TIDMQLT
RNS Number : 4744V
Quilter PLC
10 August 2022
NEWS RELEASE
10 August 2022
Quilter plc interim results for the six months ended 30 June
2022
Stable revenue and cost discipline drive 9% increase in adjusted
profit
Management basis - Continuing business (excluding Quilter
International for comparative data)
-- Assets under Management and Administration ("AuMA") of
GBP98.7 billion at the end of June 2022, a decrease of 12% from 31
December 2021 (GBP111.8 billion) principally due to adverse market
movements of GBP14.5 billion and:
o Quilter Investment Platform net inflows of GBP1.6 billion (H1
2021: GBP1.8 billion) representing 4% of opening AuMA (H1 2021:
6%), reflecting an industry wide slowdown in new client flows
during the second quarter.
o Quilter channel flows onto the Quilter Investment Platform of
GBP954 million up 10% on the GBP868 million achieved in 2021.
o Quilter High Net Worth net inflows of GBP0.5 billion (H1 2021:
GBP0.4 billion) representing 3% of opening AuMA (H1 2021: 4%).
o Net outflows of GBP0.6 billion (H1 2021: net outflows GBP0.3
billion) of assets held on third party platforms reflecting
non-core, legacy business in run off and transition of assets
advised by Quilter Financial Planning on other platforms to the
Quilter Investment Platform.
o Leading to Group net inflows of GBP1.4 billion for the first
half (H1 2021: 2.0 billion).
-- Flat revenues and cost discipline drove a 9% increase in
adjusted profit before tax to GBP61 million (H1 2021: GBP56
million).
-- Improved operating margin of 20% (H1 2021: 18%), reflecting
stable revenues and a reduction in expenses of 2% through lower
FSCS levies and tight control of costs despite the inflationary
environment and the return to more normalised investment spend
post-pandemic.
-- Adjusted diluted earnings per share decreased 5% to 3.7 pence
(H1 2021: 3.9 pence), reflecting a more normal tax rate (as a
result of the non-repetition of a deferred tax credit in the first
half of 2021) partially offset by a reduced share count following
completion of our capital return programme.
-- Interim dividend of 1.2 pence per share unchanged on 2021
(excluding the contribution from Quilter International).
Statutory results
-- IFRS profit before tax attributable to equity holders from
continuing operations of GBP182 million (H1 2021: GBP(21) million),
largely driven by policyholder tax credits of GBP145 million (H1
2021: tax charge GBP(48) million). This income tax credit/(charge)
can vary significantly period-on-period as a result of market
volatility and the impact this has on policyholder tax.
-- Negotiations concluded with the insurers who provided
professional indemnity cover for Lighthouse resulting in the
payment of the full amount due under the policy of GBP15 million,
including amounts received since the period end, with the benefit
of this excluded from adjusted profit. Net cost of post-acquisition
Lighthouse remediation totals GBP12 million.
-- Basic earnings/(loss) per share from continuing operations of
11.3 pence (H1 2021: (0.9) pence).
-- Diluted earnings/(loss) per share from continuing operations
of 11.2 pence (H1 2021: (0.9) pence).
-- Solvency II ratio of 219% after payment of the interim dividend (December 2021: 275%).
Strategic progress
-- Significant expansion of our successful WealthSelect managed
portfolios, with a simpler charging structure. We now offer a full
spectrum of portfolios to cover clients' risk, investment
preferences with an ESG overlay.
-- Good progress building incremental platform flows from
targeted IFA firms with 80 adviser firms adopting Quilter as a
platform of choice during the period and contributing to
incremental gross inflows.
-- Continued build out of our integrated advice and investment
proposition in the High Net Worth segment, with eight additional
investment managers added since June 2021.
-- Good initial progress with our GBP45 million Business
Simplification programme, with annualised run-rate savings of GBP13
million achieved to date.
-- Completion, in January 2022, of the GBP375 million share
buyback programme from the Quilter Life Assurance sale proceeds.
Since the programme's inception, 264 million shares were purchased
at an average price of 141.97 pence per share.
-- GBP328 million capital return in June 2022, (20 pence per
share) through B share scheme accompanied by a 6 for 7 share
consolidation to return the net surplus proceeds from the sale of
Quilter International to shareholders.
Paul Feeney, Chief Executive Officer, said:
"Operating conditions in the first six months of 2022 have been
challenging. Global equity markets have experienced one of the
worst periods of negative performance in recent years and
traditional 60:40 multi-asset portfolios have had their largest
negative year-to-date return on record. In that context, our
overall AuMA has been relatively resilient, down 12% to GBP98.7
billion on the December 2021 level. Despite the market volatility,
we generated net inflows of GBP1.6 billion (H1 2021: GBP1.8
billion) on the Quilter Investment Platform and a further GBP0.5
billion of net inflows (H1 2021 GBP0.4 billion) through our High
Net Worth segment, modestly reducing the negative mark-to-market
and third party platform net outflow impacts.
"Against this backdrop we delivered a 9% increase in our
adjusted profit in the first half of 2022. Our focus remains on
managing our business towards the targets set out at our Capital
Markets Day last November, although an absence of an improvement in
market levels and investor sentiment over the remainder of this
year and 2023 may impact on the timing of delivery. My priorities
continue to be growth in the IFA and Quilter adviser franchises,
cost discipline to deliver a right-sized cost base for the new
streamlined Quilter, investing for future growth through
initiatives such as hybrid advice, and embedding ESG into the
services we provide for clients and tools we provide for
advisers".
Quilter highlights from continuing operations(1) H1 2022 H1 2021
---------------------------------------------------------------- -------- --------
Assets and flows
AuMA (GBPbn)(2, 5) 98.7 106.4
Gross flows (GBPbn)(2, 5) 5.9 6.7
Net inflows (GBPbn)(2, 5) 1.4 2.0
Net inflows/opening AuMA(2) 3% 4%
Gross flows per adviser (GBPm)(2, 3) 2.4 2.4
Asset retention(3) 92% 91%
Profit and loss
IFRS profit/(loss) before tax attributable to equity
holders (GBPm)(2) 182 (21)
IFRS profit/(loss) after tax (GBPm) 151 (13)
Adjusted profit before tax (GBPm)(2) 61 56
Operating margin(2) 20% 18%
Revenue margin (bps)(2) 47 48
Return on equity(2) 5.9% 7.3%
Adjusted diluted earnings per share (pence)(2) 3.7 3.9
Basic earnings/(loss) per share (pence) 11.3 (0.9)
Non-financial
Restricted Financial Planners ("RFPs") in Affluent
segment(4) 1,512 1,639
Discretionary Investment Managers in High Net Worth
segment(4) 176 168
Quilter Private Client RFPs in High Net Worth segment(4) 55 62
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(1) Continuing operations represent Quilter plc, excluding the results
of Quilter International. Adjusted profit before tax for Quilter International
in H1 2021 was GBP 29 million. Adjusted diluted EPS from Quilter International
in H1 2021 was 1.9 pence per share.
(2) Alternative Performance Measures ("APMs") are detailed and defined
on pages 4 to 6.
(3) Gross flows per adviser is a measure of the value created by our
Quilter distribution channel.
(4) Closing headcount as at 30 June.
(5) H1 2021 asset and flow comparators have been restated to exclude
amounts relating to Quilter International to align with information
presented at the Company's Capital Markets Day on 3 November 2021 and
its fourth quarter trading statement 2021 on 26 January 2022.
Adjusted profit presented in this announcement
Adjusted profit is presented in this announcement in a number of ways
to provide readers with a view of adjusted profit for the Group excluding
Quilter International (on a continuing basis) and for the total Group
(on a continuing and discontinued basis). A full reconciliation of these
views is provided on page 16 and definitions of adjusted profit are
explained on page 4.
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including
APMs, as explained further on pages 4 to 6. In the headings and tables
presented from page 11 onwards, these measures are indicated with an
asterisk: *.
Quilter plc results for the six months ended 30 June 2022
Investor Relations
John-Paul Crutchley UK +44 77 4138 5251
Keilah Codd UK +44 77 7664 9681
Media
Tim Skelton-Smith UK +44 78 2414 5076
Camarco
Geoffrey Pelham-Lane UK +44 77 3312 4226
Paul Feeney, CEO, and Mark Satchel, CFO, will host a
presentation and Q&A session via webcast at 08:30am (BST)
today, 10 August 2022.
The presentation will be webcast live and is available via our
website: 2022 results and presentations | Quilter plc
A conference call facility will also be available should you
wish to join by telephone:
United Kingdom /
Other +44 333 300 0804
South Africa +27 21 672 4118
United States +1 631 913 1422
Access Code 11389415#
Note: Neither the content of the Company's website nor the
content of any website accessible from hyperlinks on this
announcement (or any other website) is incorporated into, or forms
part of, this announcement.
Disclaimer
This announcement may contain certain forward-looking statements
with respect to Quilter plc's plans and its current goals and
expectations relating to its future financial condition,
performance, and results.
By their nature, all forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances
which are beyond Quilter plc's control including amongst other
things, international and global economic and business conditions,
the implications and economic impact of the COVID-19 pandemic,
market-related risks such as fluctuations in interest rates and
exchange rates, the policies and actions of regulatory authorities,
the impact of competition, inflation, deflation, the timing and
impact of other uncertainties of future acquisitions or
combinations within relevant industries, as well as the impact of
tax and other legislation and other regulations in the
jurisdictions in which Quilter plc and its affiliates operate. As a
result, Quilter plc's actual future financial condition,
performance and results may differ materially from the plans, goals
and expectations set forth in Quilter plc's forward-looking
statements.
Quilter plc undertakes no obligation to update the
forward-looking statements contained in this announcement or any
other forward-looking statements it may make.
Alternative Performance Measures
We assess our financial performance using a variety of
alternative performance measures ("APMs"). APMs are not defined
under IFRS, but we use them to provide further insight into the
financial performance, financial position and cash flows of the
Group and the way it is managed.
APMs should be read together with the Group's condensed
consolidated financial statements, which include the Group's income
statement, statement of financial position and statement of cash
flows, which are presented on pages 32 to 36.
Further details of APMs used by the Group in its Financial
review are provided below.
APM Definition
Adjusted profit before tax Adjusted profit before tax represents
the Group's IFRS profit, adjusted
for specific items that management
consider to be outside of the Group's
normal operations or one-off in nature,
as detailed on page 41 in the condensed
consolidated financial statements.
The exclusion of certain adjusting
items may result in adjusted profit
before tax being materially higher
or lower than the IFRS profit after
tax.
Adjusted profit before tax does not
provide a complete picture of the
Group's financial performance, which
is disclosed in the IFRS income statement,
but is instead intended to provide
additional comparability and understanding
of the financial results.
Adjusted profit before tax is presented
for the continuing Group (excluding
Quilter International), for discontinued
operations (Quilter International),
and for the total Group for continuing
and discontinued operations.
A detailed reconciliation of the
adjusted profit before tax metrics
presented, and how these reconcile
to IFRS, is provided on page 16 of
the Financial review. Adjusted profit
before tax is referred to throughout
the Chief Executive Officer's statement
and Financial review, with comparison
to the prior period explained on
page 12.
A reconciliation from each line item
on the IFRS income statement to adjusted
profit before tax is provided in
note 5(c) to the condensed consolidated
financial statements on page 44.
----------------------------------------------
Adjusted profit after tax Adjusted profit after tax represents
the post-tax equivalent of the adjusted
profit before tax measure, as defined
above.
----------------------------------------------
Adjusted profit before tax after Adjusted profit before tax after
reallocation reallocation reflects adjusted profit
before tax including certain costs
within continuing operations relating
to Quilter International that did
not transfer to Utmost Group on completion
of the sale, as detailed above.
A reconciliation from each line item
on the IFRS income statement to adjusted
profit before tax after reallocation
is provided in note 5(c) to the condensed
consolidated financial statements
on page 44.
----------------------------------------------
IFRS profit before tax attributable IFRS profit before tax attributable
to equity holders to equity holders represents the
profit after policyholder tax ('tax
attributable to policyholder returns')
but before shareholder tax (' tax
attributable to equity holders').
The tax charge for the Group's UK
life insurance entity, Quilter Life
& Pensions Limited, comprises policyholder
tax and shareholder tax. Policyholder
tax is regarded economically as a
pre-tax cost to the Group, in that
it is based on the return on assets
held by the Group's life insurance
entity to match against related unit-linked
liabilities in respect of clients'
policies, and for which the Company
charges fees to clients. As such,
policyholder tax can be a charge
or credit in any period depending
on underlying market movements on
those assets held to cover linked
liabilities.
Shareholder tax is the remaining
tax after deducting policyholder
tax and is more reflective of the
profitability of the entity.
This metric is included on the face
of the Group's income statement on
page 32 and is included in the adjusted
profit before tax to IFRS profit
after tax reconciliation in note
5(a) to the condensed consolidated
financial statements.
----------------------------------------------
Revenue margin (bps) Revenue margin represents net management
fees, divided by average AuMA. Management
use this APM as it represents the
Group's ability to earn revenue from
AuMA.
Revenue margin by segment and for
the Group is explained on page 12
of the Financial review.
----------------------------------------------
Operating margin Operating margin represents adjusted
profit before tax divided by total
net fee revenue.
Management use this APM as this is
an efficiency measure that reflects
the percentage of total net fee revenue
that becomes adjusted profit before
tax.
Operating margin is referred to in
the Chief Executive Officer's statement
and Financial review, with comparison
to the prior period explained in
the adjusted profit section on page
12.
----------------------------------------------
Gross flows Gross flows are the gross client
cash inflows received from customers
during the period and represent our
ability to increase AuMA and revenue.
Gross flows are referred to in the
Financial review on page 12 and disclosed
by segment in the supplementary information
on pages 24 to 25.
----------------------------------------------
Net flows Net flows is the difference between
money received from and returned
to customers during the relevant
period for the Group or for the business
indicated.
This measure is a lead indicator
of total net fee revenue. Net flows
is referred to throughout this document,
with a separate section in the Financial
review on page 12 and is presented
by business and segment in the supplementary
information on pages 24 to 25.
----------------------------------------------
Assets under Management and Administration AuMA represents the total market
("AuMA") value of all financial assets managed
and administered on behalf of customers.
AuMA is referred to throughout this
document, with a separate section
in the Financial review on page 12
and is presented by business and
segment in the supplementary information
on pages 24 to 25.
----------------------------------------------
Average AuMA Average AuMA represents the average
total market value of all financial
assets managed and administered on
behalf of customers. Average AuMA
is calculated using a 7-point average
(half year) and 13-point average
(full year) of monthly closing AuMA.
----------------------------------------------
Total net fee revenue Total net fee revenue represents
revenue earned from net management
fees and other revenue listed below
and is a key input into the Group's
operating margin.
Further information on total net
fee revenue is provided on page 13
of the Financial review and note
5(c) in the condensed consolidated
financial statements.
----------------------------------------------
Net management fees Net management fees consist of revenue
generated from AuMA, fixed fee revenues
including charges for policyholder
tax contributions, less trail commissions
payable. Net management fees are
presented net of trail commission
payable as trail commission is a
variable cost directly linked to
revenue, which is a treatment and
presentation commonly used across
our industry. Net management fees
are a part of total net fee revenue
and is a key input into the Group's
operating margin.
Further information on net management
fees is provided on page 13 and note
5(c) in the condensed consolidated
financial statements.
----------------------------------------------
Other revenue Other revenue represents revenue
not directly linked to AuMA (e.g.
encashment charges, closed book unit-linked
policies, non-linked Protect policies,
adviser initial fees and adviser
fees linked to AuMA in Quilter Financial
Planning (recurring fees). Other
revenue is a part of total net fee
revenue, which is included in the
calculation of the Group's operating
margin.
Further information on other revenue
is provided on page 13 and note 5(c)
in the condensed consolidated financial
statements.
----------------------------------------------
Operating expenses Operating expenses represent the
costs for the Group, which are incurred
to earn total net fee revenue and
excludes the impact of specific items
that management considers to be outside
of the Group's normal operations
or one-off in nature. Operating expenses
are included in the calculation of
adjusted profit before tax and impact
the Group's operating margin.
A reconciliation of operating expenses
to the applicable IFRS line items
is included in note 5(c) to the condensed
consolidated financial statements,
and the adjusting items excluded
from operating expenses are explained
in note 5(b). Operating expenses
are explained on page 14 of the Financial
review.
----------------------------------------------
Cash generation Cash generation is calculated by
removing non-cash generative items
from adjusted profit before tax,
such as deferrals required under
IFRS to spread fee income and acquisition
costs over the lives of the underlying
contracts with customers. It is stated
after deducting an allowance for
net cash required to support the
capital requirements generated by
new business offset by a release
of capital from the in-force book.
Cash generation is explained on page
17 of the Financial review.
----------------------------------------------
Asset retention The asset retention rate measures
our ability to retain assets from
delivering good customer outcomes
and investment performance. Asset
retention reflects the annualised
gross outflows of the AuMA during
the period as a percentage of opening
AuMA. Asset retention is calculated
as: 1 - (annualised gross outflow
divided by opening AuMA).
Asset retention is provided for the
Group on page 11 , and by segment
on page 27.
----------------------------------------------
Net inflows/opening AuMA This measure is calculated as total
net flows annualised (as described
above) divided by opening AuMA presented
as a percentage.
This metric is provided on page 2.
----------------------------------------------
Gross flows per adviser Gross flows per adviser is a measure
of the value created by our Quilter
distribution channel and is an indicator
of the success of our multi-channel
business model. Gross flows per adviser
is calculated as gross flows generated
by the Quilter channel through the
Quilter Investment Platform, Quilter
Investors or Quilter Cheviot (annualised)
per average Restricted Financial
Planner in both segments.
Gross flows per adviser is provided
on pages 2, 11 and 12.
----------------------------------------------
Return on Equity ("RoE") Return on equity calculates how many
pounds of profit the Group generates
from continuing operations with each
pound of shareholder equity. This
measure is calculated as adjusted
profit after tax divided by average
equity. Equity is adjusted for the
impact of discontinued operations,
if applicable .
Return on equity is provided on page
2.
----------------------------------------------
Adjusted diluted earnings per share Adjusted diluted earnings per share
represents the adjusted profit earnings
per share, calculated as adjusted
profit after tax divided by the weighted
average number of shares. Refer to
page 54 and note 8 in the condensed
consolidated financial statements.
A continuing and discontinued view
of diluted earnings per share has
also been presented, and the calculation
of all EPS metrics, is shown in note
8 to the condensed consolidated financial
statements.
Adjusted diluted earnings per share
is referred to throughout this document,
with additional details in the EPS
section in the Financial review on
page 14.
----------------------------------------------
Headline earnings per share The Group is required to calculate
headline earnings per share in accordance
with the Johannesburg Stock Exchange
Limited Listing Requirements, determined
by reference to the South African
Institute of Chartered Accountants'
circular 1/2021 Headline Earnings
. This is calculated on a basic and
diluted basis. For details of the
calculation, refer to note 8 of the
condensed consolidated financial
statements.
----------------------------------------------
Chief Executive Officer's statement
Since Quilter listed just over four years ago, we have
successfully transformed our business to be a simpler, more focused
client centric organisation while responding to a number of
external challenges including:
Ø the market and broader political uncertainty following the
Brexit referendum;
Ø the COVID-19 pandemic and its consequences from both a health
and social perspective as well as the changes it has brought to our
working practices; and
Ø geopolitical uncertainty which has manifested both through
rising tensions between global superpowers over the last few years
and, more directly, this year through the war in Ukraine with its
huge humanitarian cost. We have all felt the broader consequences
of this through increased oil prices and concerns over food
sufficiency driving sharply higher inflation which has led to a
global tightening of monetary policy and a "cost of living"
crisis.
This year global equity markets have experienced one of the
worst periods of negative performance in recent years. While the UK
has been perceived as an outperformer with the FTSE 100 'only' down
3% over the same period, in contrast the FTSE 250 and the FTSE AIM
100 both declined 20% and 25% respectively in the six months to end
June 2022.
Moreover, the traditional 60:40 multi-asset portfolio mix, a
bedrock of retirement planning, delivered the largest negative
year-to-date return on record as falling equity markets coupled
with rising bond yields led to both lower bond and equity portfolio
valuations. Our multi-asset portfolios are not constrained in this
manner and include liquid alternatives. This allows us to diversify
beyond equities and bonds. Some of our managers were able to
implement value biases in their portfolios, which has also proved
useful. We also use cash tactically and the majority of Quilter
Investors' assets performed well as they were defensively
positioned. Overall AuMA, declined 12% to GBP98.7 billion from 31
December 2021.
The first half of 2022 brought a tough operating environment,
probably the most challenging we have faced since Listing, but we
have delivered a good first half financial performance this year.
What differentiates Quilter at times like these is how we respond
and the opportunities we seize.
Our focus remains resolutely on both growing and simplifying our
business, improving business efficiency, and serving and supporting
our two core customer groupings in all market conditions. Notable
strategic achievements in the first six months of the year
include:
Ø significant expansion of our WealthSelect managed portfolios,
which introduced a simpler charging structure and increased the
number of portfolios to cover both risk appetite, investment style
and ESG preferences. These portfolios, together with two new tools
(client profiler and solution explorer), allow advisers to
incorporate clients' ESG preferences when determining the most
appropriate investment solution;
Ø the build out of our combined advice and investment
proposition in the High Net Worth segment which is already bearing
fruit with net inflows from the Quilter channel remaining
strong;
Ø the acceleration of cost savings from our GBP45 million
Business Simplification programme;
Ø building on the operational emissions reduction targets
announced in Q1, we commenced the wider development of our Climate
Action Plan, which will outline how we will seek to align our
business operations, value chain and investment activity with
science-based emissions reduction targets; and
Ø the launch of our inclusion and diversity plan.
Separately, I was also delighted to complete the GBP328 million
capital return to shareholders following the sale of Quilter
International to Utmost Group in November 2021.
Business performance
Given the market context, we are pleased with the 9% higher out
turn in adjusted profit before tax of GBP61 million (H1 2021: GBP56
million). Despite revenue headwinds, our cost discipline delivered
positive operating leverage and a solid P&L outturn in an
environment where costs were naturally higher than 2021 as we
emerged from the pandemic.
Average AuMA, the principal driver of net management fee
revenue, for the period of GBP105.3 billion is modestly ahead of
GBP101.7 billion in the first half of 2021. The decline in markets
over the course of the first half of 2022 took our end-June AuMA
below the end June 2021 level. Unless markets recover, this will
provide a headwind to our second half revenues relative to the
second half of 2021 when markets continued to rise from the
end-June 2021 reference point.
Total net fee revenue of GBP303 million decreased by GBP1
million. The modestly higher average AuMA base was offset by a
small mix-related decline in revenue margins. The repositioning of
our advice business since the beginning of 2021 contributed to
lower other revenues reflecting the decline in advisers over the
course of 2021, coupled with a reduced contribution from mortgage
and protection fees.
Despite heightened cost inflation pressures, we managed
operating expenses down GBP6 million in the first half as we
adjusted to the market environment. This took the cost base to
GBP242 million, with an GBP8 million reduction in the base costs of
running the business to GBP112 million (H1 2021: GBP120 million).
An increase in variable costs reflected investment in the business
and higher development spend relative to subdued pandemic levels in
the prior period. We also enjoyed the benefit of lower FSCS levies
due to the surplus carried forward from last year. Positive
operating leverage demonstrates our cost discipline has been
maintained despite the inflationary pressures across the
business.
Our operating margin improved to 20% (H1 2021: 18%). Markets'
performance in the second half of 2021 helped support a strong
operating margin outcome for 2021. Should market levels remain
around current levels, we expect the full-year operating margin to
be lower than the level achieved in 2021. We remain committed to
our stated 2023 and 2025 operating margin targets but note current
market levels provide a meaningful headwind. Without an improvement
in market levels in the remainder of this year and over the course
of 2023, this may delay achievement of these targets.
The Group's IFRS profit after tax from continuing operations was
GBP151 million, compared to a loss of GBP13 million for H1 2021.
The increase in profit is attributable to a policyholder tax credit
of GBP145 million to June 2022 (H1 2021: tax charge GBP(48)
million).
Adjusted diluted earnings per share was 3.7 pence (H1 2021: 3.9
pence), supported by a reduction in the share count from our
capital return programmes, with this offset by a more normalised
tax charge as the net deferred tax credit in the comparable period
of 2021 did not repeat. On an IFRS basis, we delivered basic EPS of
11.3 pence versus a loss of (0.9) pence per share for the
comparable period of 2021 on the same basis.
Period-end shares of 1.404 billion have declined 26% and by
c.500 million shares since the beginning of 2020 reflecting the
completion of our GBP375 million share buyback programme in early
2022 and the GBP328 million capital return through a B share
issuance and share consolidation which completed in early June
2022.
Given the uncertain outlook, the Board considers it appropriate
to declare an unchanged 2022 interim dividend at 1.2 pence per
share (excluding the contribution from Quilter International in
2021). As was the case in 2020 with the uncertainty caused by the
COVID-19 pandemic, the Board will make an appropriate decision on
the overall dividend for the 2022 financial year when it considers
the final dividend, with a view to maintaining a progression up our
target pay-out range of 50% to 70%, over time.
Client flows
Supporting trusted, advice-based relationships through two
distribution channels - our restricted financial advisers and
open-market independent financial advisers - is at the core of the
Quilter business model. It is in difficult markets that the
resilience of this model becomes evident. We support our customers
to ensure they are engaged with their long-term financial plan and
continue to save for retirement despite the near-term vagaries of
markets.
Our investment platform is central to our proposition, providing
the tax efficient investment 'wrappers' to meet client needs, while
linking advisers with our investment solutions and competitively
priced third-party alternatives to deliver the outcomes sought by
clients. Confidence in our proposition is demonstrated through both
the continued attraction to our solutions by financial advisers and
the increased integrated nature of net inflows.
The environment for new inflows has become more challenging over
the course of the first half of the year. Up until the end of
March, our net flows were broadly comparable with the same period
in 2021 despite total market flows being lower, pointing to an
improvement in market share in the first quarter that has been
sustained in the second quarter. While we continued to enjoy net
inflows throughout the second quarter, we also experienced clients
stepping back from discretionary investment. As a result, gross
inflows in the first half were 12% lower at GBP5.9 billion (H1
2021: GBP6.7 billion). While we experienced improved persistency in
client assets across each of our businesses, the lower level of new
sales volumes translated into lower net inflows which were 30%
lower at GBP1.4 billion versus GBP2.0 billion in the comparable
period of 2021. The main decline in net flows was recorded in
outflows on external third party platforms.
The Quilter Investment Platform continued to perform well
attracting GBP4.2 billion of new sales making it the leading
platform for retail advised sales in the first half. After
redemptions, this led to GBP1.6 billion of net inflows, while the
High Net Worth segment improved on the prior period flows by
delivering GBP0.5 billion of net inflows. Within this, the overall
level of Defined Benefit ("DB") to Defined Contribution ("DC")
flows at GBP0.2 billion were 33% lower than the comparable period
of 2021 (GBP0.3 billion) and continue to be a decreasing proportion
of our overall flows.
Our High Net Worth segment delivered better retention and stable
gross sales which contributed to a strong improvement in net flows
at GBP0.5 billion against GBP0.4 billion in the prior period. The
Quilter Cheviot Climate Assets fund continued to make excellent
progress, reaching the GBP400 million milestone in the period, of
which c.GBP150 million is held on the Quilter Investment Platform
within our Affluent segment. The fund's momentum underlines
Quilter's ability to meet the specific wishes of clients who are
increasingly seeking investments that deliver a broader out turn
than just financial performance.
Investment performance
Quilter Cheviot continued to outperform relevant ARC benchmarks,
remaining principally first or second quartile, to the end of March
2022, the most recent available performance period. Our investment
manager headcount within the High Net Worth segment increased by 8
year on year as we continued to build out our advice and investment
management capabilities.
The medium and longer-term performance of Quilter Investors'
multi-asset solutions remained good. The repositioning of our
managed portfolio solution, WealthSelect, has been well received by
clients and advisers, attracting GBP378 million of net inflows in
the period through the Quilter Investment Platform. WealthSelect's
performance remains strong over one, three and five years and since
inception seven years ago, having been predominantly first or
second quartile over all periods. Cirilium Active performance
remains strong on long-term metrics but, not surprisingly as a more
quality growth focused proposition, its short-term performance has
been weaker in these markets.
Transformation
Our transformation agenda remains firmly on track, with its
focus on:
Ø delivering an improvement in client flows to the Quilter
Investment Platform and into our investment solutions;
Ø repositioning our advice business through a focus on adviser
productivity; and
Ø investment in efficiency and digital initiatives to improve
productivity and client experience.
Taking each of these in turn:
A year on from the launch of our new platform, we have
experienced good take-up by IFA firms who were not active users of
our previous platform. As we said at our Capital Markets Day, we
are targeting increased business from 700 firms over a three-year
period. Thus far, we have secured commitment from 80 of these firms
who have gone through their due diligence and appointed us as a
platform of choice. Many have already started writing new business
on our platform with this representing around 10% of our gross
flows from the IFA channel this year. We are engaged in discussions
with another 60 firms and are in the early stage of negotiation
with a further 100 firms. This improvement reflects the broader
capabilities and functionality of our new platform and provides a
strong base from which we intend to accelerate flow momentum over
the coming years. We also continue to make good progress in
increasing usage of our new platform by Quilter Financial Planning
clients given its improved functionality. This is evidenced by an
improvement in Quilter channel flows onto the new platform and the
reduced flows from the Quilter channel onto third party
platforms.
The introduction of our new platform last year was a catalyst to
drive higher adviser productivity in Quilter Financial Planning by
increasingly aligning our advisers to our integrated proposition.
While this led to an expected reduction in advisers over the course
of 2021, the more modest reduction in the current year has been
caused by challenges in the speed of recruiting external advisers
into the business, while our attrition rates of advisers have
normalised to pre-review levels. We have stepped up our new adviser
recruitment and resourcing. Our core focus has delivered a
sustained improvement in our adviser productivity, with the Quilter
channel gross flows per adviser being stable at GBP2.4 million
despite a more challenging market environment. While our work to
reshape our Advice business is ongoing, we currently expect adviser
numbers to stabilise and to resume growth by the end of the
year.
Our Optimisation programme is now complete having achieved cost
savings of more than GBP65 million over the three-year programme.
Our second phase of efficiency initiatives, known as Business
Simplification, continues to progress well. In recognition of the
more challenging operating environment, we are continuously seeking
opportunities to accelerate some of our identified plans to bring
forward anticipated cost savings. An example achieved is the faster
consolidation of our two Southampton offices into a single building
which was completed earlier this year, over a year ahead of the
original intended schedule.
We have continued to invest in technology to deliver better
customer outcomes and experiences. In the first half, this included
investing in mobile to allow Affluent customers to access our
Platform via a mobile app. The technology is in beta testing with a
select group of clients and, once we have gained relevant feedback,
we expect to be able to commence a wider roll out later this year.
Our hybrid advice investment plans are also progressing well. We
are advancing our plans here and expect to move the initiative into
its pilot stage in 2023.
Responsible business and stewardship
Quilter is committed to being a responsible business in the way
we act and by building these principles into both our investment
and advice processes.
First , in terms of how we act, we recognise the current
environment is not just tough for our business, but it is also
extremely challenging for our staff. Our people are our most
important asset and have been magnificent over the past two years,
digging deep to keep our services running and supporting our
clients throughout the various COVID-19-induced lockdowns. We are
putting in place additional support for our people to help them
through the cost of living crisis. All employees earning GBP50,000
and less will receive a one-off payment of GBP1,200 in August 2022
at a total cost of around GBP4 million in the second half. We know
this payment will not fully mitigate rising food and energy costs,
but we hope it will go some way to ease current difficulties felt
by some employees due to the strain of the increased cost of
living.
We also launched our Inclusion and Diversity Action Plan earlier
this year. We believe that financial services companies who fail to
address systemic diversity issues within the industry will
ultimately get left behind. The companies who make a concerted
effort to improve employee diversity will be able to attract
talented individuals, who may have previously not considered a
career in our sector and Quilter will benefit as a result. Our new
two-year action plan prioritises solutions with measurable impact
which we will track and sustain over the long-term so we can better
meet the differing needs of underrepresented groups.
Second , in terms of embedding behaviours, earlier this year we
updated our matrix for our restricted network advisers to
incorporate ESG ratings and specific responsible investment
solutions. The new responsible and sustainable portfolios allow
(alongside our two new tools: client profiler and solution
explorer) advisers to take clients' ESG preferences into account in
determining the most appropriate solution. We believe this approach
is market leading.
Third , we continue to work closely with the skilled person
review investigating the Lighthouse DB to DC transfers. Our focus
remains on doing the right thing by any customers who were poorly
advised, even though this advice predates our acquisition of
Lighthouse. The skilled persons review is reaching its final stages
and I can report we concluded negotiations with the insurers who
provided professional indemnity cover for Lighthouse resulting in
the payment of the full amount due under the policy of GBP15
million, including amounts received since the period end, with this
benefit excluded from adjusted profit.
In respect of Board matters, Glyn Jones stepped down as Chair at
the conclusion of the Company's 2022 Annual General Meeting, with
Ruth Markland appointed as Chair and Tim Breedon assuming the role
of Senior Independent Director, until such time as the permanent
Chair successor was confirmed. We were delighted to welcome Glyn
Barker to the Board as a Non-executive Director at the beginning of
June 2022 and, subject to regulatory approval for his permanent
appointment, Chair Designate.
Outlook
Quilter is well positioned in an industry with long-term secular
growth prospects, and we have made further good progress in the
execution of our strategy. Our focus remains on improving
operational efficiency through our Business Simplification
programme and driving the business towards the financial targets we
set out at the November 2021 Capital Markets Day, albeit that
current market levels provide a revenue headwind which may delay
the achievement of our operating margin targets.
My priorities continue to be growth in the IFA and Quilter
adviser franchises, cost discipline to deliver a right-sized cost
base for the new streamlined Quilter, investing for future growth
through hybrid advice, and embedding ESG into the services we
provide for clients and tools we provide for advisers. We remain
confident in our simpler, more focused, business model, our ability
to improve our market share of flows through our new platform, and
our prospects to deliver strong sustainable returns to shareholders
through the cycle.
Paul Feeney
Chief Executive Officer
Financial review
Review of financial performance
In this section, review of financial performance, unless
indicated otherwise, all results are presented excluding Quilter
International in both the current year and prior year comparative,
following its sale to Utmost Group in November 2021.
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures
including APMs, as explained further on pages 4 to 6 . In the
headings and tables presented, these measures are indicated with an
asterisk: *.
Key financial highlights
Quilter highlights from continuing operations (1) H1 2022 H1 2021
================================================================= ======== ========
Assets and flows
AuMA* (GBPbn)(2, 5) 98.7 106.4
-------- --------
Of which Affluent 74.2 79.6
Of which High Net Worth 25.2 27.0
Inter-segment dual assets (0.7) (0.2)
Gross flows* (GBPbn)(2, 5) 5.9 6.7
-------- --------
Of which Affluent 4.8 5.3
Of which High Net Worth 1.3 1.4
Inter-segment dual assets (0.2) 0.0
Net inflows* (GBPbn)(2, 5) 1.4 2.0
-------- --------
Of which Affluent 1.0 1.6
Of which High Net Worth 0.5 0.4
Inter-segment dual assets (0.1) 0.0
Net inflows/opening AuMA*(2) 3% 4%
Gross flows per adviser* (GBPm)(2, 3) 2.4 2.4
Asset retention*(3) 92% 91%
Profit and loss
IFRS profit/(loss) before tax from continuing operations
attributable to equity holders* (GBPm)(2) 182 (21)
IFRS profit/(loss) after tax from continuing operations
(GBPm) 151 (13)
Adjusted profit before tax* (GBPm)(2) 61 56
Operating margin*(2) 20% 18%
Revenue margin* (bps)(2) 47 48
Return on equity*(2) 5.9% 7.3%
Adjusted diluted EPS* from continuing operations (pence)(2) 3.7 3.9
Basic earnings/(loss) per share from continuing operations
(pence) 11.3 (0.9)
Non-financial
Restricted Financial Planners ("RFPs") in Affluent
segment(4) 1,512 1,639
Discretionary Investment Managers in High Net Worth
segment(4) 176 168
Quilter Private Client RFPs in High Net Worth segment(4) 55 62
------------------------------------------------------------------ -------- --------
(1) Continuing operations represent Quilter plc, excluding the results
of Quilter International. Adjusted profit before tax for Quilter International
in H1 2021 was GBP29 million. Adjusted diluted EPS from Quilter International
in H1 2021 was 1.9 pence per share.
(2) Alternative Performance Measures ("APMs") are detailed and defined
on pages 4 to 6.
(3) Gross flows per adviser is a measure of the value created by our
Quilter distribution channel.
(4) Closing headcount as at 30 June.
(5) H1 2021 asset and flow comparators have been restated to exclude
amounts relating to Quilter International to align with information presented
at the Company's Capital Markets Day on 3 November 2021 and its fourth
quarter trading statement 2021 on 26 January 2022.
Overview
The Group's financial performance was resilient for the first
six months of the year in light of the volatile market environment,
with adjusted profit before tax up 9% to GBP61 million (H1 2021:
GBP56 million). This reflected stable revenues and a disciplined
focus on cost control as we regain momentum following the pandemic
and a reduction in FSCS levies. Global equity markets were down for
the first six months of the year, with the FTSE 100 down 3%, MSCI
World Index (GBP) down 12%, PIMFA Private Investor Balanced (Net)
down 9%, and Russell 1000 down 22% from the closing 2021 index
levels. The UK's rate of inflation hit a new 40-year high, with
corporate bond markets adversely affected by rising rates: the
Bloomberg Global Aggregate Bond index fell 10% from closing 2021
levels. The Group's AuMA ended the period at GBP98.7 billion, a 12%
decrease from the opening position at the start of 2022, resulting
from GBP14.5 billion of negative market movements more than
offsetting net inflows of GBP1.4 billion.
Net inflows of GBP1.4 billion for the period were down 30% on
the prior period (H1 2021: GBP2.0 billion), impacted by a dampening
in investor sentiment in light of the volatile global markets and a
weakening macro-economic environment. The net inflows are stated
inclusive of net outflows arising from assets on third party
platforms of GBP0.6 billion (H1 2021: GBP0.3 billion). Gross flows
for the Group were 12% lower than the prior period at GBP5.9
billion (H1 2021: GBP6.7 billion), primarily as a result of lower
flows into the Affluent segment due to lower adviser gross sales as
investor sentiment weighed on client's propensity to invest. As a
consequence, net inflows as a percentage of opening AuMA was 3% (H1
2021: 4%). Detailed analysis of net inflows by business segment is
shown in the Supplementary Information section of this
announcement.
-- The Affluent segment's net inflows of GBP1.0 billion were
down 38% on the prior period (H1 2021: GBP1.6 billion) due to
c.GBP0.2 billion lower net inflows in the Quilter Investment
Platform against a strong prior period comparative, and net
outflows of GBP0.6 billion (H1 2021: net outflows of GBP0.3
billion) in assets managed by Quilter solutions on third-party
platforms in relation to legacy and closed books of business. Net
inflows of GBP1.6 billion onto the Quilter Investment Platform were
down 11% (H1 2021: GBP1.8 billion), with lower sales in the IFA
channel as the prior period experienced strong inflows following
the completion of the Platform Transformation Programme and as
investor confidence improved as national lockdown restrictions
eased. Lower IFA channel flows were offset in the period by an
increase in net inflows in the Quilter distribution channel where
the Platform is winning a greater share of restricted sales,
weighted towards pensions, and we have established a simplified
procedure to allow us to accelerate back book transfers. Gross
flows on the Quilter Investment Platform of GBP4.2 billion (H1
2021: GBP4.5 billion) were 7% lower as clients reacted to the macro
environment. Pension and ISA product sales comprise GBP3.1 billion
(H1 2021: GBP3.3 billion) of the Quilter Investment Platform gross
flows of GBP4.2 billion, reflecting a similar proportion of overall
sales in comparison to the prior period.
-- The High Net Worth segment recorded net inflows of GBP0.5
billion which were up 25% from the prior period (H1 2021: GBP0.4
billion). Gross inflows of GBP1.3 billion were marginally down on
H1 2021 of GBP1.4 billion, offset by lower outflows on the prior
period. This is reflected in improved persistency at 94% versus 92%
in H1 2021.
Quilter channel gross flows per adviser* were stable at GBP2.4
million for the period (H1 2021: GBP2.4 million). Total average
RFP's for both segments combined have decreased 9% in H1 2022 to
1,603 (H1 2021: 1,765).
The Group's AuMA ended the period at GBP98.7 billion, down 12%
from the opening position at the start of 2022 (FY 2021: GBP111.8
billion), due to the fall in global equity and bond indices. The
Affluent segment AuMA of GBP74.2 billion decreased by 11% (FY 2021:
GBP83.3 billion) of which GBP24.5 billion is managed by Quilter,
down on the opening position at the start of 2022 (FY 2021: GBP27.4
billion). High Net Worth's AuM was GBP25.2 billion, down 12% from
opening 2022 (FY 2021: GBP28.7 billion), with all assets managed by
Quilter. In total, GBP49.5 billion of AuMA is managed by Quilter
across the Group (FY 2021: GBP56.1 billion).
The Group's revenue margin of 47 bps was 1 bp lower than the
prior period (H1 2021: 48 bps). For assets administered within the
Affluent segment, the revenue margin decreased by 1 bp to 26 bps
(H1 2021: 27 bps) as a result of higher average AuMA leading to
more clients moving into lower revenue margin tiers as the value of
their investments increase. Similarly, for assets managed in the
Affluent segment, the revenue margin decreased by 1 bp to 47 bps
(H1 2021: 48 bps) as a result of anticipated mix shifts in
underlying assets towards lower margin products. Within the High
Net Worth segment, the revenue margin of 70 bps decreased from the
prior period by 2 bps (H1 2021: 72 bps) as a result of the expected
reduction of non-recurring revenue from commission and contract
charges, and the impact of tiered fee structures on higher average
AuM.
Adjusted profit before tax increased by 9% to GBP61 million (H1
2021: GBP56 million). Higher net management fees of GBP245 million
(H1 2021: GBP242 million) were a result of higher average AuMA
period on period (H1 2022: GBP105.3 billion compared to H1 2021:
GBP101.7 billion) offset by lower other revenue of GBP58 million
(H1 2021: GBP62 million), due to lower mortgage and protection new
business levels and lower adviser headcount . Operating expenses in
H1 2022 were GBP242 million, 2% lower than the prior period (H1
2021: GBP248 million), primarily due to cost discipline and a
decrease in FSCS levies. The Group's operating margin increased to
20% (H1 2021: 18%), driven by the reduction in operating
expenses.
The Group's IFRS profit after tax from continuing operations was
GBP151 million, compared to a loss of GBP13 million for H1 2021.
The increase in profit is attributable to policyholder tax credits
of GBP145 million to June 2022 (H1 2021: tax charge GBP(48)
million).
Adjusted diluted earnings per share for continuing operations
decreased 5% to 3.7 pence (H1 2021: 3.9 pence), due to reduced
adjusted profit after tax as a result of the non-repetition of the
benefit from a deferred tax credit in 2021.
Financial performance by segment
Financial performance
from continuing operations High Head Continuing
H1 2022 (GBPm) Affluent Net Worth Office operations
----------------------------- --------- ----------- -------- ------------
Net management fee* 151 94 - 245
Other revenue* 42 14 2 58
------------------------------- --------- ----------- -------- ------------
Total net fee revenue* 193 108 2 303
Operating expenses* (146) (85) (11) (242)
------------------------------- --------- ----------- -------- ------------
Adjusted profit before
tax* 47 23 (9) 61
Tax (11)
--------
Adjusted profit after
tax* 50
--------- ----------- --------
Operating margin (%)* 24% 21% 20%
Revenue margin (bps)* 38 70 47
------------------------------- --------- ----------- -------- ------------
Financial performance
from continuing operations High Net Continuing
H1 2021 (GBPm) Affluent Worth Head Office operations
----------------------------- --------- --------- ------------ ------------
Net management fee* 149 93 - 242
Other revenue* 50 12 - 62
------------------------------- --------- --------- ------------ ------------
Total net fee revenue* 199 105 - 304
Operating expenses* (155) (79) (14) (248)
------------------------------- --------- --------- ------------ ------------
Adjusted profit before
tax*(1) 44 26 (14) 56
Tax 1
------------
Adjusted profit after
tax* 57
--------- --------- ------------
Operating margin (%)* 22% 25% 18%
Revenue margin (bps)* 39 72 48
------------------------------- --------- --------- ------------ ------------
(1) Total adjusted profit before tax including Quilter
International for H1 2021: GBP85 million. See note 5(a) to the
condensed consolidated financial statements on page 41.
Total net fee revenue*
The Group's total net fee revenue of GBP303 million (H1 2021:
GBP304 million), is broadly unchanged on the prior period. Net
management fee revenue is up 1% on that of the prior period due to
the higher average Group AuMA of GBP105.3 billion (H1 2021:
GBP101.7 billion). The blended revenue margin for the Group,
calculated in reference to net management fees, marginally
decreased by 1 bp to 47 bps.
Total net fee revenue for Affluent was GBP193 million, down 3%
from the prior year (H1 2021: GBP199 million). Net management fees
of GBP151 million were marginally ahead of the prior period due to
the impact of higher average AuMA which increased by 4% to GBP78.8
billion in H1 2022. Other revenue predominantly reflects revenue
generated from the provision of advice within Quilter Financial
Planning. Within the revenue generated by advice, mortgage and
protection, recurring charges and fixed fees were at lower levels
than the prior period due to lower markets and lower average
adviser headcount.
Total net fee revenue in High Net Worth was GBP108 million for
the period, up 3% from the prior period (H1 2021: GBP105 million).
This was principally driven by higher average AuM which increased
by 5% to GBP27.0 billion, partially offset by an expected reduction
in commission revenue as the proportion of clients on fee-only
propositions continues to increase. Other revenue predominantly
reflects the revenue generated from Quilter Private Client Advisers
which was at similar levels to those of H1 2021. Within Quilter
Cheviot, other revenue was up GBP3 million (H1 2021: GBPnil) due to
fees generated from clients' cash assets as a result of the rise in
UK interest rates.
Operating expenses*
Operating expenses decreased by GBP6 million to GBP242 million
(2021: GBP248 million) despite the obvious pressures of a higher UK
inflationary environment and more normalised level of investment
spend which was suppressed during 2021 due to the pandemic. The
Group continues to exercise cost discipline with a particular focus
on managing discretionary spend in the wider context of
inflationary pressures in the global economy and supressed market
conditions. In H1 2022, the Group incurred lower FSCS levies and
regulatory fees (an overall reduction of GBP10 million) compared to
the prior period primarily as a result of updated FSCS levy
guidance from the FCA for 2022/23.
H1 2022 H1 2021
Operating expense split As a
(GBPm) Continuing percentage Continuing As a percentage
operations of revenues operations of revenues
---------------------------- ------------ -------------- ------------- ----------------
Support staff costs 58 63
Operations 9 13
Technology 14 16
Property 16 15
Other base costs(1) 15 13
------------------------------ ------------ -------------- ------------- ----------------
Sub-total base costs 112 37% 120 39%
Revenue-generating staff
base costs 49 16% 46 15%
Variable staff compensation 39 13% 39 13%
Other variable costs(2) 26 9% 17 6%
------------------------------ ------------ -------------- ------------- ----------------
Sub-total variable costs 114 38% 102 34%
Regulatory/professional
indemnity costs 16 5% 26 9%
Operating expenses* 242 80% 248 82%
------------------------------ ------------ -------------- ------------- ----------------
(1) Other base costs includes depreciation and amortisation, audit fees,
shareholder costs, listed Group costs and governance.
(2) Other variable costs includes FNZ costs, development spend and corporate
functions variable costs.
Support staff costs decreased by 8% to GBP58 million (2021:
GBP63 million) driven by transformation programmes continuing to
deliver sustainable benefits.
Operations costs decreased by 31% to GBP9 million (H1 2021:
GBP13 million), reflecting the move to the outsourced operations
model within the Quilter Investment Platform for the full period in
2022, and a simpler operational base following the business
divestments made in preceding years.
Technology costs decreased by 13% to GBP14 million (H1 2021:
GBP16 million). Technology costs reduced as a result of continuing
transformation activity, cessation of dual running activity
following the completion of the Platform Transformation Programme,
and the consolidation of contracts following the sale of Quilter
International.
Property costs increased by 7% to GBP16 million (H1 2021: GBP15
million) driven by an increase in operating costs as a result of
higher occupancy post-pandemic, and inflationary increases arising
from providing property management infrastructure, such as heating
and electricity.
Other base costs increased by 15% to GBP15 million (H1 2021:
GBP13 million) driven by increased depreciation charges following
the completion of capital projects in the property portfolio.
Revenue-generating staff base costs increased by 7% to GBP49
million (H1 2021: GBP46 million) principally as a result of the
build out of the combined advice and investment proposition in the
High Net Worth segment, and the increase in the number of
discretionary investment managers.
Variable staff compensation remained stable at GBP39 million (H1
2021: GBP39 million). Reductions in share based-payment accruals
following global equity market falls experienced in the first 6
months of 2022 is offset by increased short-term compensation
accruals reflecting inflationary base salary increases and improved
business performance versus that of the prior period.
Other variable costs increased by 53% to GBP26 million (H1 2021:
GBP17 million) principally driven by operating expenses associated
with the new platform, which are partially offset by decreases in
base costs, and increases in development spend as we regain
momentum following the deferral of change activity during the
pandemic.
Regulatory and insurance charges decreased by 38% to GBP16
million (H1 2021: GBP26 million) largely driven by the reduced FSCS
levy for 2022/23. This decrease across the industry, while
welcomed, is unlikely to be sustained in future years as part of
the decrease reflects the FSCS levy for the industry carrying
forward a surplus from 2021 following significant increases in the
levy over the past few years.
Taxation
The effective tax rate ("ETR") on adjusted profit before tax for
H1 2022 was 18% (H1 2021: (2)%). The Group's ETR is not materially
different from the UK corporation tax rate of 19%. The Group's ETR
is dependent on a number of factors, including future changes in
the UK corporation tax rate.
The Group's IFRS income tax expense for H1 2022 was a credit of
GBP114 million (H1 2021: charge of GBP(40) million). The income tax
expense or credit can vary significantly year-on-year as a result
of market volatility and the impact market movements have on
policyholder tax. The recognition of the income received from
policyholders (which is included within the Group's IFRS revenue)
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 or loss before tax
attributable to equity holders. An adjustment is made to adjusted
profit before tax to remove these distortions, as explained further
on page 16 and in note 5(b) of the consolidated financial
statements.
Earnings Per Share ("EPS")
Following the GBP328 million return of capital, a share
consolidation was completed so that comparability between the
market price for Quilter Ordinary Shares before and after the
implementation of the B share scheme was maintained.
New Ordinary Shares were issued for existing Ordinary Shares in
a ratio of six new shares of 8 1/6 pence each for seven existing
shares of 7 pence each resulting in a reduction in the numbers of
shares by 234 million. The prior period average number of shares
have been restated following the share consolidation, in line with
IAS33.
For H1 2022, basic EPS relating to the continuing business was
11.3 pence (H1 2021: (0.9) pence). The average number of shares in
issue used for the basic EPS calculation was 1,342 million (H1
2021: 1,443 million), after the deduction of own shares held in
Employee Benefit Trusts ("EBTs") and consolidated funds of 63
million (HY 2021: 79 million). The reduction in the number of
shares in issue in the period is due to the share buyback
programme, which completed in January 2022. The Share Buyback
Programme completed before the share consolidation, and the
unadjusted number of shares bought and cancelled over the life of
the programme was 264 million.
The average number of shares in issue used for the diluted EPS
calculation was 1,353 million (HY 2021: 1,479 million). This
includes the dilutive effect of shares and options awarded to
employees under share-based payment arrangements of 11 million (HY
2021: 36 million). The dilutive effect of share awards has
decreased due to movements in value of employee share schemes
compared to the prior period.
Optimisation
In H1 2022, we successfully deployed the final delivery of our
Group wide General Ledger and further consolidated our data centre,
telephony and data reporting solutions within the IT estate. This
work delivered GBP4 million of annualised sustainable cost savings
in H1 2022 against the 2018 cost base. The Optimisation programme,
which we announced in 2018, has now achieved its target of
delivering annualised run-rate cost savings of GBP65 million by
mid-2022, with total implementation costs since inception of GBP84
million. A limited amount of work on the programme remains
underway, and we anticipate the total delivery cost of the
programme to be no more than GBP87 million when it concludes at the
end of 2022, below the original GBP91 million estimate. Further
implementation costs in H2 2022 will include the final
decommissioning of the legacy finance systems together with
anticipated support costs.
Business Simplification
As announced at our Capital Markets Day in November 2021, our
Business Simplification programme is anticipated to reduce
operating costs by around GBP45 million by the end of 2024 on a
run-rate basis, with costs to achieve expected to be GBP55 million.
In H1 2022 we started to simplify Quilter's structures and organise
ourselves to support our two segments, Affluent and High Net Worth,
with further work planned into 2024. During the period we also
delivered early simplification benefits related to our property
strategy and technology estate enabled by the completion of the
Platform Transformation Programme and sale of Quilter
International. To date the programme has delivered GBP13 million of
annualised run-rate cost savings with an implementation cost of
GBP12 million.
Lighthouse DB pension transfer advice provision
As reported in the Group's 2021 Annual Report, a provision was
recognised in relation to DB to DC pension transfer advice provided
by Lighthouse advisers prior to Lighthouse transitioning to our
systems and controls following our acquisition of Lighthouse.
A total provision of GBP3 million (31 December 2021: GBP29
million) has been calculated for the remaining redress of British
Steel Pension Scheme cases and other DB to DC pension transfer
cases which are subject to the skilled person review. This includes
anticipated costs of legal and professional fees associated with
the redress activity. The provision reflects the outcome of the
suitability review for all cases currently identified as being in
scope, redress calculations performed by the skilled person and the
offers made to customers who received unsuitable advice which
caused them to sustain a loss. The provision decreased by GBP5
million during 2022, which has been recognised as a reduction
within expenses of the Group (and excluded from adjusted profit
before tax), in order to reflect the results of the redress
calculations performed under the skilled person review. Redress on
British Steel Pension Scheme cases and other DB to DC pension
transfer cases of GBP18 million and professional fees of GBP2
million were paid during the period. Payments are expected to be
completed during 2022. Subject to FCA confirmation of whether any
additional work is required, we anticipate the skilled person
review will conclude during 2022.
Insurance coverage in relation to claims in respect of legal
liabilities arising in connection with Lighthouse British Steel
Pension Scheme cases has been confirmed and a portion of the
proceeds received, contributing GBP10 million to the profit of the
Group, which has also been excluded from adjusted profit before
tax.
Reconciliation of adjusted profit before tax* to IFRS profit
Adjusted profit before tax for the Group on a continuing basis
was GBP61 million (H1 2021: GBP56 million).
Reconciliation of adjusted For the six months ended For the six months ended
profit before tax to IFRS 30 June 2022 30 June 2021(3)
profit/(loss) after tax
Continuing Discontinued Continuing Discontinued
GBPm operations operations(1) Total operations operations(1) Total
Affluent 47 - 47 44 29 73
High Net Worth 23 - 23 26 - 26
Head Office (9) - (9) (14) - (14)
--------------------------------- ----------- -------------- ----- ----------- -------------- -----
Adjusted profit before
tax* 61 - 61 56 29 85
Reallocation of Quilter
International costs - - - (5) 5 -
--------------------------------- ----------- -------------- ----- ----------- -------------- -----
Adjusted profit before
tax after reallocation* 61 - 61 51 34 85
Adjusting for the following:
Impact of acquisition and
disposal-related accounting (22) - (22) (23) - (23)
Loss on business disposals - (1) (1) - - -
Business transformation
costs (17) - (17) (32) - (32)
Managed Separation costs - - - (1) - (1)
Finance costs (5) - (5) (5) - (5)
Policyholder tax adjustments 146 - 146 (4) - (4)
Customer remediation 15 - 15 (7) - (7)
Exchange rate gain (ZAR/GBP) 4 - 4 - - -
--------------------------------- ----------- -------------- ----- ----------- -------------- -----
Total adjusting items
before tax 121 (1) 120 (72) - (72)
--------------------------------- ----------- -------------- ----- ----------- -------------- -----
Profit/(loss) before tax
attributable to equity
holders* 182 (1) 181 (21) 34 13
Tax attributable to policyholder
returns (145) - (145) 48 - 48
Income tax (expense)/credit 114 - 114 (40) (1) (41)
--------------------------------- ----------- -------------- ----- ----------- -------------- -----
Profit/(loss) after tax(2) 151 (1) 150 (13) 33 20
--------------------------------- ----------- -------------- ----- ----------- -------------- -----
(1) Discontinued operations in 2022 relate to the increase in
the Merian warranty provision on the Single Strategy Asset
Management business. In 2021, discontinued operations include the
results related to Quilter International.
(2) IFRS profit/(loss) after tax.
(3) The new segments replace the segments reported in the 2020
Annual Report: Advice and Wealth Management and Wealth Platforms.
June 2021 comparatives have been restated as appropriate to reflect
the new segmentation.
Adjusted profit before tax represents the Group's IFRS profit,
adjusted for specific items that management considers to be outside
of the Group's normal operations or one-off in nature, as detailed
on page 41 in the condensed consolidated financial statements. The
exclusion of certain adjusting items may result in adjusted profit
before tax being materially higher or lower than the IFRS profit
after tax.
Adjusted profit before tax does not provide a complete picture
of the Group's financial performance, which is disclosed in the
IFRS income statement, but is instead intended to provide
additional comparability and understanding of the financial
results.
The impact of acquisition and disposal related accounting costs
of GBP22 million (H1 2021: GBP23 million) include amortisation of
acquired intangible assets. These costs remained stable on those of
the prior period.
Business transformation costs of GBP17 million were incurred in
H1 2022 (H1 2021: GBP32 million) consisting of:
-- Business Simplification costs of GBP12 million (H1 2021:
GBPnil). In H1 2022, Group simplified its structures to support the
two segments, Affluent and High Net Worth, with further work
planned into 2024. During the period we also delivered early
simplification benefits related to our property strategy and
technology estate enabled by the completion of the Platform
Transformation Programme and sale of Quilter International. To date
the programme has delivered GBP13 million of annualised run-rate
cost savings with an implementation cost of GBP12 million.
-- The Optimisation programme incurred costs of GBP3 million (H1
2021: GBP10 million). The Optimisation programme commenced in 2018
to provide closer business integration, create central support,
rationalise technology and reduce third-party spend and is now
materially complete.
-- Restructuring costs following the disposal of Quilter Life
Assurance of GBP2 million in H1 2022 (H1 2021: GBPnil), including
property exit costs after the conclusion of the Transitional
Service Agreement with ReAssure.
-- The Platform Transformation Programme concluded in 2021 (H1
2021: GBP22 million) with lifetime costs of GBP202 million. No
further costs were incurred in 2022.
Policyholder tax adjustments were a credit of GBP146 million for
H1 2022 (H1 2021: debit of GBP4 million) in relation to the removal
of timing differences 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 IFRS revenue) 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.
The customer remediation adjustment of GBP15 million in H1 2022
(H1 2021: expense of GBP7 million) reflects the impact of the final
redress calculations performed compared with the provision
estimated, as part of the ongoing skilled person review.
Consequently, a provision release of GBP5 million has been
recognised in the current period (H1 2021: net increase in
provision of GBP7 million). Additionally, insurance proceeds in
relation to claims in respect of legal liabilities arising in
connection with Lighthouse British Steel pension transfer advice
have been received, contributing GBP10 million to the profit of the
Group. These have been excluded from adjusted profit on the basis
that the advice activities to which the charge and benefit relates
was provided prior to the Group's acquisition of the business.
Further details of the provision are provided in note 17.
Foreign exchange movements for H1 2022 were GBP4 million (H1
2021: GBPnil) and relate to foreign exchange gains on cash held in
South African Rand in preparation for the capital return and final
dividend payments in May 2022. Cash was converted to South African
Rand upon announcement of the details of the capital return and
dividend payment providing an economic hedge for the Group. The
foreign exchange gain is equally offset by an amount processed
directly to retained earnings. See note 5(b)(vi) for further
detail.
Cash generation*
Cash generation measures the proportion of adjusted profit after
tax that is recognised in the form of cash generated from
operations. The Group achieved a cash generation rate of 72% of
adjusted profit after tax over H1 2022 (FY 2021: 76%, continuing
business only following the disposal of Quilter International).
Review of financial position
Capital and liquidity
Solvency II
The Group's Solvency II surplus is GBP783 million at 30 June
2022 (31 December 2021: GBP1,030 million), representing a Solvency
II ratio of 219% (31 December 2021: 275%). The Solvency II
information for the six months to 30 June 2022 contained in this
results disclosure has been prepared on a pro forma basis and has
not been audited.
The Group's Solvency II capital position is stated after
allowing for the impact of the foreseeable dividend payment of
GBP16 million (31 December 2021: GBP62 million).
At At
30 June 31 December
Group Solvency II capital (GBPm) 2022(1) 2021(2)
----------------------------------------------------- ------- -----------
Own funds 1,440 1,617
Solvency capital requirement ("SCR") 657 587
Solvency II surplus 783 1,030
------------------------------------------------------ ------- -----------
Solvency II coverage ratio 219% 275%
------------------------------------------------------ ------- -----------
(1) Based on preliminary estimates and including the
impact of year-to-date profits.
(2) As disclosed in the Group Solvency and Financial
Condition Report for 2021.
The 56 percentage point decrease in the Group Solvency II ratio
from the 31 December 2021 position is primarily due to the capital
return of GBP328 million from the net surplus proceeds arising from
the sale of Quilter International to Utmost Group, partly offset by
the net profit recognised in the period.
Composition of qualifying Solvency II capital
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.
At At
30 June 31 December
Group own funds (GBPm) 2022 2021
----------------------------------------------- ---------- ---------------
Tier 1(1) 1,238 1,412
Tier 2(2) 202 205
------------------------------------------------ ---------- ---------------
Total Group Solvency II own funds 1,440 1,617
------------------------------------------------ ---------- ---------------
(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 SCR is covered by Tier 1 capital, which represents
188% of the Group SCR of GBP657 million. Tier 1 capital represents
86% of Group Solvency II own funds. Tier 2 capital represents 14%
of Group Solvency II own funds and 26% of the Group surplus.
Dividend
The Board declared an interim dividend for 2022 of 1.2 pence per
share at a total cost of GBP16 million. The interim dividend will
be paid on 19 September 2022 to shareholders on the UK and South
African share registers on 2 September 2022. For shareholders on
our South African share register an interim dividend of 24.14419
South African cents per share will be paid on 19 September 2021,
using an exchange rate of 20.12016.
At our Capital Markets Day on 3 November 2021, we announced a
revised Group dividend policy. The new policy sets a target pay-out
range of 50% to 70% of post-tax, post-interest adjusted profits,
revised from 40% to 60% of post-tax adjusted profits previously and
will apply for the 2022 financial year.
Capital return
Following the completion of the sale of Quilter International at
the end of November 2021, the Board announced they planned to
return the majority of the net surplus sale proceeds to
shareholders, amounting to GBP328 million, through the issuance and
redemption of B Class shares followed by an Ordinary Share
consolidation.
Following receipt of regulatory approval and shareholder
approval at a General Meeting on 12 May 2022, the B shares were
issued to shareholders on 23 May 2022. The B shares were
subsequently redeemed on 24 May 2022 in the form of a payment of 20
pence per Ordinary Share for shareholders on our UK share register.
For shareholders on our South African share register this equates
to a return of 401.33300 South African cents per Ordinary Share,
using an exchange rate of 20.06665 South African cents to one
pence, the average rate achieved on 7 and 8 March 2022, the two
days immediately preceding the announcement of the capital return.
In total, GBP328 million of capital was returned to our
shareholders through this process.
Holding company cash
The holding company cash statement includes cash flows generated
by the three main holding companies within the business: Quilter
plc, Quilter Holdings Limited and Quilter UK Holding Limited. The
flows associated with these companies will differ markedly from
those disclosed in the statutory statement of cash flows, which
comprises flows from the entire Quilter plc Group including
policyholder movements.
The holding company cash statement illustrates cash received
from the key trading entities within the business together with
other cash receipts, and cash paid out in respect of corporate
costs and capital servicing (including interest and dividends).
Other capital movements, including those in respect of acquisitions
and disposals together with funding for ongoing business
requirements, are also included. It is an unaudited non-GAAP
analysis and aims to give a more illustrative view of business cash
flows as they relate to the Group's holding companies compared to
the IFRS consolidated statement of cash flows which is prepared in
accordance with IAS 7 (statement of cash flows) and includes
commingling of policyholder related flows and consolidated
funds.
GBPm H1 2022 FY 2021
-------
Opening cash at holding companies at 1 January 756 517
-------------------------------------------------------------- ------- -------
Single Strategy business sale - warranty - (2)
Quilter International sale proceeds - 481
Return of capital to shareholders (328) -
Share repurchase (28) (197)
Cost of disposal (23) -
Dividends paid (62) (89)
-------------------------------------------------------------- ------- -------
Net capital movements (441) 193
-------------------------------------------------------------- ------- -------
Head Office costs, Business Simplification and Optimisation
programme funding (17) (74)
Interest costs (5) (9)
-------------------------------------------------------------- ------- -------
Net operational movements (22) (83)
-------------------------------------------------------------- ------- -------
Cash remittances from subsidiaries 107 184
Net capital contributions, loan repayments and investments (15) (53)
Other net movements 1 (2)
-------------------------------------------------------------- ------- -------
Internal capital and strategic investments 93 129
-------------------------------------------------------------- ------- -------
Closing cash at holding companies at end of period 386 756
-------------------------------------------------------------- ------- -------
Net capital movements
Net capital movements in the year were an outflow of GBP441
million. This includes GBP328 million of capital returned to
shareholders following the sale of Quilter International, GBP28
million relating to the share repurchase programme, a dividend
payment made to shareholders of GBP62 million in May 2022 and GBP23
million of costs relating to the disposal of Quilter
International.
Net operational movements
Net operational movements were an outflow of GBP22 million for
the period and includes GBP17 million of corporate and
transformation costs. Interest paid of GBP5 million relates to
coupon payments on the Tier 2 bond and non-utilisation fees for the
revolving credit facility.
Internal capital and strategic investments
The net inflow of GBP93 million is principally due to GBP107
million of cash remittances from the trading businesses, partially
offset by GBP15 million of net capital contributions to support
business operational activities.
Balance sheet
Summary balance sheet At 30 June At 31 December 2021
(GBPm) 2022
---------------------------------
Total Group Total Group
--------------------------------- ----------- -------------------
Assets
Financial investments 42,106 47,565
Contract costs 10 9
Cash and cash equivalents 1,793 2,064
Goodwill and intangible
assets 433 457
Trade, other receivables,
and other assets 523 381
Other assets 270 264
----------------------------------- ----------- -------------------
Total assets 45,135 50,740
----------------------------------- ----------- -------------------
Equity 1,523 1,739
Liabilities
Investment contract liabilities 37,167 41,071
Third-party interests
in consolidated funds 5,404 6,898
Borrowings and lease liabilities 293 299
Trade, other payables,
and other liabilities 615 484
Other liabilities 133 249
----------------------------------- ----------- -------------------
Total liabilities 43,612 49,001
----------------------------------- ----------- -------------------
Total equity and liabilities 45,135 50,740
----------------------------------- ----------- -------------------
Financial investments decreased by GBP5,459 million from
GBP47,565 million at 31 December 2021 to GBP42,106 million at 30
June 2022 due to the fall in market value of assets driven by the
conflict in Ukraine. GBP1,453 million of the total decrease relates
to consolidated funds as a result of adverse market conditions and
six funds no longer being subject to consolidation at H1 2022. A
corresponding matching decrease is reflected in investment contract
liabilities.
Cash and cash equivalents of GBP1,793 million decreased by
GBP271 million from GBP2,064 million at 31 December 2021, primarily
due to the GBP328 million capital redemption of the B Shares, GBP62
million dividend payment and GBP28 million cash consideration for
shares repurchased as part of the final share buyback programme.
This has been partially offset with inflows of GBP88 million of
pre-tax profits adjusted for non-cash items and net policyholder
investment flows of GBP128 million, less cash outflows of GBP41
million arising from changes in the composition in working
capital.
Goodwill and intangible assets decreased by GBP24 million since
31 December 2021, principally due to the amortisation of intangible
assets.
Principal risks and uncertainties
Effective risk management is key to Quilter successfully
delivering the next phase of its strategy, involving a focus on
growth and efficiency across its newly defined Affluent and High
Net Worth client segments. Our Enterprise Risk Management Framework
is embedded across Quilter and supports the organisation in the
ongoing assessment and management of risk exposures.
Quilter's principal revenue streams are asset value based.
During H1 2022 cost of living and inflationary pressures, coupled
with the geopolitical shock of Russia's invasion of Ukraine,
created extremely challenging market conditions and led to a
decline in consumer confidence which has impacted investment
inflows. In addition, competition in our key markets continues to
intensify. These conditions present challenges for short-term
financial performance and the pace of delivery of our strategy.
Nonetheless, Quilter continues to invest in growth and
propositional developments in order to position itself to capture
opportunities when market conditions recover. This includes
increasing digitisation and a commitment to becoming a leading
responsible wealth manager.
As reported in the Group's 2021 Annual Report, a provision has
been recognised in relation to DB to DC pension transfer advice
that was provided by Lighthouse advisers prior to Lighthouse
transitioning to our systems and controls following our acquisition
of Lighthouse. A total provision of GBP3 million (31 December 2021:
GBP29 million) has been calculated for the remaining redress of
British Steel Pension Scheme cases and other DB to DC pension
transfer cases which are subject to the skilled person review.
Redress on British Steel Pension Scheme cases and other DB to DC
pension transfer cases of GBP18 million and professional fees of
GBP2 million have been paid during the period. Payments are
expected to be completed during 2022. Subject to FCA confirmation,
we anticipate the skilled person review will conclude during 2022.
It is also expected that during 2022 the FCA will confirm whether
the skilled person review should be closed, or whether any
additional work is required. Additionally, a provision of GBP4
million (31 December 2021: GBP6 million) has been recognised at 30
June 2022 relating to potentially unsuitable pension advice
provided by advisers including advice provided prior to Quilter's
acquisition of the relevant advice businesses by Quilter Financial
Planning firms other than Lighthouse. Quilter Financial Planning
continues to progress its control environment enhancement
programme.
The Directors have carried out a robust assessment of the
principal risks facing Quilter, including those that would threaten
its business model, future performance, solvency and liquidity, as
well as those that are non-financial in nature. The articulation of
these principal risks and uncertainties is consistent with
Quilter's 'Top Risk' reporting that is reviewed quarterly by the
Board Risk Committee and Board. The table below sets out Quilter's
current principal risks and uncertainties.
Risk Summary
Business and strategic risks
Economic environment Quilter's principal revenue streams are asset value related
and as such Quilter is exposed to the condition of global
economic markets. Global markets are likely to remain
volatile given the conflict in Ukraine, declining consumer
confidence, and increasing inflation. Volatility in debt,
equity and currency markets may adversely impact customer
investment portfolios which in turn impacts Quilter's
ability to generate fee-based revenue.
-------------------------------------------------------------------
Business financial Inflationary pressures and an increase in the cost of
performance living are impacting customers' ability to invest, which
in turn has a bearing on investment inflows, acting as
a headwind to our performance. Any negative impact on
earnings, share price and/or capital position could have
a resulting adverse effect on Quilter's market credibility
and financial standing. The risk of further reductions
of AuMA levels in 2022 (driven by equity and bond market
indices performance) remains, with associated negative
impacts to the Group's revenue generation capabilities.
-------------------------------------------------------------------
Strategic delivery Quilter has embarked on an ambitious strategy focused
on growth and efficiency. As the external environment
is expected to remain challenging for an extended period,
the strategic risk profile is likely to continue to be
elevated . Any failure to deliver on Quilter's strategy,
could expose the Group to competitive risks and impact
Quilter's franchise value.
-------------------------------------------------------------------
Change execution Quilter continues to be exposed to change execution risk
given an ongoing programme of material change projects.
should Quilter not be successful in delivering these change
projects within intended time, cost or quality parameters,
this could impact the delivery of intended benefits, and
risk disruption to continuing operations and the control
environment.
-------------------------------------------------------------------
Climate strategy Quilter takes its responsibility to the environment seriously
and is determined to play its part in reducing climate
impacts. Failure to do so would result in Quilter being
unable to meet regulatory and other stakeholder expectations
and fulfil our strategic priority to become a leading
responsible wealth manager. We are developing our Climate
Action plan, which includes how we will align our operations,
value chain and investments across Quilter with Science
Based Targets.
-------------------------------------------------------------------
Investment Quilter's investment propositions are key to retaining
proposition and attracting customers and enabling them to fulfil their
financial goals. The risk of customer dissatisfaction
in the performance of investment propositions may be heightened
during periods of challenging market conditions which
may result in an increase in outflows and associated impact
on revenues.
-------------------------------------------------------------------
Operational and regulatory risks
Advice Quilter's financial advice services are subject to regulatory
conduct requirements to assure suitability of advisory
recommendations. Failure to operate effective arrangements
to support the ongoing delivery of suitable advice could
expose Quilter to risks associated with customer detriment,
regulatory censure and remediation programmes, with consequential
impacts to the Group's business, financial condition and
reputation. Quilter continues to work with the FCA to
address historic DB to DC transfer advice shortcomings
of the acquired Lighthouse Group. Subject to FCA confirmation,
it is anticipated that the skilled person review will
conclude during 2022.
-------------------------------------------------------------------
Information Quilter's business is dependent on its technology infrastructure
technology and applications to perform necessary business functions.
Good progress continues to be made in retiring Quilter's
legacy technology estate, thereby reducing internal complexity.
Nevertheless, a range of legacy applications are still
supported, including the technology platform underpinning
the disinvested Quilter International business, which
will be supported until 2023 under a Transitional Services
Agreement. Failure to manage technology risk could have
a material adverse impact on Quilter's business, its resilience
capabilities, operations, financial condition, and its
reputation.
-------------------------------------------------------------------
Information Quilter's business, by its nature, requires it to store,
security retrieve, evaluate and utilise customer and company data
and information, some of which is highly sensitive. Quilter
and its service providers are subject to the risk of information
security breaches from parties with criminal or malicious
intent. Monitoring is in place to proactively identify
any potential new threats arising from the Russia/ Ukraine
conflict or elsewhere. Should intrusion detection and
anti-penetration processes not anticipate, prevent or
mitigate a network failure or disruption, it may have
a material adverse effect on Quilter's customers, business,
financial condition, operations and reputation.
-------------------------------------------------------------------
People Quilter relies on its talent to deliver its service to
customers and implement its strategic objectives. People
risk remains heightened due to a buoyant job market for
key talent. Failure to attract and retain suitable talent
may impact on the delivery of Quilter's strategy and may
have an adverse impact on Quilter's business, its financial
and operational performance and its delivery of service
to customers.
-------------------------------------------------------------------
Third party Quilter procures certain services from third parties,
including the significant business process and technology
outsourcing to FNZ. If Quilter does not effectively oversee
its third-party providers, Quilter may experience operational
difficulties, increased costs and loss of business, potential
customer detriment and damage to its reputation.
-------------------------------------------------------------------
Operational Quilter provides important services for its customers,
resilience and its ability to maintain these services during unforeseen
events is key. Any failures in Quilter's preparation for,
or response to, sudden disruptions could compromise the
maintenance of important business services, resulting
in the potential for customer detriment, financial loss,
damage to reputation or regulatory sanction.
-------------------------------------------------------------------
Regulatory Quilter is subject to regulation in the UK by the Prudential
Regulation Authority and the Financial Conduct Authority.
Additionally, the firm is subject to the privacy regulations
enforced by the Information Commissioner's Office and
international equivalents. Quilter faces risks associated
with compliance with these regulations and to changes
in regulations or regulatory focus or interpretation in
the markets in which Quilter operates. Failure to manage
regulatory compliance effectively could result in regulatory
censure, including the possibility of fines or prohibitions
which could impact business performance and reputation.
-------------------------------------------------------------------
Quilter monitors its emerging risk profile on a regular basis,
with the risk profile being regularly reviewed by the Board Risk
Committee and Board. The current emerging risks being tracked
are:
Emerging risks
Near term
------------------------------------------------------------------------------------------
Cyber threat Evolving sophistication in cyber criminality presents
developments an ever-changing cyber-attack threat profile, which could
result in impacts to the continuity of operations and
security of information.
-----------------------------------------------------------------
Margin pressure Increasing market pressures may require provision of services
at a lower overall cost to customers to remain competitive.
-----------------------------------------------------------------
Economic outlook Rising cost pressures, post-pandemic supply issues, post-Brexit
and geopolitical trading issues, geopolitical tensions, and the reversal
risk of temporary taxation relief has caused inflation to rise,
potentially adversely impacting investment performance,
business costs and Quilter's customers' ability to save.
-----------------------------------------------------------------
Medium term
------------------------------------------------------------------------------------------
Disruptive competition Increasing competitive activity and accelerating technological
and technology capabilities at peer firms could result in the potential
to erode Quilter's market share.
-----------------------------------------------------------------
Climate change Securing global net zero emissions by mid-century is a
- disorderly stretching demand. A disorderly transition to a low carbon
transition to economy could have financial impacts for Quilter caused
net zero by investment volatility or increased costs due to additional
regulatory burden.
-----------------------------------------------------------------
Political changes Restoration of public finances after the pandemic may
and taxation require further changes to the tax regime, in addition
to the rises in UK National Insurance that have been announced.
Adverse taxation changes could adversely impact customers'
ability to save.
-----------------------------------------------------------------
Longer term
Generational Intergenerational changes to wealth dynamics will require
shifts adaptation to retain market share.
-----------------------------------------------------------------
Shareholder information
The Quilter Board has declared an Interim Dividend of 1.2 pence
per share. The Interim Dividend will be paid on Monday 19 September
2022 to shareholders on the UK and South African share registers on
Friday 2 September 2022.
Dividend Timetable
Dividend announcement in pounds sterling Wednesday 10 August 2022
with South Africa ZAR Equivalent
Last day to trade cum dividend in Tuesday 30 August 2022
South Africa
--------------------------
Shares trade ex-dividend in South Wednesday 31 August 2022
Africa
--------------------------
Shares trade ex-dividend in the UK Thursday 1 September 2022
--------------------------
Record Date in UK and South Africa Friday 2 September 2022
--------------------------
Interim dividend payment date Monday 19 September 2022
--------------------------
From the opening of trading on Wednesday 10 August 2022 until
the close of business on Friday 2 September 2022, no transfers
between the London and Johannesburg registers will be permitted.
Share certificates for shareholders on the South African register
may not be dematerialised or rematerialised between Wednesday 31
August 2022 and Friday 2 September 2022, both dates inclusive.
Additional information
For shareholders on our South African share register a dividend
of 24.14419 South African cents per share will be paid on Monday 19
September 2022, based on an exchange rate of 20.12016. Dividend Tax
will be withheld at the rate of 20% from the amount of the gross
dividend of 24.14419 South African cents per share paid to South
African shareholders unless a shareholder qualifies for exemption.
After the Dividend Tax has been withheld, the net dividend will be
19.31535 South African cents per share. The Company had a total of
1,404,105,498 shares in issue at today's date.
If you are uncertain as to the tax treatment of any dividends
you should consult your own tax adviser.
Return of capital related to the Sale of Quilter
International
Following approval by shareholders at a General Meeting held on
Thursday 12 May 2022, Quilter returned GBP328 million of the net
proceeds arising from the sale of Quilter International to
shareholders by way of a B Share Scheme and Share Consolidation
(the 'Return of Capital').
The Return of Capital, which was initially announced on
Wednesday 9 March 2022, involved the issue of new redeemable B
shares to shareholders on Monday 23 May 2022, which Quilter
subsequently redeemed for cash on Tuesday 24 May 2022. Under the
Return of Capital, shareholders on our UK share register received
20 pence per Ordinary Share. This equated to a return of 401.33300
South African cents per Ordinary Share for shareholders on our
South African share register, using an exchange rate of 20.06665
South African cents to one pence, the average rate achieved on 7
and 8 March 2022. The Share Consolidation was implemented on Monday
23 May 2022 and resulted in each shareholder receiving six new
Ordinary Shares of 8 1/6 pence each for every seven existing
Ordinary Shares of 7 pence each that they held on the record date
of Friday 20 May 2022.
In connection with the Return of Capital, Quilter purchased for
cancellation four existing Ordinary Shares of 7 pence each on
Thursday 12 May 2022 to ensure that the number of existing Ordinary
Shares in issue at the time the Share Consolidation was implemented
was exactly divisible by seven (being the denominator in the Share
Consolidation ratio).
Supplementary information
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures
including APMs, as explained further on pages 4 to 6. These
measures are indicated with an asterisk: *.
For the six months ended 30 June 2022
1. Key financial data
Of which
managed
by Quilter
AuMA* AuMA* AuM as
as at 31 Gross Net as at at
2022 YTD gross flows, net flows December flows* Flows* 30 June 30 June
& AuMA (GBPbn), unaudited 2021 (GBPm) (GBPm) 2022 2022
--------- ------- ------- --------
AFFLUENT SEGMENT
Q uilter channel 11.7 1,323 954 10.8 7.4
IFA channel 60.0 2,874 654 53.7 8.7
Non-core business 1.5 27 (23) 1.3 -
Sub-total (Quilter Platform) 73.2 4,224 1,585 65.8 16.1
---------------------------------- --------- ------- ------- -------- -----------
Via other platforms
Quilter channel(1) 4.9 390 (88) 4.0 4.0
IFA channel 2.5 141 (326) 2.2 2.2
Non-core businesses 2.7 82 (141) 2.2 2.2
Sub-total 10.1 613 (555) 8.4 8.4
---------------------------------- --------- ------- ------- -------- -----------
Total Affluent Segment 83.3 4,837 1,030 74.2 24.5
---------------------------------- --------- ------- ------- -------- -----------
HIGH NET WORTH SEGMENT
Quilter channel 2.5 194 160 2.3 2.3
IFA channel incl. Direct 26.2 1,068 352 22.9 22.9
Total High Net Worth Segment 28.7 1,262 512 25.2 25.2
---------------------------------- --------- ------- ------- -------- -----------
Inter-segment dual assets (1) (0.2) (190) (150) (0.7) (0.2)
Quilter plc 111.8 5,909 1,392 98.7 49.5
---------------------------------- --------- ------- ------- -------- -----------
AuMA breakdown:
Affluent administered only 55.9 2,833 1,023 49.7
Affluent managed and administered 17.3 1,391 562 16.1
Affluent external platform 10.1 613 (555) 8.4
Quilter channel 19.1 1,907 1,026 17.1
IFA channel 88.5 3,893 530 78.1
Non-core business 4.2 109 (164) 3.5
---------------------------------- --------- ------- ------- -------- -----------
(1) Inter-segment dual assets reflect funds sold by Quilter Cheviot
and managed by Quilter Investors and the Quilter Cheviot bespoke MPS
solution available to advisers on the Quilter Investment Platform. This
is excluded from total AuMA to ensure no double count takes place.
Of which
managed
AuMA* AuMA* by Quilter
as at Gross Net as at AuM as at
2021 YTD gross flows, net flows & 31 December flows* flows* 30 June 30 June
AuMA (GBPbn), unaudited 2020 (GBPm) (GBPm) 2021 2021
------------ ------- ------- -------- -----------
AFFLUENT SEGMENT
Quilter channel 9.6 1,261 868 10.8 7.3
IFA channel 52.8 3,209 950 57.2 8.9
Non-core business 1.4 43 (19) 1.4 -
Sub-total (Quilter Platform) 63.8 4,513 1,799 69.4 16.2
----------------------------------- ------------ ------- ------- -------- -----------
Via other platforms
Quilter channel (1) 4.9 569 174 4.9 4.9
IFA channel 2.4 139 (233) 2.5 2.5
Non-core businesses 2.8 96 (195) 2.8 2.8
Sub-total 10.1 804 (254) 10.2 10.2
----------------------------------- ------------ ------- ------- -------- -----------
Total Affluent Segment 73.9 5,317 1,545 79.6 26.4
----------------------------------- ------------ ------- ------- -------- -----------
HIGH NET WORTH SEGMENT
Quilter channel 2.1 268 217 2.3 2.3
IFA channel incl. Direct 23.2 1,088 231 24.7 24.7
Total High Net Worth Segment 25.3 1,356 448 27.0 27.0
----------------------------------- ------------ ------- ------- -------- -----------
Inter-segment dual assets (1) (0.2) (2) 6 (0.2) (0.1)
Quilter plc(2) 99.0 6,671 1,999 106.4 53.3
----------------------------------- ------------ ------- ------- -------- -----------
AuMA breakdown:
Affluent administered only 49.2 2,969 1,205 53.2
Affluent managed and administered 14.6 1,544 594 16.2
Affluent external platform 10.1 804 (254) 10.2
Quilter channel 16.4 2,098 1,259 18.0
IFA channel 78.4 4,434 954 84.2
Non-core business (1) 4.2 139 (214) 4.2
----------------------------------- ------------ ------- ------- -------- -----------
(1) Inter-segment dual assets reflect funds sold by Quilter
Cheviot and managed by Quilter Investors and the Quilter Cheviot
bespoke MPS solution available to advisers on the Quilter
Investment Platform. This is excluded from total AuMA to ensure no
double count takes place.
(2) H1 2021 asset and flow comparators have been restated to
exclude amounts relating to Quilter International to align with
information presented at the Company's Capital Markets Day on 3
November 2021 and its fourth quarter trading statement 2021 on 26
January 2022.
Estimated asset allocation (%) H1 2022 FY 2021
Total client Total client
Fund profile by investment type, unaudited AuMA AuMA
------------------------------------------- ------------ ------------
Quilter
Fixed interest 25% 24%
Equities 65% 67%
Cash 5% 4%
Property and alternatives 5% 5%
=========================================== ============ ============
Total 100% 100%
=========================================== ============ ============
1. Affluent
The following table presents certain key financial metrics
utilised by management with respect to the business units of the
Affluent segment, for the periods indicated.
Key financial highlights H1 2022 H1 2021 % change
==================================== ======= ======= ========
Affluent Administered
Net management fees (GBPm)* 91 88 3%
Other revenue (GBPm)* 2 3 (33%)
------------------------------------ ------- ------- --------
Total net fee revenue 93 91 2%
------------------------------------ ------- ------- --------
Net inflows (GBPbn)* 1.6 1.8 (11%)
Closing AuM (GBPbn)* 65.8 69.4 (5%)
Average AuM (GBPbn)* 69.5 66.1 5%
Revenue margin (bps)* 26 27 (1) bp
Asset retention (%)* 93 92 1 ppt
==================================== ======= ======= ========
Affluent Managed
Net management fees (GBPm)* 61 61 -
Other revenue (GBPm)* - - -
------------------------------------ ------- ------- --------
Total net fee revenue 61 61 -
------------------------------------ ------- ------- --------
Net inflows (GBPbn)* 0.0 0.5 -
Closing AuM (GBPbn)* 24.5 26.4 (8%)
Average AuM (GBPbn)* 25.9 25.4 2%
Revenue margin (bps)* 47 48 (1) bp
Asset retention (%)* 85 85 -
==================================== ======= ======= ========
Advice (Quilter Financial Planning)
Net management fees (GBPm)* - - -
Other revenue (GBPm)* 40 47 (15%)
------------------------------------ ------- ------- --------
Total net fee revenue* 40 47 (15%)
------------------------------------ ------- ------- --------
RFPs (#) 1,512 1,639 (8%)
------------------------------------ ------- ------- --------
2. High Net Worth
The following table presents certain key financial metrics
utilised by management with respect to the business units of the
High Net Worth segment, for the periods indicated.
Key financial highlights H1 2022 H1 2021 % change
========================================= ======= ======= ========
Quilter Cheviot
Net management fees (GBPm)* 94 93 1%
Other revenue (GBPm)* 3 - -
----------------------------------------- ------- ------- --------
Total net fee revenue 97 93 4%
----------------------------------------- ------- ------- --------
Net inflows (GBPbn)* 0.5 0.4 25%
Closing AuM (GBPbn)* 25.2 27.0 (7%)
Average AuM (GBPbn)* 27.0 25.8 5%
Revenue margin (bps)* 70 72 (2) bps
Asset retention (%)* 94% 92% 2 ppts
Investment managers (#)* 176 168 5%
========================================= ======= ======= ========
Advice (Quilter Private Client Advisers)
Net management fees (GBPm)* - - -
Other revenue (GBPm)* 11 12 (8%)
----------------------------------------- ------- ------- --------
Total net fee revenue* 11 12 (8%)
----------------------------------------- ------- ------- --------
PCA RFPs (#) 55 62 (11%)
----------------------------------------- ------- ------- --------
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END
IR BKCBNOBKDOFK
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August 10, 2022 02:00 ET (06:00 GMT)
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