Quilter plc Full Year Results 2022 - Part 2

RNS Number : 2155S

Quilter PLC

08 March 2023

Statement of Directors' responsibilities

in respect of the preliminary announcement of the Annual Report and the financial statements

The Directors confirm to the best of their knowledge:

· The results in this preliminary announcement have been taken from the Group's 2022 Annual Report, which will be available on the Company's website on 23 March 2023; and

· The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group.

Signed on behalf of the Board

Steven Levin Mark Satchel
Chief Executive Officer Chief Financial Officer

8 March 2023

Consolidated income statement
For the year ended 31 December 2022
			£m
	Notes	Year ended 31 December 2022	Year ended 31 December 2021
Income
Fee income and other income from service activities		581	666
Investment return		(4,649)	4,002
Other income		28	18
Total income		(4,040)	4,686
Expenses
Change in investment contract liabilities	15	4,318	(3,293)
Fee and commission expenses, and other acquisition costs		(54)	(61)
Change in third-party interests in consolidated funds		438	(599)
Other operating and administrative expenses		(584)	(636)
Finance costs		(13)	(14)
Total expenses		4,105	(4,603)
Profit on sale of subsidiary	4(a)	-	2
Profit before tax from continuing operations		65	85
Tax credit/(expense) attributable to policyholder returns	7(a)	134	(73)
Profit before tax attributable to equity holders from continuing operations		199	12
Income tax credit/(expense)	7(a)	110	(62)
Less: tax (credit)/expense attributable to policyholder returns		(134)	73
Tax (expense)/credit attributable to equity holders		(24)	11
Profit after tax from continuing operations		175	23
Profit after tax from discontinued operations	4(b)	-	131
Profit after tax		175	154

Attributable to:
Equity holders of Quilter plc		175	154

Earnings per Ordinary Share on profit attributable to Ordinary Shareholders of Quilter plc
Basic
From continuing operations (pence)	8(b)	12.2	1.4
From discontinued operations (pence)	4(b)	-	8.0
Basic earnings per Ordinary Share (pence)	8(b)	12.2	9.4
Diluted
From continuing operations (pence)	8(b)	12.0	1.4
From discontinued operations (pence)	4(b)	-	7.8
Diluted earnings per Ordinary Share (pence)	8(b)	12.0	9.2

Consolidated statement of comprehensive income
For the year ended 31 December 2022
			£m
	Note	Year ended 31 December 2022	Year ended 31 December 2021
Profit after tax		175	154
Exchange losses on translation of foreign operations		-	(1)
Items that may be reclassified subsequently to income statement		-	(1)
Total other comprehensive income, net of tax		-	(1)
Total comprehensive income		175	153
Attributable to:
Continuing operations		175	22
Discontinued operations	4(b)	-	131
Equity holders of Quilter plc		175	153

Consolidated statement of changes in equity
For the year ended 31 December 2022

31 December 2022	Notes	Ordinary Share capital £m	Ordinary Share premium reserve £m	B shares £m	Capital redemption reserve £m	Merger reserve £m	Share-based payments reserve £m	Other reserves £m	Retained earnings £m	Total share- holders' equity £m
Balance at 1 January 2022		116	58	-	17	25	42	(1)	1,482	1,739
Profit after tax		-	-	-	-	-	-	-	175	175
Total comprehensive income		-	-	-	-	-	-	-	175	175
Dividends		-	-	-	-	-	-	-	(78)	(78)
Ordinary Shares repurchased in the buyback programme¹	14	(1)	-	-	1	-	-	-	-	-
Issue of B shares²	14(a,c)	-	-	328	-	(25)	-	-	(303)	-
Redemption of B shares²	14(a)	-	-	(328)	328	-	-	-	(328)	(328)
Exchange rate movement (ZAR/GBP)³		-	-	-	-	-	-	-	(4)	(4)
Movement in own shares		-	-	-	-	-	-	-	22	22
Equity share-based payment transactions		-	-	-	-	-	1	-	23	24
Aggregate tax effects of items recognised directly in equity		-	-	-	-	-	(2)	-	-	(2)
Total transactions with the owners of the Company		(1)	-	-	329	(25)	(1)	-	(668)	(366)
Balance at 31 December 2022		115	58	-	346	-	41	(1)	989	1,548



31 December 2021	Notes	Ordinary Share capital £m	Ordinary Share premium reserve £m	B shares £m	Capital redemption reserve £m	Merger reserve £m	Share-based payments reserve £m	Other reserves £m	Retained earnings £m	Total share- holders' equity £m
Balance at 1 January 2021		125	58	-	8	149	42	1	1,495	1,878
Profit after tax		-	-	-	-	-	-	-	154	154
Other comprehensive income		-	-	-	-	-	-	(1)	-	(1)
Total comprehensive income		-	-	-	-	-	-	(1)	154	153
Dividends		-	-	-	-	-	-	-	(89)	(89)
Ordinary Shares repurchased in the buyback programme¹	14	(9)	-	-	9	-	-	-	(204)	(204)
Release of merger reserve	14(c)	-	-	-	-	(124)	-	-	124	-
Movement in own shares		-	-	-	-	-	-	-	(20)	(20)
Equity share-based payment transactions		-	-	-	-	-	(1)	-	21	20
Aggregate tax effects of items recognised directly in equity		-	-	-	-	-	1	-	-	1
Total transactions with the owners of the Company		(9)	-	-	9	(124)	-	-	(168)	(292)
Transfer to retained earnings		-	-	-	-	-	-	(1)	1	-
Balance at 31 December 2021		116	58	-	17	25	42	(1)	1,482	1,739

¹ On 11 March 2020, the Company announced a share buyback programme to purchase Ordinary Shares up to a maximum value of £375 million, in order to return the net surplus proceeds to shareholders arising from the sale of Quilter Life Assurance which had the impact of reducing the share capital of the Company. During the year ending 31 December 2022, the Company acquired 17.7 million shares (31 December 2021 128.1 million) for a total consideration of £26 million (31 December 2021: £197 million) and incurred additional costs of £1 million (31 December 2021: £3 million). The shares, which have a nominal value of £1 million (31 December 2021: £9 million), were subsequently cancelled, giving rise to a capital redemption reserve of the same value as required by the Companies Act 2006. The share buyback was completed in January 2022.

² On 9 March 2022, the Company announced a capital return of £328 million from the net surplus proceeds arising from the sale of Quilter International by way of a B Share Scheme accompanied by a Share Consolidation. Refer to note 3 for further details of the capital return and Share Consolidation. Following the issue and redemption of the B preference shares as part of the B Share Scheme, the Company transferred £328 million from retained earnings to the capital redemption reserve, as required under the provisions of sections 688 and 733 of the Companies Act 2006, being an amount equal to the nominal value of the B shares redeemed in the year. The increase in the capital redemption reserve results from the UK company law requirement to maintain the company's capital when shares are redeemed out of the company's distributable profits.

³ The South African Rand value of the proposed capital return for shares registered on the Johannesburg Stock Exchange was set on 9 March 2022. The impact of exchange rate movements between the year-end Market Announcement on 9 March 2022 and the redemption of the B shares on 24 May 2022 on the pound sterling equivalent of payments to JSE shareholders in South African Rand is recognised directly in equity. Additionally, the impact of exchange rate movements between the announcement date of dividends payable and the payment date on the pound sterling equivalent of payments to JSE shareholders in South African Rand is recognised directly in equity. The Group held cash in South African Rand equal to the expected cash outflows and therefore was economically hedged for the outflows.

Consolidated statement of financial position
At 31 December 2022

			£m
	Notes	31 December 2022	31 December 2021
Assets
Goodwill and intangible assets	9	413	457
Property, plant and equipment		112	131
Investments in associated undertakings		1	2
Contract costs		10	9
Loans and advances		34	29
Financial investments	10	43,617	47,565
Deferred tax assets		94	88
Current tax receivable		10	-
Trade, other receivables and other assets		303	381
Derivative assets		40	14
Cash and cash equivalents	13	1,782	2,064
Assets held for sale		1	-
Total assets		46,417	50,740

Equity and liabilities
Equity
Ordinary Share capital	14(a)	115	116
Ordinary Share premium reserve	14(a)	58	58
Capital redemption reserve	14(a)	346	17
Merger reserve	14(c)	-	25
Share-based payments reserve		41	42
Other reserves		(1)	(1)
Retained earnings		989	1,482
Total equity		1,548	1,739
Liabilities
Investment contract liabilities	15	38,186	41,071
Third-party interests in consolidated funds		5,843	6,898
Provisions	16	69	93
Deferred tax liabilities		24	139
Current tax payable		1	2
Borrowings and lease liabilities		290	299
Trade, other payables and other liabilities		436	484
Derivative liabilities		20	15
Total liabilities		44,869	49,001
Total equity and liabilities		46,417	50,740

Approved by the Board of Directors and authorised for issue on 8 March 2023 and signed on its behalf:

Steven Levin Mark Satchel

Chief Executive Officer Chief Financial Officer

Consolidated statement of cash flows

For the year ended 31 December 2022

The cash flows presented in this statement cover all the Group's activities (continuing and discontinued operations) and include flows from both policyholder and shareholder activities. All cash and cash equivalents are available for general use by the Group for the purposes of the disclosures required under IAS 7 Statement of Cash Flows except for cash and cash equivalents in consolidated funds (as shown in note 13). Cash flows for discontinued operations are shown separately in note 4(d).

			£m
	Notes	Year ended 31 December 2022	Year ended 31 December 2021
Cash flows from operating activities
Cash flows from operating activities		1,698	3,103
Taxation paid		(22)	(10)
Total net cash flows from operating activities	13(b)	1,676	3,093
Cash flows from investing activities
Net acquisitions of financial investments		(1,494)	(2,839)
Acquisition of property, plant and equipment		(3)	(13)
Acquisition of interests in subsidiaries¹	4(f)	(5)	(7)
Net proceeds from the disposal of interests in subsidiaries		-	218
Total net cash flows from investing activities		(1,502)	(2,641)
Cash flows from financing activities
Dividends paid to equity holders of the Company		(78)	(89)
Finance costs on external borrowings		(9)	(9)
Payment of interest on lease liabilities		(3)	(2)
Payment of principal of lease liabilities		(11)	(10)
Redemption of B shares²		(328)	-
Repurchase and cancellation of Ordinary Shares³		(28)	(197)
Exchange rate movements paid to shareholders⁴		(4)	-
Total net cash flows from financing activities		(461)	(307)
Net (decrease)/increase in cash and cash equivalents		(287)	145
Cash and cash equivalents at the beginning of the year		2,064	1,921
Effect of exchange rate changes on cash and cash equivalents		5	(2)
Cash and cash equivalents at end of the year	13(a)	1,782	2,064

¹ The acquisition of interests in subsidiaries outflow of £5 million results from contingent consideration payments relating to historical acquisitions (31 December 2021: £7 million).

³ The repurchase and cancellation of Ordinary Shares outflow relates to the cash movements associated with the share buyback programme. Further details are included within the consolidated statement of changes in equity.

⁴ The exchange rate movements paid to shareholders relate to foreign exchange gains that have arisen on the capital return and dividend payments to JSE shareholders. Further details are included within the consolidated statement of changes in equity.

Basis of preparation and significant accounting policies

For the year ended 31 December 2022

General information

Quilter plc (the "Parent Company"), a public limited company incorporated in England and Wales and domiciled in the United Kingdom ("UK"), together with its subsidiaries (collectively, the "Group") offers investment and wealth management services, long-term savings and financial advice through its subsidiaries and associates primarily in the UK. Quilter plc is listed on the London and Johannesburg Stock Exchanges.

The address of the registered office is Senator House, 85 Queen Victoria Street, London, EC4V 4AB.

1: Basis of preparation

The results in this preliminary announcement have been taken from the Group's 2022 Annual report which will be available on the Company's website on 23 March 2023. These condensed consolidated financial statements of Quilter plc for the year ended 31 December 2022 have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the applicable legal requirements of the Companies Act 2006. In addition to complying with international accounting standards in conformity with the requirements of the Companies Act 2006, the condensed consolidated financial statements also comply with International Financial Reporting Standards ("IFRS") as adopted by the UK. These condensed consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments, and are presented in pounds sterling, which is the currency of the primary economic environment in which the Group operates.

Going concern

The Directors have considered the resilience of the Group, its current financial position, the principal risks facing the business and the effectiveness of any mitigating strategies which are or could be applied. This included an assessment of capital and liquidity over a three-year planning period. As part of the going concern assessment, the Group took into consideration the current position of the UK economy including the impact of inflation and increases in the cost of living. The Group also took into consideration risks related to climate change. Based on the assessment, the Directors believe that both the Group and Quilter plc as the Parent Company, have sufficient financial resources to continue in business for a period of at least 12 months from the date of approval of these financial statements and continue to adopt the going concern basis in preparing the Group and Parent Company financial statements. Further information is contained in the viability statement and going concern section of the Annual Report.

Liquidity analysis of the statement of financial position

The Group's statement of financial position is in order of liquidity as is permitted by IAS 1 Presentation of Financial Statements. For each asset and liability line item, those amounts expected to be recovered or settled more than 12 months after the reporting date are disclosed separately in the notes to the consolidated financial statements.

Critical accounting estimates and judgements

The preparation of financial statements requires management to exercise judgement in applying the Group's significant accounting policies and make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. The Board Audit Committee reviews these areas of judgement and estimates and the appropriateness of significant accounting policies adopted in the preparation of these financial statements.

Critical accounting judgements

The Group's critical accounting judgements are detailed below and are those that management makes when applying the significant accounting policies and that have the most effect on the net profit and net assets recognised in the Group's financial statements.

Recognition of provisions following the sale of Quilter International

Management exercised significant judgement in determining the accounting treatment for a number of provisions related to business activities to separate the business from the Group in respect of the sale of Quilter International. Significant judgement was required to assess whether the costs were directly attributable and incremental to the sale and whether a legal or constructive obligation existed in order to recognise the provisions. See note 16 for further details.

Recognition of insurance recovery asset in respect of Lighthouse defined benefit pension advice

For Lighthouse defined benefit ("DB") to defined contribution ("DC") pension transfer advice provided, management has previously applied judgement in order to determine whether an asset can be reasonably estimated, and in respect of the measurement of such an asset, in relation to an insurance recovery under Lighthouse's professional indemnity policies ("PI Policies"). During 2022, the insurers confirmed coverage up to the PI Policies' limit of indemnity of £15 million for these legal liabilities. These obligations to the Group were settled in full during 2022. As a result the recognition and measurement of an insurance asset is no longer considered a critical accounting judgement.

Critical accounting estimates

The Group's critical accounting estimates involve the most complex or subjective assessments and assumptions, which have a significant risk of resulting in material adjustment to the net carrying amounts of assets and liabilities within the next financial year. Management uses its knowledge of current facts and circumstances and applies estimation and assumption setting techniques that are aligned with relevant actuarial and accounting standards and guidance to make predictions about future actions and events. Actual results may differ from those estimates.

Provision for the cost of defined benefit pension advice

An estimate was determined for unsuitable pension advice related to schemes other than those concluded as part of the skilled person review, using a methodology which takes account of recent experience of redress payments calculated by an independent expert and applying a proportion of transfer value to determine redress payable as an indicative provision. The calculations are based upon FCA guidelines and modelling performed, and factors including pension transfer value, date of retirement, discount rate and inflation rate assumptions.

Measurement of deferred tax

The estimation of future taxable profits is performed as part of the annual business planning process, and is based on estimated levels of AuMA, which are subject to a large number of factors including global stock market movements, related movements in foreign exchange rates and net client cash flows, together with estimates of expenses and other charges. The Business Plan, adjusted for known and estimated tax sensitivities, is used to determine the extent to which deferred tax assets are recognised. In general, the Group assesses the recoverability of shareholder assets based on estimated taxable profits over a three-year planning horizon and assesses policyholder assets based on estimated investment growth over the medium term. Management has reassessed the sensitivity of the recoverability of deferred tax assets based on the latest forecast cash flows.

Other principal estimates

The Group's assessment of goodwill and intangible assets for impairment uses the latest cash flow forecasts from the Group's three-year Business Plan. These forecasts include estimates relating to equity market levels and growth in AuMA in future periods, together with levels of new business growth, net client cash flow, revenue margins, and future expenses and discount rates (see note 9). These forecasts take account of the climate-related risks and other responsible business considerations. Management does not consider that the use of these estimates has a significant risk of causing a material adjustment to the carrying amount of the assets within the next financial year.

2: New standards, amendments to standards, and interpretations adopted by the Group

There were no new standards or interpretations which became effective from 1 January 2022.

The following amendments to accounting standards became applicable for the current reporting year, with no material impact on the Group's consolidated results, financial position or disclosures:

Adopted by the Group from	Amendments to standards
1 January 2022	Amendments to IAS 16 Property, Plant and Equipment - Proceeds before Intended Use
1 January 2022	Annual Improvements 2018-2020 Cycle
1 January 2022	Amendments to IFRS 3 References to the Conceptual Framework
1 January 2022	Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract

3: Significant changes in the year

Capital return, Share Consolidation and changes to comparative amounts

On 12 May 2022, shareholder approval was received at the General Meeting for a capital return of £328 million (20 pence per share) to shareholders of Quilter plc by way of a B Share Scheme. The capital return represented the net surplus proceeds from the sale of Quilter International after retaining funds for planned Business Simplification and selected revenue enhancing investments. The B shares were created out of the Company's merger reserve, which had a balance of £1,687 million prior to the share creation.

To maintain comparability of shareholder metrics before and after the capital return, the scheme was accompanied by a Share Consolidation (see note 14(a)). The weighted average number of shares used to calculate the comparative EPS metrics has not been adjusted for the impact of the Share Consolidation due to the associated reduction in resources as a result of the return of capital.

The capital return reduced the Group's IFRS net assets and Solvency II own funds by £328 million, comprised of £331 million cash paid upon redemption of the B shares, offset by a foreign exchange gain of £3 million on South African Rand held between the date the capital return was announced and the redemption of the B shares for the JSE portion of the capital return.

Notes to the condensed consolidated financial statements

For the year ended 31 December 2022

4: Business combinations

4(a): Business disposals

Year ended 31 December 2022

There have been no material disposals of businesses during the year ended 31 December 2022.

Year ended 31 December 2021

On 30 November 2021, the Group completed the sale of Quilter International to Utmost Group for consideration of £481 million. The Group recognised a profit on disposal of £89 million. Provisions established in respect of this disposal are shown in note 16. Separation, migration and decommissioning expenses of £19 million incurred as a result of the disposal were included within Other operating and administrative expenses in the discontinued operations income statement for 2021.

Profit on sale of operations
		£m
	Year ended 31 December 2022	Year ended 31 December 2021
	Quilter International and Single Strategy business	Quilter International and Single Strategy business¹
Quilter International
Consideration received	-	481
Less: transaction costs	-	(17)
Net proceeds from sale	-	464
Carrying value of net assets disposed of	-	(324)
Goodwill allocated and disposed of	-	(50)
Recycling of foreign currency translation reserve	-	(1)
Profit on sale of Quilter International	-	89
Change in accrued expenses in relation to the Single Strategy business (sold in 2018)	-	1
Profit on sale of operations before tax	-	90
Separation, migration and decommissioning costs	-	(19)
Profit on disposal after separation, migration and decommissioning costs	-	71

¹ In 2021, the Group also sold LighthouseCarrwood Limited generating a profit of £2 million which is not reflected in the table above as the former subsidiary's activities did not represent a major line of business and therefore is regarded as being part of the Group's continuing operations.

4(b): Discontinued operations - income statement

In the prior year, the Group's discontinued operations principally related to Quilter International, the sale of which completed on 30 November 2021.

			£m
	Notes	Year ended 31 December 2022	Year ended 31 December 2021
Income
Gross earned premiums		-	1
Premiums ceded to reinsurers		-	(1)
Fee income and other income from service activities		-	169
Investment return		-	1,816
Other income		-	1
Total income		-	1,986
Expenses
Change in investment contract liabilities	15	-	(1,818)
Fee and commission expenses, and other acquisition costs		-	(72)
Other operating and administrative expenses		-	(55)
Total expenses		-	(1,945)
Profit on sale of operations before tax	4(a)	-	90
Profit before tax attributable to equity holders from discontinued operations		-	131
Profit after tax from discontinued operations		-	131
Attributable to:
Equity holders of Quilter plc		-	131

Earnings per Ordinary Share on profit attributable to Ordinary Shareholders of Quilter plc
Basic - from discontinued operations (pence)	8(b)	-	8.0
Diluted - from discontinued operations (pence)	8(b)	-	7.8

4(c): Discontinued operations - statement of comprehensive income

		£m
	Year ended 31 December 2022	Year ended 31 December 2021
Profit after tax	-	131
Total comprehensive income from discontinued operations	-	131

4(d): Discontinued operations - net cash flows

		£m
	Year ended 31 December 2022	Year ended 31 December 2021
Total net cash flows from operating activities	-	276
Total net cash flows from investing activities	-	(411)
Total net cash flows from financing activities	-	(2)
Net decrease in cash and cash equivalents	-	(137)

4(e): Assets and liabilities held for sale

Assets classified as held for sale at 31 December 2022 relate to a leasehold interest in an office property which is vacant for which the Group is actively seeking a buyer. There were no assets or liabilities classified as held for sale at 31 December 2021.

4 (f): Business acquisitions

There have been no material acquisitions of businesses during the year ended 31 December 2022 or the year ended 31 December 2021.

Contingent consideration arising from historical business acquisitions:

The table below details the movements in the contingent consideration balance during the current and prior year arising from the business acquisitions in previous years.

		£m
	Year ended 31 December 2022	Year ended 31 December 2021
Opening balance	5	16
Payments	(5)	(7)
Financing interest charge	-	1
Unused amounts reversed and other movements	-	(5)
Closing balance	-	5

Contingent consideration represents the Group's best estimate of the amount payable in relation to each acquisition discounted to net present value. The basis used for each acquisition varies but includes payments based on a percentage of the level of assets under administration, funds under management and levels of ongoing fee income at future dates.

5: Alternative performance measures ("APMs")

5(a): Adjusted profit before tax and reconciliation to profit after tax

Basis of preparation of adjusted profit before tax

Adjusted profit before tax is one of the Group's alternative performance measures and 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 in note 5(b). 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.

					£m
		Year ended 31 December 2022	Year ended 31 December 2021
	Notes	Year ended 31 December 2022	Continuing operations	Discontinued operations¹	Total
Affluent		105	111	50	161
High Net Worth		45	56	-	56
Head Office		(16)	(29)	-	(29)
Adjusted profit before tax		134	138	50	188
Reallocation of Quilter International costs		-	(10)	10	-
Adjusted profit before tax after reallocation	6(b)	134	128	60	188
Adjusting items:
Impact of acquisition and disposal-related accounting	5(b)(i)	(42)	(41)	-	(41)
Profit on business disposals²	4(a)	-	2	90	92
Business transformation costs	5(b)(ii)	(30)	(51)	(19)	(70)
Managed separation costs	5(b)(iii)	-	(2)	-	(2)
Finance costs	5(b)(iv)	(10)	(10)	-	(10)
Policyholder tax adjustments	5(b)(v)	138	(7)	-	(7)
Voluntary customer repayments	5(b)(vi)	(6)	-	-	-
Other adjusting items	5(b)(vii)	(1)	-	-	-
Exchange rate gain (ZAR/GBP)	5(b)(viii)	4	-	-	-
Customer remediation	5(b)(ix)	12	(7)	-	(7)
Total adjusting items before tax		65	(116)	71	(45)
Profit before tax attributable to equity holders		199	12	131	143
Tax attributable to policyholder returns	7(a)	(134)	73	-	73
Income tax credit/(expense)	7(a,b)	110	(62)	-	(62)
Profit after tax³		175	23	131	154

¹ 2021 discontinued operations include the results of Quilter International.

² In 2021, the discontinued operations profit on business disposals of £90 million resulted from the disposal of Quilter International. The £2 million continuing operations profit on business disposals resulted from the disposal of LighthouseCarrwood Limited. See note 4(a) for details.

³ IFRS profit after tax.

5(b): Adjusting items

In determining adjusted profit before tax, the Group's IFRS profit before tax is adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature. These are detailed below.

5(b)(i): Impact of acquisition and disposal-related accounting

Goodwill and other acquired intangibles are recognised on the acquisition of a business and represent the premium paid over the fair value of the Group's share of the identifiable assets and liabilities acquired at the date of acquisition (as recognised under IFRS 3 Business Combinations). The Group excludes any impairment of goodwill from adjusted profit as well as the amortisation and impairment of acquired intangible assets, any acquisition costs, finance costs related to the discounting of contingent consideration and incidental items relating to past disposals.

The effect of these adjustments to determine adjusted profit are summarised below. All adjustments are in respect of continuing operations.

			£m
	Note	Year ended 31 December 2022	Year ended 31 December 2021
Amortisation of other acquired intangible assets	9	42	45
Fair value gains on revaluation of contingent consideration		-	(5)
Unwinding of discount on contingent consideration		-	1
Total impact of acquisition and disposal-related accounting		42	41

5(b)(ii): Business transformation costs

Business transformation costs include four key items: costs associated with the UK Platform Transformation Programme, Optimisation programme costs, Business Simplification costs and business separation costs following disposal of Quilter International. For the year ended 31 December 2022, these costs totalled £30 million (31 December 2021: £70 million) in aggregate, the principal components of which are described below:

UK Platform Transformation Programme - 31 December 2022: £nil, 31 December 2021: £28 million

The Platform Transformation Programme concluded in 2021 with lifetime costs of £202 million. No further costs were incurred in 2022.

Optimisation programme costs - 31 December 2022: £6 million, 31 December 2021: £22 million

The Optimisation programme commenced in 2018 to provide closer business integration, create central support, rationalise technology and reduce third-party spend. The programme has now achieved its target of delivering annualised run-rate cost savings of £65 million with total implementation costs since inception of £87 million. This programme concluded during 2022.

Business Simplification costs - 31 December 2022: £17 million, 31 December 2021: £nil

The Business Simplification programme is anticipated to reduce operating costs by £45 million on a run-rate basis, with implementation costs expected to be £55 million. The Group continues to simplify its structures and organisation to support the two business segments. To date, the programme has delivered £23 million of annualised run-rate cost savings with an implementation cost of £17 million.

Restructuring costs following the disposal of Quilter Life Assurance - 31 December 2022: £3 million, 31 December 2021: £1 million

Following the sale of Quilter Life Assurance in 2019, the Group entered into a Transitional Service Agreement with the buyer, ReAssure. During the year ended 31 December 2022, the Group recognised £3 million for property exit costs following the conclusion of the Transitional Service Agreement.

Business separation costs following disposal of Quilter International - 31 December 2022: £nil, 31 December 2021: £19 million

The costs of business separation arise from the process to separate Quilter International's infrastructure, which is complex and covers a wide range of areas including people, IT systems, data and contracts facilities. A programme team has been established to ensure the transformation of these areas to the acquirer. These provisions have been based on external quotations and estimations, together with estimates of the time required for incremental resource costs to achieve the separation. The costs are predominantly expected to occur over a three-year period.

The Group has provided for the future restructuring costs arising due to the sale of Quilter International to Utmost Group on 30 November 2021, including the cost of migrating IT systems and data to the acquirer, as the Transitional Service Agreement with Utmost Group (the acquirer) runs off and the remaining Quilter business is restructured following the disposal.

Investment in business costs - 31 December 2022: £4 million, 31 December 2021: £nil

Investment in business costs of £4 million were incurred in 2022 as the Group continues to enable and support advisers and clients and improve productivity through better utilisation of technology.

5(b)(iii): Managed separation costs

For the year ended 31 December 2022, no managed separation costs were incurred (31 December 2021: £2 million ). In prior periods, these o ne-off costs related to the Group's separation from Old Mutual and were excluded from adjusted profit because they related to a fundamental restructuring of the Group and were not representative of the operating activity of the Group. No further costs associated with managed separation are anticipated.

5(b)(iv): Finance costs

The nature of much of the Group's operations means that, for management's decision-making and internal performance management, the effects of interest costs on external borrowings are removed when calculating adjusted profit. For the year ended 31 December 2022, finance costs were £10 million (31 December 2021: £10 million).

5(b)(v): Policyholder tax adjustments

For the year ended 31 December 2022, the total amount of policyholder tax adjustments to adjusted profit is £138 million charge (31 December 2021: £7 million credit). Adjustments to policyholder tax are made to remove distortions arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from policyholders (which is included within the Group's income) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding tax expense, creating volatility in the Group's IFRS profit or loss before tax attributable to equity holders. Note 7(a) provides further information on the impact of markets on the policyholder tax charge. Adjustments are also made to remove policyholder tax distortions from other non-operating adjusting items.

5(b)(vi): Voluntary customer repayment

For the year ended 31 December 2022, these costs were £6 million (31 December 2021: £nil) and relate to a change in business policy. The voluntary repayments represent amounts to be paid to customers relating to revenue previously recognised in respect of Final Plan Closure receipts.

5(b)(vii): Other adjusting items

For the year ended 31 December 2022, these costs were £1 million (31 December 2021: £nil) and relate to the impairment of an indemnification asset.

5(b)(viii): Exchange rate gain (ZAR/GBP)

For the year ended 31 December 2022, income of £4 million was received (31 December 2021: £nil) and related to a foreign exchange gain 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 to provide an economic hedge for the Group. The foreign exchange gain is fully offset by an equal amount taken directly to retained earnings. See note 3 for further detail.

5(b)(ix): Customer remediation

Lighthouse pension transfer advice provision - 31 December 2022: net income £12 million, 31 December 2021: net expenses £7 million

In 2022, insurance proceeds in relation to claims in respect of legal liabilities arising in connection with Lighthouse's DB to DC pension transfer advice cases have been received, contributing £12 million to the Group's profit before tax. These have been excluded from adjusted profit on the basis that the advice activities to which the charge and benefit relate took place prior to the Group's acquisition of the business . The provision for the redress of British Steel Pension Scheme cases and other DB to DC pension transfer cases, excluding the impact of payments made, has decreased by a further £4 million in the year, which has been recognised in the income statement as a reduction of expenses (31 December 2021: £7 million expense). This decrease reflects the impact of the final redress calculations performed compared with the provision estimated, as part of the ongoing skilled person review, and an estimate for further customer redress following the skilled person's recommendation of a review of additional cases. During the year, £4 million of additional legal, consulting, and other costs were incurred. Further details of the provision are provided in note 16.

5(c): Reconciliation of IFRS income and expenses to "Total net fee revenue" and "Operating expenses" within adjusted profit

This reconciliation shows how each line of the Group's consolidated IFRS income statement is allocated to the Group's APMs: Net management fees, Total net fee revenue and Operating expenses. The IFRS income statement column in the table below, down to "Profit before tax attributable to equity holders from continuing operations", reconciles to each line of the Group's consolidated income statement. Allocations are determined by management and aim to show the Group's sources of profit (net of relevant directly attributable expenses). These allocations remain consistent from period to period to ensure comparability, unless otherwise stated.

							£m
Year ended 31 December 2022	Net mgmt. fees¹	Other revenue¹	Total net fee revenue¹	Operating expenses¹	Adjusted profit before tax	Consol. of funds²	Consolidated income statement
Income
Fee income and other income from service activities	548	95	643	-	643	(62)	581
Investment return	-	(4,292)	(4,292)	-	(4,292)	(357)	(4,649)
Other income	-	5	5	21	26	2	28
Total income	548	(4,192)	(3,644)	21	(3,623)	(417)	(4,040)
Expenses
Change in investment contract liabilities	-	4,318	4,318	-	4,318	-	4,318
Fee and commission expenses, and other acquisition costs	(46)	1	(45)	-	(45)	(9)	(54)
Change in third-party interests in consolidated funds	-	-	-	-	-	438	438
Other operating and administrative expenses	(15)	-	(15)	(557)	(572)	(12)	(584)
Finance costs	-	-	-	(13)	(13)	-	(13)
Total expenses	(61)	4,319	4,258	(570)	3,688	417	4,105
Tax credit attributable to policyholder returns	134	-	134	-	134	-	134
Profit before tax attributable to equity holders from continuing operations	621	127	748	(549)	199	-	199
Adjusting items:
Impact of acquisition and disposal-related accounting	-	-	-	42	42
Business transformation costs	-	-	-	30	30
Voluntary customer repayments	-	-	-	6	6
Other adjusting items	-	-	-	1	1
Finance costs	-	-	-	10	10
Exchange rate gain (ZAR/GBP)	-	(4)	(4)	-	(4)
Customer remediation	-	-	-	(12)	(12)
Policyholder tax adjustments	(138)	-	(138)	-	(138)
Adjusting items	(138)	(4)	(142)	77	(65)
Adjusted profit before tax - continuing operations	483	123	606	(472)	134

¹ The APMs "Net Management Fees", "Other revenue", "Total net fee revenue" and "Operating expenses" are commented on within the Financial review.

² Consolidation of funds shows the grossing up impact to the Group's consolidated income statement as a result of the consolidation of funds requirements. This grossing up is excluded from the Group's adjusted profit.

							£m
Year ended 31 December 2021	Net mgmt. fees¹	Other revenue¹	Total net fee revenue¹	Operating expenses¹	Adjusted profit before tax	Consol. of funds²	Consolidated income statement
Income
Fee income and other income from service activities	633	111	744	-	744	(78)	666
Investment return	-	3,294	3,294	-	3,294	708	4,002
Other income	-	1	1	15	16	2	18
Total income	633	3,406	4,039	15	4,054	632	4,686
Expenses
Change in investment contract liabilities	-	(3,293)	(3,293)	-	(3,293)	-	(3,293)
Fee and commission expenses, and other acquisition costs	(52)	4	(48)	-	(48)	(13)	(61)
Change in third-party interests in consolidated funds	-	-	-	-	-	(599)	(599)
Other operating and administrative expenses	(15)	1	(14)	(602)	(616)	(20)	(636)
Finance costs	-	-	-	(14)	(14)	-	(14)
Total expenses	(67)	(3,288)	(3,355)	(616)	(3,971)	(632)	(4,603)
Profit on business disposal	-	2	2	-	2	-	2
Tax expense attributable to policyholder returns	(73)	-	(73)	-	(73)	-	(73)
Profit before tax attributable to equity holders from continuing operations	493	120	613	(601)	12	-	12
Adjusting items:
Impact of acquisition and disposal-related accounting	-	-	-	41	41
Profit on business disposal	-	(2)	(2)	-	(2)
Business transformation costs	-	-	-	51	51
Managed separation costs	-	-	-	2	2
Finance costs	-	-	-	10	10
Customer remediation	-	-	-	7	7
Policyholder tax adjustments	7	-	7	-	7
Adjusting items	7	(2)	5	111	116
Adjusted profit before tax after reallocation	500	118	618	(490)	128
Reallocation of Quilter International costs³	-	-	-	10	10
Adjusted profit before tax - continuing operations	500	118	618	(480)	138

¹ The APMs "Net Management Fees", "Other revenue", "Total net fee revenue" and "Operating expenses" are commented on within the Financial review.

³ £10 million of Other operating and administrative expenses previously reported in Quilter International are presented within continuing operations, as costs of this nature did not transfer to Utmost Group (the acquirer) on disposal.

6: Segmental information

6(a): Segmental presentation

The Group's operating segments comprise High Net Worth and Affluent, which is consistent with the manner in which the Group is structured and managed. For all reporting periods, these segments have been classified as continuing operations in the consolidated income statement. Head Office includes certain revenues and central costs that are not allocated to the segments. There have been no changes to the basis of segmentation for the periods presented within these consolidated financial statements.

Adjusted profit before tax is an APM reported to the Group's management and Board. Management and the Board use additional performance indicators to assess the performance of each of the segments, including net client cash flows, assets under management and administration, total net fee revenue and operating margin.

Consistent with internal reporting, income and expenses that are not directly attributable to a particular segment are allocated between segments where appropriate. The Group accounts for inter-segment income and transfers as if the transactions were with third parties at current market prices. Intra-group recharges in respect of operating and administration expenses within businesses disclosed as discontinued operations are not adjusted for potential future changes to the level of remaining costs following the disposal of those businesses.

The segmental information in this note reflects the adjusted and IFRS profit measures for each operating segment as provided to management and the Board. Income is analysed in further detail for each operating segment in note 6 .

Continuing operations:

High Net Worth

This segment comprises Quilter Cheviot and Quilter Private Client Advisers.

Quilter Cheviot provides discretionary investment management predominantly in the United Kingdom with bespoke investment portfolios tailored to the individual needs of High Net Worth clients, charities, companies and institutions through a network of branches in London and the regions. Investment management services are also provided by operations in the Channel Islands and the Republic of Ireland.

Quilter Private Client Advisers provide financial advice for protection, mortgages, savings, investments and pensions predominantly to High Net Worth clients.

Affluent

This segment is comprised of Quilter Investment Platform, Quilter Investors and Quilter Financial Planning.

Quilter Investment Platform is a leading investment platform provider of advice-based wealth management products and services in the UK, which serves a largely Affluent client base through advised multi-channel distribution.

Quilter Investors is a leading provider of investment solutions in the UK multi-asset market. It develops and manages investment solutions in the form of funds for the Group and third-party clients. It has several fund ranges which vary in breadth of underlying asset class.

Quilter Financial Planning is a restricted and independent financial adviser network including Quilter Financial Advisers and Lighthouse, providing mortgage and financial planning advice and financial solutions for both individuals and businesses through a network of intermediaries. It operates across all markets, from wealth management and retirement planning advice through to dealing with property wealth and personal and business protection needs.

Head Office

In addition to the Group's two operating segments, Head Office comprises the investment return on centrally held assets, central support function expenses, central core structural borrowings and certain tax balances.

Discontinued operations

Quilter International is excluded from the segmental information for the year ended 31 December 2021 as it was sold on 30 November 2021. See note 4 for further details.

Quilter International was Quilter's cross-border business, focusing on High Net Worth and Affluent local clients and expatriates in the UK, Asia, the Middle East, Europe and Latin America.

6(b)(i): Adjusted profit statement - segmental information for the year ended 31 December 2022

The table below presents the Group's continuing operations split by operating segment, reconciling the segmented IFRS income statement (to "Profit/(loss) before tax attributable to equity holders from continuing operations") to adjusted profit before tax.

						£m
		Operating segments
	Notes	Affluent	High Net Worth	Head Office	Consolidation adjustments¹	Consolidated income statement
Income
Fee income and other income from service activities		441	202	-	(62)	581
Investment return		(4,307)	9	8	(359)	(4,649)
Other income		112	3	5	(92)	28
Segmental income		(3,754)	214	13	(513)	(4,040)
Expenses
Change in investment contract liabilities		4,318	-	-	-	4,318
Fee and commission expenses, and other acquisition costs		(46)	-	-	(8)	(54)
Change in third-party interests in consolidated funds		-	-	-	438	438
Other operating and administrative expenses		(410)	(202)	(53)	81	(584)
Finance costs		(3)	-	(12)	2	(13)
Segmental expenses		3,859	(202)	(65)	513	4,105
Profit/(loss) before tax from continuing operations		105	12	(52)	-	65
Tax credit attributable to policyholder returns		134	-	-	-	134
Profit/(loss) before tax attributable to equity holders from continuing operations		239	12	(52)	-	199
Adjusted for non-operating items:
Impact of acquisition and disposal-related accounting	5(b)(i)	10	32	-	-	42
Business transformation costs	5(b)(ii)	-	-	30	-	30
Finance costs	5(b)(iv)	-	-	10	-	10
Policyholder tax adjustments	5(b)(v)	(138)	-	-	-	(138)
Voluntary customer repayments	5(b)(vi)	6	-	-	-	6
Other adjusting items	5(b)(vii)	-	1	-	-	1
Exchange rate gain (ZAR/GBP)	5(b)(viii)	-	-	(4)	-	(4)
Customer remediation	5(b)(ix)	(12)	-	-	-	(12)
Adjusting items before tax		(134)	33	36	-	(65)
Adjusted profit/(loss) before tax - continuing operations		105	45	(16)	-	134

¹ Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.

6(b)(ii): Adjusted profit statement - segmental information for the year ended 31 December 2021

							£m
		Operating segments
	Notes	Affluent	High Net Worth	Head Office	Reallocation of Quilter International costs¹	Consolidation adjustments²	Consolidated income statement
Income
Fee income and other income from service activities		532	213	-	-	(79)	666
Investment return		3,293	-	1	-	708	4,002
Other income		110	-	-	-	(92)	18
Segmental income		3,935	213	1	-	537	4,686
Expenses
Change in investment contract liabilities		(3,293)	-	-	-	-	(3,293)
Fee and commission expenses, and other acquisition costs		(48)	-	-	-	(13)	(61)
Change in third-party interests in consolidated funds		-	-	-	-	(599)	(599)
Other operating and administrative expenses		(463)	(187)	(51)	(10)	75	(636)
Finance costs		(4)	-	(10)	-	-	(14)
Segmental expenses		(3,808)	(187)	(61)	(10)	(537)	(4,603)
Profit on sale of subsidiary		2	-	-	-	-	2
Profit/(loss) before tax from continuing operations		129	26	(60)	(10)	-	85
Tax expense attributable to policyholder returns		(73)	-	-	-	-	(73)
Profit/(loss) before tax attributable to equity holders from continuing operations		56	26	(60)	(10)	-	12
Adjusted for non-operating items:
Impact of acquisition and disposal-related accounting	5(b)(i)	11	30	-	-	-	41
Net profit on business disposals and acquisitions		(2)	-	-	-	-	(2)
Business transformation costs	5(b)(ii)	32	-	19	-	-	51
Managed separation costs	5(b)(iii)	-	-	2	-	-	2
Finance costs	5(b)(iv)	-	-	10	-	-	10
Policyholder tax adjustments	5(b)(v)	7	-	-	-	-	7
Customer remediation	5(b)(ix)	7	-	-	-	-	7
Adjusting items before tax		55	30	31	-	-	116
Adjusted profit/(loss) before tax after reallocation		111	56	(29)	(10)	-	128
Reallocation of Quilter International costs	4(b)	-	-	-	10	-	10
Adjusted profit/(loss) before tax - continuing operations		111	56	(29)	-	-	138

¹ £10 million of Other operating and administrative expenses previously reported in Quilter International are presented within continuing operations, as costs of this nature did not transfer to Utmost Group (the acquirer) on disposal.

² Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.

6(c) : Breakdown of income

This note analyses the Group's income into further detail based on the types of fees earned and split by operating segment, which is aligned to the Group's client base.

					£m
Year ended 31 December 2022	Affluent	High Net Worth	Head Office	Consolidation adjustments	Total continuing operations
Premium-based fees	75	21	-	-	96
Fund-based fees ¹	356	181	-	(62)	475
Fixed fees	2	-	-	-	2
Other fee and commission income	8	-	-	-	8
Fee income and other income from service activities	441	202	-	(62)	581
Investment return	(4,307)	9	8	(359)	(4,649)
Other income	112	3	5	(92)	28
Total income	(3,754)	214	13	(513)	(4,040)

					£m	£m
Year ended 31 December 2021	Affluent	High Net Worth	Head Office	Consolidation adjustments	Total continuing operations	Discontinued operations
Premium-based fees	87	24	-	-	111	45
Fund-based fees¹	376	189	-	(79)	486	81
Retrocessions received, intra-group	-	-	-	-	-	6
Fixed fees	2	-	-	-	2	26
Exit fees	-	-	-	-	-	11
Other fee and commission income	67	-	-	-	67	-
Fee income and other income from service activities	532	213	-	(79)	666	169
Investment return	3,293	-	1	708	4,002	1,816
Other income	110	-	-	(92)	18	1
Total income	3,935	213	1	537	4,686	1,986

¹ Income from fiduciary activities is included within fund-based fees.

7: Tax

7(a): Tax charged to the income statement

		£m
	Year ended 31 December 2022	Year ended 31 December 2021
Current tax
United Kingdom	12	36
Overseas tax	1	1
Total current tax charge	13	37
Deferred tax
Origination and reversal of temporary differences	(120)	36
Effect on deferred tax of changes in tax rates	(1)	(12)
Adjustments to deferred tax in respect of prior periods	(2)	1
Total deferred tax (credit)/charge	(123)	25
Total tax (credited)/charged to income statement - continuing operations	(110)	62
Total tax (credited)/charged to income statement	(110)	62

Attributable to policyholder returns - continuing operations	(134)	73
Attributable to equity holders - continuing operations	24	(11)
Total tax (credited)/charged to income statement	(110)	62

Policyholder tax

Certain products are subject to tax on policyholders' investment returns. This "policyholder tax" is an element of total tax expense. To make the tax expense more meaningful, tax attributable to policyholder returns and tax attributable to equity holders' profits are shown separately in the income statement.

The tax attributable to policyholder returns is the amount payable in the year plus the movement of amounts expected to be payable in future years. The remainder of the tax expense is attributed to shareholders as tax attributable to equity holders.

The Group's income tax credit on continuing operations was £110 million for the year ended 31 December 2022, compared to a charge of £62 million for the prior year. This income tax credit can vary significantly year-on-year as a result of market volatility and the impact this has on policyholder tax. The recognition of the income received from policyholders to fund the policyholder tax liability (which is included within the Group's income) can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility in the Group's IFRS profit before tax attributable to equity holders. An adjustment is made to adjusted profit to remove these distortions, as explained further in note 5(b)(v).

Market movements during the year ended 31 December 2022 resulted in investment losses of £587 million on products subject to policyholder tax. The loss is a component of the total "investment return" loss of £4,649 million shown in the income statement. The impact of the £587 million investment return loss is the primary reason for the £134 million tax credit attributable to policyholder returns in respect of the continuing operations for the year ended 31 December 2022 (31 December 2021: £73 million expense in respect of continuing operations and £nil expense in respect of discontinued operations).

UK Corporation Tax rate

The main rate of Corporation Tax is 19% for the financial year 2022 (2021: 19%). The Corporation Tax rate will increase from 19% to 25%, effective from 1 April 2023. This change was substantively enacted in 2021 and the new rate has been used in recognising the Company's deferred tax assets and liabilities for reversals expected to take place on or after 1 April 2023.

The Company considers that future years' profits will be sufficient to utilise the tax asset carried forward.

7(b): Reconciliation of total income tax expense

The income tax credited or charged to profit or loss differs from the amount that would apply if all of the Group's profits from all the countries in which the Group operates had been taxed at the UK standard Corporation Tax rate. The difference in the effective rate is explained below:

		£m
	Year ended 31 December 2022	Year ended 31 December 2021
Profit before tax from continuing operations	65	85
Tax at UK standard rate of 19% (2021: 19%)	12	16
Different tax rate or basis on overseas operations	-	1
Untaxed and low taxed income	(6)	-
Expenses not deductible for tax purposes	1	-
Net movements on unrecognised deferred tax assets	(6)	(4)
Effect on deferred tax of changes in tax rates	(1)	(12)
Adjustments to deferred tax in respect of prior years	(2)	1
Income tax attributable to policyholder returns (net of tax relief)	(108)	60
Total tax (credited)/charged to income statement - continuing operations	(110)	62
Total tax (credited)/charged to income statement	(110)	62

7(c): Reconciliation of income tax credit or expense in the income statement to income tax on adjusted profit

			£m
	Note	Year ended 31 December 2022	Year ended 31 December 2021
Income tax (credit)/expense on continuing operations ¹		(110)	62
Tax on adjusting items
Impact of acquisition and disposal-related accounting		8	4
Business transformation costs		5	10
Finance costs		2	2
Exchange rate gain (ZAR/GBP)		(1)	-
Customer remediation		-	1
Tax adjusting items
Policyholder tax adjustments	5(b)(v)	138	(7)
Other shareholder tax adjustments ²		(19)	7
Tax on adjusting items - continuing operations		133	17
Less: tax attributable to policyholder returns within adjusted profit - continuing operations ³		(4)	(66)
Tax charged on adjusted profit - continuing operations		19	13
Tax charged on total adjusted profit		19	13

¹ Includes both tax attributable to policyholders and equity holders, in compliance with IFRS.

² Other shareholder tax adjustments comprise the reallocation of adjustments from policyholder tax as explained in note 5(b)(v) and shareholder tax adjustments for one-off items in line with the Group's adjusted profit policy.

³ Adjusted profit treats policyholder tax as a pre-tax expense (this includes policyholder tax under IFRS and the policyholder tax adjustments) and is therefore removed from the tax charge on adjusted profit.

8: Earnings per share

The Group calculates earnings per share ("EPS") on a number of different bases. IFRS requires the calculation of basic and diluted EPS. Adjusted EPS reflects earnings that are consistent with the Group's adjusted profit measure and Headline earnings per share ("HEPS") is a requirement of the Johannesburg Stock Exchange.

				Pence
	Framework	Notes	Year ended 31 December 2022	Year ended 31 December 2021
Basic earnings per share	IFRS	8(b)	12.2	9.4
Diluted basic earnings per share	IFRS	8(b)	12.0	9.2
Adjusted basic earnings per share	Group policy	8(b)	8.0	10.7
Adjusted diluted earnings per share	Group policy	8(b)	7.9	10.4
Headline basic earnings per share (net of tax)	JSE Listing Requirements	8(c)	11.7	3.9
Headline diluted earnings per share (net of tax)	JSE Listing Requirements	8(c)	11.5	3.8

8(a): Weighted average number of Ordinary Shares

The table below summarises the calculation of the weighted average number of Ordinary Shares for the purposes of calculating basic and diluted earnings per share for each profit measure (IFRS, adjusted and headline profit). Details of the impact on the number of shares from the Quilter share buyback scheme are detailed in note 14.

		Million
	Year ended 31 December 2022	Year ended 31 December 2021
Weighted average number of Ordinary Shares	1,496	1,721
Own shares including those held in consolidated funds and EBTs	(58)	(77)
Basic weighted average number of Ordinary Shares	1,438	1,644
Adjustment for dilutive share awards and options	20	39
Diluted weighted average number of Ordinary Shares	1,458	1,683

8(b): Basic and diluted EPS (IFRS and adjusted profit)

							£m
		Year ended 31 December 2022			Year ended 31 December 2021
	Notes	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
Profit after tax		175	-	175	23	131	154
Total adjusting items before tax	5(a)	(65)	-	(65)	116	(71)	45
Tax on adjusting items	7(c)	(133)	-	(133)	(17)	-	(17)
Less: Policyholder tax adjustments	7(c)	138	-	138	(7)	-	(7)
Adjusted profit after tax after reallocation		115	-	115	115	60	175
Reversal of:
Reallocation of Quilter International costs ¹		-	-	-	10	(10)	-
Adjusted profit after tax		115	-	115	125	50	175

¹ Reallocation of Quilter International costs relate to costs that were previously reported as part of Quilter International which were presented within continuing operations in the prior year (31 December 2021: £10 million) as these did not transfer to Utmost Group (the acquirer) on disposal. There were no such costs in the year ended 31 December 2022. See note 4(b) for additional details.

		Year ended 31 December 2022			Year ended 31 December 2021
	Post-tax profit measure used	Continuing operations	Discontinued operations	Total	Continuing operations	Discontinued operations	Total
	Post-tax profit measure used	Pence	Pence	Pence	Pence	Pence	Pence
Basic EPS	IFRS profit	12.2	-	12.2	1.4	8.0	9.4
Diluted EPS	IFRS profit	12.0	-	12.0	1.4	7.8	9.2
Adjusted basic EPS	Adjusted profit	8.0	-	8.0	7.6	3.1	10.7
Adjusted diluted EPS	Adjusted profit	7.9	-	7.9	7.4	3.0	10.4

8(c): Headline earnings per share

		+	+		£m
			Year ended 31 December 2022		Year ended 31 December 2021
	Note	Gross	Net of tax	Gross	Net of tax
Profit attributable to equity holders			175		154
Adjusted for:
Profit on business disposals	4(a)	-	-	(90)	(90)
Impairment loss on property, plant and equipment¹		-	(7)	-	-
Headline earnings			168		64
Headline basic EPS (pence)			11.7		3.9
Headline diluted EPS (pence)			11.5		3.8

¹ Of the impairment, £3 million relates to right-of-use asset and £4 million relates to plant and equipment.

9: Goodwill and intangible assets

9(a): Analysis of goodwill and intangible assets

The table below shows the movements in cost and amortisation of goodwill and intangible assets.

				£m
	Goodwill	Software development costs	Other intangible assets	Total
Gross amount
1 January 2021¹	356	95	429	880
Disposal of interests in subsidiaries	(50)	-	(4)	(54)
Disposals²	-	(65)	-	(65)
31 December 2021¹	306	30	425	761
31 December 2022	306	30	425	761

Amortisation and impairment losses
1 January 2021¹	-	(85)	(239)	(324)
Amortisation charge for the year	-	(2)	(45)	(47)
Disposal of interests in subsidiaries	-	-	2	2
Disposals²	-	65	-	65
31 December 2021¹	-	(22)	(282)	(304)
Amortisation charge for the year	-	(2)	(42)	(44)
31 December 2022	-	(24)	(324)	(348)

Carrying amount
31 December 2021	306	8	143	457
31 December 2022	306	6	101	413

¹ Following the completion of a number of strategic projects, including IT projects, the Group reviewed the fixed asset register. Assets related to software development costs with a cost of £10 million and an accumulated amortisation of £10 million (net book value: £nil) that had been fully amortised prior to January 2021 and that are no longer held by the Group or no longer in use have been removed from the register and are not recognised in the gross amount of software development costs as at 31 December 2022. Figures for prior periods have been restated to ensure comparability.

² Disposals of £65 million in the year ended 31 December 2021 relate to the write-off of fully amortised software in respect of the Platform Transformation Programme and following the final migration of client assets in February 2021, with all Quilter Investment Platform assets now live on the new platform.

9(b): Analysis of other intangible assets

		£m
	31 December 2022	31 December 2021	Average estimated useful life	Average period remaining
Net carrying value
Distribution channels - Quilter Financial Planning	4	9	8 years	2 years
Customer relationships
Quilter Cheviot	59	86	10 years	2 years
Quilter Financial Planning	22	27	8 years	4 years
Quilter Private Client Advisers	14	18	8 years	4 years
Other	2	3	7 years	1 year
Total other intangible assets	101	143

9(c): Allocation of goodwill to cash-generating units ("CGUs") and impairment testing

Goodwill is monitored by management at the level of the Group's two operating segments: Affluent and High Net Worth, as disclosed in note 6(a). Both operating segments represent a group of CGUs. The allocation of goodwill to these segments was based on their individual value-in-use calculations relative to the combined total.

		£m
	31 December 2022	31 December 2021¹
Goodwill (net carrying amount)
Affluent	223	223
High Net Worth	83	83
Total goodwill	306	306

¹ The prior year figures have been re-presented to correct a minor classification difference between the two segments. The amount attributable to Affluent has decreased by £2 million from the amount originally presented with a corresponding increase in High Net Worth.

Impairment review

In accordance with the requirements of IAS 36 Impairment of Assets, goodwill in both the Affluent and High Net Worth CGU groups is tested for impairment annually, or earlier if an indicator of impairment exists, by comparing the carrying value of the CGU group to which the goodwill relates to the recoverable value of that CGU group, being the higher of that CGU group's value-in-use or fair value less costs to sell. If applicable, an impairment charge is recognised when the recoverable amount is less than the carrying value. Goodwill impairment indicators include sudden stock market falls, the absence of positive Net Client Cash Flows ("NCCF"), significant falls in profits and significant increases in the discount rate.

The goodwill balance has been tested for impairment at 31 December 2022 and continues to demonstrate a surplus of the recoverable amount over the carrying value of the CGUs. As a result, no impairment is required.

The following table shows the percentage change required in each key assumption before the carrying value would exceed the recoverable amount, assuming all other variables remain the same. This highlights that further adverse movements in the key assumptions used in the CGU value-in-use calculation would be required before an impairment would need to be recognised.

	Affluent	High Net Worth
Reduction in forecast cash flows	17%	47%
Percentage point increase in the discount rate	5%	20%

Forecast cash flows are impacted by movements in underlying assumptions, including equity market levels, revenue margins and NCCF. The Group considers that forecast cash flows are most sensitive to movements in equity markets because they have a direct impact on the level of the Group's fee income.

The principal sensitivity within equity market level assumptions relates to the estimated growth in equity market indices included in the three-year revenue forecasts. Management forecasts equity market growth for each business using estimated asset-specific growth rates that are supported by internal research, historical performance, Bank of England forecasts and other external estimates.

Value-in-use methodology

The value-in-use calculations are determined as the sum of net tangible assets and the expected cash flows from existing and expected future new business derived from the Business Plans. Future cash flow elements allow for the cost of capital needed to support the business.

The cash flows that have been used to determine the value-in-use of the CGUs are based on the most recent management approved three-year profit forecasts, which are contained in the Group's Business Plan. These profit forecasts incorporate anticipated equity market growth on the Group's future cash flows, and take into account climate-related risks and other responsible business considerations. These cash flows change at different rates because of the different strategies of the CGUs. In cases where the CGUs have made significant acquisitions in the recent past, the cash flows are forecast to grow faster than the more mature businesses. Post the three-year forecast period, the growth rate used to determine the terminal value of the CGUs in the annual assessment was 2.0% (2021: 2.0%), which is lower than the UK long-term growth rate. Market share and market growth information is also used to inform the expected volumes of future new business.

IAS 36 does not permit any cost savings linked to future restructuring activity to be included within the value-in-use calculation unless an associated restructuring provision has also been recognised. Consequently, for the purpose of the value-in-use calculation, a number of planned cost savings and the related implementation costs, primarily in relation to the Business Simplification programme, have been removed from the future cash flows.

The Group uses a single cost of capital of 11.4% (2021: 9.5%) to discount expected future cash flows across its two groups of CGUs because they are considered to present a similar level of risk. Capital is provided to the Group predominantly by shareholders with a relatively small amount of debt financing. The cost of capital is the weighted average of the cost of equity (return required by shareholders) and the cost of debt (return required by bondholders and owners of properties leased by the Group). When assessing the systematic risk (i.e. the beta value) within the calculation of the cost of equity, a triangulation approach is used that combines beta values obtained from historical data, a forward-looking view on the progression of beta values and the external views of investors.

10: Financial investments

The table below analyses the investments and securities that the Group invests in, either on its own proprietary behalf (shareholder funds) or on behalf of third parties (policyholder funds).

		£m
	31 December 2022	31 December 2021
Government and government-guaranteed securities	225	649
Other debt securities, preference shares and debentures	1,609	1,662
Equity securities	6,225	7,251
Pooled investments	35,557	38,002
Short-term funds and securities treated as investments	1	1
Total financial investments	43,617	47,565

Recoverable within 12 months	43,617	47,565
Total financial investments	43,617	47,565

The financial investments recoverability profile is based on the intention with which the financial assets are held. These assets are held to cover the liabilities for linked investment contracts, all of which can be withdrawn by policyholders on demand.

11: Categories of financial instruments

The analysis of financial assets and liabilities into their categories as defined in IFRS 9 Financial Instruments is set out in the following tables. Assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IFRS 9, are reflected in the non-financial assets and liabilities category.

For information about the methods and assumptions used in determining fair value, refer to note 12. The Group's exposure to various risks associated with financial instruments is discussed in note 18.

31 December 2022
					£m
Measurement basis	Fair value
	Mandatorily at FVTPL	Designated at FVTPL	Amortised cost	Non-financial assets and liabilities	Total
Assets
Investments in associated undertakings ¹	-	-	-	1	1
Loans and advances	-	-	34	-	34
Financial investments	43,617	-	-	-	43,617
Trade, other receivables and other assets	-	-	261	42	303
Derivative assets	40	-	-	-	40
Cash and cash equivalents	1,112	-	670	-	1,782
Total assets that include financial instruments	44,769	-	965	43	45,777
Total other non-financial assets	-	-	-	640	640
Total assets	44,769	-	965	683	46,417

Liabilities
Investment contract liabilities	-	38,186	-	-	38,186
Third-party interests in consolidated funds	5,843	-	-	-	5,843
Borrowings and lease liabilities	-	-	290	-	290
Trade, other payables and other liabilities	-	-	358	78	436
Derivative liabilities	20	-	-	-	20
Total liabilities that include financial instruments	5,863	38,186	648	78	44,775
Total other non-financial liabilities	-	-	-	94	94
Total liabilities	5,863	38,186	648	172	44,869

¹ Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.

31 December 2021
					£m
Measurement basis	Fair value
	Mandatorily at FVTPL	Designated at FVTPL	Amortised cost	Non-financial assets and liabilities	Total
Assets
Investments in associated undertakings ¹	-	-	-	2	2
Loans and advances	-	-	29	-	29
Financial investments	47,564	-	-	1	47,565
Trade, other receivables and other assets	-	-	325	56	381
Derivative assets	14	-	-	-	14
Cash and cash equivalents	1,216	-	848	-	2,064
Total assets that include financial instruments	48,794	-	1,202	59	50,055
Total other non-financial assets	-	-	-	685	685
Total assets	48,794	-	1,202	744	50,740

Liabilities
Investment contract liabilities	-	41,071	-	-	41,071
Third-party interests in consolidated funds	6,898	-	-	-	6,898
Borrowings and lease liabilities	-	-	299	-	299
Trade, other payables and other liabilities	-	-	370	114	484
Derivative liabilities	15	-	-	-	15
Total liabilities that include financial instruments	6,913	41,071	669	114	48,767
Total other non-financial liabilities	-	-	-	234	234
Total liabilities	6,913	41,071	669	348	49,001

¹ Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.

12: Fair value methodology

This section explains the judgements and estimates made in determining the fair values of financial instruments that are recognised and measured at fair value in the financial statements. Classifying financial instruments into the three levels of the fair value hierarchy (see note 12(b)), prescribed under IFRS, provides an indication about the reliability of inputs used in determining fair value.

12(a): Determination of fair value

The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market exit prices for assets and offer prices for liabilities, at the close of business on the reporting date, without any deduction for transaction costs:

· for units in unit trusts and shares in open-ended investment companies, fair value is determined by reference to published quoted prices representing exit values in an active market;

· for equity and debt securities not actively traded in organised markets and where the price cannot be retrieved, the fair value is determined by reference to similar instruments for which market observable prices exist;

· for assets that have been suspended from trading on an active market, the last published price is used. Many suspended assets are still regularly priced. At the reporting date, all suspended assets are assessed for impairment; and

· where the assets are private company shares or within consolidated investment funds, the valuation is based on the latest available set of audited financial statements where available, or if more recent, financial statements for the fund or a statement of valuation provided by the management of the private company or fund.

There have been no significant changes in the valuation techniques applied when valuing financial instruments. Where assets are valued by the Group, the general principles applied to those instruments measured at fair value are outlined below:

Loans and advances

Loans and advances include certain loans to brokers at below-market interest rates which are measured at fair value. All other loans to brokers are stated at amortised cost.

Financial investments

Financial investments include government and government-guaranteed securities, listed and unlisted debt securities, preference shares and debentures, listed and unlisted equity securities, listed and unlisted pooled investments (see below), short-term funds and securities treated as investments and certain other securities.

Pooled investments represent the Group's holdings of shares/units in open-ended investment companies, unit trusts, mutual funds and similar investment vehicles. Pooled investments are recognised at fair value. The fair values of pooled investments are based on widely published prices that are regularly updated.

Other financial investments that are measured at fair value use observable market prices where available. In the absence of observable market prices, these investments and securities are fair valued utilising various approaches including discounted cash flows, the application of an earnings before interest, tax, depreciation and amortisation multiple or any other relevant technique.

Derivatives

The fair value of derivatives is determined with reference to the exchange-traded prices of the specific instruments. The fair value of over-the-counter forward foreign exchange contracts is determined by reference to the relevant exchange rates.

Investment contract liabilities

The fair value of the investment contract liabilities is determined with reference to the underlying funds that are held by the Group.

Third-party interests in consolidated funds

Third-party interests in consolidated funds are measured at the attributable net asset value of each fund.

12(b): Fair value hierarchy

Fair values are determined according to the following hierarchy:

Description of hierarchy	Types of instruments classified in the respective levels
Level 1 - quoted market prices: financial assets and liabilities with quoted prices for identical instruments in active markets.	Listed equity securities, government securities and other listed debt securities and similar instruments that are actively traded, actively traded pooled investments, certain quoted derivative assets and liabilities and investment contract liabilities directly linked to other Level 1 financial assets.
Level 2 - valuation techniques using observable inputs: financial assets and liabilities with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial assets and liabilities valued using models where all significant inputs are observable.	Unlisted equity and debt securities where the valuation is based on models involving no significant unobservable data. Over-the-counter ("OTC") derivatives, certain privately placed debt instruments and third-party interests in consolidated funds which meet the definition of Level 2 financial instruments.
Level 3 - valuation techniques using significant unobservable inputs: financial assets and liabilities valued using valuation techniques where one or more significant inputs are unobservable.	Unlisted equity and securities with significant unobservable inputs, securities where the market is not considered sufficiently active, including certain inactive pooled investments.

The judgement as to whether a market is active may include, for example, consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer spreads. In inactive markets, obtaining assurance that the transaction price provides evidence of fair value or determining the adjustments to transaction prices that are necessary to measure the fair value of the asset or liability requires additional work during the valuation process.

The majority of valuation techniques employ only observable data and so the reliability of the fair value measurement is high. Certain financial assets and liabilities are valued on the basis of valuation techniques that feature one or more significant inputs that are unobservable and, for them, the derivation of fair value is more judgemental. A financial asset or liability in its entirety is classified as valued using significant unobservable inputs if a significant proportion of that asset or liability's carrying amount is driven by unobservable inputs.

In this context, 'unobservable' means that there is little or no current market data available from which to determine the price at which an arm's length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Furthermore, in some cases the majority of the fair value derived from a valuation technique with significant unobservable data may be attributable to observable inputs.

12(c): Transfer between fair value hierarchies

The Group deems a transfer to have occurred between Level 1 and Level 2 or Level 3 when an active, traded primary market ceases to exist for that financial instrument. A transfer between Level 2 and Level 3 occurs when the majority of the significant inputs used to determine the fair value of the instrument become unobservable. Transfers from Levels 3 or 2 to Level 1 are also possible when assets become actively priced.

There were no transfers of financial investments from Level 1 to Level 2 during the year (31 December 2021: £16 million). There were no transfers of financial investments from Level 2 to Level 1 during the year (31 December 2021: £85 million). The movement in 2021 related to assets held by the Quilter International business and these movements were matched closely by transfers of investment contract liabilities. See note 12(e) for the reconciliation of Level 3 financial instruments.

12(d): Financial assets and liabilities measured at fair value, classified according to fair value hierarchy

The majority of the Group's financial assets are measured using quoted market prices for identical instruments in active markets (Level 1) and there have been no significant changes during the year.

The linked assets are held to cover the liabilities for linked investment contracts (net of reinsurance). The difference between linked assets and linked liabilities is principally due to short-term timing differences between policyholder premiums being received and invested in advance of policies being issued, and tax liabilities within funds which are reflected within the Group's tax liabilities.

Differences between assets and liabilities within the respective levels of the fair value hierarchy also arise due to the mix of underlying assets and liabilities within consolidated funds. In addition, third-party interests in consolidated funds are classified as Level 2.

The table below presents a summary of the Group's financial assets and liabilities that are measured at fair value in the consolidated statement of financial position according to their IFRS 9 classification (see note 11 for further details).

	31 December 2022		31 December 2021
	£m	%	£m	%
Financial assets measured at fair value
Level 1	38,452	85.9%	41,996	86.0%
Level 2	6,288	14.0%	6,771	13.9%
Level 3	29	0.1%	27	0.1%
Total	44,769	100.0%	48,794	100.0%
Financial liabilities measured at fair value
Level 1	38,161	86.6%	41,047	85.5%
Level 2	5,863	13.3%	6,913	14.4%
Level 3	25	0.1%	24	0.1%
Total	44,049	100.0%	47,984	100.0%

The tables below further analyse the Group's financial assets and liabilities measured at fair value by the fair value hierarchy described in note 12(b):

				£m
31 December 2022	Level 1	Level 2	Level 3	Total
Financial assets measured at fair value
Mandatorily (fair value through profit or loss)	38,452	6,288	29	44,769
Financial investments	37,340	6,248	29	43,617
Cash and cash equivalents	1,112	-	-	1,112
Derivative assets	-	40	-	40

Total assets measured at fair value	38,452	6,288	29	44,769

Financial liabilities measured at fair value
Mandatorily (fair value through profit or loss)	-	5,863	-	5,863
Third-party interests in consolidated funds	-	5,843	-	5,843
Derivative liabilities	-	20	-	20

Designated (fair value through profit or loss)	38,161	-	25	38,186
Investment contract liabilities	38,161	-	25	38,186

Total liabilities measured at fair value	38,161	5,863	25	44,049

				£m
31 December 2021	Level 1	Level 2	Level 3	Total
Financial assets measured at fair value
Mandatorily (fair value through profit or loss)	41,996	6,771	27	48,794
Financial investments	40,780	6,757	27	47,564
Cash and cash equivalents	1,216	-	-	1,216
Derivative assets	-	14	-	14

Total assets measured at fair value	41,996	6,771	27	48,794

Financial liabilities measured at fair value
Mandatorily (fair value through profit or loss)	-	6,913	-	6,913
Third-party interests in consolidated funds	-	6,898	-	6,898
Derivative liabilities	-	15	-	15
Designated (fair value through profit or loss)	41,047	-	24	41,071
Investment contract liabilities	41,047	-	24	41,071

Total liabilities measured at fair value	41,047	6,913	24	47,984

12(e): Level 3 fair value hierarchy disclosure

The majority of the assets classified as Level 3 are held within linked policyholder funds. Where this is the case, all of the investment risk associated with these assets is borne by policyholders and the value of these assets is exactly matched by a corresponding liability due to policyholders. The Group bears no risk from a change in the market value of these assets except to the extent that it has an impact on management fees earned.

Level 3 assets also include investments within consolidated funds. The Group bears no risk from a change in the market value of these assets except to the extent that it has an impact on fund management fee income. Any changes in market value are matched by a corresponding Level 2 liability within third-party interests in consolidated funds.

The table below reconciles the opening balance of Level 3 financial assets to the closing balance at each year end:

		£m
	2022	2021
At beginning of the year	27	1,822
Fair value losses charged to the income statement	(5)	(3)
Purchases	-	-
Sales	(2)	-
Transfers in	125	8
Transfers out	(116)	(393)
Disposal of subsidiaries¹	-	(1,406)
Foreign exchange and other movements	-	(1)
Total Level 3 financial assets at the end of the year	29	27
Unrealised fair value losses charged to the income statement relating to assets held at the year end	(9)	(4)

¹ During the year to 31 December 2021, Level 3 assets decreased by £1,406 million following the sale of Quilter International to Utmost Group.

Amounts shown as sales arise principally from the sale of private company shares, unlisted pooled investments and from distributions received in respect of holdings in property funds.

Transfers into Level 3 assets in the current year total £125 million (31 December 2021: £8 million). T his is mainly due to suspended funds previously shown within Level 1. Suspended funds are valued based on external valuation reports received from fund managers. Transfers out of Level 3 assets in the current year of £116 million (31 December 2021: £393 million) result from a transfer to Level 1 assets relating to assets that are now being actively repriced (that were previously stale) and where fund suspensions have been lifted .

The table below analyses the type of Level 3 financial assets held:

		£m
	31 December 2022	31 December 2021
Pooled investments	29	26
Unlisted and stale price pooled investments	-	1
Suspended funds	29	25
Private equity investments	-	1
Total Level 3 financial assets	29	27

As at 31 December 2022, the Group does not hold any private equity investments. As at 31 December 2021, Level 3 assets included £1 million of private equity investments, all within consolidated funds.

The table below reconciles the opening balance of Level 3 financial liabilities to the closing balance at each year end:

		£m
	2022	2021
At beginning of the year	24	1,820
Fair value losses charged to the income statement	(2)	(3)
Transfers in	119	5
Transfers out	(116)	(391)
Disposal of subsidiaries¹	-	(1,406)
Foreign exchange and other movements	-	(1)
Total Level 3 financial liabilities at the end of the year	25	24
Unrealised fair value losses charged to the income statement relating to liabilities held at the year end	(5)	(4)

¹ During the year to 31 December 2021, Level 3 liabilities decreased by £1,406 million following the sale of Quilter International to Utmost Group.

All of the liabilities that are classified as Level 3 are investment contract liabilities which exactly match against the Level 3 assets held in linked policyholder funds.

12(f): Effect of changes in significant unobservable assumptions to reasonable alternatives

Details of the valuation techniques applied to the different categories of financial instruments can be found in note 12 (a) above, including the valuation techniques applied when significant unobservable assumptions are used to value Level 3 assets.

Private equity investments are valued at the value disclosed in the latest available set of audited financial statements or, if more recent information is available from investment managers or professional valuation experts at the value of the underlying assets of the private equity investment.

For Level 3 assets and liabilities, no reasonable alternative assumptions are applicable and the Group therefore performs a sensitivity test of an aggregate 10% change in the value of the financial asset or liability (31 December 2021: 10%), representing a reasonable alternative judgement in the context of the current macroeconomic environment in which the Group operates. It is therefore considered that the impact of this sensitivity will be in the range of £3 million to the reported fair value of Level 3 assets, both favourable and unfavourable (31 December 2021: £2 million).

As described in note 12(e), changes in the value of Level 3 assets held within linked policyholder funds are exactly matched by corresponding changes in the value of liabilities due to policyholders and therefore have no impact on the Group's net asset value or profit or loss, except to the extent that it has an impact on management fees earned.

12(g): Fair value hierarchy for assets and liabilities not measured at fair value

Certain financial instruments of the Group are not carried at fair value. The carrying values of these are considered reasonable approximations of their respective fair values, as they are either short term in nature or are repriced to current market rates at frequent intervals. Their classification within the fair value hierarchy would be as follows:

Financial assets within Trade, other receivables, and other assets Level 3

Financial liabilities within Trade, other payables, and other liabilities Level 3

Cash and cash equivalents (excluding money market funds) are held at amortised cost and therefore not carried at fair value. The cash and cash equivalents that are held at amortised cost would be classified as Level 1 in the fair value hierarchy.

The loans and advances not carried at fair value would be classified as Level 3 in the fair value hierarchy.

Borrowed funds are financial liabilities held at amortised cost and therefore not carried at fair value. Borrowed funds relate to subordinated liabilities and would be classified as Level 1 in the fair value hierarchy.

Lease liabilities valued under IFRS 16 are held at amortised cost and therefore not carried at fair value. They would be classified as Level 3 in the fair value hierarchy.

13: Cash and cash equivalents

13(a): Analysis of cash and cash equivalents

		£m
	31 December 2022	31 December 2021
Cash at bank	406	559
Money market funds	1,112	1,216
Cash and cash equivalents in consolidated funds	264	289
Total cash and cash equivalents per statement of cash flows	1,782	2,064

The Group's management does not consider that the cash and cash equivalents balance arising due to consolidation of funds of £264 million (2021: £289 million) is available for use in the Group's day-to-day operations. The remainder of the Group's cash and cash equivalents balance of £1,518 million (2021: £1,775 million) is considered to be available for general use by the Group for the purposes of the disclosures required under IAS 7 Statement of Cash Flows. This balance includes policyholder cash as well as cash and cash equivalents held by regulated subsidiaries to meet their capital and liquidity requirements.

13(b): Analysis of net cash flows from operating activities:

			£m
	Notes	31 December 2022	31 December 2021
Cash flows from operating activities
Profit before tax from continuing operations		65	85
Profit before tax from discontinued operations	4(b)	-	131
		65	216
Adjustments for
Depreciation and impairment of property, plant and equipment		22	16
Movement on contract costs		(1)	18
Movement on contract liabilities and fee income receivable		-	10
Amortisation and impairment of intangibles	9	44	47
Fair value and other movements in financial assets		4,410	(5,102)
Fair value movements in investment contract liabilities	15	(4,878)	4,467
Other changes in investment contract liabilities		1,993	3,454
Profit on sale of subsidiaries	4(a)	-	(91)
Other movements		32	32
		1,622	2,851
Net changes in working capital
(Increase)/decrease in net derivatives position		(21)	24
(Increase)/decrease in loans and advances		(5)	15
(Decrease)/increase in provisions	16	(24)	17
Movement in other assets/liabilities¹		61	(20)
		11	36
Taxation paid		(22)	(10)
Net cash flows from operating activities		1,676	3,093

¹ Working capital changes in respect of other assets and liabilities primarily relate to consolidated funds.

14: Share capital, capital redemption reserve and merger reserve

Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash, other financial assets or issue a variable number of own equity instruments. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax. At 31 December 2022, the Company's equity capital comprises 1,404,105,498 Ordinary Shares of 8 1/6 pence each with an aggregated nominal value of £114,668,616 (31 December 2021: 1,655,827,217 Ordinary Shares of 7 pence each with an aggregated nominal value of £115,907,905). All Ordinary Shares have been called up and fully paid.

This note gives details of the Company's share capital, shows the movements during the year and also gives details of the merger reserve release of £124 million in the prior year and £25 million in the current year:

		£m	£m
	Number of Ordinary Shares	Nominal value of Ordinary Shares	Ordinary Share premium
At 1 January 2021	1,783,969,051	125	58
Shares cancelled through share buyback programme	(128,141,834)	(9)	-
At 31 December 2021	1,655,827,217	116	58
Shares cancelled through share buyback programme	(17,704,132)	(1)	-
Share Consolidation (including shares cancelled)¹	(234,017,587)	-	-
At 31 December 2022	1,404,105,498	115	58

¹ To effect the Share Consolidation, four Ordinary Shares were cancelled so that the total Ordinary Shares were exactly divisible by seven.

14(a): Share capital

On 11 March 2020, the Company announced a share buyback programme to purchase shares up to a maximum value of £375 million, in order to return the net surplus proceeds to shareholders arising from the sale of Quilter Life Assurance which had the impact of reducing the share capital of the Company. The programme completed in January 2022.

On 9 March 2022, the Company announced a capital return of £328 million, equivalent to 20 pence per share, from the net surplus proceeds arising from the sale of Quilter International by way of a B Share Scheme. Following the return of capital, a Share Consolidation was completed so that comparability between the market price for Quilter plc's 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 234,017,587.

At 31 December 2022, there is one class of share capital being the Ordinary Shares of 8 1/6 pence each. All shares issued carry equal voting rights. The holders of the Company's Ordinary Shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the Company.

14(b): Capital redemption reserve

Following the issue and redemption of the B preference shares as part of the B Share Scheme, the Company transferred £328 million from retained earnings to the capital redemption reserve, as required under the provisions of sections 688 and 733 of the Companies Act 2006, being an amount equal to the nominal value of the B shares redeemed in the year. The increase in the capital redemption reserve results from the UK company law requirement to maintain the company's capital when shares are redeemed out of the company's distributable profits.

14(c): Merger reserve

During the year ended 31 December 2021, a dividend was paid by Quilter Perimeter Holdings Limited up to its parent Quilter plc. The resulting decrease in Quilter Perimeter Holdings Limited's net asset value gave rise to a £124 million impairment of Quilter plc's investment in Quilter Perimeter Holdings Limited and an associated release of the merger reserve reducing it to £25 million.

In 2022, the remaining balance of the merger reserve recognised in the Group's statement of financial position was released in the creation of the B preference shares (the remainder of the B shares were created from retained earnings).

15: Investment contract liabilities

The following table provides a summary of the Group's investment contract liabilities:

		£m
	2022	2021
Carrying amount at 1 January	41,071	57,407
From continuing operations
Fair value movements	(4,878)	2,821
Investment income	560	472
Movements arising from investment return	(4,318)	3,293
From discontinued operations
Fair value movements	-	1,646
Investment income	-	172
Movements arising from investment return	-	1,818
Contributions received	4,408	6,837
Withdrawals and surrenders ¹	(2,759)	(3,866)
Claims and benefits	(219)	(162)
Other movements	3	1
Change in liability	(2,885)	7,921
Currency translation gain	-	(199)
Disposal of subsidiaries	-	(24,058)
Investment contract liabilities at end of the year	38,186	41,071

¹ Includes amounts previously presented as maturities of £406 million for the year to 31 December 2021.

For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit.

The benefits offered under the unit-linked investment contracts are based on the risk appetite of policyholders and the return on their selected investments and collective fund investments, whose underlying investments include equities, debt securities, property and derivatives. This investment mix is unique to individual policyholders.

For unit-linked business, the unit liabilities are determined as the value of units credited to policyholders. Since these liabilities are determined on a retrospective basis, no assumptions for future experience are required. Assumptions for future experience are required for unit-linked business in assessing whether the total of the contract costs asset and contract liability is greater than the present value of future profits expected to arise on the relevant blocks of business (the "recoverability test"). If this is the case, then the contract costs asset is restricted to the recoverable amount. For linked contracts, the assumptions are on a best estimate basis.

16: Provisions

					£m
31 December 2022	Compensation provisions	Sale of subsidiaries	Property provisions	Clawback and other provisions	Total
Balance at beginning of the year	41	22	9	21	93
Charge to income statement	22	-	4	3	29
Utilised during the year	(28)	(7)	(1)	(2)	(38)
Unused amounts reversed	(12)	-	-	(4)	(16)
Reclassification within the statement of financial position³	-	-	-	1	1
Balance at 31 December 2022	23	15	12	19	69

					£m
31 December 2021	Compensation provisions	Sale of subsidiaries	Property provisions	Clawback and other provisions	Total
Balance at beginning of the year	42	10	-	25	77
Charge to income statement¹	23	17	7	2	49
Utilised during the year	(12)	(4)	-	(4)	(20)
Unused amounts reversed	(10)	(1)	-	(5)	(16)
Disposals²	(2)	-	-	-	(2)
Reclassification within the statement of financial position⁴	-	-	2	3	5
Balance at 31 December 2021	41	22	9	21	93

¹ Part of the charge to the income statement in 2021 was included within the discontinued operations income statement.

² The balance within "Disposals" relates to the provision balance within Quilter International at completion of the sale of the business on 30 November 2021.

³ Clawback and other provisions related to the balancing premium payable for the bulk annuity purchased for the Quilter Cheviot Limited Retirement Benefits scheme were reclassified during the year to 31 December 2022 from accruals reflecting the uncertainty of the amounts to be settled.

⁴ During the year to 31 December 2021, property provisions related to dilapidations and other provisions related to historical licence agreements were reclassified from lease liabilities and accruals respectively reflecting the uncertainty of the amounts to be settled.

Compensation provisions

Compensation provisions total £23 million (31 December 2021: £41 million) and the net reduction of £18 million during the year is due to additional charges to the income statement of £22 million, compensation payments made during the period of £28 million and the £12 million release of unused amounts during 2022 following further review work completed during the year. Compensation provisions are comprised of the following:

Lighthouse pension transfer advice provision of £5 million (31 December 2021: £29 million)

Lighthouse pension transfer advice provided to British Steel members of £4 million (31 December 2021: £21 million)

A total provision of £4 million (31 December 2021: £21 million) remains for the redress of British Steel Pension Scheme cases, including anticipated costs associated with the redress activity. This is comprised of two parts:

(a) Client redress provision of £3 million (31 December 2021: £19 million), comprised of £23 million (31 December 2021: £23 million) redress payable, less payments made to customers of £20 million, of which £16 million was paid in 2022 (31 December 2021: £4 million).

(b) Anticipated costs associated with redress activity of £1 million (31 December 2021: £2 million), comprised of £7 million costs payable (31 December 2021: £4 million), less payments made of £4 million during 2022 and £2 million during 2021. This provision is recognised in respect of the anticipated costs of legal and professional fees related to the cases and redress process, which includes the expected costs to review advice.

During the year to 31 December 2022, the skilled person completed their review of all British Steel Pension Scheme cases within the initial scope of the review, reflecting the outcome on suitability of the DB to DC pension transfer advice review for each case, and all remaining offers were made to customers who received unsuitable DB to DC pension transfer advice which caused them to sustain a loss.

Certain customers who have been included in the skilled person review work already undertaken have referred their case to the Financial Ombudsman Service, relating to cases where: (i) relevant DB to DC pension transfer advice was found to be suitable by the skilled person; or (ii) where relevant DB to DC pension transfer advice was found to be unsuitable by the skilled person, but the customer disagrees with the way in which their redress offer has been calculated by the skilled person. The Financial Ombudsman Service may uphold some or all of the challenges made.

In November 2022, the FCA published a policy statement containing the final rules for a redress scheme for former members of the British Steel Pension Scheme who received unsuitable advice (the "BSPS Redress Scheme"). The BSPS Redress Scheme will cover those persons who received advice between 26 May 2016 and 29 March 2018 to transfer out of the British Steel Pension Scheme. The final rules for the BSPS Redress Scheme set out how advisers must determine whether they gave unsuitable advice and whether they must pay redress. The Group may therefore face further costs of redress as a result of the BSPS Redress Scheme. The BSPS Redress Scheme will not cover individuals that have accepted redress for that advice, referred the matter to the Financial Ombudsman Service or received a final outcome following a suitability assessment of their case conducted through a skilled person review. Therefore, based on the final rules of the BSPS Redress Scheme, this process will not include Lighthouse cases that have already been reviewed by the skilled person where the customer received a final outcome. The Group is currently considering whether, based on the final rules for the BSPS Redress Scheme, there are any Lighthouse cases relating to British Steel Pension Scheme members that were subject to the skilled person review that may fall within the scope of the BSPS Redress Scheme.

An asset of £3 million representing an insurance recoverable in respect of British Steel pension transfer advice was included in the fair value of the acquired net assets of Lighthouse and presented on the statement of financial position as at 31 December 2021. During 2022, the insurers confirmed coverage and the Group received £15 million cash.

Lighthouse pension transfer advice provided to members of other schemes of £1 million (31 December 2021: £8 million)

During 2021, the skilled person review identified unsuitable DB to DC pension advice provided by Lighthouse advisers for pension schemes other than the British Steel Pension Scheme. The initial scope of the review concluded in 2022, with £3 million paid to customers and the remaining provision released to the income statement. Subject to FCA confirmation, we anticipate that the skilled person review will conclude during 2023.

In the second half of 2022, the skilled person recommended a potential review of a further sample of Lighthouse DB to DC pension transfer advice cases not relating to the British Steel Pension Scheme. In December 2022, the FCA confirmed to the Group that it agreed with the skilled person's recommendation. The FCA also confirmed that, given the cooperation of the Group in relation to the skilled person review and established past business review methodology and consistent with the recommendation made by the skilled person, this further sample should be reviewed under a Group managed past business review process with the current skilled person acting as expert. The FCA also agreed with the skilled person that the further sample should be selected on a risk-based approach and has set out to the Group the key risk factors to be used in determining the sample. The review of this sample may uncover some additional cases where customer redress is required. Until the relevant sample has been reviewed, uncertainty exists as to the number of cases where this will be required and the value of total redress which may be payable. A provision for redress relating to the review of this further sample of cases of £1 million has been established at 31 December 2022.

Compensation provisions (other) of £18 million (31 December 2021: £12 million)

Other compensation provisions of £18 million include amounts relating to the cost of correcting deficiencies in policy administration systems, including restatements, any associated litigation costs and the related costs to compensate previous or existing policyholders and customers. This provision represents management's best estimate of expected outcomes based upon previous experience, and a review of the details of each case. Due to the nature of the provision, the timing of the expected cash outflows is uncertain. The best estimate of the timing of outflows is that the majority of the balance is expected to be settled within 12 months.

A provision of £7 million, included within the balance, has been recognised at 31 December 2022 (31 December 2021: £6 million) relating to potentially unsuitable DB to DC pension transfer advice provided by advisers, including advice provided prior to Quilter's acquisition of the relevant advice businesses. Of this balance, £2 million (31 December 2021: £2 million) has been recognised for potentially unsuitable DB to DC pension transfer advice provided to British Steel Pension Scheme members by Quilter Financial Planning firms other than Lighthouse. This provision was recognised following the receipt of a "Dear CEO" letter from the FCA in December 2021, and subsequent establishment of the BSPS Redress Scheme. These British Steel Pension Scheme cases have yet to be reviewed for suitability and an estimate of the provision has been made based upon the Group's experience of the Lighthouse skilled person review.

A provision of £4 million, included within the balance, related to Final Plan Closure ("FPC") receipts previously recognised as revenue since 2013 for distributions the Group received from investments for clients who had previously closed their accounts. FPC receipts represent distributions, including tax gross ups where relevant, and rebates received after a customer has left the Quilter platform, which the Terms and Conditions of the pension and insured bonds legally entitled the Group to retain. A review this year has led to a change in business policy, and Quilter have made the decision to voluntarily return these amounts to those impacted clients backdated to inception, with an appropriate interest rate applied to the balances owed. A provision of £6 million was initially recognised, and payments of £2 million have been made to clients during the year. The remaining provision outstanding of £4 million is expected to be payable within one year.

The Group estimates a reasonably possible change of +/- £4 million from the £18 million balance, based upon a review of the cases and the range of potential outcomes for the customer redress payments.

Sale of subsidiaries

Sale of subsidiaries provisions total £15 million at 31 December 2022 (31 December 2021: £22 million), and include the following:

Provisions arising on the disposal of Quilter International of £11 million (31 December 2021: £16 million)

Quilter International was sold on 30 November 2021, resulting in provisions totalling £17 million being established in respect of costs related to the disposal including the costs of business separation and data migration activities.

The c osts of business separation arise from the process required to separate Quilter International's infrastructure, which is complex and covers a wide range of areas including people, IT systems, data, and contracts facilities. A programme team has been established to ensure the transition of these areas to the acquirer. These provisions have been based on external quotations and estimations, together with estimates of the incremental time and resource costs required to achieve the separation, which is expected to occur over a two-year period.

The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. Calculation of the provision is based on management's best estimate of the work required, the time it is expected to take, the number and skills of the staff required and their cost, and the cost of related external IT services to support the work. In reaching these judgements and estimates, management has made use of its past experience of previous IT migrations following business disposals, including the migration of QLA. The Group estimates a provision sensitivity of +/-25% (£3 million), based upon a review of the range of time periods expected to complete the work required. The provision is expected to be fully utilised over three years from the sale, with £8 million forecast to be paid within one year.

During the year, £6 million (2021: £1 million) of the provision has been utilised.

Sale of Single Strategy Asset Management business provision of £4 million (31 December 2021: £4 million)

In 2018, a restructuring provision was recognised as a result of the sale of the Single Strategy Asset Management business (now known as Jupiter Investment Management ("Jupiter")) to enable the remaining Quilter Investors business to function as a standalone operation going forward. The remaining provision relates to various sale-related future commitments, the outcome of which was uncertain at the time of the sale and the most significant of which is in relation to the guarantee of revenues for the seller in future years arising from funds invested by customers of Quilter. In 2021, £2 million was settled relating to the 2020 measurement year. The balance has been adjusted for the latest estimate for the 2022 measurement year, which is the final measurement year required in the sale agreement.

The expected range of payments based upon the latest information received from Jupiter and the Group's reasonable expectations of AUM invested within Jupiter funds during the 2022 assessment period is between £4 million and £5 million.

The provision outstanding is estimated to be payable within one year, with expected final settlement due in the first half of 2023. Once finalised and settled, this will be the final amount payable under this arrangement with Jupiter.

Provisions arising on the disposal of Quilter Life Assurance of £nil (31 December 2021: £1 million)

Quilter Life Assurance was sold in 2019, resulting in provisions totalling £6 million being established in respect of the costs of disposing the business and the related costs of business separation.

During the year, £1 million of the provision has been utilised. These were the final costs incurred to complete and close the project.

Property provisions

Property provisions represent the discounted value of expected future costs of reinstating leased property to its original condition at the end of the lease term, and any onerous commitments which may arise in cases where a leased property is no longer being fully utilised by the Group. The estimate is based upon property location, size of property and an estimate of the charge per square foot. Property provisions are utilised or released when the reinstatement obligations have been fulfilled. The associated asset for the property provisions relating to the cost of reinstating property is included within "Property, plant and equipment".

Of the £12 million provision outstanding, £3 million (2021: £1 million) is estimated to be payable within one year. The majority of the balance relates to leased property which has a lease term maturity of more than five years.

Clawback and other provisions

Other provisions include amounts for the resolution of legal uncertainties and the settlement of other claims raised by contracting parties and indemnity commission provisions and now includes the balancing premium payable for the bulk annuity purchased for the Quilter Cheviot Limited Retirement Benefits scheme. Where material, provisions are discounted at discount rates specific to the risks inherent in the liability. The timing and final amounts of payments, particularly those in respect of litigation claims and similar actions against the Group, are uncertain and could result in adjustments to the amounts recorded.

Included within the balance at 31 December 2022 is £14 million (31 December 2021: £16 million) of clawback provisions in respect of potential refunds due to product providers on indemnity commission within the Quilter Financial Planning business. This provision, which is estimated and charged as a reduction of revenue on the income statement at the point of sale of each policy, is based upon assumptions determined from historical experience of the proportion of policyholders cancelling their policies, which requires Quilter to refund a portion of commission previously received. Reductions to the provision result from the payment of cash to product providers as refunds or the recognition of revenue where a portion is assessed as no longer payable. The provision has been assessed at the reporting date and adjusted for the latest cancellation information available. At 31 December 2022, an associated balance of £8 million recoverable from brokers is included within "Trade, other receivables and other assets" (31 December 2021: £9 million).

The Group estimates a reasonably possible change of +/- £3 million, based upon the potential range of outcomes for the proportion of cancelled policies within the clawback provision, and a detailed review of the other provisions.

Of the total £19 million provision outstanding, £8 million is estimated to be payable within one year (31 December 2021: £13 million).

17: Contingent liabilities

The Group, in the ordinary course of business, enters into transactions that expose it to tax, legal, regulatory and business risks. The Group recognises a provision when it has a present obligation as a result of past events, it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made (see note 16). Possible obligations and known liabilities where no reliable estimate can be made or it is considered improbable that an outflow would result are reported as contingent liabilities in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The Group routinely monitors and assesses contingent liabilities arising from matters such as business reviews, litigation, warranties and indemnities relating to past acquisitions and disposals.

Contingent liabilities - pension transfer advice redress

The skilled person review covered British Steel Pension Scheme DB to DC pension transfer advice activity undertaken by Lighthouse advisers, and a representative sample of other Lighthouse DB to DC pension transfer advice activity in the relevant period.

The skilled person review is largely complete, and the skilled person has recommended a potential review of a further sample of Lighthouse DB to DC pension transfer cases not relating to the British Steel Pension Scheme, and this further sample will be reviewed under a Group-managed past business review process with the skilled person acting as reviewer, as agreed with the FCA. Details of provisions for redress payable and payments made are included within Provisions as set out in note 16. Until the review has finalised, uncertainty exists as to the number of cases where this will be required and the value of total redress which will be payable. Subject to FCA confirmation, we anticipate that the skilled person review will conclude during 2023.

Customers have the legal right to challenge the result of the skilled person review in respect of their case via a complaint to the Financial Ombudsman Service. Certain customers have made such complaints. The skilled person is independent from the Group and has run a robust process, which has been overseen by the FCA. The Group does not consider any of the complaints to have merit and so the provision does not include any amounts in relation to such complaints. In particular, there is no provision for obligations that may arise in the event that any complaints to the Financial Ombudsman Service over the outcome of the skilled person review in respect of particular customers are upheld.

During 2020, the Group was also informed by the FCA that it is conducting an enforcement investigation into Lighthouse in respect of whether Lighthouse has breached certain FCA requirements in connection with advising on and arranging DB to DC pension transfers in the period from 1 April 2015 to 30 April 2019. This investigation is now at an advanced stage and the Group's current view is that it is likely to conclude before the end of the first half of the Group's current financial year on 30 June 2023. However, as the outcome of the enforcement investigation remains unknown, the provision does not include regulatory fines or penalties that could be imposed on Lighthouse in connection with DB to DC pension transfers prior to the Group's acquisition of Lighthouse.

It is possible that further material costs of redress, regulatory fines or penalties may be incurred in relation to the skilled person review, additional past business review and the BSPS Redress Scheme. Further customer redress costs may also be incurred for other potential unsuitable pension transfer advice provided across the Group.

Any further redress costs, and any differences between the provision and final payment to be made for any unsuitable DB to DC pension transfer cases, will be recognised as an expense or credit in the income statement.

Tax

The tax authorities in the countries in which the Group operates routinely review historical transactions undertaken and tax law interpretations made by the Group. The Group is committed to conducting its tax affairs in accordance with the tax legislation of the countries in which it operates. All interpretations made by the Group are made with reference to the specific facts and circumstances of the transaction and the relevant legislation.

There are occasions where the Group's interpretation of tax law may be challenged by the tax authorities. The financial statements include provisions that reflect the Group's assessment of liabilities which might reasonably be expected to materialise as part of their review. The Group is satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the resources available to fund such potential settlements are sufficient.

Due to the level of estimation required in determining tax provisions, amounts eventually payable may differ from the provision recognised.

Complaints, disputes and regulations

The Group is committed to treating customers fairly and supporting its customers in meeting their lifetime goals. During the normal course of business, from time to time, the Group receives complaints and claims from customers including, but not limited to, complaints to the Financial Ombudsman Service and legal proceedings related thereto, enters into commercial disputes with service providers, and is subject to discussions and reviews with regulators. The costs, including legal costs, of these issues as they arise can be significant and, where appropriate, provisions have been established in accordance with IAS 37.

18: Capital and financial risk management

18(a): Capital management

The Group manages its capital with a focus on capital efficiency and effective risk management. The capital management objectives are to maintain the Group's ability to continue as a going concern while supporting the optimisation of return relative to the risks. The Group ensures that it can meet its expected capital and financing needs at all times having regard to the Group's Business Plans, forecasts, strategic initiatives and the regulatory requirements applicable to Group entities.

The Group's overall capital risk appetite is set with reference to the requirements of the relevant stakeholders and seeks to:

· maintain sufficient, but not excessive, financial strength to support stakeholder requirements;

· optimise debt to equity structure to enhance shareholder returns; and

· retain financial flexibility by maintaining liquidity including unutilised committed credit lines.

The primary sources of capital used by the Group are equity shareholders' funds of £1,548 million (31 December 2021: £1,739 million) and subordinated debt which was issued at £200 million in February 2018. Alternative resources are utilised where appropriate. Risk appetite has been defined for the level of capital, liquidity and debt within the Group. The risk appetite includes long-term targets, early warning thresholds and risk appetite limits. The dividend policy sets out the target dividend level in relation to profits.

The regulatory capital for the Group is assessed under Solvency II requirements.

18(a)(i): Regulatory capital (unaudited)

The Group is subject to Solvency II group supervision by the Prudential Regulation Authority. The Group is required to measure and monitor its capital resources under the Solvency II regulatory regime.

The Group's UK life insurance undertaking is included in the Group solvency calculation on a Solvency II basis. Other regulated entities are included in the Group solvency calculation according to the relevant sectoral rules. The Group's Solvency II surplus is the amount by which the Group's capital on a Solvency II basis (own funds) exceeds the Solvency II capital requirement (solvency capital requirement or "SCR").

The Group's Solvency II surplus is £820 million at 31 December 2022 (31 December 2021: £1,030 million) , representing a Solvency II ratio of 230% (31 December 2021: 275% ) calculated under the standard formula. The Solvency II regulatory position for the year ended 31 December 2022 allows for the impact of the recommended final dividend payment of £45 million (31 December 2021: £62 million).

The Solvency II results for the year ended 31 December 2022 (unaudited estimate) and 31 December 2021 were as follows:

		£m
	31 December 2022¹	31 December 2021²
Own funds	1,451	1,617
Solvency capital requirement	631	587
Solvency II surplus	820	1,030
Solvency II coverage ratio	230%	275%

¹ Filing of annual regulatory reporting forms due by 19 May 2023.

² As reported in the Group Solvency and Financial Condition Report for the year ended 31 December 2021.

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.

		£m
Group own funds	31 December 2022	31 December 2021
Tier 1¹	1,249	1,412
Tier 2²	202	205
Total Group Solvency II own funds	1,451	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 £200 million in February 2018.

18: Capital and financial risk management continued

18(a): Capital management continued

The Group's UK life insurance undertaking is also subject to Solvency II at entity level. Other regulated entities in the Group are subject to the locally applicable entity-level capital requirements in the countries in which they operate. In addition, the Group's asset management and advice businesses are subject to group supervision by the FCA under the UK Investment Firms Prudential Regime ("IFPR").

The capital requirements for the Group and its regulated subsidiaries are reported and monitored through regular Capital Management Forum meetings. Throughout 2022, the Group has complied with the regulatory requirements that apply at a consolidated level and Quilter's insurance undertakings and investment firms have complied with the regulatory capital requirements that apply at entity level.

18(a)(ii): Loan covenants

Under the terms of the revolving credit facility agreement, the Group is required to comply with the following financial covenant: the ratio of total net borrowings to consolidated equity shareholders' funds shall not exceed 0.5.

		£m
	31 December 2022	31 December 2021
Total external borrowings of the Company	200	199
Less: cash and cash equivalents of the Company	(126)	(503)
Total net external borrowings of the Company	74	(304)
Total shareholders' equity of the Group	1,548	1,739
Tier 2 bond	200	199
Total Group equity (including Tier 2 bond)	1,748	1,938
Ratio of Company net external borrowings to Group equity	0.042	-0.157

The Group has complied with the covenant since the facility was created in 2018.

18(a)(iii): Own Risk and Solvency Assessment ("ORSA") and Internal Capital Adequacy and Risk Assessment ("ICARA")

The Group ORSA process is an ongoing cycle of risk and capital management processes which provides an overall assessment of the current and future risk profile of the Group and demonstrates the relationship between business strategy, risk appetite, risk profile and solvency needs. These assessments support strategic planning and risk-based decision making.

The underlying ORSA processes cover the Group and consider how risks and solvency needs may evolve over the planning period. The ORSA includes stress and scenario tests, which are performed to assess the financial and operational resilience of the Group.

The Group ORSA report is produced annually and summarises the analysis, insights and conclusions from the underlying risk and capital management processes in respect of the Group. The ORSA report is submitted to the PRA as part of the normal supervisory process and may be supplemented by ad hoc assessments where there is a material change in the risk profile of the Group outside the usual reporting cycle.

In addition to the Group ORSA process, an entity-level ORSA process is performed for Quilter Life & Pensions Limited.

The ICARA process is similar to the ORSA process and is performed at entity level for certain UK investment firms within the Group. A Group ICARA report is also produced annually and summarises the analysis, insights and conclusions from the underlying risk and capital management processes in respect of the IFPR prudential consolidation Group. The ICARA reports are submitted to the FCA as part of the normal supervisory process and may be supplemented by ad hoc assessments where there is a material change in risk profile outside the usual reporting cycle.

The conclusions of the ORSA and ICARA processes are reviewed by management and the Board throughout the year.

18(b): Credit risk

Overall exposure to credit risk

Credit risk is the risk of adverse movements in credit spreads (relative to the reference yield curve), credit ratings or default rates leading to a deterioration in the level or volatility of assets, liabilities or financial instruments resulting in loss of earnings or reduced solvency. This includes counterparty default risk, counterparty concentration risk and spread risk.

The Group has established a Credit Risk Framework that includes a Credit Risk Policy and Credit Risk Appetite Statement. This framework applies to all activities where the shareholder is exposed to credit risk, either directly or indirectly, ensuring appropriate identification, measurement, management, monitoring and reporting of the Group's credit risk exposures.

The credit risk arising from all exposures is mitigated by ensuring that the Group only enters into relationships with appropriately robust counterparties, adhering to the Group Credit Risk Policy. For each asset, consideration is given as to:

· the credit rating of the counterparty, which is used to derive the probability of default;

· the loss given default;

· the potential recovery which may be made in the event of default;

· the extent of any collateral that the Group has in respect of the exposures; and

· any second order risks that may arise where the Group has collateral against the credit risk exposure.

The credit risk exposures of the Group are monitored regularly to ensure that counterparties remain creditworthy, that there is appropriate diversification of counterparties and that exposures are within approved limits. At 31 December 2022, the Group's material credit exposures were to financial institutions (primarily through the investment of shareholder funds), corporate entities (including external fund managers) and individuals (primarily through fund management trade settlement activities).

There is no direct exposure to non-UK sovereign debt within the shareholder investments. The Group has no significant concentrations of credit risk exposure.

Other credit risks

The Group is exposed to financial adviser counterparty risk through a number of loans that it makes to its advisers and the payment of upfront commission on the sale of certain types of business. The risk of default by financial advisers is managed through monthly monitoring of loan and commission debt balances.

The Group is also exposed to the risk of default by fund management groups in respect of settlements and rebates of fund management charges on collective investments held for the benefit of policyholders. This risk is managed through the due diligence process which is completed before entering into any relationship with a fund group. Amounts due to and from fund groups are monitored for prompt settlement and appropriate action is taken where settlement is not timely.

Legal contracts are maintained where the Group enters into credit transactions with a counterparty.

Impact of credit risk on fair value

Due to the limited exposure that the Group has to credit risk, credit risk does not have a material impact on the fair value movement of financial instruments for the year under review. The fair value movements on these instruments are mainly due to changes in market conditions.

Maximum exposure to credit risk

The Group's maximum exposure to credit risk does not differ from the carrying value disclosed in the relevant notes to the financial statements.

Loans and advances subject to 12-month expected credit losses are £34 million (31 December 2021: £29 million) and other receivables subject to lifetime expected credit losses are £204 million (31 December 2021: £252 million). Those balances represent the pool of counterparties that do not require a rating. These counterparties individually generate no material credit exposure and this pool is highly diversified, monitored and subject to limits.

Exposure arising from financial instruments not recognised on the statement of financial position is measured as the maximum amount that the Group would have to pay, which may be significantly greater than the amount that would be recognised as a liability. The Group does not have any significant exposure arising from items not recognised on the statement of financial position.

The table below represents the Group's exposure to credit risk from cash and cash equivalents.

														£m
		Credit rating relating to cash and cash equivalents that are neither past due nor impaired
31 December 2022		AAA		AA		A		B		<BBB		Not rated¹		Carrying value
Cash at amortised cost, subject to 12-month ECL		-		13		388		5		-		264		670
Money market funds at FVTPL		1,112		-		-		-		-		-		1,112
Total cash and cash equivalents		1,112		13		388		5		-		264		1,782

													£m
	Credit rating relating to cash and cash equivalents that are neither past due nor impaired
31 December 2021	AAA		AA		A		B		<BBB		Not rated¹		Carrying value
Cash at amortised cost, subject to 12-month ECL	-		105		451		-		3		289		848
Money market funds at FVTPL	1,216		-		-		-		-		-		1,216
Total cash and cash equivalents	1,216		105		451		-		3		289		2,064

¹ Cash included in the consolidation of funds is not rated (see note 13(a)).

Impairment allowance

Assets that are measured and classified at amortised cost are monitored for any expected credit losses ("ECL") on either a 12-month or lifetime ECL model. The majority of such assets within the Group are measured on the lifetime ECL model, with the exception of some specific loans that are on the 12-month ECL model.

Impairment allowance	£m
Balance at 1 January 2021	(0.8)
Change due to change in counterparty balance	(0.4)
31 December 2021	(1.2)
Change due to change in counterparty balance	0.1
31 December 2022	(1.1)

18(c): Market risk

Market risk is the risk of an adverse change in the level or volatility of market prices of assets, liabilities or financial instruments resulting in loss of earnings or reduced solvency. Market risk arises from changes in equity, bond and property prices, interest rates and foreign exchange rates. Market risk arises differently across the Group's businesses depending on the types of financial assets and liabilities held. The Group recognises that climate change can contribute to market risk.

The Group has a market risk policy which sets out the risk management framework, permitted and prohibited market risk exposures, maximum limits on market risk exposures, management information and stress testing requirements which are used to monitor and manage market risk. The policy is cascaded to the businesses across the Group, and Group-level governance and monitoring processes provide oversight of the management of market risk by the individual businesses.

The Group does not undertake any principal trading for its own account. The Group's revenue is however affected by the value of assets under management and consequently it has exposure to equity market levels and economic conditions. Scenario testing is undertaken to test the resilience of the business to severe but plausible events, including assessment of the potential implications of climate-related risks and opportunities, and to assist in the identification of management actions.

18(c)(i): Equity and property price risk

In accordance with the market risk policy, the Group does not generally invest shareholder assets in equity or property, or related collective investments, except where the exposure arises due to:

· mismatches between unitised fund assets and liabilities. These mismatches are permitted, subject to maximum limits, to avoid excessive dealing costs; and

· seed capital investments. Seed capital is invested within new unitised or other funds within the Group at the time when these funds are launched. The seed capital is then withdrawn from the funds as policyholders and customers invest in the funds.

The above exposures are not material to the Group.

The Group derives fees (e.g. annual management charges) and incurs costs (e.g. outsourced service provider and adviser fund-based renewal commissions) which are linked to the performance of the underlying assets. Therefore, future earnings will be affected by equity and property market performance.

Equity and property price sensitivity testing

A movement in equity and property prices would impact the fee income that is based on the market value of the investments held by or on behalf of customers. The sensitivity is applied as an instantaneous shock to equity and property prices at the start of the year. The sensitivity analysis is not limited to the unit-linked business and therefore reflects the sensitivity of the Group as a whole.

		£m
Impact on profit after tax and shareholders' equity	31 December 2022	31 December 2021
Impact of 10% increase in equity and property prices	30	34
Impact of 10% decrease in equity and property prices	(30)	(34)

18(c) (ii): Interest rate risk

Interest rate risk arises primarily from bank balances held with financial institutions. A small amount of the Group's assets is held in fixed interest UK Government bonds, which are exposed to fluctuations in interest rates.

Fixed interest UK Government bonds are mainly held to match liabilities by duration and so the exposure to interest rate risk is not material.

A rise in interest rates would also cause an immediate fall in the value of investments in fixed income securities within clients' investment funds, resulting in a fall in fund-based revenues.

Conversely, a reduction in interest rates would cause a rise in the value of investments in fixed income securities within clients' investment funds. It would also reduce the interest rate earned on bank balances and could potentially result in the Group incurring interest charges on these balances, if interest rates become negative.

Exposure of the income statement and statement of financial position to interest rates are summarised below.

Interest rate sensitivity testing

The impact of an increase and decrease in market interest rates of 1% is tested (e.g. if the current interest rate is 5%, the test allows for the effects of an instantaneous change to 4% and 6% from the start of the year). The test allows consistently for similar changes in investment returns and movements in the market value of any fixed interest assets backing the liabilities. The sensitivity of profit to changes in interest rates is provided.

		£m
Impact on profit after tax and shareholders' equity	Year ended 31 December 2022	Year ended 31 December 2021
Impact of 1% increase in interest rates	7	11
Impact of 1% decrease in interest rates	(7)	-

18(c)(iii): Currency translation risk

Currency translation risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group's functional currency is pounds sterling, which accounts for the majority of the Group's transactions. The Group has minor exposure to Euros, through the Group's Irish subsidiary and to the South African Rand, due to the listing on the Johannesburg Stock Exchange and the payment of a proportion of shareholder dividends in Rand. During 2022, the Group had limited exposure to foreign exchange risk in respect of other currencies due its non-UK operations and foreign currency transactions.

18(d): Liquidity risk

Liquidity risk is the risk that there are insufficient assets or that assets cannot be realised in order to settle financial obligations as they fall due or that market conditions preclude the ability of the Group to trade in illiquid assets in order to maintain its asset and liability matching ("ALM") profile. The Group manages liquidity on a daily basis through:

· maintaining adequate high-quality liquid assets and banking facilities, the level of which is informed through appropriate liquidity stress testing;

· continuously monitoring forecast and actual cash flows; and

· monitoring a number of key risk indicators to help in the identification of a liquidity stress.

Individual businesses maintain and manage their local liquidity requirements according to their business needs within the overall Group Liquidity Risk Framework that includes a Group Liquidity Risk Policy and Group Liquidity Risk Appetite Statement. The Group framework is applied consistently across all businesses in the Group to identify, manage, measure, monitor and report on all liquidity risks that have a material impact on liquidity levels. This framework considers both short-term liquidity and cash management considerations and longer-term funding risk considerations.

Liquidity is monitored centrally by Group Treasury, with management actions taken at a business level to ensure each business has sufficient liquidity to cover its minimum liquidity requirement, with an appropriate buffer set in line with the Group Risk Appetite Statement.

Throughout the ongoing Ukraine crisis and market volatility during 2022, Quilter plc and its subsidiaries have operated above their individual liquidity targets and there were no material liquidity stresses identified over this period. Daily liquidity monitoring continues across the Group to enable timely identification of any emerging issues.

The Group maintains contingency funding arrangements to provide liquidity support to businesses in the event of liquidity stresses that are greater than their risk appetite. Contingency Funding Plans are in place for each individual business in order to set out the approach and management actions that would be taken should liquidity levels fall below minimum liquidity requirements. The plans undergo an annual review and testing cycle to ensure they are fit for purpose and can be relied upon during a liquidity stress.

Information on the nature of the investments and securities held is given in note 10.

The Group has a £125 million five-year Revolving Credit Facility with a five-bank club that provides a form of contingency liquidity for the Group. No drawdown on this facility has been made since inception. The Group has exercised the option to extend the facility for a further two-year period, to February 2025, and has continued to meet all the covenants attached to its financing arrangements.

The financing arrangements are considered sufficient to maintain the target liquidity levels of the Group and offer coverage for appropriate stress scenarios identified within the liquidity stress testing undertaken across the Group.

The Group does not have material liquidity exposure to special purpose entities or investment funds.

18(e): Insurance risk

18(e)(i): Overview

The definition of insurance risk set out in the policy covers risks arising under Quilter's unit-linked investment contracts which do not meet the IFRS definition of insurance contracts.

The Group's Enterprise Risk Management Framework defines insurance risk as the risk of a reduction in Solvency II own funds from adverse experience or change in assumptions relating to claims, policyholder behaviour, mortality, longevity or expenses, resulting in an adverse impact to earnings or reduced solvency.

The Group has implemented an insurance risk policy which sets out the Group's requirements for the management, measurement, monitoring and reporting of insurance risks. The Group has implemented the Technical Provisions Standard to support the insurance risk policy.

The sensitivity of the Group's earnings and capital position to insurance risks is monitored through the Group's capital management processes.

The Group manages its insurance risks through the following mechanisms:

· Management of expense levels relative to approved budgets.

· Analysis and monitoring of experience relative to the assumptions used to determine technical provisions.

Persistency

Persistency risk is the risk that the level of surrenders or withdrawals on products offered by Quilter Life & Pensions Limited occur at levels that are different to the levels assumed in the determination of technical provisions. Persistency statistics are monitored monthly and a detailed persistency analysis at a product group level is carried out on an annual basis. Management actions may be triggered if persistency statistics indicate significant adverse movement or emerging trends in experience.

Expenses

Expense risk is the risk that actual expenses and expense inflation differ from the levels assumed in the determination of technical provisions. Expense levels are monitored on a quarterly basis against budgets and forecasts. Expense drivers are used to allocate expenses to entities and products. Some product structures include maintenance charges. These charges are reviewed annually in light of changes in maintenance expense levels and the market rate of inflation. This review may result in changes in charge levels.

Mortality

Mortality risk is not material as the Group does not provide material mortality insurance on its products and mortality benefits are reinsured.

18(e)(ii): Sensitivity analysis

Sensitivity analysis has been performed by applying the following parameters to the statement of financial position and income statement for 2021 and 2022. Interest rate and equity and property price sensitivities are included within the Group market sensitivities above.

Expenses

The increase in expenses is assumed to apply to the costs associated with the maintenance and acquisition of contracts within the unit-linked business. It is assumed that these expenses are increased by 10% from the start of the year, so is applied as an expense shock rather than a gradual increase. The only administrative expenses that are deferrable are sales bonuses but as new business volumes are unchanged in this sensitivity, sales bonuses and the associated deferrals have not been increased. Administrative expenses have been allocated equally between life and pensions.

An increase in expenses of 10% would have decreased profit by £6 million after tax (2021: £6 million).

18(f): Operational risk

Operational risk is the risk of loss arising from inadequate or failed internal processes, or from personnel and systems, or from external events, resulting in an adverse impact to earnings or reduced solvency. Operational risk includes all risks resulting from operational activities, excluding the risks already described above and excluding strategic risks and risks resulting from being part of a wider group of companies.

Operational risk includes the effects of failure of administration processes, IT and Information Security maintenance and development processes, investment processes (including settlements with fund managers, fund pricing and matching and dealing), people and HR processes, product development and management processes, legal risks (e.g. risk of inadequate legal contracts with third parties), change delivery risks (including poorly managed responses to regulatory change), physical and certain transitional financial risks arising from climate change, risks relating to the relationship with third-party suppliers and outsourcers, and the consequences of financial crime and business interruption events.

In accordance with Group policies, management has primary responsibility for the identification, measurement, assessment, management and monitoring of risks, and the escalation and reporting on issues to Executive Management.

The Group's Executive Management has responsibility for implementing the Group Operational Risk Framework and for the development and implementation of action plans designed to manage risk levels within acceptable tolerances and to resolve issues identified.

18(g): Contractual maturity analysis

Investment contract policyholders have the option to terminate or transfer their contracts at any time and to receive the surrender or transfer value of their policies, and these liabilities are therefore classified as having a maturity of less than three months. Although these liabilities are payable on demand, the Group does not expect that all liabilities will be settled within a short time period.

19: Related party transactions

In the normal course of business, the Group enters into transactions with related parties. Loans to related parties are conducted on an arm's length basis and are not material to the Group's results. There were no transactions with related parties during the current year or the prior year which had a material effect on the results or financial position of the Group. Full details of transactions with related parties, including key management personnel compensation is included within note 39 of the financial statements within the Group's 2022 Annual report. The Group's interest in subsidiaries and related undertakings are set out in Appendix A of the financial statements within the Group's 2022 Annual report.

20: Events after the reporting date

In January 2023, the Group issued the £200,000,000 8.625% Fixed Rate Reset Subordinated Notes (due April 2033) and received net cash proceeds of £197 million. The Notes are now listed and regulated under the terms of the London Stock Exchange. On 28 February 2023, the Group repaid the existing £200,000,000 4.478% Fixed Rate Reset Subordinated Notes (due February 2028).

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Quilter (QLT)

Friday, 10th May 2024

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