Close Brothers Group Stock

Good morning, and welcome to the presentation of Close Brothers 2026 Preliminary Results. I'm Mike Morgan, Group Chief Executive, and I'm joined today by Fiona McCarthy, our Group CFO.

Today, I will start with a brief introduction and then hand over to Fiona, who will walk you through our financial performance. After that, I will return to focus on our strategic delivery and wrap up the presentation. We look forward to taking your questions afterwards, both via the telephone conference line and over the webcast. You can submit your questions either during or after the presentation.

The group has been through significant change over the past 2 years as we have repositioned the business as a focused specialist bank. Today, we support 1.6 million customers with a loan book of GBP 9.5 billion across 3 core divisions of Commercial, Retail and Property. Our scale and contribution to the economy is meaningful.

In the last year, we lent approximately GBP 6.5 billion to businesses and consumers across the U.K. and Ireland. We operate in markets with strong structural demand and where our deep customer relationships, local decision-making and disciplined underwriting create genuine differentiation. We see significant potential for growth in these markets, and we are taking steps to materially reduce our cost base and deliver a step-change in profitability.

Our performance in full year '26 reflects the significant progress we have made on delivery of our strategic objectives to simplify, to optimize and to grow the business. We delivered the guidance we set, meeting and in some areas, exceeding our targets. Loan book growth resumed. The overall book was flat year-on-year, but underlying growth was 2% and 4% in the second half, with all divisions growing in the fourth quarter, giving us good momentum as we enter full year '27.

We accelerated our cost program, delivering approximately GBP 36 million of annualized savings ahead of schedule. We now expect to exceed our target of GBP 60 million annualized savings by the end of financial year 2027. We retain a robust capital position above 14%, which places us well to absorb Basel 3.1 and support continued growth in the business.

Our provision in respect of the FCA's Motor Finance consumer redress scheme is unchanged since the third quarter at GBP 320 million. The business is now structurally different and capable of generating materially higher risk-adjusted returns. And in financial year '27, we expect to deliver underlying loan book growth within our 5% to 10% target range, costs of approximately GBP 430 million and a modest increase in return on tangible equity.

Financial year 2028 will be the point at which we expect to see the more meaningful benefits from cost reductions, operational leverage and growth. By financial year '28, we expect cost to be at the lower end of our guidance range of GBP 410 million to GBP 430 million, whilst growing the loan book. And the progress we have made to date reinforces our confidence that we will deliver double-digit returns by financial year 2028, rising thereafter.

We recognize the importance of shareholder distributions and remain committed to resuming distributions at an appropriate time. However, given the continued uncertainty regarding the outcome of the legal challenges to the FCA's Motor Finance scheme and any potential financial implications, the Board has decided not to declare a final dividend on ordinary shares for the 2026 financial year. We will continue to reassess options as greater clarity emerges, taking into account the group's future capital needs and shareholder feedback.

I'll now hand over to Fiona, who will take you through the financial update.

Thank you, Mike, and good morning, everyone. Turning first to the income statement. Adjusted operating income reduced by 6% to GBP 643 million. This primarily reflected the deliberate repositioning of the business, a reduction in net interest margin and a lower average loan book, reflecting prevailing market conditions.

Adjusted operating expenses decreased by 3% to GBP 431 million, reflecting strong cost discipline and the cost actions delivered during the year. Adjusted impairment losses were broadly unchanged at GBP 92 million. Taken together, adjusted operating profit was GBP 120 million, down from GBP 144 million last year.

While AOP reduced across all 3 lending divisions, this was partly offset by a reduction in the group central functions operating loss. Adjusting items totaled GBP 181 million compared with GBP 267 million last year. I will provide more detail on these in a moment. As a result, the statutory loss before tax reduced from GBP 122 million to GBP 60 million, whilst the loss after tax from continuing operations reduced to GBP 65 million.

Discontinued operations relate to Close Funds Asset Management, sold in February 2025; and Winterflood Securities, sold in December 2025. Adjusted earnings per share were 47.5p and return on average tangible equity was 5.5%. As Mike stated, we will not be paying a dividend in respect to the 2026 financial year, and we'll reassess as greater clarity emerges in respect of Motor Finance commissions.

Focusing now on the adjusting items. The largest is the increased provision relating to Motor Finance commissions up by GBP 165 million, taking the total provision to approximately GBP 320 million. The provision has been calculated using a single scenario methodology based on the FCA's published address scheme from March 2026. While there are aspects of the scheme which we disagree with, we decided not to challenge the scheme.

However, it is currently subject to 4 legal challenges with the hearing expected in December 2026 or February 2027. As such, the ultimate cost remains dependent on the outcome of the legal challenges and any further legal, regulatory or industry developments.

We also incurred GBP 7.7 million of other Motor Finance commissions-related costs, including the unwind of the provisions time value discount and certain legal expenses, partly offset by insurance recoveries. In FY '27, we expect a broadly similar cost. The charge of GBP 1.3 million incurred in relation to early settlements in Motor Finance reflects the unwind of the provisions time value discount.

Restructuring costs were GBP 14.3 million, primarily comprising redundancy and associated costs. As our cost reduction program progresses, we continue to expect restructuring costs of approximately GBP 30 million to GBP 40 million in FY '27.

These charges were partly offset by a total of GBP 7.6 million of profit from businesses being exited, including the gain on the disposal of Brewery Rentals and a small operating profit in Vehicle Hire, which is being wound down over 3 to 5 years.

Now looking at each of our divisions. In Commercial, simplification is largely complete. Good progress has been made on optimization and the loan book returned to growth. The year-on-year results reflect lower income and margin and an increase in costs as we invest in technology. The prior year also includes Novitas in the results.

Notwithstanding this, the loan book was up 3% to GBP 4.9 billion and up 6% in the second half. Invoice Finance grew significantly in the second half, while specialist areas within Asset Finance continued to grow. The priority continues to be building on that momentum without compromising pricing or underwriting discipline.

Performance in the Retail division reflects the repositioning of the Premium Finance business, cost actions taken during the year and a reduction in impairment charges. Motor Finance delivered growth in both the U.K. and Ireland, while Premium is increasingly focused on commercial lines and higher-quality business.

The bad debt ratio reduced from 1.5% to 1%, benefiting from the implementation of an updated IFRS 9 model in Motor Finance. The focus here is on delivering quality, sustainable growth and stronger risk-adjusted returns.

Property continued to face challenging build-to-sell market conditions, which affected the loan book, income and profit. The higher bad debt ratio reflects provisions against a small number of facilities, including legacy cases. Recent underwriting continues to perform well. Importantly, diversification is gaining traction through good early momentum in build-to-rent and purpose-built student accommodation.

Finally, the loss from group central functions reduced from GBP 54 million to GBP 37 million, primarily reflecting a reduction in adviser costs. In regard to the loan book, the headline position was broadly flat at GBP 9.5 billion, including the headwind from our legacy Motor Finance business in Ireland and the repositioning of the Premium Finance business towards commercial lines.

On an underlying basis, momentum improved with growth of 2% for the year as a whole and 4% in the second half. All 3 divisions grew in the fourth quarter. Overall, we exited FY '26 with good momentum and expect underlying growth to be within our 5% to 10% target in FY '27, subject to market conditions.

As we have previously guided, NIM across our lending divisions remained robust at 6.9% compared with 7.2% last year. The reduction largely reflects the deliberate repositioning of the Premium Finance business, the wind-down of Novitas and changes in business mix as we focus on larger deals with attractive risk-adjusted returns.

Therefore, the headline NIM movement needs to be seen in context. We are prioritizing sustainable growth and stronger risk-adjusted returns. All else equal, we expect the NIM in FY '27 to be slightly below FY '26, reflecting a further circa 0.1% impact from mix, including Premium Finance repositioning.

Moving on to costs. Adjusted operating expenses reduced by 3% in FY '26 and were materially better than guidance. This reflects strong cost discipline as well as faster-than-expected delivery of cost-saving initiatives. These savings included workforce efficiencies, an increase in outsourcing and offshoring, lower adviser and third-party spend and reducing our property footprint.

Together with a reduction in variable compensation, this more than offset the impact of inflation, growth and ongoing investment in our business, resulting in overall adjusted operating expenses of GBP 431 million.

In 2026, we delivered approximately GBP 36 million of annualized cost savings, substantially ahead of our GBP 25 million target. By the end of FY '27, we expect to deliver in excess of GBP 60 million annualized savings from the current phase of our transformation program.

Whilst this will result in further in-year cost reduction, we expect this to be broadly offset by inflation and investment in growth, including front office hires and additional variable costs. As a result, we expect the cost base to remain broadly stable at approximately GBP 430 million this year.

By FY '28, we will see the cost savings more fully reflected in financial performance with costs towards the lower end of our GBP 410 million to GBP 430 million guidance. Combined with growth in the loan book, this is expected to support an EI ratio below 60%, demonstrating the scalability of the group operating model. This is not the endpoint, and we expect further reduction in this ratio as the business continues to grow beyond 2028.

Focusing on credit quality. Credit performance remains solid with the bad debt ratio at 1%, in line with the prior year and below our long-term average of 1.2%. This reflects the benefit of an updated IFRS 9 model in Motor Finance earlier in the year, offset by higher provisions in the property business in the fourth quarter.

We closely monitor the evolving impacts of inflation and cost of living pressures on customers. And whilst the external environment remains uncertain, we are confident in the quality of the loan book and expect the bad debt ratio to remain below its long-term average in FY '27.

We continue to maintain a strong funding and liquidity position while making progress to optimize the balance sheet. Over the year, we have reduced our liquidity to more normalized levels while significantly increasing the availability of contingent collateral.

We've also been focused on managing the cost and level of our deposits across our diversified suite of savings products with agile pricing reflecting market conditions, demand and our funding needs. Overall, total funding stood at GBP 11.4 billion, down from GBP 12.7 billion last year, retaining a well-diversified mix and a predominantly retail deposit base, which represents 57% of total funding.

Deposits are largely term with only 10% available on demand. Our liquidity position remains robust with GBP 3 billion of liquidity resources split between cash, high-quality liquid assets and contingent collateral. We have benefited from a lower interest rate environment, along with active management of our funding base with the average cost of funds reducing to 4.6%.

We've maintained strong access to wholesale funding markets, raising GBP 0.5 billion during the year through the successful refinancing of our Tier 2 and the issuance of our first senior unsecured bond since 2020. Overall, our funding profile, liquidity pool and capital markets access provide a strong foundation to support future growth.

Turning to capital. Our CET1 ratio stands at 14.1%, even after the additional GBP 165 million Motor Finance commissions charge taken during the year. This demonstrates our conservative capital position and reflects both underlying profits in the year and the RWA benefit from the sale of Winterflood.

Our minimum CET1 requirement has increased from 9.7% to 10.3% following a regular periodic review of our capital requirements. The implementation of Basel 3.1 from the 1st of January 2027 is currently estimated to reduce our CET1 ratio by approximately 80 basis points to 13.3% on a pro forma basis as at 31st of July 2026. It will also reduce our regulatory minimum by approximately 40 basis points to 9.9%, resulting in overall CET1 capital headroom of circa 340 basis points.

In monetary terms, the impact on headroom is largely offset by the PRA's Pillar 2A SME lending adjustment. From here, we expect CET1 to operate within our medium-term range of 12% to 13% as we generate capital, grow the loan book and resume shareholder distributions at an appropriate time.

On this slide, we have the FY '27 guidance updates. Having met and exceeded our FY '26 guidance, we are reiterating our medium-term targets. While we expect further progress in FY '27, the trajectory to FY '28 is phased, particularly on costs and returns. The FY '26 cost story was about capturing some of the more immediate savings opportunities and putting in place the actions needed to build a more efficient business. In FY '27, we are aiming to keep group costs broadly flat at around GBP 430 million.

NIM is expected to be slightly below FY '26, reflecting a further 0.1% impact from mix, including the Premium Finance repositioning. We anticipate underlying growth within our target range of 5% to 10%, subject to market conditions with bad debt ratio expected to remain below our long-term average of 1.2%. We expect a modest increase in RoTE, although the progression will not be linear.

As per the previous slide, we expect CET1 to be within our 12% to 13% target range in FY '27 after absorbing Basel 3.1 and loan book growth. As we move to the medium term, the accumulation of loan book growth of 5% to 10% through the cycle, a lower cost base and operating leverage support a double-digit RoTE by FY '28 and rising thereafter.

I'll now hand back to Mike, who will provide an update on our strategy.

Thank you, Fiona. So to recap, our strategic priority remains clear. We've reshaped the group to improve returns through simplify, optimize and grow. We have built good momentum over the last year, which reinforces our confidence as we move into full year 2027 and full year 2028.

On simplify, we now have a focused portfolio built around Commercial, Retail and Property, differentiated businesses operating in attractive specialist markets. Our focus is, therefore, firmly on optimize and grow.

Optimize, as you have heard from Fiona, means creating a lower cost, more efficient, scalable operating model. Grow means building on the strong positions we have in our selected markets, increasing our share, strengthening our customer propositions and developing new products where we see attractive sustainable returns.

The first pillar of our strategy, simplify, is now largely complete. We have refocused the group through the disposals of the Asset Management division, Winterflood and Brewery Rentals, alongside our winding down of Vehicle Hire, and we have closed Novitas. And the repositioning of Premium Finance towards commercial lines will be largely concluded by the end of financial year 2027.

Simplification was not an end in itself. It was about establishing stronger foundations for the next phase of our strategy. These actions have created a more focused organization based on stronger fundamentals with higher returns potential.

This slide shows the high-level progress we are making through our transformation program and how it is evolving. We began with a series of tactical actions designed to reduce costs quickly, delivering approximately GBP 25 million of cost savings back in FY '25.

In late 2025, we launched our transformation program focused on delivering material cost savings through a redesign of our operating model. We are now well through the first phase of this, which is primarily focused on simplifying individual businesses and functions.

We initially targeted approximately GBP 60 million of annualized cost savings, delivering around GBP 20 million each year over financial year '26, '27 and '28, but we now expect this program to exceed GBP 60 million annualized savings by the end of 2027.

We're also now planning for the next phase. This will involve a fundamental change, moving away from our current federated model, bringing functions and operations together at an enterprise level.

All of our transformation work is underpinned by embracing the opportunity that AI and automation present to improve efficiency, create a better experience for customers and colleagues in supporting future growth. We have already deployed a number of AI solutions across our businesses and are seeing tangible benefits.

For example, in Commercial, we have deployed Agentic AI to automate the submission and processing of broker proposals. The technology gathers, organizes information, removes manual tasks and supports faster progression through the credit workflow, enabling quicker decisions, greater efficiency and improved end-to-end experience for brokers and customers. Over time, we see potential for additional cost savings and growth, reflecting the deployment of AI, automation and digital solutions across our businesses.

As we move into the next stage of delivery of the group strategy, I wanted to share some changes to roles and responsibilities within the Executive Committee.

From the 1st of October, Matt Roper has been appointed to the newly created role of Chief Banking Officer with responsibility for the group's lending activities across Commercial, Retail and Property. Phil Hooper remains Chief Executive of Property, and Ian Cowie moves into the newly created role of Chief Operating Officer. I am in no doubt that these changes will sharpen our focus on driving growth across our lending activities and strengthen our enterprise operating model.

Moving on to growth, we have repositioned our portfolio of businesses to focus on markets with strong structural demand and where we can offer a differentiated proposition to our customers. We see significant potential across our businesses from a combination of underlying market growth, share gains and the development of new products and propositions.

Growth rates will naturally fluctuate, reflecting short-term market conditions, and we will see opportunities and challenges within each business. Historically, these businesses have grown at 8% CAGR. Overall, we are confident that we can deliver 5% to 10% loan book growth through the cycle.

This slide on Commercial shows how we've been delivering that, focusing on our growth priorities in mature businesses and new and innovative products. Kilwinning is a good example to demonstrate a new sector growth. By financing Unibal's third Scottish battery project, we are enabling a customer to invest in new capacity in an attractive growth area within the energy sector.

At the same time, we continue to leverage the strength of our relationship-led model and underwriting expertise. This supports larger and more complex financing requirements while maintaining a prudent and well-controlled risk appetite.

By way of example, we recently completed a large asset-based lending transaction for a leading Scottish timber frame manufacturer. The transaction combined multiple lending products across Asset and Invoice Finance within a single capital structure. And this allowed us to deliver flexible funding to help the business invest, innovate and pursue its growth plans with confidence.

In Retail, we are already seeing strong progress in the Motor Finance business with a return to growth in the U.K. and record new business in Ireland. We reentered the Irish market through acquisition in 2023 and have since then increased our market share from 8.5% in 2024 to 13%. We are expanding our offering with locally relevant products such as dealer forecourt funding.

And in Premium, we are looking to build on our existing partnerships with large commercial lines insurers and underwrite larger and more complex deals. One example is our new 3-year partnership with JMG, one of the U.K.'s leading independent insurance brokers.

This broadens access to commercial customers and supports growth in our core commercial premium finance proposition. I would describe this growth as ambitious, sustainable and disciplined built around strong partnerships and a clear path to improved returns.

And in Property, we are extending our proposition, supporting larger, more diverse developments. While the near-term market remains challenging, our through-the-cycle approach allows us to stay close to established build-to-sell clients. We have extended our product offering, and we are growing in new market segments, including build-to-rent and purpose-built student accommodation. And we're already seeing tangible evidence of progress.

Our first transaction with gs8 was a GBP 20 million revolving credit facility supporting 52 homes at Medburn Yard with a gross development value of GBP 47 million. It brought us a new relationship with an innovative housebuilder while remaining firmly within our areas of expertise. And similarly, our recent partnership with Draycott in Cardiff is an example of our increasing appetite for larger opportunities in the build-to-rent sector.

Importantly, these opportunities complement our core build-to-sell business, enabling us to continue supporting long-standing clients as they navigate market challenges and progress their own development pipeline.

So to conclude, we have made significant progress in the 2026 financial year, and we enter 2027 with confidence and a growing momentum. We've repositioned the business. We've returned to loan book growth, and we expect that underlying growth to accelerate in financial year '27 within our 5% to 10% range. The opportunities are well understood. The priorities are clear, and we are demonstrating that we can turn those opportunities into high-quality growth.

We have also demonstrated strong execution on costs. Savings were delivered ahead of schedule in financial year '26, and we expect to exceed the overall savings target for full year '27. This is creating a more efficient and scalable operating model.

More broadly, our strategy is clear. Simplify is largely complete. We are now firmly focused on optimizing the business and growing in the specialist markets where we have strong positions and attractive opportunities.

We have been through a challenging period, and it has been difficult with tough decisions to make. I would like to thank our people for their ongoing dedication, support and commitment. They have been truly outstanding.

I remain fully committed to the targets we have set, I am confident that we are in the right businesses, have the right team and have the momentum to continue delivering on our strategy and to achieve our target of double-digit returns by 2028 rising thereafter.

Thank you for your time, and we would now be pleased to take your questions.

[Operator Instructions] And the first question comes from Benjamin Toms from RBC.

Three, if that's all right, short ones. So firstly, base rate expectations have gone up by 100 basis points over the last month. Do you mind just talking a little bit about how you expect higher rates might impact your business? And to what extent the higher rate environment is baked into your guidance? And secondly, the upper tribunal hearing will be in December or February. How long post that hearing do you expect it will take to hear the outcome of that hearing?

And then thirdly, one of your competitors in the specialty finance space is up for sale. If that competitor is acquired by a high street bank, providing your competitor access to cheap current account funding, do you expect any disruption to any of your business lines from more aggressive pricing?

Thank you, Ben. Thank you for the questions. I think let's start with the base rate implications.

Clearly, our latest forecasts are built around the latest observations we see in the interest rate markets. I think as an overriding comment, I would say higher interest rates do put pressure on SMEs, and we have seen those higher for longer. And when we started this year, we were expecting to see interest rate reductions over the course of the year. But of course, those are built up. And naturally, we pass those through because we want to maintain our margin.

It is a challenge, though, for SMEs, but they are entrepreneurial by nature, and they will find ways to get around this and develop. What I can say is if you look at historically at the markets we are in, we have seen growth at 8% to 9% compound annual growth rate. It will be above that at certain times, and it will be below it at other times. But through the cycle, it has been there in all manner of interest rates. So I think they can cope with that.

What we also need though, is certainty because for SMEs, they need to be able to plan. And if they don't have certainty, that can be challenging. So we've obviously got a budget coming up, and it will be very interesting to see what comes through from that. But if we can get certainty and some stability in interest rates, then I think the businesses that we are operating in can provide the growth that we're forecasting. So that would be my sense on interest rates.

On the upper tribunal, the question is a particularly challenging one. How long will it take the upper tribunal to arrive at a verdict after they've heard the case? The honest answer, Ben, is I'm not clear, but I would suspect it will be a number of months, but I have no basis for making that comment.

And then if we see -- I presume you're referring to Aldermore and whether high street banks step in, I think we would have to look at the facts and circumstances of that acquisition as it comes in.

But what I can say with Close Brothers, we have a diversified funding base. We have strong margins. We're seeing our returns improve, and we have a very clear plan to get that back to double-digit returns in 2028. So I'll focus on what we're doing and let the others focus on what they're doing.

And the next question comes from Sanjena Dadawala from UBS.

Two, please. First on loan growth, good to see loan growth come back in the second half. A lot of it was the 26% half-on-half growth in Invoice Finance. What's driving that? Are those levels sustainable? And then how are you thinking about the rest of the book, especially Asset Finance and Property?

And second, could you please also talk about the uptick in impairments in the fourth quarter, taking the 0.8% in the 9 months to 1%? And how are you thinking about asset quality trends into FY '27? And specifically, if you could share the coverage levels in the troubled property portfolio loans, please?

Okay. So the first question, that was around what is driving the loan book forward in the second half of the year, yes? Okay.

So I mean, I think what was encouraging, Sanjena, when we looked at that second half, we saw 4% growth. And in the final quarter, we saw growth right across the portfolio. Every business grew. So the honest answer to the question is all the businesses move into FY '27 with good momentum.

We gave some examples as part of our presentation on areas we're seeing it. Certain parts of asset have grown well over the period. We've seen good growth in our wholesale portfolio. We've seen areas in Invoice Finance really pushing on very, very strongly in the second half. We talked about in Motor, how the U.K. business is doing well, but equally, Ireland is selling record volumes at the moment. And of course, with Premium, we gave examples of new brokers that we're bringing in as we move into Commercial lines.

I think on Property, yes, build-to-sell is a challenging environment, very interesting to see the Andy Burnham's announcement around Help to Buy over the weekend. And I think that presents real opportunity as we move into FY '27.

But with the fact that we were talking about other product sets that we have, build-to-rent and purpose-built student accommodation, that has taken off very well indeed. I'm very pleased. We showcased an example as part of the presentation there where we're seeing that growth. So we have diversity in our property book. So the answer really is right across the book. We are not relying on one particular book to drive the growth. And as I say, historically, those have grown at sort of 8% to 9%.

In terms of asset quality, Fiona, do you want to pick up just on that and on the Property piece?

Yes, absolutely. Thanks, Mike. So yes, the fourth quarter, the uptick in impairments, as we disclosed, this related to a small number of cases in our Property business. including some legacy cases there, indeed, really some business that we wouldn't have written today.

And we've talked about the stressed build-to-sell environment, and we did see some developers, a very small number of developers fail as a result of some of those pressures, and that's come through in the impairments. So I'd say a small number of relatively ring-fenced cases there. We are confident in the quality of our portfolio and in our coverage levels across the whole business, including in Property.

I think the last part of your question, Sanjena, was around the coverage ratio. So overall, for the bank, coverage ratios increased from 2.6% to 2.7% year-on-year. Our coverage levels overall for the property business of 5.6%. And within that, Stage 3 is at 35%, and that reflects really the uptick that we saw in Q4 there. So strong coverage levels, strong book quality and confidence in our underlying impairments.

And I would just reiterate those points. I mean 90% of our book is secured and structurally protective, and we've got prudent lending criteria. So I'm very comfortable with our credit quality right now.

Can I just come back on the first question? Is there more color you can provide on the Invoice Finance performance in the second half? Because that really stands out.

Yes. Apologies, Sanjena, we didn't quite cover that on the first question. So yes, as you say, the growth there in the second half in Invoice Finance was particularly pronounced at 26%. As you might recall, we called out in the H1 results, we did see a particular seasonal dip in Invoice Finance at the end of the first half, so at the end of January '26.

So whilst we are confident in the growth opportunities in our Invoice Finance business, that absolutely forms part of our 5% to 10% go forward, I would say that H2 performance was a little unusual because of that seasonal dip at the end of the first half.

[Operator Instructions]

So that's all the questions as far as I can see. So I'd just like to thank you for coming on the call this morning, and we look forward to updating you in 6 months' time.

Good morning, and welcome to the presentation of our 2026 first half results and business update. It's great to see a number of you here in person today, and thank you to all who have dialed into the webcast too.

I will start by giving a brief update, and we'll then hand over to Fiona, who will cover the results in detail. We will then hold a short Q&A session on the results, followed by a break. At 10:15, we will reconvene together with our 3 divisional chief executives for a more detailed update on the business, strategy, and market opportunity for each of our divisions and also share some further detail with you on our current transformation and cost program. There will be plenty of time for additional questions at the end of the business update.

Before we get into the details of the half year results, I'd like to address the publication of a research report yesterday by Viceroy Research. Close Brothers strongly disagrees with the report, which relates to the company's approach to provisioning in respect of motor finance commissions and resulting impact on its capital position. Our provisioning approach in relation to this matter is in accordance with U.K. adopted international accounting standards and follows a robust governance process.

It has now been a year since I took on the role as Group Chief Executive. While this year has not been easy, I look back on it with immense pride in the progress made by the organization. We have delivered on our capital actions and substantially strengthened our capital position. Through the Supreme Court, we successfully overturned the Court of Appeal's judgment in respect of the Hopcraft case. We have addressed legacy issues, simplified the group and repositioned the business for growth. We delivered an initial GBP 25 million of annualized cost savings in 2025, launched our transformation program and are now accelerating our cost targets for the next 2 years.

In the first half of this year, the performance of the group has been resilient, and we have continued to make progress on our strategic agenda, to simplify, to optimize, and to grow. The simplification of the business is largely complete with the disposal of Winterflood having concluded in December. We have repositioned the business to focus on our 3 core lending divisions where we see a strong and sustainable market opportunity. And although our performance in the first half has been impacted by both market conditions and the actions taken to reposition, these actions have strengthened the business and laid the foundations for recovery in growth and returns going forward.

We have further strengthened our capital position and now have a CET1 ratio of 14.3%. While we are still waiting for the details of the FCA's proposed redress scheme, we are confident that this will leave us well placed to absorb a range of potential outcomes without impacting on our ability to grow and to invest.

In the summer, we launched our transformation program focused on significant cost reduction and streamlining of our historically federated organizational model. We now expect to deliver GBP 25 million of annualized savings in 2026 financial year ahead of our GBP 20 million target. And we will deliver a total of GBP 60 million of annualized cost savings by the end of 2027, 1 year earlier than we had previously guided. This sets us firmly on the path to double-digit returns by 2028, and rising thereafter. And in today's business update, you will hear directly from each of our CEOs about the market opportunities in each of their areas, underpinning our confidence that we continue to grow at a rate of 5% to 10% through the cycle.

Before I hand over to Fiona, it is important to acknowledge the broader environment in which we are operating. The macroeconomic outlook remains uncertain, both in the U.K., reflecting interest rate and inflation dynamics and globally amid heightened geopolitical tensions. We continue to monitor developments closely while maintaining a disciplined focus on execution, risk management and supporting our people. Against this backdrop, the group remains well positioned, underpinned by a resilient balance sheet and clear strategic priorities.

I will now hand over to Fiona, who will take you through the first half results.

Thank you, Mike, and good morning, everyone. I'll be taking you through the financials this morning. We reported adjusting operating profit of GBP 65.2 million in the first half of the 2026 financial year and a return on average tangible equity of 6.3%. We've maintained strong capital, funding and liquidity positions, and our common equity Tier 1 capital ratio increased 50 basis points to 14.3%, even after taking into account the GBP 135 million additional provision in respect of motor finance commissions.

Across commercial, retail and property, we delivered GBP 88 million of adjusted operating profit reflecting a resilient business performance and our continued focus on cost. The adjusted operating loss in group central functions reduced to GBP 22.8 million with lower legal and professional fees. The loan book reduced 2%, reflecting both current market conditions and the repositioning of our business to focus on core markets. Excluding the repositioning of premium finance personal lines, and the legacy Republic of Ireland Motor Finance business in runoff, the loan book decreased 1%. Both Motor Finance and Asset Finance grew in the period. The net interest margin was strong at 7.1%, and credit quality remained resilient with a bad debt ratio of 80 basis points. Costs remain broadly flat, demonstrating cost discipline with savings offsetting inflation and continued reinvestment in our business and growth.

Turning now to the income statement. Adjusted operating income reduced 6% to GBP 327 million, reflecting a lower average loan book, current market conditions and the repositioning of our business, including the wind down of Novitas and the planned reduction of premium finance personal lines. As noted, adjusted operating expenses were broadly flat at GBP 222 million, and impairment charges reduced 16% to GBP 40 million. This benefited from the implementation of an updated IFRS 9 model in motor finance, which was partly offset by an increase in individually assessed provisions in the Property division. Overall, adjusted operating profit was down 19% to GBP 65.2 million.

The statutory loss after tax including discontinued operations, was GBP 64.4 million, largely driven by the Motor Finance commissions provision. The group will not pay an interim dividend for the 2026 financial year. As previously stated, the decision to reinstate dividends will be reviewed once there is further clarity on the financial impact of the FCA's review of Motor Finance Commission arrangements.

On a statutory basis for our continuing operations, we reported an operating loss before tax of GBP 65.5 million. This was driven by a negative GBP 131 million of adjusting items. This predominantly reflects the additional provision in relation to Motor Finance Commissions of GBP 135 million, following the publication of the FCA's consultation paper on the seventh of October 2025, bringing our total provision to GBP 300 million. We are confident that we are well placed to absorb a range of potential outcomes from the FCA's proposed Motor Finance Commission redress scheme. This provision is based on a range of probability-weighted scenarios, which were updated following the consultation paper. The ultimate cost to the group could be materially higher or lower depending on the outcome of the consultation and final scheme rules as well as any further legal, regulatory or industry developments. We submitted our response to the consultation in December 2025, and the FCA expects to publish the final policy statement in late March.

The first half also reflects a GBP 7 million profit from Close Group Brewery Rentals Limited, principally reflecting the gain on disposal in August 2025, and a small operating loss of GBP 1.1 million from Close Brothers vehicle hire, which is in wind down. We incurred GBP 1.6 million of restructuring costs, primarily relating to redundancy and associated costs. We now expect to incur around GBP 10 million to GBP 15 million of restructuring costs in the 2026 financial year and GBP 30 million to GBP 40 million in the 2027 financial year as we accelerate our cost reduction activities.

Now highlighting the key metrics from across our operating divisions. Firstly, commercial. Adjusted operating income decreased to GBP 151.2 million, reflecting reductions in loan balances through the wind down of the Novitas book and lower behavioral income in asset finance. NIM remained broadly stable at 6.5%. Adjusted operating expenses were broadly flat as increased technology costs and annual staff costs were largely offset by cost savings and nonrecurrence of Novitas expenses. Adjusted impairment charges increased to GBP 16.5 million with the bad debt ratio relatively stable at 70 basis points. Adjusted operating profit for Commercial decreased to GBP 40.7 million.

Moving on to retail. We've seen good growth in motor finance, particularly in Ireland, where we are building out our proposition. We continue to evolve the business mix with the planned reduction in personal lines brokers and this, combined with premium deflation across the market in premium finance led to a decrease in operating income of 8% to GBP 118.4 million. The NIM decreased to 8.3%, reflecting the change in business mix over the period. Adjusted operating expenses increased 4% to GBP 92.7 million, driven by the scaling of our motor finance business in Ireland as well as additional investment spend to support future cost reduction.

Impairment charges decreased to GBP 8.2 million and the bad debt ratio reduced to 60 basis points, driven by the implementation of an updated IFRS 9 model, which recognizes the evolving composition and behavior of the motor finance book as well as an improved credit performance in premium finance. Overall, adjusted operating profit for retail increased to GBP 17.5 million.

In Property, operating income declined 10% to GBP 61.6 million, driven by reduced loan balances, alongside lower fees and interest yields. The net interest margin reduced to 6.8%. Adjusted operating expenses decreased 4% to GBP 17 million, reflecting a reduction in staff costs. And impairment charges increased to GBP 14.8 million, corresponding to a bad debt ratio of 1.6%. This reflects higher provisions on a small number of individual developments driven by build cost inflation and a subdued sales market. As a reminder, the property loan book is secured with conservative loan-to-value ratios. Adjusted operating profit in Property declined to GBP 29.8 million. The operating loss from group central functions reduced by 20% to GBP 22.8 million, reflecting higher interest on group cash balances as well as the nonrecurrence of legal and professional fees associated with the impact of the FCA's ongoing review. We expect the operating loss from Group central functions to be between GBP 45 million and GBP 50 million for the 2026 financial year. The reduction in income reflects both the conscious repositioning of our business and the impact of recent market conditions on underlying loan book growth and net interest margin.

Specifically, the closure of Novitas and our planned reduction of certain premium finance personal lines brokers accounted for around 1/3 of the overall GBP 22 million reduction in income. Despite this, net interest margin across the lending divisions remained robust at 7.1%. We continue to expect NIM to be slightly lower than 7% for the 2026 financial year as a whole, reflecting loan book mix impacts, including the reduction in premium finance personal lines and a continued shift towards larger, higher-quality customers across our commercial and property businesses.

Moving to the loan book. The core divisions across our businesses are progressing well and we have seen good growth in both Motor Finance and Asset Finance. However, the loan book has decreased 2%, reflecting both the repositioning of our business to focus on core markets and current market conditions. Excluding businesses in runoff, the underlying loan book decreased 1%. Within Commercial, Asset Finance grew 2% with increases across a number of business lines in the U.K. and Ireland. However, this was more than offset by a contraction in invoice finance due to amplified seasonality with elevated customer cash balances at the end of January. This led to an overall decrease of 2% in the commercial loan book. On an underlying basis, the retail loan book grew 3%. The underlying motor finance loan book grew 5%, helped by record volumes in Ireland, more than offsetting the underlying reduction in the premium finance loan book.

The property loan book decreased 5% to GBP 1.8 billion as repayments more than offset drawdowns. This reflects current market conditions as housing delivery remains constrained by planning delays, build cost pressures and labor shortages. Across the portfolio, we remain focused on maximizing growth opportunities through a combination of core business growth and new initiatives, targeting 5% to 10% per annum loan book growth through the cycle. We continue to make good progress on costs, and we are accelerating our cost-saving targets, reflecting our ongoing transformation activities. In the first half, adjusted operating expenses were broadly flat at GBP 222 million, reflecting cost discipline offsetting inflationary impacts and continued investment in technology and capabilities across the business.

In 2025, we delivered GBP 25 million of annualized cost savings and guided to at least GBP 20 million of savings per annum in each of the following 3 years for a total of GBP 60 million. We now expect to deliver circa GBP 25 million of annualized savings in the 2026 financial year ahead of our initial GBP 20 million target. And we expect to deliver the full GBP 60 million of annualized savings by the end of the 2027 financial year, 1 year ahead of our earlier guidance. This is in addition to the GBP 25 million already delivered in 2025. We expect the group's adjusted operating expenses to be circa GBP 450 million in the 2026 financial year and in the GBP 410 million to GBP 430 million range in the 2028 financial year. We look forward to providing further detail on our transformation and cost savings initiatives in the business update session later this morning.

Turning now to our resilient credit performance. The bad debt ratio reduced to 80 basis points in the first half with an overall impairment charge of GBP 40 million. As I mentioned earlier, the reduced impairment charge benefited from the implementation of an updated IFRS 9 model in motor finance, partly offset by an increase in individually assessed provisions in property. Overall, provision coverage remained unchanged at 2.6%. 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 2026 financial year to remain below our long-term average of 1.2%. The group maintained a strong balance sheet and continues to take a prudent approach to managing its financial resources while also looking to optimize balance sheet efficiency. During the recent uncertainty regarding the outcome of the FDA's review of historical motor finance commission arrangements, we have consistently maintained an elevated level of liquidity, which we have now begun to normalize. Accordingly, treasury assets reduced 20% to GBP 2.2 billion in the first half. Our conservative stance on liquidity ensures it remains comfortably ahead of both internal risk appetite and regulatory requirements. Our funding base is diverse across wholesale markets and both retail and nonretail deposits.

We have reduced total funding in the first half, reflecting lower liquidity balances and further optimization of the level and pricing of retail deposits. The cost of funding reduced to 4.9%, primarily reflecting lower base rate in the period. We have maintained a prudent maturity profile with the average maturity of funding allocated to the loan book at 18 months ahead of the average loan book maturity at 15 months. In line with our prudent and conservative approach, our deposits are predominantly turned with only 19% of deposits available on demand and 47% having at least 3 months to maturity. And our credit ratings remain robust reflecting our inherent financial strength and consistent risk appetite.

Finally, before I hand back to Mike, turning to our strong capital position. The CET1 capital ratio increased from 13.8% to 14.3% as the additional GBP 135 million provision in relation to motor finance commissions was more than offset by a reduction in loan book RWAs, the recognition of other profits attributable to shareholders, and the sale of Winterflood. This provides significant headroom to our minimum requirement of 9.7%, leaving us well placed to absorb a range of potential outcomes from the Motor Finance Commission's redress scheme without impacting our ability to grow and invest in the business.

Based on the current assessment of our motor finance commissions provision, we expect to maintain our CET1 capital ratio above our medium-term target range of 12% to 13% in the mine term. The leverage ratio, which is a transparent measure of capital strength not affected by risk weightings also increased to 13.5%. The implementation of Basel 3.1 takes effect from the first of January 2027. We now expect this to result in an increase in the group's RWAs of less than 10%, and we expect to receive a full offset in Pillar 2A requirements for the removal of the SME supporting factor. Therefore, Basel 3.1 is not expected to have a significant impact on the group's overall capital headroom position. As reported in our full year 2025 results, engagement with the regulator continues following our application in December 2020 to transition to the IRB approach, and we continue to make progress towards Phase 3 of the application process. Finally, to highlight, after the period end, we issued GBP 250 million of Tier 2 notes accompanied by related tender demonstrating our ability to access the market.

In conclusion, I want to reiterate that our underlying performance was resilient, our financial position remains strong, and we have a clear focus and commitment on reducing costs, growing the business and returning to a double-digit RoTE, which we will cover in more detail in our business update shortly. Thank you. And I'll now hand back over to Mike.

Thank you, Fiona. In summary, notwithstanding current market conditions, performance in the first half has been resilient, and our core business remains strong. We have strengthened our capital position and are well placed to absorb a range of outcomes from the FCA's final redress scheme. We've initiated our transformation program and accelerated our cost savings targets for this year and next, and have a clear strategy to rebuild returns over the next 3 years, simplify, optimize and grow.

The team and I look forward to sharing more detail on our business and strategic priorities after the break. But before that, I'd like to open the floor to any questions related to the first half results. We'll obviously have a Q&A session on the business update following that. But if you'd like to ask a question, please raise your hand, and we will provide you with a microphone. Please, can you state your name and company when asking a question. And we're also happy to take questions via the webcast. Thank you.

Ben Toms from RBC. The first is more of an observation, which maybe I'll invite you to comment on if you're able to. And that's in relation to the Viceroy report that was published yesterday. It seems riddled with modeling inaccuracies, including assuming all your loan book is originated in the U.K. assuming that all your loan book is retail rather than commercial and assuming an average loan balance that is outstanding rather than origination and assuming no tax shield. Can you comment on any of those observations? And then secondly, on costs. You've accelerated your cost plan with today's results. Is there any upside to that GBP 410 million to GBP 430 million FY '28 guidance for costs given that you've accelerated the plan?

Thank you for the questions, Ben. In terms of Viceroy, clearly, the report came out yesterday afternoon. We put out a very strong statement last night that we disagree with the report. Our provision is put together in accordance with international accounting standards. There is a strong governance that sits around that. What I won't do is get drawn into individual numbers within there, but we disagree with the report. So I'll leave it at that, Ben.

In terms of costs, in terms of upside, I mean, we'll be going through a lot more of this in the business update. But I think what I would say is that we've accelerated the targets forward. You've seen the GBP 25 million going to GBP 20 million for the -- sorry, GBP 20 million going to GBP 25 million this year. And then we've said over the 3-year period, we'll bring the GBP 60 million forward from 3 years to 2 years. So that's encouraging. But I wouldn't want anyone to take away that, that's it. We're going to stop. We're going to continue to look at that. But importantly, we'll also look at growth as well.

This is multifaceted and growth is just as important as well, but obviously, cost is within our gift. So we will continue to push on cost. I think it presents opportunities, and we can talk a little bit more about that in the next session. But our ambition is to push further forward, yes.

It's Robert Noble, Deutsche Bank. You generated an enormous amount of underlying capital in Q2. How much do you think you can generate in H2? And within that, so what's the risk density of the stuff that's rolling off versus the new stuff that you're putting on? So what can we think of capital generation in the second half. And then hypothetically, if you did need to raise more capital, what options are there available to you? How much could you raise through things like SRT securitizations and things like that, if it ever was needed?

Thank you for the question. Just in terms of capital generation, I'll talk more generally and then Fiona may want to comment on that. You're absolutely right. Capital has grown quite significantly. I mean, remember that we've had Winterflood sale come through. So we've had the benefit of that, which I think is 55 basis points coming through as well. But with the loan book just pushing back a little bit, that's obviously been beneficial for capital build. .

I think my point would be that at 14.3%, where we've got ample above the 9.7%, I think when you're looking at the sort of the runoff and the way we want to grow the business, it'd be pretty balanced across the piece. And if you're loosely looking at that, your retail is sort of 75% commercial, 100%, but obviously, there might be an SME discount factor for the time being. But property, obviously, is 150% risk weighting. So if we saw that push on significantly, then that would have the greater effect there. I don't know if you want to build on that capital point at all.

Yes. Thank you, Mike. I guess a couple of call-outs there. One is that as you'd expect, we will continue to generate profits in the second half towards accretive capital. But actually, and to Mike's point, what we really want to see that capital deployed on is loan book growth. So we're not guiding from 14.3% at half 1 to the full year. But actually, if our loan book growth was there consuming capital over and above the profits generated, that would actually be a positive outcome for us and a positive message. To Mike's point on risk densities, they are quite different across the different businesses. But if we look at the shape of the businesses and the growth, I would actually say that the resent the roll-off and the new business is not dissimilar in aggregate. So it's a similar picture.

To the second part of the question, Rob, around raising more capital, yes, SRT is a good example. We talked about that at the time as an opportunity. We didn't have to use that because we've built that up. So that would be 1 factor. We've also engaged with the Bridge business bank around the Enable programs. There's an opportunity there to get a relative capital benefit coming through there. you would have to just dial the loan book growth back, which is where we would start to be a little bit more concerned. But you can see that if you slow the loan book down because of the risk-weighting density, it throws capital off pretty quickly.

So that last 1 would be something we wouldn't particularly want to do. But if it was required, as we have done over the last 2 or 3 years, it does make quite a meaningful difference, but it's really the SRT would help. But I don't envisage a situation where we will have to do that.

Sanjena Dadawala from UBS. Two questions, please. First, if you could talk about the loan book reduction that we are seeing. Is there an element of capital conservation still in there because the final motors number could be higher or a decline in market share since system level growth is much higher. And how we can get to the 5% to 10% that you're targeting that will be key to the income and RoTE recovery?

And then second, if you could give more detail around the a GBP 60 million annualized savings number. How much of that is staff cost? What are the other major elements and any proportions? And the result in cost income ratio of 60% is pretty much where we were pre 2020. So how are you thinking about that?

Okay. Let me pick that up, and I'll draw Fiona as well. In terms of the loan book in the first half, obviously, the headline figure was a 2% reduction there, 1% on an underlying basis as we reposition personal lines. I think if you look within that, we saw very good growth in our motor business, which was very encouraging. That's a 5% growth there. Asset Finance grew at 2%. If you look at the other businesses, if we say take property, I think it's recognized that there are some challenges in that sector in the U.K. at the moment. But we know there is a structural need for the products that we are financing through our developers or through developers. So I'm very confident that can come back.

But also we've moved into -- we brought a team across from another organization that's allowed us to go into build-to-rent student accommodation and there seems to be, to me, a big demand there, and you'll hear more about that from Phil. So I won't go into to that in a more detail.

Invoice Finance is a very seasonable book. It builds up to Christmas period, and we always see lot of repayment in January. It was particularly pronounced this year. But I'm pleased to say that, that has started to come back since the midyear position. So I have no concerns about the invoice book over the last few years, it's grown dramatically. And again, Matt will talk about that in the business update. And then, of course, we're in the commercial lines in premium. I think there's opportunities for us to grow there, and that's 1 we really need to sort of push on with. But we'll talk about all of those in business update session. But I think if we stand back and just look at where we are from a loan book perspective, if you look at the banking sector, at 1 end, you've got that, there's large-scale high street banks. At the other end, you've got the sort of fintechs, which are much more digital in nature, more standardized. I mean, it's yet to be prudent in the case whether they're resilient.

But we have deliberately positioned ourselves where we can bring our specialisms, our expertise, our knowledge and our relationships. And we believe that there is still a huge demand for that. We believe it's underserved. We're pretty dominant in the markets we're in, but we believe we can grow in there as well. And if you actually look back over any extended period, that loan book has grown at a compound annual growth rate of 9%. So I don't think setting a sort of target through the cycle of 5% to 10% is overly challenging. We're not talking double digit or anything like that. So I think that is very achievable.

But that's what I would say on the loan book. The GBP 60 million annualized savings, we're going to go on and talk quite a lot about that in the business update. So maybe we could pick that up there, if that's so okay for you. And then clearly, a combination of this around cost/income we would want to see that come down. I mean it's a multifaceted it's about the growth that's important, but it's also about cost as well. And we want to see that drive down. And that obviously is going to help with the returns. I don't know if there's anything you want to add to that at all?

Yes, maybe just 1 point to join those 2 ends together. Mike's talked about that loan book growth and the cost reduction, but importantly, this is more than just about cost reduction. It is actually about a fundamental change to our operating model to drive support scalability and to drive that loan book growth. So we're very much seeing that as a sort of spectrum of the change that we're doing and a very different platform for us as we move forward. But as you say, in terms of the splits of the GBP 60 million, we can -- we're talking more about that later.

Thank you. I think we have a webcast question. .

We've got time for 1 webcast question before we go to the break. So with cost savings targeting the acceleration of GBP 60 million to 2027 and significant head count reductions announced. How are you ensuring that customer service quality risk management and regulatory controls are not compromised during execution?

I mean, that's a great question. I mean, what is fundamental for us is that as we look at the cost base and the organization. And as we make changes, we protect that front-end proposition and we keep this organization safe. It is fundamental to our thinking in doing this. We have a net interest margin in the first half, as Fiona just explained, at 7.1%, and it is important we can maintain that, and we only maintain that through prior diving excellent service expertise. And that is what underpins that. But equally, we have to keep the organization safe as well. So there's a blend of those 2 things that we work towards. That's fundamental in our thinking.

I'd leave it there, but there will be more on that as we move into the business update.

Okay. Well, I think that's all the questions. So thank you very much for the business update. We'll take a short break now, and we'll be back at 10:15 to get into the business update. Thank you very much indeed.

[Break]

Good morning, and welcome to our business update presentation. I'm Mike Morgan, Group Chief Executive, and I'm delighted to be joined by Fiona McCarthy, Group CFO; Matt Roper, Chief Executive of Commercial; Ian Cowie, Chief Executive of Retail; and Phil Hooper, Chief Executive of Property. The purpose of today's presentation is to provide further detail on the group's current strategy and our path back to double-digit returns by 2028 and rising thereafter.

I will start with a brief introduction covering our strategic priorities with particular focus on our transformation and cost savings activity. Then we will look at each of our 3 businesses in detail. Matt will provide an update on the commercial division, focusing on the differentiation and market opportunity for his business. Ian will present the Retail division and the strategic reset that is underway for both the premium and motor finance business. And Phil will share more detail on the Property business and how we are expanding our product offering to tap into additional demand. Finally, Fiona will discuss the financial outlook for the group, including further detail on our ongoing cost initiatives and targets. This will be followed by plenty of time for Q&A at the end of the presentation.

Close Brothers has a long and successful history as a diversified specialist banking group, but over time, the growth of the business and a federated structure created complexity, and complexity diluted returns. Over the past year, we have been very deliberate in reversing that simplifying the group, sharpening our focus and concentrating on areas where we have real competitive strength. What that means is a clearer, more coherent close brothers with a strategy built around discipline and sustainable returns.

Today, we are a simpler group focused exclusively on specialist lending through our 3 divisions: commercial, retail and property. The U.K. banking market is more competitive than ever, but it's also more polarized. At 1 end, our large scale-driven banks or the other digital challenges focused on speed and standardization. Close Brothers sits deliberately in a different place. We focus on specialist sectors where we have real expertise and where we can differentiate through the service and relationships we provide to our customers. That differentiation is the result of careful choices about where we operate, how we serve our customers, supporting SMEs, property professionals and individuals in parts of the economy that are often underserved by larger, more standardized lenders. We currently serve approximately 2 million customers with a loan book of GBP 9.2 billion at the end of January. Last year alone, we lent GBP 7 billion into the U.K. economy, making a real difference to the businesses and consumers we serve.

While the shape of the group has changed, the fundamentals of our business model have not. We have a clear purpose to help people and businesses thrive. And the key aspects of our business model have remained unchanged for many years. These are disciplined pricing and underwriting, which remains consistent through the economic cycle, the prudent management of our financial resources, including capital, funding and liquidity, a genuinely customer-centric approach, recognizing the value of relationships, a conservative risk appetite, the diversification and specialism of our banking businesses, and most importantly, our culture, which is characterized by deep expertise, consistent service and long-term relationships.

The business is currently undergoing a period of significant transformation with fundamental shifts to our operating model. In affecting this change, our guiding principle is to maintain and enhance the key differentiators, which are valued by our customers and clients and our why we win business. Customers deal with us because they value the relationship-led expert service we provide, delivered by around 700 frontline colleagues. Customers trust us and value our consistency and reliability. We commit to lending through the cycle and supporting our customers through the difficult times and the good ones. They value the speed and ease with which they can do business with us. And this is an area where we are continuing to develop and invest in as the prevalence of digital solutions is increasing the pace of change in the marketplace. And they value our genuine customer centricity and deep understanding of their needs, which will come across in some of the video testimonials. We look forward to sharing with you today.

All of this is reflected in consistently strong customer sentiment scores across our businesses. It's clear to me that our business rests on very strong foundations with an excellent customer reputation and clear differentiation. However, since taking on the role as Chief Executive, I've been equally clear that our returns are not where they need to be. A combination of external factors, internal challenges and a rising cost base have intensified the need for fundamental change. A year ago, I set out clear strategic priorities: simplify, optimize and grow. Simplify leg of our strategy is largely complete. By selling CBAM, Winterflood and Brewery Rentals, exiting Vehicle Hire and concentrating on our higher-value commercial brokers in premium, we have simplified the group and refocused on our core markets where we can deliver strong returns and grow.

We're now firmly into the optimization stage, and I will share further details of our transformation and cost savings activities in the following slides. We're equally committed to building on our track record of growth. In today's presentation, you will hear directly from each of our 3 business CEOs about the opportunities in each of their areas. Taken together, I'm confident that this strategy sets us on a clear path to delivering double-digit returns by the 2028 financial year and rising thereafter. And Fiona will talk through this in more detail later in the presentation. But first, I would like to touch on the operational changes and cost savings that we are making as a group. Our ongoing transformation program is focused on enhancing our competitiveness, our resilience and cost efficiency through a fundamental reshaping of our operating model.

Over recent months, we have undertaken a detailed bottom-up exercise to define this new operating model which will centralize and consolidate our historically federated structure to reduce cost and improve scalability. We will also significantly increase the use of outsourcing and offshoring where specialist partners can deliver more efficiently. We already use outsourcing in a number of our technology and customer service operations and have been working closely with potential partners to expand these services to additional areas. This is not a transformation program reliant on a major technology investment and bank-wide systems replacement. It will, however, mean reshaping our workforce. Overall, we expect to reduce our head count across both business units and central functions by around 600, resulting in a total head count of around 2,000 FTEs by the 2028 financial year.

While the impact on affected colleagues is regrettable, these changes are necessary to structurally lower our cost base and make us more competitive in a market that has become more digital and more demanding of operational excellence. And critically, the actions we're taking will protect our differentiators and our distinctive culture with service, expertise and relationships remaining at the heart of our organization. You'll recall in September, we committed to delivering at least GBP 20 million of annualized cost savings in each of the 3 years to July 2028. We have now accelerated the plans and expect to deliver around GBP 25 million in cost savings this year instead of GBP 20 million. And all of the circa GBP 60 million savings by July 2027 rather than 2028.

While this represents a significant amount of change, we are confident that these savings are achievable and have detailed plans for their implementation over the next 18 months. But our ambition does not stop there, and we're continuing to assess further cost reduction opportunities, including deployment at scale of automation and AI. We're moving from a historically complex organization to 1 that is more coherent, more scalable and better able to serve customers while improving returns.

Our current organization consists of over 25 specialist lending businesses, each with their own localized operations. We have a high reliance on manual processes, a complex and fragmented IT estate and predominantly manual underwriting. And all of this is supported by around 2,600 employees across 31 locations in the U.K. and in Ireland. We plan to further simplify our structure by consolidating the number of businesses and reducing management layers. We will also make increased use of shared services, standardizing common operational processes, while retaining strong customer focus at the front end.

We will be leveraging partners to accelerate our use of automation using best-in-class expertise and technology and use AI as a strategic enabler to improve efficiency and enhance customer experience. And we will extend our use of automated underwriting to include smaller credits for commercial. What will not change is the differentiated customer proposition built on the expertise of our people, speed of service and long-term relationships. Automation and AI are important enablers for our optimization agenda. They allow us to remove manual processes improve efficiency and consistency and support a more scalable operating model, while preserving the judgment and relationships that define our business.

This is a practical use of technology focused on cost reduction, customer experience and ultimately, improved returns. We have already begun deploying AI across the business with early use cases such as complaints management and fraud detection, demonstrating strong potential. We're also using it to quality assure and improve the service provided by our outsourced partners. Over the last 6 months, we have identified 150 potential use cases and opportunities across our businesses and functions. We will prioritize the deployment of the most value-adding uses with low to medium complexity, which deliver immediate tangible benefits while operating safely within our established risk appetite. This ensures we move at pace, without introducing unnecessary operational or regulatory risk, and you will hear some further examples from the businesses shortly.

In addition, we have enrolled 160 of our employees on AI apprenticeship scheme to upscale our workforce and strengthen these capabilities within the business. We're working through the opportunities that AI and automation present, but deployment at scale is not included in the numbers that you will see today.

Turning to growth. Through our simplification agenda, we have deliberately repositioned the group to focus on markets where we have strong competitive positions and clear opportunities to generate attractive, sustainable returns. We have a long track record of growing through the cycle, underpinned by disciplined underwriting deep customer relationships and specialist expertise. While recent loan book growth has been impacted both by current market conditions and the repositioning of our business, the fundamentals of our market remain attractive and all of our businesses have the capacity to grow.

Looking ahead, we see meaningful opportunity to deliver growth of 5% to 10% per annum through the cycle, driven by a combination of organic expansion in our core franchises and selectively broadening our product offering, all while maintaining our conservative approach to risk.

Before I hand over to the businesses, I want to be very clear about what this all comes back to. Since stepping into the role, I've been explicit that returning Close Brothers to double-digit ROTE by 2028 is my core commitment. And everything you are hearing this morning is designed to support that outcome. Simplification has been about making hard choices, reshaping the group, reducing complexity and focusing capital on businesses where we can earn attractive returns Optimization is about delivery, putting in place a lower cost, more scalable operating model that creates operating leverage while maintaining the service, expertise and relationships that define the group. And growth built on those foundations is disciplined and value accretive deploying capital selectively through the cycles in markets we know well.

We have chosen to be in 3 distinct operating divisions, which we believe can deliver attractive, sustainable returns. The aim of this is to update to give you greater insight into these businesses and the growth opportunities for the markets in which they operate. What you will hear now from Matt, Ian and Phil is how each of their businesses is executing the group strategy through sharper focus, better efficiency and disciplined growth. And together, how they underpin my confidence in delivering double-digit RoTE for the group.

I will now hand over to Matt to talk about Commercial.

Thank you, Mike. Good morning, everyone. I'm Matt Roper, CEO of Close Brothers Commercial division, and I'm really pleased to take you through an overview of the business, the markets we operate in, how we differentiate ourselves and our medium-term strategy. First, a brief personal introduction. A chartered accountant by profession. I spent almost 20 years in banking, where I've held senior risk management roles for Barclays in South Africa and the U.K., including Global Head of SME Underwriting. And in business leadership for Close Brothers. First, as CEO of Invoice and Specialty Finance and since August 2023, leading Commercial.

Commercial is a specialist SME and corporate lending business. We have 800 expert colleagues, 28,000 customers and a loan book of GBP 4.6 billion. In the last financial year, a net interest margin of 6.4%, bad debt of 50 basis points and a 60% expense income ratio delivered divisional profits of GBP 96 million. NIM and bad debt are strong, and we are focused on reducing our costs in order to improve our returns. Today, we operate the largest asset finance and invoice finance franchises in the U.K. and Ireland outside of the clearing banks. We support a wide range of customers with facilities ranging from GBP 5,000 to over GBP 100 million.

Asset Finance supports customers with capital investment and funds predominantly hard assets. Our distribution model is approximately 2/3 direct, 1/3 intermediated and our average loan size is around GBP 50,000. Invoice Finance focuses on working capital, and we deploy 1 of the widest asset-based lending product suites in the market to provide flexible liquidity and cash flow solutions. Although we work with a wide range of intermediaries in Invoice Finance, actual distribution happens almost exclusively through our direct channel. Our average ticket size is around GBP 600,000.

Our track record is strong and consistent over more than 15 years, we've delivered sustained book growth and profits. -- both organically and through acquisitions at margins well above the industry average with low bad debt demonstrating that our premium is based on service rather than risk. We grew particularly rapidly from July 2020 to July 2022, when the book grew from GBP 3 billion to over GBP 4.5 million. Capital constraints in financial year '24 forced us to slow lending and the loss of momentum impacted financial year '25 as well. First half performance this year has been impacted by lower utilization and amplified seasonality in invoice finance. Second half performance is typically stronger. And based on new business volumes in February and March, we are confident that the commercial book will return to growth by the end of the year.

Pre-2020 NIM is somewhat flattered by the inclusion of income from products we no longer sell such as insurance and a lending market characterized by low liquidity and low risk appetite. In recent years, NIM has been impacted by the sharp rise in interest rates post COVID as well as a change in the mix of our loan book as we have started writing larger deals which are typically better credit quality but attract finer margins. We expect NIM to hold at around 6% in the future. Bad debt has held steady between 50 and 100 basis points for many years. apart from in 2020 due to the market disruption caused by COVID.

One of the key drivers of our low bad debt is our core tenet that we are a predominantly secured lender. Our loan book today is as diverse as the U.K. and Irish economies with a good spread of fixed and movable assets, equipment, vehicles, agricultural machinery, specialized assets and everything else you can think of, from dentists chairs to wind turbines. And in every asset class that we fund, we have experts with deep knowledge and experience. We manage concentration risk through appropriate asset and sector appetite caps and ensure that our loan book remains well aligned to U.K. PLC. And in supporting U.K. PLC, we win because we combine product and sector expertise deep relationships and high-touch service and have been doing so for over 40 years.

Many of our customer and intermediary relationships go back many years and were built or enhanced during periods of extreme market disruption, such as the global financial crisis, during which we supported businesses so strongly that we doubled the size of our loan book.

One of our biggest differentiators is our team. Of the 800 colleagues in Commercial, over 400 are in the front line, and of those, over 180 are in our direct sales force. Most lenders in the market now rely solely on intermediaries. We value our intermediaries highly, and we have a thriving intermediary business. But our direct channel allows us to build deeper relationships, understand customer needs in more detail and ultimately generate better margins. Of the GBP 2 billion of new business that we write annually, over 60% is sourced by our direct team. These sales colleagues are experts in the asset classes they work with, as are those working in underwriting, operations and collections. This expertise is a key reason for our strong customer satisfaction scores, which are consistently above 85%.

Our chosen markets are fundamentally attractive. Across the U.K. and Ireland, there are hundreds of thousands of SMEs utilizing close to GBP 60 billion of asset and invoice finance to fulfill their financial needs from day-to-day working capital to long-term strategic investment. Both of these markets have been stable and have grown steadily for many years. We have market share of around 4% in asset finance and around 6% in invoice finance. And the competitive landscape is shifting in ways that play directly to our strengths.

High Street lenders continue to pull back from both invoice finance and asset finance. They are increasingly steering SMEs towards generic digital-first journeys with bespoke solutions reserved only for larger corporate clients. Fintechs, on the other hand, have slick technology but lack the balance sheet strength, product breadth and expertise to deal with anything beyond vanilla needs. And importantly, they have never been tested in a credit downturn, so their resilience is unknown. Our opportunity lies in the space between the tens of thousands of SMEs looking for an enduring relationship with their lender through the cycle for expert understanding of their sector and for professional dependable service. That's exactly where Close Brothers has always competed and won.

To demonstrate the strength of our proposition and how valuable it is to customers, I'd like to introduce you to the Chairman and Chief Investment Officer of 1 of our largest customers, 2020 Capital.

[Presentation]

What Tristan and Jamie described so eloquently is our customer proposition and the 3 timeless foundations on which it is built, relationships, service and expertise. While these foundations remain as relevant today as they were 40 years ago, the market is, of course, evolving and we are too. The aim is clear, to ensure we remain the lender of choice for both U.K. and Irish businesses, continue to be an aspirational and engaging place for colleagues to build careers and deliver attractive and sustainable returns for shareholders. However, our costs are too high, so we are focused on reducing our EI ratio in order to improve returns.

We are already seeing the benefit of simplifying the division to sharpen focus and improve efficiency. Last year, we agreed settlements with the remaining insurers of Novitas and closed out all remaining customer loans. We disposed of Brewery Rentals and placed Vehicle Hire into rundown. These full-service logistics businesses are not aligned to our strategy. And we exited subscale products that do not meet our strategic or return thresholds, including insurance distribution, block discounting and certain broker structures.

We are also optimizing the division from front to back. We have made significant changes to leadership structures, particularly in asset finance. Over the last 2 years, this has allowed us to remove over 60 roles equating to over GBP 10 million in annual costs. We see further opportunities in these areas. We are standardizing processes for operations, underwriting and collections across the division. As we do so, we will enhance rather than compromise our key differentiators of relationships, service, and expertise. We have created a collection shared service and are exploring similar solutions for operations and underwriting. These changes will give us consistency, efficiency and scale.

We have invested heavily in technology in recent years. We have fully replatformed the entire asset finance business and in-house, the core banking platform in Invoice Finance. This gives us a modern, adaptable backbone that we are now leveraging to automate processes. We have credit auto decisioning live in asset finance currently for certain classes of small ticket straightforward transactions. This shortens decision time from hours to minutes, materially improving customer and broker experience while allowing our underwriters to focus their expertise on more complex cases. Over time, we will expand the scope as the models mature.

In parallel, we are rolling out AI-generated credit proposal drafting, which synthesizes internal and external data into a high-quality first draft credit paper. This significantly reduces manual effort, reducing a 2-day activity to 2 hours and makes our experts more valuable by allowing them to look beyond the numbers and focus on understanding our customers more deeply. And we continue to automate other processes using a combination of workflow improvements straight through processing and targeted AI deployments. Taken together, these initiatives improve customer experience, reduce cost, increase consistency and support scale.

Our growth strategy focuses on the areas where our strength is most clearly intersect with market opportunity. In Invoice Finance ABL there is clear opportunity to continue to take market share as the big banks retrench. We have strengthened our team with more corporate experience and built mid-market leveraged finance capability. We have enhanced our credit terms, particularly around cash flow loans and ancillary assets, allowing us to support more customers with appropriate lending structures. This loan book has grown by around GBP 400 million over the last 5 years, and we believe that we can continue to grow it at between 5% and 10% per annum.

In Asset Finance, we will grow our core direct business in the U.K. and Ireland at around 5% annually. Our other key growth engines are specialist areas, such as energy, aviation and marine and wholesale fleet, all of which we expect to grow by 5% to 10% annually. In 2024, we simplified and relaunched our broker proposition to an exceptionally positive reception, proven by the fact that the loan book is up more than GBP 50 million, which is more than 20% year-to-date. We expect growth of around 10% per year in this business. New product development, such as commercial mortgages is a key growth lever as well. This is a market of significant scale, where customers have been asking us for support for some time and where our relationship-led proposition fits extremely well. Our opportunity here is to build a book in the hundreds of millions.

And across both Invoice and Asset Finance, we continue to successfully partner with the British Business Bank, to deliver the growth guarantee scheme to our customers, new business in of GBP 140 million over the last 12 months. We have also recently agreed an enable facility with the British Business Bank, which frees up capital to support further small business lending.

In summary, Commercial is a resilient specialist business with leading market positions in both Asset and Invoice Finance. With 40 years of successful growth and delivery behind us, we are now positioning the business for the next decade with sharper focus, a more scalable operating model and the technology to underpin disciplined high-quality growth. Together, these changes will materially enhance our efficiency, deepen our competitive differentiation and deliver meaningful improvement in returns in support of the bank's goal of double-digit RoTE by financial year 2028 with further improvement beyond. Thank you.

I'll now hand over to Ian.

Thanks, Matt. So good morning, everyone. I'm Ian Cowie, and I joined Close Brothers a little over 2 years ago and have responsibility for leading the Retail division. Prior to Close Brothers. I spent 20 years at NatWest, 18 years at RBS and 4.5 years at Shore Brook, 3 of which as the CEO. So today, I'll provide an overview of the industry challenges we've navigated over the past couple of years and our own place in those markets where we see opportunities to grow our existing relationships and forge new ones.

I'll cover the strategic actions underpinning our growth plans and the progress made on our cost-out initiatives. So the retail businesses are made up of 3 distinct franchises. Motor established in 1988, helps customers in the U.K. and Ireland purchase vehicles by providing affordable structured finance, Premium established in 1977 and where we support businesses and consumers to fund their insurance premiums, and Savings where we provide a safe and attractive home for consumer and business deposits. Geographically, both Motor and Premium operate across the U.K. and Ireland. And in Motor, there's an additional presence in the Channel Islands. Both operate in an intermediated market, and therefore, a key part of the business model is to relationship manage these intermediaries as ultimately, they largely determine the flow of businesses to us.

These may be finance brokers, motor dealerships or insurance brokers, but our lending is not limited to consumers by dealer and broker channels. We also lend directly to these car dealerships, SME corporate insurance brokers and their clients. An example might be dealer funding loans to facilitate vehicle stocking or to fund one-off large insurance payments for corporates in the U.K. to assist with our working capital.

So as you can see, the Retail business has a strong growth trajectory through the cycle. The lending business is characterized as high-margin, specialist intermediated franchises. And in the 2025 financial year, the Retail NIM was strong at 8.3% and in line with the long-term trend with both businesses performing well, reflecting consistent pricing controls in a rising rate environment. Bad debt has consistently held at broadly 1.5% in recent years with prudent and stable underwriting across both businesses. Our partnership approach is key to how we win and underpins how we differentiate ourselves across the retail markets. As such, our success is built upon these strong relationships with our intermediary partners and our reputation for being ever present throughout the cycle in a market where we have an established brand and a strong following.

We share pioneering market and business data to help our partners grow their business and meet customer needs, delivered with a personal touch and expertise they can trust and a level of consistency which breeds confidence. And while we've continued to evolve, leveraging new technologies and capabilities to optimize our business, we still understand the value and importance of a personal face-to-face relationship delivered through our sales and support teams.

For the Motor book, our primary focus is on used cars. Looking at the FLA statistics in 2025. Close Brothers Motor Finance U.K. held a 3% market share of the used car finance market. For the Irish motor business, this was 11.5%, up from 8.5% in 2024. And this chart shows that the point-of-sale car market in the U.K. was slightly larger by value for new cars in 2025. However, 1 of the reasons we concentrate on the used car market is the transaction volume is estimated to be about 4x greater because of the churn rate of used cars. And the market is expected to grow by 3% throughout 2026. Considering broader market conditions and with the imminent announcement of the FCA Motor Finance Commission's review, there is potential for the new opportunities should certain lenders choose to withdraw from the market. In recent months, we've seen Secure Trust exit the U.K. and Black Horse exiting the Channel Islands.

Across Motor, we work with 3,400 dealers and brokers in the U.K. and a further 450 in Ireland, ranging from small independent dealerships to multinational finance brokers. Motor Finance remains highly competitive, fueled by strong growth in digital channels. And as consumer behavior and the dealer expectations have shifted, we've diversified our origination model, moving from a predominantly dealer route to a mix that now includes brokers and commercial partners. Traditional dealers remain our core, but around 40% of volumes in the U.K. and 25% in Ireland now come through nondealer channels. Hence, our approach to be where the consumer chooses finance.

In Premium Finance, we support customers to fund their insurance premiums for home, motor and business insurance, typically spread over a 10-month period. Just like Motor Finance, this is a necessary and critical product line that fulfills an important need for consumers and businesses. The customer base is a combination of consumers and SMEs that either can't afford to pay the premium in 1 lump sum or choose to spread the payment over an agreed period to ease cash flow or unlock capital investment. As the premium finance market has evolved, the competitive landscape has remained broadly stable with only a small number of specialist providers operating at meaningful scale. The market remains characterized by long-term contracts and multiyear agreements, of which we command a considerable amount. And these arrangements support strong retention and provide stability for lenders, and it's here in these highly attractive portfolios that we see strong risk-adjusted returns and higher value opportunities.

On the 3rd of February, the FCA released the market study review into Premium Finance. We believe the conclusions reached by the FCA are both helpful to us and to the market and are pleased with the stability it brings to the Premium Finance landscape, which is a testament to the valuable role that the product and the market play for consumers. Importantly, for us, it removes unnecessary distractions and provides a clear runway as we execute our new strategy. So in July 2025, we kicked off the strategic reset of both lending businesses. The approach was built around a number of guiding principles to deliver an executable plan, which included making the businesses simpler and safer, investing in technology, automation and digital to remove unnecessary costs, and accelerating growth into known and adjacent markets where we have a strong following.

Across retail, we're rolling out a new collections and recoveries platform to enable customer self-service using data and AI to proactively identify those needing support, and we'll continue to leverage our established robotics and automation capabilities to optimize our processes. AI has been implemented in our complaints and fraud operations teams, and we're currently evaluating several other potential uses throughout both businesses, which will drive further costs out.

For Motor, our focus is on creating the foundations for cost optimization and sustainable growth. Our cost reduction agenda is driven by boosting origination efficiency, reducing our physical footprint and increasing automation across the business. We're investing in a new origination platform to make us more agile and offer faster response times to customers whilst also improving the overall customer experience and reducing our cost to serve. Once delivered, this will enable us to continue to scale the business without the need to grow the cost base. And as we continue to automate and digitalize processes complemented by the use of outsourcing and offshoring.

Our achievements to date include consolidating our operational footprint to 5 centers of excellence leading to reduced costs, increased expertise and better team collaboration and reducing operational costs through offshore partnerships to support in life customer servicing. Last month, we outsourced further roles to our partners in South Africa. Motor's growth strategy centers on deepening and diversifying dealer relationships, strengthening customer retention through enhanced product options such as our dedicated electric vehicle proposition and expanding our reach through commercial partnerships. We remain fully committed to this market. And as I mentioned earlier, any changes in the competitive landscape following the outcome of the FCA motor Commission's review could present further opportunities for us.

Ireland also plays a crucial role in our growth. The Bluestone acquisition has led to sustained volume increases as we continue to broaden the proposition in line with our U.K. business, and the new business has more than doubled since its acquisition and rebranding in 2023. In Premium, the strategic reset took the form of reducing our reliance on the personal lines business where returns have been suboptimal. The economics of the Personal Lines brokers has changed over time and become increasingly unprofitable for ourselves. Incremental rate erosion driven by M&A activity, the rise of large-scale price aggregator websites and the impact of increasing regulation have all steadily chipped away at margin and driven up costs. This has led us to reassess our approach to the parts of the market and concentrate on building out the commercial lines business, leveraging the strong relationships that we already have in place by doing more business with existing commercial brokers and expanding our proposition to support their international presence.

This has meant the planned withdrawal from the selected personal lines relationships. And throughout, we have worked closely with the regulator, brokers to ensure any exit and subsequent runoff is undertaken in a safe and responsible manner. Withdrawing from a large portion of the personal lines market has the dual effect of improving returns and reducing costs as this element of the book runs off. And since December, we have exited over half of our planned broker cohort with their books now in runoff. The remainder are agreed to exit by June this year with their books completing runoff by the end of the 2027 financial year. So we expect customer numbers between regulated consumers and the SME corporates to rebalance at about 50-50, but the commercial lines will account for the best part of 85% of our volumes going forward.

Premium finance is a great example of our simplified optimized growth strategy in action. Having simplified the business by reducing our reliance on personal lines, we are now focused on optimization and growth. With a relentless focus on cost, we're modernizing core platforms, rationalizing the property footprint and offshoring some of our customer servicing to South Africa. Our office relocation has recently already delivered significant annual savings. Our first offshoring phase has outperformed expectations, and we have just successfully completed Phase 2 of this program.

Underpinning our growth ambitions are credible opportunities in existing markets and securing new strategically important broker relationships. We've already secured contract extensions with several key partners, and we're continuing to build on our extensive network of relationships. Our targeted growth plans are accompanied by new propositional offerings and supported by the strengthening of our underwriting through deeper in-house expertise, automated processes and a broader risk appetite, enabling us to write larger high-value and complex risks with greater speed. And through enhancing our digital capabilities, we enable deeper integration with the market-leading software houses, improving the broker experience with the added benefit of reducing the cost to serve for both ourselves and our brokers.

So over the course of the next 12 months, we will have successfully repositioned Premium to focus on the higher returning commercial lines business and built strong momentum as we accelerate our growth of the commercial lines book through to financial year '18.

So in addition to the lending businesses in retail, we have responsibility for the group's savings activities funding the loan book growth across the group. Our savings franchise has proved to be hugely resilient during what I would describe as a challenging period and has continued to grow both in terms of customer numbers and balances. Throughout, we've continued to invest in the platform and the product as we enhance our capabilities across the business with our focus now on developing the customer base through a targeted proposition to support sustainable growth, primarily through retail deposits, continuing to diversify and access cheaper and more stable funding through developing our product range, enhancing and optimizing our digital channels, allowing operational productivity to increase and thus build a scalable business and leveraging and growing deposit aggregator relationships to further diversify our funding options. So despite increased competition across all deposit markets, we remain well positioned for future strategic opportunities coupled with a positive outlook for market growth.

So before I close, I wanted to reflect back on the business that I joined a couple of years ago and look forward to its future. In that time, we've navigated 2 significant market reviews by the regulator successfully, overseeing and the restructuring of Motor and Premium's operating model and the seamless transition to offshore roles. Throughout, we've been ever present to serve the needs of our customers, dealers and brokers. And now despite managing intense regulatory and market disruption, we've built stronger foundations and sharpened our competitive edge. With established market positions, clear strategic priorities and investment in digital and efficiency, we're primed to continue to grow through market share gains and extending our proposition contributing to sustainably stronger returns. We expect loan book growth to accelerate from the 2027 financial year together with an improved cost-income ratio with both contributing to the group's improving RoTE trajectory.

So before I hand over to Phil, I wanted you to hear from some of our intermediary partners.

[Presentation]

Thanks, Ian, and good morning all. I'm Phil Hooper. I head up the Property division. I joined Close Brothers in 2023, having had a long career in NatWest, where I spent the final 5 years leading their Real Estate Finance business. Over the next 10 minutes or so, I'll walk you through our business, the markets we operate in, and our medium-term strategy.

Across our Property lending business, we continue to provide flexible debt finance solutions to our SME customer base through 2 operating brands. Close Brothers Property Finance and Commercial Acceptances are both strong and recognized brands in property lending. Through our larger business, Close Brothers Property Finance, we primarily offer residential development finance across the U.K. and Northern Ireland for build-to-sell schemes. Additionally, we'll provide development finance for pre-let commercial schemes and some residential and commercial investment solutions. Our loan range is broad from GBP 1 million to GBP 50 million, and we have a large customer base of over GBP 500 million -- sorry, 500 SME developers who are mainly delivering new build ground-up housing for owner occupiers.

Our Commercial Acceptances business is complementary and provides short-term bridging solutions across various property asset classes and residential refurbishment loans. The loan sizes and tenors are much smaller and shorter than in our core business, but flexibility across finance solutions remains key. Commercial acceptances mainly operates in and around London. Unlike most mainstream property lenders, we do not provide finance for mortgages, buy-to-let or for operational property assets. And as you can see on the slide, we delivered a robust set of financial metrics in 2025 with an operational profit of GBP 67 million and a cost-to-income ratio below 30%.

Despite the cyclicality of the sector, our divisional loan book has grown over many years to stand at around GBP 1.8 billion today. The few dips were driven by market slowdown caused by the COVID pandemic and the more recent economic challenges. Our net interest margin has been steady throughout the period with low levels of bad debt highlighting our balanced and cautious approach to underwriting. We continue to lend within conservative parameters with the portfolio performing resiliently in a challenging market.

The slight uptick in bad debt reflects increased individual assess provisions on a small number of older developments. Our more recent underwriting is performing well. Our primary focus remains on maintaining our market-leading position and evolving the business for growth by diversifying our offering. We believe our ongoing success is down to some key elements which provide our competitive advantage. Firstly, we take a relationship approach to everything we do. Not many of our peers can point to 50 years of lending to SME developers, and this longevity has enabled us to build strong direct relationships with our customers through good times and bad.

Over 1/3 of our customers are family-owned businesses who typically place a premium on trust and reliability. While the market is now dominated by brokers and introducers, we are proud that around 70% of our annual business is existing customers who prefer to deal directly with us without the need for an intermediary. We understand our customers well, and therefore, it enables us to respond quickly with lending decisions and move to prompt execution. We have a very experienced lending team with a deep understanding of the sector. Most of our frontline directors have been with the business over 10 years, and the advocacy from our customers remains strong.

We have teams located in 6 regional hubs across the U.K. This geographical spread ensures we possess a central and local market knowledge, which is crucial when evaluating lending requests. You can see the diversification of our current loan book from the map of the U.K. In today's increasingly complex environment, we remain committed to keeping everything we do as straightforward as possible. And that's really valued by our customers. Our commitment to them is that we do what we say and we deliver on time.

So to summarize, the 4 key reasons why we win in the marketplace, it would be because we provide quick responses and offer flexibility in our funding solutions. We maintain a reputation for consistent support through the economic cycle. We have deep sector expertise and offer first-class customer service. And finally, and most importantly, we are seen as a long-term business partner to our customers, supporting them through their life cycle.

Turning to the residential marketplace today. We know that the fundamentals remain in our favor. Consumer demand and affordability remain the key drivers. Homeownership is still a key goal for most people across the U.K. We know that there has been an ongoing structural undersupply of new homes built up over many years, and this is set to continue. Affordability metrics are improving. From a peak of 5.25% in '23, we have seen a gradual reduction of base rate to 3.75%, with analysts expecting further cuts during 2026, although more recent global events could well impact that short term.

Mortgage liquidity is very strong, and the larger banks are keen to grow their market share by reducing mortgage pricing. Additionally, we have seen a continued relaxation of income multiples, which is also very helpful. Many of our larger customers have diversified into wider living sectors, reflecting broader industry trends. Strong rental growth in student accommodation and private rented stock presents a clear opportunity for us to follow our customers and strengthen our presence in these markets. Overall, we believe SMEs will continue to play a key role in housing delivery across the U.K. and Northern Ireland, and we will be there to support them.

We operate in a very competitive marketplace, which is split into distinct groups. The larger high street banks are active. However, the offerings tend to be characterized by low leverage solutions and time-consuming processes and therefore, our perceived is less appealing to the SME community. Private credit and debt funds have experienced rapid growth within the property finance market. These entities typically pursue strategies they involve taking on higher levels of risk and higher cost to the borrower, so they do not really act as a competitor.

Challenger banks and specialist banks are our main competitors. However, our approach and solutions have become industry benchmark, with competitors frequently attempting to emulate our success. It is important to recognize that our 50-year legacy in property lending cannot be replicated overnight by these newer entrants. Establishing enduring relationships and a trusted reputation takes considerable time and commitment. And these qualities we have carefully cultivated over many years. Whilst we have a market-leading position, it's important to evolve the business, so we stay ahead of the competition, which brings us on to our 4 key areas for growth. Firstly, we need to maintain our position in our core build-to-sale market. This will remain the heartbeat of our business. We are, however, looking to increase the average ticket size of the deals we undertake, noting the opportunity it presents.

Secondly, we have hired a specialist team to support our diversification into ground-up development for student accommodation and build-to-rent. We have already built a strong pipeline of business and expect to close several deals this financial year. We have been slightly underweight in the regional markets. And to address that, we have undertaken some recruitments where there is opportunity for us to grow our lending footprint. More recent hires have been in leads Birmingham and Bristol, complementing our existing hubs in London, Manchester and in Belfast.

Lastly, innovation and product development are crucial if we want to stay relevant to our customers and deal with the changing market landscape. Under our bridging business, we have recently launched a new product called CA Revolve, which is designed to help our larger property traders grow their business with a cash flow led solution. It's already generated strong interest from both customers and intermediaries, and we expect to close our first deal next month. In our core business, we can now provide a structured revolving credit facility to those larger regional housebuilders operating across a number of sites. This type of facility was historically provided by the High Street banks who appear less willing to engage in this segment today, which creates a market opportunity for us.

Despite the slowdown in the U.K. economy, we believe that these 4 areas, combined with the expertise we have in our business creates an opportunity for medium-term growth. We would expect to deliver between 5% to 10% annual growth over the next few years, commencing in financial year ending 2027. The growth will primarily sit outside of our core business as illustrated in this slide.

So I just wanted to bring some of this to life. So I thought it would be good to show you a couple of examples of transactions we have already executed in these growth areas. The first case study is a deal that we closed in late 2025. It is a structured revolving credit facility made available to Fernham Homes, a strong regional housebuilder. We spent time with their management team to understand their 3-year business plan and created this bespoke product to support their delivery of it. It provides debt finance for each of their projects under 1 umbrella -- sorry, 1 umbrella structure rather than structuring and documenting them individually. Fernham are delighted with this financial solution, and we are already engaging with similar developers across the U.K. and believe this represents a real growth opportunity for us in the short term.

The second case study is a new ground-up development forced during accommodation, which we are closing this month. It's a well-located single-asset scheme close to a Russell Group University, where the level of demand from students is expected to be strong. Whilst others can provide this solution, the customer wanted to find a relationship-led organization to support them over the medium term and chose us over the competition. The deal is financially rewarding, but more importantly, opens up a new business stream for us. I think the key point here is that these 2 deals we wouldn't have written 12 months ago. So we brought in the team and the capability to help us deliver those. So before I wrap up, I just want to play a video, which contains some chilis from our customers, highlighting what it's like to be a customer of Close Brothers property.

[Presentation]

So to wrap up, I'd like to leave you with some key messages. We have not relied on past performance to see us through. Instead, we have developed new income streams through product innovation and expansion into complementary property sectors. We have strengthened our capabilities, build a robust pipeline of new business and converted opportunities into completed transactions, demonstrating our ability to grow. We are a high-quality, high-return property lender, which is built on long-standing customer relationships. We are recognized as a market leader in property development and bridging finance and we have a market with a structural growth opportunity over the medium to long term.

I'm proud to work with such a fantastic group of people who care deeply about the customers we partner with. The business is now set up for the future, and we are excited about the growth opportunities that are in front of us. Thank you.

I'll now hand you over to Fiona.

Thank you, Phil, and good morning. Following on from the business updates, which you've just heard, I will now outline how the business activities are strengthening our financial position and driving improved returns. I will also take you through our cost initiatives and transformation program in more detail.

As Mike has highlighted, our simplification journey is largely complete. We are now focused on delivering loan book growth and achieving our cost savings target of circa GBP 60 million. I will also touch on our approach to capital and funding optimization. These actions, supported by strong NIM and consistently low bad debt are collectively repositioning the business and setting us firmly on the path back to double-digit returns.

First, a few words on the simplification actions, which have resulted in a fundamental repositioning of the group and a significant shift in the financial metrics of the business. The refocusing of the group, including the 3 disposals, winding down Vehicle Hire, repositioning Premium Finance and the closure of Novitas will enable us to operate as a much leaner, more efficient organization with our resources concentrated on businesses with higher return potential. They have also resulted in a reduction of around GBP 230 million in the group's cost base and removed approximately 1,200 headcount. And the simplification of the group structure enables further streamlining of our operating model under the transformation program.

At the full year 2025 results, we set out our 2026 guidance on our usual metrics alongside some ambitious cost-cutting targets. I would now like to extend that to a medium-term outlook with the detail on this slide. We expect NIM to be slightly below 7%. We continue to target 5% to 10% loan book growth per annum through the cycle. We also expect to maintain our bad debt ratio below the long-term average of 1.2% subject to wider market conditions. The target CET1 ratio remains at 12% to 13% over the medium term. In parallel, we will reduce our cost base to between GBP 410 million to GBP 430 million by the 2028 financial year, driven by the extensive cost reduction activity across the business. As part of this, we are looking to significantly lower our head count by nearly 1/4 over the coming 18 months.

As we see continued growth in income and with our planned cost reductions, we are aiming to achieve an expense-to-income ratio below 60% by the 2028 financial year, down from 65% in 2025, and we expect this to continue to reduce from there. Our clear current priority is achieving double-digit returns by 2028. However, this is not the endpoint, and we expect to continue reducing costs, growing efficiently and further increasing our returns beyond 2028.

On cost reduction, we are making really good progress and our detailed transformation work has enabled an acceleration of our cost savings activities. We originally targeted around GBP 20 million of annualized savings for this financial year, but we now expect to deliver around GBP 25 million. This is being driven by initiatives already in flight, simplifying our organizational structure, outsourcing within Retail, repositioning Premium Finance, streamlining technology and change and reducing both supplier costs and third-party adviser spend.

As we move into the 2027 financial year, the shift to our new operating model will unlock a further wave of efficiencies. This includes streamlining the federated structure, creating shared services across operations and functions, expanding outsourcing with key partners and accelerating automation and AI adoption. In total, we now expect to deliver circa GBP 60 million in annualized savings by the end of the 2027 financial year with an estimated gross FTE reduction of around 600 people. Beyond that, we've also identified further opportunities from large-scale AI and automation to deeper organizational redesign that provides scope for additional cost reductions from 2028 and beyond. Through these actions, we are building a stronger operating model to support future scalability, which will enhance our ability to deliver operating leverage and achieve further savings in future years.

This slide provides further detail on how these gross cost reductions translate into overall operating costs for the business. This year, we expect to realize around GBP 22 million of in-year cost benefits, including a GBP 7 million benefit in respect of actions taken in 2025. As a result, we expect a broadly flat cost base at circa GBP 450 million. Taking into account the circa GBP 60 million of gross cost savings with some offset from inflationary pressures and investment spend to support business growth, we expect the overall cost base to reduce to between GBP 410 million and GBP 430 million by the 2028 financial year. As I noted earlier, we do see opportunities for additional cost reductions in 2028 and beyond, which will help to further improve efficiency and increase returns.

Moving on to look at our funding and liquidity position. We maintain a prudent and diverse funding position, characterized by a conservative maturity profile, borrow long, lend short, with access to a wide range of retail and wholesale funding services. You have heard from Ian about the growth in our savings franchise and expansion of our product offering for retail deposits in recent years. Since the 2022 financial year, our overall retail deposits have grown from GBP 3.1 billion to GBP 6.3 billion and now account for 54% of our overall funding as of January 31, 2026. As we continue to grow and diversify our offering, this creates opportunity to further optimize funding costs and maturity.

We are also optimizing the balance sheet through normalization of surplus liquidity from elevated levels held in response to uncertainty related to motor finance commissions and an ongoing review of our funding mix to optimize cost.

Turning now to our capital position. We have a strong CET1 ratio of 14.3%, reflecting recent capital actions. And this is after absorbing the GBP 300 million provision we have taken in respect of motor finance commissions. This means that we are well placed to absorb a range of potential outcomes from the FCA's proposed motor finance commissions redress scheme without impact on our prospects for growth and investment. We will also need to absorb the impact of Basel 3.1 from January 2027, which we now expect to increase our RWAs by less than 10%. Subject to these regulatory impacts, our priority for deployment of capital is to grow the loan book and invest in our transformation. This will drive an increase in RoTE and hence, capital generation into future years.

Once we have clarity on the motor commission address scheme, we will also look at shareholder distributions, both in terms of returning to payment of an ordinary dividend, which we recognize is a key priority for a number of our shareholders, as well as considering distribution of any excess capital through share buybacks. We will provide further detail on the capital outlook and shareholder distributions as soon as we have greater clarity and are in a position to do so.

Over the past 2 years, we've created a much stronger and more focused Close Brothers. The actions we've taken have reduced complexity, strengthened our fundamentals and put us on a clearer path to sustainable growth. As we have set out today, we are strongly committed to reducing costs, growing the business and driving an increase in returns. In the current financial year, we have concluded our simplification program, and we'll see the initial benefits of the cost reduction activities currently underway. The 2027 financial year will see the execution of the next phase of our transformation activities as well as the increasing benefit of our current growth initiatives. And by 2028, we will see the full benefit of these cost savings, which, combined with ongoing loan book growth and continued optimization of our capital and funding will take us to a double-digit RoTE rising thereafter.

And we will have built a more efficient and scalable business with stronger operating leverage and the ability to drive further growth and returns from there. 2028 is not the endpoint as we are laying the foundations for long-term growth.

As you have heard today, we have a clear plan, which we are committed to and confident in executing and which leaves us well placed to reduce costs, drive growth and deliver improved returns for our shareholders.

Thank you. And I'll now hand you back to Mike.

Before we close, I want to step back and reflect on what you have heard today. Across Commercial, Retail and Property, you have seen 3 strong differentiated businesses, each operating in attractive specialist markets, each with clear plans to grow responsibly through the cycle, and each playing a meaningful role in supporting the U.K. economy. You've also heard how we're reshaping the group, simplifying what we do, lowering our cost base and building a more scalable, resilient operating model.

We're focusing on the group on areas where we have genuine competitive strength and can earn attractive risk-adjusted returns. Our transformation program is well underway with a clear line of sight to material cost savings, improved efficiency and strong operating leverage, while protecting the services, expertise, and relationships that define Close Brothers. This will deliver a lower cost, more scalable operating model that improves returns whilst preserving our culture and customer proposition.

We will deploy capital in markets we know well to generate disciplined growth through the cycle. And taken together, this gives us a clear and credible path forward. We're building a more resilient and stronger business, creating a platform for long-term growth and improving returns. My core commitment remains unchanged, to return Close Brothers to double-digit RoTE by 2028 and rising thereafter. The actions you have heard about today across strategy, cost reduction, operating model transformation and disciplined growth are designed to deliver exactly that. We're confident in our plan, clear on our execution priorities and focused on delivery. I look forward to updating you on our progress as we continue to rebuild returns and create sustainable value for our shareholders.

Thank you very much for your time, and I'll now invite Fiona Matt, Ian, and Phil back to the front, and we're more than happy to take questions.

All right. Rob, off you go.

Rob Noble from Deutsche Bank. The RoTE to double digit by 2028, I don't think consensus is there. What's the -- I think a lot of the moving parts are there? I'm just wondering what's the difference that you see in your plan versus where consensus currently sits for 2028? And I guess within that as well as the 12% to 13% capital target within that, is that despite your expected Pillar 2A reduction equal to less than 10% inflation in RWAs. So you're going to run with a higher surplus to regulatory minimum capital requirements. Is that right?

I'll just take the second one, and I'll pass that first 1 to Fiona. On the 12% to 13%, I think we need to have a look at that at the time once the position has been landed. We're clearly working with the regulator at the moment. And we believe that there will be a Pillar 2A offset against that. So we'll need to see that come through, and then we will reflect on where we want to put our capital targets. But as we stand here today, all things being equal, it will be 12% to 13%.

In terms of the RoTE, Fiona?

Yes. Thank you, Mike. And maybe just 1 quick build on the 12% to 13% question as well. As you said, well, absolutely, we maintain at 12% to 13%. And as Mike said, that we obtain that Pillar 2 relief that will imply a higher loss absorption capacity between capital ratio to regulatory requirements. And so as Mike said, we'll reassess that at the time.

So yes, in terms of consensus and the RoTE by 2028, a number of moving parts there. And I think some of that, Rob, is around us. demonstrating and building confidence in the objectives that we set out around delivery of the cost targets and around the loan book growth and to see those reflected in consensus. We have articulated I've described 5% to 10% loan book growth, and I would say that some of the difference in the RoTE for consensus will be about where the analysts are pitching the loan book growth potentially relative to where we are our plans and ambitions take us by 2028.

Okay. Ben, do you want to pick up?

I've got 3, please. So firstly, for Ian, 1 of your slides looked at savings and deposits. You talked a bit about growth in deposits during the presentation. But actually, deposits dropped quite materially in half 1. Maybe you could just give us some of the drivers of that drop, given it's been a theme for some of the other specialty lenders?

Secondly, Fiona, on cost of risk, your expectation in the medium term is below the long-term average for cost of risk. Is that in relation to mix shift or rates? If you could give some color on that assumption, that would be great.

And then finally, Phil, you talked about in the property book growing your ticket size in build to sell, which is the rump book. Now we've seen in another division growing in ticket size has led to margin erosion. Are you confident about hitting stable margin in that business despite the higher ticket sizes?

First, yes, okay. So look, the drop in half 1 as a result, a deliberate drop, obviously, as we've sort of historically managed the book for volume, as you would expect during what's been, I think, I described as a challenging period. But more recently, we've looked to manage for volume and value, particularly in relation to the cost of bonds. So we've allowed ourselves to drip some of those deposits out. I think Mike, Fiona referred to in their earlier presentation. So it's as simple as that. We're in a very strong position to be able to continue to acquire new deposits. And as I mentioned earlier, we've got an increase in terms of customer numbers, and we look to deploy other strategies across the business in relation to product development. So that's where we see it. So very confident of strong platform we've built over the last few years and then how we deploy that over the coming 12, 18 months.

es, absolutely. And just building on that, Ian. It's been a very conscious decision to reduce deposits in the way that we have. Some of that's matched by the loan book growth [indiscernible] reduction that we've seen, but also that we were just running with very elevated levels of liquidity. So that's a conscious choice. Our deposit acquisition experience has been very positive and very, very successful there and notwithstanding the headline fall because the book does actually turn pretty quickly. So there's still a high level of deposit acquisition in the first half.

And then moving on to your next question, cost of risk, as you say, we're guiding to below the low and average of 1.2%, and we're confident in doing so. I think that is around the quality of our book. and the secured and structurally protected nature of the book and our continuation of having confidence in that, an extra element there, which a number of the presentations touched on is just that little bit of mix shift that you're seeing in NIM, where we are just seeing a little bit of headline NIM reduction as we focus on those slightly lower NIM, but higher returns, higher quality business, slightly larger ticket size, that will also support our view around the stability of that cost of risk at below 1.2%.

And just on the final point, I think Fiona just summarized it pretty well. So we are offering those bigger tickets at slightly reduced pricing. But actually, it's not making much of a change. What customers are willing to pay for is the flexibility that we're offering. So we think we can maintain the position. I think we're forecasting a slight reduction, but nothing material. .

[indiscernible] from KBW. I've got 2, please. So first is on commercial loan. On Slide 20, you talked a bit about the split between your own direct sales and intermediate intermediaries, which I understand is 60% to 40%. That's in terms of the volume. But I'm also wondering what does costs and margin look like in these 2 different areas of business? How does that compare in terms of cost efficiencies and margin mix? That's my first question.

And then second, I guess quite similar just on Motor Finance. You talked about 40% of the U.K. motor loans is from nondealer channels. I'm just wondering, were your modeling for your GBP 300 million provision. How does that -- how did you incorporate that into the calculation, the 40% of the book?

Okay, should we take Commercial one.

Yes, sure. I mean I think what we've seen over the last few years is -- so we've sort of increased our focus on the broker market, and what we've seen emerge is a direct-to-consumer market. So we partnered with the likes of Zuto, Car Finance 27, Car Money, which is where the customer effectively goes direct to those players and goes for what we would call a finance first model. So all we're trying to do is make sure, whilst, obviously, the dealerships remains our core, we want to make sure that we continue to look at all options, and they remain sort of open for future opportunities. So that's where the focus is. So over the last few years, we've talked partnered with the likes of those, and we've seen a good increase in flows through both the broker channel, but also the direct-to-consumer market. It continues to emerge. And we're seeing some of that happen in Ireland as well, but it's less pronounced. But that's where were we want to be where the consumer chooses finance, that's kind of the model that we focused on over the last few years.

Okay. In terms of the second one?

Yes. I'll just take the second one. So yes, in terms of the question around how the non-dealer channels impacts on the motor finance commissions provision to the GBP 300 million. If we just reflect on how we've arrived at that, it is very much a bottom-up assessment of our position across a range of scenarios, including the FCA's consultation as published. So to the extent those channels are relevant, to the provision and to the scheme has consulted upon that has been factored into the provision that we've arrived at.

And apologies, Matt, the question around Commercial direct versus intermediaries?

No problem. So costs in our direct business will be slightly higher, obviously, maintaining a direct sales force of over 180 colleagues is a more expensive model than relying exclusively on intermediaries. And that's 1 of the drivers, we believe, for the market shift towards intermediary business. But what we see in our direct business is a greater understanding of the customer, the ability to serve them more precisely deliver bespoke solutions more easily. And ultimately, that helps us deliver better margin. So in the round, the returns are better in the direct business than in the intermediate business in commercial. And that is why that is such a core part of our strategy. So both are important, but direct is our focus. .

Is that okay, Elise?

Thank you.

Any more questions?

Sanjena again from UBS. If we could go back to my cost question from before. So more detail around the split of the savings? How much is staff cost, how much is other elements? And what are those elements? And then if you had any comments on the 60% cost-income target, which is just going back to where we were pre 2020. So how should we think about that being the steady state versus more to come?

I'll kick off and then I'll ask Fiona to sort of build on that. I think if you look at the GBP 60 million, I don't believe that we're actually disclosing at this stage how that's being broken down between all the various lines, although there is some direction in the slides there that on put up. In terms of the cost income ratio, I think both Fiona and I made the clear point that what we're talking about today, is really the start of this. We want to push hard if we want to go further and bring that EI ratio down. And in doing that, that will in turn, push the returns up above into double digit and go further. So the ambition is there to move further than what you've seen on the slide today. But Fiona, do you want to talk a little bit more about the GBP 60 million?

Absolutely, yes. Thanks, Sanjena. So as Mike touched upon, we haven't specifically disclosed the split of the GBP 60 million between staff and non-staff costs, I would point to a couple of things. Firstly is the 600 heads that we have articulated. So naturally, that supports a significant proportion of the GBP 60 million being in relation to staff costs. However, we are very focused on non-staff costs as well, a couple of call-outs there. The first is on legal and professional fees, which is something that we've talked about in the past. We know that those were heightened, including advisory, advisory costs associated with motor finance commissions. So that's absolutely an area that we're targeting and that we believe we can achieve positive reductions in the other is around third-party management and third-party costs.

So as we stand today, we have quite an extended supplier chain, and we are definitely looking to focus on that consolidate that supplier chain, which will enable efficiencies of scale and more power and the negotiating table there. as well as looking at supply and demand levers for third-party management costs. So we're focused across the piece, but both are material components.

Can I just follow up? So on the cost side, do you have -- for the, further beyond FY '28 it suggests absolute costs down. Could you confirm, is that what we are saying?

So what we're saying -- it's a good question. Thanks, Sanjena. So what we're saying on that slide is that we believe that there are further cost-saving opportunities over and above the GBP 60 million, and we are naturally very focused on achieving the GBP 60 million, but concurrently looking at what those further opportunities might be. We haven't shared any guidance or quantification of those, and we haven't guided as to whether they would deliver an absolute cost reduction or just look to mitigate further growth and inflationary costs. But we, at the right point, we'll be able to provide more guidance on that.

I think we have a webcast question. .

I've got a couple of questions from Gary Greenwood from Shore Capital. Question 1 is, why don't you do buy-to-let in property? Is that a missed opportunity? .

And then the second question is the FCA seemed comfortable that premium fire finance market is operating more sensibly post-consumer duty and that a price cap is not required. How confident are you that there won't be any pre-consumer duty legacy conduct redress here?

Shall I just start on both those. In buy-to-let, yes, you're absolutely right. It's not a market we are in. We do offer relatively short-term loans in our commercial acceptance business, where we may have a developer refurbish a property and then want to let that out for a relatively short period of time. But it's not something that we have formally translated into a buy-to-let business. The attributes of buy-to-let business are, in some ways, quite different to those businesses that we've got now in terms of the length of the tenure of the contract, that would be quite different to the kind of loans that we have at the moment.

You heard today us say that the average tenor of the loans that we have is about 18 months. So it would be quite a significant change there. So at that stage, we have no plans as we stand here today to move into that buy-to-let market, but we will always keep a watching brief on opportunities that are out there.

Do you want to build on that at all, Phil, from your perspective?

No. I mean it's a very saturated market and the level of returns would be quite marginal thing for us. So I think as we stand today, we think there's better opportunity in some of the growth areas that I've set out rather than moving into that space. .

In terms of your second 1 on the FCA and the premium market study piece, I think as Ian said, we welcomed the study when it came out. We thought it was helpful for the industry, and it reinforced the importance of that product. We're obviously in a situation with motor commissions at the moment, so that is concerning. But the premium -- the FCA insurance team have given a very clear view that they think it's a decent product. So we just have to work with that and work within the framework where we are.

I mean, Ian, do you want to build on that?

I think as you said, Mike, it's the market say report by the FCA is very clear. We've got a very clear plan, and we intend to execute to that plan. And that plan is primarily focused on growing the commercial lines book where we see the returns as more attractive. So we're kind of on with it, and we're going to continue just to get on with it.

Okay. No other questions? .

Look, can I just thank everyone for coming along today. I really appreciate it. I appreciate the questions, kind of thank the team as well for the presentations and also probably most importantly, can I thank everyone for putting this together. It's taken a lot of work. And hopefully, it's been very helpful to all of you. So thank you very much indeed.

Ladies and gentlemen, welcome to the Preliminary Results 2025 Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions]

The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Mike Morgan, Group Chief Executive. Please go ahead.

Thank you, Lorenzo, and good morning, and welcome to the presentation of Close Brothers 2025 Preliminary Results. I'll begin with an overview of the year. After that, I will hand over to Fiona McCarthy, our Group CFO, who will walk you through our financial performance, and then I'll return to update you on our strategic priorities and wrap up the presentation. We'll be happy to take your questions afterwards, both via the telephone conference line and over the webcast. You can submit your questions either during or after the presentation.

This year has shown that change is possible and that we can move at pace. We've strengthened our capital position, reshaped the portfolio and addressed legacy issues. Our performance demonstrates the resilience of our business model and the impact of these actions. We're also encouraged by the growth opportunities across our chosen markets, which I'll touch on shortly.

We significantly strengthened our capital position with over GBP 400 million of CET1 capital generated or preserved since March 2024. At the 31st of July 2025, we achieved a CET1 capital ratio of 13.8% or 14.3% following the sale of Winterflood. This is after taking account of the impact of the motor commissions provision and the actions taken to simplify the group and address legacy matters.

We've already delivered GBP 25 million of annualized savings by the end of FY '25, ahead of initial guidance. Today, we're announcing that we will deliver at least another GBP 20 million of additional annualized savings in each of the next 3 years, a total of GBP 60 million. We have also simplified the group through the sale of Close Brothers Asset Management, Winterflood and Brewery Rentals. And we've repositioned our premium finance business towards commercial lines, where returns are more attractive. As part of this agenda, I can announce today that we are exiting our vehicle hire business, a loss-making business that is not aligned with our core specialist lending expertise. Together with the impact of declining asset values, this has resulted in an asset impairment charge of GBP 30 million.

We have concluded legacy matters regarding Novitas through securing settlements with insurers at a small premium, allowing us to draw a line under the issue and move forward with the exit of this business. Our wide-ranging review of the business has also required us to take other challenging but necessary actions. We are implementing a proactive customer redress program in Motor Finance, where we have identified historical deficiencies in certain operational processes in relation to the early settlement of loans. This has resulted in a provision of GBP 33 million separate to the broader sector-wide redress scheme being considered by the FCA. Since identification of the issue, we have acted quickly to amend the relevant processes and are fully committed to ensuring affected customers are appropriately compensated.

In terms of the Motor Finance provision, Fiona will take you through this in more detail. But in summary, the provision has been reassessed in light of all available information, including recent developments and remains unchanged. We welcome the positive outcome of the Supreme Court judgment, which provided much needed clarity to the industry and now await the outcome of the FCA consultation on the design and scope of an industry-wide redress scheme. The actions we have taken in the year created a sharper, more focused portfolio of specialist banking businesses, well positioned to deliver growth and stronger returns.

Let me take a step back and show you how the group has been [indiscernible]. This time line illustrates our transition from a diversified merchant bank to today's more focused specialist bank and where we are heading next. First, the fundamental strengths of our business model, which haven't changed. They include our consistent lending criteria with disciplined underwriting and pricing applied through the cycle, a customer-centric approach built on long-standing relationships with straightforward products and services and prudent management of our financial resources.

The more recent phase where we've essentially been resetting the business to drive stronger returns even while navigating the uncertainty around motor commissions. Recent events meant we had to protect this valuable franchise. We built and preserved a significant amount of capital through the management actions announced in March 2024. We've also taken decisive actions to address legacy issues, reduce costs and reshape our portfolio. While these actions clearly have a near-term impact on our financial performance, they put us firmly on the right path for our next phase towards stronger returns.

And finally, looking ahead to the next phase, with our simplification agenda largely complete, our attention now turns to driving efficiency, which we have termed as optimize and capturing growth, which we have termed as grow. There is more we can do, and I will talk shortly about our plans to deliver a step change in profitability. In parallel, we are evaluating opportunities to optimize capital, funding and liquidity. We see attractive growth opportunities across our businesses. We intend to use our market presence, brand reputation and specialist expertise to win in the segments where we can truly differentiate and become the specialist lender of choice for SMEs in the U.K. and Ireland.

Having walked through our journey so far, let's look at what this means for the story of the group going forward. We operate in strong positions within attractive and large target markets. The SME lending markets in the U.K. and Ireland remain underserved and underpenetrated. And that gives us clear opportunities to grow. Second, we're now a focused specialist bank serving a valuable customer franchise. Our customers need specialist expertise and strong customer relationships and our trusted brand and high-touch service model allow us to differentiate and win.

And third, we recognize that returns are not yet where they should be. That is why we have clear plan and strategic priorities: simplify, optimize and grow. I'll come back later to give you more detail on each of these priorities, but the point is that we have now a simpler, more focused portfolio and a leadership team focused on delivery. We are well positioned to reduce costs, drive growth in our chosen markets and improve returns. I'm confident together, these actions set a clear path back to double-digit return on tangible equity by the 2028 financial year and rising thereafter.

Thank you. And I will now hand over to Fiona to cover our financial performance in the 2025 financial year.

Thank you, Mike, and good morning, everyone. I'll be taking you through financials this morning. Before I go into more detail, I would like to highlight that the financial information is being presented on a continuing operations basis. The headline numbers exclude Close Brothers Asset Management and Winterflood, which have been classified as discontinued operations in the group's income statement for the 2024 and 2025 financial years. They also exclude Close Brewery Rentals Limited and Close Brothers Vehicle Hire, which have been treated as adjusting items.

We reported adjusted operating profit of GBP 144 million in the 2025 financial year, reflecting the impact of actions taken to strengthen our capital position and simplify the business and a return on average tangible equity of 7.1%. This equated to an operating loss before tax of GBP 122 million. This was mainly driven by the GBP 267 million of adjusting items, which includes the GBP 165 million provision in relation to motor finance commissions. It also includes operating losses before tax from the group's rentals businesses and a provision for a proactive customer remediation scheme in relation to early settlement of loans in Motor Finance and some additional cost items. I will go into more detail on the adjusting items later.

Notwithstanding the loss, we've maintained strong capital funding and liquidity positions, ending the period with a CET1 capital ratio of 13.8%, which is 14.3% on a pro forma basis, including the expected benefit from the sale of Winterflood. In Banking, we delivered GBP 198 million of adjusted operating profit, reflecting a resilient underlying business performance and our continued focus on cost. The operating loss in group central functions increased to GBP 54 million, slightly below guidance. The loan book reduced 4%, primarily due to loan book moderation in the earlier part of the year. The net interest margin was strong at 7.2% and credit quality remained resilient with a bad debt ratio of 1%. As of 31st of July, we have achieved annualized cost savings of GBP 25 million against an initial target of GBP 20 million. I will come on to talk about costs in more detail later.

Turning now to the provision in relation to motor finance commissions. In early August, the Supreme Court delivered its judgment in respect of Hopcraft. We welcome the outcome of the Supreme Court's judgment, but uncertainty remains until the FCA confirms the design and scope of an industry-wide redress scheme. An update from the FCA on its consultation is currently expected in early October.

In the first half, we booked a provision charge of GBP 165 million in respect of motor finance commissions. We have reassessed this provision in light of recent developments, and it remains unchanged at GBP 165 million. I would note that this is the best estimate based on all currently available information and the ultimate cost to the group could be materially higher or lower. The operating loss for the year has been significantly impacted by adjusting items. Firstly, we have the provision charge related to motor commissions of GBP 165 million, which I've just covered and is unchanged from the first half. It covers estimated operational and legal costs and potential remediation for affected customers.

There are a number of other adjusting items. Firstly, as Mike mentioned, we have decided to exit our Vehicle Hire business, which has been loss-making in a challenging market environment. Together with the impact of declining asset values, this has resulted in an impairment charge of GBP 30 million. The total operating loss of GBP 43 million in the financial year also includes an GBP 11 million underlying loss and a GBP 2.5 million impairment on intangible assets. The business will be wound down over 3 to 5 years.

Secondly, we are also implementing a proactive customer remediation program in Motor Finance, where we have identified historical deficiencies in certain operational processes in relation to the early settlement of loans. This has resulted in a separate provision of GBP 33 million in the 2025 financial year. We have also incurred GBP 18.7 million of costs for complaints handling and other operational and legal costs in relation to motor commissions.

This included increased resourcing to manage complaints and legal expenses, notably those related to the Supreme Court appeal as well as the unwinding of the time value discount in relation to the motor finance commissions provision. This was lower than the guidance provided at the half year 2025 results of GBP 22 million as we successfully deployed automation and artificial intelligence to enhance accuracy and speed in complaints handling. In the 2026 financial year, we expect these costs to be in the single-digit millions.

In addition, the Brewery Rentals business, which was sold in July with completion occurring after the end of the financial year, reported an operating loss before tax of GBP 4.1 million. We also incurred GBP 2.3 million of restructuring costs, which mainly relate to redundancy and associated costs, in line with our guidance of GBP 2 million to GBP 3 million. And finally, we recognized GBP 0.2 million of amortization of intangible assets on acquisition.

Turning now to the income statement, covering the performance on an adjusted basis. Adjusted operating income reduced 2%, driven by a marginal decline in Banking income as the loan book reduced and lower group net interest income. Adjusted operating expenses rose 3% as cost savings were offset by higher group expenses, mostly driven by legal and professional fees related to motor finance commissions. These amounted to circa GBP 10 million. Credit performance was resilient and impairment charges decreased 6% to GBP 92 million, which reflected an impairment credit in relation to Novitas.

Overall, adjusted operating profit was down 14% to GBP 144 million. Profit after tax from discontinued operations, which includes CBAM and Winterflood, was GBP 49 million. The group will not pay a final dividend for the 2025 financial year. As previously stated, the decision to reinstate dividends will be reviewed once there is further clarity on motor finance commissions.

Now highlighting the key metrics from across the Banking division on a continuing basis and excluding the Brewery Rentals and Vehicle Hire businesses. We saw a small decrease in income, mainly driven by loan book moderation measures as well as the runoff of the legacy Republic of Ireland Motor Finance business. The loan book declined 4% year-on-year to GBP 9.5 billion, driven by the temporary pause in U.K. motor lending, loan book moderation measures and lower activity in some of our markets in the second half.

The net interest margin remained strong at 7.2%, although it was down 20 basis points, reflecting continued pressure on new business margins and changes in lending mix. Expenses increased 1% as cost savings were broadly offset by wage inflation and spend on technology and expansion of capabilities across the business. Overall, adjusted operating profit reduced 7% to GBP 198 million with a statutory operating loss of GBP 68 million for the full year, largely reflecting the GBP 267 million of adjusting items.

Now looking at each of the businesses in turn. Firstly, Commercial. Income was broadly flat on the prior year, notwithstanding a 2% reduction to GBP 4.7 million and NIM marginally lower at 6.6% as the FY '25 average loan book was 2% higher. Expenses decreased by 1%, mainly driven by the benefits of cost-saving initiatives, including workforce rationalization in asset finance, partially offset by higher IT spend and depreciation. And the bad debt ratio decreased to 0.4%, driven by an impairment credit from Novitas. Adjusted operating profit increased 16% to GBP 112 million, largely driven by higher income in Novitas. Excluding Novitas, adjusted operating profit was broadly flat at GBP 96 million.

Moving on to Retail. Income was down 6% due to lower loan books in both Motor and Premium Finance. The net interest margin decreased to 8.3%, driven by reduced fee income in Motor Finance and a competitive rate environment. Expenses increased 3%, primarily driven by Motor due to growth in the Irish business and inflationary pressures, partially offset by a modest reduction in premium from lower property, technology and volume-related costs.

The bad debt ratio decreased marginally to 1.5%. And adjusted operating profit reduced 50% to GBP 19 million, reflecting the lower income in both businesses as well as higher costs in Motor Finance. The strategic repositioning announced in July will focus the growth of our Premium Finance business towards commercial lines insurance premium finance, where we see the strongest risk-adjusted returns and long-term growth potential, reducing our emphasis on personal lines insurance premium finance.

Finally, in Property, income was down 2%, reflecting a year-on-year loan book reduction of 5% to GBP 1.9 billion. The NIM also decreased to 6.9%. This primarily reflected lower interest yield driven by the lower Bank of England rate, lower fee yield due to increasing facility utilization and changes in the lending mix with larger loans accounting for a greater share of new business. Expenses were down 3%, driven by lower staff costs and the bad debt ratio increased to 1.5%, reflecting increased individual provisions on a small number of developments driven by build cost inflation, slower unit sales and lower realized values. Adjusted operating profit was GBP 67 million.

Moving to the loan book. Overall, the loan book reduced 4% to GBP 9.5 billion. This was driven by the temporary pause in U.K. motor lending and loan book moderation measures as well as lower activity in some of our markets in the second half. Notwithstanding this decline, customer demand remained robust and business was turned away in the first half due to the loan book moderation. Commercial book reduced 2% to GBP 4.7 billion. Asset was down GBP 98 million due to lower volumes and large terminations in the Industrial Equipment division.

Invoice and Speciality Finance decreased 1% over the year, including a GBP 62 million reduction in net loans related to Novitas following the settlement of long-standing litigation in this business. Excluding Novitas, the invoice finance loan book was up 4%. The Retail loan book declined 5%. Notwithstanding continued robust underlying demand, the Motor Finance loan book decreased 1%, reflecting loan book moderation measures and a temporary pause in U.K. motor lending. The premium book declined 14%, reflecting the competitive market environment and reduced demand for premium finance from some of our broker partners.

And the Property loan book decreased by 5% due to higher repayments and lower drawdowns as well as lower balances in commercial acceptances, reflecting a more challenging economic environment, which was particularly impacting the SME developer market. While the last financial year has been impacted by loan book moderation measures, we see continuing demand in our markets. We have repositioned the business to focus on segments where we see mid- to high single-digit growth potential through the cycle, leaving us well positioned to benefit as the economy and demand recover.

Turning to our net interest margin, which remained strong overall at 7.2% as we maintained our focus on pricing discipline. On an underlying basis, which excludes the year-on-year increase in Novitas income and favorable movements in derivatives, the NIM reduced approximately 30 basis points to 7.1%. This reflected continued pressure on new business margins from elevated SME funding costs in a higher rate environment, together with the impact of the resulting changes in lending mix with larger, lower NIM loans accounting for a greater share of new business. As Mike has highlighted, one of our key priorities is improving returns. Whilst we will continue to manage the overall risk-adjusted returns, we remain committed to maintaining a strong NIM. Looking forward, we expect the net interest margin to be slightly lower than 7%, reflecting loan book mix impacts.

Moving on to costs, where we've made good progress whilst recognizing there is much more to be done. Since March 2024, we have delivered GBP 25 million of annualized cost savings through streamlining of our technology, suppliers and property and workforce, which generated a GBP 15 million year-on-year P&L benefit in the 2025 financial year. Overall, adjusted operating expenses increased 3%. This was primarily driven by increased legal and professional fees reported in the group segment. In the 2026 financial year, these legal and professional fees are expected to reduce.

In Banking, adjusted operating expenses increased 1%. Cost savings were broadly offset by wage inflation and spend on technology and expansion of capabilities across the business. In the 2026 financial year, Banking adjusted operating expenses are expected to be slightly higher, reflecting wage inflation and investment spend, largely offset by cost savings. The group is committed to maintaining cost savings momentum to deliver a step change in operating profitability. We will deliver at least GBP 20 million of additional annualized savings per annum at group level in each of the next 3 years. Mike will come back later on to talk about future costs in more detail.

Turning now to our resilient credit performance. The bad debt ratio was stable at 1% and remained comfortably below our long-term average of 1.2% as we recognized GBP 92 million of impairment charges. This included an impairment credit in relation to Novitas and a reduction in Retail driven by more favorable macroeconomic impacts, partly offset by an increase in Property due to an increase in individually assessed provisions.

Looking forward, we continue to closely monitor the evolving impacts of inflation and the cost-of-living pressures on our customers. We remain confident in the quality of our loan book, which is predominantly secured or structurally protected, prudently underwritten and diverse and supported by the deep expertise of our people. In FY '26, we expect our bad debt ratio to remain below our long-term average of 1.2%.

Moving on to our balance sheet, where we continue to follow our prudent approach to managing financial resources. We maintained a strong balance sheet with total funding of GBP 12.7 billion. We consciously held a higher level of liquidity with GBP 2.8 billion of treasury assets and a liquidity coverage ratio of 1,012%. We have maintained strong access to funding markets and have raised GBP 300 million through a Motor Finance funding securitization. Our funding base is diverse across wholesale markets and a mix of retail and nonretail deposits.

In line with our strategy, we continue to actively grow our customer deposit base in the year with Retail deposits up 20% to GBP 6.8 billion. We are continuing to benefit from diversification of our savings product offering. We launched Easy Access in 2023 and balances at 31st of July 2025 stood at over GBP 800 million. In line with our conservative approach, our deposits are predominantly term with only 13% of deposits available on demand. Our average cost of funding reduced marginally to 5.4%. And our credit ratings remain robust. They continue to reflect our inherent financial strength and consistent risk appetite, notwithstanding the current uncertainty around the FCA review of motor finance commissions.

Finally, turning to our capital position. In March 2024, we announced a series of management actions aimed at strengthening the group's available CET1 capital by the end of the 2025 financial year. The CET1 capital ratio increased from 12.8% to 13.8%, mainly driven by the sale of CBAM, profits attributable to shareholders and a reduction in loan book RWAs. This was partly offset by the provision in relation to motor finance commissions, the early settlement provision in Motor Finance, the post-tax loss in the group's Vehicle Hire business and AT1 coupon payments.

In addition, the sale of Winterflood is expected to increase the group's CET1 capital ratio by circa 55 basis points on a pro forma basis from 13.8% to 14.3%. The leverage ratio also increased to 12.9%. In January 2025, the PRA announced a 1-year delay to Basel 3.1 implementation, pushing the effective date to the 1st of January 2027. We continue to estimate that the implementation will result in an increase of up to 10% in the group's RWAs. The group expects to receive a full offset in Pillar 2a requirements at total capital level of the removal of the SME supporting factor. As such, we expect the U.K. implementation of Basel 3.1 to have a less significant impact on the group's overall capital headroom position than initially anticipated.

In the near term, we expect to maintain our CET1 capital ratio above the top end of our medium-term target range of 12% to 13% based on our current assessment of the provision in respect of motor finance commissions. In conclusion, I want to reiterate that our underlying performance remains resilient. Our financial position remains strong, and we have a clear focus and commitment on driving strong, sustainable risk-adjusted returns.

Thank you, and I'll now hand back over to Mike.

Thank you, Fiona. I'd now like to turn to our strategic priorities again and give you an update on the progress we've made since we first set them out when I took over the role of CEO.

Let me start with simplification. This was about creating a sharper, more focused portfolio of specialist lending businesses. And to do this, we applied 3 simple tests to each of our portfolios. First, is the business aligned with our business model? And does it therefore fit with the fundamental strengths which differentiate us? Second, does it offer the right returns and support the group's overall ambitions on returns? And third, does it operate in markets that are attractive for future growth, where we either have or can build a strong position and the ability to scale?

With those tests in mind, we carefully evaluated our portfolio to maximize future returns and the outcome was clear. We sold CBAM, Winterflood and our Brewery Rentals business and repositioned our premium finance business towards commercial lines. These portfolio actions reduced our cost base by around GBP 230 million, enabling us to further streamline our operating model and central costs going forward.

Today, we're also announcing the decision to wind down our Vehicle Hire business. It has been loss-making in a challenging market environment and has limited strategic fit with the rest of the group. This decision and the decline in asset values led to an impairment charge of GBP 30 million. Our simplification agenda is largely complete, and we can now focus on optimizing the business and delivering growth.

Turning now to our optimization agenda, a key focus as we drive efficiency and improve returns. I will personally oversee the planning and execution of these cost initiatives. And we have mobilized senior leaders across the group to ensure execution at pace and alignment at every level. We have already delivered GBP 25 million of annualized cost savings by the end of FY '25 through streamlining of headcount, property and suppliers, and are committed to maintaining this momentum to deliver a step change in operating profitability. We will deliver at least GBP 20 million of additional annualized savings per annum in each of the next 3 years, totaling GBP 60 million overall. These savings will come from further consolidation and rationalization of centrally provided functions, outsourcing and offshoring and simplifying our technology. This includes automation and the use of AI.

As a result, we expect group adjusted expenses to be within the GBP 410 million to GBP 430 million range by the 2028 financial year. We've already identified GBP 20 million of annualized savings expected by the end of FY '26. These will come from lower legal and professional fees linked to motor commissions and optimizing the cost base of our premium finance business after its recent strategic repositioning. We're also continuing to optimize headcount and property. And as a result, we expect group adjusted expenses to be in the GBP 440 million to GBP 460 million range.

Turning to our growth agenda. We're sharpening our focus as a specialist bank to reinvest where we see the greatest potential. We are confident in the growth opportunity across our chosen markets. In the earlier part of the year to preserve capital, we had to turn away attractive new business that met our credit and pricing requirements, and this demonstrates the continuing demand in our core markets. Accordingly, we are taking steps to capture this. In Commercial, we're building on our strong market positions as the U.K.'s largest independent provider of both asset and invoice finance and deep sector expertise. We see clear opportunities to grow mature businesses like Invoice Finance and Energy, while scaling newer areas such as commercial mortgages and agriculture.

In Retail, we're expanding Motor Finance through growth in Ireland and deeper partnerships with brokers and dealers. In Premium Finance, we're targeting new broker relationships and insurer partnerships with a renewed focus on commercial lines and strategic accounts. And in Savings, we're enhancing our digital offering and broadening our retail reach while continuing to support a diverse funding base. In Property, despite a tougher build-to-sell environment, structural demand for housing remains strong, and we're well placed to respond. We're broadening our offering into build-to-rent and purpose-built student accommodation and moving into larger build-to-sell loans where we see long-term opportunity and attractive returns.

Taken together across Commercial, Retail and Property, we have repositioned the business to focus on markets where we see mid- to high single-digit growth potential through the cycle. This leaves us well placed to benefit as the economy and demand recover. With our strong market positions, reputation and specialist expertise, we're confident in our ability to win in the segments where we can truly differentiate and become the specialist lender of choice for SMEs in the U.K. and Ireland.

Bringing all 3 strategic priorities together, we now have a clear pathway to double-digit RoTE rising thereafter. The bridge here shows how we move from today's RoTE to our medium-term ambition. First, simplification. The actions we have already taken are partially reflected in today's reported returns. Further improvement, however, will come from our reshaped, more focused and higher-returning portfolio. Second, optimization. The cost reduction program we've launched will deliver material savings, improving profitability.

And third, growth. We have repositioned the business to focus on segments where we see mid- to high single-digit growth potential through the cycle. This leaves us well positioned to benefit as the economy and demand recover. In parallel, there is additional value to unlock through optimization of capital, funding and liquidity. We'll provide a full update on our pathway to rising return on tangible equity once there's clarity on the outcome of the FCA's consultation and its impact on the group, likely early next year or sooner if clarity comes earlier.

This brings me to the end of today's presentation. We've taken decisive actions to protect our core business and have a strong capital position. We're moving at pace even while navigating the motor commissions' uncertainty. We've resolved legacy issues, reshaped the portfolio and simplified the group. We have a clear strategy and pathway to rebuild returns over the next 3 years. Our focus is on execution, supported by a leadership team with the right experience to deliver.

Thank you. And I'll now be happy to take any questions that you may have.

The first question comes from the line of Ben Toms from RBC.

First one is in relation to your GBP 33 million provision, the proactive remediation in Motor Finance from early settlement of loans. I don't want to oversimplify the issue, but it sounds like someone somewhere was doing a calculation wrong over a kind of material period of time. How confident are you the issue is now contained, both from a Motor Finance perspective? Can you also confirm that you've checked you're doing the calculation right in other product lines? How far back were customers impacted by the issue? Could there be a regulatory fine from this?

And then secondly, if we just take a step back and we think about an underlying basis ex all of the noise, do you expect PBT to be up '26 over '25? And to what extent is management's remuneration now linked to hitting that double-digit RoTE in 2028?

Okay. Thanks, Ben. I'll take the first question on the GBP 33 million. So this is an issue that we identified in Motor. It relates to the early settlement of [ loans ]. And what has happened over a period of time is that in instances where customers in settling a loan have overpaid, that overpayment has not, in all cases, been returned to customers. Now we've fixed the processes that sit around that. That process is peculiar to Motor Finance, and so I'm content it's contained within there.

Clearly, it's not good, and I'm not pleased around this, Ben, but we have dealt with it. It goes back for quite a long period of time predating this management team. But what we have here is a large number of relatively low amounts going back over a period of time, and that's what this issue is. In terms of going forward, I'll ask Fiona to comment specifically on '26.

Thank you, Mike. So Ben, we're not providing specific profit or AOP guidance for '26. I guess I'd encourage you to look at the guidance we provided more broadly. But what I would call out or just remind a couple of points, we put an announcement out about Premium repositioning into commercial lines back in July and the fact that we were, therefore, exiting or modifying our presence in the personal lines business and called out that, that would result in a runoff of the loan book there. That's circa 3% of our loan book and 4% of income. So we do expect that to run off over time. That will impact FY '26.

The other element I'd call out is Novitas. So you'll see from our results that AOP in Novitas in FY '25 was GBP 16 million. That was partly a reflection of the settlement premium that Mike talked about earlier for the successful exit from the -- with the insurers, but also from income resulting from the unwind that we've seen in recent years, the unwind of the provision coming through. So both of those elements will provide a drag impact on FY '26 profitability, notwithstanding the growth that we've articulated and the cost savings that we've also outlined.

Just a follow up. So how incentivized the management now to hit that double-digit RoTE target in '28?

I mean, management's remuneration is aligned in large part to a number of metrics, of which that is one of those. So that clearly getting returns up is critical to us. And so the obvious answer to that is that remuneration is aligned with that.

[Operator Instructions] The next question comes from the line of Gary Greenwood from Shore Capital.

The first one was on the costs. And I'm just trying to sort of unpick what you previously said to what you're saying today. So I think you previously said on the premium finance that you're looking to take out GBP 20 million of costs there and there'll be a one-off cost of GBP 15 million to deliver that. So I'm just trying to tie that into the numbers that you've given today, the GBP 60 million. And I think you've talked about GBP 5 million to GBP 10 million of below-the-line costs in 2026. And then I guess also linked to that, just thinking about below-the-line costs, you've called out a couple today, but if you could just give us a feel for sort of overall what you think below-the-line charges are going to be in 2026 and then sort of whether there's going to be any tail sort of going through future years?

And then the second question really was on reputation. And I guess, obviously, you've been through the mill over the last sort of 18 months or so. You've had to obviously sort of turn down business in the first half as you've highlighted. I just want to understand sort of how you sort of feel that's impacted the business from a reputational perspective and what you need to do to sort of win back confidence with customers and brokers.

Thank you, Gary. Let me take the second one on reputation, first of all, and then I'll ask Fiona to pick up on the more specifics. I mean there is no doubt that over the last 18 months, the events that we have seen in the market have really shaken the organization quite significantly. Our plan was to put out capital targets of how we could build and build GBP 400 million. And I'm pleased to say that we have built that GBP 400 million buffer. And if you actually look where we stand today, we have a CET1 ratio of 13.8% or after Winterfloods, 14.3% against a 9% required level. So we've built up a very healthy buffer there.

Probably the most disappointing aspect for me in all of this, Gary, has been the necessity to moderate loan book growth. And as we outlined at the half year, we have held back around about GBP 700 million of lending, which is deeply disappointing. It was generally to new, new customers rather than new existing. But nevertheless, it was disappointing. And of course, you have to bear in mind that following the Hopcraft judgment in October last year, we actually pulled out of Motor Finance for 10 days and then restarted again. I'm glad to say that the volumes now are back up to and actually ahead of where we were beforehand. So we can see that the demand is coming back. But nevertheless, it is disappointing not to support our customers.

The reality for us, though, going forward, now in businesses having moved out of Vehicle Hire and moved out of Brewery Rental. We're in businesses which are core to what we want to do, and we believe that we can get growth of between 5% to 10% throughout the cycle there. The SME market is underserved in the U.K., and there is a real opportunity for the products and the services we provide. Remember as well, Gary, that typically Close Brothers would lend GBP 7 billion a year. We have a relatively short tenure on the loan book. So in the last year, we have lent GBP 7 billion. So there is a huge demand for what we do. And I'm very confident that going forward with this more focused sharper portfolio, we will see that demand return and we can grow.

So that's my point on reputation. I think in terms of the specifics on the costs, do you want to pick that one up, Fiona?

Yes. Thanks, Mike. Gary, so yes, just taking those in turn, as you mentioned in July, we outlined the Premium repositioning and that we would save cost of GBP 20 million over 5 years. And so absolutely, Gary, that GBP 20 million over 5 years, the appropriate proportion of that is embedded in the GBP 20 million annualized savings per annum over 3 years that we've articulated. So that is one component of the GBP 60 million there.

In terms of the cost to achieve, we called out a lifetime cost to achieve that GBP 20 million of GBP 15 million of costs. That wasn't entirely an FY '26 cost item. And some of that, Gary, will flow through as an adjusting item in restructuring. Some of it is just part of our core investment portfolio as an enabler to those cost savings in Premium. So effectively, both the cost saving and the cost to achieve are included in what we've articulated today, both at the GBP 20 million per annum and the GBP 5 million to GBP 10 million that we've called out for restructuring costs in FY '26.

And if I turn to the second part of your question on outlining what we believe the FY '26 adjusting items will be, per the guidance, we talk about single-digit millions of motor commissions costs. That compares to the GBP 18.7 million for FY '25 that you see reported. And on restructuring, we've called out the GBP 5 million to GBP 10 million, which is in support of the GBP 20 million per annum of cost savings. We have -- we do have the Vehicle Hire business below the line now, and that would continue to -- as we run that business down, its results and performance would continue to flow through adjusting.

What I would say there, though, is that the GBP 30 million impairment that we have taken for Vehicle Hire that we believe that to be an appropriate and realistic best estimate of the loss that we will need to incur on this business. And in addition, we are in control and we'll manage that rundown. We have significant experience here. We sold over 1,500 vehicles in FY '25. So we are well versed in how to exit vehicles in this market and run that business down, and we will do so and manage that to optimize commercial value.

So there's still going to be the tail in terms of the charges beyond 2026, and that will be sort of further reset charges plus presumably sort of a smaller loss from that Vehicle Hire rundown, excluding the impairment charge. Is that the right way to think about it?

So just to take those in turn, absolutely, in terms of the cost-out program, we would expect to continue to see restructuring costs flowing through beyond FY '26. At this point, I'm not pointing to any further losses coming through on the Vehicle Hire business. As I said, based on what we know and see now, we believe that the impairment sufficiently deals with that, but we will run that business down over the next 5 years and manage that carefully to optimize value.

The next question comes from the line of Sanjena Dadawala from UBS.

Two, please. First, a bit more on the cost optimization program, including the phasing. So GBP 20 million of sales per annum over FY '26 to '28, but then putting it against the GBP 440 million to GBP 460 million guided for FY '26 from the GBP 445 million delivered in '25 suggests there's potentially front-loaded investment spend in this year and/or more cost inflation and then we get net savings going up to get to the GBP 410 million, GBP 430 million for FY '28. So if you could talk a bit more about that?

And then secondly, some more detail around how the net loan book builds back up, given that there is a focus on segments with higher growth potential, but headwinds from Premium Finance repositioning and the potentially some lower demand near term, since the outlook for net loans will be important to determine the income trajectory and key to delivery of double-digit RoTE.

Okay. Let me just touch on that second point further on the net loan. I think I touched on some of those points in the earlier answer I gave. But I do think that with this focus on the sectors that we are -- we believe are strategically aligned with our objectives, and we can get returns from those and create scale in those. We do feel there is good demand there. And as I say, we believe we can see over the cycle, 5% to 10% growth.

Now it's fair to say, and you're quite right to point out, Sanjena, that there is some pressure around the SME segment right now. We're seeing interest rates that are higher for longer. Inflation remains stubborn. So costs are clearly -- we've got the impact of employers [ NI ] coming through from last September. We've got the minimum wage floating through. And of course, now we also have the budget coming through in late November.

And what SMEs need is certainty. You can't plan if you don't have certainty. And if you're going to invest, you need to be able to plan. And so that's critical for them. And so right now, we are seeing a little bit of negative sentiment in that area. And of course, the media is pulling that out. So whilst we -- over the longer term and through the cycle, we'll sort of see 5% to 10% growth, clearly, that would be lower in the more immediate term. That would be my response on the loan book.

In terms of the optimization, I'll let Fiona talk through the points in a bit more detail, but I'd just like to just sort of talk about it at a high level for a second. When I came into the role in January, we talked about these 3 strategic priorities, which I've just run through in my presentation, simplification, optimization and growing. And optimization is all around cost reduction and creating a scalable platform. As I said in my speech, this is something I will personally take responsibility for. We have brought a transformation manager in to work directly for me. The individual has many years' experience at that market, and it's something we are taking very, very seriously indeed. And that will be fundamental along with the growth to get us to the return on tangible equity of double digit.

There are a number of ways we can take that cost out, just to give a little bit of flavor, looking at consolidation of functions, looking at outsourcing and offshoring, looking at simplification and rationalization of technology, looking at the rationalized -- further rationalization of Property portfolio. And I think what we're seeing quite significantly over the last year is the benefits that AI can bring. And one of the areas where we have benefited through motor commissions is the level of AI being employed in parts of our organization.

Now so by way of example, if you look at the motor complaints that come in, 99% of those are dealt with through AI. So you'll get an unstructured letter coming through, and that can be translated into structured data and then dealt with. So AI is going to be fundamental going forward. So that gives you a sense of the flavor of what we'll be doing. But in terms of the specific numbers, Fiona, would you like to just talk to that?

Absolutely. Sanjena, so just building on what Mike said there, we are committed to this -- the cost out that we've talked about, the GBP 20 million per annum over the next 3 years. We're committed to that. That doesn't fully reflect our ambition. We have a strong desire to do more than that, but that is what we feel is an incredible target effectively to put out today, but we will continue to build on that and challenge ourselves on that.

In that context, Sanjena, and to your point, we've put guidance out there both for FY '26 and FY '28 in terms of the range of expenses. That absolutely does reflect the offset from inflationary pressures and other cost drivers. from the savings that we are targeting. And we -- at this point, we're guiding to, I guess, a reasonably wide range of GBP 410 million to GBP 430 million for FY '28. And so I just refer to my ambition point about where we aspire to get to, but we think the GBP 410 million to GBP 430 million is a very credible positioning at this point based on the GBP 20 million per annum of cost out and based on what we see in terms of inflation and other cost pressures.

Ladies and gentlemen, that was the last question from the phone. I would like to turn the conference back over to Mike Morgan for webcast questions.

We have 2 questions from an investor. How does the Supreme Court ruling stand in light of the various scenarios you assumed when you took the GBP 165 million provision? Is it close to the base case or better or worse?

And secondly, based on your current estimates, could you provide any relative guidance on worst case compensation costs?

Let me deal with that generally, and then I'll ask you to talk about the modeling. I mean, clearly, we were pleased with the Supreme Court ruling. That was very, very helpful for us at Close Brothers. But of course, that simply means that we are back to the original position where we are while we're awaiting for the consultation to be issued by the FCA. And as we understand it, that will come out in October. It remains to be seen what will come out of that, and it's very difficult for us to give any guidance or thoughts until we can understand clearly where the FCA's thinking is on this.

But in terms of our provisioning, Fiona, do you want to say a little bit more about that?

Yes, absolutely. So I think what the -- as Mike said, the Supreme Court judgment is very welcome and very helpful. In terms of the provision modeling, what that effectively achieves is that it narrows down the range of possibilities and effectively removes one of the sort of more outlier worst-case scenarios that we included in the previous modeling based on that, the Hopcraft judgment being upheld, which naturally it wasn't, it was overturned by the Supreme Court.

So we have effectively gone back to basics and reassessed based on all available facts and information what realistic and credible scenarios now are. And having done that work, and that does actually support our existing provision of GBP 165 million, but we have arrived at that in quite a different way. And as I said, with the [indiscernible] than we previously had. In terms of worst case, we're not sharing sort of ranges or worst-case outcomes here. But what I would say is that the GBP 165 million is our best estimate based on probability-weighted scenarios, including a range of outcomes.

We have another question from an investor. You referred to the Build-to-Sell market on Slide 26 on Property Finance. Please clarify the group's market share and ambition in this niche market.

It's -- we have quite a dominant position for one of the smaller banks, but it's not a market share that -- figure that we would disclose publicly. So I'm afraid we wouldn't give that information.

Okay. Well, look, if there are no more questions, thank you very much for taking part today, and have a good week.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line. Goodbye.