interim dividend per share paid
8
—
22.5p
Final dividend per share
8
—
45.0p
2024
2023
Note
£ million
£ million
Consolidated Income Statement
For the year ended 31 July 2024
192
Close Brothers Group plc Annual Report 2024
2024
2023
£ million
£ million
Profit after tax
100.4
81.1
Items that may be reclassified to income statement
Currency translation (losses)/gains
(0.5)
0.7
(Losses)/gains on cash flow hedging
(29.8)
17.6
Losses on financial instruments classified at fair value through other comprehensive income
(3.6)
(3.9)
Tax relating to items that may be reclassified
9.8
(4.3)
(24.1)
10.1
Items that will not be reclassified to income statement
Defined benefit pension scheme losses
—
(5.7)
Tax relating to items that will not be reclassified
—
1.6
—
(4.1)
Other comprehensive (expense)/income, net of tax
(24.1)
6.0
Total comprehensive income
76.3
87.1
Attributable to
Shareholders
65.2
87.1
Other equity owners
20
11.1
—
76.3
87.1
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2024
193
Strategic Report
Governance Report
Financial Statements
31 July 2024
31 July 2023
Note
£ million
£ million
Assets
Cash and balances at central banks
1,584.0
1,937.0
Settlement balances
627.5
707.0
Loans and advances to banks
9
293.7
330.3
Loans and advances to customers
10
9,830.8
9,255.0
Debt securities
11
740.5
307.6
Equity shares
12
27.4
29.3
Loans to money brokers against stock advanced
22.5
37.6
Derivative financial instruments
13
101.4
88.5
Intangible assets
14
266.0
263.7
Property, plant and equipment
15
349.6
357.1
Current tax assets
36.4
42.3
Deferred tax assets
6
14.3
10.8
Prepayments, accrued income and other assets
16
186.7
184.1
Total assets
14,080.8 13,550.3
Liabilities
Settlement balances and short positions
17
614.9
695.9
Deposits by banks
18
138.4
141.9
Deposits by customers
18
8,693.6
7,724.5
Loans and overdrafts from banks
18
165.6
651.9
Debt securities in issue
18
1,986.4
2,012.6
Loans from money brokers against stock advanced
16.7
4.8
Derivative financial instruments
13
129.0
195.9
Accruals, deferred income and other liabilities
16
306.5
303.0
Subordinated loan capital
19
187.2
174.9
Total liabilities
12,238.3 11,905.4
Equity
Called up share capital
20
38.0
38.0
Retained earnings
1,634.4
1,608.5
Other equity instrument
20
197.6
—
Other reserves
(27.5)
(1.6)
Total shareholders' and other equity owners' equity
1,842.5
1,644.9
Total equity
1,842.5
1,644.9
Total equity and liabilities
14,080.8 13,550.3
The consolidated financial statements were approved and authorised for issue by the board of directors on 19 September
2024 and signed on its behalf by:
Michael N. Biggs
Chairman
Mike Morgan
Finance Director
Registered number: 520241
Consolidated Balance Sheet
At 31 July 2024
194
Close Brothers Group plc Annual Report 2024
Other reserves
Total
Share-
attributable to
Called up
Other
based
Exchange
Cash flow
shareholders
share
Retained
equity
FVOCI
payments
movements
hedging
and other
Total
capital
earnings
instrument
reserve
reserve
reserve
reserve
equity owners
equity
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
At 1 August 2022
38.0
1,628.4
—
0.1
(29.2)
(1.5)
21.7
1,657.5
1,657.5
Profit for the year
—
81.1
—
—
—
—
—
81.1
81.1
Other comprehensive
(expense)/income
—
(4.1)
—
(2.8)
—
0.2
12.7
6.0
6.0
Total comprehensive
income for the year
—
77.0
—
(2.8)
—
0.2
12.7
87.1
87.1
Dividends paid (Note 8)
—
(99.1)
—
—
—
—
—
(99.1)
(99.1)
Shares purchased
—
—
—
—
(5.0)
—
—
(5.0)
(5.0)
Shares released
—
—
—
—
5.6
—
—
5.6
5.6
Other movements
—
2.3
—
—
(3.4)
—
—
(1.1)
(1.1)
Income tax
—
(0.1)
—
—
—
—
—
(0.1)
(0.1)
At 31 July 2023
38.0
1,608.5
—
(2.7)
(32.0)
(1.3)
34.4
1,644.9
1,644.9
Profit for the year
—
100.4
—
—
—
—
—
100.4
100.4
Other comprehensive
expense
—
—
—
(2.6)
—
(0.1)
(21.4)
(24.1)
(24.1)
Total comprehensive
income for the year
—
100.4
—
(2.6)
—
(0.1)
(21.4)
76.3
76.3
Dividends paid (Note 8)
—
(67.1)
—
—
—
—
—
(67.1)
(67.1)
Shares purchased
—
—
—
—
(3.5)
—
—
(3.5)
(3.5)
Shares released
—
—
—
—
4.6
—
—
4.6
4.6
Other equity instrument
issued (Note 20)
—
—
197.6
—
—
—
—
197.6
197.6
Coupon paid on other
equity instrument (Note
20)
—
(11.1)
—
—
—
—
—
(11.1)
(11.1)
Other movements
—
3.7
—
—
(2.9)
—
—
0.8
0.8
Income tax
—
—
—
—
—
—
—
—
—
At 31 July 2024
38.0
1,634.4
197.6
(5.3)
(33.8)
(1.4)
13.0
1,842.5
1,842.5
Consolidated Statement of Changes in Equity
For the year ended 31 July 2024
195
Strategic Report
Governance Report
Financial Statements
2024
2023
Note
£ million
£ million
Net cash (outflow)/inflow from operating activities
25(a)
(382.0)
1,021.4
Net cash (outflow)/inflow from investing activities
Purchase of:
Property, plant and equipment
(14.2)
(8.7)
Intangible assets – software
(30.3)
(53.2)
Subsidiaries, net of cash acquired
25(b)
(15.4)
(0.5)
Sale of:
Equity shares held for investment
0.2
—
Subsidiaries
25(c)
0.9
—
(58.8)
(62.4)
Net cash (outflow)/inflow before financing activities
(440.8)
959.0
Financing activities
Purchase of own shares for employee share award schemes
(3.5)
(5.0)
Equity dividends paid
(67.1)
(99.1)
Interest paid on subordinated loan capital and debt financing
(23.4)
(10.9)
Payment of lease liabilities
(16.5)
(16.2)
Issuance of senior bond
—
248.5
Redemption of senior bond
—
(250.0)
Issuance of Additional Tier 1 (“AT1”) capital securities
200.0
—
Costs arising on issue of AT1
(2.4)
—
AT1 coupon payment
(11.1)
—
Net (decrease)/increase in cash
(364.8)
826.3
Cash and cash equivalents at beginning of year
2,209.3
1,383.0
Cash and cash equivalents at end of year
25(d)
1,844.5
2,209.3
Consolidated Cash Flow Statement
For the year ended 31 July 2024
196
Close Brothers Group plc Annual Report 2024
31 July
31 July
2024
2023
Note
£ million
£ million
Fixed assets
Intangible assets
14
—
—
Property, plant and equipment
15
7.7
8.9
Investment in subsidiary
28
487.0
287.0
494.7
295.9
Current assets
Amounts owed by subsidiaries due within one year
465.3
567.8
Amounts owed by subsidiaries due after more than one year
199.3
201.9
Corporation tax receivable
1.6
1.5
Deferred tax asset due after more than one year
6
0.2
0.4
Other debtors
3.8
2.1
Cash at bank
3.8
3.5
674.0
777.2
Creditors: Amounts falling due within one year
Debt securities in issue
18
2.5
2.5
Subordinated loan capital
19
1.5
1.5
Provisions
16
0.8
0.7
Other creditors
1.5
1.8
Accruals
7.8
9.6
14.1
16.1
Net current assets
659.9
761.1
Total assets less current liabilities
1,154.6
1,057.0
Creditors: Amounts falling due after more than one year
Debt securities in issue
18
248.3
248.0
Subordinated loan capital
19
199.3
198.9
Provisions
16
0.8
1.7
Net assets
706.2
608.4
Capital and reserves
Called up share capital
20
38.0
38.0
Other equity instrument
20
200.0
—
Other reserves
(33.8)
(32.0)
Profit and loss account
502.0
602.4
Shareholders' and other equity owners' funds
706.2
608.4
The company reported a loss for the financial year ended 31 July 2024 of £24.1 million (2023: £70.6 million profit).
The company financial statements were approved and authorised for issue by the board of directors on 19 September 2024
and signed on its behalf by:
Michael N. Biggs
Chairman
Mike Morgan
Finance Director
Company Balance Sheet
At 31 July 2024
197
Strategic Report
Governance Report
Financial Statements
Other reserves
Total
shareholders'
Other
Share-
and other
Share
equity
Profit and
based payment
equity owners'
capital
instrument
loss account
reserve
funds
£ million
£ million
£ million
£ million
£ million
At 1 August 2022
38.0
—
633.9
(29.2)
642.7
Profit for the year
—
—
70.6
—
70.6
Other comprehensive expense
—
—
(4.1)
—
(4.1)
Total comprehensive income for the year
—
—
66.5
—
66.5
Dividends paid (Note 8)
—
—
(99.1)
—
(99.1)
Shares purchased
—
—
—
(5.0)
(5.0)
Shares released
—
—
—
5.6
5.6
Other movements
—
—
1.1
(3.4)
(2.3)
At 31 July 2023
38.0
—
602.4
(32.0)
608.4
Loss for the year
—
—
(24.1)
—
(24.1)
Other comprehensive expense
—
—
(0.1)
—
(0.1)
Total comprehensive loss for the year
—
—
(24.2)
—
(24.2)
Dividends paid (Note 8)
—
—
(67.1)
—
(67.1)
Shares purchased
—
—
—
(3.5)
(3.5)
Shares released
—
—
—
4.6
4.6
Other equity instrument issued (Note 20)
—
200.0
—
—
200.0
Coupon paid on other equity instrument (Note 20)
—
—
(11.1)
—
(11.1)
Other movements
—
—
2.0
(2.9)
(0.9)
At 31 July 2024
38.0
200.0
502.0
(33.8)
706.2
Company Statement of Changes in Equity
For the year ended 31 July 2024
198
Close Brothers Group plc Annual Report 2024
1. Material Accounting Policies
(a) Reporting entity
Close Brothers Group plc (“the company”), a public limited
company by shares incorporated and domiciled in the UK
(England), together with its subsidiaries (collectively, “the
group”), operates through five (2023: five) operating
segments: Commercial, Retail, Property, Asset Management
and Securities, and is primarily located within the UK.
(b) Basis of preparation
The consolidated financial statements have been prepared in
accordance with UK-adopted International Accounting
Standards (“IAS”).
The company financial statements have been prepared in
compliance with United Kingdom Accounting Standards,
including Financial Reporting Standard 102 “The Financial
Reporting Standard applicable in the United Kingdom and
the Republic of Ireland” (“FRS 102”) and the Companies Act
2006, under the provision of the Large and Medium-sized
Companies and Groups (Accounts and Financial
Instruments: Recognition and Measurement Reports)
Regulations 2008 (SI 2008/410).
As permitted by FRS 102, the company has chosen to adopt
IFRS 9 Financial Instruments where applicable and taken
advantage of the disclosure exemptions available under that
standard in relation to the presentation of a cash flow
statement, share-based payments and related party
transactions. Where required, equivalent disclosures are
given in the consolidated financial statements of the group.
The company has also taken advantage of the exemption in
section 408 of the Companies Act 2006 not to present its
company income statement and related notes.
Where relevant, the accounting policies of the company are
the same as those of the group set out in this note except for
(l) Leases. For the company, rental costs under operating
leases are charged to the income statement in equal
instalments over the period of the lease.
The consolidated and company financial statements have
been prepared on a going concern basis and under the
historical cost convention, except for financial assets and
liabilities held at fair value through profit or loss and financial
assets held at fair value through other comprehensive
income. Further information on going concern can be found
within the Strategic Report.
(c) Accounting developments
Standards adopted during the year
The accounting standards applied this financial year are
consistent with those of the previous financial year, except
IFRS 17 Insurance Contracts and minor amendments to
IFRSs issued by the IASB, which were effective for the group
from 1 August 2023. These changes have no or an
immaterial impact on the group.
Future accounting developments
Minor amendments to IFRSs issued by the IASB are effective
for the group from 1 August 2024. These changes are
expected to have no or an immaterial impact on the group.
IFRS 18 'Presentation and Disclosure in Financial
Statements' is effective for the group from 1 August 2027
and its impact is currently under assessment.
(d) Consolidation and investment in subsidiary
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.
The company’s investment in its subsidiary is valued at cost
less any accumulated impairment losses.
(e) 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 at the date of the
transaction 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.
The Notes
199
Strategic Report
Governance Report
Financial Statements
1. Material Accounting Policies (continued)
(f) 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 over
the expected life of a financial instrument to the gross
carrying amount of a financial asset or to the amortised cost
of a financial liability. 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. Interest income is recognised on a
contractual basis where it is not possible to reliably estimate
the cash flows or expected life of a financial instrument.
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 at a point in time, 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 and the performance obligation has been met.
Fees and corresponding expenses in respect of other
services are recognised in the consolidated income
statement as the right to consideration or payment accrues
over time when services are performed and obligations are
met. 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 realised and unrealised gains arising from both buying
and selling securities and from positions held in securities,
including related interest income and dividends.
(g) Adjusted measures
Adjusted measures are management measures presented on
a basis consistent with prior periods and exclude adjusting
items which do not reflect underlying trading performance
and which may be recurring. Adjusted measures also
exclude exceptional items.
Adjusting items this year comprise amortisation of intangible
assets on acquisition, provision for Borrowers in Financial
Difficulty review, restructuring costs, and complaints
handling and other operational costs associated with the
FCA's review of historical motor finance commission
arrangements.
Amortisation of intangible assets on acquisition, which was
also an adjusting item in the prior year, is excluded to
present the performance of the group’s acquired businesses
consistent with its other businesses. The other adjusting
items are new this year and do not reflect underlying trading
performance.
Exceptional items are income and expense items that are
material by size and/or nature and are non-recurring.
(h) Financial assets and liabilities (excluding
derivatives)
Classification and measurement
Financial assets are classified at initial recognition on the
basis of the business model within which they are managed
and their contractual cash flow characteristics. The
classification categories are amortised cost, fair value
through other comprehensive income (“FVOCI”) and fair
value through profit or loss (“FVTPL”).
Financial assets that are held to collect contractual cash
flows where those cash flows represent solely payments of
principal and interest are measured at amortised cost. Initial
recognition is at fair value plus directly attributable
transaction costs. Interest income is accounted for using the
effective interest rate method.
Financial assets that are held to collect contractual cash
flows and for subsequent sale, where the assets’ cash flows
represent solely payments of principal and interest, are
classified at FVOCI. Directly attributable transaction costs
are added to the initial fair value. Gains and losses are
recognised in other comprehensive income, except for
impairment gains and losses, until the financial asset is either
sold or matures, at which time the cumulative gain or loss is
recognised in the income statement. Impairment gains and
losses are recognised in the income statement.
Financial assets are classified at FVTPL where they do not
meet the criteria to be measured at amortised cost or FVOCI
or where they are designated at FVTPL to reduce an
accounting mismatch. Financial assets at FVTPL are
recognised at fair value. Transaction costs are not added to
or deducted from the initial fair value, they are immediately
recognised in profit or loss on initial recognition. Gains and
losses that subsequently arise on changes in fair value are
recognised in the income statement.
Financial liabilities are classified at initial recognition at
amortised cost except for the following instruments which
are classified at FVTPL: derivatives; financial liabilities held
for trading; and financial liabilities designated at FVTPL to
eliminate an accounting mismatch.
Financial liabilities at amortised cost are measured at fair
value less directly attributable transaction costs on initial
recognition. Interest expense is accounted for using the
effective interest rate method. Financial liabilities at FVTPL
are measured at fair value on initial recognition. Transaction
costs are not added to or deducted from the initial fair value,
they are immediately recognised in profit or loss on initial
recognition. Subsequent changes in fair value are recognised
in the income statement except for financial liabilities
designated at FVTPL; changes in fair value attributable to
changes in credit risk are recognised in other comprehensive
income.
The Notes continued
200
Close Brothers Group plc Annual Report 2024
The fair values of quoted financial assets or financial
liabilities in active markets are based on bid or offer 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 contractual
rights to receive cash flows from the financial assets have
expired or where the group has transferred the contractual
rights to receive cash flows and transferred substantially all
risks and rewards of ownership. If substantially all the risks
and rewards have been neither retained nor transferred the
assets continue to be recognised to the extent of the group’s
continuing involvement. Financial liabilities are derecognised
when they are extinguished.
Modifications
The terms or cash flows of a financial asset or liability may
be modified due to renegotiation or otherwise. If the terms or
cash flows are substantially different to the original, then the
financial asset or liability is derecognised and a new financial
asset or liability is recognised at fair value. If the terms or
cash flows are not substantially different to the original, then
the financial asset or liability carrying value is adjusted to
reflect the present value of modified cash flows discounted
at the original EIR. The adjustment is recognised within
income on the income statement.
(i) Impairment of financial assets
Expected credit losses
In accordance with IFRS 9, expected credit losses (“ECL”)
are recognised for loans and advances to customers and
banks, other financial assets held at amortised cost, financial
assets measured at FVOCI, loan commitments and financial
guarantee contracts. The impairment charge in the income
statement includes the change in expected credit losses.
At initial recognition, financial assets are considered to be in
Stage 1 and a provision is recognised for 12 months of
expected credit losses. If a significant increase in credit risk
since initial recognition occurs, these financial assets are
considered to be in Stage 2 and a provision is made for the
lifetime expected credit losses. As a backstop, all financial
assets 30 days past due are considered to have experienced
a significant increase in credit risk and are transferred to
Stage 2.
A financial asset will remain classified as Stage 2 until the
credit risk has improved and it can be returned to Stage 1 or
until it deteriorates such that it meets the criteria to move to
Stage 3.
Where a financial asset no longer represents a significant
increase in credit risk since origination it can move from
Stage 2 back to Stage 1. As a minimum this means that all
payments must be up-to-date, the quantitative probability of
default assessment trigger is no longer met, and the account
is not evidencing qualitative assessment triggers.
When objective evidence exists that a financial asset is credit
impaired, such as the occurrence of a credit default event or
identification of an unlikeliness to pay indicator, the financial
asset is considered to be in Stage 3. As a backstop, all
financial assets 90 days or more past due are considered to
be credit impaired and transferred to Stage 3.
Cure definitions are in operation where financial assets in
Stage 3 can move back to Stage 2, subject to Stage 3
indicators no longer being in effect, and meeting the
appropriate cure period.
In all circumstances, loans and advances to customers are
written off against the related provisions when there are no
reasonable expectations of further recovery. This is typically
following realisation of all associated collateral and available
recovery actions against the customer. Subsequent
recoveries of amounts previously written off decrease the
amount of impairment losses recorded in the income
statement.
The calculation of expected credit losses for loans and
advances to customers, either on a 12-month or lifetime
basis, is based on the probability of default (“PD”), the
exposure at default (“EAD”) and the loss given default
(“LGD”), and includes forward-looking macroeconomic
information where appropriate. Further information on this
calculation methodology can be found in the ‘Use of
estimates’ section on pages 95 to 99 of the Risk Report.
The calculation of expected credit losses for some loan
portfolios and receivables relating to operating lease assets
is based on a simplified lifetime only expected credit loss
approach. Under the simplified approach, stage
classification represents management’s internal assessment
of credit risk.
Expected credit losses are assessed against actual loss
experience via a series of provision adequacy reviews. These
reviews also incorporate management judgement to ensure
that our ECL coverage ratios remain appropriate.
(j) 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 measured at fair value on
initial recognition and carried at amortised cost. The
balances are short term in nature, do not earn interest and
are recorded at the amount receivable or payable.
(k) 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 measured at
fair value on initial recognition and 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 are recorded at the amount
payable. Interest is paid on the loans.
(l) Leases
Lessor
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, which comprises the lease payments
receivable and any unguaranteed residual value, discounted
at its implicit interest rate. Finance charges on finance leases
are taken to income in proportion to the net funds invested.
201
Strategic Report
Governance Report
Financial Statements
1. Material Accounting Policies (continued)
An operating lease is a lease that does not transfer
substantially all the risks and rewards incidental to ownership
of an asset to the lessee. 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.
Lessee
A lease liability and right of use asset are recognised on the
balance sheet at the lease commencement date. The lease
liability is measured at the present value of future lease
payments. The discount rate is the rate implicit in the lease,
or if that cannot be determined, the group’s incremental
borrowing rate appropriate for the right of use asset. The
right of use asset is measured at cost, comprising the initial
lease liability, payments made at or before the
commencement date less lease incentives received, initial
direct costs, and estimated costs of restoring the underlying
asset to the condition required by the lease.
Lease payments are allocated between the liability and
finance cost. The finance cost relating to the lease liability is
charged to the consolidated income statement over the lease
term. The right of use asset is depreciated over the shorter of
the asset’s useful life and the lease term on a straight-line
basis.
As set out in Note 1(b), the company has a different
accounting policy for leases under FRS 102. Rental costs
under operating leases are charged to the income statement
in equal instalments over the period of the lease.
(m) 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.
(n) Securitisation transactions
The group securitises its own financial assets via the sale of
these assets to special purpose entities, which in turn issue
securities to investors. All financial assets continue to be
held on the group’s consolidated balance sheet together
with debt securities in issue recognised for the funding.
The group has a forward flow arrangement with a third party.
In this arrangement, financial assets are originated and
recognised on the balance sheet and simultaneously
derecognised on sale of the assets.
See Note 1(h) for the derecognition accounting policy.
(o) 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
simultaneously.
(p) Derivatives and hedge accounting
On adoption of IFRS 9 Financial Instruments in 2018, the
group elected to continue applying hedge accounting under
IAS 39 Financial Instruments: Recognition and Measurement.
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.
(q) 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 which are reviewed at least
annually. Amortisation is calculated to write off their cost on
a straight-line basis over the estimated useful lives as
follows:
Computer software
3 to 10 years
Intangible assets on acquisition
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.
The estimated useful lives of computer software have been
updated from a range of 3 to 5 years to a range of 3 to 10
years reflecting the longer useful lives of new core software
platforms.
(r) Property, plant and equipment
Property, plant and equipment is stated at cost less
accumulated depreciation and provisions for impairment
which are reviewed at least annually. Depreciation is
calculated to write off their cost on a straight-line basis over
their estimated useful lives as follows:
The Notes continued
202
Close Brothers Group plc Annual Report 2024
Long leasehold property
40 years
Short leasehold property
Over the length of the lease
Fixtures, fittings and
equipment
3 to 5 years
Assets held under operating
leases
1 to 20 years
Motor vehicles
1 to 5 years
(s) Share capital and other equity
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.
Other equity
Financial instruments are classified as equity when there is
no contractual obligation to deliver cash, another financial
asset, or a variable number of the group’s own equity
instruments to another entity. The instrument is measured at
cost less transaction costs and distributions are recognised
as a deduction from retained earnings when they become
irrevocable.
(t) 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.
The scheme entered into a buy-in transaction with an
insurance company covering all members of the scheme. A
buy-in is a bulk annuity policy that matches the scheme’s
assets and liabilities. The pension surplus on the group’s
balance sheet relates to the cash held by the scheme with
the fair value of the insurance policy matched to the fair
value of the scheme’s liabilities, which remains subject to
changes in actuarial valuations.
(u) Share-based payments to employees
The group operates three (2023: three) share-based award
schemes: the Deferred Share Awards (“DSA”) scheme, the
Long Term Incentive Plan (“LTIP”), and the HMRC approved
Save As You Earn (“SAYE”) scheme.
The costs of the awards granted under the DSA scheme 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 costs of LTIP and SAYE are based on the fair value of
awards on the date of grant. Fair values of share-based
awards are determined using the Black-Scholes pricing
model, with the exception of fair values for market-based
performance conditions, which are determined using Monte
Carlo simulation. 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 24 and in the Directors’
Remuneration Report.
(v) 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 deemed
remote.
(w) 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.
203
Strategic Report
Governance Report
Financial Statements
1. Material Accounting Policies (continued)
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. Deferred tax liabilities are offset against deferred
tax assets when there is both a legal right to set off and an
intention to settle on a net basis.
(x) 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.
(y) Segmental 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.
2. Critical Accounting Judgements and
Estimates
The reported results of the group are sensitive to the
judgements, estimates and assumptions that underlie the
application of its accounting policies and 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, estimates and assumptions that are
reasonable.
The group’s estimates and assumptions are based on
historical experience and reasonable expectations of future
events and are reviewed on an ongoing basis. Actual results
in the future may differ from the amounts estimated due to
the inherent uncertainty.
The group’s critical accounting judgements, made in
applying its accounting policies as described in Note 1, and
the key sources of estimation uncertainty that may have a
significant risk of causing a material adjustment within the
next financial year are set out below. There are no critical
accounting judgements or key sources of estimation
uncertainty relating to the company.
The impact of climate change on the group’s judgements,
estimates and assumptions has been considered in
preparing these financial statements. While no material
impact has been identified, climate risk continues to be
monitored on an ongoing basis as set out in more detail on
page 80 in the Risk Report.
Critical accounting judgements
The critical accounting judgements of the group, which relate
to expected credit loss provisions calculated under IFRS 9
and Motor Finance commission arrangements, are as
follows:
• Establishing the criteria for a significant increase in credit
risk;
• Determining the appropriate definition of default; and
• Determining whether the criteria for the recognition of a
provision under IAS 37 'Provisions, Contingent Liabilities
and Contingent Assets' have been met in relation to Motor
Finance commission arrangements.
• Determining the impact of the FCA's motor commissions
review and the group's strategic and capital actions
response on the group's goodwill impairment assessment.
Further information on the first two accounting judgements
can be found in the ‘Use of judgements’ section on pages 94
to 95 in the Risk Report, while further information on the third
and fourth judgements can be found in Note 21 and Note 14
respectively.
Key sources of estimation uncertainty
The key sources of estimation uncertainty of the group relate
to expected credit loss provisions and goodwill and are as
follows:
• Two key model estimates, being time to recover periods
and recovery rates, underpinning the expected credit loss
provision of Novitas. These were also key estimates in the
prior year;
• Forward-looking macroeconomic information incorporated
into expected credit loss models. This was also a key
estimate in the prior year;
• Adjustments by management to model calculated
expected credit losses due to limitations in the group’s
expected credit loss models or input data, which may be
identified through ongoing model monitoring and validation
of models. This was also a key estimate in the prior year;
and
• Estimate of future cash flow forecasts in the calculation of
value in use for the testing of goodwill for impairment in
relation to the Winterflood Securities and Banking division,
in particular Motor Finance, cash generating units due to
more challenging trading conditions expected for both.
This was a key estimate for Winterflood Securities in the
prior year and new for Motor Finance this year.
Additional disclosures on the estimation uncertainty relating
to forward-looking macroeconomic information, model
adjustments and goodwill can be found in the ‘Use of
estimates’ section on pages 95 to 99, ‘Use of Adjustments’
section on page 100, both in the Risk Report, and Note 14
‘Intangibles Assets’ on pages 221 to 223 respectively.
The Notes continued
204
Close Brothers Group plc Annual Report 2024
3. Segmental Analysis
The directors manage the group by class of business and present the segmental analysis on that basis. The group’s activities
are presented in five (2023: five) operating segments: Commercial, Retail, Property, Asset Management and Securities.
In the segmental reporting information that follows, Group consists of central functions as well as various non-trading head
office companies and consolidation adjustments and is set out in order that the information presented reconciles to the
consolidated income statement. The Group balance sheet primarily includes treasury assets and liabilities comprising cash and
balances at central banks, debt securities, customer deposits and other borrowings.
Divisions continue to charge market prices for the limited services rendered to other parts of the group. Funding charges
between segments take into account commercial demands. More than 90% of the group’s activities, revenue and assets are
located in the UK.
Banking
Commercial
Retail
Property
Asset
Management
Securities
Group
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
Summary income statement for year
ended 31 July 2024
Net interest income/(expense)
228.8
234.4
129.0
11.0
(0.4)
(11.5)
591.3
Non-interest income
100.8
28.0
3.9
146.8
73.4
—
352.9
Operating income/(expense)
329.6
262.4
132.9
157.8
73.0
(11.5)
944.2
Administrative expenses
(182.3)
(156.6)
(30.0)
(139.5)
(68.9)
(31.6)
(608.9)
Depreciation and amortisation
(26.1)
(20.7)
(4.9)
(6.1)
(5.9)
(2.2)
(65.9)
Impairment losses on financial assets
(31.7)
(47.2)
(20.0)
—
0.1
—
(98.8)
Total operating expenses before
adjusting items
(240.1)
(224.5)
(54.9)
(145.6)
(74.7)
(33.8)
(773.6)
Adjusted operating profit/(loss)1
89.5
37.9
78.0
12.2
(1.7)
(45.3)
170.6
Amortisation of intangible assets on
acquisition
—
(0.2)
—
(1.2)
—
—
(1.4)
Provision in relation to the BiFD review
(0.6)
(16.6)
—
—
—
—
(17.2)
Restructuring costs
(2.2)
(0.6)
(0.3)
—
—
—
(3.1)
Complaints handling and other
operational costs associated with the
FCA's review of historical motor finance
commission arrangements
—
(6.9)
—
—
—
—
(6.9)
Operating profit/(loss) before tax
86.7
13.6
77.7
11.0
(1.7)
(45.3)
142.0
External operating income/(expense)
517.0
376.7
224.7
156.9
73.0
(404.1)
944.2
Inter segment operating (expense)/
income
(187.4)
(114.3)
(91.8)
0.9
—
392.6
—
Segment operating income/(expense)
329.6
262.4
132.9
157.8
73.0
(11.5)
944.2
1. Adjusted operating profit/(loss) is stated before the following adjusting items and the associated tax effect: amortisation of intangible assets on
acquisition, provision in relation to the BiFD review, restructuring costs and complaints handling and other operational costs associated with the FCA's
review of historical motor finance commission arrangements. The adjusting items are presented within administrative expenses on a statutory basis.
The accounting policy for adjusted measures is set out in Note 1(g) while more information on the adjusting items can be found in Notes 14, 16 and 21.
The Commercial operating segment above includes Novitas, which ceased lending to new customers in July 2021 following a
strategic review. Novitas recorded an operating loss of £0.1 million (2023: loss of £84.2 million), driven by impairment losses of
£6.4 million (2023: £116.8 million).
Novitas’ income was £11.0 million (2023: £18.9 million) and expenses were £4.8 million (2023: £8.7 million). In line with IFRS
9’s requirement to recognise interest income on Stage 3 loans on a net basis, income includes the partial unwinding over time
of the expected credit loss recognised in the year following the transfer of the majority of loans to Stage 3. Further information
on Novitas can be found in the Credit Risk section of the Risk Report.
As set out in Note 29 “Post Balance Sheet Event”, the group announced it entered into an agreement to sell CBAM, one of the
group’s operating segments and whose financial results are presented within this note, to Oaktree on 19 September 2024
following a comprehensive strategic review.
205
Strategic Report
Governance Report
Financial Statements
3. Segmental Analysis (continued)
Banking
Commercial
Retail
Property
Asset
Management
Securities
Group2
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
Summary balance sheet information at
31 July 2024
Total assets¹
5,101.6
3,041.9
1,955.2
192.0
825.0
2,965.1
14,080.8
Total liabilities
—
—
—
70.2
734.6
11,433.5
12,238.3
1. Total assets for the Banking operating segments comprise the loan book and operating lease assets only. The Commercial operating segment includes
the net loan book of Novitas of £62.4 million.
2. Balance sheet includes £2,970.1 million assets and £11,358.1 million liabilities attributable to the Banking division primarily comprising the treasury
balances described in the second paragraph of this note.
Equity is allocated across the group as set out below. Banking division equity, which is managed as a whole rather than on a
segmental basis, reflects loan book and operating lease assets of £10,098.7 million, in addition to assets and liabilities of
£2,970.1 million and £11,358.1 million respectively primarily comprising treasury balances which are included within the Group
column above.
Banking
Asset
Management
Securities
Group
Total
£ million
£ million
£ million
£ million
£ million
Equity
1,710.7
121.8
90.4
(80.4)
1,842.5
Banking
Commercial
Retail
Property
Asset
Management
Securities
Group
Total
Other segment information for the year
ended 31 July 2024
Employees (average number)¹
1,461
1,195
199
872
311
87
4,125
1. Banking segments include a central function headcount allocation. The company’s average number of employees is equivalent to the Group number.
Banking
Commercial
Retail
Property
Asset
Management
Securities
Group
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
Summary income statement for year ended
31 July 2023
Net interest income/(expense)
251.2
218.4
117.1
6.7
0.5
(1.3)
592.6
Non-interest income
96.6
29.7
0.8
138.1
74.8
—
340.0
Operating income/(expense)
347.8
248.1
117.9
144.8
75.3
(1.3)
932.6
Administrative expenses
(171.5)
(142.8)
(26.5)
(123.3)
(67.5)
(22.2)
(553.8)
Depreciation and amortisation
(22.9)
(21.6)
(4.4)
(5.5)
(4.3)
(2.5)
(61.2)
Impairment losses on financial assets
(137.5)
(49.0)
(17.5)
(0.1)
—
—
(204.1)
Total operating expenses before
amortisation of intangible assets on
acquisition
(331.9)
(213.4)
(48.4)
(128.9)
(71.8)
(24.7)
(819.1)
Adjusted operating profit/(loss)¹
15.9
34.7
69.5
15.9
3.5
(26.0)
113.5
Amortisation of intangible assets on
acquisition
—
—
—
(1.5)
—
—
(1.5)
Operating profit/(loss) before tax
15.9
34.7
69.5
14.4
3.5
(26.0)
112.0
External operating income/(expense)
451.1
308.6
170.3
144.2
75.3
(216.9)
932.6
Inter segment operating (expense)/income
(103.3)
(60.5)
(52.4)
0.6
—
215.6
—
Segment operating income/(expense)
347.8
248.1
117.9
144.8
75.3
(1.3)
932.6
1. Adjusted operating profit/(loss) is stated before amortisation of intangible assets on acquisition and tax.
The Notes continued
206
Close Brothers Group plc Annual Report 2024
Banking
Commercial
Retail
Property
Asset
Management
Securities
Group²
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
Summary balance sheet information at 31
July 2023
Total assets¹
4,821.3
3,001.8
1,703.1
177.9
870.5
2,975.7
13,550.3
Total liabilities
—
—
—
64.1
778.1
11,063.2
11,905.4
1. Total assets for the Banking operating segments comprise the loan book and operating lease assets only. The Commercial operating segment includes
the net loan book of Novitas of £59.9 million.
2. Balance sheet includes £2,977.4 million assets and £11,151.9 million liabilities attributable to the Banking division primarily comprising the treasury
balances described in the second paragraph of this note.
Equity is allocated across the group as set out below. Banking division equity, which is managed as a whole rather than on a
segmental basis, reflects loan book and operating lease assets of £9,526.2 million, in addition to assets and liabilities of
£2,977.4 million and £11,151.9 million respectively primarily comprising treasury balances which are included within the Group
column above.
Banking
Asset
Management
Securities
Group
Total
£ million
£ million
£ million
£ million
£ million
Equity
1,351.7
113.8
92.4
87.0
1,644.9
Banking
Commercial
Retail
Property
Asset
Management
Securities
Group
Total
Other segmental information for the year
ended 31 July 2023
Employees (average number)¹
1,450
1,194
201
814
320
81
4,060
1. Banking segments include a central function headcount allocation. The company’s average number of employees is equivalent to the Group number.
4. Operating Profit before Tax
2024
2023
£ million
£ million
Interest income¹
Cash and balances at central banks
98.5
64.5
Loans and advances to banks
8.6
4.2
Loans and advances to customers
1,006.8
807.4
Other interest income
42.9
21.4
1,156.8
897.5
Interest expense
Deposits from banks
(5.8)
(3.2)
Deposits by customers
(387.2)
(203.6)
Borrowings
(116.9)
(90.2)
Other interest expense²
(55.6)
(7.9)
(565.5)
(304.9)
Net interest income
591.3
592.6
1. Interest income calculated using the effective interest method.
2. Other interest expense includes interest expense of £26.7 million relating to derivative assets and liabilities (2023: £8.3 million interest income).
207
Strategic Report
Governance Report
Financial Statements
4. Operating Profit before Tax (continued)
2024
2023
£ million
£ million
Fee and commission income
Banking
104.2
110.6
Asset Management
148.1
138.7
Securities
18.9
13.6
271.2
262.9
Fee and commission expense
(22.8)
(17.9)
Net fee and commission income
248.4
245.0
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 £104.2 million (2023: £110.6 million) and £19.8 million (2023: £15.1 million)
respectively. Fee income and expense arising from trust and other fiduciary activities amounted to £148.0 million (2023: £138.7
million) and £1.8 million (2023: £1.6 million) respectively.
2024
2023
£ million
£ million
Other income
Operating lease assets rental income
92.3
91.1
Other1
40.4
23.1
132.7
114.2
1. Includes income from the amortisation of de-designated cash flow and fair value hedges totalling £27.9 million and services provided in relation to
operating lease assets. In the prior year, the income from de-designated hedges was £34.0 million, partly offset by an associated realised loss of £31.9
million on the sale of sovereign debt.
2024
2023
£ million
£ million
Administrative expenses
Staff costs:
Wages and salaries
315.8
288.0
Social security costs
40.5
38.1
Share-based awards
4.7
2.0
Pension costs
21.4
18.9
382.4
347.0
Depreciation and amortisation
67.3
62.7
Other administrative expenses
253.7
206.8
703.4
616.5
Staff costs of the company total £16.9 million (2023: £12.5 million) comprising largely of wages and salaries of £12.9 million
(2023: £11.4 million).
5. Information Regarding the Auditors
20241
20231
£ million
£ million
Fees payable
Audit of the company's annual accounts
1.0
0.9
Audit of the company's subsidiaries pursuant to legislation
4.0
3.0
Audit related services
0.7
0.6
Other services
0.7
0.2
6.4
4.7
1. During the year, an additional audit fee of £0.3 million (2023: £0.2 million) was paid to the auditors in relation to scope changes in the prior year audit,
which is not included above.
The auditors of the group were PricewaterhouseCoopers LLP (2023: PricewaterhouseCoopers LLP).
The Notes continued
208
Close Brothers Group plc Annual Report 2024
6. Taxation
2024
2023
£ million
£ million
Tax charged/(credited) to the income statement
Current tax:
UK corporation tax
40.3
18.1
Foreign tax
0.9
2.3
Adjustments in respect of previous years
(5.3)
(8.2)
35.9
12.2
Deferred tax:
Deferred tax (credit)/charge for the current year
(0.6)
11.4
Adjustments in respect of previous years
6.3
7.3
41.6
30.9
Tax on items not (credited)/charged to the income statement
Current tax relating to:
Share-based payments
—
(0.2)
Acquisitions
(0.4)
—
Deferred tax relating to:
Cash flow hedging
(8.4)
4.9
Defined benefit pension scheme
—
(1.6)
Financial instruments classified as fair value through other comprehensive income
(1.0)
(1.1)
Share-based payments
—
0.3
Currency translation (losses)/gains
(0.4)
0.5
Acquisitions
0.6
—
(9.6)
2.8
Reconciliation to tax expense
UK corporation tax for the year at 25.0% (2023: 21.0%) on operating profit before tax
35.5
23.5
Effect of different tax rates in other jurisdictions
—
(0.3)
Disallowable items and other permanent differences
5.1
1.6
Banking surcharge
—
6.2
Deferred tax impact of decreased tax rates
—
0.8
Prior year tax provision
1.0
(0.9)
41.6
30.9
The standard UK corporation tax rate for the financial year is 25.0% (2023: 21.0%). An additional 3.0% (2023: 6.3%) surcharge
applies to banking company profits as defined in legislation, but only above a threshold amount which is not materially
exceeded by the current year banking company profits. The effective tax rate of 29.3% (2023: 27.6%) is above the UK
corporation tax rate primarily due to disallowable expenditure.
The UK government has implemented the Pillar Two global minimum tax rate of 15% and a UK domestic minimum top-up tax
with effect from the group’s financial year commencing 1 August 2024. The jurisdictions in relation to which Pillar Two tax
liabilities are expected to potentially arise for the group are the Republic of Ireland, Jersey and Guernsey, however the impact
is expected to be immaterial. The group has adopted the IAS 12 exemption from recognition and disclosure regarding the
impact on deferred tax assets and liabilities arising from this legislation. The company has adopted the same exemption under
FRS 102.
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Strategic Report
Governance Report
Financial Statements
6. Taxation (continued)
Movements in deferred tax assets and liabilities were as follows:
Capital
allowances
Pension
scheme
Share-based
payments and
deferred
compensation
Impairment
losses
Cash flow
hedging
Intangible
assets
Other
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
Group
At 1 August 2022
25.5
(1.9)
12.9
5.8
(8.5)
(1.3)
—
32.5
(Charge)/credit to the income
statement
(12.1)
—
(3.9)
0.1
—
0.4
(3.2)
(18.7)
(Charge)/credit to other
comprehensive income
(0.5)
1.6
—
—
(4.9)
—
1.1
(2.7)
Charge to equity
—
—
(0.3)
—
—
—
—
(0.3)
Acquisitions
—
—
—
—
—
—
—
—
At 31 July 2023
12.9
(0.3)
8.7
5.9
(13.4)
(0.9)
(2.1)
10.8
(Charge)/credit to the income
statement
(8.2)
0.1
(1.5)
0.1
—
0.3
3.5
(5.7)
Credit to other
comprehensive income
0.4
—
—
—
8.4
—
1.0
9.8
Charge to equity
—
—
—
—
—
—
—
—
Acquisitions
—
—
—
—
—
(1.5)
0.9
(0.6)
At 31 July 2024
5.1
(0.2)
7.2
6.0
(5.0)
(2.1)
3.3
14.3
The group’s deferred tax asset comprises £4.8 million (31 July 2023: £0.7 million) due within one year and £9.5 million (31 July
2023: £10.1 million) due after more than one year.
Capital
allowances
Pension scheme
Share-based
payments and
deferred
compensation
Total
£ million
£ million
£ million
£ million
Company
At 1 August 2022
(0.3)
(1.9)
2.0
(0.2)
Credit to the income statement
(0.1)
—
(0.9)
(1.0)
Credit to other comprehensive income
—
1.6
—
1.6
At 31 July 2023
(0.4)
(0.3)
1.1
0.4
Charge to the income statement
0.2
0.1
(0.5)
(0.2)
Credit to other comprehensive income
—
—
—
—
At 31 July 2024
(0.2)
(0.2)
0.6
0.2
The company’s deferred tax asset comprises £0.2 million (31 July 2023: £0.2 million) due within one year and £nil (31 July
2023: £0.2 million liabilities) due after more than one year.
As the group has been and is expected to continue to be consistently profitable, the full deferred tax assets have been
recognised.
The Notes continued
210
Close Brothers Group plc Annual Report 2024
7. 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.
2024
2023
Basic
59.7p
54.3p
Diluted
59.5p
54.2p
Adjusted basic¹
76.1p
55.1p
Adjusted diluted¹
75.9p
55.0p
1. Excludes the following adjusting items and the associated tax effect where appropriate: amortisation of intangible assets on acquisition, provision in
relation to the BiFD review, restructuring costs and complaints handling and other operational costs associated with the FCA's review of historical
motor finance commission arrangements.
2024
2023
£ million
£ million
Profit attributable to shareholders' equity
89.3
81.1
Adjustments:
Amortisation of intangible assets on acquisition
1.4
1.5
Provision in relation to the BiFD review
17.2
—
Restructuring costs
3.1
—
Complaints handling and other operational costs associated with the FCA's review of historical motor
finance commission arrangements
6.9
—
Tax effect of adjustments
(4.0)
(0.3)
Adjusted profit attributable to shareholders' equity
113.9
82.3
2024
2023
million
million
Average number of shares
Basic weighted
149.7
149.4
Effect of dilutive share options and awards
0.3
0.2
Diluted weighted
150.0
149.6
8. Dividends
2024
2023
£ million
£ million
For each ordinary share
Final dividend for previous financial year paid in November 2023: 45.0p (November 2022: 44.0p)
67.1
65.6
Interim dividend for current financial year paid in April 2024: nil (April 2023: 22.5p)
—
33.5
67.1
99.1
As disclosed on 15 February 2024 in a trading update and dividend announcement, the group will not pay any dividends on its
ordinary shares for the financial year ended 31 July 2024.
9. Loans and Advances to Banks
Between
Between
Between
Within three
three months
one and
two and
On demand
months
and one year
two years
five years
Total
£ million
£ million
£ million
£ million
£ million
£ million
At 31 July 2024
269.2
0.1
4.3
16.4
3.7
293.7
At 31 July 2023
290.9
21.6
2.0
3.0
12.8
330.3
211
Strategic Report
Governance Report
Financial Statements
10. Loans and Advances to Customers
(a) Maturity and classification analysis of loans and advances to customers
The following tables set out the maturity and IFRS 9 classification analysis of loans and advances to customers. At 31 July
2024 loans and advances to customers with a maturity of two years or less was £7,733.6 million (31 July 2023: £7,158.8
million) representing 75.3% (31 July 2023: 74.3%) of total gross loans and advances to customers:
Between
Between
Between
After Total gross loans
Total net loans
Within three
three months
one and
two and
more than
and advances
Impairment
and advances
On demand
months
and one year
two years
five years
five years
to customers
provisions
to customers
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
At 31 July 2024
88.5
2,888.2
2,654.9
2,102.0
2,399.1
143.9
10,276.6
(445.8)
9,830.8
At 31 July 2023
76.5
2,597.8
2,636.5
1,848.0
2,337.2
139.6
9,635.6
(380.6)
9,255.0
31 July 2024
31 July 2023
£ million
£ million
Gross loans and advances to customers
Held at amortised cost
10,264.8
9,635.6
Held at fair value through profit or loss
11.8
—
10,276.6
9,635.6
(b) Loans and advances to customers held at amortised cost and impairment provisions by stage
Gross loans and advances to customers held at amortised cost by stage and the corresponding impairment provisions and
provision coverage ratios are set out below:
Stage 2
Stage 1
Less than
30 days
past due
Greater
than or
equal to 30
days past
due
Total
Stage 3
Total
£ million
£ million
£ million
£ million
£ million
£ million
At 31 July 2024
Gross loans and advances to customers held at
amortised cost
Commercial
3,877.8
801.5
33.1
834.6
400.2
5,112.6
Of which: Commercial excluding Novitas
3,877.8
800.5
33.1
833.6
118.1
4,829.5
Of which: Novitas
—
1.0
—
1.0
282.1
283.1
Retail
2,815.7
221.2
9.9
231.1
90.0
3,136.8
Property
1,717.0
9.8
53.3
63.1
235.3
2,015.4
8,410.5
1,032.5
96.3
1,128.8
725.5
10,264.8
Impairment provisions
Commercial
20.9
9.6
4.2
13.8
256.0
290.7
Of which: Commercial excluding Novitas
20.9
8.6
4.2
12.8
36.3
70.0
Of which: Novitas
—
1.0
—
1.0
219.7
220.7
Retail
27.7
14.8
2.2
17.0
50.2
94.9
Property
3.6
0.2
0.3
0.5
56.1
60.2
52.2
24.6
6.7
31.3
362.3
445.8
Provision coverage ratio
Commercial
0.5%
1.2%
12.7%
1.7%
64.0%
5.7%
Within which: Commercial excluding Novitas
0.5%
1.1%
12.7%
1.5%
30.7%
1.4%
Within which: Novitas
—
100.0%
—
100.0%
77.9%
78.0%
Retail
1.0%
6.7%
22.2%
7.4%
55.8%
3.0%
Property
0.2%
2.0%
0.6%
0.8%
23.8%
3.0%
0.6%
2.4%
7.0%
2.8%
49.9%
4.3%
The Notes continued
212
Close Brothers Group plc Annual Report 2024
Stage 2
Stage 1
Less than
30 days
past due
Greater
than or
equal to 30
days past
due
Total
Stage 3
Total
£ million
£ million
£ million
£ million
£ million
£ million
At 31 July 2023
Gross loans and advances to customers held at
amortised cost
Commercial
3,686.1
750.9
23.2
774.1
339.4
4,799.6
Of which: Commercial excluding Novitas
3,685.1
749.6
23.2
772.8
97.7
4,555.6
Of which: Novitas
1.0
1.3
—
1.3
241.7
244.0
Retail
2,839.1
159.1
18.4
177.5
74.6
3,091.2
Property
1,465.0
85.7
24.7
110.4
169.4
1,744.8
7,990.2
995.7
66.3
1,062.0
583.4
9,635.6
Impairment provisions
Commercial
25.1
13.9
2.4
16.3
208.1
249.5
Of which: Commercial excluding Novitas
24.9
13.6
2.4
16.0
24.5
65.4
Of which: Novitas
0.2
0.3
—
0.3
183.6
184.1
Retail
27.9
11.6
2.6
14.2
47.3
89.4
Property
5.1
1.4
0.3
1.7
34.9
41.7
58.1
26.9
5.3
32.2
290.3
380.6
Provision coverage ratio
Commercial
0.7%
1.9%
10.3%
2.1%
61.3%
5.2%
Within which: Commercial excluding Novitas
0.7%
1.8%
10.3%
2.1%
25.1%
1.4%
Within which: Novitas
20.0%
23.1%
—
23.1%
76.0%
75.5%
Retail
1.0%
7.3%
14.1%
8.0%
63.4%
2.9%
Property
0.3%
1.6%
1.2%
1.5%
20.6%
2.4%
0.7%
2.7%
8.0%
3.0%
49.8%
3.9%
Stage allocation of loans and advances to customers has been applied in line with the definitions set out on page 201 in Note 1
‘Material Accounting Policies’.
Additional disclosures on the stage allocation and movements of loans and advances to customers can be found on page 94 in
the Risk Report.
(c) Adjustments
By their nature, limitations in the group’s expected credit loss models or input data may be identified through ongoing model
monitoring and validation of models. In certain circumstances, management make appropriate adjustments to model-
calculated expected credit losses. Adjustments have been identified as a key source of estimation uncertainty as set out in
Note 2 ‘Critical Accounting Judgements and Estimates’.
213
Strategic Report
Governance Report
Financial Statements
10. Loans and Advances to Customers (continued)
(d) Reconciliation of loans and advances to customers held at amortised cost and impairment provisions
Reconciliation of gross loans and advances to customers and associated impairment provisions are set out below.
New financial assets originate in Stage 1 only, and the amount presented represents the value at origination.
Subsequently, a loan may transfer between stages, and the presentation of such transfers is based on a comparison of the
loan at the beginning of the year (or at origination if this occurred during the year) and the end of the year (or just prior to final
repayment or write off).
Repayments relating to loans which transferred between stages during the year are presented within the transfers between
stages lines. Such transfers do not represent overnight reclassification from one stage to another. All other repayments are
presented in a separate line.
ECL model methodologies may be updated or enhanced from time to time and the impacts of such changes are presented on
a separate line. During the year, a number of enhancements were made to the models in the Premium business. The
enhancements were made to address known model limitations and to ensure modelled provisions better reflect future loss
emergence.
Enhancements to our model suite are a contributory factor to ECL movements and such factors have been taken into
consideration when assessing any required adjustments to modelled output and ensuring appropriate provision coverage
levels.
A loan is written off when there is no reasonable expectation of further recovery following realisation of all associated collateral
and available recovery actions against the customer.
Stage 1
Stage 2
Stage 3
Total
£ million
£ million
£ million
£ million
Gross loans and advances to customers held at amortised cost
At 1 August 2023
7,990.2
1,062.0
583.4
9,635.6
New financial assets originated
6,695.5
—
—
6,695.5
Transfers to Stage 1
138.2
(205.2)
(7.6)
(74.6)
Transfers to Stage 2
(1,165.5)
904.8
(8.4)
(269.1)
Transfers to Stage 3
(310.2)
(130.8)
329.1
(111.9)
Net transfer between stages and repayments¹
(1,337.5)
568.8
313.1
(455.6)
Repayments while stage remained unchanged and final repayments
(4,936.3)
(501.2)
(114.4)
(5,551.9)
Changes to model methodologies
—
—
—
—
Write offs
(1.4)
(0.8)
(56.6)
(58.8)
At 31 July 2024
8,410.5
1,128.8
725.5
10,264.8
1. Repayments relate only to financial assets which transferred between stages during the year. Other repayments are shown in the line below.
Stage 1
Stage 2
Stage 3¹
Total
£ million
£ million
£ million
£ million
Gross loans and advances to customers held at amortised cost
At 1 August 2022
7,627.0
1,158.9
358.6
9,144.5
New financial assets originated
6,604.0
—
—
6,604.0
Transfers to Stage 1
276.2
(373.2)
(6.8)
(103.8)
Transfers to Stage 2
(1,068.6)
878.6
(16.1)
(206.1)
Transfers to Stage 3
(303.6)
(194.4)
421.5
(76.5)
Net transfer between stages and repayments²
(1,096.0)
311.0
398.6
(386.4)
Repayments while stage remained unchanged and final repayments
(5,118.8)
(403.5)
(100.4)
(5,622.7)
Changes to model methodologies
(25.6)
(4.0)
29.6
—
Write offs
(0.4)
(0.4)
(103.0)
(103.8)
At 31 July 2023
7,990.2
1,062.0
583.4
9,635.6
1. A significant proportion of the Stage 3 movements is driven by Novitas with £174.4 million of transfers to Stage 3 and £37.4 million of write-offs. In
addition, £49.2 million of Novitas movements are included within ‘Repayments while stage remained unchanged and final repayments’, comprising
largely of accrued interest. The accrued interest is partly offset by ECL increases included within the adjacent ECL reconciliation, in line with IFRS 9’s
requirement to recognise interest income on Stage 3 loans on a net basis. Further information on Novitas can be found in the Credit Risk section of the
Risk Report.
2. Repayments relate only to financial assets which transferred between stages during the year. Other repayments are shown in the line below.
The Notes continued
214
Close Brothers Group plc Annual Report 2024
The gross carrying amount before modification of loans and advances to customers which were modified during the year while
in Stage 2 or 3 was £283.1 million (2023: £152.3 million). No gain or loss (2023: £nil) was recognised as a result of these
modifications. The gross carrying amount at 31 July 2024 of modified loans and advances to customers which transferred from
Stage 2 or 3 to Stage 1 during the year was £38.7 million (31 July 2023: £14.8 million). The definition and accounting policy for
modifications are set out in Note 1(i).
Stage 1
Stage 2
Stage 3
Total
£ million
£ million
£ million
£ million
Impairment provisions on loans and advances to customers held at
amortised cost
At 1 August 2023
58.1
32.2
290.3
380.6
New financial assets originated
51.7
—
—
51.7
Transfers to Stage 1
0.6
(3.9)
(0.7)
(4.0)
Transfers to Stage 2
(13.4)
31.4
(1.1)
16.9
Transfers to Stage 3
(5.9)
(12.0)
98.7
80.8
Net remeasurement of expected credit losses arising from transfer of stages and
repayments1
(18.7)
15.5
96.9
93.7
Repayments and ECL movements while stage remained unchanged and final
repayments
(37.7)
(15.6)
26.6
(26.7)
Changes to model methodologies
—
—
—
—
Charge to the income statement
(4.7)
(0.1)
123.5
118.7
Write offs
(1.2)
(0.8)
(51.5)
(53.5)
At 31 July 2024
52.2
31.3
362.3
445.8
1. Repayments relate only to financial assets which transferred between stages during the year. Other repayments are shown in the line below.
Stage 1
Stage 2
Stage 3¹
Total
£ million
£ million
£ million
£ million
Impairment provisions on loans and advances to customers held at
amortised cost
At 1 August 2022
50.3
78.3
157.0
285.6
New financial assets originated
46.7
—
—
46.7
Transfers to Stage 1
1.2
(7.7)
(1.0)
(7.5)
Transfers to Stage 2
(8.7)
27.7
(5.7)
13.3
Transfers to Stage 3
(11.2)
(53.3)
227.2
162.7
Net remeasurement of expected credit losses arising from transfer of stages and
repayments²
(18.7)
(33.3)
220.5
168.5
Repayments and ECL movements while stage remained unchanged and final
repayments
(17.8)
(10.7)
(20.0)
(48.5)
Changes to model methodologies
(2.2)
(1.9)
2.3
(1.8)
Charge to the income statement
8.0
(45.9)
202.8
164.9
Write offs
(0.2)
(0.2)
(69.5)
(69.9)
At 31 July 2023
58.1
32.2
290.3
380.6
1. A significant proportion of the Stage 3 movements is driven by Novitas with £147.6 million of transfers to Stage 3 and £11.9 million of write-offs. Further
information on Novitas can be found in the Credit Risk section of the Risk Report.
2. Repayments relate only to financial assets which transferred between stages during the year. Other repayments are shown in the line below.
215
Strategic Report
Governance Report
Financial Statements
10. Loans and Advances to Customers (continued)
2024
2023
£ million
£ million
Impairment losses relating to loans and advances to customers held at amortised cost:
Charge to income statement arising from movement in impairment provisions
118.7
164.9
Amounts written off directly to income statement and other costs, net of discount unwind on Stage 3 loans
to interest income, and recoveries
(21.7)
39.4
97.0
204.3
Impairment losses/(gains) relating to other financial assets
1.8
(0.2)
Impairment losses on financial assets recognised in income statement
98.8
204.1
Impairment losses on financial assets of £98.8 million (2023: £204.1 million) include £6.4 million in relation to Novitas (2023:
£116.8 million). The Novitas impairment relates to an extension of the time to recovery assumptions from insurers and reflects
management's latest assessment including the current timeline of litigation proceedings.
The contractual amount outstanding at 31 July 2024 on financial assets that were written off during the period and are still
subject to recovery activity is £22.1 million (31 July 2023: £32.3 million).
(e) Finance lease and hire purchase agreement receivables
31 July 2024
31 July 2023
£ million
£ million
Net loans and advances to customers comprise
Hire purchase agreement receivables
3,749.8
3,671.3
Finance lease receivables
896.7
803.9
Other loans and advances
5,184.3
4,779.8
At 31 July
9,830.8
9,255.0
The following table shows a reconciliation between gross investment in finance lease and hire purchase agreement receivables
included in the net loans and advances to customers table above to present value of minimum lease and hire purchase
payments.
31 July 2024
31 July 2023¹
£ million
£ million
Gross investment in finance leases and hire purchase agreement receivables due:
One year or within one year
1,987.6
1,849.3
>One to two years
1,573.2
1,493.7
>Two to three years
1,168.2
1,175.8
>Three to four years
692.0
652.5
>Four to five years
222.6
205.3
More than five years
46.4
43.1
5,690.0
5,419.7
Unearned finance income
(904.5)
(820.7)
Present value of minimum lease and hire purchase agreement payments
4,785.5
4,599.0
Of which due:
One year or within one year
1,671.1
1,567.2
>One to two years
1,326.6
1,268.8
>Two to three years
982.6
999.1
>Three to four years
579.4
553.1
>Four to five years
185.9
173.8
More than five years
39.9
37.0
4,785.5
4,599.0
1. Restated following a classification misstatement in the prior year maturity profiles with no change in the total amounts. Please see below for further
information.
The Notes continued
216
Close Brothers Group plc Annual Report 2024
The aggregate cost of assets acquired for the purpose of letting under finance leases and hire purchase agreements was
£7,898.6 million (2023: £7,167.5 million). The average effective interest rate on finance leases approximates to 12.2% (2023:
11.0%). 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.
The prior year figures in the table above for finance lease and hire purchase agreement receivables have been restated
following a classification misstatement. The gross investment in finance leases and hire purchase agreement receivables due in
'>one to two years' have decreased by £509.1 million, while '>two to three years', '>three to four years', '>four to five years'
and 'more than five years' have increased by £203.3 million, £214.0 million, £89.8 million and £2.0 million respectively with no
change in the total amounts. The present value of minimum lease and hire purchase agreement payments due in '>one to two
years' have decreased by £422.9 million, while '>two to three years', '>three to four years', '>four to five years' and 'more than
five years' have increased by £168.9 million, £177.8 million, £74.6 million and £1.6 million respectively with no change in the
total amounts.
11. Debt Securities
Fair value
through profit
or loss
Fair value
through other
comprehensive
income
Amortised cost
Total
£ million
£ million
£ million
£ million
Sovereign and central bank debt
—
383.7
—
383.7
Supranational, sub-sovereigns and agency ("SSA") bonds
—
145.5
—
145.5
Covered bonds
—
187.7
—
187.7
Long trading positions in debt securities
16.0
—
—
16.0
Other debt securities
0.8
—
6.8
7.6
At 31 July 2024
16.8
716.9
6.8
740.5
Fair value
through profit or
loss
Fair value
through other
comprehensive
income
Amortised cost
Total
£ million
£ million
£ million
£ million
Sovereign and central bank debt
—
186.1
—
186.1
SSA bonds
—
—
—
—
Covered bonds
—
106.3
—
106.3
Long trading positions in debt securities
15.2
—
—
15.2
Other debt securities
—
—
—
—
At 31 July 2023
15.2
292.4
—
307.6
Movements on the book value of sovereign and central bank debt comprise:
2024
2023
£ million
£ million
Sovereign and central bank debt at 1 August
186.1
415.4
Additions
194.2
269.7
Redemptions
—
(459.2)
Currency translation differences
(1.5)
(0.3)
Movement in value
4.9
(39.5)
Sovereign and central bank debt at 31 July
383.7
186.1
Movements on the book value of SSA bonds comprise:
2024
2023
£ million
£ million
SSA bonds at 1 August
—
—
Additions
155.4
—
Redemptions
(15.2)
—
Currency translation differences
(0.3)
—
Movement in value
5.6
—
SSA bonds at 31 July
145.5
—
217
Strategic Report
Governance Report
Financial Statements
11. Debt Securities (continued)
Movements on the book value of covered bonds comprise:
2024
2023
£ million
£ million
Covered bonds 1 August
106.3
—
Additions
139.7
105.4
Redemptions/disposals
(59.0)
—
Currency translation differences
(0.3)
—
Movement in value
1.0
0.9
Covered bonds at 31 July
187.7
106.3
12. Equity Shares
31 July 2024
31 July 2023
£ million
£ million
Long trading positions
25.8
27.8
Other equity shares
1.6
1.5
27.4
29.3
13. Derivative Financial Instruments
The group enters into derivative contracts with a number of financial institutions for risk management purposes to hedge
exposures to interest rate and exchange rate movements. Derivatives are classified as held for trading unless they are
designated as being in a hedge accounting relationship. The group’s total derivative asset and liability position as reported on
the consolidated balance sheet is as follows.
31 July 2024
31 July 2023
Notional
Notional
value
Assets
Liabilities
value
Assets
Liabilities
£ million
£ million
£ million
£ million
£ million
£ million
Exchange rate contracts
275.3
2.3
0.4
198.1
0.8
0.4
Interest rate contracts
7,202.6
99.1
128.6
3,493.3
87.7
195.5
7,477.9
101.4
129.0
3,691.4
88.5
195.9
Interest rate contracts are held for interest rate risk management and interest margin stabilisation purposes. Notional amounts
of interest rate contracts totalling £4,752.3 million (31 July 2023: £2,402.7 million) have a residual maturity of more than one
year.
Included in the derivatives above are the following cash flow and fair value hedges:
31 July 2024
31 July 2023
Notional
Notional
value
Assets
Liabilities
value
Assets
Liabilities
£ million
£ million
£ million
£ million
£ million
£ million
Cash flow hedges
Interest rate contracts
514.4
4.8
0.6
297.7
8.5
2.9
Fair value hedges
Interest rate contracts
4,431.7
78.8
116.3
1,614.7
42.2
173.3
Where derivatives are designated as being in a hedge accounting relationship, the group applies fair value and cash flow
hedging if the relevant transaction meets the required documentation and hedge effectiveness criteria.
The Notes continued
218
Close Brothers Group plc Annual Report 2024
Fair value hedge accounting
Fair value hedges seek to hedge the exposure to changes in the fair value of recognised assets and liabilities or firm
commitments. For fair value hedges of interest rate risk, changes in the benchmark interest rate are considered the largest
component of the overall change in fair value. Other risks such as credit risk are managed but excluded from the hedge
accounting relationship. Changes in the fair value of derivatives in a fair value hedge are recorded in the income statement,
along with changes in the fair value of the hedged item (asset or liability) attributable to the hedged risk. If the hedged item is
measured at amortised cost, the fair value changes due to the hedged risk adjust the carrying amount of the hedged asset or
liability. If the hedge no longer qualifies for hedge accounting, changes in the fair value of the hedged item attributable to the
hedged risk are no longer recognised in the income statement and the cumulative adjustment to the carrying amount of the
hedged item is amortised to the income statement over the period to maturity. For micro fair value hedges, this is applied using
a straight-line method over the period to maturity.
Cash flow hedge accounting
Cash flow hedges seek to hedge the exposure to variability in future cash flows due to movements in the relevant benchmark
interest rate with interest rate swaps. These future cash flows relate to future interest payments or receipts on recognised
financial instruments and on forecast transactions for periods of six (2023: seven) years. The effective portion of changes in the
fair value of qualifying cash flow hedges is recognised in other comprehensive income within the cash flow hedging reserve.
The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in
equity are reclassified to the income statement in the periods when the hedged item affects profit or loss. When a hedging
instrument expires, is sold, or no longer meets the criteria for hedge accounting, any cumulative gain or loss in equity remains
there until the forecast transaction is recognised in the income statement. If the forecast transaction is no longer expected to
occur, the cumulative gain or loss in equity is immediately transferred to the income statement. The group applies portfolio
cash flow hedging for interest rate risk exposures on a portfolio of actual and forecast variable interest rate cash flows arising
from variable rate borrowings. Cash flow hedge accounting is applied when hedging interest rate risk exposures on floating
rate assets.
To assess hedge effectiveness the change in fair value or cash flows of the hedging instruments is compared with the change
in fair value or cash flows of the hedged item attributable to the hedged risk. A hedge is considered highly effective if the
results are within a ratio of 80%-125%.
The main sources of hedge ineffectiveness can include, but are not limited to, basis mismatch, maturity mismatch, credit
valuation adjustments and cash flow timing mismatch between the hedged item and the hedging instrument.
The maturity profiles for the notional amounts of the group’s cash flow and fair value hedges are set out as follows.
On demand
Within three
month
Between three
and six
months
Between six
months and
one year
Between one and
five years
After more
than five years
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
Cash flow hedges
Interest rate risk
31 July 2024
—
6.1
1.4
3.2
482.0
21.7
514.4
31 July 2023
—
90.8
0.3
27.7
137.7
41.2
297.7
Fair value hedges
Interest rate risk
31 July 2024
—
516.1
672.3
1,080.7
1,446.5
716.1
4,431.7
31 July 2023
—
51.0
0.6
190.6
690.0
682.5
1,614.7
Cash flow hedges have an average fixed rate of 4.0% (31 July 2023: 2.0%). Fair value hedges have an average fixed rate of
3.7% (31 July 2023: 1.6%).
Details of the hedging instruments for the group’s hedge ineffectiveness assessment are set out as follows.
Changes in fair value
of hedging instrument
used for calculating
hedge ineffectiveness
Hedge ineffectiveness
recognised in income
statement
Changes in fair value of
hedging instrument
used for calculating
hedge ineffectiveness
Hedge ineffectiveness
recognised in income
statement
2024
2024
2023
2023
£ million
£ million
£ million
£ million
Cash flow hedges
Interest rate risk
(0.9)
—
(26.2)
(0.1)
Fair value hedges
Interest rate risk
50.9
—
(74.6)
—
The carrying amount of hedging interest rate swaps is held within derivative financial instruments and the hedge
ineffectiveness is held within other income. Details of the hedged exposures covered by the group’s hedging strategies are set
out as follows.
219
Strategic Report
Governance Report
Financial Statements
13. Derivative Financial Instruments (continued)
Carrying amount of
hedged item
Accumulated amount
of fair value
adjustments on the
hedged item
Changes in fair value
of hedged item used
for calculating hedge
ineffectiveness
£ million
£ million
£ million
At 31 July 2024
Fair value hedges
Assets
Debt securities
355.7
(15.2)
11.8
Loans and advances to customers and undrawn commitments
146.8
(9.3)
4.1
502.5
(24.5)
15.9
Liabilities
Deposits by customers
3,092.2
4.2
8.1
Debt securities in issue
596.3
(95.7)
46.8
Subordinated loan capital
187.2
(13.3)
11.8
3,875.7
(104.8)
66.7
Carrying amount of
hedged item
Accumulated amount of
fair value adjustments
on the hedged item
Changes in fair value of
hedged item used for
calculating hedge
ineffectiveness
£ million
£ million
£ million
At 31 July 2023
Fair value hedges
Assets
Debt securities
186.1
(27.0)
(3.0)
Loans and advances to customers and undrawn commitments
124.3
(13.4)
(8.6)
310.4
(40.4)
(11.6)
Liabilities
Deposits by customers
280.3
(3.9)
(3.9)
Debt securities in issue
613.6
(142.5)
(70.2)
Subordinated loan capital
174.9
(25.1)
(12.1)
1,068.8
(171.5)
(86.2)
Details of the impact of hedging relationships on the income statement and other comprehensive income are set out as
follows.
Changes in fair value of
hedged item used for
calculating hedge
ineffectiveness
Gains/(losses) on
discontinued hedges
recognised in other
comprehensive income
(Losses)/gains from
changes in value of
hedging instrument
recognised in other
comprehensive income
Amounts reclassified
from reserves to income
statement1
£ million
£ million
£ million
£ million
Cash flow hedges
Interest rate risk
31 July 2024
1.0
14.4
(0.9)
28.9
31 July 2023
26.1
43.3
(26.1)
1.5
1. Amounts have been reclassified to other income since hedged cash flows will no longer occur following de-designation.
The Notes continued
220
Close Brothers Group plc Annual Report 2024
14. Intangible Assets
Intangible
assets on
Group
Company
Goodwill
Software
acquisition
total
software
£ million
£ million
£ million
£ million
£ million
Cost
At 1 August 2022
142.6
299.5
51.0
493.1
0.4
Additions
—
50.5
—
50.5
—
Disposals
(0.1)
(16.8)
(0.6)
(17.5)
(0.2)
At 31 July 2023
142.5
333.2
50.4
526.1
0.2
Additions
8.3
28.1
7.3
43.7
0.1
Disposals
—
(12.6)
(0.3)
(12.9)
—
At 31 July 2024
150.8
348.7
57.4
556.9
0.3
Amortisation
At 1 August 2022
47.9
147.4
45.8
241.1
0.4
Amortisation charge for the year
—
36.1
1.5
37.6
—
Disposals
—
(15.7)
(0.6)
(16.3)
(0.2)
At 31 July 2023
47.9
167.8
46.7
262.4
0.2
Amortisation charge for the year
—
38.9
1.4
40.3
0.1
Disposals
—
(11.4)
(0.4)
(11.8)
—
At 31 July 2024
47.9
195.3
47.7
290.9
0.3
Net book value at 31 July 2024
102.9
153.4
9.7
266.0
—
Net book value at 31 July 2023
94.6
165.4
3.7
263.7
—
Net book value at 1 August 2022
94.7
152.1
5.2
252.0
—
Goodwill additions of £8.3 million (2023: £nil) and intangible assets on acquisition additions of £7.3 million (2023: £nil) relate to
the group’s acquisition of the 100% shareholdings of Bluestone Motor Finance (Ireland) DAC ("Bluestone") (goodwill of £4.7
million and intangible assets on acquisition of £3.6 million) and Bottriell Adams LLP ("Bottriell Adams") (goodwill of £3.7 million
and intangible assets on acquisition of £3.7 million).
Bluestone, a provider of motor finance in Ireland, was acquired for cash consideration of €17.2 million on 31 October 2023. Net
assets of €7.8 million were acquired, largely comprising loans and advances to customers, cash, debt securities and
borrowings. Bluestone is a well-established brand in Ireland with industry-leading technology and an established network of
over 650 dealer partners and an experienced sales and underwriting team. This acquisition will allow the Motor Finance
business to rebuild its presence in Ireland. These factors and the expected synergies are reflected in the goodwill and
intangible assets on acquisition recognised by the group. Following the acquisition, Bluestone has been rebranded to Close
Brothers Motor Finance ("CBMF").
Bottriell Adams, an IFA business based in Dorset, was acquired for total consideration of £6.6 million comprising an initial cash
payment on acquisition and contingent consideration. The acquisition was completed in March 2024. Bottriell Adams, with
approximately £240 million of client assets on acquisition, allows the Asset Management division to extend its regional
presence in the South West. The customer relationships are reflected in the £3.7 million of intangible assets on acquisition.
Software includes assets under development of £35.4 million (31 July 2023: £88.8 million).
Intangible assets on acquisition relate to broker and customer relationships and are amortised over a period of eight to 20
years.
In the 2024 financial year, £1.4 million (2023: £1.5 million) of the amortisation charge is included in amortisation of intangible
assets on acquisition and £38.9 million (2023: £36.1 million) of the amortisation charge is included in administrative expenses
shown in the consolidated income statement.
221
Strategic Report
Governance Report
Financial Statements
14. Intangible Assets (continued)
Impairment tests for goodwill
Overview
At 31 July 2024, goodwill has been allocated to nine (31 July 2023: eight) individual CGUs. Seven (31 July 2023: six) are within
the Banking division with an additional CGU this year following the acquisition of Close Brothers Finance DAC, one is the Asset
Management division and the remaining one is Winterflood in the Securities division.
Goodwill is allocated to the CGU in which the historical acquisition occurred and hence the goodwill originated. Further
information on the performance of each division can be found in Note 3 ‘Segmental Analysis’. 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.
Methodology
A value in use calculation uses discounted cash flow forecasts based on the most recent three-year plans to determine the
recoverable amount of each CGU. The most relevant assumptions underlying management’s three-year plans, which are
based on past experience and forecast market conditions, are expected loan book growth rates, net return on loan book and
future capital requirements in the Banking CGUs, expected total client asset growth rate and revenue margin in the Asset
Management CGU and expected trading levels in the Winterflood CGU. While these assumptions are relevant to
management's plans, they may not all be key assumptions in the goodwill impairment test.
In addition, while CGUs are not individually regulated, for the purposes of an impairment assessment, theoretical capital
requirements have been taken into consideration in calculating a CGU's value in use and carrying value to ensure that capital
constraints on free cash flows are appropriately reflected and the carrying value is on a comparable basis.
Beyond the group’s three-year planning horizon, estimates of future cash flows in the fourth and fifth years are made by
management with due consideration given to the relevant assumptions set out above. After the fifth year, a terminal value is
calculated using an annual growth rate of 2%, which is consistent with the UK government’s long-term inflation target.
The cash flows are discounted using a pre-tax estimated weighted average cost of capital as set out in the following table. The
methodology used to derive the discount rates was further updated during the year with valuation experts engaged where
appropriate and refinements to the beta and size premium assumptions in the cost of capital calculation.
Beta is a measure of systematic risk and a lower beta has been applied to the Banking CGUs this year following a review by
valuation experts. In addition, an appropriate size premium has been consistently applied to all CGUs based on the size of the
group and not the size of the individual CGUs for the first time this year. The size premium represents an estimate of the
additional risk premium required by investors where typically a smaller size would require a larger premium.
The discount rates used differ across the CGUs, reflecting the nature of the CGUs’ business and the current market returns
appropriate to the CGU that investors would require for a similar asset. The discount rates for the Banking and Winterflood
CGUs have decreased while CBAM has increased this year following the aforementioned methodology refinements.
Assessment
At 31 July 2024, the results of the review indicate there is no goodwill impairment. The inputs used in the value in use
calculations are sensitive primarily to changes in the assumptions for future cash flows, which include consideration for future
capital requirements and discount 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 to the carrying value of any CGU to
exceed its recoverable amount except Winterflood and Motor Finance.
Winterflood continued to experience difficult market conditions and recorded a small loss in the year. The business has a long
track record of trading profitably in a range of conditions and is well placed to take advantage when investor confidence
recovers. Nevertheless, consistent with the prior year, future market conditions remain uncertain and as such the value in use
calculation for this CGU has been identified as a key source of estimation uncertainty as set out in Note 2 ‘Critical Accounting
Judgements and Estimates’.
The Motor Finance CGU, which includes goodwill of £3.0 million and other intangible assets of £15.3 million, relates to the UK
business and excludes the recent Close Brothers Finance DAC acquisition. The CGU has seen strong business volumes over
the year but the market and regulatory backdrop is expected to present some challenges to the future cash flows, therefore
this CGU has been identified as a key source of estimation uncertainty for the first time this year. The value in use of Motor
Finance excludes any potential redress provision impact of the FCA's discretionary commission arrangements review since it is
considered to be a legacy matter that relates to the excess capital of the parent and has no impact on the trading forecasts of
the CGU itself.
The most significant uncertainty within the Winterflood value in use calculation relates to the expected future cash flows and
when they return to normalised levels. The VIU of Winterflood is calculated to be 136% above carrying value at 31 July 2024
and for the purposes of goodwill modelling, management have projected that trading will gradually return to normalised levels
over the medium term.
The Notes continued
222
Close Brothers Group plc Annual Report 2024
A 33% reduction in the year five cash flows and all subsequent years would result in a recoverable amount that is equal to the
carrying value of the CGU, that is, the headroom between the two is reduced to nil. In the discounted cash flows model,
delaying all cash flows by one year, which would reduce the terminal value, would reduce the VIU headroom by 58%. The
discount rate is also an important driver of the value in use calculation and an absolute increase of 3.1% in the rate would also
result in nil headroom.
The most significant uncertainty within the Motor Finance value in use calculation relates to the expected future cash flows,
which include consideration for the CGU's forecast capital charge, and when they return to more normalised growth levels.
While as noted previously the cash flows exclude any potential redress provision impact of the FCA's commissions review, the
cash flows are nevertheless impacted by the overall uncertainty introduced by the FCA's review and the group's strategic and
capital actions response. As described in Note 2, determining the impact on goodwill of the FCA's review and management's
response is a critical accounting judgement. It also represents a key assumption for the Motor goodwill impairment
assessment. Management's expectations on a return of the cash flows to more normalised growth levels are based on the
review timeline set out by the FCA.
A 21% reduction in the annual cash flows included within the terminal value of the Motor CGU would result in a recoverable
amount that is equal to the carrying value of the CGU. In the discounted cash flows model, delaying all cash flows by one year,
which would reduce the terminal value, would result in the full impairment of the goodwill and other intangible assets totalling
£18.3 million in the Motor CGU. However, this outcome reflects the CGU sensitivity and does not include all possible
management actions which may affect capital and cash flow forecasts for each CGU of the Banking division if any further
response were required due to delays linked to the FCA review. Separately, an absolute increase of 1.6% in the discount rate
would result in nil headroom.
These scenarios for Winterflood and Motor Finance are a demonstration of sensitivity only and are not management's base
case scenarios.
As set out in Note 29 “Post Balance Sheet Event”, following a comprehensive strategic review, the group announced it entered
into an agreement to sell CBAM to Oaktree on 19 September 2024. The goodwill associated with the CBAM CGU is £43.5
million. This post balance sheet transaction has no impact on the conclusion of the goodwill impairment assessment and the
recoverable amount of the CGU remained above its carrying value at 31 July 2024.
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:
31 July 2024
31 July 2023
Goodwill
Pre-tax
discount rate
Goodwill
Pre-tax
discount rate
Cash generating unit
£ million
%
£ million
%
Asset Management
43.5
14.8
39.8
11.6
Winterflood Securities
23.3
14.8
23.3
16.9
Banking division CGUs
36.1
14.5-15.4
31.5
17.0-17.3
102.9
94.6
223
Strategic Report
Governance Report
Financial Statements
15. Property, Plant and Equipment
Assets
Fixtures,
held under
Leasehold
fittings and
operating
Motor
Right of use
property
equipment
leases
vehicles
assets¹
Total
£ million
£ million
£ million
£ million
£ million
£ million
Group
Cost
At 1 August 2022
20.9
62.6
398.2
0.2
78.5
560.4
Additions
1.0
7.5
93.1
0.2
24.7
126.5
Disposals
(0.4)
(4.6)
(42.2)
—
(9.2)
(56.4)
At 31 July 2023
21.5
65.5
449.1
0.4
94.0
630.5
Additions
1.3
12.9
64.7
—
10.0
88.9
Disposals
(0.4)
(13.3)
(71.9)
—
(11.1)
(96.7)
At 31 July 2024
22.4
65.1
441.9
0.4
92.9
622.7
Depreciation
At 1 August 2022
13.0
36.9
158.2
0.2
29.6
237.9
Depreciation and impairment charges for the year
2.4
8.3
45.5
—
14.4
70.6
Disposals
(0.4)
(4.3)
(25.8)
—
(4.6)
(35.1)
At 31 July 2023
15.0
40.9
177.9
0.2
39.4
273.4
Depreciation and impairment charges for the year
2.3
9.1
44.4
0.1
15.5
71.4
Disposals
(0.3)
(13.4)
(48.3)
—
(9.7)
(71.7)
At 31 July 2024
17.0
36.6
174.0
0.3
45.2
273.1
Net book value at 31 July 2024
5.4
28.5
267.9
0.1
47.7
349.6
Net book value at 31 July 2023
6.5
24.6
271.2
0.2
54.6
357.1
Net book value at 1 August 2022
7.9
25.7
240.0
—
48.9
322.5
1.
Right of use assets primarily relate to the group’s leasehold properties.
The net book value of assets held under operating leases includes £0.6 million (31 July 2023: £5.9 million) relating to vehicles
held in inventories. There was a gain of £0.4 million from the sale of assets held under operating leases for the year ended
31 July 2024 (2023: £3.3 million).
The Notes continued
224
Close Brothers Group plc Annual Report 2024
31 July 2024
31 July 2023
£ million
£ million
Future minimum lease rentals receivable under non-cancellable operating leases
One year or within one year
51.0
50.8
>One to two years
36.1
34.1
>Two to three years
28.2
22.5
>Three to four years
19.1
14.9
>Four to five years
6.7
8.1
More than five years
2.1
2.3
143.2
132.7
Fixtures,
Leasehold
fittings and
property
equipment
Total
£ million
£ million
£ million
Company
Cost
At 1 August 2022
0.3
11.8
12.1
Additions
—
—
—
At 31 July 2023
0.3
11.8
12.1
Additions
—
—
—
At 31 July 2024
0.3
11.8
12.1
Depreciation
At 1 August 2022
0.1
1.8
1.9
Charge for the year
—
1.3
1.3
At 31 July 2023
0.1
3.1
3.2
Charge for the year
—
1.2
1.2
At 31 July 2024
0.1
4.3
4.4
Net book value at 31 July 2024
0.2
7.5
7.7
Net book value at 31 July 2023
0.2
8.7
8.9
Net book value at 1 August 2022
0.2
10.0
10.2
The net book value of leasehold property comprises:
Group
Company
31 July 2024
31 July 2023
31 July 2024
31 July 2023
£ million
£ million
£ million
£ million
Long leasehold property
1.1
1.2
0.2
0.2
Short leasehold property
4.3
5.3
—
—
5.4
6.5
0.2
0.2
225
Strategic Report
Governance Report
Financial Statements
16. Other Assets and Liabilities
31 July 2024
31 July 2023
£ million
£ million
Prepayments, accrued income and other assets
Prepayments
110.7
117.3
Accrued income
21.1
20.0
Trade and other receivables
54.9
46.8
186.7
184.1
Accruals, deferred income and other liabilities
Accruals
118.0
130.3
Deferred income
7.5
7.9
Trade and other payables
148.7
145.6
Provisions
32.3
19.2
306.5
303.0
Restructuring costs
The group incurred £3.1 million of restructuring costs in the 2024 financial year which includes the recognition of an accrual
primarily relating to redundancy and associated costs of £0.9 million. These costs do not reflect underlying trading
performance and therefore have been presented as a separate adjusting item and excluded from adjusted operating profit by
management.
Provisions movement in the year:
Legal and
regulatory
Property
Other
Total
£ million
£ million
£ million
£ million
Group
At 1 August 2022
8.9
6.7
8.3
23.9
Additions
1.6
1.5
4.1
7.2
Utilisation
(6.2)
—
(2.0)
(8.2)
Released
(2.0)
(0.1)
(1.6)
(3.7)
At 31 July 2023
2.3
8.1
8.8
19.2
Additions
19.1
1.4
3.5
24.0
Utilisation
(1.8)
(1.0)
(6.5)
(9.3)
Released
—
(0.6)
(1.0)
(1.6)
At 31 July 2024
19.6
7.9
4.8
32.3
Property
Other
Total
£ million
£ million
£ million
Company
At 1 August 2022
0.4
3.0
3.4
Additions
—
0.4
0.4
Utilisation
—
(0.7)
(0.7)
Released
—
(0.7)
(0.7)
At 31 July 2023
0.4
2.0
2.4
Additions
—
0.3
0.3
Utilisation
—
(0.7)
(0.7)
Released
—
(0.4)
(0.4)
At 31 July 2024
0.4
1.2
1.6
The Notes continued
226
Close Brothers Group plc Annual Report 2024
Provisions are made for claims and other items which arise in the normal course of business. Claims relate to legal and
regulatory cases, while other items largely relate to property dilapidations and employee benefits. For such matters, a provision
is recognised where it is determined that there is a present obligation arising from a past event, payment is probable, and the
amount can be estimated reliably. The timing and/or outcome of these claims and other items are uncertain.
Review of Borrowers in Financial Difficulty
Following discussions with the FCA in relation to its market wide review of Borrowers in Financial Difficulty (“BiFD”), which
assessed forbearance and related practices, the group conducted a Past Business Review of customer forbearance related to
its motor finance lending. This has now concluded and a provision of £17.2 million has been recognised at 31 July 2024 in
relation to this matter under the category of legal and regulatory in the table above.
As a result of this review, certain customers will be due compensation and the group is undertaking an exercise to identify and
remediate these customers as appropriate. We have commenced making compensation payments to customers, with the
resulting remediation programme expected to be materially complete this calendar year.
The provision comprises estimates of the expected customer compensation and the associated operational costs. The final
remediation cost remains uncertain with data to identify customers who are due remediation being collated.
The £17.2 million provision is based on a probability weighting methodology taking into account assumptions such as the
number of customers in scope of the exercise, the average payments due to customers, and the expected cost of remediation
for the group.
The provision does not reflect underlying trading performance and therefore has been presented as a separate adjusting item
and excluded from adjusted operating profit by management.
17. Settlement Balances and Short Positions
31 July 2024
31 July 2023
£ million
£ million
Settlement balances
600.1
686.0
Short positions in:
Debt securities
5.5
3.5
Equity shares
9.3
6.4
14.8
9.9
614.9
695.9
18. Financial Liabilities
Between
Between
Between
After
Within three
three months
one and two
two and five
more than
On demand
months
and one year
years
years
five years
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
Deposits by banks
0.9
53.0
84.5
—
—
—
138.4
Deposits by customers
706.6
2,320.7
3,397.9
1,685.2
583.2
—
8,693.6
Loans and overdrafts from banks
46.6
9.0
—
110.0
—
—
165.6
Debt securities in issue
—
21.9
246.6
799.0
595.3
323.6
1,986.4
At 31 July 2024
754.1
2,404.6
3,729.0
2,594.2
1,178.5
323.6
10,984.0
Between
Between
Between
After
Within three
three months
one and two
two and five
more than
On demand
months
and one year
years
years
five years
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
Deposits by banks
10.3
43.6
88.0
—
—
—
141.9
Deposits by customers
175.1
1,836.4
3,745.9
1,305.0
662.1
—
7,724.5
Loans and overdrafts from banks
31.8
20.1
228.0
262.0
110.0
—
651.9
Debt securities in issue
—
30.4
228.7
197.8
1,261.8
293.9
2,012.6
At 31 July 2023
217.2
1,930.5
4,290.6
1,764.8
2,033.9
293.9
10,530.9
At 31 July 2024, the parent company had £250.8 million (31 July 2023: £250.5 million) of non-instalment debt securities in
issue with an interest rate of 7.75% and a final maturity date of 2028.
227
Strategic Report
Governance Report
Financial Statements
18. Financial Liabilities (continued)
As outlined in Note 26(c), at 31 July 2024 the group accessed £110.0 million (31 July 2023: £600.0 million) and £nil (31 July
2023: £5.0 million) cash under the Bank of England’s Term Funding Scheme with Additional Incentives for SMEs and Indexed
Long-Term Repo respectively. Cash from these schemes is included within loans and overdrafts from banks. Residual
maturities of the schemes are as follows:
Between
Between
Between
After
Within three
three months
one and two
two and five
more than
On demand
months
and one year
years
years
five years
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
At 31 July 2024
—
0.5
—
110.0
—
—
110.5
At 31 July 2023
—
7.6
228.0
262.0
110.0
—
607.6
19. Subordinated Loan Capital
Initial
Prepayment
interest
31 July 2024
31 July 2023
date
rate
£ million
£ million
Final maturity date
2031
2026
2.00%
187.2
174.9
187.2
174.9
At 31 July 2024, the parent company had £200.8 million (31 July 2023: £200.4 million) of subordinated loan capital with an
interest rate of 2.00% and a final maturity date of 2031.
20. Called Up Share Capital, Distributable Reserves and Other Equity Instrument
31 July 2024
31 July 2023
million
£ million
million
£ million
Group and company
Ordinary shares of 25p each (allotted, issued and fully paid)
152.1
38.0
152.1
38.0
At 31 July 2024, the company’s reserves available for distribution under section 830(2) and 831(2) of the Companies Act 2006
were £299.6 million (2023: £401.9 million). The directors have applied the guidance provided by ICAEW TECH 02/17 in
determining this.
Other equity instrument comprises the group’s £200.0 million Fixed Rate Reset Perpetual Subordinated Contingent Convertible
Securities, or Additional Tier 1 capital (“AT1”), issued on 29 November 2023. These AT1 securities are classified as an equity
instrument under IAS 32 ‘Financial Instruments: Presentation’ with the proceeds recognised in equity net of transaction costs
of £2.4 million.
These securities carry a coupon of 11.125%, payable semi-annually on 29 May and 29 November of each year and have a first
reset date on 29 May 2029. The first coupon payment of £11.1 million was made on 29 May 2024. The securities include,
among other things, a conversion trigger of 7.0% Common Equity Tier 1 capital ratio and are callable any time in the six-month
period prior to and including the first reset date or on each reset date occurring every five years thereafter.
Additional disclosures on the group’s capital position and capital risk can be found on pages 86 to 88 in the Capital risk
section of the Risk Report.
21. Guarantees, Commitments and Contingent Liabilities
Guarantees
Group
Company
31 July 2024
31 July 2023
31 July 2024
31 July 2023
£ million
£ million
£ million
£ million
Earliest period in which guarantee could be called
Within one year
137.7
114.0
130.0
105.0
More than one year
3.7
3.2
—
—
141.4
117.2
130.0
105.0
Guarantees arise in the normal course of business and include performance guarantees issued by certain businesses. 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.
The Notes continued
228
Close Brothers Group plc Annual Report 2024
Commitments
Undrawn facilities, credit lines and other commitments to lend - revocable and irrevocable
31 July 2024
31 July 2023
£ million
£ million
Within one year¹
1,038.2
1,228.5
After more than one year
9.5
—
1,047.7
1,228.5
Other commitments
Subsidiaries had contracted capital and other financial commitments of £46.5 million (2023: £80.6 million).
Operating lease commitments
During the year, the company recognised lease payments as an expense of £2.1 million (2023: £2.1 million). At 31 July 2024,
the company had future minimum lease payments under non-cancellable operating leases relating to property of £2.1 million
within one year, £8.3 million between one and five years, and £2.2 million after more than five years, totalling £12.6 million
(31 July 2023: £2.1 million, £8.3 million, and £4.3 million respectively, totalling £14.7 million).
Contingent liabilities
Motor Finance commission arrangements
FCA review
As disclosed in previous periods, the group continues to receive a high number of complaints, many of which are now with the
Financial Ombudsman Service (“FOS”), and is subject to a number of claims through the courts regarding historic Discretionary
Commission Arrangements (“DCAs”) with intermediaries on its Motor Finance products. This follows the FCA’s Motor Market
Review in 2019.
On 11 January 2024, the FOS published its first two decisions upholding customer complaints relating to DCAs against two
other lenders in the market and instructed them to pay compensation to the complainants if they accepted the outcome. On
the same day, recognising that these decisions were likely to significantly increase the number of complaints to motor finance
providers and the FOS, risking disorderly and inconsistent outcomes as well as market instability, the FCA released policy
statement PS 24/1 which introduced temporary changes to handling rules for motor finance complaints until at least
September 2024.
This means that firms will not have to resolve these complaints within the normal time limits. This was to allow the FCA time to
carry out diagnostic work to determine whether or not there has been widespread failure to comply with regulatory
requirements which has caused customers harm and, if so, whether it needs to take any action. The FCA has indicated that
such steps could include establishing an industry-wide consumer redress scheme and/or applying to the Financial Markets
Test Case Scheme, to help resolve any contested legal issues of general importance.
In the FCA’s 11 January 2024 announcement, it aimed to communicate a decision on next steps by 24 September 2024. Since
then, the FCA further announced on 30 July 2024 that because it has taken longer to collect and review the historical data, and
also due to relevant ongoing litigation, it would not be able to set out the next steps of its review by 24 September 2024 as it
originally planned and it now aims to set out next steps by the end of May 2025. In addition, the FCA extended the current
pause to the 8-week deadline for firms to respond to complaints involving a DCA to 4 December 2025.
Impact on Close Brothers
The group is subject to a number of claims through the courts regarding historical Motor Finance commission arrangements.
One of these, initially determined in the group’s favour, was appealed by the claimant and the case was heard in early July
2024 by the Court of Appeal 2024 together with two separate claims made against another lender. The Court’s decision is now
awaited.
As of 31 August 2024, where individual cases were adjudicated in County Court, the courts found that there was no
demonstrable customer harm and hence no compensation to pay in the majority of the outcomes for Close Brothers.
Nevertheless, there have been only a limited number of adjudicated cases at this stage.
There are also a number of complaints that have been referred to the FOS for a determination. To date, no final FOS decisions
have been made upholding complaints against Close Brothers. On 9 May 2024, the FOS announced that it would be unlikely to
be able to issue final decisions on motor commission cases for some time due to the potential impact of a judicial review
proceeding started by another lender in relation to one of its January 2024 decisions and also the outstanding Court of Appeal
decisions.
Consistent with our Half Year 2024 results, there remains significant uncertainty about the outcome of this matter at this early
stage. The FCA has indicated there could be a range of outcomes, with one potential outcome being an industry-wide
consumer redress scheme. The estimated impact of any redress scheme, if required, is highly dependent on a number of
factors such as: the time period covered; the DCA models impacted (the group operated a number of different models during
the period under review); appropriate reference commission rates set for any redress; and response rates to any redress
scheme. As such, at this early stage, the timing, scope and quantum of any potential financial impact on the group cannot be
reliably estimated at present.
229
Strategic Report
Governance Report
Financial Statements
21. Guarantees, Commitments and Contingent Liabilities (continued)
Based on the status at the end of the financial year and in accordance with the relevant accounting standards, the board has
concluded that no legal or constructive obligation exists and it is currently not required or appropriate to recognise a provision
at 31 July 2024. It is also not practicable at this early stage to estimate or disclose any potential financial impact arising from
this issue.
During the 2024 financial year, the group incurred costs of £6.9 million in relation to historic motor commission arrangements.
This £6.9 million covered the costs of the group dealing with complaints (including FOS fees), legal spend, and investment
spend as we prepare for the outcome of the FCA review. These costs do not reflect underlying trading performance and
therefore have been presented as a separate adjusting item and excluded from adjusted operating profit by management.
In the normal course of the group’s business, there may be other contingent liabilities relating to complaints, legal proceedings
or regulatory reviews. These cases are not currently expected to have a material impact on the group.
22. Related Party Transactions
Transactions with key management
Details of directors’ remuneration and interests in shares are disclosed in the Directors’ Remuneration Report.
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:
2024
2023
£ million
£ million
Emoluments
Salaries and fees
6.0
5.7
Benefits and allowances
0.8
0.6
Performance related awards in respect of the current year:
Cash
1.7
1.7
8.5
8.0
Share-based awards
0.7
(0.9)
9.2
7.1
Gains upon exercise of options by key management personnel, expensed to the income statement in previous years, totalled
£1.8 million (2023: £1.4 million).
Key management have banking and asset management relationships with group entities which are entered into in the normal
course of business. Amounts included in deposits by customers at 31 July 2024 attributable, in aggregate, to key management
were £0.3 million (31 July 2023: £0.5 million).
23. 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
£18.3 million (2023: £16.5 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.
During the last financial year, the scheme entered into a buy-in transaction with an insurance company covering all members of
the scheme. A buy-in is a bulk annuity policy that matches the scheme’s assets and liabilities. It represents a significant de-
risking of the investment portfolio and hence a significant reduction in the group’s long-term exposure to pension funding risk.
The pension surplus on the group’s balance sheet is £0.8 million (31 July 2023: £1.3 million) relating to the cash held by the
scheme, with the fair value of the insurance policy matched to the fair value of the scheme’s liabilities, which remains subject
to changes in actuarial valuations as presented in this note.
The scheme was closed to new entrants in August 1996 and closed to further accrual during 2012. At 31 July 2024 this
scheme had 21 (31 July 2023: 24) deferred members, 58 (31 July 2023: 56) pensioners and dependants and 8 (31 July 2023: 8)
insured annuitants.
The Notes continued
230
Close Brothers Group plc Annual Report 2024
Funding position
The scheme’s most recent triennial actuarial valuation at 31 July 2021 showed that the scheme was fully funded. As such, no
further contributions are scheduled.
IAS 19 valuation
The following disclosures are reported in accordance with IAS 19. Significant actuarial assumptions are as follows:
2024
2023
%
%
Inflation rate (Retail Price Index)
3.4
3.5
Inflation rate (CPI)
3.0
3.1
Discount rate for scheme liabilities¹
4.9
5.2
Expected interest/expected long-term return on plan assets
4.9
5.2
Mortality assumptions²:
Existing pensioners from age 65, life expectancy (years):
Men
22.9
23.0
Women
24.8
24.8
Non-retired members currently aged 50, life expectancy from age 65 (years):
Men
23.6
23.7
Women
26.1
26.1
1. Based on market yields at 31 July 2024 and 2023 on high quality sterling-denominated corporate bonds, adjusted to be consistent with the estimated
term of the post-employment benefit obligation, using the Willis Towers Watson model “Global RATE:Link”.
2. Based on standard tables SAPS S2 Light (2023: SAPS S2 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 2023 (2023: CMI 2022) core
projection model with a long-term trend of 1.5% per annum.
The scheme has been accounted for in the company and the surplus has been recognised as an asset on the company and
group’s balance sheet within “Trade and other receivables”.
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, and accordingly the scheme surplus is recognised on the consolidated balance
sheet.
2024
2023
2022
2021
2020
£ million
£ million
£ million
£ million
£ million
Fair value of scheme assets¹
Equities
—
—
—
9.4
14.0
Bonds
—
—
30.3
33.6
32.3
Cash
0.9
1.4
3.5
0.2
0.3
Insured annuities
23.2
22.4
1.0
—
—
Total assets
24.1
23.8
34.8
43.2
46.6
Fair value of liabilities
(23.3)
(22.5)
(27.6)
(35.6)
(39.2)
Surplus
0.8
1.3
7.2
7.6
7.4
1. There are no amounts included within the fair value of scheme assets relating to the financial instruments of Close Brothers Group plc.
Movement in the present value of scheme liabilities during the year:
2024
2023
£ million
£ million
Carrying amount at 1 August
(22.5)
(27.6)
Interest expense
(1.1)
(0.9)
Benefits paid
1.3
1.1
Actuarial (loss)/gain
(1.0)
4.9
Other
—
—
Carrying amount at 31 July
(23.3)
(22.5)
231
Strategic Report
Governance Report
Financial Statements
23. Pensions (continued)
Movement in the fair value of scheme assets during the year:
2024
2023
£ million
£ million
Carrying amount at 1 August
23.8
34.8
Interest income
1.2
1.1
Benefits paid
(1.2)
(1.1)
Administrative costs paid
(0.6)
(0.4)
Returns/(losses) on scheme assets, excluding interest income
0.9
(10.6)
Carrying amount at 31 July
24.1
23.8
Historical experience of actuarial gains/(losses) are shown below:
2024
2023
2022
2021
2020
£ million
£ million
£ million
£ million
£ million
Returns/(losses) on scheme assets
0.9
(10.6)
(8.7)
1.9
4.1
Experience (losses)/gains on scheme liabilities
(0.4)
(0.9)
0.4
—
—
Impact of changes in assumptions
(0.5)
5.8
8.2
(1.4)
(3.2)
Total actuarial changes in liabilities
(0.9)
4.9
8.6
(1.4)
(3.2)
Total actuarial gains/(losses)
—
(5.7)
(0.1)
0.5
0.9
Any actuarial movements would be recognised in other comprehensive income. Income of £0.1 million (2023: £0.2 million) from
the interest on the scheme surplus has been recognised within administrative expenses in the consolidated income statement.
The group’s policy is not to allocate the net defined benefit cost between group entities participating in the scheme.
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 2024 and 2023 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)
2024
2023
Key assumption
Sensitivity
%
£ million
%
£ million
Discount rate
0.25% decrease
2.8
0.6
2.9
0.7
Price inflation (RPI)
0.25% increase
1.3
0.3
1.1
0.3
Mortality
Increase in life expectancy at age 65 by one year
2.7
0.6
2.6
0.6
The company is exposed to a number of risks relating to the scheme, including assumptions not being borne out in practice.
Some of the most significant risks are as follows, although the list is not exhaustive.
• Change in bond yields: A decrease in corporate bond yields will increase the value placed on the scheme’s defined benefit
obligation ("DBO"), although following the buy-in transaction this will be largely offset by an increase in the value of the
scheme’s assets.
• Asset volatility: There is a risk that a fall in asset values is not matched by a corresponding reduction in the value placed on
the scheme’s DBO. This risk has been significantly reduced by the purchase of an insurance policy to cover the scheme’s
liabilities.
• Inflation risk: The majority of the scheme’s DBO is linked to inflation, where higher inflation will lead to a higher value being
placed on the DBO. Some of the scheme’s non-buy-in assets are either unaffected by inflation or loosely correlated with
inflation (e.g. growth assets), meaning that an increase in inflation will generally decrease the surplus. The value of the buy-in
asset will vary with inflation broadly in line with the changes to the scheme’s DBO.
• Life expectancy: An increase in life expectancy will lead to an increased value being placed on the scheme’s DBO and on
the insurance policy assets. Future mortality rates cannot be predicted with certainty. The impact on the DBO would be very
closely matched by the impact on the buy-in asset value.
The weighted average duration of the benefit payments reflected in the scheme liabilities is 11 years (2023: 12 years).
The Virgin Media Ltd v NTL Pension Trustees II decision, handed down by the High Court on 16 June 2023, considered the
implications of section 37 of the Pension Schemes Act 1993. In a judgment delivered on 25 July 2024, the Court of Appeal
unanimously upheld the decision of the High Court and the case has the potential to cause significant issues in the pensions
industry. The trustees will investigate the possible implications with its advisers in due course, but it is not possible at present
to estimate the potential impact, if any, on the scheme.
The Notes continued
232
Close Brothers Group plc Annual Report 2024
24. Share-based Awards
The Save As You Earn (“SAYE”), Long Term Incentive Plan (“LTIP”) and Deferred Share Awards (“DSA”) share-based awards
have been granted under the group’s share schemes. The general terms and conditions for these share-based awards are
described on pages 156 to 158 in the Directors’ Remuneration Report.
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 2024, 1.6 million (31 July 2023: 1.6 million)
and 1.7 million (31 July 2023: 1.5 million) of these shares were held respectively and in total £38.9 million (2023: £40.0 million)
was recognised within the share-based payments reserve. During the year £4.6 million (2023: £5.6 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 £5.1 million (2023: £8.0 million). The share-based awards charge of £4.6 million (2023:
£2.0 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:
SAYE
LTIP
DSA
Weighted
Weighted
Weighted
average
average
average
exercise
exercise
exercise
Number
price
Number
price
Number
price
At 1 August 2022
2,270,371
—
1,357,858
—
475,003
—
Granted
1,736,479
725.6p
397,568
—
262,402
—
Exercised
(103,625)
875.0p
(87,172)
—
(243,451)
—
Forfeited
(967,425)
863.9p
(137,965)
—
—
—
Lapsed
(131,073) 1,118.9p
(177,449)
—
(2,006)
—
At 31 July 2023
2,804,727
—
1,352,840
—
491,948
—
Granted
3,597,558
371.0p
655,791
—
282,309
—
Exercised
(28,728)
813.9p
(122,788)
—
(239,280)
—
Forfeited
(1,658,190)
754.9p
(97,255)
—
(1,836)
—
Lapsed
(803,600)
828.7p
(466,854)
—
(939)
—
At 31 July 2024
3,911,767
—
1,321,734
—
532,202
—
Exercisable at:
31 July 2024
17,017 1,213.3p
61,733
—
205,654
—
31 July 2023
280,152
893.8p
184,521
—
40,656
—
The table below shows the weighted average market price at the date of exercise:
2024
2023
SAYE
798.3p
950.9p
LTIP
807.3p
1,022.5p
DSA
660.8p
994.5p
233
Strategic Report
Governance Report
Financial Statements
24. Share-based Awards (continued)
The range of exercise prices and weighted average remaining contractual life of awards and options outstanding are as
follows:
2024
2023
Options outstanding
Options outstanding
Weighted
Weighted
average
average
remaining
remaining
contractual
contractual
Number
life
Number
life
outstanding
Years
outstanding
Years
SAYE
Between £3 and £4
3,557,353
3.4
—
—
Between £7 and £8
265,843
2.4
2,269,108
2.8
Between £8 and £9
10,130
1.3
328,704
0.7
Between £9 and £10
34,705
1.6
101,476
2.7
Between £10 and £11
3,651
0.8
15,928
1.5
Between £11 and £12
2,091
0.3
8,284
0.8
Between £12 and £13
24,785
1.3
51,346
2.2
Between £13 and £14
13,209
0.5
29,881
1.8
LTIP
Nil
1,305,484
3.6
1,352,840
3.3
DSA
Nil
548,452
1.7
491,948
1.7
Total
5,765,703
3.2
4,649,515
2.7
For the share-based awards granted during the year, the weighted average fair value of those options at 31 July 2024 was
251.0p (31 July 2023: 395.7p). The main assumptions for the valuation of these share-based awards comprised:
Expected
At 31 July 2024
Share price
Exercise
Expected
option
Dividend
Risk free
Exercise period
at issue
price
volatility
life in years
yield
interest rate
SAYE
1 December 2025 to 31 May 2026
918.8p
735.0p
36.0%
3
7.2%
3.6%
1 December 2027 to 31 May 2028
918.8p
735.0p
31.0%
5
7.2%
4.0%
1 June 2026 to 30 November 2026
896.3p
717.0p
33.0%
3
7.4%
3.7%
1 June 2028 to 30 November 2028
896.3p
717.0p
32.0%
5
7.4%
3.6%
1 June 2027 to 30 December 2027
463.8p
371.0p
41.0%
3
7.3%
4.3%
LTIP
11 October 2025 to 10 October 2026
1110.0p
—
36.0%
3
7.2%
3.6%
11 October 2026 to 10 October 2027
923.0p
—
33.0%
4
7.2%
3.6%
4 October 2026 to 3 October 2027
871.9p
—
31.0%
3
7.9%
4.7%
4 October 2026 to 3 October 2027
871.9p
—
31.0%
3
7.9%
4.7%
1 May 2027 to 30 April 2028
380.2p
—
41.0%
3
7.5%
4.1%
DSA
10 October 2024 to 9 October 2025
923.1p
—
—
—
—
—
28 September 2023 to 26 September 2024
965.0p
—
—
—
—
—
21 September 2023 to 19 September 2024
965.0p
—
—
—
—
—
28 September 2024 to 27 September 2025
965.0p
—
—
—
—
—
29 September 2025 to 27 September 2026
965.0p
—
—
—
—
—
4 October 2025 to 3 October 2026
871.9p
—
—
—
—
—
8 March 2024 to 7 March 2025
808.0p
—
—
—
—
—
4 June 2024 to 3 June 2025
808.0p
—
—
—
—
—
7 March 2025 to 6 March 2026
808.0p
—
—
—
—
—
1 June 2025 to 31 May 2026
808.0p
—
—
—
—
—
10 March 2026 to 09 Mar 2027
808.0p
—
—
—
—
—
The Notes continued
234
Close Brothers Group plc Annual Report 2024
Expected
At 31 July 2023
Share price
Exercise
Expected
option
Dividend
Risk free
Exercise period
at issue
price
volatility
life in years
yield
interest rate
SAYE
1 December 2025 to 31 May 2026
918.8p
735.0p
36.0%
3
7.2%
3.6%
1 December 2027 to 31 May 2028
918.8p
735.0p
31.0%
5
7.2%
4.0%
1 June 2026 to 30 November 2026
896.3p
717.0p
33.0%
3
7.0%
3.7%
1 June 2028 to 30 November 2028
896.3p
717.0p
32.0%
5
7.0%
3.6%
LTIP
11 October 2025 to 10 October 2026
1,110.0p
—
36.0%
3
7.2%
3.6%
11 October 2026 to 10 October 2027
923.0p
—
33.0%
4
7.2%
3.6%
DSA
10 October 2024 to 9 October 2025
923.1p
—
—
—
—
—
28 September 2023 to 26 September 2024
965.0p
—
—
—
—
—
21 September 2023 to 19 September 2024
965.0p
—
—
—
—
—
28 September 2024 to 27 September 2025
965.0p
—
—
—
—
—
29 September 2025 to 27 September 2026
965.0p
—
—
—
—
—
Expected volatility was determined mainly by reviewing share price volatility for the expected life of each option up to the date
of grant.
235
Strategic Report
Governance Report
Financial Statements
25. Consolidated Cash Flow Statement Reconciliation
2024
2023
£ million
£ million
(a) Reconciliation of operating profit before tax to net cash inflow from operating activities
Operating profit before tax
142.0
112.0
Tax paid
(29.6)
(7.4)
Depreciation, amortisation and impairment
111.7
108.2
Impairment losses on financial assets
98.8
204.1
Amortisation of de-designated cash flow hedges
(27.9)
—
Decrease/(increase) in:
Interest receivable and prepaid expenses
5.5
(6.8)
Net settlement balances and trading positions
(0.3)
(11.4)
Net money broker loans against stock advanced
27.0
15.6
(Decrease)/increase in interest payable and accrued expenses
(12.7)
(16.5)
Net cash inflow from trading activities
314.5
397.8
Cash (outflow)/inflow arising from changes in:
Loans and advances to banks not repayable on demand
24.0
(21.1)
Loans and advances to customers
(699.4)
(584.3)
Assets let under operating leases
(41.1)
(73.2)
Certificates of deposit
—
185.0
Sovereign and central bank debt
(194.2)
191.2
SSA bonds
(140.2)
—
Covered bonds
(80.7)
(105.4)
Deposits by banks
(1.3)
(22.1)
Deposits by customers
975.1
942.5
Loans and overdrafts from banks
(492.2)
29.2
Debt securities in issue (net)
(67.6)
14.4
Derivative financial instruments (net)
—
70.4
Other assets less other liabilities1
21.1
(3.0)
Net cash (outflow)/inflow from operating activities
(382.0)
1,021.4
(b) Analysis of net cash outflow in respect of the purchase of subsidiaries
Purchase of subsidiaries, net of cash acquired
(15.4)
(0.5)
(c) Analysis of net cash inflow in respect of the sale of subsidiaries
Cash consideration received
0.9
—
(d) Analysis of cash and cash equivalents2
Cash and balances at central banks
1,584.2
1,918.4
Loans and advances to banks
260.3
290.9
At 31 July
1,844.5
2,209.3
1. Includes a £17.2 million (2023: £nil) provision in relation to the BiFD review, a non-cash item recognised within administrative expenses.
2. Excludes £33.2 million (2023: £58.0 million) of cash reserve accounts and cash held in trust.
During the year ended 31 July 2024, the non-cash changes on debt financing amounted to £35.9 million (31 July 2023: £0.9
million) arising largely from interest accretion and fair value hedging movements.
The Notes continued
236
Close Brothers Group plc Annual Report 2024
26. Financial Risk Management
The group faces a number of risks in the normal course of its business. To manage these effectively, a consistent approach is
adopted based on a set of overarching principles, namely:
• adhering to our established and proven business model;
• implementing an integrated risk management approach based on the concept of three lines of defence; and
• setting and operating within clearly defined risk appetites, monitored with defined metrics and limits.
The group’s Enterprise Risk Management Framework details the core risk management components and structures, and
defines a consistent and measurable approach to identifying, assessing, controlling and mitigating, reviewing and monitoring,
and reporting risk.
The board retains overall responsibility for overseeing the maintenance of a system of internal control, which ensures that an
effective risk management framework and oversight process operate across the group, while risk management across the
group is overseen by the Risk Committee.
The Risk Report provides more information on the group’s approach to 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.
Details of the material 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 IFRS
9. Derivatives designated as hedging instruments are classified as fair value through profit or loss.
Derivatives
designated
Fair value
Fair value
through other
as hedging
through
comprehensive
Amortised
instruments
profit or loss
income
cost
Total
£ million
£ million
£ million
£ million
£ million
At 31 July 2024
Assets
Cash and balances at central banks
—
—
—
1,584.0
1,584.0
Settlement balances
—
—
—
627.5
627.5
Loans and advances to banks
—
—
—
293.7
293.7
Loans and advances to customers
—
11.8
—
9,819.0
9,830.8
Debt securities
—
16.8
716.9
6.8
740.5
Equity shares
—
27.4
—
—
27.4
Loans to money brokers against stock advanced
—
—
—
22.5
22.5
Derivative financial instruments
83.6
17.8
—
—
101.4
Other financial assets
—
1.2
—
102.4
103.6
83.6
75.0
716.9
12,455.9
13,331.4
Liabilities
Settlement balances and short positions
—
14.8
—
600.1
614.9
Deposits by banks
—
—
—
138.4
138.4
Deposits by customers
—
—
—
8,693.6
8,693.6
Loans and overdrafts from banks
—
—
—
165.6
165.6
Debt securities in issue
—
—
—
1,986.4
1,986.4
Loans from money brokers against stock advanced
—
—
—
16.7
16.7
Subordinated loan capital
—
—
—
187.2
187.2
Derivative financial instruments
116.9
12.1
—
—
129.0
Other financial liabilities
—
—
—
189.9
189.9
116.9
26.9
—
11,977.9
12,121.7
237
Strategic Report
Governance Report
Financial Statements
26. Financial Risk Management (continued)
Derivatives
designated
Fair value
Fair value
through other
as hedging
through
comprehensive
Amortised
instruments
profit or loss
income
cost
Total
£ million
£ million
£ million
£ million
£ million
At 31 July 2023
Assets
Cash and balances at central banks
—
—
—
1,937.0
1,937.0
Settlement balances
—
—
—
707.0
707.0
Loans and advances to banks
—
—
—
330.3
330.3
Loans and advances to customers
—
—
—
9,255.0
9,255.0
Debt securities
—
15.2
292.4
—
307.6
Equity shares
—
29.3
—
—
29.3
Loans to money brokers against stock advanced
—
—
—
37.6
37.6
Derivative financial instruments
50.7
37.8
—
—
88.5
Other financial assets
—
2.0
—
93.5
95.5
50.7
84.3
292.4
12,360.4
12,787.8
Liabilities
Settlement balances and short positions
—
9.9
—
686.0
695.9
Deposits by banks
—
—
141.9
141.9
Deposits by customers
—
—
—
7,724.5
7,724.5
Loans and overdrafts from banks
—
—
—
651.9
651.9
Debt securities in issue
—
—
—
2,012.6
2,012.6
Loans from money brokers against stock advanced
—
—
—
4.8
4.8
Subordinated loan capital
—
—
—
174.9
174.9
Derivative financial instruments
176.2
19.7
—
—
195.9
Other financial liabilities
—
—
—
199.2
199.2
176.2
29.6
—
11,595.8
11,801.6
(b) Valuation
The fair values of the group’s subordinated loan capital and debt securities in issue are set out below.
31 July 2024
31 July 2023
Fair value
Carrying value
Fair value
Carrying value
£ million
£ million
£ million
£ million
Subordinated loan capital
179.4
187.2
165.8
174.9
Debt securities in issue
1,998.5
1,986.4
2,008.0
2,012.6
The fair value of gross loans and advances to customers at 31 July 2024 is estimated to be £9,806.4 million (31 July 2023:
£9,046.2 million), with a carrying value of £9,830.8 million (31 July 2023: £9,255.0 million). The fair value of deposits by
customers is estimated to be £8,691.8 million (31 July 2023: £7,668.7 million), with a carrying value of £8,693.6 million (31 July
2023: £7,724.5 million). These estimates are based on highly simplified assumptions and inputs and may differ to actual
amounts received or paid. The differences between fair value and carrying value are not considered to be significant, and are
consistent with management’s expectations given the nature of the Banking business and the short average tenor of the
instruments. However, the differences have decreased in comparison to the prior year in line with market interest rates.
The Notes continued
238
Close Brothers Group plc Annual Report 2024
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 quoted prices in less active markets for identical assets or liabilities
or those derived from inputs other than quoted prices 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”).
Instruments classified as Level 1 predominantly comprise sovereign and central bank debt, SSA bonds, covered bonds and
liquid listed debt securities. The fair value of these instruments is derived from quoted prices in active markets.
Instruments classified as Level 2 predominantly comprise less liquid listed equity shares, investment grade corporate bonds
and over-the-counter derivatives. The fair value of equity shares and bonds are derived from quoted prices in less active
markets in comparison to Level 1. Over-the-counter derivatives largely relate to interest rate and exchange rate contracts (see
Note 13 for further information). The valuation of such derivatives includes the use of discounted future cash flow models, with
the most significant input into these models being interest rate yield curves developed from quoted rates.
Instruments classified as Level 3 predominantly comprise loans and advances to customers, which is new this year, over-the-
counter derivatives and contingent consideration payable and receivable in relation to the acquisition and disposal of
subsidiaries.
The valuation of Level 3 derivatives is similar to Level 2 derivatives and includes the use of discounted future cash flow models,
with the most significant input into these models being interest rate yield curves developed from quoted rates.
The valuation of Level 3 loans and advances to customers is determined on a discounted expected cash flow basis net of
expected credit losses. The discount rate used in the valuation is the interest rate charged on the loan, which reflects an arm's
length rate chargeable on similar transactions.
The valuation of Level 3 contingent consideration is determined on a discounted expected cash flow basis.
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.
During the year, there were no transfers from Level 1, 2 to 3. In 2023, £1.6 million of derivative financial assets and £1.8 million
of derivative financial liabilities were transferred from Level 2 to 3.
The tables below show the classification of financial instruments held at fair value into the valuation hierarchy.
239
Strategic Report
Governance Report
Financial Statements
26. Financial Risk Management (continued)
Level 1
Level 2
Level 3
Total
£ million
£ million
£ million
£ million
At 31 July 2024
Assets
Loans and advances to customers held at FVTPL
—
—
11.8
11.8
Debt securities:
Sovereign and central bank debt
383.7
—
—
383.7
SSA bonds
145.5
—
—
145.5
Covered bonds
187.7
—
—
187.7
Long trading positions in debt securities
13.8
2.2
—
16.0
Equity shares
5.9
21.4
0.1
27.4
Derivative financial instruments
—
95.3
6.1
101.4
Contingent consideration
—
—
1.2
1.2
Other assets
—
—
0.8
0.8
736.6
118.9
20.0
875.5
Liabilities
Short positions:
Debt securities
3.3
2.2
—
5.5
Equity shares
2.2
7.1
—
9.3
Derivative financial instruments
—
122.6
6.4
129.0
Contingent consideration
—
—
3.0
3.0
5.5
131.9
9.4
146.8
Level 1
Level 2
Level 3
Total
£ million
£ million
£ million
£ million
At 31 July 2023
Assets
Loans and advances to customers held at FVTPL
—
—
—
—
Debt securities:
Sovereign and central bank debt
186.1
—
—
186.1
SSA bonds
—
—
—
—
Covered bonds
106.3
—
—
106.3
Long trading positions in debt securities
13.6
1.6
—
15.2
Equity shares
3.9
25.1
0.3
29.3
Derivative financial instruments
—
77.4
11.1
88.5
Contingent consideration
—
—
2.0
2.0
Other assets
—
—
—
—
309.9
104.1
13.4
427.4
Liabilities
Short positions:
Debt securities
2.3
1.2
—
3.5
Equity shares
1.7
4.6
0.1
6.4
Derivative financial instruments
—
184.7
11.2
195.9
Contingent consideration
—
—
2.8
2.8
4.0
190.5
14.1
208.6
The Notes continued
240
Close Brothers Group plc Annual Report 2024
Movements in financial instruments categorised as Level 3 were:
Loans and
advances
Derivative
Derivative
to customers
financial
financial
Contingent
Other
held at FVTPL
assets
liabilities
Equity shares
consideration
assets
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
At 1 August 2022
—
—
—
0.2
(1.3)
—
(1.1)
Total gains/(losses) recognised in the
consolidated income statement
—
9.5
(9.4)
—
(0.1)
—
—
Purchases, issues, originations and
transfers in
—
1.6
(1.8)
—
0.6
—
0.4
Sales, settlements and transfers out
—
—
—
—
—
—
—
At 31 July 2023
—
11.1
(11.2)
0.2
(0.8)
—
(0.7)
Total gains/(losses) recognised in the
consolidated income statement
—
(5.0)
4.8
—
0.4
—
0.2
Purchases, issues, originations and
transfers in
11.8
—
—
—
(0.5)
0.8
12.1
Sales, settlements and transfers out
—
—
—
(0.1)
(0.9)
—
(1.0)
At 31 July 2024
11.8
6.1
(6.4)
0.1
(1.8)
0.8
10.6
The gains recognised in the consolidated income statement relating to Level 3 instruments held at 31 July 2024 amounted to
£0.2 million (2023: £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 as they fall due. Credit risk across the group mainly arises through the
lending and treasury activities of the Banking division.
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. For off balance sheet instruments, the
maximum exposure to credit risk represents the contractual nominal amounts.
31 July 2024
31 July 2023
£ million
£ million
On balance sheet
Cash and balances at central banks
1,584.0
1,937.0
Settlement balances
627.5
707.0
Loans and advances to banks
293.7
330.3
Loans and advances to customers
9,830.8
9,255.0
Debt securities
740.5
307.6
Loans to money brokers against stock advanced
22.5
37.6
Derivative financial instruments
101.4
88.5
Other financial assets
103.6
95.5
13,304.0
12,758.5
Off balance sheet
Irrevocable undrawn commitments
281.8
263.9
Total maximum exposure to credit risk
13,585.8
13,022.4
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 borrowing contracts.
The group is a participant of the Bank of England’s Term Funding Scheme with Additional Incentives for SMEs (“TFSME”) and
the Indexed Long-Term Repo (“ILTR”).
Under these schemes, asset finance loan receivables of £404.8 million (31 July 2023: £863.4 million) and retained notes
relating to Motor Finance loan receivables of £34.4 million (31 July 2023: £83.4 million) were positioned as collateral with the
Bank of England, against which £110.0 million (31 July 2023: £600.0 million) of cash was drawn from the TFSME and £nil
(31 July 2023: £5.0 million) from the ILTR.
241
Strategic Report
Governance Report
Financial Statements
26. Financial Risk Management (continued)
The term of the TFSME transactions is four years from the date of each drawdown but the group may choose to repay earlier
at its discretion. The term of the ILTR transaction is six months and cannot be repaid earlier. The risks and rewards of the loan
receivables remain with the group and continue to be recognised in loans and advances to customers on the consolidated
balance sheet.
The group has securitised without recourse and restrictions £1,657.0 million (31 July 2023: £1,436.3 million) of its insurance
premium and motor loan receivables in return for cash and asset-backed securities in issue of £1,453.7 million (31 July 2023:
£1,187.4 million). This includes the £34.4 million (31 July 2023: £83.4 million) retained notes positioned as collateral with the
Bank of England. 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 on its consolidated balance
sheet.
The majority of loans and advances to customers are secured against specific assets. Consistent and prudent lending criteria
are applied across the whole loan book with emphasis on the quality of the security provided.
As at 31 July 2024, Winterflood had pledged equity and debt securities of £18.3 million (31 July 2023: £5.2 million) in the
normal course of business.
Financial assets: Loans and advances to customers
The group’s approach to managing credit risk relating to loans and advances to customers is set out on pages 90 to 92 in the
Risk Report.
Information on the group’s internal credit risk reporting can be found on pages 100 to 101 in the Risk Report, including an
analysis of gross loans and advances to customers, trade receivables and undrawn facilities by the group’s internal credit risk
grading.
Information on the collateral held in relation to loans and advances to customers can be found on pages 102 to 103 in the Risk
Report, including analyses of gross loans and advances to customers by LTV ratio.
Financial assets: Treasury assets
The credit risk presented by the group’s treasury assets is low. Immaterial impairment provisions are recognised for cash and
balances at central banks, sovereign and central bank debt, SSA bonds and covered bonds. These financial assets are
investment grade and in Stage 1.
Financial assets: Settlement balances and loans to money brokers against stock advanced
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.
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.
Loans to money brokers against stock advanced of £22.5 million (31 July 2023: £37.6 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 credit risk of this financial asset is therefore limited.
The following table shows the ageing of settlement balances:
Stage 1
Stage 2
Stage 3
Impairment
provision
Total
£ million
£ million
£ million
£ million
£ million
At 31 July 2024
Not past due
599.9
—
—
—
599.9
Less than 30 days past due
24.6
—
—
—
24.6
More than 30 days but less than 90 days past due
—
2.5
—
—
2.5
More than 90 days past due
—
—
0.5
—
0.5
624.5
2.5
0.5
—
627.5
The Notes continued
242
Close Brothers Group plc Annual Report 2024
Stage 1
Stage 2
Stage 3
Impairment
provision
Total
£ million
£ million
£ million
£ million
£ million
At 31 July 2023
Not past due
622.1
—
—
—
622.1
Less than 30 days past due
83.9
—
—
—
83.9
More than 30 days but less than 90 days past due
—
0.6
—
—
0.6
More than 90 days past due
—
—
0.5
(0.1)
0.4
706.0
0.6
0.5
(0.1)
707.0
Company financial assets: Amounts owed by subsidiaries
Amounts owed by subsidiaries on the company balance sheet largely relate to Close Brothers Limited and Close Brothers
Holdings Limited, and the credit risk presented by these financial assets is immaterial.
(d) Market risk
Interest rate risk
Additional disclosures on the group’s interest rate risk can be found on pages 107 to 108 in the Risk Report.
Foreign exchange risk
Additional disclosures on the group’s foreign exchange risk can be found on pages 108 to 109 in the Risk Report.
Market price risk
Trading financial instruments: Equity shares and debt securities
The group’s trading activities relate to Winterflood. Additional disclosures on Winterflood’s market price risk can be found on
pages 115 to 116 of the Risk Report.
Non-trading financial instruments
Net gains and losses on non-trading financial instruments are disclosed in Notes 11.
243
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Financial Statements
26. Financial Risk Management (continued)
(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. The following table analyses the contractual maturities of the group’s on balance sheet financial
liabilities on an undiscounted cash flow basis. Additional disclosures on the group’s liquidity risk can be found on pages 104 to
105 of the Risk Report.
In more
In more
In more than
than six
than one
In less
three months but
months but
year but not
In more
On
than three
not more than not more than
more than
than
demand
months
six months
one year
five years
five years
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
At 31 July 2024
Settlement balances
—
600.1
—
—
—
—
600.1
Deposits by banks
0.9
53.2
86.1
—
—
—
140.2
Deposits by customers
708.9 2,309.5
1,502.1
2,008.7
2,474.8
— 9,004.0
Loans and overdrafts from banks
46.7
9.9
1.4
2.7
111.7
—
172.4
Debt securities in issue
—
40.0
119.3
195.4
1,541.7
409.8 2,306.2
Loans from money brokers against stock
advanced
16.7
—
—
—
—
—
16.7
Subordinated loan capital
—
2.0
—
2.0
16.0
209.0
229.0
Derivative financial instruments
0.3
47.3
37.0
50.6
183.0
86.8
405.0
Lease liabilities
0.2
3.2
2.7
3.9
29.6
18.1
57.7
Other financial liabilities
22.6
101.0
1.3
10.9
27.1
2.5
165.4
Total
796.3 3,166.2
1,749.9
2,274.2
4,383.9
726.2 13,096.7
In more
In more
In more than
than six
than one
In less
three months but
months but
year but not
In more
On
than three
not more than
not more than
more than
than
demand
months
six months
one year
five years
five years
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
At 31 July 2023
Settlement balances
—
686.0
—
—
—
—
686.0
Deposits by banks
10.3
43.7
89.7
—
—
—
143.7
Deposits by customers
175.1 1,838.3
1,972.9
1,869.6
2,140.6
— 7,996.5
Loans and overdrafts from banks
31.8
25.2
7.6
243.8
383.2
—
691.6
Debt securities in issue
—
46.7
132.3
168.1
1,705.1
416.3 2,468.5
Loans from money brokers against stock
advanced
4.8
—
—
—
—
—
4.8
Subordinated loan capital
—
2.0
—
2.0
16.0
213.0
233.0
Derivative financial instruments
0.2
21.7
23.5
39.0
167.6
73.0
325.0
Lease liabilities
0.2
4.8
4.1
6.9
26.7
19.6
62.3
Other financial liabilities
20.3
111.6
0.9
10.6
28.0
8.7
180.1
Total
242.7 2,780.0
2,231.0
2,340.0
4,467.2
730.6 12,791.5
Derivative financial instruments in the table above includes net currency swaps. The following table shows the currency swaps
on a gross basis:
In more
In more
In more than
than six
than one
In less
three months but
months but
year but not
In more
On
than three
not more than
not more than
more than
than
demand
months
six months
one year
five years
five years
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
At 31 July 2024
0.9
259.9
37.0
49.8
178.6
86.8
613.0
At 31 July 2023
41.2
153.9
26.0
39.4
167.5
73.0
501.0
The Notes continued
244
Close Brothers Group plc Annual Report 2024
(f) Offsetting
The following table shows the impact on derivative financial assets and liabilities which have not been offset but for which the
group has enforceable master netting arrangements in place with counterparties. The net amounts show the exposure to
counterparty credit risk after offsetting benefits and collateral, and are not intended to represent the group’s actual exposure to
credit risk.
Master netting arrangements allow outstanding transactions with the same counterparty to be offset and settled net, either
unconditionally or following a default or other predetermined event. Financial collateral on derivative financial instruments
consists of cash settled, typically daily, to mitigate the mark to market exposures.
Gross
Master
Net amounts
amounts
netting
Financial
after
recognised
arrangements
collateral
offsetting
£ million
£ million
£ million
£ million
At 31 July 2024
Derivative financial assets
101.4
(97.9)
(0.8)
2.7
Derivative financial liabilities
129.0
(97.9)
(67.5)
(36.4)
At 31 July 2023
Derivative financial assets
88.5
(77.1)
—
11.4
Derivative financial liabilities
195.9
(77.1)
(144.0)
(25.2)
27. Interest in Unconsolidated Structured Entities
Structured entities are those entities that have been designed so that voting or similar rights are not the dominant factor in
deciding who has control, such as when any voting rights relate to administrative tasks only, or when the relevant activities are
directed by means of contractual arrangements.
The group has interests in structured entities as a result of contractual arrangements arising from the management of assets
on behalf of its clients as part of its Asset Management division. These structured entities consist of unitised vehicles such as
Authorised Unit Trusts (“AUTs”) and Open Ended Investment Companies (“OEICs”) which entitle investors to a percentage of
the vehicle’s net asset value. The structured entities are financed by the purchase of units or shares by investors. The group
does not hold direct investments in its structured entities.
As fund manager, the group does not guarantee returns on its funds or commit to financially support its funds. The business
activity of all structured entities is the management of assets in order to maximise investment returns for investors from capital
appreciation and/or investment income. The group earns a management fee from its structured entities, based on a
percentage of the entity’s net asset value.
The main risk the group faces from its interest in assets under management on behalf of external investors is the loss of fee
income as a result of the withdrawal of funds by clients. Outflows from funds are dependent on market sentiment, asset
performance and investor considerations. The assets under management of unconsolidated structured entities managed by
the group were £5,434.0 million at 31 July 2024 (31 July 2023: £5,111.0 million). Included in revenue on the consolidated
income statement is management fee income of £33.5 million (2023: £33.7 million) from unconsolidated structured entities
managed by the group.
28. 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 2024,
which are all wholly owned and incorporated in the UK unless otherwise stated.
The investment in subsidiary of £487.0 million (31 July 2023: £287.0 million) in the company balance sheet relates to a 100%
shareholding in Close Brothers Holdings Limited of £287.0 million (31 July 2023: £287.0 million) and an investment in the AT1
securities of Close Brothers Limited of £200.0 million (31 July 2023: £nil). The company issued AT1 securities of £200.0 million
on 29 November 2023 as described in Note 20 and simultaneously entered into a back-to-back transaction with its subsidiary
Close Brothers Limited.
There was no impairment of these investments in this and the prior year albeit there were indicators of impairment following the
FCA's industry review of motor commissions and the group's recent share price movements. The impairment assessment of
the investment in Close Brothers Holdings Limited, based on a discounted cash flow analysis of expected future dividends,
which includes consideration for the potential impact of the FCA's motor commissions review, demonstrated that its value in
use remains above its carrying value.
As set out in Note 29 “Post Balance Sheet Event”, the group announced it entered into an agreement to sell CBAM to Oaktree
on 19 September 2024 following a comprehensive strategic review. This post balance sheet transaction has no impact on the
conclusion of the impairment assessment relating to the company’s investment in Close Brothers Holdings Limited, the
immediate parent of CBAM. The recoverable amount of the company’s investment in Close Brothers Holdings Limited
remained above its carrying value at 31 July 2024.
245
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Financial Statements
28. Investments in Subsidiaries (continued)
Group
Close Brothers Holdings Limited1
Banking
Air and General Finance Limited2
Arrow Audit Services Limited1
Brook Funding (No.1) Limited18, 21
Close Asset Finance Limited2
Close Brewery Rentals Limited5
Close Brothers Asset Finance GmbH13 (Germany)
Close Brothers DAC16 (Ireland)
Close Brothers Factoring GmbH13 (Germany)
Close Brothers Finance Designated Activity Company19
(Ireland)
Close Brothers Finance plc1
Close Brothers Limited1
Close Brothers Motor Finance Payments Limited19 (Ireland)
Close Brothers Premium DAC16 (Ireland)
Close Brothers Retention Holdings Designated Activity
Company19 (Ireland)
Close Brothers Technology Services Limited1
Close Brothers Vehicle Hire Limited12
Close Business Finance Limited2
Close Credit Management (Holdings) Limited1
Close Finance (CI) Limited14 (Jersey)
Close Invoice Finance Limited1
Close Leasing Limited11
Close PF Funding I Limited9, 21
Commercial Acceptances Limited6
Commercial Finance Credit Limited2
Corporate Asset Solutions Limited4
Finance for Industry Limited1
Finance for Industry Services Limited1
Kingston Asset Finance Limited2
Kingston Asset Leasing Limited2
Novitas Loans Limited2
Novitas (Salisbury) Limited2
Orbita Funding 2020-1 plc18, 21
Orbita Funding 2022-1 plc9, 21
Orbita Funding 2023-1 plc9, 21
Orbita Funding 2024-1 plc9, 21
Orbita Holdings Limited10, 21
Orbita Holdings no.2 Limited9, 21
Surrey Asset Finance Limited2
Topaz Asset Finance 2019-1 DAC20, 21
Topaz Asset Finance 2020-1 DAC20, 21
Securities
W.S. (Nominees) Limited3
Winterflood Client Nominees Limited3
Winterflood Gilts Limited3
Winterflood Securities Holdings Limited3
Winterflood Securities Limited3
Winterflood Securities US Corporation15 (Delaware, USA)
Asset Management
Bottriell Adams LLP1
Cavanagh Financial Management Limited7
CBF Wealth Management Limited1
CFSL Management Limited1
Close Asset Management Holdings Limited1
Close Asset Management Limited1
Close Asset Management (UK) Limited1
Close Brothers Asset Management (Guernsey) Limited17
(Guernsey)
Close Investments Limited1
Close Portfolio Management Limited1
EOS Wealth Management Limited1
Lion Nominees Limited1
Place Campbell Close Brothers Limited8 (joint venture with
50% shareholding)
PMN Financial Management LLP1
Registered office addresses:
1.
10 Crown Place, London EC2A 4FT, United Kingdom.
2.
Wimbledon Bridge House, Hartfield Road, Wimbledon, London SW19 3RU, United Kingdom.
3.
The Atrium Building Cannon Bridge, 25 Dowgate Hill, London EC4R 2GA, United Kingdom.
4.
30 Finsbury Square, London EC2A 1AG, United Kingdom.
5.
Unit 1, Kingfisher Park, Headlands Business Park, Ringwood, Hampshire BH24 3NX, United Kingdom.
6.
101 Wigmore Street, London W1U 1QU, United Kingdom.
7.
60 Melville Street, Edinburgh EH3 7HF, United Kingdom.
8.
Wilmington House, High Street, East Grinstead, West Sussex RH19 3AU, United Kingdom.
9.
10th Floor, 5 Churchill Place, London E14 5HU, United Kingdom.
10.
1 Bartholomew Lane, London EC2N 2AX, United Kingdom.
11.
Olympic Court Third Avenue, Trafford Park Village, Manchester M17 1AP, United Kingdom.
12.
Lows Lane, Stanton-By-Dale, Ilkeston, Derbyshire DE7 4QU, United Kingdom.
13.
Grosse Bleiche 35-39, 55116, Mainz, Germany.
14.
Conway House, Conway Street, St Helier JE4 5SR, Jersey.
15.
1209 Orange Street, Wilmington 19801, New Castle, Delaware, USA.
16.
Swift Square, Building 1, Santry Demesne, Northwood, Dublin, DO9 AOE4, Ireland.
17.
PO Box 186, Royal Chambers, St Julian’s Avenue, St Peter Port GY1 4HP, Guernsey.
18.
40a Station Road, Upminster, Essex RM14 2TR, United Kingdom.
19.
Unit 18, Northwood House, Northwood Business Campus, Dublin 9 D09 A0E4, Ireland
20.
1-2 Victoria Buildings, Haddingoton Road, Dublin D04 XN32 Ireland
Subsidiaries by virtue of control:
21.
The related undertakings are included in the consolidated financial statements as they are controlled by the group.
The Notes continued
246
Close Brothers Group plc Annual Report 2024
29. Post Balance Sheet Event
Following a comprehensive strategic review, on 19 September 2024, the group announced that it entered into an agreement to
sell CBAM to Oaktree for an equity value of up to £200 million. CBAM is a well-regarded UK wealth management franchise and
the transaction will strengthen the group’s capital base and enhance its position to navigate the current uncertain environment.
Under the terms of the transaction, the equity value of up to £200 million includes £172 million of cash to be paid at or before
completion of the transaction, comprising an upfront cash consideration of £146 million payable by Oaktree to the group on
completion, a dividend of approximately £26 million payable by CBAM to the group on or before completion, subject to
applicable regulatory capital requirements, and £28 million of contingent deferred consideration in the form of preference
shares. The group intends to retain cash received by completion, expected to amount to approximately £172 million, gross of
transaction costs.
As at 31 July 2024, CBAM had balance sheet assets of £192.0 million and liabilities of £70.2 million, comprised largely of
working capital and intangible assets, with a net asset value of £121.8 million. The net asset value includes goodwill of £43.5
million and £12.2 million of intangible assets, resulting in a tangible net asset value of £66.1 million. CBAM is one of the group’s
five operating segments with total operating income of £157.8 million and profit after tax of £7.4 million in the 2024 financial
year. Further detail on CBAM can be found within Note 3 “Segmental Analysis”, including CBAM's income statement for the
financial years ended 31 July 2024 and 31 July 2023.
The upfront proceeds are expected to increase the group’s common equity tier 1 (“CET1”) capital ratio by approximately 100
basis points on a pro forma basis. This calculation assumes a reduction in credit RWAs, no immediate reduction in operational
RWAs and does not include any benefit from contingent deferred consideration. This estimate is subject to change before
completion and is based on upfront proceeds from the transaction of c.£172 million, CBAM’s net asset value of £121.8 million
and excludes the deferred consideration. Therefore, the fair value of the business remains above its carrying value.
During the 2025 financial year, and in line with IFRS 9 “Financial Instruments” and IFRS 13 “Fair Value Measurement”, a full
accounting assessment of the contingent deferred consideration will be undertaken. The contingent deferred consideration will
be in the form of preference shares, redeemable no later than Oaktree’s exit, for an amount of up to £28 million plus interest at
a rate of 8 per cent. per annum, stepping up after five years to 12 per cent. The deferred consideration is subject to potential
deductions, including in relation to retention of key individuals and certain potential regulatory costs and separation cost
overruns.
This is a non-adjusting event under the requirements of IAS 10 “Events After the Reporting Period” and as at 31 July 2024 the
business did not meet the ‘held for sale’ criteria under IFRS 5 “Non-current Assets Held for Sale and Discontinued
Operations”. A sale was not assessed to be highly probable given the transaction status at that date, and therefore the held for
sale criteria was not met.
The transaction is expected to complete in early 2025 calendar year. Details of the transaction can be found on the separate
announcement published on 19 September 2024, available on the Investor Relations website.
247
Strategic Report
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Financial Statements
Glossary and Definition of Key Terms
Additional Tier 1 (“AT1”)
capital
Additional regulatory capital that along with CET1 capital makes up a bank’s Tier 1
regulatory capital. Includes the group’s perpetual subordinated contingent convertible
securities classified as other equity instruments under IAS 32
Adjusted
Adjusted measures are presented on a basis consistent with prior periods and exclude
amortisation of intangible assets on acquisition, to present the performance of the
group’s acquired businesses consistent with its other businesses; and any exceptional
and other adjusting items which do not reflect underlying trading performance
Adjusted Earnings per Share
(“AEPS”)
Adjusted profit attributable to ordinary shareholders divided by basic weighted average
number of ordinary shares in issue
Applicable requirements
Applicable capital ratio requirements consist of the Pillar 1 requirement as defined by
the CRR, the Pillar 2a requirement set by the PRA, and the capital conservation buffer
and countercyclical buffer as defined by the CRD. Any applicable PRA buffer is excluded
Assets under administration
Total assets for which Winterflood Business Services provide custody and
administrative services
Bad debt ratio
Impairment losses in the year as a percentage of average net loans and advances
to customers and operating lease assets
Bargains per day
Average daily number of Winterflood’s trades with third parties
Basic earnings per share
(“EPS”)
Profit attributable to ordinary shareholders divided by basic weighted average number
of ordinary shares in issue
Bounce Back Loan Scheme
(“BBLS”)
UK government business lending scheme that helped small and medium-sized businesses
to borrow between £2,000 and £50,000 (up to a maximum of 25% of their turnover)
Buy As You Earn (“BAYE”)
The HM Revenue & Customs-approved Share Incentive Plan that gives all employees
the opportunity to become shareholders in the group
Capital Requirements
Directive (“CRD”)
European Union regulation implementing the Basel III requirements in Europe,
alongside CRR II
Capital Requirements
Regulation (“CRR”)
Capital Requirements Regulation as implemented in the PRA Rulebook CRR Instrument
and the PRA Rulebook CRR Firms: Leverage Instrument (collectively known as “CRR”)
CDP
Formerly the “Carbon Disclosure Project”, a leading, internationally recognised independent
rating agency and assessor of corporate carbon emissions disclosures and actions
CET1 capital ratio
Measure of the group’s CET1 capital as a percentage of risk weighted assets,
as required by CRR
Common Equity Tier 1
(“CET1”) capital
Measure of capital as defined by the CRR. CET1 capital consists of the highest quality
capital including ordinary shares, share premium account, retained earnings and other
reserves, less goodwill and certain intangible assets and other regulatory adjustments
Compensation ratio
Total staff costs as a percentage of adjusted operating income
Cost of funds
Interest expense incurred to support the lending activities divided by the average net
loans and advances to customers and operating lease assets
Coronavirus Business
Interruption Loan Scheme
(“CBILS”)
UK government business lending scheme that helped small and medium-sized
businesses access loans and other kinds of finance up to £5 million
Coronavirus Large Business
Interruption Loan Scheme
(“CLBILS”)
UK government business lending scheme that helped medium and large-sized
businesses access loans and other kinds of finance up to £200 million
Credit-impaired
Where one or more events that have a detrimental impact on the estimated future
cash flows of a loan have occurred. Credit-impaired events are more severe than
SICR triggers. Accounts which are credit-impaired will be allocated to Stage 3
248
Close Brothers Group plc Annual Report 2024
Customer satisfaction score
(“CSAT”)
A measure of customer satisfaction expressed as a percentage of positive responses
from the total of those surveyed
Discounting
The process of determining the present value of future payments
Dividend per share (“DPS”)
Comprises the final dividend proposed for the respective year, together with the interim
dividend declared and paid in the year
Effective interest rate (“EIR”)
The interest rate at which revenue is recognised on loans and discounted to their carrying
value over the life of the financial asset
Effective tax rate (“ETR”)
Tax on operating profit/(loss) as a percentage of operating profit/(loss) on ordinary
activities before tax
Expected credit loss (“ECL”)
The unbiased probability-weighted average credit loss determined by evaluating a range
of possible outcomes and future economic conditions
Expense/income ratio
Total adjusted operating expenses divided by operating income
Exposure at default (“EAD”)
The capital outstanding at the point of default
Financial Conduct Authority
(“FCA”)
A financial regulatory body in the UK, regulating financial firms and maintaining integrity
of the UK’s financial market
Financial Ombudsman
Service (“FOS”)
The Financial Ombudsman Service settles complaints between consumers and
businesses that provide financial services
Financial Reporting Council
(“FRC”)
An independent regulatory body responsible for promoting high quality corporate
governance and reporting amongst UK companies
Forbearance
Forbearance occurs when a customer is experiencing financial difficulty in meeting
their financial commitments and a concession is granted, by changing the terms
of the financial arrangement, which would not otherwise be considered
Funding allocated to loan book
Total available funding, excluding equity and funding held for liquidity purposes
General Data Protection
Regulation (“GDPR”)
Regulation intended to strengthen and unify data protection for all individuals within
the European Union
Gross carrying amount
Loan book before expected credit loss provision
Growth Guarantee Scheme
(“GGS”)
The successor scheme to the Recovery Loan Scheme, the Growth Guarantee Scheme
launched in July 2024 and is designed to support access to finance for UK small
businesses as they look to invest and grow
High quality liquid assets
(“HQLAs”)
Assets which qualify for regulatory liquidity purposes, including Bank of England deposits
and sovereign and central bank debt
HM Revenue & Customs
(“HMRC”)
The UK’s tax, payments and customs authority
Independent financial adviser
(“IFA”)
Professional offering independent, whole of market advice to clients including
investments, pensions, protection and mortgages
Internal Capital Adequacy
Assessment Process
(“ICAAP”)
An annual self-assessment of a bank’s material risks and the associated level of capital
needed to be held, and undertaking appropriate stress testing of capital adequacy
Internal Liquidity Adequacy
Assessment Process
(“ILAAP”)
The processes for the identification, measurement, management and
monitoring of liquidity
Internal ratings based (“IRB”)
approach
A supervisor-approved method using internal models, rather than standardised
risk weightings, to calculate regulatory capital requirements for credit risk
International Accounting
Standards (“IAS”)
Older set of standards issued by the International Accounting Standards Council,
setting up accounting principles and rules for preparation of financial statements.
IAS are being superseded by IFRS
International Financial
Reporting Standards (“IFRS”)
Globally accepted accounting standards issued by the IFRS Foundation
and the International Accounting Standards Board
249
Strategic Report
Governance Report
Financial Statements
Investment costs
Includes depreciation and other costs related to investment in multi-year projects,
new business initiatives and pilots, and cyber resilience. Excludes IFRS 16 depreciation
Leverage ratio
Tier 1 capital as a percentage of total balance sheet assets, adjusted for certain capital
deductions, including intangible assets, and off-balance sheet exposures
Lifetime expected credit loss
provision (“Lifetime ECL”)
Losses that result from default events occurring within the lifetime of the loan
Liquidity coverage ratio
(“LCR”)
Measure of the group’s HQLAs as a percentage of expected net cash outflows over
the next 30 days in a stressed scenario
Loan to value (“LTV”) ratio
For a secured or structurally protected loan, the loan balance as a percentage of the total
value of the asset
Long-term bad debt ratio
Long-term bad debt ratio is calculated using IAS 39 until the change to IFRS 9 in FY19. Bad
debt ratio excluding Novitas only disclosed from FY21 onwards. Long-term average bad
debt ratio of 1.2% based on the average bad debt ratio for FY08-FY24, excluding Novitas.
Loss day
Where aggregate gross trading book revenues are negative at the end of a trading day
Loss given default (“LGD”)
The amount lost on a loan if a customer defaults
Managed assets or assets
under management (“AuM”)
Total market value of assets which are managed by Close Brothers Asset Management
in one of our investment solutions
Modelled expected credit
loss provision
ECL = PD x LGD x EAD
Modification losses
Modification losses arise when the contractual terms of a financial asset are modified.
An adjustment is required to the carrying value of the financial asset to reflect the present
value of modified future cash flows discounted at the original effective interest rate
Net asset value (“NAV”)
per share
Total assets less total liabilities and other equity instruments, divided by the number
of ordinary shares in issue excluding own shares
Net carrying amount
Loan book value after expected credit loss provision
Net flows
Net flows as a percentage of opening managed assets calculated on an annualised basis
Net interest margin (“NIM”)
Operating income generated by lending activities, including interest income net of interest
expense, fees and commissions income net of fees and commissions expense, and
operating lease income net of operating lease expense, less depreciation on operating
lease assets, divided by average net loans and advances to customers and operating
lease assets
Net promoter score (“NPS”)
A measure of customer satisfaction by which unfavourable ratings are deducted from
favourable ratings; hence a score above 0 is good, and above 50 is excellent
Net stable funding ratio
(“NSFR”)
Regulatory measure of the group’s weighted funding as a percentage of weighted assets
Net zero
Target of completely negating the amount of greenhouse gases produced by reducing
emissions or implementing methods for their removal
Operating margin
Adjusted operating profit divided by operating income
Paris Agreement
International treaty on climate change, adopted in 2015, with a goal to limit global
warming to well below 2ºC, and preferably to 1.5ºC, compared to pre-industrial levels
Personal Contract Plan
(“PCP”)
PCP is a form of vehicle finance where the customer defers a significant portion of
credit to the final repayment at the end of the agreement, thereby lowering the monthly
repayments compared to a standard hire-purchase arrangement. At the final repayment
date, the customer has the option to: (a) pay the final payment and take the ownership
of the vehicle; (b) return the vehicle and not pay the final repayment; or (c) part-exchange
the vehicle with any equity being put towards the cost of a new vehicle
Probability of default (“PD”)
Probability that a customer will default on their loan
Prudential Regulation
Authority (“PRA”)
A financial regulatory body, responsible for regulating and supervising banks and other
financial institutions in the UK
Glossary and Definition of Key Terms continued
250
Close Brothers Group plc Annual Report 2024
Recovery Loan Scheme
Launched in April 2021 as a replacement to CBILS. Under the terms of the scheme,
businesses of any size that have been adversely impacted by the Covid-19 pandemic
can apply to borrow up to £10 million, with accredited lenders receiving a
government-backed guarantee of 80% on losses that may arise
Return on assets
Adjusted operating profit attributable to ordinary shareholders divided by total closing
assets at the balance sheet date
Return on average
tangible equity (“RoTE”)
Adjusted operating profit attributable to ordinary shareholders divided by average total
shareholders’ equity, excluding intangible assets and other equity instruments
Return on net loan book
(“RoNLB”)
Adjusted operating profit from lending activities divided by average net loans and
advances to customers and operating lease assets
Return on opening equity
(“RoE”)
Adjusted operating profit attributable to ordinary shareholders divided by opening equity,
excluding non-controlling interests and other equity instruments
Revenue margin
Income from advice, investment management and related services divided by average
total client assets. Average total client assets calculated as a two-point average
Risk weighted assets
(“RWAs”)
A measure of the amount of a bank’s assets, adjusted for risk in line with the CRR.
It is used in determining the capital requirement for a financial institution
Scope 1, 2 and 3 emissions
Categorisation of greenhouse gas emissions, as defined by the Greenhouse Gas (GHG)
Protocol, into direct emissions from owned or controlled sources (Scope 1), indirect
emissions from the generation of purchased electricity, heating and cooling consumed
by the reporting company (Scope 2), and all other indirect emissions that occur
in a company’s value chain (Scope 3)
Secured debt
Debt backed or secured by collateral
Senior debt
Represents the type of debt that takes priority over other unsecured or more junior debt
owed by the issuer. Senior debt is first to be repaid ahead of other lenders or creditors
Significant increase in credit
risk (“SICR”)
An assessment of whether credit risk has increased significantly since initial recognition
of a loan using a range of triggers. Accounts which have experienced a significant
increase in credit risk will be allocated to Stage 2
Standardised approach
Generic term for regulator-defined approaches for calculating credit, operational
and market risk capital requirements as set out in the CRR
Subordinated debt
Represents debt that ranks below, and is repaid after claims of, other secured or senior
debt owed by the issuer
Tangible net asset value
(“TNAV”) per share
Total assets less total liabilities, other equity instruments and intangible assets,
divided by the number of ordinary shares in issue excluding own shares
Task Force on
Climate-related Financial
Disclosures (“TCFD”)
Regulatory framework to improve and increase reporting of climate-related financial
information, including more effective and consistent disclosure of climate-related risks
and opportunities
Term Funding Scheme (“TFS”)
The Bank of England’s Term Funding Scheme
Term Funding Scheme for
Small and Medium-sized
Enterprises (“TFSME”)
The Bank of England’s Term Funding Scheme with additional incentives for SMEs
Tier 2 capital
Additional regulatory capital that along with Tier 1 capital makes up a bank’s total
regulatory capital. Includes qualifying subordinated debt
Total client assets (“TCA”)
Total market value of all client assets including both managed assets and assets under
advice and/or administration in the Asset Management division
Total funding as percentage
of loan book
Total funding divided by net loans and advances to customers and operating lease assets
Total shareholder return
(“TSR”)
Measure of shareholder return including share price appreciation and dividends,
which are assumed to be re-invested in the company’s shares
Watch list
Internal risk management process for heightened monitoring of exposures that are
showing increased credit risk
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Financial Calendar (Provisional)
Event
Date
First quarter trading update
21 November 2024
Annual General Meeting
21 November 2024
Half year end
31 January 2025
Interim results
March 2025
Third quarter trading update
May 2025
Financial year end
31 July 2025
Preliminary results
September 2025
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.
Investor Relations
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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. All statements other than statements
of historical fact are, or may be deemed to be, forward-looking statements. 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. There are also a number of factors that could cause actual
future operations, performance, financial conditions, results or developments to differ materially from the plans, goals and
expectations expressed or implied by these forward-looking statements and forecasts. These factors include, but are not
limited to, those contained in this report. 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.
Except as may be required by law or regulation, 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 document should be
construed as a profit forecast. Past performance cannot be relied upon as a guide to future performance and persons needing
advice should consult an independent financial adviser.
This report does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to subscribe for
or purchase any shares or other securities in the company or any of its group members, 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 or other securities of the company or any
of its group members. 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.
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Registered Office
Close Brothers Group plc
10 Crown Place
London EC2A 4FT
Telephone: +44 (0)333 321 6100
Email: enquiries@closebrothers.com
Website: www.closebrothers.com
Company No. 00520241
Independent Auditor
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
Solicitor
Slaughter and May
One Bunhill Row
London EC1Y 8YY
Corporate Brokers
Keefe, Bruyette & Woods (A Stifel Company)
UBS AG London Branch
Registrar
Link Group
Central Square
29 Wellington Street
Leeds LS1 4DL
Customer support centre: 0371 664 0300 (calls are charged
at the standard geographic rate and will vary by provider)
From overseas: +44 (0)371 664 0300 (calls will be charged
at the applicable international rate)
Lines are open from 9.00 am to 5.30 pm Monday to Friday,
excluding public holidays in England and Wales
Email: shareholderenquiries@linkgroup.co.uk
Website: www.linkgroup.eu
Online proxy voting: www.signalshares.com
Shareholder Warning
Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that prove
to be worthless or non-existent, or to buy shares at an inflated price in return for an upfront payment. While high profits are
promised, if you buy or sell shares in this way you will probably lose your money.
How to Avoid Share Fraud
• Keep in mind that firms authorised by the FCA are unlikely to contact you out of the blue with an offer to buy or sell shares.
• Do not get into a conversation, but note the name of the person and firm contacting you and then end the call.
• Check the Financial Services Register at https://register.fca.org.uk/s/ to see if the person and firm contacting you are
authorised by the FCA.
• Beware of fraudsters claiming to be from an authorised firm, copying its website, or giving you false contact details.
• If you want to phone the caller back, use the firm’s contact details listed on the Financial Services Register at
https://register.fca.org.uk/s/
• If the firm does not have contact details on the Register or they tell you the details are out of date, call the FCA
on 0800 111 6768.
• Search the list of unauthorised firms to avoid at https://www.fca.org.uk/consumers/unauthorised-firms-individuals
• Remember that if you buy or sell shares from an unauthorised firm, you cannot access the Financial Ombudsman Service
or Financial Services Compensation Scheme.
• Get independent financial and professional advice before handing over any money.
• If it sounds too good to be true, it probably is.
Report a Scam
If fraudsters approach you, tell the FCA using the share fraud reporting form at https://www.fca.org.uk/consumers/report-
scam-us. You can also find out more about investment scams at https://www.fca.org.uk/scamsmart/how-avoid-investment-
scams. You can call the FCA Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters,
call Action Fraud on 0300 123 2040.
Company Information
254
Close Brothers Group plc Annual Report 2024
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Consultancy and design by Black Sun Global.
Board of Directors and Executive Committee photography by Richard Davies.
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Strategic Report
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Close Brothers Group plc
10 Crown Place
London EC2A 4FT
Tel: +44 (0)333 321 6100
www.closebrothers.com