Close Brothers cost savings beat expectations but passes on dividend

Close Brothers Group PLC on Tuesday reported better-than-expected progress on cutting costs and said loan book growth provided confidence in future targets.

In response, shares in the London-based merchant bank shot up 10% to 425.60 pence each in London on Tuesday morning.

Close Brothers said its pretax loss narrowed to £60.3 million in the financial year ended July 31, from £122.4 million the year prior, while its net loss narrowed to £63.4 million from £77.9 million.

Adjusted operating profit fell 17% to £120.3 million from £144.3 million, with adjusted basic earnings per share from continuing operations declining to 47.5 pence from 59.3p.

Adjusted operating expenses reduced to £430.9 million from £445.1 million, "materially better than guidance", reflecting strong cost discipline and accelerated delivery of cost initiatives, Close Brothers said.

The loan book was flat at £9.46 billion on-year. On an underlying basis, the loan book increased 2% year-on-year and 4% in the second half.

"Loan book growth accelerated through the second half of FY 2026 as the benefits of our strategic actions became increasingly evident across the business," explained Chief Executive Mike Morgan.

"With all divisions delivering growth in the final quarter, we enter FY 2027 with confidence to achieve our target of 5-10% p.a. growth through the cycle," the CEO added.

Return on average tangible equity fell to 5.5% from 7.1%. The net interest margin dipped to 6.9% from 7.2%.

The CET1 capital ratio was 14.1% versus 13.8% a year ago, and against a medium-term target range of 12% to 13%. The firm estimates that the implementation of Basel 3.1 at the start of 2027 will result in a reduction in the CET1 capital ratio of around 80 basis points.

Basel 3.1 is banking reforms designed by the Basel Committee on Banking Supervision to assess how banks measure risk and calculate capital requirements.

Close Brothers said its transformation programme has delivered £36 million of annualised cost savings in the 2026 financial year, ahead of schedule and substantially higher than the around £25 million latest target.

The FTSE 250-listing now expects to exceed £60 million of annualised cost savings by the end of the 2027 financial year.

Planning for the next phase of restructuring is "well underway", focusing on the development of shared enterprise-wide services and digital adoption, the firm said, with the aim of "improving efficiency, reducing costs and enhancing customer experience".

Repositioning the business and focusing on new growth initiatives has led to growth resuming during the second half of the year, with all divisions delivering loan book growth in the final quarter, the firm noted.

Motor finance provisions are unchanged at £320 million. But given the "continued uncertainty" regarding the outcome of the legal challenges to the Financial Conduct Authority's motor finance consumer redress scheme and any potential financial impact, Close Brothers said it will not pay a final dividend.

The firm said it remains "committed" to the resumption of shareholder distributions at an "appropriate time".

More positively, the firm said the "progress achieved this year reinforces our confidence in the delivery of our target of double-digit return on tangible equity by the 2028 financial year, rising thereafter."

For financial 2027, the company guided for underlying loan book growth of 5% to 10%, net interest margin to be slightly below FY 2026, adjusted operating expenses of £430 million, restructuring costs of £30 million to £40 million and a modest year-on-year increase in RoTE.

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