TIDMQLT
RNS Number : 7193R
Quilter PLC
10 March 2021
Statement of Directors' responsibilities
in respect of the preliminary announcement of the Annual Report
and the financial statements
The Directors confirm to the best of their knowledge:
- The results in this preliminary announcement have been taken
from the Group's 2020 Annual report, which will be available on the
Company's website on 25 March 2021; and
- The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Group.
Signed on behalf of the Board
Paul Feeney Mark Satchel
Chief Executive Officer Chief Financial Officer
10 March 2021
Consolidated income statement
For the year ended 31 December 2020
----------------------------------------------------- ----- ------------ -----------------
GBPm
------------ -----------------
Year ended Year ended
31 December 31 December
Notes 2020 2019 restated(1)
----------------------------------------------------- ----- ------------ -----------------
Income
Fee income and other income from service activities 6(d) 795 837
Investment return 3,896 6,566
Other income 20 16
----------------------------------------------------- ----- ------------ -----------------
Total income 4,711 7,419
----------------------------------------------------- ----- ------------ -----------------
Expenses
Insurance contract claims and changes in liabilities (1) (1)
Change in investment contract liabilities 16 (3,328) (5,810)
Fee and commission expenses, and other acquisition
costs (147) (167)
Change in third party interest in consolidated funds (440) (634)
Other operating and administrative expenses (692) (745)
Finance costs (17) (17)
----------------------------------------------------- ----- ------------ -----------------
Total expenses (4,625) (7,374)
----------------------------------------------------- ----- ------------ -----------------
Profit before tax from continuing operations 86 45
Tax expense attributable to policyholder returns 7(a) (36) (98)
===================================================== ===== ============ =================
Profit/(loss) before tax attributable to equity
holders from continuing operations 50 (53)
===================================================== ===== ============ =================
Income tax credit/(expense) 7(a) 3 (66)
Less: tax expense attributable to policyholder
returns 36 98
----------------------------------------------------- ----- ------------ -----------------
Tax credit attributable to equity holders 39 32
----------------------------------------------------- ----- ------------ -----------------
Profit/(loss) after tax from continuing operations 89 (21)
(Loss)/profit after tax from discontinued operations 4(c) (1) 167
----------------------------------------------------- ----- ------------ -----------------
Profit after tax 88 146
----------------------------------------------------- ----- ------------ -----------------
Attributable to:
Equity holders of Quilter plc 88 146
----------------------------------------------------- ----- ------------ -----------------
Earnings per Ordinary Share on profit attributable to Ordinary Shareholders
of Quilter plc
---------------------------------------------------------------------------------------------
Basic
From continuing operations (pence) 8(b) 5.1 (1.1)
From discontinued operations (pence) 4(c) (0.1) 9.1
----------------------------------------------------- ----- ------------ -----------------
Basic earnings per Ordinary Share (pence) 8(b) 5.0 8.0
----------------------------------------------------- ----- ------------ -----------------
Diluted
From continuing operations (pence) 8(b) 5.0 (1.1)
From discontinued operations (pence) 4(c) (0.1) 8.9
----------------------------------------------------- ----- ------------ -----------------
Diluted earnings per Ordinary Share (pence) 8(b) 4.9 7.8
----------------------------------------------------- ----- ------------ -----------------
(1) See note 3(b) for details of changes to comparative
amounts.
Consolidated statement of comprehensive income
For the year ended 31 December 2020
GBPm
------------ ------------
Year ended Year ended
31 December 31 December
Note 2020 2019
------------------------------------------------------ ---- ------------ ------------
Profit after tax 88 146
Exchange losses on translation of foreign operations - (1)
Items that may be reclassified subsequently to income
statement - (1)
Measurement movements on defined benefit plans - (7)
Tax on amounts related to defined benefit pension
plans - 1
------------------------------------------------------ ---- ------------ ------------
Items that will not be reclassified subsequently
to income statement - (6)
Total other comprehensive expense, net of tax - (7)
------------------------------------------------------ ---- ------------ ------------
Total comprehensive income 88 139
------------------------------------------------------ ---- ------------ ------------
Attributable to:
Continuing operations 89 (28)
Discontinued operations 4(d) (1) 167
------------------------------------------------------ ---- ------------ ------------
Equity holders of Quilter plc 88 139
------------------------------------------------------ ---- ------------ ------------
Consolidated statement of changes in equity
For the year ended 31 December 2020
GBPm
----------------------------------------- ----------- --------- --------- ---------
Total
Capital Share-based share-
Share Share redemption Merger payments Other Retained holders'
31 December 2020 Notes capital premium reserve reserve reserve reserves earnings equity
---------------------- ----- -------- -------- ----------- -------- ----------- --------- --------- ---------
Balance at 1 January
2020 133 58 - 149 45 1 1,685 2,071
Profit for the year - - - - - - 88 88
Total comprehensive income - - - - - - 88 88
Dividends 9 - - - - - - (81) (81)
Shares repurchased in
the
buyback programme (1) 15 (8) - 8 - - - (179) (179)
Movement in own shares
(2) - - - - - - (44) (44)
Equity share-based
payment
transactions - - - - (3) - 28 25
Dividend equivalents
paid
on vested shares - - - - - - (2) (2)
Total transactions with the
owners of the Company (8) - 8 - (3) - (278) (281)
----------------------------- -------- -------- ----------- -------- ----------- --------- --------- ---------
Balance at 31 December
2020 125 58 8 149 42 1 1,495 1,878
---------------------- ----- -------- -------- ----------- -------- ----------- --------- --------- ---------
Total
Share-based share-
Share Share Merger payments Other Retained holders'
31 December 2019 Notes capital premium reserve reserve reserves earnings equity
----------------------------------- ----- -------- -------- -------- ----------- --------- --------- ---------
Shareholders' equity at beginning
of the year 133 58 588 34 1 1,191 2,005
Adjustment on initial application
of IFRS 16 (net of tax) - - - - - (5) (5)
----------------------------------- ----- -------- -------- -------- ----------- --------- --------- ---------
Balance at 1 January 2019 133 58 588 34 1 1,186 2,000
Profit for the year - - - - - 146 146
Other comprehensive expense - - - - - (7) (7)
-------- -------- -------- ----------- --------- --------- ---------
Total comprehensive income - - - - - 139 139
Dividends 9 - - - - - (92) (92)
Release of merger reserve - - (439) - - 439 -
Movement in own shares - - - - - (2) (2)
Equity share-based payment
transactions - - - 11 - 15 26
Total transactions with the owners
of the Company - - (439) 11 - 360 (68)
------------------------------------------ -------- -------- -------- ----------- --------- --------- ---------
Balance at 31 December 2019 133 58 149 45 1 1,685 2,071
----------------------------------- ----- -------- -------- -------- ----------- --------- --------- ---------
(1) On 11 March 2020 the Company announced a share buyback
programme to purchase shares up to a maximum value of GBP375
million, in order to reduce the share capital of the Company. The
programme commenced on 11 March 2020 and will continue into 2021.
During the year ended 31 December 2020, the Company acquired 118.3
million shares for a total consideration of GBP153 million and
incurred additional costs of GBP4 million. The shares, which have a
nominal value of GBP8 million, have subsequently been cancelled,
giving rise to a capital redemption reserve of the same value as
required by the Companies Act 2006. In December 2020, the committed
remaining share buyback for which irrevocable instruction had been
provided by the Board, of GBP22 million was accrued as a liability
against retained earnings.
(2) Movement in own shares includes 16.3 million shares
repurchased for total consideration of GBP21 million in respect of
the previously announced Odd-lot Offer.
Consolidated statement of financial position
At 31 December 2020
GBPm
----------- --------------------------------
1 January
31 December 31 December 2019
Notes 2020 2019 restated(1) restated(1)
-------------------------------------------- ----- ----------- ----------------- -------------
Assets
Goodwill and intangible assets 10 556 592 550
Property, plant and equipment 142 143 17
Investments in associated undertakings 1 1 2
Deferred acquisition costs(2) - - 11
Contract costs 413 455 551
Loans and advances 219 217 222
Financial investments 11 63,274 57,207 58,054
Reinsurers' share of insurance policyholder
liabilities(2) - - 2.162
Deferred tax assets 78 43 38
Current tax receivable 24 13 47
Trade, other receivables and other assets 701 605 718
Derivative assets 43 22 34
Cash and cash equivalents 14 1,921 2,253 2,305
Total assets 67,372 61,551 64,711
-------------------------------------------- ----- ----------- ----------------- -------------
Equity and liabilities
Equity
-------------------------------------------- ----- ----------- ----------------- -------------
Ordinary Share capital 15 125 133 133
Ordinary Share premium reserve 15 58 58 58
Capital redemption reserve 15 8 - -
Merger reserve 149 149 588
Share-based payments reserve 42 45 34
Other reserves 1 1 1
Retained earnings 1,495 1,685 1,191
-------------------------------------------- ----- ----------- ----------------- -------------
Total equity 1,878 2,071 2,005
-------------------------------------------- ----- ----------- ----------------- -------------
Liabilities
Insurance contract liabilities(2) - - 602
Investment contract liabilities 16 57,407 52,455 56,450
Third-party interests in consolidated funds 6,513 5,318 3,833
Provisions 17 77 64 94
Deferred tax liabilities 106 88 59
Current tax payable 1 6 5
Borrowings and lease liabilities 319 335 197
Trade, other payables and other liabilities 672 801 979
Contract liabilities 379 403 456
Derivative liabilities 20 10 31
Total liabilities 65,494 59,480 62,706
-------------------------------------------- ----- ----------- ----------------- -------------
Total equity and liabilities 67,372 61,551 64,711
-------------------------------------------- ----- ----------- ----------------- -------------
(1) See note 3(b) for details of changes to comparative
amounts.
(2) The consolidated statement of financial position at 1
January 2019 includes balances for Deferred acquisition costs,
Reinsurers' share of insurance policyholder liabilities and
Insurance contract liabilities relating to the Quilter Life
Assurance ("QLA") business that was sold on 31 December 2019.
Approved by the Board of Directors and authorised for issue on
10 March 2021 and signed on its behalf:
Paul Feeney Mark Satchel
Chief Executive Officer Chief Financial Officer
Consolidated statement of cash flows
For the year ended 31 December 2020
The cash flows presented in this statement cover all the Group's
activities (including cash flows within the Group's discontinued
operations) and includes flows from both policyholder and
shareholder activities. All cash and cash equivalents are available
for use by the Group except for cash and cash equivalents in
consolidated funds (as shown in note 14(a)).
GBPm
------------ ------------
Year ended
31 December
Year ended 2019
31 December restated
Notes 2020 (1)
------------------------------------------------------- ----- ------------ ------------
Cash flows from operating activities
Cash flows from/(used in) operating activities 1,473 (2,035)
Taxation paid (28) (37)
------------------------------------------------------- ----- ------------ ------------
Total net cash from/(used in) operating activities 14(b) 1,445 (2,072)
------------------------------------------------------- ----- ------------ ------------
Cash flows from investing activities
Net (acquisitions)/disposals of financial investments (1,419) 2,159
Acquisition of property, plant and equipment (28) (8)
Acquisition of intangible assets 10(a) (4) (5)
Acquisition of interests in subsidiaries(2) 4(a) (20) (87)
Net (payments)/proceeds from the disposal of interests
in subsidiaries (3) 78
------------------------------------------------------- ----- ------------ ------------
Total net cash (used in)/from investing activities (1,474) 2,137
------------------------------------------------------- ----- ------------ ------------
Cash flows from financing activities
Dividends paid to ordinary equity holders of the
Company 9 (81) (92)
Finance costs on external borrowings (10) (10)
Payment of interest on lease liabilities (2) (3)
Payment of principal lease liabilities (14) (13)
Repurchase of shares(3) (41) -
Repurchase and cancellation of shares(4) (157) -
------------------------------------------------------- ----- ------------ ------------
Total net cash used in financing activities (305) (118)
------------------------------------------------------- ----- ------------ ------------
Net increase in cash and cash equivalents (334) (53)
Cash and cash equivalents at the beginning of the
year 2,253 2,305
Effects of exchange rate changes on cash and cash
equivalents 2 1
------------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at end of the year 14(a) 1,921 2,253
------------------------------------------------------- ----- ------------ ------------
(1) See note 3(b) for details of changes to comparative
amounts.
(2) The acquisition of interests in subsidiaries balance
includes GBP20 million of contingent consideration payments
relating to historical acquisitions (31 December 2019: GBP21
million).
(3) Repurchase of shares includes shares acquired under the
Odd-lot Offer as explained in the consolidated statement of changes
in equity, together with other shares acquired for use within the
Group's employee share schemes.
(4) Repurchase and cancellation of shares are in respect of cash
movements associated with the share buyback programme. Further
details are included within the consolidated statement of changes
in equity.
Basis of preparation
For the year ended 31 December 2020
General information
Quilter plc (the "Company"), a public limited company
incorporated and domiciled in the United Kingdom ("UK"), together
with its subsidiaries (collectively, the "Group") offers investment
and wealth management services, long-term savings and financial
advice through its subsidiaries and associates primarily in the UK
with a presence in a number of cross-border markets.
The address of the registered office is Senator House, 85 Queen
Victoria Street, London, EC4V 4AB.
1: Basis of preparation
The results in this preliminary announcement have been taken
from the Group's 2020 Annual report which will be available on the
Company's website on 25 March 2021. These condensed consolidated
financial statements of Quilter plc for the year ended 31 December
2020 have been prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006 ("IFRS") and the applicable legal requirements of the
Companies Act 2006. In addition to complying with international
accounting standards in conformity with the requirements of the
Companies Act 2006, the condensed consolidated financial statements
also comply with International Financial Reporting Standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union.
These condensed consolidated financial statements have been
prepared on a historical cost basis, except for the revaluation of
certain financial instruments, and are presented in pounds
sterling, which is the currency of the primary economic environment
in which the Group operates.
Going concern
The Directors have considered the resilience of the Group,
taking into account its current financial position, the principal
risks facing the business and the effectiveness of the mitigating
strategies which are or could be applied. This included an
assessment of capital, liquidity and solvency over a three-year
planning period, which considered the impact of COVID-19, and
concluded that the Group can withstand a severe but plausible
downside scenario for at least the next 12 months after the date of
signing the 2020 financial statements. This assessment incorporated
a number of stress tests covering a broad range of scenarios,
including economic and market shocks, new business growth
scenarios, severe business interruption, and a progression of the
COVID-19 pandemic, equivalent to 1-200 year events. As a result,
the Directors believe that the Group is well placed to manage its
business risks in the context of the current economic outlook and
have sufficient financial resources to continue in business for a
period of at least 12 months from the date of approval of the
consolidated financial statements, and continue to adopt the going
concern basis in preparing the consolidated financial
statements.
Critical accounting estimates and judgements
The preparation of financial statements requires management to
exercise judgement in applying the Group's significant accounting
policies and make estimates and assumptions that affect the
reported amounts of net assets and liabilities at the date of the
financial statements. The Board Audit Committee reviews these areas
of judgement and estimates and the appropriateness of significant
accounting policies adopted in the preparation of these financial
statements.
The Group's critical accounting judgements are detailed below
and are those that management makes when applying its significant
accounting policies and that have the most effect on the net profit
and net assets recognised in the Group's financial statements.
Area Critical accounting judgements Related
notes
For Lighthouse DB pension transfer advice provided, management
Recognition has applied judgement in order to determine whether an
of insurance asset can be reasonably estimated, and the measurement
recovery of such asset, in relation to an insurance recovery under
asset in Lighthouse's professional indemnity policies ("PI Policies").
respect Under the PI Policies, Lighthouse is entitled to be indemnified
of Lighthouse for a "Claim" (and defence costs) in respect of legal
defined liabilities arising in connection with Lighthouse's DB
benefit pension transfer advice activities; however, at the current
pension time the insurers have not confirmed coverage for legal
advice liabilities. 17
------------------------------------------------------------------ --------
The Group's critical accounting estimates are shown below and
involve the most complex or subjective assessments and assumptions,
which have a significant risk of resulting in material adjustment
to the net carrying amounts of assets and liabilities within the
next financial year. Management uses its knowledge of current facts
and circumstances and applies estimation and assumption setting
techniques that are aligned with relevant actuarial and accounting
guidance to make predictions about future actions and events.
Actual results may differ from those estimates.
Area Critical accounting estimates Related
notes
An estimation of the provision required for the British
Steel DB pension transfer redress was determined based
upon calculations performed as part of the skilled person
review, which was considered representative of the broader
population to form a reasonable estimate. The estimation
per case is based upon FCA guidelines and modelling performed,
and factors including pension transfer value, date of
retirement, discount rate, and retail price indexation.
Provision The calculations were then extrapolated to the entire
for cost population of British Steel DB cases that were advised
of Lighthouse on by Lighthouse advisers. The proportion of cases to
defined be upheld, and therefore which requires redress payments
benefit to be made, was estimated based upon the current position
pension of the review performed by the skilled person of the
advice Lighthouse DB pension transfers. 17
------------------------------------------------------------------ --------
Insurance For Lighthouse DB pension transfer advice provided, management
recovery has determined its best estimate of the insurance recovery
asset in asset under Lighthouse's professional indemnity policies.
respect Under the PI Policies, Lighthouse is entitled to be indemnified
of Lighthouse for a "Claim" (and defence costs) in respect of legal
defined liabilities arising in connection with Lighthouse's DB
benefit pension transfer advice activities; however, at the current
pension time the insurers have not confirmed coverage for legal
advice liabilities. 17
------------------------------------------------------------------ --------
Measurement The estimation of future taxable profits is performed n/a
of deferred as part of the annual business planning process, and
tax is based on estimated levels of AuMA, which are subject
to a large number of factors including global stock market
movements, related movements in foreign exchange rates
and net client cash flow, together with estimates of
expenses and other charges. The business plan, adjusted
for known and estimated tax sensitivities, is used to
determine the extent to which deferred tax assets are
recognised. In general the Group assesses recoverability
based on estimated taxable profits over a three-year
planning horizon. Where credible longer-term profit forecasts
are available, the specific entity may assess recoverability
over a longer period, subject to a higher level of sensitivity
testing. Following the impact that COVID-19 has had on
global markets and, in particular, on the Group's expected
future levels of AuMA, management have reassessed the
sensitivity on the recoverability of deferred tax assets
based on the latest forecast cash flows.
------------------------------------------------------------------ --------
Other principal estimates
The Group's assessment of goodwill and intangible assets for
impairment uses the latest cash flow forecasts from the Group's
three-year business plan. These forecasts include estimates
relating to equity market levels and growth in AuMA in future
periods, together with levels of new business growth, net client
cash flow, revenue margins, and future expenses and discount rates
(see note 10). Management do not believe that the use of these
estimates have a significant risk of causing a material adjustment
to the carrying amount of the assets within the next financial
year.
2: New standards, amendments to standards, and interpretations
adopted by the Group
There were no new standards or interpretations which became
effective from 1 January 2020.
Amendments to standards:
The following amendments to the accounting standards, issued by
the International Accounting Standards Board ("IASB") and in
conformity with the requirements of the Companies Act 2006, the
condensed consolidated financial statements also comply with
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union ,
have been adopted by the Group from 1 January 2020 with no material
impact on the Group's consolidated results, financial position or
disclosures:
-- Amendments to References to the Conceptual Framework in IFRS Standards
-- Amendments to IFRS 3 Business Combinations - Definition of a Business
-- Amendments to IAS 1 Presentation of Financial Statements and
IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors - Definition of Material
-- Amendments to IFRS 9 Financial Instruments, IAS 39 Financial
Instruments: Recognition and Measurement and IFRS 7 Financial
Instruments: Disclosures - Interest Rate Benchmark Reform
-- Amendments to IFRS 16 Leases - COVID-19-Related Rent Concessions
3: Significant changes in the year
3(a): Impacts of COVID-19
The Group's focus in managing the response to COVID-19 has been
to ensure colleagues' health and safety, maintain operational
resilience with high levels of client service, and provide good
outcomes for shareholders. When the scale of the COVID-19 pandemic
became apparent, the Group responded quickly to the challenges
faced, with 98% of the Group's colleagues working remotely from
late March 2020 and the accelerated delivery of IT and remote
telephony solutions allowing Quilter to maintain high client
service levels and to support customers and advisers.
The Group reviewed its financial budgets and operating plans in
response to the challenges arising from COVID-19 and the
unpredictable operating outlook. The Group is operationally
resilient and remains focused on completing its principal strategic
projects. The continued volatility in financial markets and the
impact of more limited face-to-face contact within the advice
segment is creating a challenging revenue environment and the Group
has updated its future cash flows accordingly. Against this
backdrop, the Group has undertaken a number of management actions
to reduce expenses but has acknowledged that future operating
margin outcomes will likely be below previous target guidance
provided by management. The Group did not use the support measures
made available to companies by the UK Government.
An impairment assessment of the Group's goodwill was performed
at 30 June 2020, as the impact of COVID-19 was deemed to be an
indicator of impairment, and again at 31 December 2020 as part of
the annual impairment assessment. The assessments were carried out
using the most recent Board approved forecasts which incorporated
market levels and future assumptions considered relevant in the
current market conditions. The assessment concluded that no
impairment was required. A sensitivity analysis demonstrated that
further significant changes to key assumptions would be necessary
before an impairment is required. Full details are included in note
10.
The Group has assessed the recoverable amount of deferred tax
assets based on the taxable profits contained in the most recent
Board approved three-year forecasts which, as noted above,
incorporate market levels and assumptions that reflect the impact
of COVID-19 and concluded that the Group has sufficient future
taxable profits and reversal of taxable temporary differences to
support the GBP78 million deferred tax asset recognised at 31
December 2020. Further details are included in note 29 of the
Group's 2020 Annual report.
There have been no major changes to the Group's capital and
financial risk management as a result of COVID-19. Full capital and
financial risk management disclosures are included within note
19.
Detailed discussion of the Group's performance and financial
position to 31 December 2020 are included in the Financial
Review.
3(b): Prior year restatements
3(b): Changes to comparative amounts
Changes to comparative amounts have been made in respect of
consolidated investment funds and fee income receivable. The
changes are explained in detail in notes 3(b)(i) and 3(b)(ii)
respectively, with no impact to the Group's profit, equity or
alternative performance measures. The changes to the statement of
financial position for the prior periods presented are shown
below:
Consolidated statement of financial position (extract)
31 December 2019 1 January 2019
---------------------------------------------------- -----------------------------------------------
Fee income Fee income
Consolidated receivable Consolidated receivable
As funds Note As funds Note
Reported Note 3(b)(i) 3(b)(ii) Restated Reported Note 3(b)(i) 3(b)(ii) Restated
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- ------------ ------------ ------------- --------- ------------ ------------ --------
Financial
investments 59,345 (2,138) - 57,207 59,219 (1,165) - 58,054
Trade, other
receivables
and other
assets 424 (31) 212 605 530 (42) 230 718
Derivative
assets 32 (10) - 22 46 (12) - 34
Cash and cash
equivalents 2,473 (220) - 2,253 2,395 (90) - 2,305
Other(1) 1,464 - - 1,464 3,600 - - 3,600
-------------- --------- ------------ ------------ ------------- --------- ------------ ------------ --------
Total assets 63,738 (2,399) 212 61,551 65,790 (1,309) 230 64,711
-------------- --------- ------------ ------------ ------------- --------- ------------ ------------ --------
Third-party
interests
in
consolidated
funds 7,675 (2,357) - 5,318 5,116 (1,283) - 3,833
Trade, other
payables and
other
liabilities 836 (35) - 801 999 (20) - 979
Contract
liabilities 191 - 212 403 226 - 230 456
Derivative
liabilities 17 (7) - 10 37 (6) - 31
Other(1) 52,948 - - 52,948 57,407 - - 57,407
-------------- --------- ------------ ------------ ------------- --------- ------------ ------------ --------
Total
liabilities 61,667 (2,399) 212 59,480 63,785 (1,309) 230 62,706
-------------- --------- ------------ ------------ ------------- --------- ------------ ------------ --------
Total equity 2,071 - - 2,071 2,005 - - 2,005
-------------- --------- ------------ ------------ ------------- --------- ------------ ------------ --------
(1) 'Other' represents remaining assets and liabilities not
impacted by the changes to comparative amounts.
Changes in respect of consolidated investment funds have also
impacted the Group's consolidated income statement in the prior
year. There are no prior year income statement impacts arising from
the fee income receivable reclassification.
Consolidated income statement (extract)
Year ended 31 December 2019
----------------------------------- -----------------------------------------
Consolidated
As funds
reported Note 3(b)(i) Restated
GBPm GBPm GBPm
--------------- ------------- --------
Fee income and other income from
service activities 936 (99) 837
Investment return 6,866 (300) 6,566
Other income 22 (6) 16
------------------------------------ --------------- ------------- --------
Total income 7,824 (405) 7,419
------------------------------------ --------------- ------------- --------
Fee and commission expenses and
other acquisition costs (294) 127 (167)
Change in third-party interest in
consolidated funds (917) 283 (634)
Other operating and administrative
expenses (740) (5) (745)
Other(1) (5,828) - (5,828)
------------------------------------ --------------- ------------- --------
Total expenses (7,779) (405) (7,374)
------------------------------------ --------------- ------------- --------
Profit before tax from continuing
operations 45 - 45
------------------------------------ --------------- ------------- --------
(1) 'Other' represents remaining expenses not impacted by the
changes to comparative amounts.
The impact to the Group's consolidated statement of cash flows
in respect of changes in consolidated investment funds in the prior
year is shown below. There are no prior year cash flow statement
impacts arising from the fee income receivable
reclassification.
Consolidated statement of cash flows (extract)
Year ended 31 December 2019
---------------------------------------- -----------------------------------
Consolidated
As funds
reported Note 3(b)(i) Restated
GBPm GBPm GBPm
---------------------------------------- --------- ------------- --------
Cash flows used in operating activities (2,006) (29) (2,035)
----------------------------------------- --------- ------------- --------
Total net cash used in operating
activities (2,043) (29) (2,072)
----------------------------------------- --------- ------------- --------
Net (acquisitions)/disposals of
financial investments 2,260 (101) 2,159
----------------------------------------- --------- ------------- --------
Total net cash from/(used in) investing
activities 2,238 (101) 2,137
----------------------------------------- --------- ------------- --------
Net increase/(decrease) in cash
and cash equivalents 77 (130) (53)
Cash and cash equivalents at the
beginning of the year 2,395 (90) 2,305
----------------------------------------- --------- ------------- --------
Cash and cash equivalents at end
of the year 2,473 (220) 2,253
----------------------------------------- --------- ------------- --------
3(b)(i): Consolidated funds
Following a review of the Group's consolidated investment funds
methodology, corrections to previously reported values have been
made on the consolidated statement of financial position and
consolidated income statement (with corresponding impacts on the
consolidated statement of cash flows). There has been no impact on
profit or equity for any of the periods presented. The nature of
the changes is as follows:
Statement of financial position impacts:
- Changes to the calculation of minority ownership of certain
fund investments have been made, reflecting a re-evaluation of the
status of nominee holdings, held by the Group on behalf of its
clients, that had historically been included in the control
assessment. This has resulted in a restatement of fund assets and
liabilities attributable to the Group, and an adjustment to
de-consolidate a number of investment funds where the Group was
incorrectly deemed to have been the controlling entity in previous
periods.
Income statement impacts:
- The changes to the calculation of minority ownership described
above have resulted in changes to a number of line items in the
Group's consolidated income statement for the year ending 31
December 2019, as shown in the table above.
- In addition, fund management fee income received from
consolidated funds and previously included within 'Fee income and
other income from service activities' has been eliminated on
consolidation, resulting in it being re-presented primarily as
investment return.
- A correction has been made in respect of realised and
unrealised gains and losses on investments within a limited number
of funds being previously presented within the Group's fee and
commission expenses rather than investment return.
3(b)(ii): Fee income receivable
Fee Income Receivable ("FIR") relates to premium based
establishment fee income, where income is taken over an initial
period of the contract. When a policy is written, future income is
capitalised, and the resulting asset is subsequently amortised as
the cash proceeds are received.
Deferred Fee Income ("DFI") is the initial fee income, including
FIR, which is deferred over the expected life of the contract as
the services are provided. DFI is recognised as a contract
liability.
In the prior year, the Group's FIR (all written within
investment contracts in the Group's International business which is
part of the Group's Wealth Platforms segment) and DFI were reported
net within the statement of financial position within contract
liabilities. This interpretation was made as both balances arise
within individual contracts and FIR was assumed to represent a
contract asset (which are permitted to be presented net with
contract liabilities) rather than an unconditional receivable.
Following a review performed during the year, these FIR balances
have been reclassified from a contract asset (previously netted
within contract liabilities) to a receivable, as consideration is
only conditional upon the passage of time. The prior year balance
has been restated accordingly. This has no impact upon equity at
the beginning or end of the prior year.
The impact of the changes to the consolidated statement of
financial position is summarised in the table above.
4: Acquisitions, disposals and discontinued operations
4 (a): Business acquisitions
Business acquisitions completed during the year ended 31
December 2020
There have been no material acquisitions during the year ended
31 December 2020.
Business acquisitions completed during the year ended 31
December 2019
Charles Derby Group Limited ("CDG") acquisition on 14 February
2019
The purchase price of GBP31 million was allocated based on the
fair value of net assets acquired at the date of acquisition,
determined in accordance with IFRS 3 Business Combinations . These
allocations are now final and the Group recognised goodwill of
GBP23 million in relation to this acquisition.
Lighthouse Group plc ("Lighthouse") acquisition on 12 June
2019
The estimated fair value of net assets acquired in Lighthouse of
GBP13 million included a provision of GBP12 million in respect of
pension transfer advice provided to certain Lighthouse clients
between 2016 and 2018, prior to the Group's acquisition of
Lighthouse in June 2019.
As a result of an investigation by the FCA into defined benefit
("DB") pension transfer advice, including advice provided to
British Steel employees by Lighthouse, and an additional number of
complaints received during 2020, the Group increased its scope for
the provision to include all British Steel customers, rather than
only those who have raised a complaint, and performed a detailed
case review (further details of which are included in note 17).
This resulted in an increase to the provision at acquisition of a
further GBP12 million, which brought the provision balance to GBP24
million. An insurance recovery asset of GBP3 million related to the
provision was recognised at 30 June 2020, representing management's
assessment of the fair value on a best estimate basis. Discussions
with Lighthouse's insurers remain ongoing. A further review of the
tax treatment resulted in the recognition of a deferred tax asset
of GBP2 million. The impact upon the fair value of net assets
acquired as a result of the British Steel DB pension transfer
advice provision, insurance recovery asset and deferred tax asset
at acquisition is a net liability of GBP19 million, which is an
increase in the net liability of GBP7 million from the GBP12
million estimated balance reported recognised at 31 December
2019.
The final determination of the fair value of net assets acquired
in Lighthouse is assessed as GBP6 million, and the Group has
recognised goodwill of GBP40 million in relation to this
acquisition, which is an increase in goodwill of GBP7 million from
the estimated balance recognised at 31 December 2019. No further
adjustments can be made to the fair value of net assets acquired as
the Group is now beyond the 12-month post-acquisition period
permitted for such entries under IFRS 3 Business Combinations .
Contingent consideration arising from business combinations
The table below details the movements in the contingent
consideration balance during the current and prior year arising
from the business acquisitions in earlier years detailed above.
GBPm
----------- -----------
31 December 31 December
2020 2019
----------- -----------
Opening balance 39 37
Acquisitions during the year - 22
Payments (20) (21)
Financing interest charge 2 3
Other movements (5) (2)
------------------------------ ----------- -----------
Closing balance 16 39
------------------------------ ----------- -----------
Contingent consideration represents management's best estimate
of the amount payable in relation to each acquisition discounted to
net present value. The basis of each acquisition varies but
includes payments based upon a percentage of the level of assets
under administration, funds under management and levels of on-going
fee income at future dates. Management estimate that a 20%
increase/(decrease) in these key underlying assumptions would have
resulted in a GBP3 million/GBP(4) million movement in the year-end
contingent consideration balance.
4 (b): Business disposals
Year ended 31 December 2020
There have been no disposals during the year ended 31 December
2020.
Year ended 31 December 2019
On 31 December 2019, the Group completed the sale of the Quilter
Life Assurance ("QLA") business (consisting two of the Group's
subsidiary undertakings: Old Mutual Wealth Life Assurance Limited
and Old Mutual Wealth Pensions Trustee Limited) to ReAssure Group
for total consideration of GBP446 million. The Group recognised a
profit on the disposal of QLA of GBP103 million. Provisions
established in respect of this disposal are shown in note 17.
(Loss)/profit on sale of operations
-------------------------------------------------- ------------- -------------
GBPm
------------- -------------
Year ended Year ended
31 December 31 December
2020 2019
------------- -------------
Quilter Life
Assurance
and Single
Strategy Quilter Life
business Assurance
-------------------------------------------------- ------------- -------------
Consideration received - 446
Less: transaction and separation costs (1) (1) (19)
Net (costs)/proceeds from sale (1) 427
Carrying value of net assets disposed - (294)
Goodwill allocated and disposed - (30)
-------------------------------------------------- ------------- -------------
(Loss)/profit on sale of operations after tax (1) 103
-------------------------------------------------- ------------- -------------
(1) An additional GBP1 million of transaction and separation costs relating
to the historical sales of the QLA and Single Strategy businesses have
been recognised in the year ended 31 December 2020.
4(c): Discontinued operations - income statement
The Group's discontinued operations principally relate to the
QLA business that was disposed of on 31 December 2019 and the
associated profit on sale.
GBPm
------------ ------------
Year ended Year ended
31 December 31 December
Notes 2020 2019
------------------------------------------------------ ----- ------------ ------------
Income
Gross earned premiums - 145
Premiums ceded to reinsurers - (86)
------------------------------------------------------ ----- ------------ ------------
Net earned premiums - 59
Fee income and other income from service activities 6(d) - 164
Investment return - 1,386
Total income - 1,609
Expenses
Claims and benefits paid - (98)
Reinsurance recoveries - 72
------------------------------------------------------ ----- ------------ ------------
Net insurance claims and benefits incurred - (26)
Change in reinsurance assets and liabilities - 121
Change in insurance contract liabilities - (134)
Change in investment contract liabilities 16 - (1,364)
Fee and commission expenses, and other acquisition
costs - (45)
Other operating and administrative expenses - (8)
Total expenses - (1,456)
(Loss)/profit on sale of operations before tax 4(b) (1) 103
------------------------------------------------------ ----- ------------ ------------
(Loss)/profit before tax from discontinued operations (1) 256
Tax expense attributable to policyholder returns 7(a) - (76)
------------------------------------------------------ ----- ------------ ------------
(Loss)/profit before tax attributable to equity
holders from discontinued operations (1) 180
------------------------------------------------------ ----- ------------ ------------
Income tax expense 7(a) - (89)
Less: tax expense attributable to policyholder
returns - 76
------------------------------------------------------ ----- ------------ ------------
Tax expense attributable to equity holders - (13)
------------------------------------------------------ ----- ------------ ------------
(Loss)/profit after tax from discontinued operations (1) 167
------------------------------------------------------ ----- ------------ ------------
Attributable to:
Equity holders of Quilter plc (1) 167
------------------------------------------------------ ----- ------------ ------------
Earnings per Ordinary Share on profit attributable to Ordinary Shareholders
of Quilter plc
-----------------------------------------------------------------------------------------
Basic - from discontinued operations (pence) 8(b) (0.1) 9.1
------------------------------------------------------ ----- ------------ ------------
Diluted - from discontinued operations (pence) 8(b) (0.1) 8.9
------------------------------------------------------ ----- ------------ ------------
4(d): Discontinued operations - Statement of comprehensive
income
GBPm
------------ ------------
Year ended Year ended
31 December 31 December
2020 2019
--------------------------------------------------------- ------------ ------------
(Loss)/profit after tax (1) 167
Total comprehensive (expense)/income for the period from
discontinued operations (1) 167
--------------------------------------------------------- ------------ ------------
4(e): Discontinued operations - Net cash flows
GBPm
------------ ------------
Year ended Year ended
31 December 31 December
2020 2019
--------------------------------------------------- ------------ ------------
Total net cash flows used in operating activities - (3,789)
Total net cash (used in)/from investing activities (10) 3,765
Total net cash used in financing activities - (130)
---------------------------------------------------- ------------ ------------
Net decrease in cash and cash equivalents (10) (154)
---------------------------------------------------- ------------ ------------
5: Alternative performance measures ("APMs")
5(a): Adjusted profit and reconciliation to profit after tax
Basis of preparation of adjusted profit
Adjusted profit is one of the Group's Alternative Performance
Measures and reflects the Directors' view of the underlying
performance of the Group. It is used for management decision making
and internal performance management and is the profit measure
presented in the Group's segmental reporting. Adjusted profit is a
non-GAAP measure which adjusts the Group's IFRS profit for
specified items as detailed in note 5(b). The definition of
adjusted profit is unchanged from the last annual financial
statements.
GBPm
----------- ------------ ----- ----------- -------------- -----
Year ended 31 December Year ended 31 December
2020 2019
-------------------------------- ----------------------------------
Continuing Discontinued Continuing Discontinued
Notes operations operations Total operations operations(1) Total
------------------------------------- --------- ----------- ------------ ----- ----------- -------------- -----
Advice and Wealth Management 90 - 90 103 - 103
Wealth Platforms 114 - 114 112 53 165
Head Office (36) - (36) (33) - (33)
------------------------------------- --------- ----------- ------------ ----- ----------- -------------- -----
Adjusted profit before tax 168 - 168 182 53 235
Reallocation of QLA costs - - - (26) 26 -
------------------------------------- --------- ----------- ------------ ----- ----------- -------------- -----
Adjusted profit before tax after
reallocation 6(b) 168 - 168 156 79 235
------------------------------------- --------- ----------- ------------ ----- ----------- -------------- -----
Adjusting items:
Impact of acquisition and disposal
related accounting 5(b)(i) (42) - (42) (54) - (54)
(Loss)/profit on business disposals 4(b) - (1) (1) - 103 103
Business transformation costs 5(b)(ii) (70) - (70) (77) - (77)
Managed Separation costs 5(b)(iii) - - - (6) - (6)
Finance costs 5(b)(iv) (10) - (10) (10) - (10)
Policyholder tax adjustments 5(b)(v) 9 - 9 (62) (12) (74)
Customer remediation 5(b)(vi) (5) - (5) - 10 10
------------------------------------- --------- ----------- ------------ ----- ----------- -------------- -----
Total adjusting items before tax (118) (1) (119) (209) 101 (108)
------------------------------------- --------- ----------- ------------ ----- ----------- -------------- -----
Profit/(loss) before tax attributable
to equity holders 50 (1) 49 (53) 180 127
Tax attributable to policyholder
returns 7(a) 36 - 36 98 76 174
Income tax credit/(expense) 7(a),(b) 3 - 3 (66) (89) (155)
------------------------------------- --------- ----------- ------------ ----- ----------- -------------- -----
Profit/(loss) after tax (2) 89 (1) 88 (21) 167 146
------------------------------------- --------- ----------- ------------ ----- ----------- -------------- -----
(1) Discontinued operations includes the results of the Quilter
Life Assurance ("QLA") business in 2019.
(2) IFRS profit/(loss) after tax.
5(b): Adjusting items
In determining adjusted profit before tax, certain adjustments
are made to IFRS profit before tax to reflect the underlying
performance of the Group. These are detailed below.
5(b)(i): Impact of acquisition and disposal related
accounting
The recognition of goodwill and other acquired intangibles is
created on the acquisition of a business and represents the premium
paid over the fair value of the Group's share of the identifiable
assets and liabilities acquired at the date of acquisition (as
recognised under IFRS 3 Business Combinations). The Group excludes
any impairment of goodwill from adjusted profit as well as the
amortisation and impairment of acquired other intangible assets,
any acquisition costs, finance costs related to the discounting of
contingent consideration and incidental items relating to past
disposals.
The effect of these adjustments to determine adjusted profit are
summarised below. All adjustments are in respect of continuing
operations.
GBPm
------------ ------------
Year ended Year ended
31 December 31 December
Note 2020 2019
------------------------------------------------------------ ----- ------------ ------------
Amortisation of other acquired intangible assets 10(a) 45 45
Fair value gains on revaluation of contingent consideration (4) -
Acquisition and disposal related (income)/costs (1) (1) 6
Unwinding of discount on contingent consideration 2 3
------------------------------------------------------------ ----- ------------ ------------
Total impact of acquisition and disposal related accounting 42 54
------------------------------------------------------------------- ------------ ------------
(1) Acquisition and disposal related (income)/costs in the year
ended 31 December 2020 includes a GBP(1)m acceleration of
discounting unwind following the settlement of a loan receivable
from TA Associates that related to deferred consideration arising
from the sale of the Single Strategy Asset Management business.
Other acquisition and disposal related (income)/costs include items
such as transaction costs or deferred incentives arising on the
acquisition of businesses.
5(b)(ii): Business transformation costs
Business transformation costs include four items: costs
associated with the UK Platform Transformation Programme, build out
costs incurred within Quilter Investors as a result of the sale of
the Single Strategy business, Optimisation Programme costs, and
restructuring costs incurred as a result of the sale of Quilter
Life Assurance. All items are within the Group's continuing
operations. For the year ended 31 December 2020, these costs
totalled GBP70 million (31 December 2019: GBP77 million) in
aggregate, the principal components of which are described
below:
UK Platform Transformation Programme - 31 December 2020: GBP38
million, 31 December 2019: GBP57 million
The second major migration of client assets completed in
November 2020 and the final migration completed successfully in
February 2021 with all Quilter Investment Platform assets now live
on the new platform. The total costs of the programme are expected
to be approximately GBP200 million, in line with previous
guidance.
Optimisation Programme costs - 31 December 2020: GBP33 million,
31 December 2019: GBP18 million
The Optimisation programme has delivered notable efficiencies
and improvements in operational performance for the Group through
greater technology utilisation and integration activity. Technology
enabled transformation over 2020 included successful deployment of
new finance and procurement modules as part of our general ledger
consolidation and modernisation activity effective from January
2021, with GBP33 million of total costs for the Optimisation
programme incurred for the year ended 31 December 2020. The Group
also continued to leverage support function centres of excellence
to achieve cost savings and reduce spend across the business by
introducing tighter supplier management practices, insourcing
capabilities and rationalising and consolidating technology and
other suppliers across the Group.
Quilter Investors' build out costs - 31 December 2020: GBP(1)
million, 31 December 2019: GBP(1) million
As part of the Group's strategy to separate from Old Mutual plc
in 2018, the Group incurred build out costs to develop Quilter
Investors as a separate business distinct from the Single Strategy
business, which was subsequently sold on 29 June 2018. The build
was substantially completed in 2019, resulting in the release of
GBP1m of the provision established to complete the build in 2019,
with a further GBP1m release in 2020.
Restructuring costs following disposal of Quilter Life Assurance
- 31 December 2020: GBPnil, 31 December 2019: GBP3 million
As a result of the disposal of QLA on 31 December 2019, the
Group recognised GBP3 million as an adjusting item principally in
respect of redundancy costs. The Group expects to incur further
restructuring costs during the following 12 months, including the
cost of decommissioning IT systems, as the Transitional Service
Agreement with ReAssure (the acquirer) runs off during 2021 and the
remaining Quilter business is restructured following the
disposal.
5(b)(iii): Managed Separation costs
One-off costs related to the Managed Separation from Old Mutual
plc have been excluded from adjusted profit on the basis that they
relate to a fundamental restructuring of the Group are therefore
not representative of the operating activity of the Group. For the
year ended 31 December 2020 these costs were GBP0.1 million (31
December 2019: GBP6 million ). The costs incurred in 2020 were in
respect of rebranding and further rebranding costs are expected to
be incurred in 2021.
5(b)(iv): Finance costs
The nature of much of the Group's operations means that, for
management's decision-making and internal performance management,
the effects of interest costs on external borrowings are removed
when calculating adjusted profit. For the period ended 31 December
2020 finance costs were GBP10 million (31 December 2019: GBP10
million).
5(b)(v): Policyholder tax adjustments
For the year ended 31 December 2020 the total policyholder tax
adjustments to adjusted profit is GBP9 million (31 December 2019:
GBP(74) million) relating to both continuing and discontinued
operations, as shown in note 7(c). Adjustments to policyholder tax
are made to remove distortions arising from market volatility that
can, in turn, lead to volatility in the policyholder tax charge
between periods. The recognition of the income received from
policyholders (which is included within the Group's income) to fund
the policyholder tax liability can vary in timing to the
recognition of the corresponding tax expense, creating volatility
to the Group's IFRS profit/(loss) before tax attributable to equity
holders. For a further explanation of the impact of markets on the
policyholder tax charge see note 7(a). Adjustments are also made to
remove policyholder tax distortions from other non-operating
adjusting items.
5(b)(vi): Customer remediation
Lighthouse pension transfer advice provision - 31 December 2020
GBP5 million, 31 December 2019 GBPnil
With regard to the provision for redress payable and related
costs established within the fair value of the Lighthouse assets
and liabilities acquired in June 2019 in relation to advice
provided to British Steel pension members, a further GBP5 million
(31 December 2019: GBPnil) increase in the provision has been
recognised in the income statement in the year ended 31 December
2020, reflecting the impact of post-acquisition market and discount
rate movements. This has been excluded from adjusted profit on the
basis that the costs are not representative of the operating
activity of the Group. Further details of the provision are
provided in note 17.
QLA voluntary client remediation provision - 31 December 2020
GBPnil, 31 December 2019 GBP10 million
Within QLA (disposed of on 31 December 2019), a voluntary
customer remediation provision was established in 2017 following
product reviews and consistent with recommendations from the
Financial Conduct Authority's ("FCA") thematic review and the FCA's
guidance FG16/8 Fair treatment of long-standing customers in the
life assurance sector. During 2019, GBP10 million of the provision
was released (as detailed in note 17).
5(c): Reconciliation of IFRS income and expenses to "Total net
fee revenue" and "Operating expenses" within adjusted profit
This reconciliation shows how each line of the Group's
consolidated IFRS income statement is allocated to the Group's
APMs: Net management fees, Total net fee revenue and Operating
Expenses, which are all defined on pages 5 to 7 and form the
Group's adjusted profit for continuing operations. The IFRS income
statement column in the table below, down to "Profit/(loss) before
tax attributable to equity holders from continuing operations",
reconciles to each line of the Group's consolidated income
statement. Allocations are determined by management and aim to show
the Group's sources of profit (net of relevant directly
attributable expenses). These allocations remain consistent from
period to period to ensure comparability, unless otherwise
stated.
GBPm
----- -------- -------- ------------ -------- --------- ----------
Net Total Adjusted
mgmt Other net fee profit Consol. IFRS
fees revenue revenue Operating before of funds income
Year ended 31 December 2020 (1) (1) (1) Expenses(1) tax (2) statement
----------------------------------------- ----- -------- -------- ------------ -------- --------- ----------
Fee income and other income from
service activities 680 195 875 - 875 (80) 795
Investment return - 3,340 3,340 - 3,340 556 3,896
Other income - 1 1 15 16 4 20
----------------------------------------- ----- -------- -------- ------------ -------- --------- ----------
Total income 680 3,536 4,216 15 4,231 480 4,711
Expenses -
Insurance contract claims and
changes in liabilities - (1) (1) - (1) - (1)
Change in investment contract
liabilities - (3,328) (3,328) - (3,328) - (3,328)
Fee and commission expenses,
and other acquisition costs (70) (74) (144) - (144) (3) (147)
Change in third party interest
in consolidated funds - - - - - (440) (440)
Other operating and administrative
expenses (13) (2) (15) (640) (655) (37) (692)
Finance costs (3) - (1) (1) (16) (17) - (17)
----------------------------------------- ----- -------- -------- ------------ -------- --------- ----------
Total expenses (83) (3,406) (3,489) (656) (4,145) (480) (4,625)
Tax expense attributable to policyholder
returns (36) - (36) - (36) - (36)
----------------------------------------- ----- -------- -------- ------------ -------- --------- ----------
Profit/(loss) before tax attributable
to equity holders from continuing
operations 561 130 691 (641) 50 - 50
--------- ----------
Adjusting items:
Impact of acquisition and disposal
related accounting - - - 42 42
Business transformation costs - - - 70 70
Finance costs - - - 10 10
Customer remediation - - - 5 5
Policyholder tax adjustments (9) - (9) - (9)
----------------------------------------- ----- -------- -------- ------------ --------
Adjusting items (9) - (9) 127 118
----------------------------------------- ----- -------- -------- ------------ --------
Total Group - continuing operations 552 130 682 (514) 168
----------------------------------------- ----- -------- -------- ------------ --------
5(c): Reconciliation of IFRS income and expenses to 'Total net
fee revenue' and 'Operating expenses' within adjusted profit
continued
GBPm
------------ -------- ---------------- ---------------- ---------------- --------- ----------
Net Total Adjusted IFRS
mgmt Other net fee profit Consol. income
Year ended 31 fees revenue revenue Operating before of funds statement
December 2019 (1) (1) (1) Expenses(1) tax (2,3) (3)
----------------- ------------ -------- ---------------- ---------------- ---------------- --------- ----------
Income
Fee income and
other income
from
service
activities 689 230 919 - 919 (82) 837
Investment return 40 5,795 5,835 - 5,835 731 6,566
Other income - 1 1 - 1 15 16
----------------- ------------ -------- ---------------- ---------------- ---------------- --------- ----------
Total income 729 6,026 6,755 - 6,755 664 7,419
Expenses
Insurance
contract claims
and
changes in
liabilities - (1) (1) - (1) - (1)
Change in
investment
contract
liabilities - (5,810) (5,810) - (5,810) - (5,810)
Fee and
commission
expenses,
and other
acquisition
costs (100) (77) (177) - (177) 10 (167)
Change in third
party interest
in consolidated
funds - - - - - (634) (634)
Other operating
and
administrative
expenses (14) (1) (15) (690) (705) (40) (745)
Finance costs(4) - (4) (4) (13) (17) - (17)
----------------- ------------ -------- ---------------- ---------------- ---------------- --------- ----------
Total expenses (114) (5,893) (6,007) (703) (6,710) (664) (7,374)
Tax expense
attributable to
policyholder
returns (98) - (98) - (98) - (98)
----------------- ------------ -------- ---------------- ---------------- ---------------- --------- ----------
Profit/(loss)
before tax
attributable
to equity
holders from
continuing
operations 517 133 650 (703) (53) - (53)
--------- ----------
Adjusting items:
Impact of
acquisition and
disposal
related
accounting - - - 54 54
Business
transformation
costs - - - 77 77
Managed
Separation costs - - - 6 6
Finance costs - - - 10 10
Policyholder tax
adjustments 62 - 62 - 62
Adjusting items 62 - 62 147 209
----------------- ------------ -------- ---------------- ----------------
Adjusted profit
before tax after
reallocation 579 133 712 (556) 156
Reallocation of
QLA costs - - - 26 26
----------------- ------------ -------- ---------------- ---------------- ----------------
Total Group -
continuing
operations 579 133 712 (530) 182
----------------- ------------ -------- ---------------- ---------------- ----------------
(1) The APMs "Net Management Fees", "Other revenue", "Total net
fee revenue" and "Operating expenses" are commented on within the
Financial Review.
(2) Consolidation of funds shows the grossing up impact to the
Group's consolidated income statement as a result of the
consolidation of funds requirements. This grossing up is excluded
from the Group's adjusted profit.
(3) See note 3(b) for details of changes to comparative
amounts.
(4) During the year ended 31 December 2020, management
reassessed the presentation of lease interest expenses within the
adjusted profit analysis in the table above. These expenses have
historically been reported within "Other revenue" and are now
reported within "Operating expenses" for adjusted profit.
6: Segmental information
6(a): Segmental presentation
The Group's operating segments comprise Advice and Wealth
Management and Wealth Platforms, which is consistent with the
manner in which the Group is structured and managed. For all
reporting periods, these segments have been classified as
continuing operations in the income statement. Head Office includes
certain revenues and central costs that are not allocated to the
segments. There have been no changes to the basis of segmentation
for the periods presented within these consolidated financial
statements.
Adjusted profit is an Alternative Performance Measure ("APM")
reported to the Group's management and Board. Management and the
Board use additional APMs to assess the performance of each of the
segments, including net client cash flows, assets under management
and administration, revenue and operating margin.
Consistent with internal reporting, assets, liabilities, income
and expenses that are not directly attributable to a particular
segment are allocated between segments where appropriate. The Group
accounts for inter-segment income and transfers as if the
transactions were with third parties at current market prices.
Intra-group recharges in respect of operating and administration
expenses within businesses disclosed as discontinued operations are
not adjusted for potential future changes to the level of remaining
costs following the disposal of those businesses.
The segmental information in this note reflects the adjusted and
IFRS profit measures and the assets and liabilities for each
operating segment as provided to management and the Board. Income
is further segmented into the geographic location of the businesses
in note 6(d).
Continuing operations:
Advice and Wealth Management
This segment comprises Quilter Investors, Quilter Cheviot and
Quilter Financial Planning.
Quilter Investors is a leading provider of investment solutions
in the UK multi-asset market. It develops and manages investment
solutions in the form of funds for the Group and third party
clients. It has several fund ranges which vary in breadth of
underlying asset class.
Quilter Cheviot provides discretionary investment management
predominantly in the United Kingdom with bespoke investment
portfolios tailored to the individual needs of affluent and
high-net worth customers, charities, companies and institutions
through a network of branches in London and the regions. Investment
management services are also provided by operations in the Channel
Islands and the Republic of Ireland.
Quilter Financial Planning is a restricted and independent
financial adviser network including Quilter Private Client Advisors
("QPCA"), Quilter Financial Advisers ("QFA") and Lighthouse,
providing mortgage and financial planning advice and financial
solutions for both individuals and businesses through a network of
intermediaries. It operates across all markets, from wealth
management and retirement planning advice through to dealing with
property wealth and personal and business protection needs.
Wealth Platforms
This segment comprises Quilter Investment Platform ("QIP") and
Quilter International.
Quilter Investment Platform is a leading investment platform
provider of advice-based wealth management products and services in
the UK, which serves a largely affluent customer base through
advised multi-channel distribution.
Quilter International is a cross-border business, focusing on
high net worth and affluent local customers and expatriates in the
UK, Asia, the Middle East, Europe and Latin America.
Head office
In addition to the two operating segments, Head Office comprises
the investment return on centrally held assets, central support
function expenses, central core structural borrowings and certain
tax balances in the segmental statement of financial position.
Discontinued operations:
The disposal of Quilter Life Assurance ("QLA") on 31 December
2019, previously part of the Wealth Platforms operating segment,
resulted in that business being classified as a discontinued
operation. The results of that business, along with the profit on
disposal, have been presented as discontinued operations. See note
4 for further information.
6(b)(i): Adjusted profit statement - segmental information for
the year ended 31 December 2020
The table below presents the Group's continuing operations split
by operating segment, reconciling the segmented IFRS income
statement (to "Profit/(loss) before tax attributable to equity
holders from continuing operations") to adjusted profit before
tax.
GBPm
----------- ---------- ------- --------------- ------------
Operating segments
Advice Consolidated
and Wealth Wealth Head Consolidation income
Notes Management Platforms Office adjustments(1) statement
------------------------------------------- -------- ----------- ---------- ------- --------------- ------------
Income
Fee income and other income from service
activities 6(d) 456 426 - (87) 795
Investment return 4 3,335 1 556 3,896
Other income 4 117 5 (106) 20
Segmental income 464 3,878 6 363 4,711
------------------------------------------- -------- ----------- ---------- ------- --------------- ------------
Expenses
Insurance contract claims and changes
in liabilities - (1) - - (1)
Change in investment contract liabilities 16 - (3,328) - - (3,328)
Fee and commission expenses, and other
acquisition costs (50) (101) - 4 (147)
Change in third party interest in
consolidated
funds - - - (440) (440)
Other operating and administrative expenses (370) (324) (71) 73 (692)
Finance costs (3) (4) (10) - (17)
Segmental expenses (423) (3,758) (81) (363) (4,625)
------------------------------------------- -------- ----------- ---------- ------- --------------- ------------
Profit/(loss) before tax from continuing
operations 41 120 (75) - 86
Tax attributable to policyholder returns - (36) - - (36)
------------------------------------------- -------- ----------- ---------- ------- --------------- ------------
Profit/(loss) before tax attributable
to equity holders from continuing
operations 41 84 (75) - 50
------------------------------------------- -------- ----------- ---------- ------- --------------- ------------
Adjusted for non-operating items:
Impact of acquisition and disposal related
accounting 5(b)(i) 44 - (2) - 42
Business transformation costs 5(b)(ii) - 39 31 - 70
Finance costs 5(b)(iv) - - 10 - 10
Policyholder tax adjustments 5(b)(v) - (9) - - (9)
Customer remediation 5(b)(vi) 5 - - - 5
------------------------------------------- -------- ----------- ---------- ------- --------------- ------------
Adjusting items before tax 49 30 39 - 118
------------------------------------------- -------- ----------- ---------- ------- --------------- ------------
Adjusted profit/(loss) before tax -
continuing
operations 90 114 (36) - 168
------------------------------------------- -------- ----------- ---------- ------- --------------- ------------
(1) Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of funds.
6(b)(ii): Adjusted profit statement - segmental information for
the year ended 31 December 2019
GBPm
----------- ---------- ------- ------------ ----------------- -------------
Operating segments
Advice Reallocation Consolidated
and Wealth Wealth Head of QLA Consolidation income
Notes Management Platforms Office costs(1) adjustments(2,3) statement(3)
------------------------- --------- ----------- ---------- ------- ------------ ----------------- -------------
Income
Fee income and other
income from
service activities 6(d) 486 438 - - (87) 837
Investment return 10 5,823 3 - 730 6,566
Other income 1 160 6 - (151) 16
Segmental income 497 6,421 9 - 492 7,419
------------------------- --------- ----------- ---------- ------- ------------ ----------------- -------------
Expenses
Insurance contract claims
and
changes in liabilities - (1) - - - (1)
Change in investment
contract
liabilities 16 - (5,810) - - - (5,810)
Fee and commission
expenses,
and other acquisition
costs (73) (110) - - 16 (167)
Change in third party
interest
in consolidated funds - - - - (634) (634)
Other operating and
administrative
expenses (368) (409) (68) (26) 126 (745)
Finance costs (4) (3) (10) - - (17)
Segmental expenses (445) (6,333) (78) (26) (492) (7,374)
------------------------- --------- ----------- ---------- ------- ------------ ----------------- -------------
Profit/(loss) before tax
from
continuing operations 52 88 (69) (26) - 45
Tax attributable to
policyholder
returns - (98) - - - (98)
------------------------- --------- ----------- ---------- ------- ------------ ----------------- -------------
Profit/(loss) before tax
attributable
to equity holders from
continuing
operations 52 (10) (69) (26) - (53)
------------------------- --------- ----------- ---------- ------- ------------ ----------------- -------------
Adjusted for
non-operating items:
Impact of acquisition and
disposal
related accounting 5(b)(i) 52 1 1 - - 54
Business transformation
costs 5(b)(ii) (1) 58 20 - - 77
Managed Separation costs 5(b)(iii) - 1 5 - - 6
Finance costs 5(b)(iv) - - 10 - - 10
Policyholder tax
adjustments 5(b)(v) - 62 - - - 62
Adjusting items before
tax 51 122 36 - - 209
------------------------- --------- ----------- ---------- ------- ------------ ----------------- -------------
Adjusted profit/(loss)
before
tax after
reallocation(1) 103 112 (33) (26) - 156
------------------------- --------- ----------- ---------- ------- ------------ ----------------- -------------
Reallocation of QLA
costs(1) - - - 26 - 26
------------------------- --------- ----------- ---------- ------- ------------ ----------------- -------------
Adjusted profit/(loss)
before
tax - continuing
operations 103 112 (33) - - 182
------------------------- --------- ----------- ---------- ------- ------------ ----------------- -------------
(1) As disclosed in the Group's 2019 Annual Report, Reallocation
of QLA costs includes GBP26 million of costs previously reported as
part of the QLA business which was reclassified from discontinued
to continuing operations as these costs did not transfer to
ReAssure on disposal at 31 December 2019.
(2) Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of funds.
(3) See note 3(b) for changes to comparative amounts.
6(c)(i): Statement of financial position - segmental information
at 31 December 2020
GBPm
----- ----------- ---------- ------- ------------- ------
Advice Consolidation
& Wealth Wealth Head Adjustments
Notes Management Platforms Office (1) Total
-------------------------------------------- ----- ----------- ---------- ------- ------------- ------
Assets
Goodwill and intangible assets 10 423 133 - - 556
Property, plant and equipment 13 129 - - 142
Investments in associated undertakings - - 1 - 1
Contract costs - 413 - - 413
Loans and advances 33 186 - - 219
Financial investments 11 - 57,162 - 6,112 63,274
Deferred tax assets 10 25 43 - 78
Current tax receivable - 10 14 - 24
Trade, other receivables and other assets 228 430 2 41 701
Derivative assets - - - 43 43
Cash and cash equivalents 14 310 690 614 307 1,921
Inter-segment funding - assets 63 34 20 (117) -
-------------------------------------------- ----- ----------- ---------- ------- ------------- ------
Total assets 1,080 59,212 694 6,386 67,372
-------------------------------------------- ----- ----------- ---------- ------- ------------- ------
Liabilities
Investment contract liabilities 16 - 57,407 - - 57,407
Third-party interests in consolidated
funds - - - 6,513 6,513
Provisions 17 53 15 9 - 77
Deferred tax liabilities 36 70 - - 106
Current tax payable/(receivable) (2) 21 (12) (8) - 1
Borrowings and lease liabilities 15 105 199 - 319
Trade, other payables and other liabilities 268 396 34 (26) 672
Contract liabilities - 379 - - 379
Derivative liabilities - - - 20 20
Inter-segment funding - liabilities - 20 97 (117) -
-------------------------------------------- ----- ----------- ---------- ------- ------------- ------
Total liabilities 393 58,380 331 6,390 65,494
-------------------------------------------- ----- ----------- ---------- ------- ------------- ------
Total equity 1,878
-------------------------------------------- ----- ----------- ---------- ------- ------------- ------
Total equity and liabilities 67,372
-------------------------------------------- ----- ----------- ---------- ------- ------------- ------
(1) Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of funds.
(2) Current tax payable/(receivable) includes Group relief
payable and receivable that net to GBPnil on a consolidated basis
but may appear as a receivable within individual segments.
6(c)(ii): Statement of financial position - segmental
information at 31 December 2019 restated(3)
GBPm
----------- ------------ ------- --------------- ------------
Advice Wealth
& Wealth Platforms Head Consolidation Total
Notes Management restated(3) Office Adjustments(1) restated(3)
-------------------------------------------- ----- ----------- ------------ ------- --------------- ------------
Assets
Goodwill and intangible assets 10 458 134 - - 592
Property, plant and equipment 30 111 2 - 143
Investments in associated undertakings - - 1 - 1
Contract costs - 455 - - 455
Loans and advances 31 180 6 - 217
Financial investments 11 1 52,249 - 4,957 57,207
Deferred tax assets 11 22 10 - 43
Current tax receivable - - 13 - 13
Trade, other receivables and other assets(3) 207 389 3 6 605
Derivative assets - - - 22 22
Cash and cash equivalents 14 383 725 838 307 2,253
Inter-segment funding - assets - 12 - (12) -
-------------------------------------------- ----- ----------- ------------ ------- --------------- ------------
Total assets 1,121 54,277 873 5,280 61,551
-------------------------------------------- ----- ----------- ------------ ---------------
Liabilities
Investment contract liabilities 16 - 52,455 - - 52,455
Third-party interests in consolidated
funds - - - 5,318 5,318
Provisions 17 28 26 10 - 64
Deferred tax liabilities 38 50 - - 88
Current tax payable/(receivable) (2) 1 (7) 12 - 6
Borrowings 26 108 201 - 335
Trade, other payables and other liabilities 322 477 37 (35) 801
Contract liabilities(3) 1 402 - - 403
Derivative liabilities - - - 10 10
Inter-segment funding - liabilities - - 12 (12) -
-------------------------------------------- ----- ----------- ------------ ------- --------------- ------------
Total liabilities 416 53,511 272 5,281 59,480
----------- ------------ ------- --------------- ------------
Total equity 2,071
------- ------------
Total equity and liabilities 61,551
------- ------------
(1) Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of funds.
(2) Current tax payable/(receivable) includes Group relief
payable and receivable that net to GBPnil on a consolidated basis
but may appear as a receivable within individual segments.
(3) See note 3(b) for details of changes to comparative
amounts
6(d): Geographic segmental information
This note analyses the Group's total income, split by geographic
location of our businesses (UK and International) and further
analyses the Group's fee income and other income from service
activities, based on the type of fees earned. The Group also earns
an immaterial amount of income through operations based in the
Republic of Ireland and the Channel Islands.
GBPm GBPm
UK International UK
Advice Total
Year ended 31 December and Wealth Wealth Head Wealth Consolidation continuing Discontinued
2020 Management Platforms Office Platforms adjustments operations operations
Premium based fees 113 - - 70 - 183 -
Fund based fees (1) 343 167 - 88 (93) 506 -
Retrocessions received,
intragroup - 2 - 6 (8) - -
Fixed fees - 2 - 29 - 31 -
Exit fees - - - 13 - 13 -
Other fee and
commission
income - 48 - - 14 62 -
Fee income and other
income
from service
activities 456 220 - 206 (87) 795 -
Investment return 4 2,273 2 1,062 555 3,896 -
Other income 4 143 5 - (132) 20 -
Total income 464 2,636 7 1,268 336 4,711 -
GBPm
UK International UK
Advice Total
Year ended 31 December and Wealth Wealth Head Wealth Consolidation continuing Discontinued
2019 Management Platforms Office Platforms adjustments(2) operations operations
Gross earned premiums - - - 1 - 1 145
Premiums ceded to
reinsurers - - - (1) - (1) (86)
Net earned premiums - - - - - - 59
Premium based fees 103 - - 72 - 175 11
Fund based fees (1) 383 175 - 101 (95) 564 65
Retrocessions received,
intragroup - 2 - 2 (4) - 10
Fixed fees - 3 - 28 - 31 2
Exit fees - - - 16 - 16 1
Other fee and
commission
income - 39 - - 12 51 75
Fee income and other
income
from service
activities 486 219 - 219 (87) 837 164
Investment return (2) 10 3,825 3 1,998 730 6,566 1,386
Other income 1 161 6 (1) (151) 16 -
Total income 497 4,205 9 2,216 492 7,419 1,609
(1) Income from fiduciary activities
is included within fund based fees.
(2) See note 3(b) for details of changes
to comparative amounts.
7: Tax
7(a): Tax charged to the income statement
GBPm
Year ended Year ended
31 December 31 December
Note 2020 2019
------------
Current tax
United Kingdom 18 33
International 2 5
Adjustments to current tax in respect of prior periods (7) (11)
Total current tax charge 13 27
Deferred tax
Origination and reversal of temporary differences (20) 40
Effect on deferred tax of changes in tax rates - 2
Adjustments to deferred tax in respect of prior periods 4 (3)
Total deferred tax (credit)/charge (16) 39
Total tax (credited)/charged to income statement
- continuing operations (3) 66
Total tax charged to income statement - discontinued
operations 4(c) - 89
Total tax (credited)/charged to income statement (3) 155
------------
Attributable to policyholder returns - continuing
operations 36 98
Attributable to equity holders - continuing operations (39) (32)
Total tax (credited)/charged to income statement
- continuing operations (3) 66
Attributable to policyholder returns - discontinued
operations 4(c) - 76
Attributable to equity holders - discontinued operations - 13
Total tax charged to income statement - discontinued
operations - 89
Total tax (credited)/charged to income statement (3) 155
------------
Policyholder tax
Certain products are subject to tax on policyholders' investment
returns. This "policyholder tax" is an element of total tax
expense. To make the tax expense more meaningful, tax attributable
to policyholder returns and tax attributable to equity holders'
profits are shown separately in the income statement.
The tax attributable to policyholder returns is the amount
payable in the year plus the movement of amounts expected to be
payable in future years. The remainder of the tax expense is
attributed to shareholders as tax attributable to equity
holders.
The Group's income tax credit on continuing operations was
GBP(3) million for the year ended 31 December 2020, compared to an
expense of GBP66 million for the prior year. This income tax
(credit)/expense can vary significantly period on period as a
result of market volatility and the impact this has on policyholder
tax. The recognition of the income received from policyholders
(which is included within the Group's income) to fund the
policyholder tax liability can vary in timing to the recognition of
the corresponding policyholder tax expense, creating volatility to
the Group's IFRS profit before tax attributable to equity holders.
An adjustment is made to adjusted profit to remove these
distortions, as explained further in note 5(b)(v).
Market movements during the year ended 31 December 2020 resulted
in investment gains of GBP170 million on products subject to
policyholder tax. The gain is a component of the total "investment
return" gain of GBP3,896 million shown in the income statement. The
impact of the GBP3,896 million investment return gain is the
primary reason for the GBP36 million tax expense attributable to
policyholder returns in respect of the continuing operations for
the period ended 31 December 2020 (31 December 2019: GBP98 million
expense in respect of continuing operations and GBP76 million
expense in respect of discontinued operations).
First time recognition of deferred tax asset on accrued interest
expense
Within the GBP(16) million total deferred tax credit and the GBP
(39) million tax credit attributable to equity holders (continuing
operations) above, the Group has recognised a GBP(39) million
deferred tax credit for the first time in respect of accrued
interest expense. At December 2019, acknowledging the fact that the
tax authorities may challenge the Group's tax treatment, management
exercised judgement concluding that the tax treatment of the
accrued interest expense was an uncertain tax position. Following
full disclosure to the tax authorities and after assessing
recoverability against forecast future profits the Group reassessed
the accounting tax position at 31 December 2020 and recognised a
deferred tax asset.
7(b): Reconciliation of total income tax expense
The income tax charged to profit or loss differs from the amount
that would apply if all of the Group's profits from the different
tax jurisdictions had been taxed at the UK standard corporation tax
rate. The difference in the effective rate is explained below :
GBPm
Year ended Year ended
31 December 31 December
Note 2020 2019
------------ ------------
Profit before tax from continuing operations 86 45
Tax at UK standard rate of 19% (2019: 19%) 16 9
Different tax rate or basis on overseas operations (8) (6)
Untaxed and low taxed income (1) 1
Expenses not deductible for tax 2 3
Adjustments to current tax in respect of prior years (7) (11)
Net movements on unrecognised deferred tax assets
(1) (39) (11)
Effect on deferred tax of changes in tax rates - 2
Adjustments to deferred tax in respect of prior years 4 (3)
Income tax attributable to policyholder returns (net
of tax relief) 30 82
Total tax (credited)/charged to income statement
- continuing operations (3) 66
Total tax charged to income statement - discontinued
operations 4(c) - 89
Total tax (credited)/charged to income statement (3) 155
------------ ------------
(1) Includes first time recognition of accrued interest expense
as explained in note 7(a).
7(c): Reconciliation of income tax expense in the income
statement to income tax on adjusted profit
GBPm
------------
Year ended Year ended
31 December 31 December
Notes 2020 2019
------------ ------------
Income tax (credit)/expense on continuing operations
(1) (3) 66
Reversal of income tax credit on the reallocation
of QLA costs - 5
Income tax (credit)/expense on continuing operations
before the reallocation of QLA costs (3) 71
Tax on adjusting items
Impact of acquisition and disposal related accounting 3 8
Business transformation costs 13 14
Managed Separation costs - 1
Finance costs 2 2
Customer remediation 1 -
Tax adjusting items
Policyholder tax adjustments 5(b)(v) 9 (62)
Other shareholder tax adjustments (2) 36 24
Tax on adjusting items - continuing operations 64 (13)
Less: tax attributable to policyholder returns within
adjusted profit - continuing operations (3) (45) (36)
Tax charged on adjusted profit - continuing operations 16 22
Income tax credit on the reallocation of QLA costs - (5)
Tax charged on adjusted profit - continuing operations
after the reallocation of QLA costs 16 17
Income tax expense on discontinued operations (1) 4(c) - 89
Reversal of income tax expense on the reallocation
of QLA costs - (5)
Income tax expense on discontinued operations before
the reallocation of QLA costs - 84
Tax on adjusting items
Customer remediation - (2)
Tax adjusting items
Policyholder tax adjustments 5(b)(v) - (12)
Other shareholder tax adjustments (2) - (3)
Tax on adjusting items - discontinued operations - (17)
Less: Tax attributable to policyholder returns within
adjusted profit - discontinued operations (3) - (64)
Tax charged on adjusted profit - discontinued operations - 3
Income tax expense on the reallocation of QLA costs - 5
Tax charged on adjusted profit - discontinued operations
after the reallocation of QLA costs - 8
Tax charged on total adjusted profit 16 25
(1) Includes both tax attributable to policyholders and
shareholders, in compliance with IFRS reporting.
(2) Other shareholder tax adjustments comprise the reallocation
of adjustments from policyholder tax as explained in note 5(b)(v)
and shareholder tax adjustments for one off items in line with the
Group's adjusted profit policy.
(3) Adjusted profit treats policyholder tax as a pre-tax charge
(this includes policyholder tax under IFRS and the policyholder tax
adjustments) and is therefore removed from tax charge on adjusted
profit.
8: Earnings per share
The Group calculates earnings per share ("EPS") on a number of
different bases. IFRS requires the calculation of basic and diluted
EPS. Adjusted EPS reflects earnings that are consistent with the
Group's adjusted profit measure before and after the reallocation
of QLA costs, and Headline earnings per share ("HEPS") is a
requirement of the Johannesburg Stock Exchange. The Group's EPS (in
aggregate, including both continuing and discontinued operations)
on these different bases are summarised below.
Basic EPS is calculated by dividing profit after tax
attributable to ordinary equity shareholders of the parent by the
weighted average number of Ordinary Shares in issue during the
year. The weighted average number of shares excludes Quilter plc
shares held within Employee Benefit Trusts ("EBTs") to satisfy the
Group's obligations under employee share awards, and Quilter plc
shares held in consolidated funds ("Own shares"). Own shares are
deducted for the purpose of calculating both basic and diluted
EPS.
Diluted EPS recognises the dilutive impact of shares awarded and
options granted to employees under share-based payment
arrangements, to the extent they have value, in the calculation of
the weighted average number of shares, as if the relevant shares
were in issue for the full year.
The Group is also required to calculate HEPS in accordance with
the Johannesburg Stock Exchange ("JSE") Listing Requirements,
determined by reference to the South African Institute of Chartered
Accountants' circular 1/2019 Headline Earnings. Disclosure of HEPS
is not a requirement of IFRS, but it is a commonly used measure of
earnings in South Africa.
Pence
Year ended Year ended
31 December 31 December
Source of guidance Notes 2020 2019
------------ ------------
Basic earnings per share IFRS 8(b) 5.0 8.0
Diluted basic earnings per share IFRS 8(b) 4.9 7.8
Adjusted basic earnings per share Group policy 8(b) 8.6 11.4
Adjusted diluted earnings per share Group policy 8(b) 8.5 11.3
Headline basic earnings per share (net JSE Listing
of tax) Requirements 8(c) 5.2 2.3
Headline diluted earnings per share JSE Listing
(net of tax) Requirements 8(c) 5.1 2.3
8(a): Weighted average number of Ordinary Shares
The table below summarises the calculation of the weighted
average number of Ordinary Shares for the purposes of calculating
basic and diluted earnings per share for each profit measure (IFRS,
adjusted and headline profit):
Millions
Year ended Year ended
31 December 31 December
2020 2019
------------ ------------
Weighted average number of Ordinary Shares 1,842 1,902
Treasury shares including those held in EBTs (82) (67)
Basic weighted average number of Ordinary Shares 1,760 1,835
Adjustment for dilutive share awards and options 37 28
Diluted weighted average number of Ordinary Shares 1,797 1,863
------------ ------------
8(b): Basic and diluted EPS (IFRS and adjusted profit)
GBPm
Year ended 31 December Year ended 31 December
2020 2019
Continuing Discontinued Continuing Discontinued
Notes operations operations Total operations operations Total
Profit/(loss) after tax 89 (1) 88 (21) 167 146
Total adjusting items before tax 5(a) 118 1 119 209 (101) 108
Tax on adjusting items 7(c) (64) - (64) 13 17 30
Less: Policyholder tax adjustments 7(c) 9 - 9 (62) (12) (74)
Adjusted profit after tax after
reallocation 152 - 152 139 71 210
Reversal of:
Reallocation of QLA costs (1) - - - 26 (26) -
Income tax on reallocation of QLA
costs 7(c) - - - (5) 5 -
Adjusted profit after tax 152 - 152 160 50 210
(1) Reallocation of QLA costs included GBP26 million of costs
previously reported as part of the QLA business which were
reclassified from discontinued to continuing operations in 2019 as
these costs did not transfer to ReAssure (the acquirer) on disposal
at 31 December 2019.
Year ended 31 December Year ended 31 December
2020 2019
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
Post-tax
profit measure
used Pence Pence Pence Pence Pence Pence
Basic EPS IFRS profit 5.1 (0.1) 5.0 (1.1) 9.1 8.0
Diluted EPS IFRS profit 5.0 (0.1) 4.9 (1.1) 8.9 7.8
Adjusted
Adjusted basic EPS profit 8.6 - 8.6 8.7 2.7 11.4
Adjusted
Adjusted diluted EPS profit 8.5 - 8.5 8.6 2.7 11.3
Adjusted basic EPS after Adjusted
reallocation profit
(1) after reallocation N/A N/A N/A 7.5 3.9 11.4
Adjusted
Adjusted diluted EPS after profit
reallocation (1) after reallocation N/A N/A N/A 7.5 3.8 11.3
(1) Reallocation of QLA costs included GBP26 million of costs
previously reported as part of the QLA business which were
reclassified from discontinued to continuing operations in 2019 as
these costs did not transfer to ReAssure (the acquirer) on disposal
at 31 December 2019.
8(c): Headline earnings per share
+ + GBPm
Year ended
Year ended 31 December
31 December 2020 2019
Net of Net of
Note Gross tax Gross tax
Profit attributable to ordinary equity holders 88 146
Adjusted for:
Loss/(profit) on business disposals 4(b) 1 1 (103) (103)
Impairment loss on right-of-use assets 3 2 - -
Headline earnings 91 43
Headline basic EPS (pence) 5.2 2.3
Headline diluted EPS (pence) 5.1 2.3
------
9: Dividends
GBPm
------------
Year ended Year ended
Payment 31 December 31 December
date 2020 2019
2018 Final dividend paid - 3.3p per Ordinary
Share 20 May 2019 - 61
2019 Interim dividend paid - 1.7p per Ordinary 20 September
Share 2019 - 31
2019 Final dividend paid - 3.5p per Ordinary
Share 18 May 2020 64 -
2020 Interim dividend paid - 1.0p per Ordinary 21 September
Share 2020 17
Dividends paid to Ordinary Shareholders 81 92
------------ ------------
Subsequent to year ended 31 December 2020, the Directors
proposed a final dividend for 2020 of 3.6 pence per Ordinary Share
amounting to GBP61 million in total. Subject to approval by
shareholders at the AGM, the dividend will be paid on 17 May 2021.
In compliance with the rules issued by the Prudential Regulation
Authority ("PRA") in relation to the implementation of the Solvency
II regime and other regulatory requirements to which the Group is
subject, the dividend is required to remain cancellable at any
point prior to it becoming due and payable on 17 May 2021 and to be
cancelled if, prior to payment, the Group ceases to hold capital
resources equal to or in excess of its Solvency Capital
Requirement, or if that would be the case if the dividend was paid.
The Directors have no intention of exercising this cancellation
right, other than where required to do so by the PRA or for
regulatory capital purposes. Final and interim dividends paid to
Ordinary Shareholders are calculated using the number of shares in
issue at the record date less own shares held in Employee Benefit
Trusts.
10: Goodwill and intangible assets
10(a): Analysis of goodwill and intangible assets
The table below shows the movements in cost and amortisation of
goodwill and intangible assets.
GBPm
Software
development Other intangible
Goodwill costs assets Total
Gross amount
1 January 2019 314 100 380 794
Acquisitions through business combinations 68 - 49 117
Additions - 5 - 5
Disposals (30) (4) (4) (38)
Other movements(1) (2) - 3 1
31 December 2019 350 101 428 879
Acquisitions through business combinations(2) 6 - 1 7
Additions - 4 - 4
31 December 2020 356 105 429 890
Accumulated amortisation and impairment
losses
1 January 2019 - (95) (149) (244)
Amortisation charge for the year - (2) (45) (47)
Disposals - 4 4 8
Other movements(1) - - (4) (4)
31 December 2019 - (93) (194) (287)
Amortisation charge for the year - (2) (45) (47)
31 December 2020 - (95) (239) (334)
Carrying amount
31 December 2019 350 8 234 592
31 December 2020 356 10 190 556
-------- ------------ ----------------
(1) During 2019, there was a gross up of fully amortised
intangible assets in the Quilter Financial Planning and Quilter
Cheviot businesses arising from previous business combinations.
(2) During 2020, there have been fair value adjustments of GBP7
million made to the net assets acquired in Lighthouse, with
corresponding movements in goodwill of GBP7 million, other
intangible assets of GBP1 million and associated deferred tax
liabilities of GBP(1) million. Refer to note 4(a) for further
details. Other fair value adjustments of GBP(1) million have been
made to goodwill in relation to acquisitions within the Quilter
Private Client Adviser business.
10(b): Analysis of other intangible assets
GBPm
Average
estimated Average
31 December 31 December useful period
2020 2019 life remaining
Net carrying value
Distribution channels - Quilter Financial
Planning 15 22 8 years 3 years
Customer relationships
Quilter Cheviot 114 141 10 years 4 years
Quilter Financial Planning 54 61 8 years 6 years
Other 7 9 8 years 4 years
Brand - Quilter Cheviot - 1 n/a n/a
Total other intangible assets 190 234
10(c): Allocation of goodwill to cash generating units ("CGUs")
and impairment testing
The Group considers that there are two groups of CGUs for
goodwill impairment testing purposes. Goodwill is allocated to
these groups of CGUs as follows:
GBPm
31 December 31 December
2020 2019
Goodwill (net carrying amount)
Advice and Wealth Management 225 219
Wealth Platforms 131 131
Total goodwill 356 350
Impairment review
In accordance with the requirements of IAS 36 Impairment of
Assets, goodwill in both the Advice and Wealth Management and
Wealth Platforms CGUs is tested for impairment annually, or earlier
if an indicator of impairment exists, by comparing the carrying
value of the CGU to which the goodwill relates to the recoverable
value of that CGU, being the higher of that CGU's value-in-use or
fair value less costs to sell. If applicable, an impairment charge
is recognised when the recoverable amount is less than the carrying
value. Goodwill impairment indicators include sudden stock market
falls, the absence of Net Client Cash Flows ("NCCF"), significant
falls in profits and an increase in the discount rate.
The significant volatility in global financial markets resulting
from the COVID-19 pandemic and the effect this has on the Group's
AuMA and revenue, provided an indicator of impairment at 30 June
2020 and c onsequently the goodwill balance was assessed,
concluding that, whilst there was a reduction in the surplus of the
recoverable amount over the carrying value since 31 December 2019,
no impairment was required.
At 31 December 2020, the annual impairment assessment was
performed, using the latest cash flow forecasts from the Group's
three-year business plan, approved by the Board. The Group's
business plan takes into consideration the partial recovery in
equity markets experienced in H2 2020, which has resulted in an
increase in the Group's AuMA and revenue. As a result, the surplus
of the recoverable amount of the CGUs over the carrying amount has
increased since the previous impairment test was carried out at 30
June 2020.
The following table details the separate percentage change
required in each key assumption before the carrying value would
exceed the recoverable amount, assuming all other variables remain
the same. There has been an increase in the percentage changes
required since 30 June 2020, reflecting the impact of the partial
recovery in equity markets. The table continues to demonstrate that
further adverse movements to the key assumptions used in the CGU
value-in-use calculation would be required before impairment is
indicated .
Advice
and Wealth Wealth
Management Platforms
Reduction in forecast cash flows 46% 69%
Increase in discount rate required 21% (from 27% (from
9% to 30%) 9% to 36%)
Forecast cash flows are impacted by movements in underlying
assumptions, including equity market levels, revenue margins and
NCCF. The Group considers that forecast cash flows are most
sensitive to movements in equity markets because they have a direct
impact on the level of the Group's fee income, as demonstrated by
the recent volatility resulting from COVID-19. The most significant
impact is seen within the Advice and Wealth Management segment,
where AuMA is more correlated to equity market levels and is the
key driver for future cash flows .
The principal sensitivity within equity market level assumptions
relates to the estimated growth in equity market indices included
in the three-year revenue forecasts. Management forecast equity
market growth for each business using estimated asset specific
growth rates that are supported by internal research, historical
performance, Bank of England forecasts and other external
estimates.
Value-in-use methodology
The value-in-use calculations for life assurance operations are
determined as the sum of net tangible assets, the expected future
cash flows arising from the in-force business, together with the
expected cash flows from future new business derived from the
business plans. Future cash flow elements allow for the cost of
capital needed to support the business.
The net tangible assets and future cash flows arising from the
in-force business are derived from Solvency II ("SII")
calculations. The value of in-force ("VIF") is calculated as the
prospective value of future expected cash flows on all in-force
policies at the valuation date on a policy-by-policy basis allowing
for surrender or transfer payments, death claims, income
withdrawals, maintenance expenses, fund-based fees, mortality
charge and other policy charges. The underlying assumptions are
based on the best estimate view for the future, which is largely
based on recent business experience and any emerging trends. The
unit fund growth rates (gross of investment charges) and the risk
discount rates are set using the prescribed SII term-dependent
risk-free interest rates. The SII calculations are adjusted for a
risk margin using the prescribed SII rules.
The value-in-use calculations for asset management operations
are determined as the sum of net tangible assets and the expected
cash flows from existing and expected future new business.
The cash flows that have been used to determine the value-in-use
of the CGUs are based on the most recent management approved
three-year profit forecasts, which incorporate the impact of
COVID-19 and anticipated equity market growth on the Group's future
cash flows. These cash flows change at different rates because of
the different strategies of the CGUs. In cases where the CGUs have
made significant acquisitions in the recent past, the cash flows
are forecast to grow faster than the more mature businesses. Post
the three-year forecasts, the growth rate used to determine the
terminal value of the CGUs in the annual assessment approximates to
the UK long-term growth rate of 0.6% (2019: 1.7%). Market share and
market growth information are also used to inform the expected
volumes of future new business.
IAS 36 does not permit any cost savings linked to future
restructuring activity to be included within the value-in-use
calculation unless an associated restructuring provision has also
been recognised. Consequently, for the purpose of the value-in-use
calculation, a number of planned cost savings (and the related
implementation costs), primarily in relation to the Optimisation
programme, have been removed from the future cash flows.
The Group uses a single cost of capital of 9.0% (2019: 10.0%) to
discount future expected business plan cash flows across its two
groups of CGUs because they are perceived to present a similar
level of risk and are integrated. Capital is provided to the Group
predominantly by shareholders with a small amount of debt. The cost
of capital is the weighted average of the cost of equity (return
required by shareholders) and the cost of debt (return required by
bond and property lease holders). When assessing the systematic
risk (i.e. beta value) within the calculation of the cost of
equity, a triangulation approach is used that combines beta values
obtained from historical data, a forward-looking view on the
progression of beta values and the external views of investors.
11: Financial investments
The table below analyses the investments and securities that the
Group invests in, either on its own proprietary behalf (shareholder
funds) or on behalf of third parties (policyholder funds).
GBPm
-----------
31 December
2019
31 December restated
2020 (1)
----------- -----------
Government and government-guaranteed securities 632 558
Other debt securities, preference shares and debentures 1,952 1,897
Equity securities 14,163 8,560
Pooled investments 46,518 46,177
Short-term funds and securities treated as investments 9 15
Total financial investments 63,274 57,207
Recoverable within 12 months 63,274 57,206
Recoverable after 12 months - 1
----------- -----------
Total financial investments 63,274 57,207
----------- -----------
(1) See note 3(b) for details of changes to comparative
amounts.
The financial investments recoverability profile is based on the
intention with which the financial assets are held. These assets
are held to cover the liabilities for linked investment contracts,
all of which can be withdrawn by policyholders on demand.
12: Categories of financial instruments
The analysis of financial assets and liabilities into their
categories as defined in IFRS 9 Financial Instruments is set out in
the following tables. Assets and liabilities of a non-financial
nature, or financial assets and liabilities that are specifically
excluded from the scope of IFRS 9, are reflected in the
non-financial assets and liabilities category.
For information about the methods and assumptions used in
determining fair value please refer to note 13. The Group's
exposure to various risks associated with financial instruments is
discussed in note 19.
31 December 2020
GBPm
Fair value
Non-financial
Mandatorily Designated Amortised assets
Measurement basis at FVTPL at FVTPL cost and liabilities Total
Assets
Investments in associated undertakings
(1) - - - 1 1
Loans and advances 186 - 33 - 219
Financial investments 63,248 1 25 - 63,274
Trade, other receivables and other
assets - - 444 257 701
Derivative assets 43 - - - 43
Cash and cash equivalents 1,064 - 857 - 1,921
Total assets that include financial
instruments 64,541 1 1,359 258 66,159
Total other non-financial assets - - - 1,213 1,213
------
Total assets 64,541 1 1,359 1,471 67,372
------
Liabilities
Investment contract liabilities - 57,407 - - 57,407
Third-party interests in consolidation
of funds 6,513 - - - 6,513
Borrowings and lease liabilities - - 319 - 319
Trade, other payables and other
liabilities - - 590 82 672
Derivative liabilities 20 - - - 20
Total liabilities that include financial
instruments 6,533 57,407 909 82 64,931
Total other non-financial liabilities - - - 563 563
------
Total liabilities 6,533 57,407 909 645 65,494
(1) Investments in associated undertakings classified as
non-financial assets and liabilities are equity accounted.
31 December 2019 (restated)(3)
GBPm
Measurement basis Fair value
Designated Non-financial
Mandatorily at FVTPL Amortised assets
at FVTPL (2) cost and liabilities(2) Total
Assets
Investments in associated undertakings
(1) - - - 1 1
Loans and advances 180 - 37 - 217
Financial investments 57,205 2 - - 57,207
Trade, other receivables and other
assets (2) - - 342 263 605
Derivative assets 22 - - - 22
Cash and cash equivalents 1,159 - 1,094 - 2,253
----------- ------
Total assets that include financial
instruments 58,566 2 1,473 264 60,305
Total other non-financial assets - - - 1,246 1,246
Total assets 58,566 2 1,473 1,510 61,551
Liabilities
Investment contract liabilities
(2) - 52,455 - - 52,455
Third-party interests in consolidation
of funds 5,318 - - - 5,318
Borrowings and lease liabilities - - 335 - 335
Trade, other payables and other
liabilities - - 695 106 801
Derivative liabilities 10 - - - 10
----------- ------
Total liabilities that include financial
instruments 5,328 52,455 1,030 106 58,919
Total other non-financial liabilities - - - 561 561
Total liabilities 5,328 52,455 1,030 667 59,480
(1) Investments in associated undertakings classified as
non-financial assets and liabilities are equity accounted.
(2) Following a review of the Group's presentation of financial
liabilities held at FVTPL, comparative amounts have been restated
from those previously reported. The review identified amounts
presented within mandatorily at FVTPL that are now presented as
designated at FVTPL in the table above. These liabilities were
previously shown as mandatorily at fair value through profit or
loss ("FVTPL") as they form part of the Group's unit-linked
business model. These liabilities are now classified as designated
at FVTPL as they are managed on a fair value basis (in that their
value is directly linked to the market value of the matching
portfolio of unit-linked assets) therefore avoiding an accounting
mismatch. There is no change to the underlying calculation of the
fair value of these liabilities.
(3) See note 3(b) for details of changes to comparative
amounts.
13: Fair value methodology
This section explains the judgements and estimates made in
determining the fair values of financial instruments that are
recognised and measured at fair value in the financial statements.
Classifying financial instruments into the three levels of fair
value hierarchy (see note 13 (b)), prescribed under IFRS, provides
an indication about the reliability of inputs used in determining
fair value.
13(a): Determination of fair value
The fair value of financial instruments that are actively traded
in organised financial markets is determined by reference to quoted
market exit prices for assets and offer prices for liabilities, at
the close of business on the reporting date, without any deduction
for transaction costs:
-- for units in unit trusts and shares in open-ended investment
companies, fair value is determined by reference to published
quoted prices representing exit values in an active market;
-- for equity and debt securities not actively traded in
organised markets and where the price cannot be retrieved, the fair
value is determined by reference to similar instruments for which
market observable prices exist;
-- for assets that have been suspended from trading on an active
market, the last published price is used. Many suspended assets are
still regularly priced. At the reporting date all suspended assets
are assessed for impairment; and
-- where the assets are private company shares or within
consolidated investment funds the valuation is based on the latest
available set of audited financial statements where available, or
if more recent, a statement of valuation provided by the private
company's management.
There have been no significant changes in the valuation
techniques applied when valuing financial instruments. Where assets
are valued by the Group, the general principles applied to those
instruments measured at fair value are outlined below:
Loans and advances
Loans and advances include loans to policyholders, loans to
brokers, and other secured and unsecured loans. Loans and advances
to policyholders of investment linked contracts are measured at
fair value. All other loans are stated at their amortised cost.
Financial investments
Financial investments include government and
government-guaranteed securities, listed and unlisted debt
securities, preference shares and debentures, listed and unlisted
equity securities, listed and unlisted pooled investments (see
below), short-term funds and securities treated as investments and
certain other securities.
Pooled investments represent the Group's holdings of
shares/units in open-ended investment companies, unit trusts,
mutual funds and similar investment vehicles. Pooled investments
are recognised at fair value. The fair values of pooled investments
are based on widely published prices that are regularly
updated.
Other financial investments that are measured at fair value use
observable market prices where available. In the absence of
observable market prices, these investments and securities are fair
valued utilising various approaches including discounted cash
flows, the application of an earnings before interest, tax,
depreciation and amortisation multiple or any other relevant
technique.
Derivatives
The fair value of derivatives is determined with reference to
the exchange traded prices of the specific instruments. The fair
value of the Group's over-the-counter forward foreign exchange
contracts is determined by the underlying foreign currency exchange
rates.
Investment contract liabilities
The fair value of the investment contract liabilities is
determined with reference to the underlying funds that are held by
the Group.
Third-party interest in consolidated funds
Third-party interests in consolidated funds are measured at the
attributable net asset value of each fund.
Borrowings and lease liabilities
Borrowings and lease liabilities are stated at amortised
cost.
13(b): Fair value hierarchy
Fair values are determined according to the following
hierarchy:
Description of hierarchy Types of instruments classified in
the respective levels
Level 1 - quoted market prices: Listed equity securities, government
financial assets and liabilities securities and other listed debt
with quoted prices for identical securities and similar instruments
instruments in active markets. that are actively traded, actively
traded pooled investments, certain
quoted derivative assets and liabilities,
policyholder loans (where they form
part of a policyholders' unit-linked
policy) and investment contract liabilities
directly linked to other Level 1
financial assets.
Level 2 - valuation techniques using Unlisted equity and debt securities
observable inputs: financial assets where the valuation is based on models
and liabilities with quoted prices involving no significant unobservable
for similar instruments in active data.
markets or quoted prices for identical Over-the-counter ("OTC") derivatives,
or similar instruments in inactive certain privately placed debt instruments
markets and financial assets and and third-party interests in consolidated
liabilities valued using models where funds which meet the definition of
all significant inputs are observable. Level 2 financial instruments.
Level 3 - valuation techniques using Unlisted equity and securities with
significant unobservable inputs: significant unobservable inputs,
financial assets and liabilities securities where the market is not
valued using valuation techniques considered sufficiently active, including
where one or more significant inputs certain inactive pooled investments.
are unobservable.
The judgement as to whether a market is active may include, for
example, consideration of factors such as the magnitude and
frequency of trading activity, the availability of prices and the
size of bid/offer spreads. In inactive markets, obtaining assurance
that the transaction price provides evidence of fair value or
determining the adjustments to transaction prices that are
necessary to measure the fair value of the asset or liability
requires additional work during the valuation process.
The majority of valuation techniques employ only observable data
and so the reliability of the fair value measurement is high.
However, certain financial assets and liabilities are valued on the
basis of valuation techniques that feature one or more significant
inputs that are unobservable and, for them, the derivation of fair
value is more judgemental. A financial asset or liability in its
entirety is classified as valued using significant unobservable
inputs if a significant proportion of that asset or liability's
carrying amount is driven by unobservable inputs.
In this context, 'unobservable' means that there is little or no
current market data available for which to determine the price at
which an arm's length transaction would be likely to occur. It
generally does not mean that there is no market data available at
all upon which to base a determination of fair value. Furthermore,
in some cases the majority of the fair value derived from a
valuation technique with significant unobservable data may be
attributable to observable inputs. Consequently, the effect of
uncertainty in determining unobservable inputs will generally be
restricted to uncertainty about the overall fair value of the asset
or liability being measured.
When allocating investments within consolidated investment funds
to the fair value hierarchy, management have adopted a simplified
approach whereby investments (outside of those identified as Level
3) in listed equities and securities are allocated to fair value
Level 1, and investments in unlisted equity and debt securities are
allocated to Level 2, to align to the classifications set out in
the table above.
13(c): Transfer between fair value hierarchies
The Group deems a transfer to have occurred between Level 1 and
Level 2 or Level 3 when an active, traded primary market ceases to
exist for that financial instrument. A transfer between Level 2 and
Level 3 occurs when the majority of the significant inputs used to
determine fair value of the instrument become unobservable.
Transfers from Levels 3 or 2 to Level 1 are also possible when
assets become actively priced.
There were transfers of financial investments of GBP9 million
from Level 1 to Level 2 during the year (31 December 2019: GBP139
million). There were transfers of financial investments of GBP3
million from Level 2 to Level 1 during the year (31 December 2019:
GBP76 million). These movements are matched exactly by transfers of
investment contract liabilities. See note 13(e) for the
reconciliation of Level 3 financial instruments.
13(d): Financial assets and liabilities measured at fair value,
classified according to fair value hierarchy
The majority of the Group's financial assets are measured using
quoted market prices for identical instruments in active markets
(Level 1) and there have been no significant changes during the
year.
The linked assets are held to cover the liabilities for linked
investment contracts (net of reinsurance). The difference between
linked assets and linked liabilities is principally due to
short-term timing differences between policyholder premiums being
received and invested in advance of policies being issued, and tax
liabilities within funds which are reflected within the Group's tax
liabilities.
Differences between assets and liabilities within the respective
levels of the fair value hierarchy also arise due to the mix of
underlying assets and liabilities within consolidated funds. In
addition, third-party interests in consolidated funds are
classified as Level 2.
The table below presents a summary of the Group's financial
assets and liabilities that are measured at fair value in the
consolidated statement of financial position according to their
IFRS 9 classification (see note 12 for full details).
31 December 2019
31 December 2020 restated (1)
GBPm % GBPm %
Financial assets measured at fair value
Level 1 56,927 88.2% 48,009 82.0%
Level 2 5,793 9.0% 8,842 15.1%
Level 3 1,822 2.8% 1,717 2.9%
Total 64,542 100.0% 58,568 100.0%
Financial liabilities measured at fair value
Level 1 55,135 86.3% 50,315 87.0%
Level 2 6,985 10.9% 5,751 10.0%
Level 3 1,820 2.8% 1,717 3.0%
Total 63,940 100.0% 57,783 100.0%
(1) See note 3(b) for details of changes to comparative
amounts.
The tables below further analyse the Group's financial assets
and liabilities measured at fair value by the fair value hierarchy
described in note 13(b):
GBPm
------
31 December 2020 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Mandatorily (fair value through profit
or loss) 56,926 5,793 1,822 64,541
------- ------- ------
Loans and advances (2) 186 - - 186
Financial investments 55,676 5,750 1,822 63,248
Cash and cash equivalents 1,064 - - 1,064
Derivative assets - 43 - 43
------- -------
Designated (fair value through profit
or loss) 1 - - 1
------- ------- ------
Financial investments 1 - - 1
Total assets measured at fair value 56,927 5,793 1,822 64,542
------- ------- ------
Financial liabilities measured at fair
value
Mandatorily (fair value through profit
or loss) - 6,533 - 6,533
------- ------- ------
Third-party interests in consolidated
funds - 6,513 - 6,513
Derivative liabilities - 20 - 20
------- -------
Designated (fair value through profit
or loss) 55,135 452 1,820 57,407
------- ------- ------
Investment contract liabilities 55,135 452 1,820 57,407
Total liabilities measured at fair value 55,135 6,985 1,820 63,940
------- ------- ------
GBPm
------
31 December 2019 (restated) (1) Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Mandatorily (fair value through profit
or loss) 48,007 8,842 1,717 58,566
------- ------- ------
Loans and advances (2) 180 - - 180
Financial investments 46,668 8,820 1,717 57,205
Cash and cash equivalents 1,159 - - 1,159
Derivative assets - 22 - 22
------- -------
Designated (fair value through profit
or loss) 2 - - 2
------- ------- ------
Financial investments 2 - - 2
Total assets measured at fair value 48,009 8,842 1,717 58,568
------- ------- ------
Financial liabilities measured at fair
value
Mandatorily (fair value through profit
or loss) - 5,328 - 5,328
------- ------- ------
Third-party interests in consolidated
funds - 5,318 - 5,318
Derivative liabilities - 10 - 10
------- -------
Designated (fair value through profit
or loss) 50,315 423 1,717 52,455
Investment contract liabilities (3) 50,315 423 1,717 52,455
Total liabilities measured at fair value 50,315 5,751 1,717 57,783
------- ------- ------
(1) See note 3(b) for details of changes to comparative
amounts.
(2) Loans and advances mandatorily at fair value through profit
or loss, included within fair value Level 1, solely relate to
policyholder loans.
(3) Following a review of the Group's presentation of financial
liabilities held at FVTPL, comparative amounts have been restated
from those previously reported. The review identified amounts
presented within mandatorily at FVTPL that are now presented as
designated at FVTPL in the table above.
13(e): Level 3 fair value hierarchy disclosure
The majority of the assets classified as Level 3 are held within
linked policyholder funds. Where this is the case, all of the
investment risk associated with these assets is borne by
policyholders and the value of these assets is exactly matched by a
corresponding liability due to policyholders. The Group bears no
risk from a change in the market value of these assets except to
the extent that it has an impact on management fees earned.
During the year ended 31 December 2020, Level 3 assets also
include a shareholder investment in suspended funds to the value of
GBP2 million (31 December 2019: GBPnil); this is not matched by a
corresponding liability and therefore any changes in market value
are recognised in the Group's consolidated income statement. The
table below reconciles the opening balance of Level 3 financial
assets to the closing balance at each year end:
GBPm
31 December 31 December
2020 2019
At beginning of the year (1) 1,717 1,154
Fair value losses charged to income statement (121) (20)
Purchases 16 314
Sales (8) (24)
Transfers in 930 369
Transfers out (714) (71)
Foreign exchange and other 2 (5)
----------- -----------
Total Level 3 financial assets 1,822 1,717
----------- -----------
Unrealised fair value losses charged to income statement
relating to assets held at the year end (110) (20)
(1) The opening balance for 2019 includes a GBP3 million
shareholder investment in an unlisted equity, the Charles Derby
Group; this was not matched by a corresponding liability and
therefore any changes in market value were recognised in the
Group's income statement. Following the acquisition of the Charles
Derby Group in 2019, the Group's investment is no longer held as a
Level 3 financial investment, but instead as an investment in
subsidiary which is eliminated on consolidation.
Amounts shown as sales arise principally from the sale of
private company shares, unlisted pooled investments and from
distributions received in respect of holdings in property
funds.
Transfers into Level 3 assets in the current year total GBP930
million (31 December 2019: GBP369 million). T his is due to a
combination of stale priced assets that were previously shown
within Level 2 and for which price updates have not been received
for more than six months, and a significant increase in suspended
funds previously shown within Level 1, predominately due to the
COVID-19 pandemic resulting in a number of property fund
suspensions. Suspended funds are valued based on external valuation
reports received from fund managers. Transfers out of Level 3
assets in the current year of GBP714 million (31 December 2019:
GBP71 million) result from a transfer to Level 2 assets relating to
assets that are now being actively repriced (that were previously
stale) and where fund suspensions have been lifted following the
market recovery during the second half of the year. During 2020 a
suspended fund with a value of GBP85 million has been wound up and
cash returned to policyholders, resulting in the cash being placed
in a cash fund within Level 1 assets.
The table below analyses the type of Level 3 financial assets
held:
GBPm
31 December 31 December
2020 2019
Pooled investments 522 361
Unlisted and stale price pooled investments 87 133
Suspended funds 435 228
Private equity investments 1,300 1,356
Total Level 3 financial assets 1,822 1,717
-----------
All of the liabilities that are classified as Level 3 are
investment contract liabilities which exactly match against the
Level 3 assets held in linked policyholder funds.
The table below reconciles the opening balance of Level 3
financial liabilities to the closing balance at each year end:
GBPm
31 December 31 December
2020 2019
At beginning of the year 1,717 1,151
Fair value losses charged to income statement (120) (20)
Purchases 16 314
Sales (8) (24)
Transfers in 927 369
Transfers out (714) (71)
Foreign exchange and other 2 (2)
Total Level 3 financial liabilities 1,820 1,717
Unrealised fair value losses charged to income statement
relating to liabilities held at the year end (110) (20)
13(f): Effect of changes in significant unobservable assumptions
to reasonable possible alternatives
Details of the valuation techniques applied to the different
categories of financial instruments can be found in note 13 (a)
above, including the valuation techniques applied when significant
unobservable assumptions are used to value Level 3 assets.
The majority of the Group's Level 3 assets are held within
private equity investments, where the valuation of these assets is
performed on an asset-by-asset basis using a valuation methodology
appropriate to the specific investment and in line with industry
guidelines. Private equity investments are valued at the value
disclosed in the latest available set of audited financial
statements or, if more recent information is available, from
investment managers or professional valuation experts at the value
of the underlying assets of the private equity investment. For this
reason, no reasonable alternative assumptions are applicable and
management therefore performs a sensitivity test of an aggregate
10% change in the value of the financial asset or liability (31
December 2019: 10%), representing a reasonable possible alternative
judgement in the context of the current macro-economic environment
in which the Group operates. It is therefore considered that the
impact of this sensitivity will be in the range of GBP182 million
to the reported fair value of Level 3 assets, both favourable and
unfavourable (31 December 2019: GBP172 million). As described in
note 13(e), changes in the value of Level 3 assets held within
linked policyholder funds are exactly matched by corresponding
changes in the value of liabilities due to policyholders and
therefore have no impact on the Group's net asset value or profit
or loss, except to the extent that it has an impact on management
fees earned.
13(g): Fair value hierarchy for assets and liabilities not
measured at fair value
Certain financial instruments of the Group are not carried at
fair value. The carrying values of these are considered reasonable
approximations of their respective fair values, as they are either
short term in nature or are repriced to current market rates at
frequent intervals. Their classification within the fair value
hierarchy would be as follows:
Trade, other receivables, and other assets Level 3
Trade, other payables, and other liabilities Level 3
Cash and cash equivalents (excluding money market funds) are
held at amortised cost and therefore not carried at fair value. The
cash and cash equivalents that are held at amortised cost would be
classified as Level 1 in the fair value hierarchy.
Fixed term deposits, which are included within Financial
investments, are held at amortised cost and therefore not carried
at fair value. The fixed term deposits that are held at amortised
cost would be classified as Level 1 in the fair value
hierarchy.
Loans and advances are financial assets held at amortised cost
and therefore not carried at fair value, with the exception of
policyholder loans which are categorised as FVTPL. The loans and
advances that are held at amortised cost would be classified as
Level 3 in the fair value hierarchy.
Borrowed funds are financial liabilities held at amortised cost
and therefore not carried at fair value. Borrowed funds relate to
subordinated liabilities and would be classified as Level 2 in the
fair value hierarchy.
Lease liabilities valued under IFRS 16 are held at amortised
cost and therefore not carried at fair value. They would be
classified as Level 3 in the fair value hierarchy.
14: Cash and cash equivalents
14(a): Analysis of cash and cash equivalents
GBPm
----------- -----------
31 December
2019
31 December restated
2020 (1)
----------- -----------
Cash at bank 550 787
Money market funds 1,064 1,159
Cash and cash equivalents in consolidated funds 307 307
Total cash and cash equivalents per statement of
financial position 1,921 2,253
(1) See note 3(b) for details of changes to comparative
amounts.
Except for cash and cash equivalents subject to consolidation of
funds of GBP307 million (2019: GBP307 million), management do not
consider that there are any material amounts of cash and cash
equivalents which are not available for use in the Group's
day-to-day operations.
14(b): Analysis of net cash flows from operating activities:
GBPm
-----------
31 December
2019
31 December restated
Notes 2020 (1)
Cash flows from operating activities
Profit before tax from continuing operations 86 45
(Loss)/profit before tax from discontinued operations 4(c) (1) 256
85 301
Adjustments for
Depreciation and impairment of property, plant and
equipment 23 19
Movement on deferred acquisition and contract costs 44 57
Movement on contract liabilities and fee income
receivable (7) (13)
Amortisation and impairment of intangibles 10 47 48
Fair value and other movements in financial assets (3,319) (7,650)
Fair value movements in investment contract liabilities 16 2,632 6,518
Other change in investment contract liabilities 2,187 (1,209)
Loss/(profit) on sale of subsidiaries 4(b) 1 (103)
Other movements 40 65
1,648 (2,268)
Net changes in working capital
Increase in derivatives (11) (10)
(Increase)/decrease in loans and advances (5) 5
Increase/(decrease) in provisions 17 1 (28)
Movement in other assets/liabilities(2) (245) (35)
(260) (68)
Taxation paid (28) (37)
-----
Net cash flows from/(used in) operating activities 1,445 (2,072)
-----
(1) See note 3(b) for details of changes to comparative
amounts.
(2) Working capital changes in respect of other assets and
liabilities primarily relate to consolidated funds.
15: Share capital and capital redemption reserve
Financial instruments issued are classified as equity when there
is no contractual obligation to transfer cash, other financial
assets or issue a variable number of own equity instruments.
Incremental costs directly attributable to the issue of equity
instruments are shown in equity as a deduction from the proceeds,
net of tax. The Parent Company's equity capital currently comprises
1,783,969,051 Ordinary Shares of 7p each with an aggregated nominal
value of GBP124,877,834 (31 December 2019: 1,902,251,098 Ordinary
Shares of 7p each with an aggregated nominal value of
GBP133,157,577).
This note gives details of the Company's Ordinary Share capital
and shows the movements during the year:
GBPm GBPm
Number of Nominal
shares value Share premium
At 1 January 2019 1,902,251,098 133 58
At 31 December 2019 1,902,251,098 133 58
Shares cancelled through share buyback
programme (118,282,047) (8) -
At 31 December 2020 1,783,969,051 125 58
On 11 March 2020 the Company announced a share buyback programme
to purchase shares up to a maximum value of GBP375 million, in
order to reduce the share capital of the Company. The programme
commenced on 11 March 2020 and will continue into 2021. During the
year ended 31 December 2020, the Company acquired 118.3 million
shares for a total consideration of GBP153 million and incurred
additional costs of GBP4 million. The shares, which have a nominal
value of GBP8 million, have subsequently been cancelled, giving
rise to a capital redemption reserve of the same value as required
by the Companies Act 2006. In December, the committed remainder of
GBP22 million was accrued as a liability against retained
earnings.
16: Investment contract liabilities
The following table provides a summary of the Group's investment
contract liabilities:
GBPm
31 December 2020 31 December 2019
Re- Re-
Gross insurance Net Gross insurance Net
Carrying amount at 1 January 52,455 - 52,455 56,450 (1,671) 54,779
From continuing operations
Fair value movements 2,632 - 2,632 5,091 - 5,091
Investment income 696 - 696 719 - 719
Movements arising from investment return 3,328 - 3,328 5,810 - 5,810
From discontinued operations
Fair value movements - - - 1,427 (205) 1,222
Investment income - - - 142 - 142
Movements arising from investment return - - - 1,569 (205) 1,364
Contributions received 4,871 - 4,871 5,718 1,148 6,866
Maturities (97) - (97) (166) - (166)
Withdrawals and surrenders (3,226) - (3,226) (7,419) - (7,419)
Claims and benefits (59) - (59) (205) - (205)
Other movements 2 - 2 2 (1) 1
Change in liability 4,819 - 4,819 5,309 942 6,251
Currency translation loss/(gain) 133 - 133 (121) - (121)
Disposal of subsidiaries - - - (9,183) 729 (8,454)
Investment contract liabilities 57,407 - 57,407 52,455 - 52,455
For unit-linked investment contracts, movements in asset values
are offset by corresponding changes in liabilities, limiting the
net impact on profit.
The benefits offered under the unit-linked investment contracts
are based on the risk appetite of policyholders and the return on
their selected investments and collective fund investments, whose
underlying investments include equities, debt securities, property
and derivatives. This investment mix is unique to individual
policyholders.
The maturity value of these financial liabilities is determined
by the fair value of the linked assets at maturity date. There will
be no difference between the carrying amount and the maturity
amount at maturity date.
The reinsurers' share of policyholder liabilities relating to
investment contract liabilities reduced to GBPnil in 2019 due to
the disposal of QLA.
For unit-linked business, the unit liabilities are determined as
the value of units credited to policyholders. Since these
liabilities are determined on a retrospective basis no assumptions
for future experience are required. Assumptions for future
experience are required for unit-linked business in assessing
whether the total of the contract costs asset and contract
liability is greater than the present value of future profits
expected to arise on the relevant blocks of business (the
"recoverability test"). If this is the case, then the contract
costs asset is restricted to the recoverable amount. For linked
contracts, the assumptions are on a best estimate basis.
Following the sale of QLA in 2019 (see note 4(b)) the Group no
longer has any pure insurance contracts. Within the Group's
International business, insurance contracts are unbundled. The
insurance component does not give rise to any future liabilities
and the deposit component is presented in investment contract
liabilities. As a result, the Group no longer has any insurance
liabilities or reinsurance assets. In the year ended 31 December
2020 unbundled insurance premiums of GBP1 million (31 December
2019: GBP1 million) are offset by GBP(1) million (31 December 2019:
GBP(1) million) of premiums ceded to reinsurers.
17: Provisions
GBPm
Sale of
Single Clawback
Compensation Sale of Strategy and other
31 December 2020 provisions QLA business provisions Total
Balance at beginning of the year 31 6 10 17 64
Additions from business combinations 12 - - - 12
Charge to income statement 10 - - 1 11
Utilised during the year (5) (3) (1) (4) (13)
Unused amounts reversed (6) - (2) (3) (11)
Reclassification within statement
of financial position (1) - - - 14 14
Balance at 31 December 2020 42 3 7 25 77
GBPm
Sale of
Single Clawback
Compensation Sale of Strategy and other
31 December 2019 provisions QLA business provisions Total
Balance at beginning of the year 54 - 20 20 94
Adjustment on initial application
of IFRS 16 - - - (5) (5)
Additions from business combinations 14 - - 1 15
Charge to income statement (2) 9 6 1 7 23
Utilised during the year (19) - (11) (1) (31)
Unused amounts reversed (13) - - (4) (17)
Disposals (11) - - (1) (12)
Reclassification within statement
of financial position (3) - - - (3)
Balance at 31 December 2019 31 6 10 17 64
(1) Clawback provision was disclosed on a net basis in 2019. In
2020 the balance has been reclassified, with the liability due to
product providers on indemnity commission disclosed within
provisions and the recoverable amount from brokers disclosed within
receivables.
(2) Part of the charge to income statement in 2019 is included
within the discontinued operations income statement.
Compensation provisions
Compensation provisions total GBP42 million (31 December 2019:
GBP31 million), and are comprised of the following:
Lighthouse pension transfer advice provision of GBP28 million
(31 December 2019: GBP12 million)
A provision for pension transfer advice was established within
the fair value of the Lighthouse assets and liabilities acquired.
As at 31 December 2019, the provision related to approximately 30
complaints received on advice provided by Lighthouse in respect of
pension transfers for British Steel pension scheme members, prior
to the Group's acquisition of Lighthouse in June 2019. All the
complaints received related to transfers before that date.
During 2020, the FCA reported the results of their thematic
review into the general market of pension transfers, which included
British Steel pension transfers. The FCA review determined that the
percentage of unsuitable files for British Steel transfers was
higher than those for other pension scheme transfers in their
sample. The FCA review included a sample of British Steel pension
transfer advice provided by Lighthouse. Additionally, approximately
45 further complaints have been received from British Steel pension
scheme members subsequent to the publication of the Group's 2019
Annual Report. As such, the Group has extended the provision to
include consideration of the full population of 265 British Steel
transfers on which Lighthouse advisers provided advice and the
relevant customers proceeded to make a transfer, in order to
determine a more reliable approximation of the estimated redress
payable.
In April 2020, the Group was informed by the FCA that it would
be required to appoint a skilled person to review the British Steel
pension transfers. A skilled person has been appointed, and they
have performed provisional redress calculations on a significant
portion of the British Steel complaints received by Lighthouse
where the advice given was not suitable. The redress calculated on
the complaints has been extrapolated to the entire population of
British Steel transfers, by subdividing the population into cohorts
with similar characteristics, including dividing into transfers pre
and post June 2017 when the Trustees of the British Steel pension
fund changed the basis on which transfer values were calculated.
The timing of any benefits withdrawn by the member after the
transfer also has an impact upon the redress calculated. The
estimated redress per client as a proportion of the transfer value
of the pensions was determined for each cohort and extrapolated to
the overall population of cases where advice was provided, and that
advice was then acted upon. The methodology employed to assess the
calculated redress payable uses assumptions and estimation
techniques which are consistent with principles under the FCA's
FG17/9 "Guidance for firms on how to calculate redress for
unsuitable defined benefit pension transfers".
A total provision of GBP28 million (31 December 2019: GBP12
million) has been calculated for the potential redress of all
British Steel cases, including anticipated costs associated with
the redress activity. This is comprised of two parts:
(a) Client redress provision of GBP25 million (31 December 2019:
GBP9 million). As noted above, this provision was increased during
2020 following the publication of the FCA thematic review and
additional client complaints received.
(b) Anticipated costs associated with redress activity of GBP3
million (31 December 2019: GBP3 million). This provision is
recognised in respect of the anticipated costs of legal and
professional fees related to the cases and redress process, which
includes the expected costs to review advice provided of a similar
nature in relation to cases that management believe may have
similar characteristics. GBP1 million of the legal and professional
fees provision has been utilised during the year, and the provision
was increased by a further GBP1 million during the year.
The recognition of the total provision before utilisation of
GBP29 million has been further apportioned between the fair value
of net assets of Lighthouse at acquisition and the expenses of the
Group:
(a) GBP24 million (31 December 2019: GBP12 million) is
recognised within the fair value of net assets acquired and impacts
the goodwill balance recognised upon acquisition.
(b) The increase in the provision subsequent to acquisition of
GBP5 million has been recognised within expenses of the Group.
The table below shows the change in this provision and how the
amounts have been recognised:
GBPm
Utilised Balance
31 December during before Increase 31 December
Notes 2020 the year utilisation in 2020 2019
Client redress provision 25 - 25 16 9
Anticipated costs 3 (1) 4 1 3
Total Lighthouse pension transfer
advice complaints provision 28 (1) 29 17 12
Recognised within fair value
of acquired net assets 4(a) 24 24 12 12
Recognised within expenses 5(b)(vi) 5 5 5 -
Additionally, the recognition of the fair value of acquired
assets has been increased by management's estimate of the fair
value of the insurance recoverable of GBP3 million and the deferred
tax asset receivable of GBP2 million (both described in note 4(a))
which, taken together with the GBP12 million increase in client
redress provision described above, results in a net decrease of
GBP7 million to the fair value of the acquired net assets, which
has been recognised as an increase in the goodwill balance in the
year ending 31 December 2020.
Management has not changed the GBP3 million insurance
recoverable that has been included in the fair value of the
acquired net assets of Lighthouse. Discussion with insurers is
ongoing and management will review the recoverable amount as and
when they receive further certainty. The insurance asset at 31
December 2020 is disclosed within "Trade, other receivables and
other assets".
The final costs of redress for cases upheld will depend on
specific calculations on a case-by-case basis, which are impacted
by market movements and other parameters affecting the defined
contribution scheme asset, and therefore exposed to volatility from
this, and may vary from the amounts currently provided. The skilled
person review is expected to conclude in the second half of 2021,
after which settlements to customers will be made.
The key assumptions which have an impact upon the redress
payable calculation are the discount rate, changes in market levels
and proportion of cases where redress is estimated to be payable.
For the purpose of the redress calculation, changes in the discount
rate impact the valuation of the defined benefit ("DB") scheme at
the reporting date, and market level changes impact the valuation
of the personal pension scheme for each client. The following table
presents the potential change to the provision balance at 31
December 2020 as a result of movements in the key assumptions:
GBPm
31 December
2020
Increase Decrease
Change in discount rate to value the DB
pension liability of 0.25% (4) 4
Change in market levels of 5% (2) 2
Change in number of cases upheld of 10% 1 (1)
A further assumption which has an impact upon the provision is
the timing of benefits taken. The uncertainty regarding the timing
of benefits taken by each member for the cases not yet determined
by the skilled person has a potentially material future impact upon
the provision. The range of outcomes for the provision, including
anticipated costs, varies from GBP25 million to GBP36 million at
each extremity of possible timing of benefits taken.
Compensation provisions (other) of GBP14 million (31 December
2019: GBP19 million)
Other compensation provisions of GBP14 million are all held
within the Group's continuing operations and include amounts
relating to the cost of correcting deficiencies in policy
administration systems, including restatements, any associated
litigation costs and the related costs to compensate previous or
existing policyholders and customers. This provision represents
management's best estimate of expected outcomes based upon previous
experience, and a review of the details of each case. Due to the
nature of the provision, the timing of the expected cash outflows
is uncertain. The best estimate of timing of outflows is that the
majority of the balance is expected to be settled within 12 months.
Estimates are reviewed annually and adjusted as appropriate for new
circumstances. Management estimate a reasonably possible change of
+/- GBP4 million, based upon a review of the cases and the range of
potential outcomes.
Provisions arising on the disposal of Quilter Life Assurance
The QLA business was sold on 31 December 2019 (see note 4(b)),
resulting in a number of provisions totalling GBP6 million being
established in respect of the costs of disposing the business and
the related costs of business separation.
The c osts of business separation arise from the process to
separate QLA's infrastructure, which is complex and covers a wide
range of areas including people, IT systems, data, contracts and
facilities. A programme team has been established to ensure the
transition of these areas to the acquirer. These provisions have
been based on external quotations and estimations, together with
estimates of the time required for incremental resource costs to
achieve the separation.
The most significant element of the provision is the cost of
migration of IT systems and data to the acquirer. Work has taken
place during 2020 and will continue into 2021. Calculation of the
provision is based on management's best estimate of the work
required, the time it is expected to take, the number and skills of
the staff required and their cost, and the cost of related external
IT services to support the work. In reaching these judgements and
estimates, management have made use of their past experience of
previous IT migrations following business disposals. Management
estimate a reasonably possible change of +/- GBP1 million, based
upon the time it takes to complete the work, which is expected to
conclude in 2021.
During the year GBP3 million of the provision has been
utilised.
Sale of Single Strategy Asset Management business provision
In 2018, a restructuring provision was recognised as a result of
the sale of the Single Strategy Asset Management business to enable
the remaining Quilter Investors business to function as a
standalone operation going forward. The provision includes those
costs directly related to replacing and restoring the operational
capability that previously underpinned and supported both parts of
the asset management business. Key parts of this capability had
either been disposed of or disrupted as a consequence of the sale.
The provision established for restructuring was GBP19 million, of
which GBP5 million was utilised during 2018 and a further GBP11
million utilised in 2019. During 2020, further utilisation of GBP1
million has been incurred, and GBP2 million has been reversed, and
therefore the provision at year end 31 December 2020 is GBPnil.
Additional provisions totalling GBP6 million were also made in
the year ended 31 December 2018 as a consequence of the sale of the
Single Strategy Asset Management business. These were in relation
to various sale related future commitments, the outcome of which
was uncertain at the time of the sale and the most significant of
which is in relation to the guarantee of revenues for the seller in
future years arising from funds invested by customers of Quilter. A
further GBP1 million was added to the provision during 2019,
bringing the closing balance to GBP7 million at 31 December 2019.
The balance remains at GBP7 million at 31 December 2020.
The provision considers sensitivities including potential
scenarios which would result in a reduction in Group assets under
management held in Merian (Single Strategy Asset Management
business) funds, leading to a reduction in the management fees paid
to Merian. The scenarios are based upon assumptions determined
considering historical outflows over the past three years,
expectation of outflows in the next 2 years and the latest
information received from Merian. Per the conditions of the sale
agreement, the maximum remaining potential exposure is GBP17
million, based on business periods between 2020 and 2022. The
expected range of payments based upon the latest information
received from Merian and management's reasonable expectations of
AUM invested within Merian funds during the assessment periods
varies from GBP5 million to GBP12 million.
Of the total GBP7 million provision outstanding, GBP2 million is
expected to be settled in the first half of 2021 related to the
2020 measurement year, and the remaining GBP5 million (2019: GBP3
million) is estimated to be payable after one year, with expected
final settlement due in the first half of 2023.
Clawback and other provisions
Other provisions include amounts for the resolution of legal
uncertainties and the settlement of other claims raised by
contracting parties and indemnity commission provisions. Where
material, provisions and accruals are discounted at discount rates
specific to the risks inherent in the liability. The timing and
final amounts of payments in respect of some of the provisions,
particularly those in respect of litigation claims and similar
actions against the Group, are uncertain and could result in
adjustments to the amounts recorded.
Included within the balance in 2020 is GBP18 million of clawback
provisions in respect of potential refunds due to product providers
on indemnity commission, within the Quilter Financial Planning
business. This provision, which is estimated and charged as a
reduction of revenue on the income statement at the point of sale
of each policy, is based upon assumptions determined from
historical experience of the proportion of policyholders cancelling
their policies, which requires Quilter to refund a portion of
commission previously received. The provision has been assessed at
the reporting date and adjusted for the latest cancellation
information available. At 31 December 2020, an associated balance
of GBP13 million recoverable from brokers is included within
"Trade, other receivables and other assets". At 31 December 2019
the associated asset of GBP14 million was offset within the
provision balance.
Management estimate a reasonably possible change of +/- GBP6
million, based upon the potential range of outcomes for the
proportion of cancelled policies within the clawback provision, and
a detailed review of the other provisions.
Of the total GBP25 million provision outstanding, GBP13 million
is estimated to be payable within one year (2019: GBP17
million).
18: Contingent liabilities
The Group, in the ordinary course of business, enters into
transactions that expose it to tax, legal and business risks. The
Group recognises a provision when it has a present obligation as a
result of past events, it is probable that a transfer of economic
benefits will be required to settle the obligation and a reliable
estimate of the amount can be made (see note 17). Possible
obligations and known liabilities where no reliable estimate can be
made or it is considered improbable that an outflow would result
are reported as contingent liabilities in accordance with IAS 37
Provisions, Contingent Liabilities and Contingent Assets.
Contingent liabilities - acquisitions and disposals
The Group routinely monitors and assesses contingent liabilities
arising from matters such as litigation, warranties and indemnities
relating to past acquisitions and disposals. In April 2020, the
Group was informed by the FCA that it would be required to appoint
a skilled person, under section 166(3)(a) of the Financial Services
and Markets Act 2000 ("FSMA"), in relation to Lighthouse Defined
Benefit ("DB") pension transfer advice. The review covers
Lighthouse Advisory Services Limited only, and no other companies
within the Group. The review covers the period from 1 April 2015 to
27 January 2020, which is the date that Lighthouse converted to the
Quilter Financial Planning advice process for their Defined Benefit
transfer activity.
The review will cover British Steel DB pension transfer advice
activity undertaken by Lighthouse, and a representative sample of
other Lighthouse DB pension transfer advice activity. The skilled
person will also calculate redress, following the FCA's FG17/9
"Guidance for firms on how to calculate redress for unsuitable
defined benefit pension transfers" guidance. The skilled person
will also review the redress methodology applied by Lighthouse to
any complaints already upheld. The skilled person's final report is
expected to be submitted to the FCA in the third quarter of
2021.
For the British Steel cases, management currently consider that
the likelihood of redress is probable on the majority of the cases,
but this is subject to confirmation through the ongoing skilled
person review process. An estimate of the amount of redress payable
has been made and is included within Provisions in note 17. For the
non-British Steel cases, it is possible that further costs of
redress may be incurred following the outcome of the skilled person
review. At present, there is no indication of redress payable in
relation to non-British Steel cases.
Any further redress costs related to non-British Steel cases,
and any differences between the provision and final payment to be
made for British Steel cases, will be recognised as an expense or
credit in the Income Statement, following the finalisation of the
acquisition balance sheet of Lighthouse in June 2020.
Tax
The Revenue authorities in the principal jurisdictions in which
the Group operates routinely review historical transactions
undertaken and tax law interpretations made by the Group. The Group
is committed to conducting its tax affairs in accordance with the
tax legislation of the jurisdictions in which they operate. All
interpretations made by management are made with reference to the
specific facts and circumstances of the transaction and the
relevant legislation.
There are occasions where the Group's interpretation of tax law
may be challenged by the Revenue authorities. The financial
statements include provisions that reflect the Group's assessment
of liabilities which might reasonably be expected to materialise as
part of their review. The Board is satisfied that adequate
provisions have been made to cater for the resolution of tax
uncertainties and that the resources required to fund such
potential settlements are sufficient.
Due to the level of estimation required in determining tax
provisions, amounts eventually payable may differ from the
provision recognised. This may include amounts relating to first
time recognition of a deferred tax asset on accrued interest
expenses, as explained in note 7(a).
Complaints and disputes
The Group is committed to treating customers fairly and
supporting its customers in meeting their lifetime goals. The Group
does from time to time receive complaints and claims, and enters
into commercial disputes with service providers, in the normal
course of business. The costs, including legal costs, of these
issues as they arise can be significant and, where appropriate,
provisions have been established under IAS 37.
19: Capital and financial risk management
19(a): Capital management
The Group manages its capital with a focus on capital efficiency
and effective risk management. The capital management objectives
are to maintain the Group's ability to continue as a going concern
while supporting the optimisation of return relative to the risks.
The Group ensures that it can meet its expected capital and
financing needs at all times having regard to the Group's business
plans, forecasts, strategic initiatives and regulatory requirements
in all businesses in the Group. Capital forecasts have been
reviewed regularly during 2020 in response to the emerging impacts
of the COVID-19 pandemic which has evolved over the year and, where
appropriate, management actions have been taken in response to
these forecasts.
The Group's overall capital risk appetite is set with reference
to the requirements of the relevant stakeholders and seeks to:
-- maintain sufficient, but not excessive, financial strength to
support stakeholder requirements;
-- optimise debt to equity structure to enhance shareholder returns; and
-- retain financial flexibility by maintaining liquidity
including unutilised committed credit lines.
The primary sources of capital used by the Group are equity
shareholders' funds of GBP1,878 million ( 31 December 2019:
GBP2,071 million) and subordinated debt which was issued at GBP200
million in February 2018. Alternative resources are utilised where
appropriate. Risk appetite has been defined for the level of
capital, liquidity and debt within the Group. The risk appetite
includes long-term targets, early warning thresholds and risk
appetite limits. The dividend policy sets out the target dividend
level in relation to profits.
The regulatory capital for the Group is assessed under Solvency
II requirements.
19(a)(i): Regulatory capital (unaudited)
The Group is subject to Solvency II group supervision by the
PRA. The Central Bank of Ireland is Quilter's lead supervisor
within the European Union and exercises a limited form of Solvency
II group supervision over the Group. The Group is required to
measure and monitor its capital resources under the Solvency II
regulatory regime.
The Group's insurance undertakings are included in the Group
solvency calculation on a Solvency II basis. Other regulated
entities are included in the Group solvency calculation according
to the relevant sectoral rules. The Group's Solvency II surplus is
the amount by which the Group's capital on a Solvency II basis (own
funds) exceeds the Solvency II capital requirement (solvency
capital requirement or "SCR").
The Group's Solvency II surplus is GBP1,021 million at 31
December 2020 (2019: GBP1,168 million) , representing a Solvency II
ratio of 217% (2019: 221% ) calculated under the standard formula.
The Solvency II regulatory position for the year ended 31 December
2020 allows for the impact of the recommended final dividend
payment of GBP61 million (2019: GBP64 million). The disclosure does
not include the impact of Tranche 3 of the share buyback which has
yet to be approved by the Group's regulators.
The Solvency II results for the year ended 31 December 2020
(unaudited estimate) and 31 December 2019 were as follows:
GBPm
----------- -----------
31 December 31 December
2020(1) 2019(2)
----------- -----------
Own funds 1,897 2,132
Solvency capital requirement (SCR) 876 964
Solvency II surplus 1,021 1,168
Solvency II coverage ratio 217% 221%
----------- -----------
(1) Based on preliminary estimates. Filing of annual regulatory
reporting forms due by 20 May 2021.
(2) As represented within the Quilter plc Group Solvency and
Financial Condition Report for the year ended 31 December 2019.
The Group's own funds include the Quilter plc issued
subordinated debt security which qualifies as capital under
Solvency II. The composition of own funds by tier is presented in
the table below.
GBPm
-----------
Group own funds 31 December 31 December
2020 2019
----------- -----------
Tier 1(1) 1,688 1,925
Tier 2(2) 209 207
----------------------------------
Total Group Solvency II own funds 1,897 2,132
(1) All Tier 1 capital is unrestricted for tiering purposes.
(2) Comprises a Solvency II compliant subordinated debt security
in the form of a Tier 2 bond, which was issued at GBP200 million in
February 2018.
The Group's insurance subsidiaries based in the UK and Ireland
are also subject to Solvency II at entity level. Other regulated
entities in the Group are subject to the locally applicable
entity-level capital requirements in the jurisdictions in which
they operate. In addition, the Group's asset management and advice
businesses are subject to group supervision by the FCA under the
CRD IV regime.
The solvency and capital requirements for the Group and its
regulated subsidiaries are reported and monitored through monthly
Capital Management Forum meetings. Throughout 2020, the Group has
complied with the regulatory capital requirements that apply at a
consolidated level and Quilter's insurance undertakings and
investment firms have complied with the regulatory capital
requirements that apply at entity level.
19(a)(ii): Loan covenants
Under the terms of the revolving credit facility agreement, the
Group is required to comply with the following financial covenant:
the ratio of total net borrowings to consolidated equity
shareholders' funds shall not exceed 0.5.
GBPm
31 December 31 December
2020 2019
Total external borrowings of the Company 199 198
Less: cash and cash equivalents of the Company (314) (559)
Total net external borrowings of the Company (115) (361)
Total shareholders' equity of the Group 1,878 2,071
Tier 2 bond 199 198
Total Group equity (including Tier 2 bond) 2,077 2,269
Ratio of Company net external borrowings to Group
equity -0.055 -0.159
The Group has complied with the covenant since the facility was
created in February 2018.
19(a)(iii): Own Risk and Solvency Assessment ("ORSA") and
Internal Capital Adequacy Assessment Process ("ICAAP")
The Group ORSA process is an ongoing cycle of risk and capital
management processes which provides an overall assessment of the
current and future risk profile of the Group and demonstrates the
relationship between business strategy, risk appetite, risk profile
and solvency needs. These assessments support strategic planning
and risk-based decision making.
The underlying ORSA processes cover the Group and consider how
risks and solvency needs may evolve over the planning period. The
ORSA includes stress and scenario tests, which are performed to
assess the financial and operational resilience of the Group.
The Group ORSA report is produced annually and summarises the
analysis, insights and conclusions from the underlying risk and
capital management processes in respect of the Group. The ORSA
report is submitted to the PRA as part of the normal supervisory
process and may be supplemented by ad hoc assessments where there
is a material change in the risk profile of the Group outside the
usual reporting cycle.
In addition to the Group ORSA process, entity level ORSA
processes are performed for each of the solo insurance entities
within the Group.
The Group ICAAP process is similar to the ORSA process although
the ICAAP process is performed for a subset of the Group consisting
of the investment and advisory firms within the Group (the "ICAAP
Group"). The Group ICAAP report is also produced annually and
summarises the analysis, insights and conclusions from the
underlying risk and capital management processes in respect of the
ICAAP Group. The ICAAP report is submitted to the FCA as part of
the normal supervisory process and may be supplemented by ad-hoc
assessments where there is a material change in the risk profile of
the ICAAP Group outside the usual reporting cycle.
The conclusions of ORSA and ICAAP processes are reviewed by
management and the Board throughout the year.
19(b): Credit risk
Overall exposure to credit risk
Credit risk is the risk of adverse movements in credit spreads
(relative to the reference yield curve), credit ratings or default
rates leading to a deterioration in the level or volatility of
assets, liabilities or financial instruments resulting in loss of
earnings or reduced solvency. This includes counterparty default
risk, counterparty concentration risk and spread risk.
The Group has established a Credit Risk Framework that includes
a Credit Risk Policy, Credit Risk Standard and Credit Risk Appetite
Statement. This framework applies to all activities where the
shareholder is exposed to credit risk, either directly or
indirectly, ensuring appropriate identification, measurement,
management, monitoring and reporting of the Group's credit risk
exposures.
The credit risk arising from all exposures is mitigated through
ensuring the Group only enters into relationships with
appropriately robust counterparties, adhering to the Group Credit
Risk Policy. For each asset, consideration is given as to:
-- the credit rating of the counterparty, which is used to derive the probability of default;
-- the loss given default;
-- the potential recovery which may be made in the event of default;
-- the extent of any collateral that the firm has in respect of the exposures; and
-- any second order risks that may arise where the firm has
collateral against the credit risk exposure.
The credit risk exposures of the Group are monitored regularly
to ensure that counterparties remain creditworthy, to ensure there
is appropriate diversification of counterparties and to ensure that
exposures are within approved limits. At 31 December 2020, the
Group's material credit exposures were to financial institutions
(primarily through the investment of shareholder funds), corporate
entities (including external fund managers and reinsurers) and
individuals (primarily through fund management trade settlement
activities).
There is no direct exposure to European sovereign debt (outside
of the UK) within the shareholder investments. The Group has no
significant concentrations of credit risk exposure.
Other credit risks
The Group is exposed to financial adviser counterparty risk
through a number of loans that it makes to its advisers and the
payment of upfront commission on the sale of certain types of
business. The risk of default by financial advisers is managed
through monthly monitoring of loan and commission debt
balances.
The Group is also exposed to the risk of default by fund
management groups in respect of settlements and rebates of fund
management charges on collective investments held for the benefit
of policyholders. This risk is managed through the due diligence
process which is completed before entering into any relationship
with a fund group. Amounts due to and from fund groups are
monitored for prompt settlement and appropriate action is taken
where settlement is not timely.
Legal contracts are maintained where the Group enters into
credit transactions with a counterparty.
Impact of credit risk on fair value
Due to the limited exposure that the Group has to credit risk,
credit risk does not have a material impact on the fair value
movement of financial instruments for the year under review. The
fair value movements on these instruments are mainly due to changes
in market conditions.
Maximum exposure to credit risk
The Group's maximum exposure to credit risk does not differ from
the carrying value disclosed in the relevant notes to the financial
statements.
Loans and advances subject to 12 month expected credit losses
("12 month ECL") are GBP31 million (2019: GBP37 million) and other
receivables subject to lifetime expected credit losses ("lifetime
ECL") are GBP525 million (2019 restated - see note 3(b): GBP458
million). These balances are not rated; they represent the pool of
counterparties that do not require a rating. These counterparties
individually generate no material credit exposure and this pool is
highly diversified, monitored and subject to limits.
Exposure arising from financial instruments not recognised on
the statement of financial position is measured as the maximum
amount that the Group would have to pay, which may be significantly
greater than the amount that would be recognised as a liability.
The Group does not have any significant exposure arising from items
not recognised on the statement of financial position.
The table below represents the Group's exposure to credit risk
from cash and cash equivalents.
GBPm
Credit rating relating to cash and
cash equivalents that are neither
past due nor impaired
Carrying
31 December 2020 AAA AA A BBB <BBB Not rated(1) value
Cash at amortised cost,
subject to
12 month ECL - 81 464 1 4 307 857
Money market funds at FVTPL 1,062 - - - 2 - 1,064
Total cash and cash
equivalents 1,062 81 464 1 6 307 1,921
GBPm
Credit rating relating to cash and
cash equivalents that are neither
past due nor impaired
31 December 2019 (restated Carrying
(2) ) AAA AA A BBB <BBB Not rated(1) value
Cash at amortised cost,
subject to
12 month ECL - 272 511 2 2 307 1,094
Money market funds at FVTPL 1,156 - - 3 - - 1,159
Total cash and cash
equivalents 1,156 272 511 5 2 307 2,253
(1) Cash included in the consolidation of funds is not rated
(see note 14(a)).
(2) See notes 3(b) for details of changes to comparatives.
Impairment allowance
Assets that are measured and classified at amortised cost are
monitored for any expected credit loss ("ECL") on either a 12 month
or lifetime ECL model. The majority of such assets within the Group
are measured on the lifetime ECL model, with the exception of some
specific loans that are on the 12 month ECL model.
Impairment allowance GBPm
Balance at 1 January 2019 (0.9)
Additions due to increased broker loans (0.3)
-----
31 December 2019 (1.2)
Reduction due to reassessment of broker loans impairment modelling 0.4
31 December 2020 (0.8)
19(c): Market risk
Market risk is the risk of an adverse change in the level or
volatility of market prices of assets, liabilities or financial
instruments resulting in loss of earnings or reduced solvency.
Market risk arises from changes in equity, bond and property
prices, interest rates and foreign exchange rates. Market risk
arises differently across the Group's businesses depending on the
types of financial assets and liabilities held.
The Group has a market risk policy which sets out the risk
management framework, permitted and prohibited market risk
exposures, maximum limits on market risk exposures, management
information and stress testing requirements which are used to
monitor and manage market risk. The policy is cascaded to the
businesses across the Group, and Group level governance and
monitoring processes provide oversight of the management of market
risk by the individual businesses.
The Group does not undertake any principal trading for its own
account. The Group's revenue is however affected by the value of
assets under management and consequently it has exposure to equity
market levels and economic conditions. Scenario testing is
undertaken to test the resilience of the business to severe but
plausible events, including assessment of the potential
implications of climate related risks and opportunities, and to
assist in
the identification of management actions.
19(c)(i): Equity and property price risk
In accordance with the market risk policy, the Group does not
generally invest shareholder assets in equity or property, or
related collective investments, except where the exposure arises
due to:
-- mismatches between unitised fund assets and liabilities.
These mismatches are permitted, subject to maximum limits, to avoid
excessive dealing costs; and
-- seed capital investments. Seed capital is invested within new
unit-linked funds at the time when these funds are launched. The
seed capital is then withdrawn from the funds as policyholders
invest in the funds.
The above exposures are not material to the Group.
The Group derives fees (e.g. annual management charges) and
incurs costs (e.g. adviser fund based renewal commissions) which
are linked to the performance of the underlying assets. Therefore
future earnings will be affected by equity and property market
performance.
Equity and property price sensitivity testing
A movement in equity and property prices would impact the fee
income that is based on the market value of the investments held
for the policyholders. In this analysis, all linked renewal
commission is assumed to be fund based. The sensitivity is applied
as an instantaneous shock to equity and property prices at the
start of the year. The sensitivity analysis is not limited to the
unit-linked business and therefore reflects the sensitivity of the
Group as a whole.
GBPm
----------- -----------
Impact on profit after tax and shareholder's equity
31 December 31 December
2020 2019
----------- -----------
Impact of 10% increase in equity and property prices 32 32
Impact of 10% decrease in equity and property prices (32) (32)
----------- -----------
19(c) (ii): Interest rate risk
Interest rate risk arises primarily from bank balances held with
financial institutions. A small amount of the Group's assets are
held in fixed interest UK government bonds, which are exposed to
fluctuations in interest rates.
Fixed interest UK government bonds are mainly held to match
liabilities by durations and so the exposure to interest rate risk
is not material.
A rise in interest rates would also cause an immediate fall in
the value of investments in fixed income securities within
unit-linked funds. The unit-linked funds asset look-through
analysis has revealed that less than 30% of the Group's linked
assets are invested in the fixed income securities which generally
have short durations, resulting in a low material impact in fund
based revenues.
Conversely, a reduction in interest rates would cause a rise in
the value of investments in fixed income securities within
unit-linked funds. It would also reduce the interest rate earned on
bank balances, and could potentially result in the Group incurring
interest charges on these balances, if interest rates become
negative.
Exposure of the IFRS income statement and statement of financial
position equity to interest rates are summarised below.
Interest rate sensitivity testing
The impact of an increase and decrease in market interest rates
of 1% is tested (e.g. if the current interest rate is 5%, the test
allows for the effects of an instantaneous change to 4% and 6% from
the start of the year). The test allows consistently for similar
changes in investment returns and movements in the market value of
any fixed interest assets backing the liabilities. The sensitivity
of profit to changes in interest rates is provided.
GBPm
------------ ------------
Impact on profit after tax and shareholder's equity
Year ended Year ended
31 December 31 December
2020 2019
Impact of 1% increase in interest rates 16 16
Impact of 1% decrease in interest rates (8) (12)
------------ ------------
19(c)(iii): Currency translation risk
Currency risk is the risk that the fair value of future cash
flows of a financial instrument will fluctuate because of changes
in foreign exchange rates. The Group's functional currency is
Sterling, which accounts for the majority of the Group's
transactions, but the Group also has minor exposures to foreign
exchange risk in respect to accounts receivable and future revenues
denominated in US Dollars, Euros and Swedish Krona through its
International operations. Where currency risk is considered
material, risk mitigation techniques are adopted, such as using
derivative financial instruments such as forward foreign exchange
contracts. After risk mitigation, the Group does not have material
foreign currency risk exposure.
19(d): Liquidity risk
Liquidity risk is the risk that there are insufficient assets or
that assets cannot be realised in order to settle financial
obligations as they fall due or that market conditions preclude the
ability of the Group to trade in illiquid assets in order to
maintain its asset and liability matching ("ALM") profile. The
Group manages liquidity on a daily basis through:
-- maintaining adequate high quality liquid assets and banking
facilities, the level of which is informed through appropriate
liquidity stress testing;
-- continuously monitoring forecast and actual cash flows; and
-- monitoring a number of key risk indicators to help in the
identification of a liquidity stress.
Individual businesses maintain and manage their local liquidity
requirements according to their business needs within the overall
Group Liquidity Risk Framework that includes a Group Liquidity Risk
Policy, Group Liquidity Risk Standard and Group Liquidity Risk
Appetite Statement. The Group framework is applied consistently
across all businesses in the Group to identify, manage, measure,
monitor and report on all liquidity risks that have a material
impact on liquidity levels. This framework considers both
short-term liquidity and cash management considerations and
longer-term funding risk considerations.
Liquidity is monitored centrally by Group Treasury, with
management actions taken at a business level to ensure each
business has liquidity to cover its minimum liquidity requirement,
with an appropriate buffer set in line with the Group Risk Appetite
Statement.
Throughout the Covid-19 pandemic experienced in 2020 all of the
subsidiaries and the Group Holding Companies have operated above
their individual liquidity targets and there were no new liquidity
stresses identified over this period to include in the liquidity
monitoring process. Daily liquidity monitoring continues across the
group to enable timely identification of any emerging issues.
The Group maintains contingency funding arrangements to provide
liquidity support to businesses in the event of liquidity stresses
that are greater than their risk appetite. Contingency Funding
Plans are in place for each individual business in order to set out
the approach and management actions that would be taken should
liquidity levels fall below minimum liquidity requirements. The
plans undergo an annual review and testing cycle to ensure they are
fit for purpose and can be relied upon during a liquidity
stress.
Information on the nature of the investments and securities held
is given in note 11.
The Group has a GBP125 million five year Revolving Credit
Facility with a five bank club that represents a form of
contingency liquidity for the Group. No drawdown on this facility
has been made since inception or through the period of the COVID-19
pandemic. The Group has exercised the option to extend the facility
for a further two year period, to February 2025, and has continued
to meet all the covenants attached to its financing
arrangements.
The financing arrangements are considered sufficient to maintain
the target liquidity levels of the Group and offer coverage for
appropriate stress scenarios identified within the liquidity stress
testing undertaken across the Group.
The Group does not have material liquidity exposure to special
purpose entities or investment funds.
19(e): Insurance Risk
19(e)(i): Overview
The Group assumes insurance risk by providing life assurance
cover to customers within insurance policies, under which the Group
agrees to compensate the policyholder or other beneficiary in the
event that a specified uncertain future event (the insured event)
affecting the policyholder occurs. The Group does not offer general
insurance business and therefore does not take on other forms of
insurance risk such as motor and property insurance risks.
Insurance risk arises through exposure to variable claims
experience on life assurance, exposure to variable operating
experience in respect of factors such as persistency levels and
management expenses. Unfavourable persistency, expenses and
mortality claim rates, relative to the actuarial assumptions made
in the pricing process, may result in profit margins reducing below
the target levels included in the pricing process.
The Group has implemented an insurance risk policy which sets
out the Group requirements for the management, measurement,
monitoring and reporting of insurance risks. The Group has
implemented three standards to support the insurance risk policy,
as follows:
-- Underwriting and Claims Standard;
-- Reinsurance Standard; and
-- Technical Provisions Standard.
The sensitivity of the Group's earnings and capital position to
insurance risks is monitored through the Group's capital management
processes.
The Group manages its insurance risks through the following
mechanisms:
-- management of expense levels relative to approved budgets;
-- pricing of insurance contracts utilising analysis of
mortality, persistency and expense experience;
-- underwriting of mortality risks;
-- reinsurance, which is used to limit the Group's exposure to
large single claims and catastrophes through transfer of mortality
risk exposures; and
-- the Group does not offer group insurance business in order to
avoid risk concentrations of insurance risk.
Mortality
Mortality risk is the risk that death claims experience is
higher than the rates assumed when pricing contracts.
A risk charge is applied to meet the expected cost of the
insured benefit (in excess of the unit value). This risk charge can
be altered in the event of changes in the expectation for future
claims experience, subject to the objective to provide fair
customer outcomes.
Persistency
Persistency risk is the risk that the level of surrenders or
withdrawals on insurance policies occur at levels that are
different to the levels assumed in the pricing process and relative
to the levels assumed in determination of technical provisions.
Persistency statistics are monitored monthly and a detailed
persistency analysis at a product group level is carried out on an
annual basis. Management actions may be triggered if persistency
statistics indicate significant adverse movement or emerging trends
in experience .
Expenses
Expense risk is the risk that actual expenses and expense
inflation differ from the levels expected and allowed for within
the pricing process. Expense levels are monitored quarterly against
budgets and forecasts. Expense drivers are used to allocate
expenses to entities and products. Some product structures include
maintenance charges. These charges are reviewed annually in light
of changes in maintenance expense levels and the market rate of
inflation. This review may result in changes in charge levels.
19(e)(ii): Sensitivity analysis .
Sensitivity analysis has been performed by applying the
following parameters to the statement of financial position and
income statement as at 31 December 2020 and 31 December 2019.
Interest rate and equity and property price sensitivities are
included within the Group market sensitivities above.
Expenses
The increase in expenses is assumed to apply to the costs
associated with the maintenance and acquisition of contracts. It is
assumed that these expenses are increased by 10% from the start of
the year, so is applied as an expense shock rather than a gradual
increase. The only administrative expenses that are deferrable are
sales bonuses but as new business volumes are unchanged in this
sensitivity, sales bonuses and the associated deferrals have not
been increased. Administrative expenses have been allocated equally
between life and pensions.
An increase in expenses of 10% would have decreased profit by
GBP11 million after tax (2019: GBP13 million).
Mortality
Mortality risk is not material as the Group does not provide
material mortality insurance on its products and mortality benefits
are reinsured.
19(f): Operational risk
Operational risk is the risk that failure of people, processes,
systems or external events results in financial loss, damage to
brand/reputation or adverse regulatory intervention, or government
or regulatory fine. Operational risk includes all risks resulting
from operational activities, excluding the risks already described
above and excluding strategic risks and risks resulting from being
part of a wider group of companies.
Operational risk includes the effects of failure of
administration processes, IT and Information Security maintenance
and development processes, investment processes (including
settlements with fund managers, fund pricing and matching and
dealing), product development and management processes, legal risks
(e.g. risk of inadequate legal contract with third parties), poorly
managed responses to regulatory change, which in the future may
include transitional financial risks from climate change, risks
relating to the relationship with third party suppliers and
outsourcers, and the consequences of financial crime and business
interruption events.
In accordance with Group policies, management have primary
responsibility for the identification, assessment, management and
monitoring of risks, and the escalation and reporting on issues to
executive management.
The Group executive management have responsibility for
implementing the Group Operational Risk management methodologies
and frameworks and for the development and implementation of action
plans designed to manage risk levels within acceptable tolerances
and to resolve issues identified.
19(g): Contractual maturity analysis
Investment contract policyholders have the option to terminate
or transfer their contracts at any time and to receive the
surrender or transfer value of their policies, and these
liabilities are therefore classified as less than three months
maturity. Although these liabilities are payable on demand, the
Group does not expect that all liabilities will be settled within
this period. Following the sale of QLA at the end of 2019 the Group
has no pure insurance contracts (unbundled elements of linked
investment contracts are included within "unit linked investment
contracts and similar contracts").
20: Related party transactions
In the normal course of business, the Group enters into
transactions with related parties. Loans to related parties are
conducted on an arm's length basis and are not material to the
Group's results. There were no transactions with related parties
during the current and prior year which had a material effect on
the results or financial position of the Group. Full details of
transactions with related parties, including key management
personnel compensation is included within note 39 of the financial
statements within the Group's 2020 Annual report. The Group's
interest in subsidiaries and related undertakings are set out in
Appendix B of the financial statements within the Group's 2020
Annual report.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR FFFFVVIIAIIL
(END) Dow Jones Newswires
March 10, 2021 02:00 ET (07:00 GMT)
Quilter (LSE:QLT)
Historical Stock Chart
From Jun 2024 to Jul 2024
Quilter (LSE:QLT)
Historical Stock Chart
From Jul 2023 to Jul 2024
