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Close Brothers Group PLC on Tuesday said its half-year profit declined amid provisions at Novitas, though it raised its payout.
Shares were down 4.2% at 973.40 pence each on Tuesday morning in London.
The London-based merchant banking group said pretax profit in the six months to January 31 plunged 91% year-on-year to £11.7 million from £128.9 million. Investment losses increased to £162.2 million from £48.3 million a year before.
Novitas provisions during the half totalled £114.6 million. Novitas was acquired by Close Brothers for around £31 million in 2017. It is a provider of loans for legal proceedings.
In 2021, Close Brothers decided to permanently cease the approval of lending to new customers across all the products offered by Novitas and withdraw from the legal services financing market.
Excluding Novitas, adjusted operating profit decreased to £117.5 million from £160.5 million a year before. Adjusted earnings per share dropped to 5.6 pence from 63.5p.
In the Banking divisions particularly, operating profit decreased by 88% to £15.0 million from £120.2 million.
However, Close Brothers said operating income edged up 0.6% on-year to £474.3 million from £471.6 million, with growth in Banking ‘offsetting a reduction in income in Asset Management and Winterflood’.
Chief Executive Adrian Sainsbury said: ‘It has been a challenging six months, with our half year results significantly impacted by the increased provisions in relation to Novitas, as announced previously in January 2023.’
Back in January this year, the company expected to further increase provisions in the first half 2023 financial statements to ‘a level that will adequately cover the remaining risk of credit losses for the current Novitas loan book’.
The company raised its interim dividend to 22.50 pence per share, up 2.2% from 22.0p a year prior.
Looking ahead, Close Brothers said it is confident in its outlook despite ‘disappointing’ developments at Novitas.
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