Annual Financial Report
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Close Brothers Group plc Annual Financial Report and AGM documents |
16 October 2015
Documents: Annual Report & Accounts 2015, Notice of Annual General Meeting and Form of Proxy
Close Brothers Group plc ("the group" or "Close Brothers") announces that copies of the above documents have been submitted to the UK Listing Authority and will shortly be available for inspection on the National Storage Mechanism at: http://www.morningstar.co.uk/uk/NSM
These documents have been sent to shareholders. The 2015 Annual General Meeting of Close Brothers will be held at 10 Crown Place, London EC2A 4FT on Thursday 19 November 2015 at 11.00 a.m. Full details of the proposed resolutions are set out in the Notice of Annual General Meeting.
The Annual Report for the year ended 31 July 2015 is now available for download from the group's website at:
The Notice of Annual General Meeting and Form of Proxy are also available for download from the group's website at:
http://www.closebrothers.com/investor-relations/shareholder-information/annual-general-meeting
This announcement also contains additional information solely for the purposes of compliance with the DTR 6.3.5 (1) of the Disclosure and Transparency Rules, being a statement of directors' responsibilities, principal risks and uncertainties and related party transactions. This information is extracted, in full unedited text, from the Annual Report 2015. Further information was contained within the preliminary announcement of Close Brothers' final results released to the market on Tuesday 22 September 2015.
Enquiries: Nicholas Jennings, Company Secretary 020 7655 3100
About Close Brothers
Close Brothers is a leading UK merchant banking group providing lending, deposit taking, wealth management services and securities trading.
Established in 1878, we believe our traditional merchant banking values, based on service and integrity, continue to be relevant today. We define our approach to business as "Modern Merchant Banking" - values that are embedded in our culture and that underpin everything we do.
Today, Close Brothers Group plc employs around 2,900 people, principally in the UK. We are listed on the London Stock Exchange and are a member of the FTSE 250.
Appendix
Statement of directors' responsibilities
The Annual Report contains the following statements regarding responsibility for the financial statements and the management report included in the Annual Report.
Each of the directors confirms that to the best of their knowledge:
• The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;
• The Strategic Report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
• The Annual Report and accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary to assess the group's performance, business model and strategy.
Principal risks and uncertainties
The Annual Report contains the following statement on principal risks and uncertainties faced by the group.
The group faces a number of risks in the normal course of business providing a range of financial services to small businesses and individuals. These risks are managed by:
• Adhering to our established and proven business model;
• Implementing an integrated risk management approach based on the concept of "three lines of defence"; and
• Setting clearly defined risk appetites monitored with specific metrics within set limits.
A summary of the principal risks and uncertainties which may impact the group's ability to deliver its strategy, how we seek to mitigate these risks and the change in the perceived level of risk over the year is set out below. The risks identified remain broadly unchanged from the prior year reflecting the group's consistent strategy and adherence to its established business model.
This summary should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties faced by the group but rather those risks which the group currently believes may have a significant impact on the group's performance and future prospects.
Credit losses
Risk
At 31 July 2015 the group had loans and advances to customers totalling £5.7 billion. The group is
exposed to credit losses if customers are unable to repay loans and outstanding interest and fees.
In addition the group has exposure to counterparties with which it places deposits or trades, and also has limited derivative contracts to hedge interest rate and foreign exchange exposures.
Mitigation
We seek to minimise our exposure to credit losses from our lending by:
• Applying strict lending criteria when testing the credit quality and covenant of the borrower.
• Maintaining consistent and conservative loan to value ratios with low average loan size and short-term tenor.
• Lending on a predominantly secured basis with significant emphasis placed on the underlying security.
• Maintaining rigorous and timely collections and arrears management processes.
• Operating strong control and governance both within our lending businesses and with oversight by a
central credit risk team.
Our exposures to counterparties are mitigated by:
• Conservative management of our liquidity requirements and surplus funding with £1.0 billion or c.85% placed with the Bank of England.
• Continuous monitoring of credit quality of our counterparties within approved set limits.
• Winterflood's trading relating to exchange traded cash securities and being settled on a delivery against payment basis. Counterparty exposure and settlement failure monitoring controls are also in place.
Change
No change
The loan impairment rate has remained low reflecting our lending discipline as well as favourable market conditions.
The group's other counterparty exposures are broadly unchanged with the majority of our liquidity requirements and surplus funding placed with the Bank of England.
Economic environment
Risk
Any downturn in economic conditions could impact the group's performance through:
• Lower demand for the group's products and services;
• Lower investor risk appetite as a result of financial markets instability;
• Higher bad debts as a result of customers' inability to service debt and lower asset values on which
loans are secured; and
• Increased volatility in funding markets.
Mitigation
The majority of the group's activities are in specialist areas where our people have significant experience and expertise. Our long standing commitment to our proven business model and strong financial position has enabled us to support our clients in all economic conditions. This assists us in our aim of developing long-term relationships with our clients.
The group carries out regular stress testing on its performance and financial positions to test resilience in the event of adverse economic conditions.
Change
No change
While the UK economy has proven resilient and the outlook appears stable, significant global uncertainty remains.
Legal and regulatory
Risk
Changes to the existing legal, regulatory and tax environments and failure to comply with existing
requirements may materially impact the group.
Failing to treat customers fairly, safeguard client assets or provide advice/products contrary to clients' best interest has the potential to damage our reputation and may lead to legal or regulatory sanctions including litigation and customer redress. This applies to current, past and future business.
Similarly changes to regulation and taxation can impact our performance, capital and liquidity and the markets in which we operate.
Mitigation
The group seeks to manage these risks by:
• Commitment to provide straightforward and transparent products and services to our clients.
• Governance and control processes to review and approve new products and services.
• Significant investment in both staff and operating systems to ensure the group is well placed to respond to changes in regulation.
• Investment in training for all staff including anti-money laundering, bribery and corruption, data
protection and information security. Additional tailored training for relevant employees is provided in key areas such as complaint handling.
• Continuous monitoring of key legal regulatory and tax developments to anticipate their potential impact.
• Maintaining constructive and positive relationships and dialogue with regulatory bodies and tax authorities.
Change
Risk increased
Financial services businesses remain subject to significant scrutiny. We believe the potential
risks from legal and regulatory changes continue to increase.
Competition
Risk
The group operates in highly competitive markets and as the UK economy improves we expect to
see competition continue to increase particularly in the Banking division.
Mitigation
The group has a long track record of trading successfully in all types of competitive environment.
We value our clients and build long-term relationships offering a differentiated proposition based on:
• Speed and flexibility of service.
• Local presence.
• Experienced and expert people.
• Tailored, client driven product offerings.
Change
Risk increased
We continue to experience increasing levels of competition particularly in the Banking division.
Technology
Risk
Maintaining robust and secure IT infrastructure, systems and software is fundamental to allow the group to operate effectively, respond to new technology, protect client and company data and counter
the evolving cyber threat.
Failure to keep up with changing customer expectations or manage upgrades to existing technology has the potential to impact group performance.
Mitigation
The group continues to invest in its IT infrastructure, information security and software. We also continue to invest in our IT resources including the appointment of a chief information officer in the Banking division with extensive relevant experience in the financial services sector.
The group has strong governance in place to oversee its major projects. We have in place business continuity and disaster recovery plans which are regularly tested.
Change
No change
The group continues to invest and upgrade its IT infrastructure to simplify our technology architecture and reduce exposure to cyber attack. However the risk of cyber threats or new technology impacting our business model remains.
Employees
Risk
The calibre, quality and expertise of employees is critical to the success of the group. The loss of key individuals or teams may have an adverse impact on the group's operations and ability to deliver its strategy.
Mitigation
The group seeks to attract, retain and develop staff by:
• Operating remuneration structures which are competitive and recognise and reward performance.
• Implement succession planning for key roles.
• Aiming to develop a pipeline of future leaders through our Emerging Leaders Programme.
• Investing in training and development for all staff.
• Attracting high quality staff including via our graduate and school leaver programmes, and new training academy in asset finance.
Change
No change
Our highly skilled people are likely to be targeted but we are confident we are able to retain key employees. Our latest employee survey identified 88% of employees were either satisfied or very
satisfied working at Close Brothers.
Funding
Risk
The Banking division's access to stable funding remains key to support its lending activities and the
liquidity requirements of the group.
Mitigation
At 31 July 2015 the group's funding position was strong with total funding 131% of the loan book. This
provides a prudent level of liquidity to support our lending activities.
Our funding is well diversified both by source and tenor. Liquidity in our Banking division is assessed on a daily basis and tested weekly to ensure adequate liquidity is held and readily accessible in stressed conditions.
Our funding approach is conservative based on the principle of "borrow long and lend short". Over 50% of our total funding is repayable after more than one year with an average duration of 31 months. This compares to our weighted average loan maturity of 14 months.
Change
Risk decreased
The group remains well funded, retains sufficient liquidity and is well placed to access further funding as required.
Market exposure
Risk
Market volatility and/or changes in interest and exchange rates have the potential to impact the group's performance.
Although the majority of the group's activities are carried out in the UK, there is foreign exchange exposure on deposits, lending and funding balances as part of our banking activities as well as trading in foreign securities.
Mitigation
Winterflood primarily act as a marketmaker in exchange traded cash securities reducing exposure to market volatility. In addition trading positions are monitored on a real time basis and both individual and trading book limits are set to control exposure.
The group matches fixed and variable interest rate assets and liabilities using swaps where appropriate.
The group's capital and reserves are not hedged. Foreign exchange exposures in the Banking division are hedged using currency swaps with exposures monitored daily against approved limits.
Trading exposures on foreign securities are also hedged and monitored against limits. The group does not speculate on foreign currency movements.
Stress tests are regularly performed on market risks to ensure we maintain adequate liquidity and capital even under extreme downside scenarios.
Change
No change
The group's approach and the underlying risks are unchanged.
Related party transactions
The Annual Report discloses the following related party transactions.
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:
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Emoluments Salaries and fees Benefits and allowances Performance related awards in respect of the current year: Cash Deferred
Share-based awards
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2015 £ million 3.6 0.7
3.4 3.0 10.7 5.7
16.4 |
2014 £ million 3.6 0.6
3.2 3.1 10.5 5.4
15.9 |
Gains upon exercise of options by key management personnel, expensed to the income statement in previous years, totalled £20.3 million (2014: £16.2 million).
Key management have banking relationships with group entities which are entered into in the normal course of business. Amounts included in deposits by customers at 31 July 2015 attributable, in aggregate, to key management were £2.3 million (31 July 2014: £2.6 million).
This information is provided by RNS
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