Quilter plc 2018 Final Results Part 1
NEWS RELEASE
12 March 2019
Quilter plc preliminary results for the year ended 31 December 2018
Adjusted profit up 11% to £233 million, adjusted diluted earnings per share up 15% and a recommended final dividend of 3.3 pence per share
Financial highlights
· Assets under Management/Administration ("AuMA") at £109.3 billion is down 4% year-on-year (2017: £114.4 billion) as a result of positive net flows of £2.7 billion more than offset by negative market performance of £7.8 billion.
· Net Client Cash Flow ("NCCF") (excl. Quilter Life Assurance) of £4.7 billion (2017: £7.6 billion), representing 5% of NCCF/opening AuMA (2017: 9%) in line with our medium-term target.
· Integrated flows (excl. Quilter Life Assurance) of £4.7 billion (2017: £5.2 billion).
· Improvement in operating margin to 30% (2017: 29%) and revenue margin to 57 bps (2017: 56 bps).
· Adjusted profit before tax of £233 million (2017: £209 million), up 11% from 2017.
· IFRS profit/(loss) before tax from continuing operations of £5 million (2017: £(5) million).
· Diluted earnings per share of 26.5 pence (2017: 8.6 pence) and adjusted diluted earnings per share of 12.3 pence (2017: 10.7 pence), up 15%.
· Recommended final dividend of 3.3 pence per share, in line with our dividend policy.
· Solvency II ratio of 190% after payment of the recommended final dividend (2017: 154%).
Strategic highlights
· Completed Managed Separation from Old Mutual plc and listed on the London and Johannesburg Stock Exchanges on 25 June 2018.
· Successful completion of the sale of the Single Strategy asset management business on 29 June 2018, with separation activity from this business progressing well. Special interim dividend of 12.0 pence per share paid on 21 September 2018, returning £221 million net surplus proceeds to shareholders.
· FCA investigation into treatment of long-standing clients of closed life books concluded without sanction.
· UK Platform Transformation Programme in soft launch phase. Migration planning well advanced and expected to commence by Autumn 2019. Total programme costs currently targeted to be at the upper end of the guidance range.
· Phased, multi-year Optimisation plans are underway: Targeting 4 percentage point uplift in operating margin by 2021.
· While macro-economic and political concerns may continue to weigh on investor sentiment in 2019, remain focused on growing the business and confident in the Group's strategic path and growth prospects.
Paul Feeney, Quilter Chief Executive Officer, said:
"Quilter performed well in 2018 despite increasingly challenging market conditions as the year progressed. We are delighted to report record profit with adjusted profit up 11% and adjusted diluted earnings per share up 15%. Although deteriorating investor sentiment over the course of the year made net client cash flows more challenging, the resilience in our integrated flows demonstrated that our business model is generating real traction with our customers.
2019 will again be an important year for our business. We will substantially implement our new UK Platform, progress our Optimisation plans which will help to drive up our operating margin in 2020 and 2021, and we will increase numbers of advisers and investment managers to deliver high quality solutions that our customers need."
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Quilter highlights (from continuing operations only)1, 2 |
2018 |
2017 |
Change |
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Assets and flows |
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AuMA (£bn) |
109.3 |
114.4 |
(4%) |
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NCCF (£bn) |
2.7 |
6.3 |
(57%) |
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NCCF (excl. Quilter Life Assurance) (£bn)3 |
4.7 |
7.6 |
(38%) |
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NCCF/opening AuMA (excl. Quilter Life Assurance)3, 4 |
5% |
9% |
(4pp) |
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Integrated flows (excl. Quilter Life Assurance) (£bn)3 |
4.7 |
5.2 |
(10%) |
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Productivity (£m) |
1.7 |
1.8 |
(6%) |
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Asset retention % (excl. Quilter Life Assurance)3 |
91% |
90% |
1pp |
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Profit & loss |
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IFRS profit before tax from continuing operations (£m) |
5 |
(5) |
200% |
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IFRS profit after tax (£m) |
488 |
157 |
211% |
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Adjusted profit before tax (£m) |
233 |
209 |
11% |
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Operating margin |
30% |
29% |
1pp |
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Total fee revenue (£m) |
788 |
728 |
8% |
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Revenue margin (bps) |
57 |
56 |
1bp |
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Non-financial |
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Restricted Financial Planners ("RFPs") |
1,621 |
1,561 |
4% |
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Investment Managers ("IMs") |
155 |
164 |
(5%) |
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1Continuing operations represent Quilter plc excluding results of the Single Strategy asset management business (up to the date its sale completed on 29 June 2018) and Old Mutual Wealth Italy S.p.A (up to the date its sale completed on 9 January 2017). |
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2Alternative Performance Measures ("APMs") are detailed on page 5. |
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3Quilter Life Assurance is excluded from this metric principally due to the closure of the institutional life book of business announced in 2017 and run-off of the legacy book as it is a closed-book business. |
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4The underlying numbers for this calculation are detailed on page 24 and 25 of this announcement. |
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Quilter plc results for the year ended 31 December 2018
Enquiries
Investor Relations |
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John-Paul Crutchley |
UK |
+44 20 7002 7016 |
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Keilah Codd |
UK |
+44 20 7002 7054 |
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Media |
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Jane Goodland |
UK |
+44 77 9001 2066 |
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Tim Skelton-Smith |
UK |
+44 78 2414 5076 |
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Camarco |
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Geoffrey Pelham-Lane |
UK |
+44 20 3757 4985 |
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Aprio (South Africa) |
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Julian Gwillim |
SA |
+27 11 880 0037 |
Paul Feeney, CEO, Tim Tookey, CFO and Mark Satchel, CFO-Designate, will host a presentation for investors and analysts at 09:00am (GMT) today, 12 March 2019 at Quilter plc, Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4AJ.
Alternatively, if you are unable to attend but would like to watch a live webcast of the presentation, please click on the link below to join via our website.
Live and on-demand: https://www.quilter.com/investor-relations
To join by telephone (listen only audio):
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United Kingdom |
+44 333 300 0804 |
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South Africa |
+27 21 672 4118 |
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United States |
+1 631 913 1422 |
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Access Code |
12133910# |
Playback facility:
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United Kingdom/ Other |
+44 333 300 0819 |
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South Africa |
+27 21 672 4123 |
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United States |
+1 866 931 1566 |
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Access Code |
301278216# |
Note: Neither the content of the Company's website nor the content of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.
Disclaimer
This announcement may contain certain forward-looking statements with respect to certain Quilter plc's plans and its current goals and expectations relating to its future financial condition, performance and results.
By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Quilter plc's control including amongst other things, international and global economic and business conditions, the implications and economic impact of several scenarios of the UK leaving the EU in relation to financial services, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Quilter plc and its affiliates operate. As a result, Quilter plc's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Quilter plc's forward looking statements.
Quilter plc undertakes no obligation to update the forward-looking statements contained in this announcement or any other forward-looking statements it may make.
Nothing in this announcement should be construed as a profit forecast.
Business unit descriptor:
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Previous Business Unit Name |
New Business Unit Name |
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Advice & Wealth Management |
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Multi-Asset |
Quilter Investors |
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Quilter Cheviot |
No change |
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Intrinsic |
Quilter Financial Planning |
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Old Mutual Wealth Private Client Advisers |
Quilter Private Client Advisers |
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Wealth Platforms |
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UK Platform |
Quilter Wealth Solutions |
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International |
Quilter International |
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Heritage |
Quilter Life Assurance |
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures. APMs are not defined by the relevant financial reporting framework (which for the Group is IFRS), but we use them to provide greater insight into the financial performance, financial position and cash flows of the Group and the way it is managed.
APMs should be read together with the Group's IFRS consolidated income statements, IFRS consolidated statement of financial position and IFRS consolidated statement of cash flows, which are presented in the financial statements on pages 31 to 36.
A number of our metrics exclude Quilter Life Assurance, principally due to the closure of the institutional life book of business announced in 2017 and run-off of the legacy book as it is a closed-book business. Further details of APMs used by the consolidated Group in our financial review are provided below.
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APM |
Definition |
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Adjusted profit |
Represents the adjusted profit before tax of the Group. It adjusts IFRS profit for key adjusting items and excludes non-core operations, as detailed in note 5(a) in the financial statements. Due to the nature of the Group's businesses, we believe that adjusted profit is an appropriate basis by which to assess the Group's underlying operating results and it enhances comparability and understanding of the financial performance of the Group. Please refer to page 16 for a detailed reconciliation of adjusted profit to IFRS. |
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Revenue margin (bps) |
Represents net management fees, divided by average AuMA. Management use this APM as it represents the Group's ability to earn revenue from AuMA. |
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Operating margin |
Represents adjusted profit before tax from continuing operations divided by total fee revenue including life tax contributions and adviser fees. Operating margin excludes financing costs. Management use this APM as this is an efficiency measure that reflects the percentage of net revenues that become adjusted profit. |
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Gross sales |
Gross sales are the gross client cash inflows received from customers during the period and represent our ability to increase AuMA and revenue.
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Net client cash flows ("NCCF") |
The difference between money received from and returned to customers during the relevant period for the Group or for the business indicated. This measure is considered to be a lead indicator of reported net revenue. |
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Integrated flows |
Total NCCF, before intra-Group eliminations that have flowed through two or more segments within the Group. It is considered to be a lead indicator of revenue generation driven by our integrated business model. |
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Assets under Management and Administration ("AuMA") |
Represents the total market value of all financial assets managed and administered on behalf of customers and includes shareholder assets. |
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Average AuMA |
Represents the average total market value of all financial assets managed and administrated on behalf of customers. Average AuMA is calculated using a 7-point average (half year) and 13-point average (full year) of monthly closing AuMA. |
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Net management fees |
Consists of revenue generated from AuMA, fixed fee revenues including charges for life tax contributions, less trail commissions payable. Please refer to page 14 for more information on financial performance. |
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Other revenue |
Represents revenue not directly linked to AuMA (e.g. encashment charges, closed book unit-linked policies, non-linked Protect policies, adviser initial fees and adviser fees linked to AuMA in Quilter Financial Planning (recurring fees)). Please refer to page 14 for more information on financial performance. |
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Cash generation |
This presents a shareholder view of underlying cash earnings. The IFRS consolidated statement of cash flows includes policyholder cash flows, and does not exclude adjustments for non-operating items. Cash generated from operations is calculated by removing non-cash items from adjusted profit. Cash generated from operations is stated after deducting an allowance for cash required to support the capital requirements of the business generated from normal operations. The capital requirements of the business are assessed on each company's solo regulatory solvency basis. |
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Asset retention |
The asset retention rate measures our ability to retain assets from delivering good customer outcomes and investment performance. Asset retention reflects the outflows of the assets under management during the period as a percentage of opening assets under management. Asset retention is calculated as: 1 - (gross outflow divided by opening assets under management). |
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Productivity |
Productivity is a measure of the value created by NCCF from our advice business, and an indicator of the success of our integrated business model. Restricted Financial Productivity is calculated as average integrated flow per Restricted Financial Planner. |
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NCCF/opening AuMA (excluding QLA) |
This measure is calculated as total NCCF as described above divided by opening AuMA presented as a percentage. Quilter Life Assurance is excluded from this metric principally due to the closure of the institutional life book of business announced in 2017 and run-off of the legacy book as it is a closed-book business. |
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Return on Equity ("RoE") |
This calculates how many pounds of profit the Group generates with each pound of shareholders equity. This measure is calculated as adjusted profit after tax divided by average equity (after adjusting equity for the acquisition of Skandia UK from Old Mutual plc as part of Managed Separation and equity allocated to the discontinued operations). |
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Adjusted diluted earnings per share |
Represents the adjusted profit earnings per share. Calculated as adjusted profit divided by the weighted average number of shares. Refer to page 15. |
Chief Executive Officer's Review
Execution
2018 was a landmark year in the history of Quilter. Six years after we set out to build a modern UK wealth management company and after two years of hard work to get the business ready for Listing, on 25 June 2018 we completed the Managed Separation from Old Mutual plc and our shares began trading on the London and Johannesburg Stock Exchanges. I would like to thank all of those who worked tirelessly to deliver this outcome. We were delighted with the level of investor engagement and interest in Quilter from both new and existing investors throughout this process, and we look forward to delivering prosperity for both shareholders and our broader stakeholders.
The Listing of Quilter was the beginning of our journey as an independent company. In that context, we are pleased to deliver a strong set of maiden full year results, with an increase in adjusted profit of 11% to £233 million and a 30% operating margin (2017: 29%). Our IFRS profit before tax from continuing operations was £5 million (2017: £(5) million).
Given the limited linkages between the Single Strategy asset management business and our retail-focused wealth business, the sale of that business was consistent with our objective of building the UK's leading wealth management company. The full consideration received from the sale of the business to its management team and funds managed by TA Associates, which completed at the end of June 2018, was £583 million. We paid a special interim dividend of 12.0 pence per share from the proceeds of this transaction, equivalent to a £221 million return of capital to shareholders. This represented the net surplus proceeds from this disposal after the repayment of the outstanding £300 million senior unsecured term loan.
Capital and dividend
Our recommended final dividend of 3.3 pence per share is consistent with our dividend policy published at time of IPO. Capital discipline is very important to us. We have started public life in a prudent fashion with a well-capitalised balance sheet. We do not apologise for this as we recognise that at times of market uncertainty, when we face specific business and market risks, having a robust capital position is a source of strength and opportunity. I am pleased that the feedback from our shareholders supports this position. The Board has no intention of hoarding excess capital for no good reason and, I believe, the return of the net surplus proceeds from the sale of our Single Strategy asset management business has demonstrated our commitment in this regard. We are excited about our growth potential over the next several years, both organically and through bolt-on acquisitions. If we find ourselves in a position where growth options become unattractive, we will, of course, accelerate the return of capital to shareholders.
Transformation
As I have said on many occasions, we know that Quilter is not the finished article. The task that my team and I are undertaking is nothing less than a multi-year transformation of our business. There are two principal strands to this process: successfully delivering upon our UK Platform Transformation Programme and optimising our business.
Our new UK Platform, once operational, will allow us immediately to widen the product set we currently offer to include SIPP capabilities, Junior ISAs and cash accounts as well as allowing us to hold a broader spectrum of assets on behalf of clients such as ETFs and investment trust shares. This will provide us with the opportunity to target a broader and higher net worth customer segment in the UK market than we are currently reaching. It will significantly enhance our position in the UK platform market by providing us with a modern, resilient system built on current technology rather than legacy code as is the case with the current platform.
We see four key stages to the successful completion and delivery of our new platform:
First, the core system completion enabled us to commence the soft launch phase in early February 2019. Soft launch was deliberately structured to be on a limited basis and this valuable phase is being used to verify core system functionality, processes and controls in a live environment and it continues to progress well.
Secondly, the final platform system, which will incorporate full adviser functionality, is in the last stages of development and, given the critical nature of this, is undergoing rigorous testing. Subject to these testing results, we are targeting this to be completed by early Summer.
The third key stage is migration planning and this is at an advanced stage. We will undertake a phased, controlled migration of our existing book. We aim to migrate an initial c.10% of assets under administration from our existing platform, representing the assets from around 100 adviser firms, in early Autumn. Once we have incorporated feedback from this into our processes, we will continue migration of the remainder of the book in appropriate phases considering, amongst other things, the time of year and market conditions.
Finally, our overriding principle is that high quality delivery is of the utmost importance and we are enhancing our detailed plans to ensure customers and advisers are well supported throughout the transition period. This, together with the challenges imposed by the need to train a large number of advisers on a new system, are key issues which have been highlighted in our reviews of a number of problematic high profile platform transitions across the UK financial services industry in recent years. As a result, we are considering adding additional adviser/customer call centre capacity and/or taking a more gradual approach to migration, which could extend the project timeframe slightly.
As at 31 December 2018, we had incurred costs of £79 million since the programme commenced in May 2017. If migration is completed by the end of 2019, we would expect total programme costs towards the upper end of our £120 - £160 million guidance range. Should we decide that it is in the best interests of both customers and advisers that programme completion is extended into the first half of 2020, we would expect modest additional programme costs, largely reflecting the incremental potential initiatives referenced above and a longer period of dual system running than originally planned.
Turning now to Optimisation. Optimisation means making Quilter the best version of ourselves that we can be. We want to eliminate the inefficiencies in our operational processes.
First, we see an opportunity to deliver an improvement in operational performance and efficiency of middle and back office activities. Business areas which are involved in the new UK Platform Transformation Programme will be ring-fenced and largely protected until that project is complete to avoid any risk of disrupting the programme delivery timetable.
In addition to those Optimisation savings which have already been achieved through cost avoidance during 2018, we believe that the potential benefits from running our existing businesses better can deliver around a two percentage point uplift to our 2020 operating margin target of 30%. This is despite ongoing investment in distribution which has a negative short-term impact on our operating margin. We also expect a further two percentage point improvement in 2021. This increases our previous 2020 guidance to around 32% and our 2021 guidance to around 34%, although, given that the outcome here is a function of income and costs, this target assumes broadly normal market performance from around current levels together with steady net flows. The uplift will be achieved from cost savings with an expected cost to achieve of c.£75 million (inclusive of identified IT spend) to deliver the programme over the next three years.
Once the UK Platform Transformation Programme is complete, we will then be able to consider further efficiency initiatives from those areas previously ring-fenced until the UK Platform Transformation Programme has completed. Our goal will be to transition towards a simpler, higher-growth business, over time.
Operational performance
Good customer outcomes remain central to everything we do. Delivering this starts with trusted advice. Client confidence in our proposition is demonstrated through the strength of our integrated business model and is shown by our net client cash flow ("NCCF") and the resilience of integrated flows which have held up well despite more challenging conditions in the second half of the year. Integrated flows were down just 10% to £4.7 billion in the year.
Despite the significantly less buoyant market conditions in the second half of the year and more cautious investor sentiment, we delivered NCCF of £4.7 billion in 2018, excluding Quilter Life Assurance. This represents 5% of opening Assets under Management and Administration ("AuMA") in line with our medium-term target. Overall NCCF of £2.7 billion was down 57% on prior year (2017: £6.3 billion) with this largely due to the pre-announced run-off of the low margin institutional life book within our Quilter Life Assurance (or Heritage) business and the natural attrition of the rest of that book.
We have also demonstrated resilience in AuMA (excluding Quilter Life Assurance) which declined by just 2% over the year. This contrasts with an overall decline in AuM across the industry of 6% during 2018, according to the Investment Association.
We added to our distribution capabilities within our Private Client Adviser business through 14 small acquisitions during the year, with a corresponding total consideration of up to c.£12 million that may be paid, with just over half of this subject to performance conditions being attained. This provides us with the potential to build our base of client assets over time.
Across our appointed representative firms, we achieved satisfactory growth of 4% in adviser numbers, and finished the year with 1,621 restricted financial planners ("RFPs"). This is below our historic growth rate of 5% and reflects a disappointing rate of growth in the first half and so this was an area of particular focus in the second half of the year when the majority of this growth was achieved.
On 14 February 2019, we purchased the remaining shares in Charles Derby Group that we did not already own. This business will be positioned as part of our national advice business instead of being an appointed representative firm within our network. We see significant opportunity from broadening the existing Quilter Private Client Advisers business model into the affluent market instead of solely servicing high net worth clients. The acquisition and repositioning of Charles Derby Group will provide us with meaningful scale and strong market positioning to serve customers in the affluent and mass affluent segment and will complement Quilter Private Client Advisers which focuses on high net worth customers. We will continue to consider acquisitions in advice and distribution capacity on a selective and targeted basis but only where quality and culture are a good fit with Quilter as well as offering a strong business and financial case.
As part of our commitment to advice we have developed the Quilter Financial Adviser School, which has been in operation since 2016. The School has contributed to growth in financial advisers across the industry with an average student age of 29 years and with 33% female participation. During 2018, the 100th student graduated, and currently we have 94 students enrolled on courses which cover all stages of financial advice; of these, 46 are potential RFPs. In light of the success to date we are increasing our investment to expand the capacity of the School to deliver a higher level of new RFPs to Quilter. At current capacity we can accommodate around 100 students per annum. The focused RFP programme takes 14 months to complete and so we expect to see this start to contribute to growth in our adviser numbers later this year.
Quilter Cheviot NCCF slowed over the course of the year mirroring the broader market trends. Whilst disappointing, this reflected lower levels of gross inflow and broadly stable outflows. We expect the first half of 2019 flows to be impacted by the loss of a c.£0.2 billion client where notice has been given and with the funds expected to move early in the year. The near institutional-type mandate of this portfolio means that we expect the loss to have minimal impact on 2019 profitability.
During the last 18 months we have been investing in the Quilter Cheviot investment team with Investment Manager ("IM") headcount increasing to 168 by mid-2018. Following Listing we saw a small number of resignations from a particular cohort of IMs. As a result, IM headcount fell to 155 by year-end and, while we have mitigation plans in place to reduce potential client departures, we are expecting this could lead to higher than trend outflows for Quilter Cheviot in the second half of 2019 and early 2020. Growing our IM count is a key focus for 2019 and recruitment is ongoing with a number of new starters in the pipeline.
Quilter Wealth Solutions achieved net inflows of £3.1 billion, down 31% on prior year. Gross sales of £7.7 billion (2017: £8.9 billion) were down £1.2 billion as a result of the slower trading environment seen in the second half of the year as well as reduced transfers of defined benefit ("DB") schemes to defined contribution ("DC") schemes, which were down 24% to £1.6 billion. We believe that this was driven by the impact of increased FCA scrutiny and resultant impact on the availability and affordability of IFA professional indemnity insurance. Overall, our pension propositions continue to perform well, with gross sales of £4.7 billion, representing 60% of total Quilter Wealth Solutions gross sales (2017: £5.4 billion representing 61% of 2017 gross sales).
We continue to reposition our International business and inflows have been particularly weak in 2018. Our strategy is to focus our international geographic footprint and maintain the quality and value of new business. We have deliberately taken an early adopter strategy to the shifting of the regulatory environment and, as previously reported, this has had an impact on new business flow but we believe this is the right approach for both customers and Quilter.
Quilter Life Assurance had net outflows of £2.3 billion, up from £1.6 billion in 2017, principally due to the closure of the institutional life book of business announced in 2017. The remainder of the Quilter Life Assurance book ran off at a rate of c.14% which is broadly in line with expectations.
Investment performance
2018 was a challenging year for investors. Most major asset classes declined, and the broad nature of the decline, particularly in the fourth quarter, made it difficult to achieve positive outcomes from Quilter Investor's diversified solutions.
Whilst we are conscious that short term performance in certain portfolios was disappointing, our multi-asset solutions are aligned to the advice process, led by well-regarded portfolio managers, with good long term records. We remain particularly pleased with the medium and longer term performance of our biggest ranges, Cirilium and Wealth Select as delivering to these goals here is how the products are positioned in the market.
Our largest multi-asset range, the £8.3 billion Cirilium active, had a disappointing first half of 2018, but, I am pleased to say, it has started this year strongly. Over the 3, 5 and 10 year periods the performance continues to be strong. The £6.0 billion Managed Portfolio Service compares well against its peer group and met its investment objectives in 2018, defending well in the last quarter of the year. It hit its fifth anniversary in good shape.
Turning now to Quilter Cheviot, overall performance remained consistently good across all time periods relative to ARC benchmarks to the end of September. This is the most recent quarter for which we have the detailed ARC comparisons which are available as a benchmark.
Stewardship
We monitor employee engagement on a quarterly basis and are delighted that it has remained at a consistently high level despite the significant work pressures that arose through the Listing process.
Building an environment where our people can thrive is important to me. One of the principal benefits of Quilter being a standalone business is the reinforcement of our identity, and strengthening of the ties that bind our people in their delivery of our purpose. Virtually all of our staff were awarded shares in Quilter on Listing and so have a direct stake in the outcomes of their efforts as we build the UK's leading wealth management company.
We believe that an organisation needs to have a broader moral compass than merely profit maximisation. Our Shared Prosperity Plan, which is part of our Responsible Business strategy, seeks to improve financial capability across the UK population. By equipping people to make better financial decisions, we enable them to have a secure financial future and we aim to protect customer assets over the long-term through inclusive and responsible investment.
We were delighted to launch The Quilter Foundation at Listing. As a registered charity, the Foundation's mission is to tackle the barriers to prosperity in our society. The Foundation's first step is to work in partnership with charities that support young carers in the UK to help overcome the challenges they face such as isolation, mental health issues and poor outcomes in education and employment.
We also continue to make good progress in undertaking our voluntary redress for customers within Quilter Life Assurance who were subject to the terms of the FCA's thematic review into the fair treatment of long-standing customers. We, of course, welcomed the FCA's decision to close their investigation without any sanction on the Company. Of the £69 million provision taken in 2017 relating to our voluntary redress of historic business written, we have paid out £27 million and we remain confident that the remaining provision will be sufficient to meet the costs that were identified from our review process.
Outlook
The UK wealth management industry continues to offer strong secular growth potential notwithstanding the short-term headwinds. As it became apparent in the second half of 2018 that global macro and geopolitical uncertainty was impacting flows and market sentiment, we increased our focus on cost management and accelerated some of the benefits we expected to deliver from our first stage Optimisation initiatives.
As most of the decline in markets came late in the year, the impact on our 2018 revenues was relatively muted. Closing AuMA of £109.3 billion was £5.4 billion less than the average AuMA for 2018 of £114.7 billion. Lower average asset values, if sustained, would impact revenue generation in the current year. While we cannot avoid external headwinds, we aim to keep 2019 costs broadly flat on 2018 (excluding acquisition activity), through Optimisation and other initiatives, to partially offset the anticipated tougher revenue environment.
We remain resolutely focused on growing our business and supporting our clients towards achieving their savings and investment goals. During 2019 we plan to increase adviser numbers, expand our national advice business including through the recently announced acquisitions, add Investment Managers in Quilter Cheviot, finish the build out of our Quilter Investors operation and complete, or substantially complete, the safe delivery of our new UK platform.
2019 will throw up other challenges for Quilter. Brexit and market uncertainty are having an impact upon investors' appetite to put new money to work. In addition, we anticipate that the migration of advisers to our new platform may contribute to a slowdown in the flow of new money into our platform services as advisers familiarise themselves with, and are migrated to, the new platform. As a result of both of these factors, while we remain confident in a target of 5% growth for NCCF on a medium-term basis, we may undershoot this target during calendar year 2019.
Early 2019 has seen a partial recovery in markets. By the end of February 2019 our AuMA had increased to c.£113 billion up from £109.3 billion at year-end. While this recovery in markets has been ahead of our expectations, the trend in net client cash flows has remained subdued. Brexit and market uncertainty continue to temper momentum in year-to-date flows and therefore we remain cautious on net flows going into 2019. However, as we set out in our Prospectus ahead of Listing, we are confident in our strategic path and growth prospects. We are a modern, purpose-built UK wealth management company that has many opportunities ahead of it. Our focus remains on embedding last year's cost successes into our 2019 performance, delivering organic growth and executing upon our transformation plans. I am hugely excited about the journey ahead and look forward to continuing to deliver on our promises.
Paul Feeney
Chief Executive Officer
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Chief Financial Officer's Report |
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|
|
|
|
|
Summary financial information |
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of adjusted profit to profit after tax (£m) |
2018 |
2017 |
% Change |
|
|
|
|
|
|
|
|
Net management fee |
647 |
591 |
9% |
|
|
Other revenue |
141 |
137 |
3% |
|
|
Total fee revenue |
788 |
728 |
8% |
|
|
|
|
|
|
|
|
Expenses |
(555) |
(519) |
(7%) |
|
|
|
|
|
|
|
|
Adjusted profit before tax |
233 |
209 |
11% |
|
|
|
|
|
|
|
|
Total adjusting items before tax |
(70) |
(263) |
73% |
|
|
|
|
|
|
|
|
Profit/(loss) before tax attributable to equity holders |
163 |
(54) |
402% |
|
|
Income tax (expense)/credit attributable to policyholder returns |
(158) |
49 |
(422%) |
|
|
Profit/(loss) before tax from continuing operations |
5 |
(5) |
200% |
|
|
|
|
|
|
|
|
Income tax credit/(expense) on continuing operations |
169 |
(41) |
512% |
|
|
Profit after tax from continuing operations |
174 |
(46) |
478% |
|
|
Profit after tax from discontinued operations |
314 |
203 |
55% |
|
|
Profit after tax for the period |
488 |
157 |
211% |
|
|
|
|
|
|
|
|
Adjusted weighted average number of ordinary shares (millions) |
1,839 |
1,830 |
- |
|
|
|
|
|
|
|
|
Diluted earnings per ordinary share (pence) |
26.5 |
8.6 |
208% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted profit before shareholder tax |
233 |
209 |
11% |
|
|
Shareholder tax on adjusted profit |
(6) |
(14) |
57% |
|
|
Adjusted profit after tax attributable to ordinary shareholders of Quilter plc |
227 |
195 |
16% |
|
|
|
|
|
|
|
|
Adjusted weighted average number of ordinary shares used to calculate adjusted diluted earnings per share (millions) |
1,839 |
1,830 |
- |
|
|
|
|
|
|
|
|
Adjusted diluted earnings per share (pence) |
12.3 |
10.7 |
15% |
|
|
|
|
|
|
|
|
Summary balance sheet (£m) |
At |
At |
|
|
|
|
31 December |
31 December |
|
|
|
|
2018 |
2017 |
Change % |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Financial investments |
59,219 |
64,250 |
(8%) |
|
|
Reinsurers' share of policyholder liabilities |
2,162 |
2,908 |
(26%) |
|
|
Contract costs/deferred acquisition costs |
562 |
611 |
(8%) |
|
|
Cash and cash equivalents |
2,395 |
2,360 |
1% |
|
|
Other assets |
1,452 |
1,844 |
(21%) |
|
|
Total assets |
65,790 |
71,973 |
(9%) |
|
|
|
|
|
|
|
|
Equity |
2,005 |
1,099 |
82% |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Investment contract liabilities |
56,450 |
59,139 |
(5%) |
|
|
Third-party interests in consolidated funds |
5,116 |
7,905 |
(35%) |
|
|
Contract liabilities/deferred revenue |
226 |
244 |
(7%) |
|
|
Borrowings |
197 |
782 |
(75%) |
|
|
Trade, other payables and other liabilities |
999 |
1,331 |
(25%) |
|
|
Other liabilities |
797 |
1,473 |
(46%) |
|
|
Total liabilities |
63,785 |
70,874 |
(10%) |
|
|
Total equity and liabilities |
65,790 |
71,973 |
(9%) |
|
Review of Financial Performance
Overview
Our financial performance in 2018 demonstrates a strong set of results despite investor uncertainty arising from Brexit and other geopolitical issues which dominated over the course of the year, in particular in the fourth quarter. Despite the challenging external environment, Net Client Cash Flow ("NCCF") for the Group, excluding Quilter Life Assurance, was £4.7 billion, representing 5% of opening AuMA, in line with our medium-term target. AuMA decreased by 4% to £109.3 billion as a result of negative market movements, partly offset by positive NCCF. Adjusted profit before tax grew strongly in the year, up 11% to £233 million.
Key financial highlights
|
Year ended 31 December 2018 Continuing operations only
|
Advice & Wealth Management |
Wealth Platforms |
Head Office & Eliminations |
Total Group |
|
|
|
|
|
|
|
Gross sales (£bn) |
8.0 |
10.1 |
(3.4) |
14.7 |
|
Gross outflows (£bn) |
(4.5) |
(9.0) |
1.5 |
(12.0) |
|
NCCF (£bn) |
3.5 |
1.1 |
(1.9) |
2.7 |
|
NCCF (excl. Quilter Life Assurance (£bn)) |
3.5 |
3.4 |
(2.2) |
4.7 |
|
Integrated flows (excl. Quilter Life Assurance (£bn)) |
3.6 |
1.1 |
- |
4.7 |
|
AuMA (£bn) |
41.2 |
80.7 |
(12.6) |
109.3 |
|
NCCF/opening AuMA (excl. Quilter Life Assurance (%)) |
8% |
5% |
n/a |
5% |
|
Asset retention (excl. Quilter Life Assurance (%)) |
89% |
91% |
n/a |
91% |
|
|
|
|
|
|
|
Year ended 31 December 2017 Continuing operations only
|
Advice & Wealth Management |
Wealth Platforms |
Head Office & Eliminations |
Total Group |
|
|
|
|
|
|
|
Gross sales (£bn) |
8.1 |
12.8 |
(3.6) |
17.3 |
|
Gross outflows (£bn) |
(3.7) |
(8.5) |
1.2 |
(11.0) |
|
NCCF (£bn) |
4.4 |
4.3 |
(2.4) |
6.3 |
|
NCCF (excl. Quilter Life Assurance (£bn)) |
4.4 |
5.9 |
(2.7) |
7.6 |
|
Integrated flows (excl. Quilter Life Assurance) (£bn)) |
4.0 |
1.2 |
- |
5.2 |
|
AuMA (£bn) |
41.7 |
84.8 |
(12.1) |
114.4 |
|
NCCF/opening AuMA (excl. Quilter Life Assurance (%)) |
13% |
10% |
n/a |
9% |
|
Asset retention (excl. Quilter Life Assurance (%)) |
89% |
90% |
n/a |
90% |
NCCF
NCCF performance was solid at £2.7 billion, in a year where investor sentiment progressively weakened, in part due to Brexit uncertainties and the market declines experienced late in the year. There was a market-wide reduction of 85% year-on-year in net retail flows as reported by the Investment Association. In comparison, 2017 NCCF of £6.3 billion was achieved when markets were more stable and investor sentiment considerably more buoyant. NCCF as a percentage of opening AuMA (excluding Quilter Life Assurance) was 5%, in line with our medium-term target, which demonstrates the robustness of our business model in a difficult environment. Excluding Quilter Life Assurance, the Group's NCCF was £4.7 billion (2017: £7.6 billion), down 38%, representing weaker flows across all businesses. Quilter International experienced particular headwinds due to previously disclosed changes in the regulatory environment which impacted distribution. Detailed analysis on NCCF by business is shown in the supplementary information section of this announcement.
Integrated flows (excluding Quilter Life Assurance) were £4.7 billion, down 10% from 2017 (£5.2 billion), due to investor uncertainty arising from Brexit and other geopolitical issues which dominated over the course of the year, particularly in the fourth quarter. Quilter Wealth Solutions experienced a decline in flows as a result of the anticipated slowdown in transfers from Defined Benefit ("DB") schemes. The restricted channel of Quilter Financial Planning accounted for £2.4 billion, 86% of Quilter Investors' net flows (2017: £2.5 billion, 76%), and £1.1 billion, 35% of Quilter Wealth Solutions net flows (2017: £1.2 billion, 27%). Integrated flows from Quilter Financial Planning and Quilter Private Client Advisers into Quilter Cheviot amounted to £300 million (2017: £238 million) of which £122 million (2017: £129 million) was through Quilter Private Client Advisers. The Group's total direct flows (excl. Quilter Life Assurance) were £2.2 billion, down 57% (2017: £5.1 billion) primarily driven by both the challenging trading environment and reduced transfers of DB to Defined Contribution ("DC") pension plans within the Independent Financial Adviser ("IFA") channel. This also influenced a reduction in Quilter Wealth Solutions direct flows to £2.0 billion (2017: £3.3 billion). The changing regulatory environment in Quilter International impacted direct flows in this market, where we recorded a reduction in net flows from £1.4 billion in 2017 to £0.3 billion in 2018.
|
Integrated flows (excl. Quilter Life Assurance) (£bn) |
2018 |
2017 |
% Change |
|
|
|
|
|
|
Total integrated flows |
4.7 |
5.2 |
(10%) |
|
Direct flows from third party distribution |
2.2 |
5.1 |
(57%) |
|
Eliminations |
(2.2) |
(2.7) |
19% |
|
Total Quilter plc NCCF (excl. Quilter Life Assurance) |
4.7 |
7.6 |
(38%) |
NCCF for the Advice and Wealth Management segment was £3.5 billion, down 20% from 2017 (£4.4 billion), reflecting a slower second half of the year, particularly within Quilter Investors where net flows declined by 15% for the year to £2.8 billion (2017: £3.3 billion). Net flows of £2.4 billion (2017: £2.5 billion) were from the restricted channel, of which £1.1 billion (2017: £1.1 billion) were from third party platforms and £1.3 billion (2017: £1.4 billion) from our own platform, Quilter Wealth Solutions. Independent third party net flows through Quilter Wealth Solutions to Quilter Investors were £0.8 billion for the year (2017: £1.3 billion). Quilter Cheviot experienced slower net flows in the second half of the year, with net flows for the full year of £0.7 billion compared to £1.1 billion in 2017.
The Wealth Platforms segment contributed NCCF of £1.1 billion (2017: £4.3 billion). Quilter Wealth Solutions had net flows of £3.1 billion, down 31% on prior year. Gross sales of £7.7 billion (2017: £8.9 billion) were down £1.2 billion as a result of the difficult trading environment experienced in the second half of the year, reduced transfers of DB schemes to DC schemes, which were down 24% to £1.6 billion, reflecting the impact of increased FCA scrutiny and resultant impact on IFA PII ("Professional Indemnity Insurance") availability and affordability. Overall, our pension propositions continue to perform well, with gross sales of £4.7 billion, representing 60% of total Quilter Wealth Solutions gross sales (2017: £5.4 billion representing 61% of 2017 gross sales). Quilter International had net inflows of £0.3 billion, down 79% on prior year (2017: £1.4 billion, following a very strong final quarter in 2017). International markets remain challenging, particularly given the changing regulatory environment and the Insurance Distribution Directive covering European and UK territories, which came into effect on 1 October 2018. The reduction in International flows also reflects the Group's strategy to reduce its offshore geographic footprint and focus on the quality of new business. Quilter Life Assurance had net outflows of £2.3 billion, up from £1.6 billion of net outflows in 2017, with the increase primarily due to the closure of the institutional life book of business announced in 2017 which had net outflows of £1.3 billion in 2018.
Productivity for Quilter Financial Planning remained broadly stable at £1.7 million per RFP (2017: £1.8 million per RFP) with a moderate reduction in the second half of the year reflective of broader market challenges that influenced investor confidence. The underlying trend remains positive with growth in total flows from our employed advice distribution model within Quilter Private Clients and benefits from the full integration and adoption of our investment proposition by RFPs that joined as part of the Caerus acquisition in June 2017. RFP headcount of 1,621 represents net growth of 60 (increase of 4%) in 2018, driven by a combination of organic growth within existing, and the recruitment of new, appointed representative firms. We also continue to support IFAs converting to adopt our restricted advice proposition. New RFP appointments have been partially offset by natural attrition of advisers, with turnover levels within our appointed representative firms staying relatively stable year on year. We expect further growth in RFP numbers in 2019 following the repurposing of our Financial Adviser School, which we announced in September 2018. The newly rebranded Quilter Financial Adviser School will fully fund training programmes for anyone who wishes to become an RFP within the Quilter advice network.
Asset retention (excl. Quilter Life Assurance) has improved marginally to 91%, as a result of our comprehensive product and proposition offering, high customer service standards, and our continued focus on good customer outcomes.
AuMA
Year-end AuMA (including Quilter Life Assurance) was £109.3 billion, down 4% in the year, driven by negative market performance of £7.8 billion which was primarily experienced in the fourth quarter. This was partially offset by positive NCCF of £2.7 billion.
Quilter Investors' AuM was £17.8 billion, up 5% (2017: £16.9 billion). The Cirilium fund range remained stable at £9.0 billion of AuM and the WealthSelect fund range increased by 15% to £5.5 billion. Quilter Cheviot AuM of £22.4 billion decreased by 5% in the year primarily as a result of negative market movements. Quilter Wealth Solutions' AuA decreased by 1% to £49.9 billion, which comprised primarily of £23.2 billion within pension propositions (of which £3.0 billion has been generated from the restricted channel and £20.2 billion from third party advisers) and £14.5 billion of ISA products.
Adjusted profit before tax
Adjusted profit reflects the Directors' view of the underlying performance of the Group and is used for management decision making and internal performance management. Adjusted profit is a non-GAAP measure which adjusts IFRS profit for specific agreed items, as detailed in note 5(a) in the consolidated financial statements, and is the profit measure presented in the Group's segmental reporting. Adjusted profit before tax for 2018 was £233 million, 11% higher than the prior year (2017: £209 million), due to higher revenue, partially offset by higher costs.
Net management fee in 2018 of £647 million was 9% higher than the £591 million in 2017. Net management fee revenue is primarily influenced by the value of the assets that we manage and administer, with different parts of the business employing different valuation points for charging the management fees. Average AuMA for 2018 was £114.7 billion compared to £106.1 billion for 2017, an increase of 8%, in line with our income growth.
Other revenue for 2018 was £141 million, 3% up on 2017 (£137 million) primarily as a result of growth in advice fees of 13% in Quilter Financial Planning with the increase in the number of RFPs, partially offset by higher claims experience and actuarial assumption changes in Quilter Life Assurance.
Expenses increased 7% from £519 million to £555 million during the year. Increases include investment in the business, the expected higher costs of being a standalone listed company, and the incremental costs in relation to the Long-Term Incentive Plan ("LTIP"), as well as the impact of inflation. The Group's overall operating margin increased to 30% (2017: 29%) which is ahead of previous guidance as a result of an increased focus on costs and early savings achieved through Optimisation.
|
Financial performance (from continuing operations only) 2018 (£m)
|
Advice & Wealth Management |
Wealth Platforms |
Head Office |
Total Group |
|
|
|
|
|
|
|
Net management fee |
276 |
371 |
- |
647 |
|
Other revenue |
97 |
43 |
1 |
141 |
|
Total fee revenue |
373 |
414 |
1 |
788 |
|
|
|
|
|
|
|
Expenses |
(271) |
(252) |
(32) |
(555) |
|
|
|
|
|
|
|
Adjusted profit before tax |
102 |
162 |
(31) |
233 |
|
Tax |
|
|
|
(6) |
|
Adjusted profit after tax |
|
|
|
227 |
|
|
|
|
|
|
|
Operating margin (%) |
27% |
39% |
|
30% |
|
Revenue margin (bps) |
65 |
45 |
|
57 |
|
|
|
|
|
|
|
Financial performance (from continuing operations only) 2017 (£m)
|
Advice & Wealth Management |
Wealth Platforms |
Head Office |
Total Group |
|
|
|
|
|
|
|
Net management fee |
234 |
357 |
- |
591 |
|
Other revenue |
82 |
54 |
1 |
137 |
|
Total fee revenue |
316 |
411 |
1 |
728 |
|
|
|
|
|
|
|
Expenses |
(234) |
(253) |
(32) |
(519) |
|
|
|
|
|
|
|
Adjusted profit before tax |
82 |
158 |
(31) |
209 |
|
Tax |
|
|
|
(14) |
|
Adjusted profit after tax |
|
|
|
195 |
|
|
|
|
|
|
|
Operating margin (%) |
26% |
38% |
|
29% |
|
Revenue margin (bps) |
63 |
46 |
|
56 |
Total fee revenue
The Group's total fee revenue increased by 8% to £788 million due to higher average AuMA, primarily driven by more favourable market conditions through to September 2018 despite weakening net flows throughout the year. Net management fee revenue, which principally comprises asset-based revenues including fixed fees, increased by £56 million to £647 million during the year, accounting for 82% of total fee revenue. Other revenue for the Group increased 3% to £141 million, primarily within Quilter Financial Planning, as a result of the growth in advice fees with the increase in the number of RFPs.
Total fee revenue for the Advice and Wealth Management segment grew by 18% to £373 million, with average assets increasing 15% during the year, with higher net management fees primarily from Quilter Investors. Other revenue increased by £15 million to £97 million, principally due to the growth in advice fees in Quilter Financial Planning, driven in part by the continued acquisitions in this part of the business.
Total fee revenue for the Wealth Platforms segment in 2018 was broadly flat at £414 million (2017: £411 million), due to higher fund-based revenue offset by a decline in other revenue. Other revenue decreased due to higher claims experience within the protection book of business, actuarial assumption changes and lower protection product volumes. Net management fee revenue for Quilter Wealth Solutions increased by 8% to £168 million as a result of increased average AuA from £45.9 billion to £51.5 billion, and Quilter International benefitted from foreign exchange rate effects and improved interest-related margins during the year. Net management fees for Quilter Life Assurance increased by £2 million year on year, where lower underlying fund-based revenue from both the retail and institutional book run-off were more than offset by one-off benefits from provision releases related to the earlier introduction of capped exit fees on certain pension products and other benefits from the movement in life charge provision.
The Group's blended revenue margin of 57 basis points ("bps") was a slight improvement upon the prior year (2017: 56 bps), with a mixture of greater integrated assets (where we generate revenues for more than one service provision), a favourable impact from asset, and fund selection mix as well as benefits from adjustments relating to life tax contributions.
The revenue margin for Advice and Wealth Management of 65 bps was 2 bps higher compared to the prior year, due to an increase in the revenue margin for Quilter Investors of 8 bps to 59 bps, reflecting a change in the overall mix of AuM towards investment in products which earn a higher margin, and additional revenue now recognised from the WealthSelect funds. Quilter Cheviot's revenue margin remained in line with the prior year at 72 bps.
The revenue margin for Wealth Platforms decreased by 1 bp from the prior year to 45 bps. This decline was driven by lower margin gross sales for Quilter Wealth Solutions and gross outflows of higher margin products for Quilter International. The revenue margin for Quilter Life Assurance increased by 9 bps to 69 bps, reflecting the product mix change benefit from the continued run-off of the very low margin institutional life book and benefits from adjustments relating to life tax contributions.
Expenses
Expenses increased by £36 million, up 7% to £555 million (2017: £519 million) in the year, which was driven by increased costs for Quilter Investors as the functionality for the business is built out to be standalone, the inclusion of the full run rate costs for Caerus, which was acquired on 1 June 2017, and the continued expansion of the Quilter Private Client Advisers business, which has undertaken 14 small acquisitions over the past 12 months. Expenses also increased due to the expected higher costs of being a standalone listed company, and the incremental costs in relation to the LTIP, as well as the impact of inflation. The overall impact of these increases is lower than originally anticipated due to strengthened cost disciplines across the business and early savings achieved through Optimisation.
|
Expense split (£m) |
2018 |
2017 |
|
Front office and operations |
312 |
293 |
|
IT and development |
120 |
120 |
|
Support functions |
105 |
89 |
|
Other |
18 |
17 |
|
|
|
|
|
Expenses |
555 |
519 |
Front office and operations expenses increased by 6% to £312 million during the year (2017: £293 million), primarily due to the investment in the business with the acquisitions for Quilter Private Client Advisers, the inclusion of the full run rate of expenses for Caerus acquired on 1 June 2017 and increased costs of being a standalone listed company.
IT and development costs remained flat year on year at £120 million, mainly due to increased IT run costs to facilitate growth in the business and regulatory change, and the increased costs of being a standalone listed company, offset by a reduction in development costs.
Support function expenses relate to middle and back office expenses which have increased by 18% to £105 million (2017: £89 million), driven primarily by the increased cost of being a standalone listed company.
Other costs include PII, charges for regulation, and licencing fees, which remained broadly in line with 2017 levels, primarily due to 2018 reflecting nine months of the FCA regulatory fees compared to twelve months in 2017. As noted at the half year results, the FCA changed the period to which regulatory charges are applied during 2018, and these are recognised in full at the point the charge is levied.
Taxation
The effective tax rate ("ETR") on adjusted profit was 3% (2017: 7%). The Group's ETR is lower than the UK corporation tax rate of 19%, principally due to profits from Quilter International being taxed at lower rates than the UK and utilisation of brought forward capital losses. The ETR is expected to normalise to 12%-14% within a couple of years, however this will be dependent upon a number of factors including the level of Quilter International profits, the utilisation of capital losses which can be volatile, as well as the UK corporation tax rate which is due to reduce to 17% from April 2020.
Earnings Per Share ("EPS")
Basic EPS was 26.6 pence, compared to 8.6 pence in 2017. During the year, the number of shares in issue increased to 1,902 million following completion of the share capital restructure as part of the separation from Old Mutual plc. The shares in issue for the basic EPS calculation were 1,832 million (after deduction of shares in treasury of 70 million which are held in respect of staff share schemes within employee benefit trusts). Comparative EPS has been restated accordingly. Adjusted diluted EPS increased by 15% to 12.3 pence (2017: 10.7 pence) as a result of increased adjusted profit and a lower ETR on adjusted profit. The shares in issue for the basis of the adjusted diluted EPS calculation was 1,839 million (following inclusion of the dilutive effect of shares and options awarded to employees under share-based payment arrangements - potential ordinary shares, of 7 million). Shares in Treasury are expected to vest over the next two years at which point future share awards are anticipated to be satisfied through the purchase of shares from the market.
Optimisation
We have maintained strong cost discipline during the year supplemented by the first phase of our Optimisation programme, which predominantly focuses on improving our operational efficiency within middle and back office activities in the near to medium-term. We expect the programme to deliver a 2 percentage point increase in operating margin in 2020, and a further 2 percentage point increase by the end of 2021. This increases our previous 2020 guidance to 32% operating margin. Given operating margin is a function of income and costs, this target assumes broadly normal market performance from around current levels together with steady net flows. The one-off costs to deliver Optimisation are anticipated to be c.£75 million over a three-year period, of which £7 million were incurred in 2018.
Reconciliation of adjusted profit to IFRS profit
IFRS profit after tax from continuing operations was £174 million for 2018, compared to £(46) million in 2017 and has increased due to a higher level of adjusted profit, lower finance costs and £69 million of voluntary customer remediation costs incurred in 2017. The table below reconciles the Group's adjusted profit to the IFRS results in 2018 and 2017.
|
Reconciliation of adjusted profit to profit after tax For the year ended 31 December 2018 (£m) |
2018 |
2017 |
% change |
|
Adjusted profit before tax |
|
|
|
|
Advice and Wealth Management |
102 |
82 |
24% |
|
Wealth Platforms |
162 |
158 |
3% |
|
Head Office |
(31) |
(31) |
- |
|
Adjusted profit before tax |
233 |
209 |
11% |
|
|
|
|
|
|
Reconciliation of adjusted profit to profit after tax |
|
|
|
|
Adjusting for the following: |
|
|
|
|
Goodwill impairment and impact of acquisition accounting |
(50) |
(54) |
7% |
|
Profit on the acquisition and re-measurement of subsidiaries |
- |
3 |
|
|
Business transformation costs |
(84) |
(89) |
6% |
|
Managed Separation costs |
(24) |
(32) |
25% |
|
Finance costs |
(13) |
(39) |
67% |
|
Voluntary customer remediation provision |
- |
(69) |
|
|
Policyholder tax adjustments |
101 |
17 |
494% |
|
Total adjusting items before tax |
(70) |
(263) |
73% |
|
Profit/(Loss) before tax attributable to equity profits |
163 |
(54) |
402% |
|
Income tax (expense)/credit attributable to policyholder returns |
(158) |
49 |
(422%) |
|
Profit/(loss) before tax from continuing operations |
5 |
(5) |
200% |
|
Income tax credit/(expense) on continuing operations |
169 |
(41) |
512% |
|
Profit/(loss) after tax from continuing operations |
174 |
(46) |
478% |
|
Profit after tax from discontinued operations |
314 |
203 |
55% |
|
Profit after tax for the year |
488 |
157 |
211% |
Adjusted profit reflects the profit from the Group's core operations, and is calculated by making certain adjustments to IFRS profit to reflect the Directors' view of the Group's underlying performance. Details of these adjustments are provided in note 5(a) of the consolidated financial statements and, in respect of tax, in note 8(c).
Business transformation costs of £84 million in 2018 (2017: £89 million) included £58 million incurred on the UK Platform Transformation Programme, £19 million of one-off costs associated with the separation of Quilter Investors as a result of the sale of the Single Strategy asset management business in June, and £7 million of costs in relation to the Optimisation programme. In 2017, the costs associated with the UK Platform Transformation Programme included £21 million relating to the new programme with FNZ and £53 million relating to the previous programme, including the contracts with IFDS, which came to an end by mutual agreement with effect from 2 May 2017.
Managed Separation costs were £24 million (2017: £32 million), reflecting costs associated with our successful separation from Old Mutual plc and Listing in June. Remaining future costs of Managed Separation of approximately £12 million, principally in respect of rebrand and residual systems activity which are in line with previous cost guidance, are expected to be incurred in 2019.
Finance costs were £13 million (2017: £39 million). The prior year includes the cost of interest and finance charges on the Group's borrowings from Old Mutual plc. As previously reported, these were converted into equity or repaid in February 2018.
Policyholder tax adjustments of £101 million in 2018 (2017: £17 million) relate to the removal of distortions arising from the decline in markets in the fourth quarter of 2018 that can, in turn, lead to volatility in the policyholder tax charge between periods.
Cash generation
Cash generation measures the proportion of adjusted profit that is recognised in the form of cash generated from operations.
Cash generated from operations is calculated by removing non-cash generative items from adjusted profit, such as deferrals required under IFRS to spread fee income and acquisition costs over the lives of the underlying contracts with customers. It is stated after deducting an allowance for net cash required to support the capital requirements generated by new business offset by a release of capital from the in-force book.
The Group (excluding the now disposed Single Strategy asset management business) achieved a cash generation rate of 88% of adjusted profit over 2018. This is ahead of the 80% conversion guidance provided at the time of IPO. The 2018 cash generation rate reflects improvements to the attribution of changes in capital requirements to underlying drivers such as new business and the capital released from the in-force book.
Review of Financial Position
Capital and liquidity
The Group aims to maintain a strong solvency and liquidity position through disciplined management of capital resources and risks. This is important given the security and peace of mind that it affords customers and advisers.
The Group maintains a disciplined approach to capital, in order to balance its current and anticipated liquidity, regulatory capital and investment needs, with a view to returning excess capital to shareholders as appropriate. As part of its disciplined approach to capital, the Group has a prudent capital management and liquidity policy.
On 28 February 2018, the Group fully drew down on a £300 million senior unsecured term loan facility with a number of relationship banks. This term loan was fully repaid on 29 June 2018 from the proceeds of the sale of the Single Strategy asset management business.
Also on 28 February 2018, the Group entered into a £125 million revolving credit facility, which remains undrawn, and issued a £200 million subordinated debt security. The subordinated debt security was issued in the form of a 10-year Tier 2 bond with a one-time issuer call option after five years to J.P. Morgan Securities plc, paying a semi-annual coupon of 4.478% per annum. The debt security is listed on the London Stock Exchange and has a Fitch instrument rating of BBB-. On 13 April 2018, the debt security was sold by J.P. Morgan Securities plc to traditional debt capital market investors. Including the amortisation of set-up costs, financing costs of approximately £10 million per year are incurred in respect of this security.
The subordinated debt security and the revolving credit facility are in place to ensure that the Group has sufficient capital and liquidity to maintain strong capital ratios and free cash balances to withstand severe but plausible stress scenarios. The full amount of the subordinated debt security remains outstanding as at 31 December 2018, representing a leverage ratio of 12% (defined as the ratio of debt to debt plus the consolidated IFRS equity after deducting intangible assets) before the payment of the recommended final dividend.
Solvency II
The Group Solvency II surplus is £1,058 million at 31 December 2018 (2017: £651 million), representing a Solvency II ratio of 190% (2017: 154%) calculated under the standard formula. The Solvency II information in this results disclosure has not been audited.
|
Group regulatory capital (£m) |
At |
At |
|
|
31 December |
31 December |
|
|
20181 |
20172 |
|
Own funds3 |
2,237 |
1,849 |
|
Solvency capital requirement ("SCR") |
1,179 |
1,198 |
|
Solvency II surplus |
1,058 |
651 |
|
Solvency II coverage ratio |
190% |
154% |
|
1Based on preliminary estimates. Formal annual filing due to the PRA by 3 June 2019. |
|
|
|
2As represented within the Annual 2017 Solvency II submission of the Old Mutual plc group, the group Quilter plc previously formed part of, to the Prudential Regulation Authority (PRA). Own funds include a £566 million subordinated loan from the parent company. This subordinated loan was effectively converted to equity during H1 2018, following the acquisition of the entity holding the loan. |
||
|
3Group own funds are stated after allowing for the impact of the recommended final dividend payment relating to 2018 of £61 million. |
||
The 36% increase in the Group Solvency II ratio is primarily due to corporate activity in the year with the two main contributors being the issuance of the Tier 2 bond in February 2018 as described above and the sale of Single Strategy asset management business in June 2018, partly offset by the special interim dividend paid to shareholders in September 2018 and the recommended final dividend payment relating to 2018.
The Board believes that the Group Solvency II surplus includes sufficient free cash and capital to complete all committed strategic investments (including the UK Platform Transformation Programme). The impact of this prudent policy is that Quilter expects to continue to maintain a solvency position in excess of its target in the near term.
Composition of qualifying Solvency II capital
The Group own funds for Solvency II purposes reflect the resources of the underlying businesses after excluding the recommended final dividend of £61 million. The Group 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.
|
Group own funds (£m) |
At |
|
|
31 December |
|
|
2018 |
|
Tier 11 |
2,036 |
|
Tier 22 |
201 |
|
Total Group Solvency II own funds |
2,237 |
|
1All Tier 1 capital is unrestricted for tiering purposes. |
|
|
2Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond, which was issued at £200 million in February 2018. |
|
The Group's Solvency Capital Requirements ("SCR") is covered by Tier 1 capital, which represents 173% of the Group SCR of £1,179 million. Tier 1 capital represents 91% of Group Solvency II own funds. Tier 2 capital represents 9% of Group Solvency II own funds and 19% of the Group surplus.
Net Asset Value ("NAV")
The NAV of the Group was £2.0 billion at 31 December 2018 (31 December 2017: £1.1 billion). The increase reflects the conversion of previous loans from Old Mutual plc into equity in February 2018, the increased resources following the gain of £292 million on the sale of the Single Strategy business and is after the £221 million special interim dividend paid in September 2018. The NAV at 31 December 2018 is stated before the recommended final dividend of £61 million.
Dividend
The Board has recommended a final dividend of 3.3 pence per share, in line with our dividend policy. A special interim dividend of 12.0 pence per share was paid on 21 September 2018, returning £221 million to shareholders from the surplus proceeds from the sale of the Single Strategy asset management business. Subject to shareholder approval, the recommended final dividend will be paid on 20 May 2019 to shareholders on the UK and South African share registers on 26 April 2019. For Shareholders on our South African share register a dividend of 61.92028 South African cents per share will be paid on 20 May 2019, using an exchange rate of 18.76372.
Return on Equity ("RoE")
Adjusted RoE for the period ended 31 December 2018, calculated as adjusted profit after tax divided by average equity, was 12.9%. This remained broadly stable with the adjusted RoE of 12.7% for the full year ended 31 December 2017 (after adjusting equity for the acquisition of Skandia UK Limited from Old Mutual plc as part of Managed Separation and equity allocated to the discontinued operations).
Holding company cash
The holding company cash statement includes cash flows generated by the three holding companies within the business: Quilter plc, Old Mutual Wealth Holdings Limited and Old Mutual Wealth UK Holding Limited. The flows associated with these companies will differ markedly from those disclosed in the statutory statement of cash flows, which comprises flows from the entire Quilter plc group.
The holding company cash statement illustrates cash received from the key trading entities within the business units together with other cash receipts, and cash paid out in respect of corporate costs and capital servicing (including interest and dividends). Other capital movements, including those in respect of acquisitions and disposals, together with funding to business units, are also included. It is an un-audited non-GAAP analysis and aims to give a more illustrative view of business cash flows as they relate to the Group's holding companies compared to the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7 which includes co-mingling of policyholder related flows.
|
£m |
|
|
2018 |
|
Opening cash at holding companies at 1 January |
|
|
36 |
|
|
|
|
|
|
Short-term loan and tier 2 bond proceeds |
|
|
500 |
|
Loans repaid to Old Mutual plc |
|
|
(200) |
|
Single Strategy asset management business sale - cash proceeds |
|
|
576 |
|
Short-term loan repayment |
|
|
(300) |
|
Costs of disposal and external financing fees |
|
|
(19) |
|
Special interim dividend |
|
|
(221) |
|
Net capital movements |
|
|
336 |
|
|
|
|
|
|
Managed Separation and Head Office costs |
|
|
(54) |
|
External debt interest |
|
|
(6) |
|
Net operational movements |
|
|
(60) |
|
|
|
|
|
|
Cash remittances from subsidiaries |
|
|
167 |
|
Net capital contributions and investments |
|
|
(65) |
|
Other |
|
|
2 |
|
Internal capital and strategic investments |
|
|
104 |
|
|
|
|
|
|
Closing cash at holding companies at 31 December |
|
|
416 |
Net capital movements
Net capital movements relate principally to transactions in respect of establishing a strong opening balance sheet in preparation for Listing. On 28 February 2018, borrowings totalling £500 million were incurred to ensure sufficient capital and liquidity to withstand severe but plausible stress scenarios. The borrowings consisted of a £200 million Tier 2 bond which raised £197 million net of external fees of £3 million (shown within the costs of disposal and external financing fees line above) and a £300 million senior unsecured term loan (plus external fees of £1 million) which was subsequently repaid.
The Single Strategy asset management business sale in June 2018 generated £576 million of cash proceeds (£15 million of costs incurred in relation to the sale are shown in the costs of disposal and external financing fees figure of £19 million) and includes a pre-completion dividend receipt of £36 million.
The main outflows relate to repayment of the £200 million loan from Old Mutual plc in February 2018 and repayment of the £300 million senior unsecured term loan following the sale of the Single Strategy business in June 2018. The £300 million senior unsecured term loan was required to bridge the period from Listing until such time as the cash consideration from the sale of the Single Strategy asset management business was received.
Following Managed Separation, a special interim dividend totalling £221 million was paid on 21 September 2018 to shareholders. This represented the net surplus proceeds from this disposal after the repayment of the outstanding £300 million senior unsecured term loan following the sale of the Single Strategy asset management business.
Net operational movements
Net operational movements for the holding companies of the Group were £60 million for the period. This was predominantly comprised of £54 million of corporate and transformation costs, which includes one-off Managed Separation and Listing costs and implementation costs for Optimisation. Interest paid of £6 million includes initial fees paid on the Tier 2 bond and establishment costs for the revolving credit facility. Interest on the Tier 2 bond is paid every six months in February and August each year.
Internal capital and strategic investments
The main inflow relates to cash remittances from the trading businesses totalling £167 million, partially offset by capital contributions of £47 million to support business unit operational activities, the Platform Transformation Programme, and to fund strategic acquisitions within Quilter Financial Planning and Quilter Private Client Advisers. The level of dividends paid to the holding companies is, where relevant, after funds have been set aside in those businesses for the Platform Transformation Programme and the voluntary client redress programme.
London property relocation
Due to the expiry of property leases in 2020 which are not able to be extended, we are planning to consolidate our London office requirements at a new location. We have a number of options under advanced consideration. The relocation will likely result in a one-off cash cost associated with the fit-out of the new premises later in 2019 and 2020, and in higher run-rate expenses which we will update the market on in due course.
Principal Risks and Uncertainties
The principal risks and uncertainties that could impact the Group are summarised below. As a UK based financial services firm, the implications and economic impact of several scenarios of the UK leaving the EU in relation to financial services will influence the degree to which these risks act upon Quilter, particularly with regards to strategy, market, legal and regulatory, and third party risks, including potential disruption to Quilter's business operations and supply chain. In addition, recent quarters have seen reduced levels of investor confidence and this could deteriorate further, potentially materially further, under various scenarios related to the UK leaving the EU. A Group-wide Brexit programme is in place to actively monitor these risks and a number of actions are already in place to mitigate any implications to our business and customers including for example, establishing a regulated asset management company in Ireland.
Strategic risks: The risk that the strategy is unsound due to poor decision making, incorrect information or assumptions, or that the activities supporting the delivery of the strategy are inadequate or poorly designed.
|
Strategy: If Quilter's strategy does not yield the anticipated benefits, for example, through inaccurate prediction of the type of products and the level of advice required by its target customer base or inability to price such products and services competitively, this may have a material adverse effect on the Group's business, financial condition, results of operations and prospects, and reputation. |
|
Reputation and brand: Quilter is dependent on the strength of its reputation and its brands, which are vulnerable to adverse market perception or negative publicity, and the Company may face challenges with regard to its ongoing rebranding initiative. |
|
Competitive pressure: Quilter's business is conducted in a competitive environment and, if Quilter is not successful in anticipating and responding to competitive change, adviser or customer preferences or demographic trends in a timely and cost-effective manner, its business, financial condition, results of operations and prospects could be materially adversely affected. |
|
People and culture: Quilter may fail to attract and retain talented advisers, investment managers, portfolio managers, senior management and other key employees. This would present a risk to the delivery of Quilter's overall strategy, in particular during this period of significant change across the Company. Additionally this could have a material adverse effect on Quilter's business, financial and operational performance, prospects, and reputation. |
Market risks: 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 risks: Quilter's results may be materially adversely affected by conditions in global capital markets, the global economy generally and the UK economy in particular that result in a decrease in the value of customer investment portfolios. The volatility and strength of debt and equity markets, the direction and pace of change of interest rates and inflation all affect the economic environment, investor confidence, our reputation and, ultimately, the volume and profitability of Quilter's business. |
Business risks: The risk that business initiatives supporting the delivery of the strategy are not implemented correctly or in full, or that the business performance fails to meet expectations across one or more key deliverables, resulting in an adverse impact to the Company's business plan objectives.
|
Conduct risk: is the risk that decisions and behaviours made by Quilter, its employees, its advisers and appointed representatives lead to customers being treated unfairly or otherwise result in detrimental customer outcomes and damage to our reputation. Conduct risk may arise where Quilter fails to design, implement or adhere to appropriate policies and procedures, offer products, services or other propositions that do not meet the needs of customers or fails to perform in accordance with its intended design, fails to communicate appropriately with customers, fails to deal with complaints effectively, sells or recommends unsuitable products or solutions to customers, fails to provide them with adequate information to make informed decisions or provide unsuitable investment for financial planning advice to customers, or fails to do any of the foregoing on an ongoing basis after initial sales, amongst other things. This risk may also arise as a result of employee (mis)conduct. |
|
Conflicts of interest: Quilter faces significant potential and actual conflicts of interest, including those which result from Quilter's advised distribution channel. If the Company fails to manage conflicts of interest between its advice channel and other businesses across the Company, it could result in reputational damage, regulatory liability or customer restitution, which could have a material adverse impact on Quilter's business, financial condition, results of operations and prospects, and reputation. |
|
Investment performance: An important factor in Quilter's ability to maintain and grow its customer base and its network of advisers is the investment performance of the customer assets that Quilter manages. Actual or perceived underperformance of customer assets that are managed by Quilter could have a material adverse effect on Quilter's business, financial condition, results of operations, prospects and reputation. |
Insurance risks: The risk of a reduction in Own Funds from adverse experience or change in assumptions relating to claims, policyholder behaviours, mortality, morbidity, longevity or expenses, resulting in an adverse impact to earnings or reduced solvency.
|
Insurance risks: Quilter has exposure to mortality risk (risk of higher than expected rate of death claims on life protection business) and morbidity risk (risk of higher than expected rate of claims on critical illness protection business) from its life assurance business, which issues policies that carry certain guaranteed benefits upon the death, or defined illness, of the policyholder. These risks could be aggravated by any potential failure in underwriting processes and controls designed to identify sub-standard lives at the new business stage. |
Operational risks: The risk of loss (or unintended gain/profit) arising from inadequate or failed internal processes, or from personnel and systems, or from external events (other than financial or business environment risks), resulting in an adverse impact to earnings or reduced solvency.
|
Adviser and customer proposition: Failure by Quilter to offer products, services and platforms that meet adviser and customer needs and which are considered suitable could result in advisers ceasing to recommend Quilter's products or services, or recommending fewer of Quilter's products or services, and declining persistency of Quilter's products. The asset classes or investment strategies underlying the portfolios managed by Quilter may become less attractive to customers or their advisers, which could reduce demand for Quilter's products and have a material adverse impact on Quilter's business, financial condition, results of operations and prospects, and reputation. |
|
Information technology: Quilter uses computer systems to conduct its business, which involves managing and administering assets on behalf of customers in its wealth portfolios and on its platforms. Quilter's business is highly dependent on its ability to access these systems to perform necessary business functions and to provide adviser and customer support, administer products, make changes to existing policies, file and pay claims, manage customer's investment portfolios and produce financial statements and regulatory returns. Failure to manage this risk could have a material adverse impact on Quilter's business, financial condition, results of operations and prospects, and reputation. |
|
Data, information and cyber-threats: Quilter's business, by its nature, requires it to store, retrieve, evaluate and utilise customer and company data and information, which is highly sensitive. Quilter is subject to the risk of IT security breaches from parties with criminal or malicious intent (including cyber-crime). Should Quilter's intrusion detection and anti-penetration software not anticipate, prevent or mitigate a network failure or disruption, or should an incident occur to a system for which there is no duplication, it may have a material adverse effect on Quilter's customers, business, financial condition, results of operations and prospects, and reputation. |
|
Third party: Quilter outsources and procures certain functions and services to third parties and may increase its use of outsourcing in the future. If Quilter does not effectively develop and implement its outsourcing strategies and its internal capability to manage such strategies, third party providers do not perform as anticipated, or Quilter experiences technological or other problems with a transition, it may not realise productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and loss of business, and damage to its reputation. |
Legal and regulatory: The risk of failing to comply with existing or new regulatory and legislative requirements including standards, principles and practices, or an increased level of regulatory intervention resulting in sanctions or a capital add-on being imposed or a temporary restriction on our ability to operate.
|
Legal and regulatory: Quilter's regulated businesses are subject to extensive regulation both in the UK (by the Prudential Regulatory Authority ("PRA") and the Financial Conduct Authority ("FCA") and internationally, and Quilter faces risks associated with compliance with these regulations. Quilter's businesses are subject to the risk of adverse changes in laws, regulations and regulatory requirements in the markets in which they operate. Regulatory reform initiatives could also lead to increased compliance costs or other adverse consequences for firms within the financial services industry, including Quilter. Failure to manage these risks could have a material adverse impact on Quilter's business, financial condition, results of operations and prospects, and reputation. |
|
Financial crime: Quilter is required to comply with all applicable financial crime laws and regulations (anti-money laundering, anti-terrorism, sanctions, anti-fraud, anti-bribery and corruption and insider dealing) in the jurisdictions in which it operates. Where Quilter is unable to comply with applicable laws, regulations and expectations, regulators and relevant law enforcement agencies have the ability and authority to impose significant fines and other penalties, including requiring a complete review of business systems, day-to-day supervision by external consultants and ultimately the revocation of regulatory authorisations and licences. Failure to manage these risks could have a material adverse impact on Quilter's business, financial condition, results of operations and prospects, and reputation. |
Shareholder Information
The Quilter Board has agreed to recommend to shareholders the payment of a final dividend of 3.3 pence per share. This will be considered at the first Quilter plc Annual General Meeting, which will be held on Thursday 16 May 2019. The final dividend will be paid on Monday 20 May 2019 to shareholders on the UK and South African share registers on Friday 26 April 2019.
Dividend timetable
Dividend announcement in pounds sterling with South Africa ZAR Equivalent |
Tuesday 12 March 2019 |
Last day to trade cum dividend in South Africa |
Tuesday 23 April 2019 |
Shares trade ex-dividend in South Africa |
Wednesday 24 April 2019 |
Shares trade ex-dividend in the UK |
Thursday 25 April 2019 |
Record Date in UK and South Africa |
Friday 26 April 2019 |
Annual General Meeting |
Thursday 16 May 2019 |
Payment date |
Monday 20 May 2019 |
From the opening of trading on Tuesday 12 March 2019 until the close of business on Friday 26 April 2019, no transfers between the London and Johannesburg registers will be permitted. Share certificates for shareholders on the South African register may not be dematerialised or rematerialised between Wednesday 24 and Friday 26 April 2019, both dates inclusive.
Additional information
For Shareholders on our South African share register a dividend of 61.92028 cents per share will be paid on Monday 20 May 2019 to shareholders, based on an exchange rate of 18.76372. Dividend Tax will be withheld at the rate of 20% from the amount of the gross dividend of 61.92028 South African cents per share paid to South African shareholders unless a shareholder qualifies for exemption. After the Dividend Tax has been withheld, the net dividend will be 49.53622 South African cents per share. The Company had a total of 1,902,251,098 shares in issue at today's date.
If you are uncertain as to the tax treatment of any dividends you should consult your own tax advisor.
Odd-lot Offer
As part of our drive for greater efficiency and in line with our desire to act in the best interests of all our shareholders, we intend to undertake an Odd-lot Offer, subject to shareholder and other requisite approvals. An Odd-lot Offer entails Quilter making an offer to eligible shareholders (holders of less than 100 shares) to repurchase their shares at a modest premium to the market price.
The proposed Odd-lot Offer will reduce the complexity and cost to Quilter of managing our shareholder base and will allow investors holding small numbers of shares to dispose of their holdings in a timely and cost effective manner. Eligible shareholders can, of course, elect to retain their shareholding in Quilter, if they so choose. Further information will be provided to eligible shareholders in due course.
Supplementary Information
For the year ended 31 December 2018
1. Key financial data
|
Gross sales (£bn) |
2018 |
Change (FY-18 vs FY-17) |
|
2017 |
||||||||
|
|
Q1 |
Q2 |
Q3 |
Q4 |
FY |
% |
|
Q1 |
Q2 |
Q3 |
Q4 |
FY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter Investors |
1.6 |
1.5 |
1.3 |
1.1 |
5.5 |
4% |
|
1.2 |
1.3 |
1.4 |
1.4 |
5.3 |
|
Quilter Cheviot |
0.8 |
0.6 |
0.5 |
0.6 |
2.5 |
(11%) |
|
0.7 |
0.8 |
0.7 |
0.6 |
2.8 |
|
Advice & Wealth Management |
2.4 |
2.1 |
1.8 |
1.7 |
8.0 |
(1%) |
|
1.9 |
2.1 |
2.1 |
2.0 |
8.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter Wealth Solutions |
2.3 |
2.0 |
1.8 |
1.6 |
7.7 |
(13%) |
|
2.2 |
2.2 |
2.3 |
2.2 |
8.9 |
|
Quilter International |
0.5 |
0.4 |
0.4 |
0.5 |
1.8 |
(36%) |
|
0.5 |
0.6 |
0.4 |
1.3 |
2.8 |
|
Quilter Life Assurance |
0.2 |
0.1 |
0.1 |
0.2 |
0.6 |
(45%) |
|
0.4 |
0.4 |
0.2 |
0.1 |
1.1 |
|
Wealth Platforms |
3.0 |
2.5 |
2.3 |
2.3 |
10.1 |
(21%) |
|
3.1 |
3.2 |
2.9 |
3.6 |
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of intra-Group items |
(1.0) |
(0.9) |
(0.7) |
(0.8) |
(3.4) |
6% |
|
(0.8) |
(0.9) |
(0.9) |
(1.0) |
(3.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter plc |
4.4 |
3.7 |
3.4 |
3.2 |
14.7 |
(15%) |
|
4.2 |
4.4 |
4.1 |
4.6 |
17.3 |
|
NCCF (£bn) |
2018 |
% of Opening AuMA |
|
2017 |
||||||||||||||||||||||||
|
|
Q1 |
Q2 |
Q3 |
Q4 |
FY |
|
Q1 |
Q2 |
Q3 |
Q4 |
FY |
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Quilter Investors |
1.0 |
0.8 |
0.5 |
0.5 |
2.8 |
17% |
|
0.7 |
0.8 |
0.9 |
0.9 |
3.3 |
||||||||||||||||
|
Quilter Cheviot |
0.3 |
0.2 |
0.1 |
0.1 |
0.7 |
3% |
|
0.2 |
0.4 |
0.4 |
0.1 |
1.1 |
||||||||||||||||
|
Advice & Wealth Management |
1.3 |
1.0 |
0.6 |
0.6 |
3.5 |
8% |
|
0.9 |
1.2 |
1.3 |
1.0 |
4.4 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Quilter Wealth Solutions |
1.3 |
0.8 |
0.6 |
0.4 |
3.1 |
6% |
|
1.0 |
1.1 |
1.2 |
1.2 |
4.5 |
||||||||||||||||
|
Quilter International |
0.1 |
- |
- |
0.2 |
0.3 |
2% |
|
0.2 |
0.2 |
0.2 |
0.8 |
1.4 |
||||||||||||||||
|
Quilter Life Assurance |
(0.5) |
(0.5) |
(0.5) |
(0.8) |
(2.3) |
(15%) |
|
(0.3) |
(0.2) |
(0.7) |
(0.4) |
(1.6) |
||||||||||||||||
|
Wealth Platforms |
0.9 |
0.3 |
0.1 |
(0.2) |
1.1 |
1% |
|
0.9 |
1.1 |
0.7 |
1.6 |
4.3 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Elimination of intra-Group items |
(0.6) |
(0.7) |
(0.2) |
(0.4) |
(1.9) |
|
|
(0.4) |
(0.5) |
(0.7) |
(0.8) |
(2.4) |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Quilter plc |
1.6 |
0.6 |
0.5 |
- |
2.7 |
2% |
|
1.4 |
1.8 |
1.3 |
1.8 |
6.3 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Quilter plc (excl. Quilter Life Assurance) |
2.0 |
1.0 |
1.1 |
0.6 |
4.7 |
5% |
|
1.5 |
1.9 |
1.9 |
2.3 |
7.6 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Integrated flows (excl. Quilter Life Assurance) |
1.5 |
1.3 |
0.9 |
1.0 |
4.7 |
|
|
1.1 |
1.3 |
1.4 |
1.4 |
5.2 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
AuMA (£bn) |
2018 |
Change (FY-18 vs FY-17) |
|
2017 |
||||||||||||||||||||||||
|
|
Q1 |
H1 |
Q3 |
FY |
% |
|
Q1 |
H1 |
Q3 |
FY |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Quilter Investors |
17.1 |
18.4 |
18.8 |
17.8 |
5% |
|
13.1 |
14.1 |
15.3 |
16.9 |
||||||||||||||||||
|
Quilter Cheviot |
22.8 |
24.1 |
24.4 |
22.4 |
(5%) |
|
21.8 |
22.5 |
23.0 |
23.6 |
||||||||||||||||||
|
Quilter Financial Planning |
1.2 |
1.2 |
1.1 |
1.0 |
(17%) |
|
- |
1.2 |
1.2 |
1.2 |
||||||||||||||||||
|
Advice & Wealth Management |
41.1 |
43.7 |
44.3 |
41.2 |
(1%) |
|
34.9 |
37.8 |
39.5 |
41.7 |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Quilter Wealth Solutions |
49.7 |
52.3 |
53.4 |
49.9 |
(1%) |
|
44.0 |
45.9 |
47.6 |
50.2 |
||||||||||||||||||
|
Quilter International |
18.6 |
19.2 |
19.6 |
18.4 |
(5%) |
|
17.5 |
17.8 |
18.0 |
19.3 |
||||||||||||||||||
|
Quilter Life Assurance |
14.4 |
14.5 |
14.0 |
12.4 |
(19%) |
|
16.0 |
15.6 |
15.1 |
15.3 |
||||||||||||||||||
|
Wealth Platforms |
82.7 |
86.0 |
87.0 |
80.7 |
(5%) |
|
77.5 |
79.3 |
80.7 |
84.8 |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Elimination of intra-Group assets |
(12.2) |
(13.2) |
(13.2) |
(12.6) |
(4%) |
|
(9.1) |
(9.8) |
(10.6) |
(12.1) |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Quilter plc |
111.6 |
116.5 |
118.1 |
109.3 |
(4%) |
|
103.3 |
107.3 |
109.6 |
114.4 |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Quilter plc (excl. Quilter Life Assurance)1 |
|
|
|
99.3 |
(2%) |
|
|
|
|
101.7 |
||||||||||||||||||
|
1Opening AuMA excluding Quilter Life Assurance in 2017 was £85.2 billion |
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
YTD Gross flows, net flows and AuMA (£bn) |
|
|
|
|
|
|
||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
|
AuMA as at 31 December 2017 |
Gross sales |
Gross outflows |
Net flows |
Market and other movements |
AuMA as at 31 December 2018 |
||||||||||||||||||||||
|
Quilter Investors |
16.9 |
5.5 |
(2.7) |
2.8 |
(1.9) |
17.8 |
||||||||||||||||||||||
|
Quilter Cheviot |
23.6 |
2.5 |
(1.8) |
0.7 |
(1.9) |
22.4 |
||||||||||||||||||||||
|
Quilter Financial Planning |
1.2 |
- |
- |
- |
(0.2) |
1.0 |
||||||||||||||||||||||
|
Advice & Wealth Management |
41.7 |
8.0 |
(4.5) |
3.5 |
(4.0) |
41.2 |
||||||||||||||||||||||
|
Quilter Wealth Solutions |
50.2 |
7.7 |
(4.6) |
3.1 |
(3.4) |
49.9 |
||||||||||||||||||||||
|
Quilter International |
19.3 |
1.8 |
(1.5) |
0.3 |
(1.2) |
18.4 |
||||||||||||||||||||||
|
Quilter Life Assurance |
15.3 |
0.6 |
(2.9) |
(2.3) |
(0.6) |
12.4 |
||||||||||||||||||||||
|
Wealth Platforms |
84.8 |
10.1 |
(9.0) |
1.1 |
(5.2) |
80.7 |
||||||||||||||||||||||
|
Elimination of intra-group assets |
(12.1) |
(3.4) |
1.5 |
(1.9) |
1.4 |
(12.6) |
||||||||||||||||||||||
|
Quilter plc |
114.4 |
14.7 |
(12.0) |
2.7 |
(7.8) |
109.3 |
||||||||||||||||||||||
|
|
AuMA as at 31 December 2016 |
Gross sales |
Gross outflows |
Net flows |
Market and other movements |
AuMA as at 31 December 2017 |
||||||||||||||||||||||
|
Quilter Investors |
12.1 |
5.3 |
(2.0) |
3.3 |
1.5 |
16.9 |
||||||||||||||||||||||
|
Quilter Cheviot |
20.7 |
2.8 |
(1.7) |
1.1 |
1.8 |
23.6 |
||||||||||||||||||||||
|
Quilter Financial Planning |
- |
- |
- |
- |
1.2 |
1.2 |
||||||||||||||||||||||
|
Advice & Wealth Management |
32.8 |
8.1 |
(3.7) |
4.4 |
4.5 |
41.7 |
||||||||||||||||||||||
|
Quilter Wealth Solutions |
41.4 |
8.9 |
(4.4) |
4.5 |
4.3 |
50.2 |
||||||||||||||||||||||
|
Quilter International |
16.9 |
2.8 |
(1.4) |
1.4 |
1.0 |
19.3 |
||||||||||||||||||||||
|
Quilter Life Assurance |
15.5 |
1.1 |
(2.7) |
(1.6) |
1.4 |
15.3 |
||||||||||||||||||||||
|
Wealth Platforms |
73.8 |
12.8 |
(8.5) |
4.3 |
6.7 |
84.8 |
||||||||||||||||||||||
|
Elimination of intra-group assets |
(8.4) |
(3.6) |
1.2 |
(2.4) |
(1.3) |
(12.1) |
||||||||||||||||||||||
|
Quilter plc |
98.2 |
17.3 |
(11.0) |
6.3 |
9.9 |
114.4 |
||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Estimated asset allocation (%) (unaudited) |
2018 |
2017 |
||||||||||||||||||||||||||
|
Fund profile by investment type1 |
Total Client AuMA |
Total Client AuMA |
||||||||||||||||||||||||||
|
Quilter |
|
|
||||||||||||||||||||||||||
|
Fixed Interest |
25% |
23% |
||||||||||||||||||||||||||
|
Equities |
65% |
66% |
||||||||||||||||||||||||||
|
Cash |
5% |
5% |
||||||||||||||||||||||||||
|
Property and Alternatives |
5% |
6% |
||||||||||||||||||||||||||
|
Total |
100% |
100% |
||||||||||||||||||||||||||
|
Retail |
97% |
96% |
||||||||||||||||||||||||||
|
Institutional |
3% |
4% |
||||||||||||||||||||||||||
|
Total |
100% |
100% |
||||||||||||||||||||||||||
|
1Other Shareholder assets of £2.1 billion in 2018 (2017: £1.8 billion) are predominately invested in fixed interest and cash. |
||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (£m) 2018 |
Quilter Investors |
Quilter Cheviot |
Quilter Financial Planning |
Advice & Wealth Management |
Quilter Wealth Solutions |
Quilter International |
Quilter Life Assurance |
Wealth Platforms |
Head Office |
|
|
Net management fee |
106 |
168 |
2 |
276 |
168 |
112 |
91 |
371 |
- |
|
|
Other revenue |
3 |
7 |
87 |
97 |
2 |
23 |
18 |
43 |
1 |
|
|
Total fee revenue |
109 |
175 |
89 |
373 |
170 |
135 |
109 |
414 |
1 |
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (£m) 2017 |
Quilter Investors |
Quilter Cheviot |
Quilter Financial Planning |
Advice & Wealth Management |
Quilter Wealth Solutions |
Quilter International |
Quilter Life Assurance |
Wealth Platforms |
Head Office |
Group |
|
Net management fee |
73 |
160 |
1 |
234 |
156 |
112 |
89 |
357 |
- |
591 |
|
Other revenue |
2 |
3 |
77 |
82 |
5 |
17 |
32 |
54 |
1 |
137 |
|
Total fee revenue |
75 |
163 |
78 |
316 |
161 |
129 |
121 |
411 |
1 |
728 |
|
|
|
|
||||||||
2. Advice & Wealth Management
The following table presents certain key financial metrics utilised by management with respect to the business units of the Advice & Wealth Management segment, for the periods indicated.
|
Key financial highlights |
2018 |
2017 |
% change |
|
|
|
|
|
|
Quilter Financial Planning |
|
|
|
|
Net management fee |
2 |
1 |
100% |
|
Other revenue |
87 |
77 |
13% |
|
Total fee revenue |
89 |
78 |
14% |
|
|
|
|
|
|
RFPs + PCA (#) |
1,621 |
1,561 |
4% |
|
Productivity (£m) |
1.7 |
1.8 |
(6%) |
|
|
|
|
|
|
Quilter Investors |
|
|
|
|
Net management fee |
106 |
73 |
45% |
|
Other revenue |
3 |
2 |
50% |
|
Total fee revenue |
109 |
75 |
45% |
|
|
|
|
|
|
NCCF (£bn) |
2.8 |
3.3 |
(15%) |
|
Closing AuM (£bn) |
17.8 |
16.9 |
5% |
|
Average AuM (£bn) |
17.9 |
14.2 |
26% |
|
Revenue margin (bps) |
59 |
51 |
8 bps |
|
|
|
|
|
|
Quilter Cheviot |
|
|
|
|
Net management fee |
168 |
160 |
5% |
|
Other revenue |
7 |
3 |
133% |
|
Total fee revenue |
175 |
163 |
7% |
|
|
|
|
|
|
NCCF (£bn) |
0.7 |
1.1 |
(36%) |
|
Closing AuM (£bn) |
22.4 |
23.6 |
(5%) |
|
Average AuM (£bn) |
23.6 |
22.2 |
6% |
|
Revenue margin (bps) |
72 |
72 |
- |
|
Asset retention (%) |
92% |
92% |
- |
|
Investment managers (#) |
155 |
164 |
(5%) |
3. Wealth Platforms
The following table presents certain key financial metrics utilised by management with respect to the business units of the Wealth Platforms segment, for the periods indicated.
|
Key financial highlights |
2018 |
2017 |
% change |
|
|
|
|
|
|
Quilter Wealth Solutions |
|
|
|
|
Net management fee |
168 |
156 |
8% |
|
Other revenue |
2 |
5 |
(60%) |
|
Total fee revenue |
170 |
161 |
6% |
|
|
|
|
|
|
NCCF (£bn) |
3.1 |
4.5 |
(31%) |
|
Closing AuA (£bn) |
49.9 |
50.2 |
(1%) |
|
Average AuA (£bn) |
51.5 |
45.5 |
13% |
|
Revenue margin (bps) |
32 |
33 |
(1) bps |
|
Asset retention (%) |
91% |
90% |
1 pp |
|
|
|
|
|
|
Quilter International |
|
|
|
|
Net management fee |
112 |
112 |
- |
|
Other revenue |
23 |
17 |
35% |
|
Total fee revenue |
135 |
129 |
5% |
|
|
|
|
|
|
NCCF (£bn) |
0.3 |
1.4 |
(79%) |
|
Closing AuA (£bn) |
18.4 |
19.3 |
(5%) |
|
Average AuA (£bn) |
19.1 |
17.7 |
8% |
|
Revenue margin (bps) |
59 |
63 |
(4) bps |
|
% premium-based charging (%) |
57% |
54% |
3 pp |
|
Asset retention (%) |
92% |
91% |
1 pp |
|
|
|
|
|
|
Quilter Life Assurance |
|
|
|
|
Net management fee |
91 |
89 |
2% |
|
Other revenue |
18 |
32 |
(44%) |
|
Total fee revenue |
109 |
121 |
(10%) |
|
|
|
|
|
|
Adjusted profit before tax |
57 |
66 |
(14%) |
|
NCCF (£bn) |
(2.3) |
(1.6) |
(44%) |
|
Closing AuA (£bn) |
12.4 |
15.3 |
(19%) |
|
- including closing AuA - Institutional (£bn) |
3.4 |
4.9 |
(31%) |
|
Average AuA (£bn) |
14.3 |
14.9 |
(4%) |
|
Revenue margin (bps) |
69 |
60 |
9 bps |
|
Asset retention (%) |
81% |
82% |
(1) pp |
|
MCEV (£m) |
536 |
498 |
8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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