Quilter plc 2023 Half Year Results - Part 2
Statement of Directors' responsibilities in respect of the interim financial statements
For the period ended 30 June 2023
Each of the Directors of Quilter plc confirms to the best of their knowledge and belief that:
· The condensed consolidated interim financial statements, which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of financial position, the consolidated statement of cash flows and the related explanatory notes, has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the United Kingdom and gives a true and fair view of the assets, liabilities, financial position and profits of the Group for the period ended 30 June 2023. These interim financials have been prepared and published in compliance with the acceptable accounting frameworks of the London Stock Exchange ("LSE"), where the Company has its primary listing.
· The interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year, and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Group during that period, and any changes in the related party transactions described in the Group's 2022 Annual Report that could do so.
Consistent with principle N of the UK Corporate Governance Code, the results for the six months ended 30 June 2023 taken as a whole, present a fair, balanced and understandable assessment of the Company's position and prospects.
Quilter plc is listed with a primary listing on the LSE and a secondary listing on the Johannesburg Stock Exchange ("JSE").
A list of the current Directors is maintained on the Group's website: https://plc.quilter.com/about-us/quilter-leadership/.
Signed on behalf of the Board
Steven Levin Mark Satchel
Chief Executive Officer Chief Financial Officer
7 August 2023 7 August 2023
Independent review report to Quilter plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Quilter plc's condensed consolidated interim financial statements (the "interim financial statements") in the interim results of Quilter plc for the 6 month period ended 30 June 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK‑adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
· the Condensed consolidated statement of financial position as at 30 June 2023;
· the Condensed consolidated income statement and Condensed consolidated statement of comprehensive income for the period then ended;
· the Condensed consolidated statement of cash flows for the period then ended;
· the Condensed consolidated statement of changes in equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results of Quilter plc have been prepared in accordance with UK‑adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the Directors have inappropriately adopted the going concern basis of accounting or that the Directors have identified material uncertainties relating to going concern that are not appropriately disclosed. This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the Group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The interim results, including the interim financial statements, are the responsibility of, and have been approved by the Directors. The Directors are responsible for preparing the interim results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. In preparing the interim results, including the interim financial statements, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial statements in the interim results based on our review. Our conclusion, including our Conclusions relating to going concern, is based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion section of this report. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
7 August 2023
|
Condensed consolidated income statement |
||||
|
For the period ended 30 June 2023 |
|
|
|
|
|
|
|
|
|
£m |
|
|
Notes |
Six months 2023 |
Six months 2022 |
Full year 2022 |
|
Income |
|
|
|
|
|
Fee income and other income from service activities |
6(b) |
277 |
292 |
581 |
|
Investment return |
|
1,302 |
(5,326) |
(4,649) |
|
Other income |
|
2 |
21 |
28 |
|
Total income |
|
1,581 |
(5,013) |
(4,040) |
|
Expenses |
|
|
|
|
|
Change in investment contract liabilities |
17 |
(1,018) |
4,825 |
4,318 |
|
Fee and commission expenses, and other acquisition costs |
|
(25) |
(26) |
(54) |
|
Change in third-party interests in consolidated funds |
|
(202) |
555 |
438 |
|
Other operating and administrative expenses |
|
(297) |
(297) |
(584) |
|
Finance costs |
|
(11) |
(7) |
(13) |
|
Total expenses |
|
(1,553) |
5,050 |
4,105 |
|
Profit before tax from continuing operations |
|
28 |
37 |
65 |
|
Tax (expense)/credit attributable to policyholder returns |
7 |
(21) |
145 |
134 |
|
Profit before tax attributable to equity holders from continuing operations |
|
7 |
182 |
199 |
|
Income tax (expense)/credit |
7 |
(23) |
114 |
110 |
|
Less: tax expense/(credit) attributable to policyholder returns |
|
21 |
(145) |
(134) |
|
Tax expense attributable to equity holders |
|
(2) |
(31) |
(24) |
|
Profit after tax from continuing operations |
|
5 |
151 |
175 |
|
Loss after tax from discontinued operations |
4(b) |
- |
(1) |
- |
|
Profit after tax |
|
5 |
150 |
175 |
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
Equity holders of Quilter plc |
|
5 |
150 |
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Ordinary Share on profit attributable to Ordinary Shareholders of Quilter plc1 |
|
|
|
|
|
Basic earnings per Ordinary Share (pence) |
8(b) |
0.4 |
9.8 |
12.2 |
|
Diluted earnings per Ordinary Share (pence) |
8(b) |
0.4 |
9.7 |
12.0 |
1The Financial Reporting Council ("FRC") published a thematic review on earnings per share in September 2022. The EPS figures presented above for the six months to 30 June 2022 and the year to 31 December 2022 were calculated using the weighted average number of shares which was determined without making any retrospective adjustment for the impact of the Share Consolidation completed in May 2022 in line with the FRC's guidance and IAS 33 Earnings per Share. In the Group's interim financial statements for the six months to 30 June 2022, the disclosed EPS metrics for June 2022 were calculated using a weighted average number of shares which allowed for a retrospective adjustment for the impact of the May 2022 Share Consolidation. The June 2022 EPS metrics shown above were corrected following the FRC thematic review.
|
Condensed consolidated statement of comprehensive income |
||||
|
For the period ended 30 June 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
Note |
Six months 2023 |
Six months 2022 |
Full year 2022 |
|
Profit after tax |
|
5 |
150 |
175 |
|
Total comprehensive income |
|
5 |
150 |
175 |
|
Attributable to: |
|
|
|
|
|
Continuing operations |
|
5 |
151 |
175 |
|
Discontinued operations |
4(b) |
- |
(1) |
- |
|
Equity holders of Quilter plc |
|
5 |
150 |
175 |
|
Condensed consolidated statement of changes in equity |
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|
For the period ended 30 June 2023 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
Notes |
Ordinary Share capital |
Ordinary Share premium reserve |
B shares |
Capital redemption reserve |
Merger reserve |
Share-based payments reserve |
Other reserves |
Retained earnings |
Total share- holders' equity |
|
Balance at 1 January 2022 |
|
116 |
58 |
- |
17 |
25 |
42 |
(1) |
1,482 |
1,739 |
|
Profit after tax |
|
- |
- |
- |
- |
- |
- |
- |
150 |
150 |
|
Total comprehensive income |
|
- |
- |
- |
- |
- |
- |
- |
150 |
150 |
|
Dividends |
9 |
- |
- |
- |
- |
- |
- |
- |
(62) |
(62) |
|
Ordinary Shares repurchased in the buyback programme1 |
16 |
(1) |
- |
- |
1 |
- |
- |
- |
- |
- |
|
Issue of B shares2 |
16 |
- |
- |
328 |
- |
(25) |
- |
- |
(303) |
- |
|
Redemption of B shares2 |
16 |
- |
- |
(328) |
328 |
- |
- |
- |
(328) |
(328) |
|
Exchange rate movement (ZAR/GBP)3 |
|
- |
- |
- |
- |
- |
- |
- |
(4) |
(4) |
|
Movement in own shares |
|
- |
- |
- |
- |
- |
- |
- |
19 |
19 |
|
Equity share-based payment transactions |
|
- |
- |
- |
- |
- |
(8) |
- |
19 |
11 |
|
Aggregate tax effects of items recognised directly in equity |
|
- |
- |
- |
- |
- |
(2) |
- |
- |
(2) |
|
Total transactions with the owners of the Company |
(1) |
- |
- |
329 |
(25) |
(10) |
- |
(659) |
(366) |
|
|
Balance at 30 June 2022 |
|
115 |
58 |
- |
346 |
- |
32 |
(1) |
973 |
1,523 |
|
Profit after tax |
|
- |
- |
- |
- |
- |
- |
- |
25 |
25 |
|
Total comprehensive income |
- |
- |
- |
- |
- |
- |
- |
25 |
25 |
|
|
Dividends |
9 |
- |
- |
- |
- |
- |
- |
- |
(16) |
(16) |
|
Movement in own shares |
|
- |
- |
- |
- |
- |
- |
- |
3 |
3 |
|
Equity share-based payment transactions |
|
- |
- |
- |
- |
- |
9 |
- |
4 |
13 |
|
Total transactions with the owners of the Company |
- |
- |
- |
- |
- |
9 |
- |
(9) |
- |
|
|
Balance at 31 December 2022 |
|
115 |
58 |
- |
346 |
- |
41 |
(1) |
989 |
1,548 |
|
Profit after tax |
|
- |
- |
- |
- |
- |
- |
- |
5 |
5 |
|
Total comprehensive income |
|
- |
- |
- |
- |
- |
- |
- |
5 |
5 |
|
Dividends |
9 |
- |
- |
- |
- |
- |
- |
- |
(45) |
(45) |
|
Exchange rate movement (ZAR/GBP)3 |
|
- |
- |
- |
- |
- |
- |
- |
2 |
2 |
|
Movement in own shares |
|
- |
- |
- |
- |
- |
- |
- |
(13) |
(13) |
|
Equity share-based payment transactions |
|
- |
- |
- |
- |
- |
(9) |
- |
17 |
8 |
|
Total transactions with the owners of the Company |
- |
- |
- |
- |
- |
(9) |
- |
(39) |
(48) |
|
|
Transfer to retained earnings |
|
- |
- |
- |
- |
- |
- |
1 |
(1) |
- |
|
Balance at 30 June 2023 |
|
115 |
58 |
- |
346 |
- |
32 |
- |
954 |
1,505 |
1On 11 March 2020, the Company announced a share buyback programme to purchase Ordinary Shares up to a maximum value of £375 million, in order to return the net surplus proceeds to shareholders arising from the sale of Quilter Life Assurance which reduced the share capital of the Company. During the year ending 31 December 2022, the Company acquired 17.7 million shares for a total consideration of £26 million and incurred additional costs of £1 million. The Company had committed to the buyback of these shares during the year to 31 December 2021 and had recognised an accrual for £26 million as at 31 December 2021. This was the final tranche of the share buyback programme and was completed in January 2022. The shares, which have a nominal value of £1 million, were cancelled in the six months ending 30 June 2022, giving rise to a capital redemption reserve of the same value as required by the Companies Act 2006.
2On 9 March 2022, the Company announced a capital return of £328 million from the net surplus proceeds arising from the sale of Quilter International by way of a B Share Scheme accompanied by a Share Consolidation. Refer to note 4 in the Group's 2022 Annual Report for further details of the capital return and Share Consolidation. Following the issue and redemption of the B preference shares as part of the B Share Scheme, the Company transferred £328 million from retained earnings to the capital redemption reserve, as required under the provisions of sections 688 and 733 of the Companies Act 2006, being an amount equal to the nominal value of the B shares redeemed in the year. The increase in the capital redemption reserve results from the UK company law requirement to maintain the Company's capital when shares are redeemed out of the Company's distributable profits.
3The South African Rand value of the proposed capital return for shares registered on the Johannesburg Stock Exchange was set on 9 March 2022. The impact of exchange rate movements between the year-end Market Announcement on 9 March 2022 and the redemption of the B shares on 24 May 2022 on the pound sterling equivalent of payments to JSE shareholders in South African Rand is recognised directly in equity. Additionally, the impact of exchange rate movements between the announcement dates of dividends payable and the payment dates on the pound sterling equivalent of payments to JSE shareholders in South African Rand are recognised directly in equity. The Group held cash in South African Rand equal to the expected cash outflows and therefore was economically hedged for the outflows.
|
Condensed consolidated statement of financial position |
||||
|
At 30 June 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
Notes |
30 June 2023 |
30 June 2022 |
31 December 2022 |
|
Assets |
|
|
|
|
|
Goodwill and intangible assets |
10 |
391 |
433 |
413 |
|
Property, plant and equipment |
|
97 |
117 |
112 |
|
Investment property |
11 |
10 |
- |
- |
|
Investments in associated undertakings |
|
2 |
1 |
1 |
|
Contract costs |
|
10 |
10 |
10 |
|
Loans and advances |
|
40 |
34 |
34 |
|
Financial investments |
12 |
45,506 |
42,106 |
43,617 |
|
Deferred tax assets |
|
68 |
110 |
94 |
|
Current tax receivable |
|
18 |
- |
10 |
|
Trade, other receivables and other assets |
|
646 |
523 |
303 |
|
Derivative assets |
|
26 |
8 |
40 |
|
Cash and cash equivalents |
15 |
1,800 |
1,793 |
1,782 |
|
Assets held for sale |
4(e) |
- |
- |
1 |
|
Total assets |
|
48,614 |
45,135 |
46,417 |
|
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
|
Equity |
|
|
|
|
|
Ordinary Share capital |
16 |
115 |
115 |
115 |
|
Ordinary Share premium reserve |
16 |
58 |
58 |
58 |
|
Capital redemption reserve |
|
346 |
346 |
346 |
|
Share-based payments reserve |
|
32 |
32 |
41 |
|
Other reserves |
|
- |
(1) |
(1) |
|
Retained earnings |
|
954 |
973 |
989 |
|
Total equity |
|
1,505 |
1,523 |
1,548 |
|
Liabilities |
|
|
|
|
|
Investment contract liabilities |
17 |
40,070 |
37,167 |
38,186 |
|
Third-party interests in consolidated funds |
|
5,930 |
5,404 |
5,843 |
|
Provisions |
18 |
61 |
64 |
69 |
|
Deferred tax liabilities |
|
21 |
29 |
24 |
|
Current tax payable |
|
1 |
10 |
1 |
|
Borrowings and lease liabilities |
|
284 |
293 |
290 |
|
Trade, other payables and other liabilities |
|
731 |
615 |
436 |
|
Derivative liabilities |
|
11 |
30 |
20 |
|
Total liabilities |
|
47,109 |
43,612 |
44,869 |
|
Total equity and liabilities |
|
48,614 |
45,135 |
46,417 |
Approved by the Board of Directors on 7 August 2023 and signed on its behalf by
Steven Levin Mark Satchel
Chief Executive Officer Chief Financial Officer
Condensed consolidated statement of cash flows
For the period ended 30 June 2023
The cash flows presented in this statement cover all the Group's activities (continuing and discontinued operations) and include flows from both policyholder and shareholder activities. All cash and cash equivalents are available for general use by the Group for the purposes of the disclosures required under IAS 7 Statement of Cash Flows except for cash and cash equivalents in consolidated funds (as shown in note 15). Cash flows for discontinued operations are shown separately in note 4(c).
|
|
|
|
|
£m |
|
|
Notes |
Six months 2023 |
Six months 20221 |
Full year 2022 |
|
Cash flows from operating activities |
|
|
|
|
|
Cash flows from operating activities |
|
941 |
1,093 |
1,698 |
|
Taxation paid |
|
(8) |
(12) |
(22) |
|
Total net cash flows from operating activities |
|
933 |
1,081 |
1,676 |
|
Cash flows from investing activities |
|
|
|
|
|
Net acquisitions of financial investments |
|
(837) |
(913) |
(1,494) |
|
Acquisition of property, plant and equipment |
|
(1) |
- |
(3) |
|
Proceeds from sale of property, plant and equipment held for sale |
|
1 |
- |
- |
|
Acquisition of interests in subsidiaries2 |
4(d) |
- |
(5) |
(5) |
|
Investment in associate |
|
(1) |
- |
- |
|
Net payments from the disposal of interests in subsidiaries |
|
- |
(1) |
- |
|
Total net cash flows from investing activities |
|
(838) |
(919) |
(1,502) |
|
Cash flows from financing activities |
|
|
|
|
|
Dividends paid to equity holders of the Company |
9 |
(45) |
(62) |
(78) |
|
Finance costs on external borrowings |
|
(10) |
(5) |
(9) |
|
Payment of interest on lease liabilities |
|
(1) |
(1) |
(3) |
|
Payment of principal of lease liabilities |
|
(4) |
(9) |
(11) |
|
Quilter plc shares acquired for use within the Group's employee share scheme |
|
(15) |
- |
- |
|
Redemption of B shares3 |
|
- |
(328) |
(328) |
|
Repurchase and cancellation of Ordinary Shares4 |
|
- |
(28) |
(28) |
|
Exchange rate movements passed to shareholders5 |
|
2 |
(4) |
(4) |
|
Proceeds from the issue of subordinated debt |
3 |
199 |
- |
- |
|
Subordinated debt repaid |
3 |
(200) |
- |
- |
|
Total net cash flows from financing activities |
|
(74) |
(437) |
(461) |
|
Net increase/(decrease) in cash and cash equivalents |
|
21 |
(275) |
(287) |
|
Cash and cash equivalents at the beginning of the year |
|
1,782 |
2,064 |
2,064 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
(3) |
4 |
5 |
|
Cash and cash equivalents at end of the period |
15(a) |
1,800 |
1,793 |
1,782 |
1The June 2022 figures have been re-presented to address a minor classification difference between net cash flows from operating activities and net cash flows from financing activities relating to the classification of exchange rate movements passed to shareholders. Net cash flows from financing activities includes a £4 million outflow that was originally presented within net cash flows from operating activities.
2The acquisition of interests in subsidiaries results from contingent consideration payments relating to historical acquisitions.
3In March 2022, the Company announced a capital return of £328 million from the net surplus proceeds arising from the sale of Quilter International by way of a B Share Scheme accompanied by a Share Consolidation. The capital return was completed in May 2022.
4The repurchase and cancellation of Ordinary Shares outflow relates to the cash movements associated with the share buyback programme. Further details are included within the condensed consolidated statement of changes in equity.
5The exchange rate movements passed to shareholders relate to foreign exchange gains or losses that have arisen on the capital return and dividend payments to JSE shareholders. Further details are included within the condensed consolidated statement of changes in equity.
Notes to the condensed consolidated interim financial statements
For the period ended 30 June 2023
General information
Quilter plc (the "Company"), a public limited company incorporated in England and Wales and domiciled in the United Kingdom ("UK"), together with its subsidiaries (collectively, the "Group") offers investment and wealth management services, long-term savings and financial advice primarily in the UK. Quilter plc is listed on the London and Johannesburg Stock Exchanges.
The Parent Company's registration number is 06404270. The address of the registered office is Senator House, 85 Queen Victoria Street, London, EC4V 4AB.
1: Basis of preparation
The results for the six months ended 30 June 2023 have been prepared in accordance with the UK-adopted IAS 34 Interim Financial Reporting and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority, and although unaudited, have been reviewed by the Company's Auditor, PricewaterhouseCoopers LLP, and their report is included earlier in this document. These condensed consolidated interim financial statements ("interim financial statements") of Quilter plc for the six months ended 30 June 2023 do not constitute statutory accounts as defined by section 434 of the Companies Act 2006. Comparative financial information for the full year 2022 has been presented from the Group's 2022 Annual Report, which has been filed with the Registrar of Companies and was prepared in accordance with the UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The auditor's report on those financial statements was not qualified, did not include a reference to any matters to which the auditor drew attention by the way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006. Copies of the Group's 2022 Annual Report are available online at plc.quilter.com.
These interim financial statements do not include all of the information required for a complete set of IFRS compliant financial statements. Selected notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the publication of the Group's 2022 Annual Report. The Board considers that the alternative performance measures provided, such as adjusted profit, are also useful for both management and investors. Any seasonal or cyclical factors, to the extent that they materially impact the Group's results, are described in the Financial review.
There have been no changes in the Group's material accounting policies during the period. All accounting policies for recognition, measurement, consolidation and presentation are as outlined in the Group's 2022 Annual Report. These interim financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments, and are presented in pounds sterling, which is the currency of the primary economic environment in which the Group operates.
Going concern
The Directors have considered the resilience of the Group, its current financial position, the principal risks facing the business and the effectiveness of any mitigating strategies which are or could be applied. This included an assessment of capital and liquidity over a three-year business planning period covering 2023 to 2025. As part of the going concern assessment, the Group took into consideration the current position of the UK economy including the impact of inflation and increases in the cost of living. The Group also took into consideration risks related to climate change. Based on the assessment, the Directors believe that both the Group and Quilter plc as the Parent Company, have sufficient financial resources to continue in business for a period of at least 12 months from the date of approval of these interim financial statements and continue to adopt the going concern basis in preparing the interim financial statements.
Critical accounting estimates and judgements
The preparation of financial statements requires management to exercise judgement in applying the Group's material accounting policies and in making estimates and assumptions that affect the reported assets and liabilities at the date of the financial statements. The Board Audit Committee reviews these areas of judgement and estimates and the appropriateness of material accounting policies adopted in the preparation of these financial statements.
The critical estimates and judgements disclosed in detail in the Group's 2022 Annual Report on pages 126 to 127 continue to be critical to the Group during the six months ended 30 June 2023. The Group's critical accounting estimates and judgements are detailed below:
Critical accounting judgements
The Group's critical accounting judgements are those that management makes when applying its material accounting policies and that have the greatest effect on the net profit and net assets recognised in the Group's financial statements. There are no new critical accounting judgements for the Group for the current period.
Critical accounting estimates
The Group's critical accounting estimates involve the most complex or subjective assessments and assumptions, which have a significant risk of resulting in material adjustment to the carrying amounts of assets and liabilities within the next financial year. Management uses its knowledge of current facts and circumstances and applies estimation and assumption setting techniques that are aligned with relevant actuarial and accounting standards and guidance to make predictions about future actions and events. Actual results may differ from those estimates.
Provision for cost of defined benefit pension advice
An estimate was determined for potential unsuitable advice which may be found via the Group-managed past business review of defined benefit to defined contribution ("DB to DC") pension transfer advice using a methodology which takes account of recent experience of redress payments calculated by an independent expert, including the recent skilled person review, and applying a proportion of transfer value to determine redress payable as an indicative provision. The calculations are based upon FCA guidelines and modelling performed, and factors including pension transfer value, date of retirement, discount rate and inflation rate assumptions.
Measurement of deferred tax
The estimate of future taxable profits is performed as part of the annual business planning process, and is based on estimated levels of AuMA, which are subject to a large number of factors including global stock market movements, related movements in foreign exchange rates and net client cash flows, together with estimates of expenses and other charges. The Business Plan, adjusted for known and estimated tax sensitivities, is used to determine the extent to which deferred tax assets are recognised. In general, the Group assesses recoverability of shareholder assets based on estimated taxable profits over a three-year planning horizon and assesses policyholder assets based on estimated investment growth over the medium term. Management has reassessed the sensitivity on the recoverability of deferred tax assets based on the latest forecast cash flows. See note 29 of the 2022 Annual Report for further details.
2: New standards, amendments to standards, and interpretations adopted by the Group
The IASB issued IFRS 17 Insurance Contracts in May 2017 and Amendments to IFRS 17 in June 2020. IFRS 17 became effective on 1 January 2023. The Group has assessed all relevant contracts with policyholders. Based on this assessment, it was determined that there are no contracts that will be accounted for under IFRS 17.
The amendments to accounting standards in the table below became applicable for the current reporting period. The Group has applied the exception to recognising and disclosing information about deferred tax assets and liabilities related to Pillar 2 income taxes as disclosed in note 7.
|
Adopted by the Group from |
Amendments to standards |
|
1 January 2023 |
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Definition of Accounting Estimates |
|
1 January 2023 |
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements - Disclosure of Accounting Policies |
|
1 January 2023 |
Amendments to IAS 12 Income Taxes - Deferred Tax related to Assets and Liabilities arising from a Single Transaction |
|
1 January 2023 |
Amendments to IAS 12 Income Taxes - International Tax Reform - Pillar Two Model Rules |
3: Significant changes in the current reporting period
Repayment and new issue of Fixed Rate Reset Subordinated Notes
On 18 January 2023, the Company issued £200,000,000 8.625% Fixed Rate Reset Subordinated Notes (due 18 April 2033) and received net cash proceeds of £199 million. After deducting structuring costs and professional fees, the retained cash proceeds were £197 million. The Notes are now listed and regulated under the terms of the London Stock Exchange. On 28 February 2023, the Company repaid the existing £200,000,000 4.478% Fixed Rate Reset Subordinated Notes (due 28 February 2028).
4: Discontinued operations, assets and liabilities held for sale, acquisitions and disposals
4(a): Business disposals
There have been no material disposals of businesses during the period ended 30 June 2023 or the year ended 31 December 2022.
4(b): Discontinued operations - income statement and statement of comprehensive income
There was a loss on discontinued operations for the six months to 30 June 2022 of £1 million due to an increase in accrued expenses in relation to the Single Strategy business (sold in 2018). The additional accrual was reversed at the end of 2022. The final payment relating to the sale of the Single Strategy business was made during the six months to 30 June 2023. There were no other changes in provisions relating to discontinued operations in any of the periods reported in these condensed consolidated interim financial statements.
4(c): Discontinued operations - net cash flows
The Group made the final payment of £4 million during the six months to 30 June 2023 in respect of the closure of the warranty relating to the sale of the Single Strategy business. There were no inflows or outflows of cash relating to discontinued operations during 2022.
4(d): Business acquisitions
There have been no material acquisitions of businesses during the period ended 30 June 2023 or during 2022.
Contingent consideration arising from historical business acquisitions:
The table below details the movements in the contingent consideration balance during the current and prior periods arising from the business acquisitions in previous periods.
|
|
|
|
£m |
|
|
30 June 2023 |
30 June 2022 |
31 December 2022 |
|
Opening balance |
- |
5 |
5 |
|
Payments |
- |
(5) |
(5) |
|
Closing balance |
- |
- |
- |
Contingent consideration represents the Group's best estimate of the amount payable in relation to each acquisition discounted to net present value. The basis used for each acquisition varies but includes payments based on a percentage of the level of assets under administration, funds under management and levels of ongoing fee income at future dates.
4(e): Assets and liabilities held for sale
Assets classified as held for sale at 31 December 2022 related to a leasehold interest in an office property which was vacant and was subsequently sold in April 2023.
5: Alternative performance measures ("APMs")
5(a): Adjusted profit before tax and reconciliation to profit after tax
Basis of preparation of adjusted profit before tax
Adjusted profit before tax is one of the Group's alternative performance measures and represents the Group's IFRS profit, adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature, as detailed in note 5(b). Adjusted profit before tax does not provide a complete picture of the Group's financial performance, which is disclosed in the IFRS income statement, but is instead intended to provide additional comparability and understanding of the financial results.
|
|
|
|
|
|
|
£m |
|
|
|
Six months 2023 |
Six months 2022 |
Full year 2022 |
||
|
|
Notes |
Total |
Continuing operations |
Discontinued operations1 |
Total |
Total |
|
Affluent |
|
54 |
47 |
- |
47 |
105 |
|
High Net Worth |
|
23 |
23 |
- |
23 |
45 |
|
Head Office |
|
(1) |
(9) |
- |
(9) |
(16) |
|
Adjusted profit before tax |
|
76 |
61 |
- |
61 |
134 |
|
Adjusting items: |
|
|
|
|
|
|
|
Impact of acquisition and disposal-related accounting |
5(b)(i) |
(21) |
(22) |
- |
(22) |
(42) |
|
Business transformation costs |
5(b)(ii) |
(16) |
(17) |
- |
(17) |
(30) |
|
Finance costs |
5(b)(iii) |
(10) |
(5) |
- |
(5) |
(10) |
|
Customer remediation |
5(b)(iv) |
(3) |
15 |
- |
15 |
12 |
|
Voluntary customer repayments |
5(b)(v) |
- |
- |
- |
- |
(6) |
|
Loss on business disposals |
4(b) |
- |
- |
(1) |
(1) |
- |
|
Exchange rate movement (ZAR/GBP) |
5(b)(vi) |
(2) |
4 |
- |
4 |
4 |
|
Policyholder tax adjustments |
5(b)(vii) |
(18) |
146 |
- |
146 |
138 |
|
Other adjusting items |
5(b)(viii) |
1 |
- |
- |
- |
(1) |
|
Total adjusting items before tax |
|
(69) |
121 |
(1) |
120 |
65 |
|
Profit before tax attributable to equity holders |
|
7 |
182 |
(1) |
181 |
199 |
|
Tax attributable to policyholder returns |
7 |
21 |
(145) |
- |
(145) |
(134) |
|
Income tax (expense)/credit |
7 |
(23) |
114 |
- |
114 |
110 |
|
Profit after tax2 |
|
5 |
151 |
(1) |
150 |
175 |
1Discontinued operations relate to changes in the warranty provision on the sale of the Single Strategy business.
2IFRS profit after tax.
5(b): Adjusting items
In determining adjusted profit before tax, the Group's IFRS profit before tax is adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature. These are detailed below.
5(b)(i): Impact of acquisition and disposal-related accounting
The Group excludes any impairment of goodwill from adjusted profit as well as the amortisation and impairment of acquired intangible assets, any acquisition costs, finance costs related to the discounting of contingent consideration and incidental items relating to past disposals.
The effect of these adjustments to determine adjusted profit are summarised below. All adjustments are in respect of continuing operations.
|
|
|
|
|
£m |
|
|
|
Six months 2023 |
Six months 2022 |
Full year 2022 |
|
Amortisation of acquired intangible assets |
|
20 |
22 |
42 |
|
Impairment of acquired intangible assets1 |
|
1 |
- |
- |
|
Total impact of acquisition and disposal-related accounting |
21 |
22 |
42 |
|
1The impairment of acquired intangible assets results from the impairment of specific client books held within the Affluent operating segment as the Group can no longer support the carrying value.
5(b)(ii): Business transformation costs
Business transformation costs include three key items: costs associated with the Business Simplification programme, Optimisation programme and investment in business costs. For the six-month period to 30 June 2023, these costs totalled £16 million (30 June 2022: £17 million, 31 December 2022: £30 million) in aggregate, the principal components of which are described below:
Business Simplification costs - 30 June 2023: £14 million, 30 June 2022: £12 million, 31 December 2022: £17 million
The Business Simplification programme continues to track towards the £45 million target of annualised run-rate cost savings, announced in November 2021. This target will be largely achieved by the end of 2023, and £50 million of additional costs savings are targeted to be achieved by the end of 2025. The aggregate cost to achieve the combined £95 million savings target is estimated to be £120 million. To date, the programme has delivered £33 million of annualised run-rate cost savings with an implementation cost of £31 million.
Optimisation programme costs - 30 June 2023: £nil, 30 June 2022: £3 million, 31 December 2022: £6 million
The Optimisation programme commenced in 2018 to provide closer business integration, create central support, rationalise technology and reduce third-party spend. The programme has now achieved its target of delivering annualised run-rate cost savings of £65 million with total implementation costs since inception of £88 million. This programme concluded in 2022 and no costs were incurred in the six-month period to 30 June 2023.
Investment in business costs - 30 June 2023: £1 million, 30 June 2022: £nil, 31 December 2022: £4 million
Investment in business costs of £1 million were incurred in the period to June 2023 as the Group continues to enable and support advisers and clients and improve productivity through better utilisation of technology.
Business separation costs following the disposal of Quilter International - 30 June 2023: £1 million, 30 June 2022: £nil, 31 December 2022: £nil
The Group sold Quilter International to Utmost Group on 30 November 2021 and entered into a Transitional Service Agreement with the acquirer. The cost to the Group of running the Transitional Service Agreement was £1 million for the six-month period to 30 June 2023.
Restructuring costs following the disposal of Quilter Life Assurance - 30 June 2023: £nil, 30 June 2022: £2 million, 31 December 2022: £3 million
The Transitional Service Agreement following the sale of Quilter Life Assurance in 2019 has now concluded. No restructuring costs following this disposal were incurred in the six-month period to 30 June 2023.
5(b)(iii): Finance costs
The nature of much of the Group's operations means that, for management's decision-making and internal performance management, the effects of interest costs on external borrowings are removed when calculating adjusted profit. For the period ended 30 June 2023, finance costs were £10 million (30 June 2022: £5 million, 31 December 2022: £10 million).
5(b)(iv): Customer remediation
Lighthouse pension transfer advice provision - 30 June 2023: £3 million, 30 June 2022: £15 million net income, 31 December 2022: £12 million net income
The provision for the redress of British Steel Pension Scheme cases and other DB to DC pension transfer advice cases, excluding the impact of payments made, has increased by £2 million in the period, which has been recognised in the income statement as an increase in expenses (30 June 2022: £5 million credit, 31 December 2022: £4 million credit). This increase reflects the impact of the initial review for suitability of additional cases by an independent expert as part of the Group-led past business review of DB to DC pension transfer advice. During the period, £1 million of additional legal, consulting, and other costs were incurred (30 June 2022: £nil, 31 December 2022: £4 million). These items have been excluded from adjusted profit on the basis that the advice activities, to which the charge and benefit relate, took place prior to the Group's acquisition of the business. In the six months to 30 June 2022, insurance proceeds in relation to claims in respect of legal liabilities arising in connection with Lighthouse's DB to DC pension transfer advice cases were received, contributing £10 million (31 December 2022: £12 million) to the Group's profit before tax. Further details of the provision are provided in note 18.
5(b)(v): Voluntary customer repayments
For the period ended 30 June 2023, these costs were £nil (30 June 2022: £nil, 31 December 2022: £6 million) and relate to a change in business policy during H2 2022. The voluntary repayments represent amounts to be paid to customers relating to revenue previously recognised in respect of Final Plan Closure receipts.
5(b)(vi): Exchange rate movements (ZAR/GBP)
For the period ended 30 June 2023, an expense of £2 million was incurred (30 June 2022: £4 million income, 31 December 2022: £4 million income) and related to a foreign exchange loss on cash held in South African Rand in preparation for payments to shareholders. In the year to 31 December 2022, these payments related to the capital return and final dividend paid in May 2022. In the period to 30 June 2023, these payments related to the final dividend paid in May 2023. Cash was converted to South African Rand upon announcement of the details of the capital return and dividend payments to provide an economic hedge for the Group. The foreign exchange movements are fully offset by an equal amount taken directly to retained earnings.
5(b)(vii): Policyholder tax adjustments
For the period ended 30 June 2023, the total amount of policyholder tax adjustments to adjusted profit is £18 million credit (30 June 2022: £146 million charge, 31 December 2022: £138 million charge). Adjustments to policyholder tax are made to remove distortions arising from market volatility that can, in turn, lead to volatility in the policyholder tax adjustments between periods. The recognition of the income received from policyholders (which is included within the Group's income) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding tax expense, creating volatility in the Group's IFRS profit or loss before tax attributable to equity holders. Note 7 provides further information on the impact of markets on the policyholder tax adjustment. Adjustments are also made to remove policyholder tax distortions from other non-operating adjusting items.
5(b)(viii): Other adjusting items
For the period ended 30 June 2023, income of £1 million was received (30 June 2022: £nil, 31 December 2022: £1 million cost) in relation to the settlement offer received for the indemnification asset that was impaired in H2 2022.
5(c): Reconciliation of IFRS income and expenses to "Total net fee revenue" and "Operating expenses" within adjusted profit
This reconciliation shows how each line of the Group's condensed consolidated IFRS income statement is allocated to the Group's APMs: Net management fees, Other revenue, Investment revenue, Total net revenue and Operating expenses, and form the Group's adjusted profit before tax for continuing operations. The IFRS income statement column in the table below, down to "Profit before tax attributable to equity holders from continuing operations", reconciles to each line of the Group's condensed consolidated income statement. Allocations are determined by management and aim to show the Group's sources of profit (net of relevant directly attributable expenses). These allocations remain consistent from period to period to ensure comparability, unless otherwise stated.
|
|
|
|
|
|
|
|
|
£m |
|
Six months 2023 |
Net mgmt. fees1 |
Other revenue1 |
Investment revenue1 |
Total net revenue1 |
Operating expenses1 |
Adjusted profit before tax |
Consol. of funds2 |
Condensed consolidated income statement |
|
Income |
|
|
|
|
|
|
|
|
|
Fee income and other income from service activities |
268 |
41 |
- |
309 |
- |
309 |
(32) |
277 |
|
Investment return3 |
19 |
1,007 |
28 |
1,054 |
- |
1,054 |
248 |
1,302 |
|
Other income |
- |
(2) |
- |
(2) |
4 |
2 |
- |
2 |
|
Total income |
287 |
1,046 |
28 |
1,361 |
4 |
1,365 |
216 |
1,581 |
|
Expenses |
|
|
|
|
|
|
|
|
|
Change in investment contract liabilities3 |
(12) |
(1,006) |
- |
(1,018) |
- |
(1,018) |
- |
(1,018) |
|
Fee and commission expenses, and other acquisition costs |
(23) |
- |
- |
(23) |
- |
(23) |
(2) |
(25) |
|
Change in third-party interests in consolidated funds |
- |
- |
- |
- |
- |
- |
(202) |
(202) |
|
Other operating and administrative expenses |
(7) |
- |
- |
(7) |
(278) |
(285) |
(12) |
(297) |
|
Finance costs |
- |
- |
- |
- |
(11) |
(11) |
- |
(11) |
|
Total expenses |
(42) |
(1,006) |
- |
(1,048) |
(289) |
(1,337) |
(216) |
(1,553) |
|
Tax expense attributable to policyholder returns |
(21) |
- |
- |
(21) |
- |
(21) |
- |
(21) |
|
Profit before tax attributable to equity holders from continuing operations |
224 |
40 |
28 |
292 |
(285) |
7 |
- |
7 |
|
Adjusting items: |
|
|
|
|
|
|
|
|
|
Impact of acquisition and disposal-related accounting |
- |
- |
- |
- |
21 |
21 |
|
|
|
Business transformation costs |
- |
- |
- |
- |
16 |
16 |
|
|
|
Finance costs |
- |
- |
- |
- |
10 |
10 |
|
|
|
Customer remediation |
- |
- |
- |
- |
3 |
3 |
|
|
|
Exchange rate movement (ZAR/GBP) |
- |
2 |
- |
2 |
- |
2 |
|
|
|
Policyholder tax adjustments |
18 |
- |
- |
18 |
- |
18 |
|
|
|
Other adjusting items |
- |
- |
- |
- |
(1) |
(1) |
|
|
|
Adjusting items |
18 |
2 |
- |
20 |
49 |
69 |
|
|
|
Adjusted profit before tax - continuing operations |
242 |
42 |
28 |
312 |
(236) |
76 |
|
|
1The APMs "Net management fees", "Other revenue", "Investment revenue", "Total net revenue" and "Operating expenses" are commented on within the Financial review. In the financial statements for the year to 31 December 2022 and in the June 2022 interim financial statements, interest income on shareholder cash and cash equivalents and interest income on customer cash and cash equivalents was previously presented within "Other revenue". For the six months to 30 June 2023, to provide additional information to the users of the Group's financial reporting, interest income on shareholder cash and cash equivalents has been presented separately as Investment revenue and interest income on customer cash and cash equivalents has been presented within Net management fees. Disclosures for prior periods have been re-presented to ensure comparability.
2Consolidation of funds shows the grossing up impact to the Group's condensed consolidated income statement as a result of the consolidation of funds requirements, as described within note 5(a) of the Group's 2022 Annual Report. This grossing up is excluded from the Group's adjusted profit.
3Investment return of £19 million less £12 million change in investment contract liabilities, as reported within net management fees, represents £7 million interest income on customer cash and cash equivalents which was retained by the Group for the six-month period to 30 June 2023. The £28 million investment return, as reported within investment revenue, relates to interest income on shareholder cash and cash equivalents.
|
|
|
|
|
|
|
|
|
£m |
|
Six months 2022 |
Net mgmt. fees1 |
Other revenue1 |
Investment revenue1 |
Total net revenue1 |
Operating expenses1 |
Adjusted profit before tax |
Consol. of funds2 |
Condensed consolidated income statement |
|
Income |
|
|
|
|
|
|
|
|
|
Fee income and other income from service activities |
277 |
50 |
- |
327 |
- |
327 |
(35) |
292 |
|
Investment return3 |
2 |
(4,824) |
3 |
(4,819) |
- |
(4,819) |
(507) |
(5,326) |
|
Other income |
- |
16 |
- |
16 |
4 |
20 |
1 |
21 |
|
Total income |
279 |
(4,758) |
3 |
(4,476) |
4 |
(4,472) |
(541) |
(5,013) |
|
Expenses |
|
|
|
|
|
|
|
|
|
Change in investment contract liabilities |
- |
4,825 |
- |
4,825 |
- |
4,825 |
- |
4,825 |
|
Fee and commission expenses, and other acquisition costs |
(23) |
- |
- |
(23) |
- |
(23) |
(3) |
(26) |
|
Change in third-party interests in consolidated funds |
- |
- |
- |
- |
- |
- |
555 |
555 |
|
Other operating and administrative expenses |
(8) |
- |
- |
(8) |
(278) |
(286) |
(11) |
(297) |
|
Finance costs |
- |
- |
- |
- |
(7) |
(7) |
- |
(7) |
|
Total expenses |
(31) |
4,825 |
- |
4,794 |
(285) |
4,509 |
541 |
5,050 |
|
Tax credit attributable to policyholder returns |
145 |
- |
- |
145 |
- |
145 |
- |
145 |
|
Profit before tax attributable to equity holders from continuing operations |
393 |
67 |
3 |
463 |
(281) |
182 |
- |
182 |
|
Adjusting items: |
|
|
|
|
|
|
|
|
|
Impact of acquisition and disposal-related accounting |
- |
- |
- |
- |
22 |
22 |
|
|
|
Business transformation costs |
- |
- |
- |
- |
17 |
17 |
|
|
|
Finance costs |
- |
- |
- |
- |
5 |
5 |
|
|
|
Customer remediation |
- |
(10) |
- |
(10) |
(5) |
(15) |
|
|
|
Exchange rate movement (ZAR/GBP) |
- |
(4) |
- |
(4) |
- |
(4) |
|
|
|
Policyholder tax adjustments |
(146) |
- |
- |
(146) |
- |
(146) |
|
|
|
Adjusting items |
(146) |
(14) |
- |
(160) |
39 |
(121) |
|
|
|
Adjusted profit before tax - continuing operations |
247 |
53 |
3 |
303 |
(242) |
61 |
|
|
1The APMs "Net management fees", "Other revenue", "Investment revenue", "Total net revenue" and "Operating expenses" are commented on within the Financial review. In the financial statements for the year to 31 December 2022 and in the June 2022 interim financial statements, interest income on shareholder cash and cash equivalents and interest income on customer cash and cash equivalents was previously presented within "Other revenue". For the six months to 30 June 2023, to provide additional information to the users of the Group's financial reporting, interest income on shareholder cash and cash equivalents has been presented separately as Investment revenue and interest income on customer cash and cash equivalents has been presented within Net management fees. Disclosures for prior periods have been re-presented to ensure comparability.
2Consolidation of funds shows the grossing up impact to the Group's condensed consolidated income statement as a result of the consolidation of funds requirements, as described within note 5(a) of the Group's 2022 Annual Report. This grossing up is excluded from the Group's adjusted profit.
3Investment return of £2 million, as reported within net management fees, represents the interest income on customer cash and cash equivalents which was retained by the Group for the six-month period to 30 June 2022. The £3 million investment return, as reported within investment revenue, relates to interest income on shareholder cash and cash equivalents.
|
|
|
|
|
|
|
|
|
£m |
|
Year ended 31 December 2022 |
Net mgmt. fees1 |
Other revenue1 |
Investment revenue1 |
Total net revenue1 |
Operating expenses1 |
Adjusted profit before tax |
Consol. of funds2 |
Condensed consolidated income statement |
|
Income |
|
|
|
|
|
|
|
|
|
Fee income and other income from service activities |
548 |
95 |
- |
643 |
- |
643 |
(62) |
581 |
|
Investment return3 |
12 |
(4,320) |
16 |
(4,292) |
- |
(4,292) |
(357) |
(4,649) |
|
Other income |
- |
5 |
- |
5 |
21 |
26 |
2 |
28 |
|
Total income |
560 |
(4,220) |
16 |
(3,644) |
21 |
(3,623) |
(417) |
(4,040) |
|
Expenses |
|
|
|
|
|
|
|
|
|
Change in investment contract liabilities3 |
(5) |
4,323 |
- |
4,318 |
- |
4,318 |
- |
4,318 |
|
Fee and commission expenses, and other acquisition costs |
(46) |
1 |
- |
(45) |
- |
(45) |
(9) |
(54) |
|
Change in third-party interests in consolidated funds |
- |
- |
- |
- |
- |
- |
438 |
438 |
|
Other operating and administrative expenses |
(15) |
- |
- |
(15) |
(557) |
(572) |
(12) |
(584) |
|
Finance costs |
- |
- |
- |
- |
(13) |
(13) |
- |
(13) |
|
Total expenses |
(66) |
4,324 |
- |
4,258 |
(570) |
3,688 |
417 |
4,105 |
|
Tax credit attributable to policyholder returns |
134 |
- |
- |
134 |
- |
134 |
- |
134 |
|
Profit before tax attributable to equity holders from continuing operations |
628 |
104 |
16 |
748 |
(549) |
199 |
- |
199 |
|
Adjusting items: |
|
|
|
|
|
|
|
|
|
Impact of acquisition and disposal-related accounting |
- |
- |
- |
- |
42 |
42 |
|
|
|
Business transformation costs |
- |
- |
- |
- |
30 |
30 |
|
|
|
Finance costs |
- |
- |
- |
- |
10 |
10 |
|
|
|
Customer remediation |
- |
- |
- |
- |
(12) |
(12) |
|
|
|
Voluntary customer repayments |
- |
- |
- |
- |
6 |
6 |
|
|
|
Exchange rate movement (ZAR/GBP) |
- |
(4) |
- |
(4) |
- |
(4) |
|
|
|
Policyholder tax adjustments |
(138) |
- |
- |
(138) |
- |
(138) |
|
|
|
Other adjusting items |
- |
- |
- |
- |
1 |
1 |
|
|
|
Adjusting items |
(138) |
(4) |
- |
(142) |
77 |
(65) |
|
|
|
Adjusted profit before tax - continuing operations |
490 |
100 |
16 |
606 |
(472) |
134 |
|
|
1The APMs "Net management fees", "Other revenue", "Investment revenue", "Total net revenue" and "Operating expenses" are commented on within the Financial review. In the financial statements for the year to 31 December 2022 and in the June 2022 interim financial statements, interest income on shareholder cash and cash equivalents and interest income on customer cash and cash equivalents was previously presented within "Other revenue". For the six months to 30 June 2023, to provide additional information to the users of the Group's financial reporting, interest income on shareholder cash and cash equivalents has been presented separately as Investment revenue and interest income on customer cash and cash equivalents has been presented within Net management fees. Disclosures for prior periods have been re-presented to ensure comparability.
2Consolidation of funds shows the grossing up impact to the Group's condensed consolidated income statement as a result of the consolidation of funds requirements, as described within note 5(a) of the Group's Annual Report. This grossing up is excluded from the Group's adjusted profit.
3Investment return of £12 million less £5 million change in investment contract liabilities, as reported within net management fees, represents the £7 million interest income on customer cash and cash equivalents which was retained by the Group for the year ended 31 December 2022. The £16 million investment return, as reported within investment revenue, relates to interest income on shareholder cash and cash equivalents.
6: Segmental information
6(a): Segmental presentation
The Group's operating segments comprise High Net Worth and Affluent, which is consistent with the manner in which the Group is structured and managed. For all reporting periods, these segments have been classified as continuing operations in the condensed consolidated income statement. Head Office includes certain revenues and central costs that are not allocated to the segments. There have been no changes to the basis of segmentation for the periods presented within these condensed consolidated interim financial statements.
Adjusted profit before tax is an APM reported to the Group's management and Board. Management and the Board use additional performance indicators to assess the performance of each of the segments, including net client cash flows, assets under management and administration, total net revenue and operating margin.
Consistent with internal reporting, income and expenses that are not directly attributable to a particular segment are allocated between segments where appropriate. The Group accounts for inter-segment income and transfers as if the transactions were with third parties at current market prices. Intra-group recharges in respect of operating and administration expenses within businesses disclosed as discontinued operations are not adjusted for potential future changes to the level of remaining costs following the disposal of those businesses.
The segmental information in this note reflects the adjusted and IFRS profit measures for each operating segment as provided to management and the Board. Income is analysed in further detail for each operating segment in note 6(b).
Continuing operations:
High Net Worth
This segment comprises Quilter Cheviot and Quilter Private Client Advisers.
Quilter Cheviot provides discretionary investment management predominantly in the United Kingdom with bespoke investment portfolios tailored to the individual needs of High Net Worth clients, charities, companies and institutions through a network of branches in London and the regions. Investment management services are also provided by operations in the Channel Islands and Ireland.
Quilter Private Client Advisers provide financial advice for protection, mortgages, savings, investments and pensions predominantly to High Net Worth clients.
Affluent
This segment is comprised of Quilter Investment Platform, Quilter Investors and Quilter Financial Planning.
Quilter Investment Platform is a leading investment platform provider of advice-based wealth management products and services in the UK, which serves a largely Affluent client base through advised multi-channel distribution.
Quilter Investors is a leading provider of investment solutions in the UK multi-asset market. It develops and manages investment solutions in the form of funds for the Group and third-party clients. It has several fund ranges which vary in breadth of underlying asset class.
Quilter Financial Planning is a restricted and independent financial adviser network including Quilter Financial Advisers and Lighthouse, providing mortgage and financial planning advice and financial solutions for both individuals and businesses through a network of intermediaries. It operates across all markets, from wealth management and retirement planning advice through to dealing with property wealth and personal and business protection needs.
Head Office
In addition to the Group's two operating segments, Head Office comprises the investment return on centrally held assets, central support function expenses, central core structural borrowings and certain tax balances.
6(b)(i): Adjusted profit statement - segmental information for the period ended 30 June 2023
The table below presents the Group's continuing operations split by operating segment, reconciling the segmented IFRS income statement (to "Profit/(loss) before tax attributable to equity holders from continuing operations") to adjusted profit before tax.
|
|
|
|
|
|
|
£m |
|
|
|
Operating segments |
|
|
|
|
|
|
Notes |
Affluent |
High Net Worth |
Head Office |
Consolidation adjustments1 |
Condensed consolidated income statement |
|
Income |
|
|
|
|
|
|
|
Premium-based fees |
|
32 |
10 |
- |
- |
42 |
|
Fund-based fees |
|
172 |
89 |
- |
(32) |
229 |
|
Fixed fees |
|
1 |
- |
- |
- |
1 |
|
Other fee and commission income |
|
5 |
- |
- |
- |
5 |
|
Fee income and other income from service activities |
|
210 |
99 |
- |
(32) |
277 |
|
Investment return2 |
|
1,036 |
9 |
12 |
245 |
1,302 |
|
Other income |
|
49 |
- |
(2) |
(45) |
2 |
|
Segment income |
|
1,295 |
108 |
10 |
168 |
1,581 |
|
Expenses |
|
|
|
|
|
|
|
Change in investment contract liabilities2 |
|
(1,018) |
- |
- |
- |
(1,018) |
|
Fee and commission expenses, and other acquisition costs |
|
(24) |
- |
- |
(1) |
(25) |
|
Change in third-party interests in consolidated funds |
|
- |
- |
- |
(202) |
(202) |
|
Other operating and administrative expenses |
|
(202) |
(102) |
(25) |
32 |
(297) |
|
Finance costs |
|
(1) |
- |
(13) |
3 |
(11) |
|
Segment expenses |
|
(1,245) |
(102) |
(38) |
(168) |
(1,553) |
|
Profit/(loss) before tax from continuing operations |
|
50 |
6 |
(28) |
- |
28 |
|
Tax expense attributable to policyholder returns |
|
(21) |
- |
- |
- |
(21) |
|
Profit/(loss) before tax attributable to equity holders from continuing operations |
|
29 |
6 |
(28) |
- |
7 |
|
Adjusted for non-operating items: |
|
|
|
|
|
|
|
Impact of acquisition and disposal-related accounting |
5(b)(i) |
4 |
17 |
- |
- |
21 |
|
Business transformation costs |
5(b)(ii) |
- |
1 |
15 |
- |
16 |
|
Finance costs |
5(b)(iii) |
- |
- |
10 |
- |
10 |
|
Customer remediation |
5(b)(iv) |
3 |
- |
- |
- |
3 |
|
Exchange rate movement (ZAR/GBP) |
5(b)(vi) |
- |
- |
2 |
- |
2 |
|
Policyholder tax adjustments |
5(b)(vii) |
18 |
- |
- |
- |
18 |
|
Other adjusting items |
5(b)(viii) |
- |
(1) |
- |
- |
(1) |
|
Adjusting items before tax |
|
25 |
17 |
27 |
- |
69 |
|
Adjusted profit before tax - continuing operations |
|
54 |
23 |
(1) |
- |
76 |
1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
2Investment return and change in investment contract liabilities includes net £7 million interest income on customer cash and cash equivalents retained by the Group. Investment return total also includes £28 million interest income on shareholder cash and cash equivalents.
6(b)(ii): Adjusted profit statement - segmental information for the six months ended 30 June 2022
|
|
|
|
|
|
|
£m |
|
|
|
Operating segments |
|
|
|
|
|
|
Notes |
Affluent |
High Net Worth |
Head Office |
Consolidation adjustments1 |
Condensed consolidated income statement |
|
Income |
|
|
|
|
|
|
|
Premium-based fees |
|
38 |
12 |
- |
- |
50 |
|
Fund-based fees |
|
180 |
93 |
- |
(35) |
238 |
|
Fixed fees |
|
1 |
- |
- |
- |
1 |
|
Other fee and commission income |
|
3 |
- |
- |
- |
3 |
|
Fee income and other income from service activities |
|
222 |
105 |
- |
(35) |
292 |
|
Investment return2 |
|
(4,822) |
3 |
1 |
(508) |
(5,326) |
|
Other income |
|
52 |
1 |
5 |
(37) |
21 |
|
Segment income |
|
(4,548) |
109 |
6 |
(580) |
(5,013) |
|
Expenses |
|
|
|
|
|
|
|
Change in investment contract liabilities |
|
4,825 |
- |
- |
- |
4,825 |
|
Fee and commission expenses, and other acquisition costs |
|
(23) |
- |
- |
(3) |
(26) |
|
Change in third-party interests in consolidated funds |
|
- |
- |
- |
555 |
555 |
|
Other operating and administrative expenses |
|
(203) |
(103) |
(19) |
28 |
(297) |
|
Finance costs |
|
(2) |
- |
(5) |
- |
(7) |
|
Segment expenses |
|
4,597 |
(103) |
(24) |
580 |
5,050 |
|
Profit/(loss) before tax from continuing operations |
|
49 |
6 |
(18) |
- |
37 |
|
Tax credit attributable to policyholder returns |
|
145 |
- |
- |
- |
145 |
|
Profit/(loss) before tax attributable to equity holders from continuing operations |
|
194 |
6 |
(18) |
- |
182 |
|
Adjusted for non-operating items: |
|
|
|
|
|
|
|
Impact of acquisition and disposal-related accounting |
5(b)(i) |
5 |
17 |
- |
- |
22 |
|
Business transformation costs |
5(b)(ii) |
9 |
- |
8 |
- |
17 |
|
Finance costs |
5(b)(iii) |
- |
- |
5 |
- |
5 |
|
Customer remediation |
5(b)(iv) |
(15) |
- |
- |
- |
(15) |
|
Exchange rate movement (ZAR/GBP) |
5(b)(vi) |
- |
- |
(4) |
|
(4) |
|
Policyholder tax adjustments |
5(b)(vii) |
(146) |
- |
- |
- |
(146) |
|
Adjusting items before tax |
|
(147) |
17 |
9 |
- |
(121) |
|
Adjusted profit before tax - continuing operations |
|
47 |
23 |
(9) |
- |
61 |
1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
2Investment return includes net £2 million interest income on customer cash and cash equivalents retained by the Group. Investment return total also includes £3 million interest income on shareholder cash and cash equivalents.
6(b)(iii): Adjusted profit statement - segmental information for the year ended 31 December 2022
|
|
|
|
|
|
|
£m |
|
|
|
Operating segments |
|
|
|
|
|
|
Notes |
Affluent |
High Net Worth |
Head Office |
Consolidation adjustments1 |
Condensed consolidated income statement |
|
Income |
|
|
|
|
|
|
|
Premium-based fees |
|
75 |
21 |
- |
- |
96 |
|
Fund-based fees |
|
356 |
181 |
- |
(62) |
475 |
|
Fixed fees |
|
2 |
- |
- |
- |
2 |
|
Other fee and commission income |
|
8 |
- |
- |
- |
8 |
|
Fee income and other income from service activities |
|
441 |
202 |
- |
(62) |
581 |
|
Investment return2 |
|
(4,307) |
9 |
8 |
(359) |
(4,649) |
|
Other income |
|
112 |
3 |
5 |
(92) |
28 |
|
Segment income |
|
(3,754) |
214 |
13 |
(513) |
(4,040) |
|
Expenses |
|
|
|
|
|
|
|
Change in investment contract liabilities2 |
|
4,318 |
- |
- |
- |
4,318 |
|
Fee and commission expenses, and other acquisition costs |
|
(46) |
- |
- |
(8) |
(54) |
|
Change in third-party interests in consolidated funds |
|
- |
- |
- |
438 |
438 |
|
Other operating and administrative expenses |
|
(410) |
(202) |
(53) |
81 |
(584) |
|
Finance costs |
|
(3) |
- |
(12) |
2 |
(13) |
|
Segment expenses |
|
3,859 |
(202) |
(65) |
513 |
4,105 |
|
Profit/(loss) before tax from continuing operations |
|
105 |
12 |
(52) |
- |
65 |
|
Tax credit attributable to policyholder returns |
|
134 |
- |
- |
- |
134 |
|
Profit/(loss) before tax attributable to equity holders from continuing operations |
|
239 |
12 |
(52) |
- |
199 |
|
Adjusted for non-operating items: |
|
|
|
|
|
|
|
Impact of acquisition and disposal-related accounting |
5(b)(i) |
10 |
32 |
- |
- |
42 |
|
Business transformation costs |
5(b)(ii) |
- |
- |
30 |
- |
30 |
|
Finance costs |
5(b)(iii) |
- |
- |
10 |
- |
10 |
|
Customer remediation |
5(b)(iv) |
(12) |
- |
- |
- |
(12) |
|
Voluntary customer repayments |
5(b)(v) |
6 |
- |
- |
- |
6 |
|
Exchange rate movement (ZAR/GBP) |
5(b)(vi) |
- |
- |
(4) |
- |
(4) |
|
Policyholder tax adjustments |
5(b)(vii) |
(138) |
- |
- |
- |
(138) |
|
Other adjusting items |
5(b)(viii) |
- |
1 |
- |
- |
1 |
|
Adjusting items before tax |
|
(134) |
33 |
36 |
- |
(65) |
|
Adjusted profit before tax - continuing operations |
|
105 |
45 |
(16) |
- |
134 |
1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
2Investment return and change in investment contract liabilities includes net £7 million interest income on customer cash and cash equivalents retained by the Group . Investment return total also includes £16 million interest income on shareholder cash and cash equivalents.
7: Tax
|
|
|
|
|
£m |
|
|
|
Six months 2023 |
Six months 2022 |
Full year 2022 |
|
Current tax |
|
|
|
|
|
United Kingdom |
|
- |
20 |
12 |
|
Overseas tax |
|
- |
- |
1 |
|
Total current tax charge |
|
- |
20 |
13 |
|
Deferred tax |
|
|
|
|
|
Origination and reversal of temporary differences |
|
23 |
(133) |
(120) |
|
Effect on deferred tax of changes in tax rates |
|
1 |
(1) |
(1) |
|
Adjustments to deferred tax in respect of prior periods |
|
(1) |
- |
(2) |
|
Total deferred tax charge/(credit) |
|
23 |
(134) |
(123) |
|
Total tax charged/(credited) to income statement - continuing operations |
|
23 |
(114) |
(110) |
|
|
|
|
|
|
|
Attributable to policyholder returns - continuing operations |
|
21 |
(145) |
(134) |
|
Attributable to equity holders - continuing operations |
|
2 |
31 |
24 |
|
Total tax charged/(credited) to income statement |
|
23 |
(114) |
(110) |
Policyholder tax
Certain products are subject to tax on policyholders' investment returns. This "policyholder tax" is an element of total tax expense. To make the tax expense more meaningful, tax attributable to policyholder returns and tax attributable to equity holders' profits are shown separately in the condensed consolidated income statement.
The tax attributable to policyholder returns is the amount payable in the period plus the movement of amounts expected to be payable in future periods. The remainder of the tax expense is attributed to shareholders as tax attributable to equity holders.
The Group's income tax charge on continuing operations was £23 million for the period ended 30 June 2023, compared to a credit of £114 million for the six-month period to 30 June 2022. This income tax charge can vary significantly period-on-period as a result of market volatility and the impact this has on policyholder tax. The recognition of the income received from policyholders to fund the policyholder tax liability (which is included within the Group's income) can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility in the Group's IFRS profit before tax attributable to equity holders. An adjustment is made to adjusted profit to remove these distortions, as explained further in note 5(b)(vii).
Market movements during the period ended 30 June 2023 resulted in investment gains of £80 million on products subject to policyholder tax. The gain is a component of the total "investment return" gain of £1,302 million shown in the condensed consolidated income statement. The impact of the £80 million investment return gain is the primary reason for the £21 million tax charge attributable to policyholder returns in respect of the continuing operations for the period ended 30 June 2023 (30 June 2022: £145 million credit).
UK Corporation Tax rate
The main rate of Corporation Tax increased from 1 April 2023 from 19% to 25%. The blended rate of 23.5% has been used in calculating current tax for 2023 and any deferred tax assets and liabilities have been recognised at the new rate of 25%.
Top-up tax
On 20 June 2023, The Finance (No.2) Act 2023 was substantively enacted in the UK, introducing a global minimum effective tax rate of 15%. The legislation implements a domestic top-up tax and a multinational top-up tax, effective for accounting periods starting on or after 31 December 2023. The Group has applied the exception under the IAS 12 amendment to recognising and disclosing information about deferred tax assets and liabilities related to top-up income taxes.
8: Earnings per share
The Group calculates earnings per share ("EPS") on a number of different bases. IFRS requires the calculation of basic and diluted EPS. Adjusted EPS reflects earnings that are consistent with the Group's adjusted profit measure and Headline earnings per share ("HEPS") is a requirement of the Johannesburg Stock Exchange.
The bases for the calculation of the Group's EPS are disclosed in note 5(t) of the Group's 2022 Annual Report.
|
|
|
|
|
|
Pence |
|
|
Framework |
Notes |
Six months 2023 |
Six months 20221 |
Full year 2022 |
|
Basic earnings per share |
IFRS |
8(b) |
0.4 |
9.8 |
12.2 |
|
Diluted basic earnings per share |
IFRS |
8(b) |
0.4 |
9.7 |
12.0 |
|
Adjusted basic earnings per share |
Group policy |
8(b) |
4.3 |
3.3 |
8.0 |
|
Adjusted diluted earnings per share |
Group policy |
8(b) |
4.3 |
3.2 |
7.9 |
|
Headline basic earnings per share (net of tax)2 |
JSE Listing Requirements |
8(c) |
0.4 |
10.2 |
12.6 |
|
Headline diluted earnings per share (net of tax)2 |
JSE Listing Requirements |
8(c) |
0.4 |
10.1 |
12.4 |
1The Financial Reporting Council published a thematic review on earnings per share in September 2022. The EPS figures presented above for the six months to 30 June 2022 and the year to 31 December 2022 were calculated using the weighted average number of shares which was determined without making any retrospective adjustment for the impact of the Share Consolidation completed in May 2022 in line with the FRC's guidance and IAS 33 Earnings per Share. In the Group's interim financial statements for the six months to 30 June 2022, the disclosed EPS metrics for June 2022 were calculated using a weighted average number of shares which allowed for a retrospective adjustment for the impact of the May 2022 Share Consolidation. The June 2022 EPS metrics shown above were corrected following the FRC thematic review.
2The basic and diluted headline earnings per share figures for the prior periods have been re-presented as disclosed in note 8(c).
8(a): Weighted average number of Ordinary Shares
The table below summarises the calculation of the weighted average number of Ordinary Shares for the purposes of calculating basic and diluted earnings per share for each profit measure (IFRS, adjusted and headline profit). Details of the impact on the number of shares from the Quilter share buyback scheme are detailed in note 16.
|
|
|
|
|
Million |
|
|
|
Six months 2023 |
Six months 20221 |
Full year 2022 |
|
Weighted average number of Ordinary Shares |
|
1,404 |
1,589 |
1,496 |
|
Own shares including those held in consolidated funds and employee benefit trusts |
|
(51) |
(63) |
(58) |
|
Basic weighted average number of Ordinary Shares |
|
1,353 |
1,526 |
1,438 |
|
Adjustment for dilutive share awards and options |
|
5 |
11 |
20 |
|
Diluted weighted average number of Ordinary Shares |
|
1,358 |
1,537 |
1,458 |
1The Financial Reporting Council published a thematic review on earnings per share in September 2022. The EPS figures presented above for the six months to 30 June 2022 and the year to 31 December 2022 were calculated using the weighted average number of shares which was determined without making any retrospective adjustment for the impact of the Share Consolidation completed in May 2022 in line with the FRC's guidance and IAS 33 Earnings per Share. In the Group's interim financial statements for the six months to 30 June 2022, the disclosed EPS metrics for June 2022 were calculated using a weighted average number of shares which allowed for a retrospective adjustment for the impact of the May 2022 Share Consolidation. The June 2022 EPS metrics shown above were corrected following the FRC thematic review.
8(b): Basic and diluted EPS (IFRS and adjusted profit)
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
|
Six months 2023 |
Six months 2022 |
Full year 2022 |
||||||
|
|
Notes |
Continuing operations |
Discontinued operations |
Total |
Continuing operations |
Discontinued operations |
Total |
Continuing operations |
Discontinued operations |
Total |
|
Profit after tax |
|
5 |
- |
5 |
151 |
(1) |
150 |
175 |
- |
175 |
|
Total adjusting items before tax |
5(a) |
69 |
- |
69 |
(121) |
1 |
(120) |
(65) |
- |
(65) |
|
Tax on adjusting items |
|
2 |
- |
2 |
(126) |
- |
(126) |
(133) |
- |
(133) |
|
Less: Policyholder tax adjustments |
|
(18) |
- |
(18) |
146 |
- |
146 |
138 |
- |
138 |
|
Adjusted profit after tax |
|
58 |
- |
58 |
50 |
- |
50 |
115 |
- |
115 |
|
|
|
Six months 2023 |
Six months 20221 |
Full year 2022 |
||||||
|
|
Post-tax profit measure used |
Continuing operations |
Discontinued operations |
Total |
Continuing operations |
Discontinued operations |
Total |
Continuing operations |
Discontinued operations |
Total |
|
|
Pence |
Pence |
Pence |
Pence |
Pence |
Pence |
Pence |
Pence |
Pence |
|
|
Basic EPS |
IFRS profit |
0.4 |
- |
0.4 |
9.9 |
(0.1) |
9.8 |
12.2 |
- |
12.2 |
|
Diluted EPS |
IFRS profit |
0.4 |
- |
0.4 |
9.8 |
(0.1) |
9.7 |
12.0 |
- |
12.0 |
|
Adjusted basic EPS |
Adjusted profit |
4.3 |
- |
4.3 |
3.3 |
- |
3.3 |
8.0 |
- |
8.0 |
|
Adjusted diluted EPS |
Adjusted profit |
4.3 |
- |
4.3 |
3.2 |
- |
3.2 |
7.9 |
- |
7.9 |
1The Financial Reporting Council published a thematic review on earnings per share in September 2022. The EPS figures presented above for the six months to 30 June 2022 and the year to 31 December 2022 were calculated using the weighted average number of shares which was determined without making any retrospective adjustment for the impact of the Share Consolidation completed in May 2022 in line with the FRC's guidance and IAS 33 Earnings per Share. In the Group's interim financial statements for the six months to 30 June 2022, the disclosed EPS metrics for June 2022 were calculated using a weighted average number of shares which allowed for a retrospective adjustment for the impact of the May 2022 Share Consolidation. The June 2022 EPS metrics shown above were corrected following the FRC thematic review.
8(c): Headline earnings per share
|
|
+ |
+ |
|
|
|
£m |
|
|
|
Six months 2023 |
|
Six months 20221 |
|
Full year 2022 |
|
|
Gross |
Net of tax |
Gross |
Net of tax |
Gross |
Net of tax |
|
Profit attributable to equity holders |
|
5 |
|
150 |
|
175 |
|
Adjusted for: |
|
|
|
|
|
|
|
- add back of impairment loss on property, plant and equipment2 |
- |
- |
7 |
6 |
7 |
6 |
|
- add back of impairment loss on intangible assets |
1 |
1 |
- |
- |
- |
- |
|
Headline earnings |
|
6 |
|
156 |
|
181 |
|
Headline basic EPS (pence) |
|
0.4 |
|
10.2 |
|
12.6 |
|
Headline diluted EPS (pence) |
|
0.4 |
|
10.1 |
|
12.4 |
1The Financial Reporting Council published a thematic review on earnings per share in September 2022. The EPS figures presented above for the six months to 30 June 2022 and the year to 31 December 2022 were calculated using the weighted average number of shares which was determined without making any retrospective adjustment for the impact of the Share Consolidation completed in May 2022 in line with the FRC's guidance and IAS 33 Earnings per Share. In the Group's interim financial statements for the six months to 30 June 2022, the disclosed EPS metrics for June 2022 were calculated using a weighted average number of shares which allowed for a retrospective adjustment for the impact of the May 2022 Share Consolidation. The June 2022 EPS metrics shown above were corrected following the FRC thematic review.
2Figures were re-presented to address an issue with the signage of an adjusting item for the year to 31 December 2022 and to clearly present the tax effects of each adjusting item in the prior periods in line with the relevant guidance.
9: Dividends
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
Payment date |
Six months 2023 |
Six months 2022 |
Full year 2022 |
|
2021 Final dividend paid - 3.9p per Ordinary Share |
16 May 2022 |
- |
62 |
62 |
|
2022 Interim dividend paid - 1.2p per Ordinary Share |
20 September 2022 |
- |
- |
16 |
|
2022 Final dividend paid - 3.3p per Ordinary Share |
22 May 2023 |
45 |
- |
- |
|
Dividends paid to Ordinary Shareholders |
|
45 |
62 |
78 |
Final and interim dividends paid to Ordinary Shareholders are calculated using the number of shares in issue at the record date less own shares held in employee benefit trusts.
10: Goodwill
10(a): Allocation of goodwill to cash-generating units ("CGUs") and impairment testing
Goodwill is monitored by management at the level of the Group's two operating segments: Affluent and High Net Worth. Both operating segments represent a group of CGUs. The allocation of goodwill to these segments was based on their individual value-in-use calculations relative to the combined total.
|
|
|
|
£m |
|
|
30 June 2023 |
30 June 20221 |
31 December 2022 |
|
Goodwill (net carrying amount) |
|
|
|
|
Affluent |
223 |
223 |
223 |
|
High Net Worth |
83 |
83 |
83 |
|
Total goodwill |
306 |
306 |
306 |
1The prior period figures have been re-presented to correct a minor classification difference between the two segments. The amount attributable to Affluent has decreased by £2 million from the amount originally presented with a corresponding increase in High Net Worth.
Impairment review
In accordance with the requirements of IAS 36 Impairment of Assets, goodwill in both the Affluent and High Net Worth CGU groups is tested for impairment annually, or earlier if an indicator of impairment exists, by comparing the carrying value of the CGU group to which the goodwill relates to the recoverable value of that CGU group, being the higher of that CGU group's value-in-use or fair value less costs to sell. If applicable, an impairment charge is recognised when the recoverable amount is less than the carrying value. Goodwill impairment indicators include sudden stock market falls, the absence of positive Net Client Cash Flows ("NCCF"), significant falls in profits and significant increases in the discount rate.
The Group considers that there are indicators of impairment for the period due to rises in interest rates and inflation and the impact of the ongoing conflict in Ukraine on global equity markets and the potential effect this may have on the Group's AuMA and revenue in future periods. Consequently, the goodwill balance has been tested for impairment at 30 June 2023 and continues to demonstrate a surplus of the recoverable amount over the carrying value of the CGUs. As a result, no impairment is required.
The following table shows the percentage change required in each key assumption before the carrying value would exceed the recoverable amount, assuming all other variables remain the same. This highlights that further adverse movements in the key assumptions used in the CGU value-in-use calculation would be required before an impairment would need to be recognised.
|
|
Affluent |
High Net Worth |
|
Reduction in forecast cash flows |
19% |
48% |
|
Percentage point increase in the discount rate |
6% |
19% |
Forecast cash flows are impacted by movements in underlying assumptions, including equity market levels, revenue margins and NCCF. The Group considers that forecast cash flows are most sensitive to movements in equity markets because they have a direct impact on the level of the Group's fee income.
The principal sensitivity within equity market level assumptions relates to the estimated growth in equity market indices included in the three-year cash flow forecasts. Management forecasts equity market growth for each business using estimated asset-specific growth rates that are supported by internal research, historical performance, Bank of England forecasts and other external estimates.
Value-in-use methodology
The value-in-use calculations are determined as the sum of net tangible assets and the expected cash flows from existing and expected future new business derived from the Business Plans. Future cash flow elements allow for the cost of capital needed to support the business.
The cash flows that have been used to determine the value-in-use of the CGUs are based on the most recent management approved three-year profit forecasts, which are contained in the Group's Business Plan. These profit forecasts incorporate anticipated equity market growth on the Group's future cash flows and take into account climate-related risks and other responsible business considerations. These cash flows change at different rates because of the different strategies of the CGUs. In cases where the CGUs have made significant acquisitions in the recent past, the cash flows are forecast to grow faster than the more mature businesses. Post the three-year forecast period, the growth rate used to determine the terminal value of the CGUs in the annual assessment was 2.0% (2022: 2.0%). Market share and market growth information is also used to inform the expected volumes of future new business.
IAS 36 does not permit any cost savings linked to future restructuring activity to be included within the value-in-use calculation unless an associated restructuring provision has also been recognised. Consequently, for the purpose of the value-in-use calculation, a number of planned cost savings and the related implementation costs, primarily in relation to the Business Simplification programme, have been removed from the future cash flows.
The Group uses a single cost of capital of 11.5% (2022: 11.4%) to discount expected future cash flows across its two groups of CGUs because they are considered to present a similar level of risk. Capital is provided to the Group predominantly by shareholders with a relatively small amount of debt financing. The cost of capital is the weighted average of the cost of equity (return required by shareholders) and the cost of debt (return required by bondholders and owners of properties leased by the Group). When assessing the systematic risk (i.e. the beta value) within the calculation of the cost of equity, a triangulation approach is used that combines beta values obtained from historical data, a forward-looking view on the progression of beta values and the external views of investors.
11: Investment property
During the period ended 30 June 2023, the Group entered into a contract to sublet a property to one tenant under an operating lease with rentals payable monthly. This is valued under the cost model in line with IFRS 16 Leases. Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line basis over the sublease term.
12: Financial investments
The table below analyses the investments and securities that the Group invests in, either on its own proprietary behalf (shareholder funds) or on behalf of third parties (policyholder funds).
|
|
|
|
£m |
|
|
30 June 2023 |
30 June 2022 |
31 December 2022 |
|
Government and government-guaranteed securities |
243 |
194 |
225 |
|
Other debt securities, preference shares and debentures |
1,867 |
1,553 |
1,609 |
|
Equity securities |
6,452 |
5,667 |
6,225 |
|
Pooled investments |
36,943 |
34,691 |
35,557 |
|
Short-term funds and securities treated as investments |
1 |
1 |
1 |
|
Total financial investments |
45,506 |
42,106 |
43,617 |
|
|
|
|
|
|
Recoverable within 12 months |
45,506 |
42,106 |
43,617 |
|
Total financial investments |
45,506 |
42,106 |
43,617 |
The financial investments recoverability profile is based on the intention with which the financial assets are held. These assets are held to cover the liabilities for linked investment contracts, all of which can be withdrawn by policyholders on demand.
13: Categories of financial instruments
The analysis of financial assets and liabilities into their categories as defined in IFRS 9 Financial Instruments is set out in the following tables. Assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IFRS 9, are reflected in the non-financial assets and liabilities category.
For information about the methods and assumptions used in determining fair value, refer to note 14. The Group's exposure to various risks associated with financial instruments is discussed in the 2022 Group's Annual Report, note 37. During the period there have been no material changes in the Groups exposure to those risks.
|
30 June 2023 |
|
|
|
|
|
|
|
|
|
|
|
£m |
|
Measurement basis |
Fair value |
|
|
|
|
|
|
Mandatorily at FVTPL |
Designated at FVTPL |
Amortised cost |
Non-financial assets and liabilities |
Total |
|
Assets |
|
|
|
|
|
|
Investments in associated undertakings |
- |
- |
- |
2 |
2 |
|
Loans and advances |
- |
- |
40 |
- |
40 |
|
Financial investments |
45,506 |
- |
- |
- |
45,506 |
|
Trade, other receivables and other assets |
- |
- |
605 |
41 |
646 |
|
Derivative assets |
26 |
- |
- |
- |
26 |
|
Cash and cash equivalents |
1,059 |
- |
741 |
- |
1,800 |
|
Total assets that include financial instruments |
46,591 |
- |
1,386 |
43 |
48,020 |
|
Total other non-financial assets |
- |
- |
- |
594 |
594 |
|
Total assets |
46,591 |
- |
1,386 |
637 |
48,614 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Investment contract liabilities |
- |
40,070 |
- |
- |
40,070 |
|
Third-party interests in consolidated funds |
5,930 |
- |
- |
- |
5,930 |
|
Borrowings and lease liabilities |
- |
- |
284 |
- |
284 |
|
Trade, other payables and other liabilities |
- |
- |
674 |
57 |
731 |
|
Derivative liabilities |
11 |
- |
- |
- |
11 |
|
Total liabilities that include financial instruments |
5,941 |
40,070 |
958 |
57 |
47,026 |
|
Total other non-financial liabilities |
- |
- |
- |
83 |
83 |
|
Total liabilities |
5,941 |
40,070 |
958 |
140 |
47,109 |
|
30 June 2022 |
|
|
|
|
|
|
|
|
|
|
|
£m |
|
Measurement basis |
Fair value |
|
|
|
|
|
|
Mandatorily at FVTPL |
Designated at FVTPL |
Amortised cost |
Non-financial assets and liabilities |
Total |
|
Assets |
|
|
|
|
|
|
Investments in associated undertakings |
- |
- |
- |
1 |
1 |
|
Loans and advances |
- |
- |
34 |
- |
34 |
|
Financial investments |
42,106 |
- |
- |
- |
42,106 |
|
Trade, other receivables and other assets |
- |
- |
467 |
56 |
523 |
|
Derivative assets |
8 |
- |
- |
- |
8 |
|
Cash and cash equivalents |
924 |
- |
869 |
- |
1,793 |
|
Total assets that include financial instruments |
43,038 |
- |
1,370 |
57 |
44,465 |
|
Total other non-financial assets |
- |
- |
- |
670 |
670 |
|
Total assets |
43,038 |
- |
1,370 |
727 |
45,135 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Investment contract liabilities |
- |
37,167 |
- |
- |
37,167 |
|
Third-party interests in consolidation of funds |
5,404 |
- |
- |
- |
5,404 |
|
Borrowings and lease liabilities |
- |
- |
293 |
- |
293 |
|
Trade, other payables and other liabilities |
- |
- |
493 |
122 |
615 |
|
Derivative liabilities |
30 |
- |
- |
- |
30 |
|
Total liabilities that include financial instruments |
5,434 |
37,167 |
786 |
122 |
43,509 |
|
Total other non-financial liabilities |
- |
- |
- |
103 |
103 |
|
Total liabilities |
5,434 |
37,167 |
786 |
225 |
43,612 |
|
31 December 2022 |
|
|
|
|
|
|
|
|
|
|
|
£m |
|
Measurement basis |
Fair value |
|
|
|
|
|
|
Mandatorily at FVTPL |
Designated at FVTPL |
Amortised cost |
Non-financial assets and liabilities |
Total |
|
Assets |
|
|
|
|
|
|
Investments in associated undertakings |
- |
- |
- |
1 |
1 |
|
Loans and advances |
- |
- |
34 |
- |
34 |
|
Financial investments |
43,617 |
- |
- |
- |
43,617 |
|
Trade, other receivables and other assets |
- |
- |
261 |
42 |
303 |
|
Derivative assets |
40 |
- |
- |
- |
40 |
|
Cash and cash equivalents |
1,112 |
- |
670 |
- |
1,782 |
|
Total assets that include financial instruments |
44,769 |
- |
965 |
43 |
45,777 |
|
Total other non-financial assets |
- |
- |
- |
640 |
640 |
|
Total assets |
44,769 |
- |
965 |
683 |
46,417 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Investment contract liabilities |
- |
38,186 |
- |
- |
38,186 |
|
Third-party interests in consolidated funds |
5,843 |
- |
- |
- |
5,843 |
|
Borrowings and lease liabilities |
- |
- |
290 |
- |
290 |
|
Trade, other payables and other liabilities |
- |
- |
358 |
78 |
436 |
|
Derivative liabilities |
20 |
- |
- |
- |
20 |
|
Total liabilities that include financial instruments |
5,863 |
38,186 |
648 |
78 |
44,775 |
|
Total other non-financial liabilities |
- |
- |
- |
94 |
94 |
|
Total liabilities |
5,863 |
38,186 |
648 |
172 |
44,869 |
14: Fair value methodology
This section explains the judgements and estimates made in determining the fair values of financial instruments that are recognised and measured at fair value in the financial statements. Classifying financial instruments into the three levels of the fair value hierarchy (see note 14(b)), prescribed under IFRS, provides an indication about the reliability of inputs used in determining fair value.
14(a): Determination of fair value
The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market exit prices for assets and offer prices for liabilities, at the close of business on the reporting date, without any deduction for transaction costs:
· for units in unit trusts and shares in open-ended investment companies, fair value is determined by reference to published quoted prices representing exit values in an active market;
· for equity and debt securities not actively traded in organised markets and where the price cannot be retrieved, the fair value is determined by reference to similar instruments for which market observable prices exist;
· for assets that have been suspended from trading on an active market, the last published price is used. Many suspended assets are still regularly priced. At the reporting date, all suspended assets are assessed for impairment; and
· where the assets are private equity investments or within consolidated investment funds, the valuation is based on the latest available set of audited financial statements, or if more recent is available, from investment managers or professional valuation experts at the value of the underlying assets of the private equity investment or fund.
There have been no significant changes in the valuation techniques applied when valuing financial instruments. Where assets are valued by the Group, the general principles applied to those instruments measured at fair value are outlined below:
Financial investments
Financial investments include government and government-guaranteed securities, listed and unlisted debt securities, preference shares and debentures, listed and unlisted equity securities, listed and unlisted pooled investments (see below), short-term funds and securities treated as investments and certain other securities.
Pooled investments represent the Group's holdings of shares/units in open-ended investment companies, unit trusts, mutual funds and similar investment vehicles. Pooled investments are recognised at fair value. The fair values of pooled investments are based on widely published prices that are regularly updated.
Other financial investments that are measured at fair value use observable market prices where available. In the absence of observable market prices, these investments and securities are fair valued using various approaches including discounted cash flows, the application of an earnings before interest, tax, depreciation and amortisation multiple or any other relevant technique.
Derivatives
The fair value of derivatives is determined with reference to the exchange-traded prices of the specific instruments. The fair value of over-the-counter forward foreign exchange contracts is determined by reference to the relevant exchange rates.
Investment contract liabilities
The fair value of the investment contract liabilities is determined with reference to the underlying funds that are held by the Group.
Third-party interests in consolidated funds
Third-party interests in consolidated funds are measured at the attributable net asset value of each fund.
14(b): Fair value hierarchy
Fair values are determined according to the following hierarchy:
|
Description of hierarchy |
Types of instruments classified in the respective levels |
|
Level 1 - quoted market prices: financial assets and liabilities with quoted prices for identical instruments in active markets. |
Listed equity securities, government securities and other listed debt securities and similar instruments that are actively traded, actively traded pooled investments, certain quoted derivative assets and liabilities and investment contract liabilities directly linked to other Level 1 financial assets. |
|
Level 2 - valuation techniques using observable inputs: financial assets and liabilities with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial assets and liabilities valued using models where all significant inputs are observable. |
Unlisted equity and debt securities where the valuation is based on models involving no significant unobservable data. Over-the-counter ("OTC") derivatives, certain privately placed debt instruments and third-party interests in consolidated funds which meet the definition of Level 2 financial instruments. |
|
Level 3 - valuation techniques using significant unobservable inputs: financial assets and liabilities valued using valuation techniques where one or more significant inputs are unobservable. |
Unlisted equity and securities with significant unobservable inputs, securities where the market is not considered sufficiently active, including certain inactive pooled investments. |
The judgement as to whether a market is active may include, for example, consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer spreads. In inactive markets, obtaining assurance that the transaction price provides evidence of fair value or determining the adjustments to transaction prices that are necessary to measure the fair value of the asset or liability requires additional work during the valuation process.
The majority of valuation techniques employ only observable data and so the reliability of the fair value measurement is high. Certain financial assets and liabilities are valued on the basis of valuation techniques that feature one or more significant inputs that are unobservable and, for them, the derivation of fair value is more judgemental. A financial asset or liability in its entirety is classified as valued using significant unobservable inputs if a significant proportion of that asset or liability's carrying amount is driven by unobservable inputs.
In this context, 'unobservable' means that there is little or no current market data available from which to determine the price at which an arm's length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Furthermore, in some cases the majority of the fair value derived from a valuation technique with significant unobservable data may be attributable to observable inputs.
14(c): Transfer between fair value hierarchies
The Group deems a transfer to have occurred between Level 1 and Level 2 or Level 3 when an active, traded primary market ceases to exist for that financial instrument. A transfer between Level 2 and Level 3 occurs when the majority of the significant inputs used to determine the fair value of the instrument become unobservable. Transfers from Levels 3 or 2 to Level 1 are also possible when assets become actively priced.
There were no transfers of financial investments from Level 1 to Level 2 during the period (30 June 2022: £nil, 31 December 2022: £nil). There were no transfers of financial investments from Level 2 to Level 1 during the period (30 June 2022: £nil 31 December 2022: £nil).
See note 14(e) for the reconciliation of Level 3 financial instruments.
14(d): Financial assets and liabilities measured at fair value, classified according to the fair value hierarchy
The majority of the Group's financial assets are measured using quoted market prices for identical instruments in active markets (Level 1) and there have been no significant changes during the period.
The linked assets are held to cover the liabilities for linked investment contracts. The difference between linked assets and linked liabilities is principally due to short-term timing differences between policyholder premiums being received and invested in advance of policies being issued, and tax liabilities within funds which are reflected within the Group's tax liabilities.
Differences between assets and liabilities within the respective levels of the fair value hierarchy also arise due to the mix of underlying assets and liabilities within consolidated funds. In addition, third-party interests in consolidated funds are classified as Level 2.
The table below presents a summary of the Group's financial assets and liabilities that are measured at fair value in the condensed consolidated statement of financial position according to their IFRS 9 classification (see note 13 for further details).
|
|
|
|
£m |
|
|
30 June 2023 |
30 June 2022 |
31 December 2022 |
|
Financial assets measured at fair value |
|
|
|
|
Level 1 |
39,756 |
37,312 |
38,452 |
|
Level 2 |
6,818 |
5,702 |
6,288 |
|
Level 3 |
17 |
24 |
29 |
|
Total |
46,591 |
43,038 |
44,769 |
|
|
|
|
|
|
Financial liabilities measured at fair value |
|
|
|
|
Level 1 |
40,060 |
37,145 |
38,161 |
|
Level 2 |
5,941 |
5,434 |
5,863 |
|
Level 3 |
10 |
22 |
25 |
|
Total |
46,011 |
42,601 |
44,049 |
The tables below further analyse the Group's financial assets and liabilities measured at fair value by the fair value hierarchy described in note 14(b):
|
|
|
|
|
£m |
|
30 June 2023 |
Level 1 |
Level 2 |
Level 3 |
Total |
|
Financial assets measured at fair value |
|
|
|
|
|
Financial investments |
38,697 |
6,792 |
17 |
45,506 |
|
Cash and cash equivalents |
1,059 |
- |
- |
1,059 |
|
Derivative assets |
- |
26 |
- |
26 |
|
Mandatorily (fair value through profit or loss) |
39,756 |
6,818 |
17 |
46,591 |
|
|
|
|
|
|
|
Total assets measured at fair value |
39,756 |
6,818 |
17 |
46,591 |
|
|
|
|
|
|
|
Financial liabilities measured at fair value |
|
|
|
|
|
Third-party interests in consolidated funds |
- |
5,930 |
- |
5,930 |
|
Derivative liabilities |
- |
11 |
- |
11 |
|
Mandatorily (fair value through profit or loss) |
- |
5,941 |
- |
5,941 |
|
|
|
|
|
|
|
Investment contract liabilities |
40,060 |
- |
10 |
40,070 |
|
Designated (fair value through profit or loss) |
40,060 |
- |
10 |
40,070 |
|
|
|
|
|
|
|
Total liabilities measured at fair value |
40,060 |
5,941 |
10 |
46,011 |
|
|
|
|
|
£m |
|
30 June 2022 |
Level 1 |
Level 2 |
Level 3 |
Total |
|
Financial assets measured at fair value |
|
|
|
|
|
Financial investments |
36,388 |
5,694 |
24 |
42,106 |
|
Cash and cash equivalents |
924 |
- |
- |
924 |
|
Derivative assets |
- |
8 |
- |
8 |
|
Mandatorily (fair value through profit or loss) |
37,312 |
5,702 |
24 |
43,038 |
|
|
|
|
|
|
|
Total assets measured at fair value |
37,312 |
5,702 |
24 |
43,038 |
|
|
|
|
|
|
|
Financial liabilities measured at fair value |
|
|
|
|
|
Third-party interests in consolidated funds |
- |
5,404 |
- |
5,404 |
|
Derivative liabilities |
- |
30 |
- |
30 |
|
Mandatorily (fair value through profit or loss) |
- |
5,434 |
- |
5,434 |
|
Investment contract liabilities |
37,145 |
- |
22 |
37,167 |
|
Designated (fair value through profit or loss) |
37,145 |
- |
22 |
37,167 |
|
|
|
|
|
|
|
Total liabilities measured at fair value |
37,145 |
5,434 |
22 |
42,601 |
|
|
|
|
|
£m |
|
31 December 2022 |
Level 1 |
Level 2 |
Level 3 |
Total |
|
Financial assets measured at fair value |
|
|
|
|
|
Financial investments |
37,340 |
6,248 |
29 |
43,617 |
|
Cash and cash equivalents |
1,112 |
- |
- |
1,112 |
|
Derivative assets |
- |
40 |
- |
40 |
|
Mandatorily (fair value through profit or loss) |
38,452 |
6,288 |
29 |
44,769 |
|
|
|
|
|
|
|
Total assets measured at fair value |
38,452 |
6,288 |
29 |
44,769 |
|
|
|
|
|
|
|
Financial liabilities measured at fair value |
|
|
|
|
|
Third-party interests in consolidated funds |
- |
5,843 |
- |
5,843 |
|
Derivative liabilities |
- |
20 |
- |
20 |
|
Mandatorily (fair value through profit or loss) |
- |
5,863 |
- |
5,863 |
|
Investment contract liabilities |
38,161 |
- |
25 |
38,186 |
|
Designated (fair value through profit or loss) |
38,161 |
- |
25 |
38,186 |
|
|
|
|
|
|
|
Total liabilities measured at fair value |
38,161 |
5,863 |
25 |
44,049 |
14(e): Level 3 fair value hierarchy disclosure
The majority of the assets classified as Level 3 are held within linked policyholder funds. Where this is the case, all of the investment risk associated with these assets is borne by policyholders and the value of these assets is exactly matched by a corresponding liability due to policyholders. The Group bears no risk from a change in the market value of these assets except to the extent that it has an impact on management fees earned.
Level 3 assets also include investments within consolidated funds. The Group bears no risk from a change in the market value of these assets except to the extent that it has an impact on fund management fee income. Any changes in market value are matched by a corresponding Level 2 liability within third-party interests in consolidated funds.
The table below reconciles the opening balance of Level 3 financial assets to the closing balance at each period end:
|
|
|
|
£m |
|
|
30 June 2023 |
30 June 2022 |
31 December 2022 |
|
At beginning of the period |
29 |
27 |
27 |
|
Fair value (losses)/gains charged to the income statement1 |
(1) |
5 |
(5) |
|
Sales |
(1) |
(1) |
(2) |
|
Transfers in |
6 |
105 |
125 |
|
Transfers out |
(16) |
(112) |
(116) |
|
Total Level 3 financial assets at the end of the period |
17 |
24 |
29 |
|
Unrealised fair value (losses)/gains recognised in the income statement relating to assets held at the period end |
(1) |
2 |
(9) |
1Included in Investment return within condensed consolidated income statement.
All of the assets that are classified as Level 3 are suspended funds for each of the periods presented.
Transfers into Level 3 assets in the current period total £6 million (30 June 2022: £105 million, 31 December 2022: £125 million). This is mainly due to suspended funds previously shown within Level 1. Suspended funds are valued based on external valuation reports received from fund managers. Transfers out of Level 3 assets in the current period of £16 million (30 June 2022: £112 million, 31 December 2022: £116 million) result from a transfer to Level 1 assets relating to assets that are now being actively repriced (that were previously stale) and where fund suspensions have been lifted.
The table below reconciles the opening balance of Level 3 financial liabilities to the closing balance at each period end:
|
|
|
|
£m |
|
|
30 June 2023 |
30 June 2022 |
31 December 2022 |
|
At beginning of the period |
25 |
24 |
24 |
|
Fair value gains/(losses) charged to the income statement1 |
- |
5 |
(2) |
|
Transfers in |
2 |
105 |
119 |
|
Transfers out |
(17) |
(112) |
(116) |
|
Total Level 3 financial liabilities at the end of the period |
10 |
22 |
25 |
|
Unrealised fair value losses recognised in the income statement relating to liabilities held at the period end |
(1) |
(2) |
(5) |
1Included in Investment return within condensed consolidated income statement.
Excluding investments within consolidated funds, changes in level 3 assets relates to assets held within linked policyholder funds which are exactly matched by corresponding changes in the value of liabilities due to policyholders and therefore have no impact on the Group's net asset value or profit or loss, except to the extent of the impact on management fees earned.
14(f): Effect of changes in significant unobservable assumptions to reasonable possible alternatives
Details of the valuation techniques applied to the different categories of financial instruments can be found in note 14(a) above, including the valuation techniques applied when significant unobservable assumptions are used to value Level 3 assets.
For Level 3 assets and liabilities, no reasonable alternative assumptions are applicable and the Group therefore performs a sensitivity test of an aggregate 10% change in the value of the financial asset or liability (30 June 2022: 10%, 31 December 2022: 10%), representing a reasonable alternative judgement in the context of the current macroeconomic environment in which the Group operates. It is therefore considered that the impact of this sensitivity will be in the range of £2 million to the reported fair value of Level 3 assets, both favourable and unfavourable (30 June 2022: £2 million, 31 December 2022: £3 million).
14(g): Fair value hierarchy for assets and liabilities not measured at fair value
Certain financial instruments of the Group are not carried at fair value. The carrying values of these are considered reasonable approximations of their respective fair values as they are either short term in nature or are repriced to current market rates at frequent intervals.
15: Cash and cash equivalents
15(a): Analysis of cash and cash equivalents
|
|
|
|
|
£m |
|
|
|
30 June 2023 |
30 June 2022 |
31 December 2022 |
|
Cash at bank |
|
420 |
582 |
406 |
|
Money market funds |
|
1,059 |
924 |
1,112 |
|
Cash and cash equivalents in consolidated funds |
|
321 |
287 |
264 |
|
Total cash and cash equivalents per statement of cash flows |
|
1,800 |
1,793 |
1,782 |
The Group's management does not consider that the cash and cash equivalents balance arising due to consolidation of funds of £321 million (30 June 2022: £287 million, 31 December 2022: £264 million) is available for use in the Group's day-to-day operations. The remainder of the Group's cash and cash equivalents balance of £1,479 million (30 June 2022: £1,506 million, 31 December 2022: £1,518 million) is considered to be available for general use by the Group for the purposes of the disclosures required under IAS 7 Statement of Cash Flows. This balance includes policyholder cash as well as cash and cash equivalents held by regulated subsidiaries to meet their capital and liquidity requirements.
16: Share capital
At 30 June 2023, the Company's equity capital comprises 1,404,105,498 Ordinary Shares of 8 1/6 pence each with an aggregated nominal value of £114,668,616 (30 June 2022: 1,404,105,498 Ordinary Shares of 8 1/6 pence each with an aggregated nominal value of £114,668,616, 31 December 2022: 1,404,105,498 Ordinary Shares of 8 1/6 pence each with an aggregated nominal value of £114,668,616). All Ordinary Shares have been called up and fully paid.
This note gives details of the movements in Ordinary Share capital during the period to 30 June 2023 and during 2022.
|
|
|
|
£m |
£m |
|
|
|
Number of Ordinary Shares |
Nominal value of Ordinary Shares |
Ordinary Share premium |
|
At 1 January 2022 |
|
1,655,827,217 |
116 |
58 |
|
Shares cancelled through share buyback programme |
|
(17,704,132) |
(1) |
- |
|
Share Consolidation (including shares cancelled) |
|
(234,017,587) |
- |
- |
|
At 30 June 2022 |
|
1,404,105,498 |
115 |
58 |
|
At 31 December 2022 |
|
1,404,105,498 |
115 |
58 |
|
At 30 June 2023 |
|
1,404,105,498 |
115 |
58 |
On 11 March 2020, the Company announced a share buyback programme to purchase shares up to a maximum value of £375 million, in order to return the net surplus proceeds to shareholders arising from the sale of Quilter Life Assurance which had the impact of reducing the share capital of the Company. The programme completed in January 2022.
On 9 March 2022, the Company announced a capital return of £328 million, equivalent to 20 pence per share, from the net surplus proceeds arising from the sale of Quilter International by way of a B share scheme. Following the return of capital, a share consolidation was completed so that comparability between the market price for Quilter plc's Ordinary Shares before and after the implementation of the B share scheme was maintained.
New Ordinary Shares were issued for existing Ordinary Shares in a ratio of six new shares of 8 1/6 pence each for seven existing shares of 7 pence each resulting in a reduction in the numbers of shares by 234,017,587.
At 30 June 2023, there is one class of share capital being the Ordinary Shares of 8 1/6 pence each.
17: Investment contract liabilities
The following table provides a summary of the Group's investment contract liabilities:
|
|
|
|
£m |
|
|
30 June 2023 |
30 June 2022 |
31 December 2022 |
|
Carrying amount at 1 January |
38,186 |
41,071 |
41,071 |
|
Fair value movements |
862 |
(5,020) |
(4,878) |
|
Investment income |
156 |
195 |
560 |
|
Movements arising from investment return |
1,018 |
(4,825) |
(4,318) |
|
Contributions received |
2,507 |
2,404 |
4,408 |
|
Withdrawals and surrenders |
(1,537) |
(1,370) |
(2,759) |
|
Claims and benefits |
(117) |
(112) |
(219) |
|
Other movements |
13 |
(1) |
3 |
|
Change in liability |
1,884 |
(3,904) |
(2,885) |
|
Investment contract liabilities at end of the period |
40,070 |
37,167 |
38,186 |
For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit.
The benefits offered under the unit-linked investment contracts are based on the risk appetite of policyholders and the return on their selected investments and collective fund investments, whose underlying investments include equities, debt securities, property and derivatives. This investment mix is unique to individual policyholders.
For unit-linked business, the unit liabilities are determined as the value of units credited to policyholders. Since these liabilities are determined on a retrospective basis, no assumptions for future experience are required. Assumptions for future experience are required for unit-linked business in assessing whether the total of the contract costs asset and contract liability is greater than the present value of future profits expected to arise on the relevant blocks of business (the "recoverability test"). If this is the case, then the contract costs asset is restricted to the recoverable amount. For linked contracts, the assumptions are on a best estimate basis.
18: Provisions
|
|
|
|
|
|
£m |
|
30 June 2023 |
Compensation provisions |
Sale of subsidiaries provision |
Property provisions |
Clawback and other provisions |
Total |
|
Balance at beginning of the year |
23 |
15 |
12 |
19 |
69 |
|
Charge to income statement |
8 |
- |
- |
4 |
12 |
|
Used during the period |
(9) |
(7) |
(1) |
- |
(17) |
|
Unused amounts reversed |
(2) |
- |
- |
(1) |
(3) |
|
Balance at 30 June 2023 |
20 |
8 |
11 |
22 |
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
30 June 2022 |
Compensation provisions |
Sale of subsidiaries provision |
Property provisions |
Clawback and other provisions |
Total |
|
Balance at beginning of the year |
41 |
22 |
9 |
21 |
93 |
|
Charge to income statement |
3 |
1 |
4 |
1 |
9 |
|
Used during the period |
(20) |
(4) |
- |
(1) |
(25) |
|
Unused amounts reversed |
(11) |
- |
- |
(2) |
(13) |
|
Balance at 30 June 2022 |
13 |
19 |
13 |
19 |
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
31 December 2022 |
Compensation provisions |
Sale of subsidiaries provision |
Property provisions |
Clawback and other provisions |
Total |
|
Balance at beginning of the year |
41 |
22 |
9 |
21 |
93 |
|
Charge to income statement |
22 |
- |
4 |
3 |
29 |
|
Used during the year |
(28) |
(7) |
(1) |
(2) |
(38) |
|
Unused amounts reversed |
(12) |
- |
- |
(4) |
(16) |
|
Reclassification within the statement of financial position1 |
- |
- |
- |
1 |
1 |
|
Balance at 31 December 2022 |
23 |
15 |
12 |
19 |
69 |
1Clawback and other provisions included the balancing premium payable for the bulk annuity purchased for the Quilter Cheviot Limited Retirement Benefits scheme which was reclassified during the year to 31 December 2022 from accruals reflecting the uncertainty of the amounts to be settled.
Compensation provisions
Compensation provisions total £20 million (30 June 2022: £13 million, 31 December 2022: £23 million). The net reduction of £3 million during the period consists of additional charges to the income statement of £8 million, compensation payments made during the period of £9 million and £2 million release of unused amounts during 2023 following further review work completed during the period. Compensation provisions are comprised of the following:
Lighthouse pension transfer advice provision of £6 million (30 June 2022: £3 million, 31 December 2022: £5 million)
Lighthouse pension transfer advice provided to British Steel Pension Scheme members of £3 million (30 June 2022: £2 million, 31 December 2022: £4 million)
A total provision of £3 million (30 June 2022: £2 million, 31 December 2022: £4 million) remains for the redress of British Steel Pension Scheme cases, including anticipated costs associated with the redress activity. This is comprised of two parts:
(a) Client redress provision of £2 million (30 June 2022: £nil, 31 December 2022: £3 million). During the period, no significant payments have been made to customers, and the redress provision has been recalculated for the latest suitability assessment performed.
(b) Anticipated costs associated with redress activity of £1 million (30 June 2022: £2 million, 31 December 2022: £1 million). This provision is recognised in respect of the anticipated costs of legal and professional fees related to the cases and redress process, which includes the expected costs to review advice. Legal and professional fees of £1 million have been paid during the period.
During the year to 31 December 2022, the skilled person completed their review of all British Steel Pension Scheme cases within the scope of the skilled person's review, reflecting the outcome of the review of the suitability of the DB to DC pension transfer advice for each case, and all remaining offers were made to customers who received unsuitable DB to DC pension transfer advice which caused them to sustain a loss.
Certain customers who were included in the skilled person review have referred their case to the Financial Ombudsman Service, relating to cases where: (i) relevant DB to DC pension transfer advice was found to be suitable by the skilled person; or (ii) where relevant DB to DC pension transfer advice was found to be unsuitable by the skilled person, but the customer disagrees with the way in which their redress offer has been calculated by the skilled person. The Financial Ombudsman Service has upheld some challenges and the future redress payments or estimated liabilities in relation to such cases are included within the amounts stated above in this note. Further challenges may be upheld.
In November 2022, the FCA published a policy statement containing the final rules for a redress scheme for former members of the British Steel Pension Scheme who received unsuitable advice (the "BSPS Redress Scheme"). The BSPS Redress Scheme covers those persons who received advice between 26 May 2016 and 29 March 2018 to transfer out of the British Steel Pension Scheme. The final rules for the BSPS Redress Scheme set out how advisers must determine whether they gave unsuitable advice and whether they must pay redress. The Group may therefore face further costs of redress as a result of the BSPS Redress Scheme. The BSPS Redress Scheme does not cover individuals that have accepted redress for the advice provided, referred the matter to the Financial Ombudsman Service or received a final outcome following a suitability assessment of their case conducted through a skilled person review. Therefore, based on the rules of the BSPS Redress Scheme, this process will not include Lighthouse cases that have already been reviewed by the skilled person where the customer received a final outcome.
However, based on the rules for the BSPS Redress Scheme, there are approximately 30 Lighthouse cases relating to British Steel Pension Scheme members that fall within the scope of the BSPS Redress Scheme. These customers have been written to during the period ending 30 June 2023, in line with the timeline prescribed within the BSPS Redress Scheme. The client redress provision includes an estimate for these customers' cases. Any redress payable is expected to be paid during the second half of 2023.
Lighthouse pension transfer advice provided to members of other schemes of £3 million (30 June 2022: £1 million, 31 December 2022: £1 million)
The skilled person review of Lighthouse DB to DC pension transfer advice cases identified unsuitable DB to DC pension transfer advice provided by Lighthouse advisers for pension schemes other than the British Steel Pension Scheme. The initial scope of the review concluded in 2022, with £3 million paid to customers and the remaining provision released to the income statement. The skilled person review then concluded in December 2022.
The skilled person recommended a review of a further sample of Lighthouse DB to DC pension transfer advice cases not relating to the British Steel Pension Scheme. In December 2022, the FCA confirmed to the Group that it agreed with the skilled person's recommendation. The FCA also confirmed that, given the cooperation of the Group in relation to the skilled person review and established past business review methodology and consistent with the recommendation made by the skilled person, this further sample should be reviewed under a Group-managed past business review process . The FCA also agreed with the skilled person that the further sample should be selected on a risk-based approach and has set out to the Group the key risk factors to be used in determining the sample. The review of this sample has identified some additional cases where customer redress is required. Until the review of the relevant sample has been completed, uncertainty exists as to the number of cases where this will be required and the value of total redress which may be payable. A provision for redress relating to the review of this further sample of cases of £1 million was established at 31 December 2022 and has been increased to £3 million at 30 June 2023, based upon the suitability review of cases to date. Any redress payable is expected to be paid during the second half of 2023.
Compensation provisions (other) of £14 million (30 June 2022: £10 million, 31 December 2022: £18 million)
Other compensation provisions of £14 million include amounts relating to the cost of correcting deficiencies in policy administration systems, including restatements, any associated litigation costs and the related costs to compensate previous or existing policyholders and customers. This provision represents management's best estimate of expected outcomes based upon previous experience, and a review of the details of each case. Due to the nature of the provision, the timing of the expected cash outflows is uncertain. The best estimate of the timing of outflows is that the majority of the balance is expected to be settled within 12 months.
A provision of £6 million, included within the balance, has been recognised at 30 June 2023 (30 June 2022: £4 million, 31 December 2022: £7 million) relating to potentially unsuitable DB to DC pension transfer advice provided by advisers, including advice provided prior to Quilter's acquisition of the relevant advice businesses other than Lighthouse. Of this balance, £2 million (30 June 2022: £2 million, 31 December 2022: £2 million) has been recognised for potentially unsuitable DB to DC pension transfer advice provided to British Steel Pension Scheme members by Quilter Financial Planning firms other than Lighthouse. This provision was recognised following the receipt of a "Dear CEO" letter from the FCA in December 2021, and subsequent establishment of the BSPS Redress Scheme in 2022. During 2023, relevant British Steel Pension Scheme cases have been reviewed for suitability by an independent expert. The estimate of the provision has been updated for the current status of the review and redress estimated based upon the Group's experience of the Lighthouse skilled person review. Customer redress is expected to be calculated and paid to relevant customers during the second half of 2023.
A provision of £4 million, included within the balance at 31 December 2022, related to Final Plan Closure ("FPC") receipts previously recognised as revenue since 2013 for distributions the Group received from investments for customers who had previously closed their accounts. FPC receipts represent distributions, including tax gross ups where relevant, and rebates received after a customer has left the Quilter platform, which the terms and conditions of the pension and insured bonds legally entitled the Group to retain. A review in 2022 led to a change in business policy, and Quilter made the decision to voluntarily return these amounts to those impacted customers backdated to inception, with an appropriate rate of interest applied to each balance. A provision of £6 million was initially recognised in 2022, and payments of £2 million were made to customers during 2022. The remaining provision outstanding at 31 December 2022 of £4 million has been paid to customers during the current period.
The Group estimates a reasonably possible change of +/- £3 million from the £14 million balance, based upon a review of the cases and the range of potential outcomes for the customer redress payments.
Sale of subsidiaries
Sale of subsidiaries provisions total £8 million at 30 June 2023 (30 June 2022: £19 million, 31 December 2022: £15 million), and include the following:
Provisions arising on the disposal of Quilter International of £8 million (30 June 2022: £14 million, 31 December 2022: £11 million)
Quilter International was sold on 30 November 2021, resulting in provisions totalling £17 million being established in respect of costs related to the disposal including the costs of business separation and data migration activities.
The costs of business separation arise from the process required to separate Quilter International's infrastructure, which is complex and covers a wide range of areas including people, IT systems, data, contracts and facilities. A programme team has been established to ensure the transition of these areas to the acquirer. These provisions have been based on external quotations and estimates, together with estimates of the incremental time and resource costs required to achieve the separation, which is expected to occur over a two-to-three-year period from the date of the sale.
The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. Calculation of the provision is based on management's best estimate of the work required, the time it is expected to take, the number and skills of the staff required and their cost, and the cost of related external IT services to support the work. In reaching these judgements and estimates, management has made use of its past experience of previous IT migrations following business disposals.
During the period, £3 million (30 June 2022: £2 million, 31 December 2022: £6 million) of the provision has been used. The Group estimates a provision sensitivity of +/-25% (£2 million), based upon a review of the range of time periods expected to complete the work required. The remaining balance of £8 million is forecast to be paid within one year.
Sale of Single Strategy business provision of £nil (30 June 2022: £5 million, 31 December 2022: £4 million)
The provision in the prior periods related to sale-related future commitments made to the buyer (now known as Jupiter Investment Management ("Jupiter")) of the Single Strategy business, which was initially recognised in 2018, in relation to the level of revenues for Jupiter in future years arising from funds invested by customers of Quilter. In 2021, £2 million was settled relating to the 2020 measurement year.
In the period to 30 June 2023, £4 million was agreed and settled relating to the 2022 measurement year, which is the final measurement year according to the sale agreement. This was the final amount payable under this arrangement with Jupiter.
Property provisions
Property provisions represent the discounted value of expected future costs of reinstating leased property to its original condition at the end of the lease term, and any onerous commitments which may arise in cases where a leased property is no longer fully used by the Group. The estimate is based upon property location, size of property and an estimate of the charge per square foot. Property provisions are used or released when the reinstatement obligations have been fulfilled. The associated asset for the property provisions relating to the cost of reinstating property is included within "Property, plant and equipment".
Of the £11 million provision outstanding, £3 million is estimated to be payable within one year. The majority of the balance relates to leased property which have a lease term maturity of more than five years.
Clawback and other provisions
Other provisions include amounts for the resolution of legal uncertainties and the settlement of other claims raised by contracting parties and indemnity commission provisions. Where material, provisions are discounted at discount rates specific to the risks inherent in the liability. The timing and final amounts of payments, particularly those in respect of litigation claims and similar actions against the Group, are uncertain and could result in adjustments to the amounts recorded.
Included within the balance at 30 June 2023 is £13 million (30 June 2022: £14 million, 31 December 2022: £14 million) of clawback provisions in respect of potential refunds due to product providers on indemnity commission within the Quilter Financial Planning business. This provision, which is estimated and charged as a reduction of revenue on the income statement at the point of sale of each policy, is based upon assumptions determined from historical experience of the proportion of policyholders cancelling their policies, which requires Quilter to refund a portion of commission previously received. Reductions to the provision result from the payment of cash to product providers as refunds or the recognition of revenue where a portion is assessed as no longer payable. The provision has been assessed at the reporting date and adjusted for the latest cancellation information available. At 30 June 2023, an associated balance of £8 million recoverable from brokers is included within "Trade, other receivables and other assets" (30 June 2022: £8 million, 31 December 2022: £8 million).
The Group estimates a reasonably possible change of +/- £3 million, based upon the potential range of outcomes for the proportion of cancelled policies within the clawback provision, and a detailed review of the other provisions.
Of the total £22 million provision outstanding, £11 million is estimated to be payable within one year (30 June 2022: £9 million, 31 December 2022: £8 million).
19: Contingent liabilities
The Group, in the ordinary course of business, enters into transactions that expose it to tax, legal, regulatory and business risks. The Group recognises a provision when it has a present obligation as a result of past events, it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made (see note 18). Possible obligations and known liabilities where no reliable estimate can be made or it is considered improbable that an outflow would result are reported as contingent liabilities in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
The Group routinely monitors and assesses contingent liabilities arising from matters such as business reviews, litigation, warranties and indemnities relating to past acquisitions and disposals.
Contingent liabilities - DB to DC pension transfer advice redress
The skilled person review which covered British Steel Pension Scheme DB to DC pension transfer advice activity undertaken by Lighthouse advisers, and a representative sample of other Lighthouse DB to DC pension transfer advice activity in the skilled person review concluded in December 2022. The skilled person recommended a review of a further sample of Lighthouse DB to DC pension transfer advice cases not relating to the British Steel Pension Scheme, and this further sample will be reviewed under a Group-managed past business review process. Details of provisions for redress payable and payments made are included within provisions as set out in note 18. Until the review has finalised, uncertainty exists as to the number of cases where further review will be required and the value of total redress that will be payable.
Customers have the legal right to challenge the outcome of the skilled person review in respect of their case via a complaint to the Financial Ombudsman Service. Certain customers have made such complaints. The skilled person was independent from the Group and ran a robust process, which was overseen by the FCA. The Financial Ombudsman Service has upheld some challenges and the future redress payments or estimated liabilities in relation to such cases are included within the amounts stated in note 18. Further challenges may be upheld.
At the conclusion of its enforcement investigation, the FCA issued a Final Notice to Lighthouse in May 2023. The FCA found that Lighthouse had provided unsuitable DB to DC pension transfer advice but imposed no financial penalty. The FCA acknowledged in its decision that Lighthouse provided very high levels of co-operation in relation to the FCA's investigation and that the Group, on its own initiative, promptly paid redress to customers who received unsuitable DB to DC pension transfer advice from Lighthouse and sustained losses as a result of that advice.
It is possible that further material costs of redress may be incurred in relation to past business reviews and the BSPS Redress Scheme. Further customer redress costs may also be incurred for other potential unsuitable DB to DC pension transfer advice provided across the Group.
Any further redress costs, and any differences between the provision and the final payment to be made for any unsuitable DB to DC pension transfer cases, will be recognised as an expense or credit in the income statement.
Tax
The tax authorities in the countries in which the Group operates routinely review historical transactions undertaken and tax law interpretations made by the Group. The Group is committed to conducting its tax affairs in accordance with the tax legislation of the countries in which it operates. All interpretations made by the Group are made with reference to the specific facts and circumstances of the transaction and the relevant legislation.
There are occasions where the Group's interpretation of tax law may be challenged by the tax authorities. The condensed consolidated interim financial statements include provisions that reflect the Group's assessment of liabilities which might reasonably be expected to materialise as part of their review. The Group is satisfied that adequate provisions have been made to allow for the resolution of tax uncertainties and that the resources available to fund such potential settlements are sufficient.
Due to the level of estimation required in determining tax provisions, amounts eventually payable may differ from the provision recognised.
Complaints, disputes and regulations
The Group is committed to treating customers fairly and supporting its customers in meeting their lifetime goals. During the normal course of business, from time to time, the Group receives complaints and claims from customers including, but not limited to, complaints to the Financial Ombudsman Service and legal proceedings related thereto, enters into commercial disputes with service providers and other parties, and is subject to discussions and reviews with regulators. The costs, including legal costs, of these issues as they arise can be significant and, where appropriate, provisions have been established in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
20: Related party transactions
In the normal course of business, the Group enters into transactions with related parties. Loans to related parties are conducted on an arm's length basis and are not material to the Group's results. There were no transactions with related parties during the current period or the prior period which had a material effect on the results or financial position of the Group.
21: Events after the reporting date
Interim dividend
Subsequent to 30 June 2023, the Board has declared an interim dividend of 1.5 pence per Ordinary Share. This amounts to £20 million in total and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2023. The interim dividend will be paid on 18 September 2023 to shareholders on the UK and South African share registers.
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