Quilter plc Full Year Results 2021 - Part 1
NEWS RELEASE
9 March 2022
Quilter plc preliminary results for the year ended 31 December 2021
Revenue growth and cost management drive 28% profit growth
Management basis - Continuing business (excluding Quilter International)
· Assets under Management and Administration ("AuMA") of £111.8 billion at the end of December 2021, an increase of 13% from 31 December 2020 (£99.0 billion), with growth supported by improved net flows and positive market movement.
o Net inflows of £4.0 billion (2020: £1.5 billion) representing 4% of opening AuMA (2020: 2%), with particularly strong performance from the new Quilter Investment Platform with £3.5 billion of net inflows, up 133% on prior year.
· Improved operating margin of 22% (2020: 19%) with growth in revenues of 10% and expenses of 5% given the unusual operating environment of the prior year due to COVID-19.
· Adjusted profit before tax increased by 28% to £138 million (2020: £108 million).
· IFRS profit before tax attributable to equity holders from continuing operations of £12 million (2020: loss of £27 million) given the increase in profit attributable to favourable equity market movements throughout the year resulting in higher AuMA.
· Adjusted diluted earnings per share from continuing operations increased 42% to 7.4 pence (2020: 5.2 pence), supported by a low tax rate (arising from a deferred tax credit in the first half of 2021) and a reduced share count due to the capital return programme.
· Final dividend of 3.9 pence per share versus 3.6 pence for 2020, bringing the total dividend for the year to 5.6 pence per share an increase of 22% (2020: 4.6 pence per share) inclusive of contribution of £25 million, or 1.6 pence per share, from Quilter International. Excluding the contribution from Quilter International, the dividend contribution from continuing operations has increased 39% to 4.0 pence.
Group highlights (including Quilter International)
· Adjusted profit before tax increased 12% to £188 million (2020: £168 million) of which £50 million (2020: £60 million) from Quilter International.
· IFRS profit after tax of £154 million (2020: £88 million).
· Adjusted diluted earnings per share of 10.4 pence, of which 3.0 pence is in respect of Quilter International (2020: 8.5 pence, of which 3.3 pence was in respect of Quilter International).
Statutory results
· IFRS profit after tax from continuing operations of £23 million (2020: £13 million).
· Basic earnings per share from continuing operations of 1.4 pence (2020: 0.8 pence).
· Diluted earnings per share from continuing operations of 1.4 pence (2020: 0.8 pence).
· Solvency II ratio of 275% after payment of the recommended final dividend (2020: 217%).
Strategic progress
· Successfully completed migration of advisers and clients onto the new Quilter Investment Platform in February 2021 with a substantial increase in gross flows onto our platform (58%), with gross flows from independent financial advisers increasing by 63%.
· Completion, in January 2022, of the £375 million share buyback programme from the Quilter Life Assurance sale proceeds. 264 million shares purchased at an average price of 141.97 pence per share, leading to a c.14% reduction in share count since programme inception.
· Sale of Quilter International at end November 2021 for £481 million completes the corporate restructuring of Quilter that has been in progress since prior to our Listing in June 2018.
· Proposed £328 million capital return (20 pence per share), equivalent to c.17% of market capitalisation, through B share scheme accompanied by a share consolidation, subject to regulatory engagement and shareholder approval at a General Meeting to be held on 12 May 2022. A separate announcement providing details of the timetable for the B share scheme and share consolidation has also been published today.
· Our Capital Markets Day in November 2021 set out a simpler customer-centric business structure, announced additional cost savings of £45 million through Simplification and set out targets, assuming stable markets, to double adjusted profit by the end of 2025 (from the continuing 2020 base); deliver mid-teens compound growth in earnings per share through 2025 (from the continuing 2020 base); and achieve an operating margin of at least 25% and 30% by 2023 and 2025 respectively.
Paul Feeney, Chief Executive Officer, said:
"2021 was an important year for Quilter as we completed our planned strategic evolution through the successful migration of customers and advisers onto our new platform and completed the sale of Quilter International for £481 million. We also demonstrated strong financial performance with more than doubled net inflows of £4 billion and achieved revenue growth of 10% while limiting cost growth to 5% to deliver adjusted profit growth of 28%.
Our confidence in our prospects is reflected in the Board's decision to lift the full-year dividend by 22% to 5.6 pence. Capital discipline remains a key element of the Quilter philosophy - we completed our £375 million buyback from the Quilter Life Assurance proceeds in early 2022 and I am pleased to confirm the Board is proposing a capital return of £328 million, equivalent to 20 pence per share, from the Quilter International sale proceeds, subject to regulatory engagement and shareholder approval at General Meeting on 12 May.
We are pleased to be delivering good results in these difficult times with significant geopolitical tensions at the centre of all our concerns. In 2022, our focus remains on managing our business towards delivering the targets we set out at our Capital Markets Day last November. This will include increasing flows to our Platform, particularly from third party advisers, product innovation and growth in our restricted adviser base".
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Quilter highlights from continuing operations 1 |
2021 |
2020 |
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Assets and flows |
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AuMA (£bn)2 |
111.8 |
99.0 |
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Gross flows (£bn)2 |
13.2 |
9.9 |
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Net inflows (£bn)2 |
4.0 |
1.5 |
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Net inflows/opening AuMA2 |
4% |
2% |
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Gross flows per adviser (£m)2,3 |
2.3 |
1.8 |
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Asset retention2 |
91% |
91% |
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Profit and loss |
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IFRS profit/(loss) before tax attributable to equity holders from continuing operations (£m)2 |
12 |
(27) |
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IFRS profit after tax from continuing operations (£m) |
23 |
13 |
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Adjusted profit before tax (£m)2 |
138 |
108 |
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Operating margin2 |
22% |
19% |
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Revenue margin (bps)2 |
48 |
49 |
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Return on equity2 |
8.3% |
5.5% |
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Adjusted diluted earnings per share from continuing operations (pence)2 |
7.4 |
5.2 |
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Basic earnings per share from continuing operations (pence) |
1.4 |
0.8 |
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Non-financial |
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Restricted Financial Planners ("RFPs") in Affluent segment4 |
1,563 |
1,765 |
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Discretionary Investment Managers in High Net Worth segment4 |
170 |
169 |
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Quilter Private Client RFPs in High Net Worth segment4 |
60 |
77 |
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1 Continuing operations represent Quilter Group, excluding the results of Quilter International. Adjusted profit before tax for Quilter International in 2021 was £50 million (2020: £60 million). Adjusted diluted EPS for Quilter International in 2021 was 3.0 pence per share (2020: 3.3 pence per share). |
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2 Alternative Performance Measures ("APMs") are detailed and defined on pages 4 to 7. |
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3 Gross flows per adviser is a measure of the value created by our Quilter distribution channel. |
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4 Closing headcount as at 31 December. Adjusted profit presented in this announcement Adjusted profit is presented in this announcement in a number of ways to provide readers with a view of adjusted profit for the Group excluding Quilter International (on a continuing basis) and for the total Group (on a continuing and discontinued basis). A full reconciliation of these views is provided on page 16 and definitions of adjusted profit are explained on page 4. IFRS accounting standards require £10 million of costs (2020: £17 million), previously reported as part of Quilter International, to be disclosed within continuing operations as these costs do not transfer to Utmost Group on completion. Adjusted profit before tax is presented both before and after the reallocation of these costs in this announcement. These costs are expected to be incurred in 2022 to provide services to Utmost Group under the Transitional Services Agreement, with corresponding income to cover these costs .
Alternative Performance Measures ("APMs") We assess our financial performance using a variety of measures including APMs, as explained further on pages 4 to 7. In the headings and tables presented from page 11 onwards, these measures are indicated with an asterisk: *.
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Quilter plc results for the year ended 31 December 2021
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Investor Relations |
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John-Paul Crutchley |
UK |
+44 77 4138 5251 |
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Keilah Codd |
UK |
+44 77 7664 9681 |
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Media |
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Tim Skelton-Smith |
UK |
+44 78 2414 5076 |
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Camarco |
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Geoffrey Pelham-Lane |
UK |
+44 77 3312 4226 |
Paul Feeney, CEO, and Mark Satchel, CFO, will host a presentation and Q&A session for investors and analysts at 08:30am (GMT) today, 9 March 2022, at Quilter plc, Senator House, 85 Queen Victoria Street, London, EC4V 4AB.
The presentation will be webcast live and is available via our website: https://plc.quilter.com/investor-relations/
A conference call facility will also be available should you wish to join by telephone:
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United Kingdom / Other |
+44 333 300 0804 |
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South Africa |
+27 21 672 4118 |
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United States |
+1 631 913 1422 |
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Access Code |
81744269# |
Note: Neither the content of the Company's website nor the content of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.
Disclaimer
This announcement may contain certain forward-looking statements with respect to Quilter plc's plans and its current goals and expectations relating to its future financial condition, performance, and results.
By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Quilter plc's control including amongst other things, international and global economic and business conditions, the implications and economic impact of the COVID-19 pandemic, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Quilter plc and its affiliates operate. As a result, Quilter plc's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Quilter plc's forward-looking statements.
Quilter plc undertakes no obligation to update the forward-looking statements contained in this announcement or any other forward-looking statements it may make.
Alternative Performance Measures
We assess our financial performance using a variety of alternative performance measures ("APMs"). APMs are not defined under IFRS, but we use them to provide further insight into the financial performance, financial position and cash flows of the Group and the way it is managed.
APMs should be read together with the Group's condensed consolidated financial statements, which include the Group's income statement, statement of financial position and statement of cash flows, which are presented on pages 29 to 33.
Further details of APMs used by the Group in its Financial review are provided below.
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APM |
Definition |
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Adjusted profit before tax |
Adjusted profit before tax represents the Group's IFRS profit, adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature, as detailed on page 38 in the condensed consolidated financial statements. The exclusion of certain adjusting items may result in adjusted profit before tax being materially higher or lower than the IFRS profit after tax. Adjusted profit before tax does not provide a complete picture of the Group's financial performance, which is disclosed in the IFRS income statement, but is instead intended to provide additional comparability and understanding of the financial results. Adjusted profit before tax is presented for the continuing Group (excluding Quilter International), for discontinued operations (Quilter International), and for the total Group for continuing and discontinued operations. IFRS accounting standards require £10 million of costs (2020: £17 million), previously reported as part of Quilter International, to be disclosed within continuing operations, as these costs did not transfer to Utmost Group on completion. Adjusted profit before tax is presented both before and after the reallocation of these costs in this announcement. These costs are expected to be incurred in 2022 to provide services to Utmost Group under the Transitional Services Agreement, with corresponding income to cover these costs. A detailed reconciliation of the adjusted profit before tax metrics presented, and how these reconcile to IFRS, is provided on page 16 of the Financial review. Adjusted profit before tax is referred to throughout the Chief Executive Officer's statement and Financial review, with comparison to the prior period explained on page 12. A reconciliation from each line item on the IFRS income statement to adjusted profit before tax is provided in note 5(c) to the condensed consolidated financial statements on page 40. |
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Adjusted profit after tax |
Adjusted profit after tax represents the post-tax equivalent of the adjusted profit before tax measure, as defined above. |
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Adjusted profit before tax after reallocation |
Adjusted profit before tax after reallocation reflects adjusted profit before tax including certain costs within continuing operations relating to Quilter International that did not transfer to Utmost Group on completion of the sale, as detailed above. A reconciliation from each line item on the IFRS income statement to adjusted profit before tax after reallocation is provided in note 5(c) to the condensed consolidated financial statements on page 40. |
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IFRS profit before tax attributable to equity holders |
IFRS profit before tax attributable to equity holders represents the profit after policyholder tax ('tax attributable to policyholder returns') but before shareholder tax (' tax attributable to equity holders'). The tax charge for the Group's UK life insurance entity, Quilter Life & Pensions Limited, comprises policyholder tax and shareholder tax. Policyholder tax is regarded economically as a pre-tax cost to the Group, in that it is based on the return on assets held by the Group's life insurance entity to match against related unit-linked liabilities in respect of clients' policies, and for which the Company charges fees to clients. As such, policyholder tax can be a charge or credit in any period depending on underlying market movements on those assets held to cover linked liabilities. Shareholder tax is the remaining tax after deducting policyholder tax and is more reflective of the profitability of the entity. This metric is included on the face of the Group's income statement on page 38 and is included in the adjusted profit before tax to IFRS profit after tax reconciliation in note 5(a) to the condensed consolidated financial statements. |
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IFRS profit before tax from continuing operations (excluding amortisation, policyholder tax adjustments, business disposal impacts and other one-off items) |
This profit metric is calculated using the Group's IFRS profit before tax, from continuing operations and is adjusted to exclude amortisation of intangible assets, policyholder tax adjustments, business disposal impacts and other one-off items as disclosed in the reconciliation in the Group's Annual Report. This metric is used as the basis for remuneration, which is explained in the Remuneration report in the Group's Annual Report. |
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Revenue margin (bps) |
Revenue margin represents net management fees, divided by average AuMA. Management uses this APM as it represents the Group's ability to earn revenue from AuMA. Revenue margin by segment and for the Group is explained on page 12 of the Financial review. |
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Operating margin |
Operating margin represents adjusted profit before tax divided by total net fee revenue. Management uses this APM as this is an efficiency measure that reflects the percentage of total net fee revenue that becomes adjusted profit before tax. Operating margin is referred to in the Chief Executive Officer's statement and Financial review, with comparison to the prior period explained in the adjusted profit section on page 12. |
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Gross flows |
Gross flows are the gross client cash inflows received from customers during the period and represent our ability to increase AuMA and revenue. Gross flows are referred to in the Financial review on pages 11 to 12 and disclosed by segment in the supplementary information on pages 23 to 24. |
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Net flows |
Net flows is the difference between money received from and returned to customers during the relevant period for the Group or for the business indicated. This measure is a lead indicator of total net fee revenue. Net flows is referred to throughout this document, with a separate section in the Financial review on pages 11 to 12 and is presented by business and segment in the supplementary information on pages 23 to 24. |
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Assets under Management and Administration ("AuMA") |
AuMA represents the total market value of all financial assets managed and administered on behalf of customers. AuMA is referred to throughout this document, with a separate section in the Financial review on page 12 and is presented by business and segment in the supplementary information on page 26. |
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Average AuMA |
Average AuMA represents the average total market value of all financial assets managed and administered on behalf of customers. Average AuMA is calculated using a 7-point average (half year) and 13-point average (full year) of monthly closing AuMA. |
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Total net fee revenue |
Total net fee revenue represents revenue earned from net management fees and other revenue listed below and is a key input into the Group's operating margin. Further information on total net fee revenue is provided on page 13 of the Financial review and note 5(c) in the condensed consolidated financial statements. |
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Net management fees |
Net management fees consist of revenue generated from AuMA, fixed fee revenues including charges for policyholder tax contributions, less trail commissions payable. Net management fees are presented net of trail commission payable as trail commission is a variable cost directly linked to revenue, which is a treatment and presentation commonly used across our industry. Net management fees are a part of total net fee revenue and is a key input into the Group's operating margin. Further information on net management fees is provided on page 13 and note 5(c) in the condensed consolidated financial statements. |
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Other revenue |
Other revenue represents revenue not directly linked to AuMA (e.g. encashment charges, closed book unit-linked policies, non-linked Protect policies, adviser initial fees and adviser fees linked to AuMA in Quilter Financial Planning (recurring fees). Other revenue is a part of total net fee revenue, which is included in the calculation of the Group's operating margin. Further information on other revenue is provided on page 13 and note 5(c) in the condensed consolidated financial statements. |
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Operating expenses |
Operating expenses represent the costs for the Group, which are incurred to earn total net fee revenue and excludes the impact of specific items that management considers to be outside of the Group's normal operations or one-off in nature . Operating expenses are included in the calculation of adjusted profit before tax and impact the Group's operating margin. A reconciliation of operating expenses to the applicable IFRS line items is included in note 5(c) to the condensed consolidated financial statements, and the adjusting items excluded from operating expenses are explained in note 5(b). Operating expenses are explained on page 14 of the Financial review. |
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Cash generation |
Cash generated from operations is calculated by removing non-cash generative items from adjusted profit before tax, such as deferrals required under IFRS to spread fee income and acquisition costs over the lives of the underlying contracts with customers. It is stated after deducting an allowance for net cash required to support the capital requirements generated by new business offset by a release of capital from the in-force book. Cash generation is explained on page 16 of the Financial review. |
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Asset retention |
The asset retention rate measures our ability to retain assets from delivering good customer outcomes and investment performance. Asset retention reflects the annualised gross outflows of the AuMA during the period as a percentage of opening AuMA. Asset retention is calculated as: 1 - (annualised gross outflow divided by opening AuMA). Asset retention is provided for the Group on page 11 , and by segment on page 26. |
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Net inflows/opening AuMA |
This measure is calculated as total net flows annualised (as described above) divided by opening AuMA presented as a percentage. This metric is provided on page 2. |
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Gross flows per adviser |
Gross flows per adviser is a measure of the value created by our Quilter distribution channel and is an indicator of the success of our multi-channel business model. Gross flows per adviser is calculated as gross flows generated by the Quilter channel through the Quilter Investment Platform, Quilter Investors or Quilter Cheviot (annualised) per average Restricted Financial Planner in both segments. Gross flows per adviser is provided on pages 2, 11 and 12. |
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Return on Equity ("RoE") |
Return on equity calculates how many pounds of profit the Group generates from continuing operations with each pound of shareholder equity. This measure is calculated as adjusted profit after tax divided by average equity. Equity is adjusted for the impact of discontinued operations, if applicable . Return on equity is provided on page 2. |
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Adjusted diluted earnings per share
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Adjusted diluted earnings per share represents the adjusted profit earnings per share, calculated as adjusted profit after tax divided by the weighted average number of shares. Refer to page 46 and note 8 in the condensed consolidated financial statements. A continuing and discontinued view of diluted earnings per share has also been presented, and the calculation of all EPS metrics, is shown in note 8 to the condensed consolidated financial statements. Adjusted diluted earnings per share is referred to throughout this document, with additional details in the EPS section in the Financial review on page 14. |
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Headline earnings per share |
The Group is required to calculate headline earnings per share in accordance with the Johannesburg Stock Exchange Limited Listing Requirements, determined by reference to the South African Institute of Chartered Accountants' circular 1/2021 Headline Earnings . This is calculated on a basic and diluted basis. For details of the calculation, refer to note 8 of the condensed consolidated financial statements. |
Chief Executive Officer's statement
Execution
2021 was a year where the world began to adapt to a new normal, living with COVID as a permanent feature of our lives. This has meant blending homeworking with the traditional office environment, maintaining a high level of firm-wide communication and employee engagement while continuing to engage with our customers through whichever channels suit them best.
There were three significant corporate-defining moments for Quilter in 2021:
· completing our Platform Transformation Programme early in the year;
· completing the sale of Quilter International at the end of November; and
· the reorganisation of the business into new segments that we announced at our Capital Markets Day on 3 November.
Together these events mark the culmination of a strategic journey we have been on since our Listing in June 2018 and which has made Quilter a UK- focused modern wealth manager. We now look forward to delivering on the opportunity we see before us and our 2021 results demonstrate excellent progress towards those goals.
Transformation
A year ago, I said that there were three strands to our strategic transformation agenda at Quilter:
· we would leverage the transformational power of our new UK Platform to drive faster growth and productivity;
· we would make Quilter a simpler business, focused on customer segments, to deliver even better customer outcomes and journeys; and
· we would optimise our business by completing the cost reduction plans we set out in March 2019, to drive operational leverage.
We have made substantial progress on each of these goals during 2021. Taking each in turn:
We completed the migration of client and adviser relationships onto our new UK Platform in February 2021; a significant milestone. We rebranded the UK Platform to the Quilter Investment Platform in July and decommissioned our legacy platform at the end of the summer. I am delighted with the high levels of engagement and adoption we have enjoyed from both our own advisers (the Quilter channel) and independent advisers (the IFA channel). Notably, gross flows in the IFA channel were up significantly year-on-year (+63%) after a number of years of sequential declines. This growth is already having a beneficial impact on our operating momentum.
Secondly, making Quilter a simpler business, the sale of Quilter International has allowed us to simplify our operating model. We announced plans to reorganise our Company into two new segments, Affluent and High Net Worth, at our Capital Markets Day in November 2021. These segments are now focused on driving growth, improving efficiency and delivering good customer outcomes across their respective client bases.
Lastly, we delivered £61 million of cost savings from our Optimisation plans by end-2021 and are on track to deliver £65 million of total savings from this programme by mid-2022. These actions are already benefitting our operating margins. As well as simplifying our operating model, the sale of Quilter International will allow us to deliver meaningful cost savings through eliminating legacy complexity in our IT infrastructure once the Transitional Service Agreement with the purchaser comes to an end. We announced a further £45 million of cost savings at our November Capital Markets Day which we expect to deliver by the end of 2024 as part of our goal to increase our operating margin to at least 25% and 30% by 2023 and 2025 respectively.
Operational delivery
We experienced substantial improvement in both gross and net flows year-on-year. Gross client flows into the business were around 35% higher at £13.2 billion. Net flows increased to £4.0 billion versus £1.5 billion in 2020. This reflected stable persistency in client assets across Quilter Cheviot and the Quilter Investment Platform. The overall level of flows in respect of Defined Benefit ("DB") to Defined Contribution pension transfers at £581 million were lower than 2020 (£862 million) and remain a modest amount of our overall business.
Overall AuMA balances increased by 13% over the course of the year with a closing balance of £111.8 billion at 31 December 2021 compared with £99.0 billion at 31 December 2020 on a continuing basis. Average AuMA, the principal driver of net management fee revenue, of £105.3 billion for the year, was 17% ahead of the 2020 level of £90.2 billion on a continuing business basis.
Delivering good customer outcomes through a trusted advice relationship is at the core of the Quilter business model. The Quilter Investment Platform is central to our business, providing the investment 'wrappers' and support functions to meet both our clients' and their advisers' needs, while our investment solutions provide the intellectual capability to deliver the outcomes our clients seek. Confidence in our proposition is demonstrated through the continued attraction of our solutions to independent financial advisers.
As I noted earlier, I was particularly pleased to see the increase in flows of £9.0 billion gross (+58%) and £3.5 billion net (+133%) onto the Quilter Investment Platform during the year. Notably, we saw a near five-fold increase, to £1.7 billion, in net inflows from the IFA channel onto our new platform (2020: £0.4 billion), reflecting the good acceptance our new platform has received from the IFA community. I expect this momentum to continue to build as we begin to encourage new IFA firms to start using our new platform given the wider range of products we can offer, assets we can hold and quality of our service.
This time last year, we indicated that ahead of our new platform coming on stream, we wished to increasingly focus on the productivity of our own advisers and ensure greater alignment with the integrated Quilter proposition. As a result of this, we finished the year with a total of 1,623 Restricted Financial Planners net of departures. As targeted, we have also seen a meaningful step-up in productivity with Quilter advisers generating £2.3 million of Quilter channel gross flows per adviser in 2021, up from £1.8 million in 2020. We expect to return to growth in adviser numbers during 2022 as we complete the repositioning of our advice business. The pipeline of firms seeking to join our network remains good in a competitive market.
In our High Net Worth business, I was delighted with a near four-fold uplift in our net inflows to £1.1 billion. Our team of client-facing professionals are our key client relationship interface. This can be through an investment manager, a financial adviser or both. With the creation of the High Net Worth segment, 62 financial advisers moved from Quilter Financial Planning to work closely alongside Quilter Cheviot colleagues to create our High Net Worth segment and we expect to build on this number over time. We have continued to add to the investment team and our Investment Manager headcount increased to 170 at the end of 2021 from 169 in December 2020 after a few expected retirements during the year.
Our investment solutions continue to deliver good investment performance for clients. The medium- and long-term performance at Quilter Cheviot continued to outperform relevant ARC benchmarks, remaining first or second quartile, to the end of December 2021. Quilter Investors' multi-asset solutions performance was solid, with performance on the biggest range, Cirilium Active, remaining good over the longer term with all risk profiles having achieved returns ahead of their sector average since inception. The three-year performance metrics also improved meaningfully during the course of 2021. The Active and the Passive Blend WealthSelect portfolios continue to deliver strong performance over the longer term and have shown improved relative performance on a shorter-term basis. Over both three and five years, 12 out of 16 portfolios are in the top two quartiles.
Business performance
Total adjusted profit before tax, including a contribution of £50 million from Quilter International for the 11 months until completion, was £188 million.
On a continuing business basis, adjusted profit before tax for 2021 of £138 million, up 28% on 2020, was a pleasing out-turn. Higher total net management fee income of £500 million (2020: £446 million) reflected the higher average AuMA experienced in 2021, offset by a single basis point decline in average revenue margins as a result of the mix shift in Quilter Investors and the strong performance of the Quilter Investment Platform which generates a lower revenue margin for us than the overall average. Other revenue of £118 million was unchanged on 2020 (£118 million) reflecting the reorganisation of our advice business.
We remain committed to achieving operating margins in excess of 25% and 30% in 2023 and 2025 respectively and have made good progress towards those goals in 2021. In 2020 our cost management initiatives partly protected the P&L from volatility in the external environment by delivering tactical cost reductions of c.£40 million through lower variable compensation costs, reduced marketing and development spend and other short-term initiatives. As expected, better market levels and operating conditions have allowed us to reverse around three quarters of those cost reductions during 2021, and while this contributed to a drag on operating margin expansion, we still delivered an improvement in the continuing business operating margin of three percentage points to 22% (2020: 19%), excluding Quilter International.
A 6% adjusted profit increase to £111 million (2020: £105 million) within our Affluent segment was more muted than the increase achieved by the High Net Worth segment, impacted by the anticipated reversal of the tactical cost savings implemented in 2020, more normal levels of annual incentive accruals and the impact of stranded costs following the sale of Quilter International. Within our High Net Worth segment, adjusted profit increased 44% to £56 million (2020: £39 million) reflecting our high-end advice business, Private Client Advisers, moving into profit as well as strong operating leverage with much faster income growth than cost growth in the discretionary fund management business. Head Office costs reduced to £29 million from £36 million, in line with the guidance we provided at the Capital Markets Day in November 2021.
Our IFRS profit after tax from continuing operations was £23 million, compared to a profit of £13 million in 2020. The difference between this measure and our adjusted profit is largely due to non-cash amortisation of intangible assets, our Business Transformation expenses and the impact of policyholder tax positions on the Group's results. Business Transformation expenses will remain in 2022 reflecting the expenditure on our Optimisation and Simplification programmes and are expected to reduce substantially over the next three years.
Total Group adjusted diluted earnings per share was 10.4 pence, of which 3.0 pence is in respect of Quilter International, an increase of 22% (2020: 8.5 pence, of which 3.3 pence was in respect of Quilter International).
Adjusted diluted earnings per share from continuing operations increased to 7.4 pence (2020: 5.2 pence). We have targeted a mid-teens compound annual growth rate in EPS to 2025 from the 2020 base. The initial growth of 42% in 2021 off that base represents an excellent start against that metric, albeit that this year's progress has been supported by both a reduced share count due to the capital return programme and a lower than usual tax charge. On an IFRS basis, we delivered basic EPS from continuing operations of 1.4 pence versus of 0.8 pence per share for the comparable period of 2020 on the same basis. Period-end shares declined by 128 million as a result of our share buyback programme which completed in January 2022 and which reduced our overall share count by c.14% over the course of the programme.
The Board is recommending a final dividend of 3.9 pence per share which, together with the Interim Dividend of 1.7 pence per share, takes the proposed Full Year Dividend to 5.6 pence per share (inclusive of a distribution of £25 million, or 1.6 pence per share, in respect of Quilter International's profit contribution). This compares to a 2020 Dividend of 4.6 pence per share. Excluding the contribution from Quilter International, the dividend contribution from continuing operations has increased 39% to 4.0 pence.
As indicated at our Capital Markets Day in November 2021, we intend to return £328 million to shareholders as a capital return reflecting the net surplus proceeds from the sale of Quilter International after retaining £90 million to fund planned Business Simplification and selected revenue enhancing investments. The B share scheme will be accompanied by a share consolidation, subject to regulatory engagement, and shareholder approval at a General Meeting on 12 May 2022. Further details of the B share scheme and share consolidation have been provided in a separate announcement to the market published today.
Finally, the provision made in respect of certain DB to DC pension transfer advice provided by Lighthouse advisers prior to Quilter's acquisition of Lighthouse has increased by £7 million from the end-2020 level predominantly due to the identification of some instances of unsuitable DB transfer advice being given by Lighthouse advisers beyond that relating to former British Steel Pension Scheme members, which may have caused customers to sustain losses. We continue to work proactively with the FCA and the skilled person review relating to DB to DC pension transfers by Lighthouse to ensure good customer outcomes for the clients involved. Even though the advice to transfer these pensions predated Lighthouse transitioning to our systems and controls after our acquisition of Lighthouse, we will ensure that these clients are treated fairly, consistent with the FCA's requirements and our values.
Governance and culture
In October 2021, our Chair, Glyn Jones, informed the Board of his intention to retire in 2022 once a successor is identified and appointed. Ruth Markland, our Senior Independent Director is chairing a newly constituted sub-committee of the Board Corporate Governance and Nominations Committee to identify and recommend to the Board an appropriate individual to be appointed as a Director and the next Chair of Quilter. The Committee is working with an external recruitment firm to facilitate the search. Since taking up the role of Chair prior to our Listing, Glyn has not only built a Board of many talents but has provided wise and valuable counsel to both me and my executive team as we have reshaped Quilter over the last four years. He will leave with our deepest gratitude and best wishes for the future when he departs later this year.
2021 saw two additions to the Board with Tazim Essani and Chris Samuel being appointed to the Board in March 2021 and July 2021 respectively.
· Tazim's experience in senior executive roles at regulated financial services businesses equips her well to provide strategic guidance and constructive challenge to Quilter's leadership team. Alongside Paul Matthews, Tazim is a designated Non-executive Director for employee engagement with a particular interest in promoting and building on the diversity and inclusion of our people.
· Chris is an experienced non-executive and has chaired the Quilter Financial Planning Board, our financial advice business, since June 2020. He has considerable experience in financial services, particularly in the areas of investment and asset management. This experience will enable him to provide challenge, advice and support to Quilter's management team on business performance and operational matters.
In January 2022, Rosie Harris who has been Chair of the Quilter Board Risk Committee since 2017, announced that she would not stand for re-election at the 2022 AGM as a recent external appointment had created practical difficulties for her attending Quilter meetings. Rosie will step down from the Quilter Board effective 30 April 2022 and a search for her successor to Chair the Board Risk Committee is under way. The Board has appointed George Reid as interim Chair of the Board Risk Committee with effect from 1 May 2022 while a permanent successor for Rosie Harris is being sought.
Creating an inclusive and diverse culture where all colleagues feel they can be themselves has always been a core tenet of our cultural agenda. We have remained focused on progressing our Inclusion and Diversity agenda, appointing a new Head of Inclusion and Diversity and launching our new cultural engagement programme, 'We-Rise', designed to engage colleagues with the next phase of our strategic journey. We have also continued to progress our workplace strategy with the successful re-opening of our refurbished Quilter House in Southampton our most significant achievement. As we have gradually reopened access to our offices, we have seen colleagues embrace the new flexible approach our workplace strategy was designed to encourage. Whilst we continue to be mindful of reminding colleagues of the importance of collaborating face-to-face at least a few days per week, our "new normal" should enable us to continue to rationalise our property estate over the coming years.
Quilter is committed to responsible investment and earlier this year we updated our matrix for our restricted network advisers to incorporate ESG ratings and introduced two specific ESG solutions, one of which was our own Climate Assets fund managed by Quilter Cheviot. As a result, ascertaining clients' ESG preferences is now a core input into the advice process for our restricted advisers. Our investment teams incorporate ESG analysis into their investment processes. We continue to make good progress with ensuring all model portfolio holdings for equities and funds within Quilter Cheviot and Quilter Investors are appropriately evaluated against ESG metrics.
Climate change is undoubtedly one of the most significant challenges the world faces and tackling it is a responsibility of everyone. In 2021, we formalised our climate change strategy with the objective to reduce Quilter's contribution to climate change and support the transition to a low carbon economy. To achieve this ambition, we have developed a framework which is helping us to reduce our direct carbon footprint, embed climate considerations in our investment management and stewardship activity, offer clients climate-focused investment solutions and align with the Task Force on Climate-related Financial Disclosure. I am pleased with our progress on incorporating ESG considerations across our entire value chain: we are embedding ESG into our standard advice process to help clients invest according to their ESG preferences, and we are embedding ESG even more deeply into our standard investment management processes, both within our multi-asset investment solutions and our discretionary wealth management.
To provide clients and advisers with greater transparency, we have included ESG ratings for third-party funds available on our UK Platform. Upon this solid foundation we will enhance our approach to responsible investment further in 2022.
Outlook
We are pleased with our 2021 performance but we are facing difficult times with significant geopolitical tensions at the centre of all our concerns. Our hearts are with the people of Ukraine and their struggle puts the market volatility we face into an appropriate perspective. Up to the end of February, our year-to-date net inflows were comfortably ahead of the comparable period in 2021, although the conflict in Ukraine is likely to have a bearing on equity and bond markets, investor sentiment and inflation amongst other factors. While it remains too early to predict the impact or the likely duration of these events, it is at times like this that our advice-based model is particularly valued by customers providing support as they navigate through this period of uncertainty. In 2022, our focus remains on managing our business towards delivering the targets we set out at our Capital Markets Day last November. This includes targeting increasing flows to our Platform, particularly from third party advisers, product innovation and growth in our restricted adviser base.
Paul Feeney
Chief Executive Officer
Financial review
Review of financial performance
In this section, review of financial performance, unless indicated otherwise, all results are presented excluding Quilter International in both the current year and prior year comparative.
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including APMs, as explained further on pages 4 to 7 . In the headings and tables presented, these measures are indicated with an asterisk: *.
Key financial highlights
|
Quilter highlights from continuing operations 1 |
|
2021 |
2020 |
|
|
|
|
|
|
Assets and flows |
|
|
|
|
|
|
|
|
|
AuMA* (£bn)2 |
|
111.8 |
99.0 |
|
Of which Affluent |
|
83.1 |
73.7 |
|
Of which High Net Worth |
|
28.7 |
25.3 |
|
|
|
|
|
|
|
|
|
|
|
Gross flows* (£bn)2 |
|
13.2 |
9.9 |
|
Of which Affluent |
|
10.5 |
7.7 |
|
Of which High Net Worth |
|
2.7 |
2.2 |
|
|
|
|
|
|
|
|
|
|
|
Net inflows* (£bn)2 |
|
4.0 |
1.5 |
|
Of which Affluent |
|
2.9 |
1.2 |
|
Of which High Net Worth |
|
1.1 |
0.3 |
|
|
|
|
|
|
Net inflows/opening AuMA*2 |
|
4% |
2% |
|
Gross flows per adviser* (£m)2,3 |
|
2.3 |
1.8 |
|
Asset retention*2 |
|
91% |
91% |
|
|
|
|
|
|
Profit and loss |
|
|
|
|
|
|
|
|
|
IFRS profit/(loss) before tax from continuing operations attributable to equity holders* (£m)2 |
|
12 |
(27) |
|
IFRS profit after tax from continuing operations (£m) |
|
23 |
13 |
|
Adjusted profit before tax* (£m)2 |
|
138 |
108 |
|
Operating margin*2 |
|
22% |
19% |
|
Revenue margin* (bps)2 |
|
48 |
49 |
|
Return on equity*2 |
|
8.3% |
5.5% |
|
Adjusted diluted EPS* from continuing operations (pence)2 |
|
7.4 |
5.2 |
|
Basic earnings per share from continuing operations (pence) |
|
1.4 |
0.8 |
|
|
|
|
|
|
Non-financial |
|
|
|
|
|
|
|
|
|
Restricted Financial Planners ("RFPs") in Affluent segment4 |
|
1,563 |
1,765 |
|
Discretionary Investment Managers in High Net Worth segment4 |
|
170 |
169 |
|
Quilter Private Client RFPs in High Net Worth segment4 |
|
60 |
77 |
|
1 Continuing operations represent Quilter Group, excluding the results of Quilter International. Adjusted profit before tax for Quilter International in 2021 was £50 million (2020: £60 million). Adjusted diluted EPS for Quilter International in 2021 was 3.0 pence per share (2020: 3.3 pence per share). |
|||
|
2 Alternative Performance Measures ("APMs") are detailed and defined on pages 4 to 7. |
|||
|
3 Gross flows per adviser is a measure of the value created by our Quilter distribution channel. |
|||
|
4 Closing headcount as at 31 December. |
|||
Overview
The Group's financial performance for the year was strong, attributed to the recovery in the equity markets over the period, good net inflows and continued focus on expense control. The FTSE-100 index recorded its best year since 2016 as UK stocks recovered from the pandemic shock of 2020 and ended the period up 14% on closing 2020 levels. The MSCI World index (GBP) was up 21% on the 2020 closing index value. The Group's AuMA ended the year at £111.8 billion, a 13% increase from the opening position at the start of 2021, resulting from £8.8 billion of positive market movements and net inflows of £4.0 billion, predominantly driven by Quilter Investment Platform.
Net inflows were £4.0 billion for the year (2020: £1.5 billion), delivering strong gross flows and net inflows across both segments. The Group experienced higher gross flows and net inflows in 2021 primarily due to the full launch of the new Quilter Investment Platform in February 2021 and increased adviser activity thereafter. Net flows as a percentage of opening AuMA was 4% (2020: 2%), representing pleasing progress towards our 6% target. Detailed analysis on net flows by business is shown in the supplementary information section of this announcement.
· The Affluent segment recorded net inflows of £2.9 billion, up 142% on the prior year (2020: £1.2 billion) due to record net inflows in Quilter Investment Platform of £3.5 billion (2020: £1.5 billion), partially offset by net reductions of £0.6 billion in assets managed by Quilter Investors on third-party platforms in relation to legacy and closed books of business. Gross flows were significantly ahead of prior year with increased adviser activity following the final platform migration in February 2021 which supported the increase in sales. Quilter Investment Platform's gross outflows during the year were higher than 2020 due to a return to more normal levels of inter-platform switches as COVID-19 uncertainty subsided. Within the Quilter distribution channel, improved activity levels and investor sentiment drove the increase in net inflows from £1.3 billion in 2020 to £2.0 billion. Net inflows to Quilter Investors was £0.5 billion for the year, up 67% (2020: £0.3 billion), driven by a decrease in gross outflows from Cirilium Active of £0.8 billion due to improved fund performance, offset by reduced gross flows to Cirilium Passive, Cirilium Blend and the Income range.
· The High Net Worth segment attracted net inflows of £1.1 billion, an increase of 267% on the prior year (2020: £0.3 billion), driven by a significant improvement in gross flows in Quilter Cheviot, particularly from existing clients as market confidence improved, promoting higher levels of activity after the market uncertainty arising from COVID-19 in 2020. Gross flows in Quilter Cheviot from direct clients and those advised by independent financial advisers increased by 33% to £2.2 billion in 2021, while the gross flows originating from our own advisers remained constant at £462 million for the year. Persistency for the High Net Worth segment marginally improved in 2021 compared to 2020.
Quilter channel gross flows per advisor* was £2.3 million for the year (2020: £1.8 million) with average gross flows per adviser increasing across both Quilter Investors and Quilter Investment Platform, while gross flows to Quilter Cheviot was broadly in line with the prior year. Gross flows to the Affluent segment delivered a 25% improvement between years, with an increase of £0.7 billion resulting from the full launch of the new platform in February 2021 and the impact of COVID-19 on the 2020 comparative.
The Group's AuMA ended the year at £111.8 billion, a 13% increase from the opening position at the start of 2021. Affluent's AuMA was £83.1 billion, up 13% on prior year (2020: £73.7 billion). The Affluent segment contributed 31% of AuMA into Quilter solutions, in line with the prior year. High Net Worth's AuM of £28.7 billion, increased by 13% in the year (2020: £25.3 billion), primarily the result of positive market movements and net inflows of £1.1 billion. All the assets in this segment are managed in Quilter solutions. In total, 49% of total AuMA is managed in Quilter solutions across the Group.
The Group's revenue margin * of 48 bps was 1 bp lower than the prior year (2020: 49 bps). Quilter Investors' revenue margin decreased to 52 bps (2020: 53 bps) due to the increased AuM concentration in lower revenue margin products. Within Quilter Investment Platform the revenue margin decreased by 2 bps to 27 bps, due to the reprice that was implemented in April 2020, an uplift in assets year-on-year arising from higher market levels which contributes incremental revenue at lower pricing tiers, and expected lower margins on net inflows, notably from restricted advisers which contribute to the Quilter distribution channel. Gross outflows were predominantly from older, higher margin channels. Quilter Cheviot's revenue margin decreased by 1 bp to 71 bps, primarily due to lower commission and contract charges and the impact of tiered fee structures on higher average AuM.
Adjusted profit before tax increased by 28% to £138 million, primarily due to increases in revenue generated from higher average AuMA levels across the Group. Operating expenses in 2021 of £480 million were 5% higher than the prior year largely driven by increases in FSCS levies and variable compensation. The Group's operating margin increased to 22% (2020: 19%) driven by the increases in revenue of 10%, partially offset by a 5% rise in operating expenses in the year.
The Group's IFRS profit after tax from continuing operations was £23 million, compared to a profit of £13 million for 2020. The increase in profit is attributable to favourable equity market movements throughout the year resulting in higher average AuMA.
Adjusted diluted earnings per share increased 42% above that of the previous year at 7.4 pence (2020: 5.2 pence).
Financial performance by segment
|
Financial performance from continuing operations and Quilter International |
Affluent |
High Net Worth |
Head Office |
Continuing operations |
Discontinued operations |
Total Group |
|
|
|
|
||||||||
|
Net management fee* |
311 |
189 |
- |
500 |
89 |
589 |
|
|
|
Other revenue* |
95 |
23 |
- |
118 |
6 |
124 |
|
|
|
Total net fee revenue* |
406 |
212 |
- |
618 |
95 |
713 |
|
|
|
Operating expenses* |
(295) |
(156) |
(29) |
(480) |
(45) |
(525) |
|
|
|
Adjusted profit before tax* |
111 |
56 |
(29) |
138 |
50 |
188 |
|
|
|
Tax |
|
|
|
(13) |
- |
(13) |
|
|
|
Adjusted profit after tax* |
|
|
|
125 |
50 |
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin (%)* |
27% |
26% |
|
22% |
53% |
26% |
|
|
|
Revenue margin (bps)* |
40 |
71 |
|
48 |
n/a |
48 |
|
|
Financial performance from continuing operations and Quilter International |
Affluent |
High Net Worth |
Head Office |
Continuing operations |
Discontinued operations |
Total Group |
|
|
|
|
||||||||
|
Net management fee* |
278 |
168 |
- |
446 |
106 |
552 |
|
|
|
Other revenue* |
92 |
25 |
1 |
118 |
12 |
130 |
|
|
|
Total net fee revenue* |
370 |
193 |
1 |
564 |
118 |
682 |
|
|
|
Operating expenses* |
(265) |
(154) |
(37) |
(456) |
(58) |
(514) |
|
|
|
Adjusted profit before tax* |
105 |
39 |
(36) |
108 |
60 |
168 |
|
|
|
Tax |
|
|
|
(15) |
(1) |
(16) |
|
|
|
Adjusted profit after tax* |
|
|
|
93 |
59 |
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin (%)* |
28% |
20% |
|
19% |
51% |
25% |
|
|
|
Revenue margin (bps)* |
42 |
72 |
|
49 |
n/a |
51 |
|
Total net fee revenue*
The Group's total net fee revenue on a continuing basis increased by 10% to £618 million (2020: £564 million) due to higher average Group AuMA of £105.3 billion (2020: £90.2 billion), resulting from the positive equity market performance and net inflows. The blended revenue margin for the Group, calculated with reference to net management fees, decreased by 1 bp to 48 bps.
Total net fee revenue for Affluent was £406 million, up 10% from the prior year (2020: £370 million), principally due to the impact of higher levels of assets with average AuMA increasing by £11.6 billion to £78.5 billion in 2021. This was partially offset by the impact on revenues of the shift to lower margin products in Quilter Investors, continuing the trend of new business margins being lower than the existing back book rates, an increase in the proportion of assets from the Quilter distribution channel, and the Quilter Investment Platform repricing implemented in April 2020. Other revenue predominantly reflects revenue generated from the provision of advice within Quilter Financial Planning. Within the revenue generated by advice, recurring and fixed fees increased year on year, while initial fees were at similar levels to those of 2020.
Total net fee revenue in High Net Worth increased by 10% during the year to £212 million (2020: £193 million), principally due to greater levels of average AuM, which increased by 15% over the year to £26.8 billion (2020: £23.3 billion), partially offset by an expected reduction in commission revenue as the proportion of clients on fee-only propositions continues to increase. This resulted in a 12% increase in net management fees to £189 million (2020: £168 million). Other revenue, reflecting revenue generated from Quilter Private Client Advisers, was at a similar level to that of the prior year.
Operating expenses*
Operating expenses from continuing operations have increased by £24 million to £480 million (2020: £456 million). In 2021, the Group incurred £4 million of additional FSCS levy and regulatory costs compared to the prior year and higher variable compensation costs of £25 million as a result of improved business performance in 2021. The higher variable compensation cost in 2021 was predominantly incurred in the Affluent segment which had been the area of the business more heavily impacted by the reduced variable compensation in 2020. In addition, included within operating expenses are £10 million of costs previously incurred by Quilter International in 2020. These costs have been included in 2021 in the cost base of the continuing business as the costs do not transfer to Quilter International on sale. The majority of these costs have also been attributed to the Affluent segment in 2021.
|
|
2021 |
|
2020 |
|
|
||
|
Operating expense split (£m) |
|
|
Continuing operations |
As a percentage of revenues |
Continuing operations |
As a percentage of revenues |
|
|
|
|
|
|
|
|
|
|
|
Support staff costs |
|
|
127 |
|
126 |
|
|
|
Operations |
|
|
27 |
|
35 |
|
|
|
Technology |
|
|
42 |
|
30 |
|
|
|
Property |
|
|
31 |
|
43 |
|
|
|
Other base costs1 |
|
|
25 |
|
28 |
|
|
|
Sub-total base costs |
|
|
252 |
41% |
262 |
46% |
|
|
Revenue-generating staff base costs |
|
|
83 |
13% |
86 |
15% |
|
|
Variable staff compensation |
|
|
80 |
13% |
55 |
10% |
|
|
Other variable costs2 |
|
|
36 |
6% |
26 |
5% |
|
|
Sub-total variable costs |
|
|
199 |
32% |
167 |
30% |
|
|
Regulatory/professional indemnity costs |
|
|
29 |
5% |
27 |
5% |
|
|
Operating expenses* |
|
|
480 |
78% |
456 |
81% |
|
|
1 Other base costs includes depreciation and amortisation, audit fees, shareholder costs, listed Group costs and governance. |
|||||||
|
2 Other variable costs includes FNZ costs, development spend and corporate functions variable costs. |
|||||||
|
|
|||||||
Support staff costs have increased by 1% to £127 million (2020: £126 million) driven by incremental hiring to support ongoing controls remediation in Quilter Financial Planning offset by continued savings realised from Optimisation activities. The prior year included one-off costs relating to the initial COVID-19 response.
Operations costs have decreased by 23% to £27 million (2020: £35 million). The key factor for the reduction is the launch of the new platform resulting in some operational activities being outsourced to a third-party provider (FNZ), the costs of which are reported in other variable costs.
Technology costs have increased by 40% to £42 million (2020: £30 million). Technology costs have increased in the short term as a result of the sale of Quilter International in 2021 leaving a portion of previously shared costs to be borne by the continuing business. These increases were partially offset by the continuing Optimisation activities focusing on consolidation and decommissioning of the technology estate.
Property costs have decreased by 28% to £31 million (2020: £43 million) principally the result of a reduction in London property costs as the dual running costs for Head Office experienced in 2020 were eliminated as planned.
Other base costs have remained stable at £25 million (2020: £28 million) where discretionary spend has remained subdued as the pandemic continued throughout 2021.
Revenue-generating staff base costs have decreased by 3% to £83 million (2020: £86 million) principally driven by Optimisation activity in Quilter Financial Planning focused on adviser productivity.
Variable staff compensation increased by 45% to £80 million (2020: £55 million) reflecting the improved business performance in 2021 compared to 2020 and the impact of COVID-19 on variable remuneration following the equity market falls experienced during the prior year.
Other variable costs increased by 38% to £36 million (2020: £26 million) principally due to the recognition of operating expenses associated with the new platform and the resultant outsourcing of the operations capabilities and IT support requirements during the year.
Regulatory and insurance costs have increased by 7% to £29 million (2020: £27 million), largely driven by the increased FSCS levy of £4 million.
Taxation
The effective tax rate ("ETR") on adjusted profit before tax for the Group's continuing operations was 9% (2020: 14%). The Group's ETR is lower than the UK corporation tax rate of 19% principally due to the change in the UK corporation tax rate from 19% to 25% effective from 1 April 2023 which resulted in a rebase in the Group's deferred tax assets and liabilities. This had a net positive impact to the tax expense as a consequence of the Group currently being in a net deferred tax asset position.
The Group's IFRS income tax expense on continuing operations was a charge of £62 million for the period ended 31 December 2021, compared to a credit of £4 million for the prior period. The income tax expense or credit can vary significantly between periods as a consequence of market volatility and the impact market movements have on policyholder tax. The recognition of the income received from policyholders (which is included within the Group's IFRS revenue) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility to the Group's IFRS profit or loss before tax attributable to equity holders. In addition, the IFRS income tax credit for the period ended 31 December 2020 included first-time recognition of a deferred tax asset in relation to accrued interest expense. An adjustment is made to adjusted profit before tax to remove these distortions, as explained further on page 16 and in note 5(b) to the condensed consolidated financial statements.
Earnings Per Share ("EPS")
Basic EPS for 2021 was 9.4 pence (2020: 5.0 pence). Basic EPS is based on the Group's IFRS profit (including both continuing and discontinued operations). For 2021, the basic EPS relating to continuing business was 1.4 pence (2020: 0.8 pence), and 8.0 pence relates to discontinued operations (2020: 4.2 pence). Discontinued operations include profit attributable to Quilter International and the gain recognised on sale. The average number of shares in issue used for the basic EPS calculation was 1,644 million (2020: 1,760 million), after the deduction of own shares held in Employee Benefit Trusts ("EBTs") and consolidated funds of 77 million (2020: 82 million). The reduction in the number of shares in issue in the period is due to the share buyback programme, which commenced in 2020. During the year ended 31 December 2021, a total of 128.1 million shares (2020: 118.3 million) have been bought and cancelled by Quilter plc.
The average number of shares in issue used for the diluted EPS calculation was 1,683 million (2020: 1,797 million). This includes the dilutive effect of shares and options awarded to employees under share-based payment arrangements of 39 million (2020: 37 million). The dilutive effect of share awards has continued to increase due to additional shares held in the EBT's being released to employees pursuant to employee share schemes.
At our Capital Markets Day on 3 November 2021, we announced a revised Group dividend policy. The new policy sets a target pay-out range of 50% to 70% of post-tax, post-interest adjusted profits, revised from 40% to 60% of post-tax adjusted profits previously. The new policy will become effective after our 2021 final dividend is paid. The Board has recommended a final dividend of 3.9 pence per share taking the total dividend declared for 2021 to 5.6 pence per share which equates to a pay-out of 51% of the post-tax adjusted profit (i.e. based on the current dividend policy) and 53.5% of the post-tax post-interest adjusted profit (i.e. based on the new dividend policy).
Optimisation
The Optimisation programme has delivered further efficiencies and improvements in operational performance for the Group through greater technology utilisation, integration and simplification activity. In 2021, we successfully deployed Phase 1 of our new finance, HR and procurement modules as part of our general ledger consolidation and modernisation activity, with Phase 2 (final) delivery of technical releases and efficiencies in 2022. We continue to consolidate our technology estate and in particular our data centre, telephony and data reporting solutions. In Quilter Financial Planning, the streamlining and improvement in productivity of the business, which will continue in 2022, has delivered cost savings during the year.
The Group delivered £11 million of sustainable cost savings in 2021 against the 2018 cost base, with £15 million of annualised run-rate benefit. With the addition of benefits arising from prior years, the total run-rate delivered is £61 million and associated implementation costs since inception are £81 million. The Optimisation programme remains on track to deliver its target of annualised run-rate cost savings of £65 million by mid-2022, with an anticipated total associated delivery cost of up to £91 million, and includes anticipated governance, support and further severance costs through to completion of the programme.
Business simplification
The business simplification programme is anticipated to reduce operating costs by around £45 million by the end of 2024 on a run-rate basis, with costs to achieve expected to be £55 million. The programme will focus on the decommissioning of our legacy IT estate, efficiencies and automation in our operational areas and simplification of Quilter's structures as we organise ourselves to support our two segments, Affluent and High Net Worth. Implementation of the first tranche of savings is already underway.
Lighthouse DB pension transfer advice provision
As reported in the Group's 2020 Annual Report, a provision has been recognised in relation to a number of complaints received about DB to DC pension transfer advice that was provided by Lighthouse advisers prior to our acquisition of Lighthouse which may have been unsuitable and caused customers to sustain losses, and results to date from the skilled person review into historical DB to DC pension transfer advice provided by Lighthouse prior Lighthouse transitioning to our systems and controls following our acquisition of Lighthouse.
A total provision of £29 million (31 December 2020: £28 million) has been calculated for the potential redress of British Steel Pension Scheme cases and other DB to DC pension transfer cases which are subject to the skilled person review. This includes anticipated costs of legal and professional fees associated with the redress activity. The provision was increased by £7 million during 2021, which has been recognised within expenses of the Group (and excluded from adjusted profit before tax), in order to include the results to date of a review of certain non-British Steel Pension Scheme member advice that is included within the skilled person review. Redress on British Steel Pension Scheme cases of £4 million and professional fees of £2 million have been paid during the year. Subject to FCA confirmation, we anticipate the skilled person review will conclude during 2022.
The final costs of redress will depend on the final number of cases where advice is found to be unsuitable and where customers have suffered losses and will also depend on the specific calculations for each case, to be performed by the skilled person, and are also impacted by market movements and other parameters affecting the defined contribution scheme asset. Final redress costs are therefore exposed to volatility from these movements which may result in final settlement costs varying from the amounts currently provided.
Reconciliation of adjusted profit before tax* to IFRS profit
Adjusted profit before tax for the Group on a continuing basis was £138 million (2020: £108 million).
IFRS accounting standards require £10 million of costs (2020: £17 million), previously reported as part of Quilter International, to be disclosed within continuing operations, as these costs did not transfer to Utmost Group on completion. Adjusted profit before tax is presented both before and after the reallocation of these costs in this announcement. These costs are expected to be incurred in 2022 to provide services to Utmost Group under the Transitional Services Agreement, with corresponding income to cover these costs.
Reconciliation of adjusted profit before tax to IFRS profit/(loss) after tax | For the year ended 31 December 2021 | For the year ended 31 December 2020 | ||||
£m | Continuing operations | Discontinued operations1 | Total | Continuing operations | Discontinued operations1 | Total |
High Net Worth | 56 | - | 56 | 39 | - | 39 |
Affluent | 111 | 50 | 161 | 105 | 60 | 165 |
Head Office | (29) | - | (29) | (36) | - | (36) |
Adjusted profit before tax* | 138 | 50 | 188 | 108 | 60 | 168 |
Reallocation of Quilter International costs | (10) | 10 | - | (17)
| 17 | - |
Adjusted profit before tax after reallocation* | 128 | 60 | 188 | 91 | 77 | 168 |
|
|
|
|
|
|
|
Adjusting for the following: |
|
|
|
|
|
|
Impact of acquisition and disposal related accounting | (41) | - | (41) | (42) | - | (42) |
Profit on business disposals | 2 | 90 | 92 | - | (1) | (1) |
Business transformation costs | (51) | (19) | (70) | (70) | - | (70) |
Managed Separation costs | (2) | - | (2) | - | - | - |
Finance costs | (10) | - | (10) | (10) | - | (10) |
Policyholder tax adjustments | (7) | - | (7) | 9 | - | 9 |
Customer remediation | (7) | - | (7) | (5) | - | (5) |
Total adjusting items before tax | (116) | 71 | (45) | (118) | (1) | (119) |
Profit/(loss) before tax attributable to equity holders* | 12 | 131 | 143 | (27) | 76 | 49 |
Tax attributable to policyholder returns | 73 | - | 73 | 36 | - | 36 |
Income tax (expense)/credit | (62) | - | (62) | 4 | (1) | 3 |
Profit/(loss) after tax2 | 23 | 131 | 154 | 13 | 75 | 88 |
1Discontinued operations includes the results of Quilter International.
2IFRS profit/(loss) after tax.
Adjusted profit before tax represents the Group's IFRS profit, adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature, as detailed on page 38 in the condensed consolidated financial statements. The exclusion of certain adjusting items may result in adjusted profit before tax being materially higher or lower than the IFRS profit after tax.
Adjusted profit before tax does not provide a complete picture of the Group's financial performance, which is disclosed in the IFRS income statement, but is instead intended to provide additional comparability and understanding of the financial results.
The profit on business disposals of £92 million (2020: loss of £1 million) includes the recognised profit on disposal of £89 million in relation to the sale of Quilter International to Utmost Group on 30 November 2021.
Business transformation costs of £70 million in 2021 (2020: £70 million) include £28 million (2020: £38 million) incurred on the UK Platform Transformation Programme with total lifetime costs of the programme at £202 million, and £22 million of costs (2020: £33 million) in relation to the Optimisation programme. The £19 million under discontinued operations represents the costs still to be incurred in decommissioning systems required to provide transitional services to Utmost Group and the ongoing management required during the TSA period.
Policyholder tax adjustments were a debit of £7 million for 2021 (2020: credit of £9 million) in relation to the removal of timing differences arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from policyholders (which is included within the Group's IFRS revenue) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding tax expense, creating volatility to the Group's IFRS profit/(loss) before tax attributable to equity holders.
The customer remediation adjustment of £7 million in 2021 relates to a redress provision on advice in Lighthouse as part of the ongoing skilled person review as explained earlier in the Financial review. £5 million recognised in 2020 related solely to the impact of post-acquisition market movements on the British Steel complaints provision relating to Lighthouse.
Cash generation*
Cash generation measures the proportion of adjusted profit after tax that is recognised in the form of cash generated from operations. The Group achieved a cash generation rate on continuing business of 76% of adjusted profit after tax over 2021 (2020: 78%, restated for continuing business only following the disposal of Quilter International).
Review of financial position
Capital and liquidity
Solvency II
The Group's Solvency II surplus is £1,030 million at 31 December 2021 (31 December 2020: £1,021 million), representing a Solvency II ratio of 275% (31 December 2020: 217%). The Solvency II information for the year to 31 December 2021 contained in this results disclosure has not been audited.
The Group's Solvency II capital position is stated after allowing for the impact of the foreseeable dividend payment of £62 million (31 December 2020: £61 million).
Group regulatory capital (£m) |
| At 31 December 20211 | At 31 December 20202 |
Own funds |
| 1,617 | 1,897 |
Solvency capital requirement ("SCR") |
| 587 | 876 |
Solvency II surplus |
| 1,030 | 1,021 |
Solvency II coverage ratio |
| 275% | 217% |
1Filing of annual regulatory reporting forms due 20 May 2022. |
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| |
2As disclosed in the Group Solvency and Financial Condition Report for 2020. |
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| |
The 58 percentage point increase in the Group Solvency II ratio from the 31 December 2020 position is primarily due to the capital movements associated with the sale of Quilter International, the £197 million share repurchase programme and the net profit recognised in the period. The SCR reduced in 2021 as a consequence of the sale of Quilter International completing on 30 November 2021.
The Board believes that the Group Solvency II surplus includes sufficient free cash and capital to complete all committed strategic investments. Quilter expects to continue to maintain a solvency position significantly in excess of its internal target in the near term as a consequence of the net surplus capital intended to be returned to shareholders arising from the sale of Quilter International.
On 30 November 2021, the Group completed the sale of Quilter International to Utmost Group for consideration of £481 million. The Board is proposing a capital return of £328 million from the proceeds by way of a B share issue and redemption followed by a share consolidation, subject to regulatory engagement and shareholder approval.
Composition of qualifying Solvency II capital
The Group's own funds include the Quilter plc issued subordinated debt security which qualifies as capital under Solvency II. The composition of own funds by tier is presented in the table below.
Group own funds (£m) |
| At 31 December 2021 | At 31 December 2020 |
Tier 11 |
| 1,412 | 1,688 |
Tier 22 |
| 205 | 209 |
Total Group Solvency II own funds |
| 1,617 | 1,897 |
1All Tier 1 capital is unrestricted for tiering purposes. | |||
2Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond, which was issued at £200 million in February 2018. | |||
The Group SCR is covered by Tier 1 capital, which represents 241% of the Group SCR of £587 million. Tier 1 capital represents 87% of Group Solvency II own funds. Tier 2 capital represents 13% of Group Solvency II own funds and 20% of the Group surplus.
Dividend
The Board has recommended a final dividend of 3.9 pence per share at a total cost of £62 million. Subject to shareholder approval, the recommended final dividend will be paid on 16 May 2022 to shareholders on the UK and South African share registers on 8 April 2022. For shareholders on our South African share register a dividend of 78.25993 South African cents per share will be paid on 16 May 2022, using an exchange rate of 20.06665. This will bring the dividend for the full year to 5.6 pence per share (2020: 4.6 pence per share).
Capital return
The Board is proposing 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 accompanied by a share consolidation, with this subject to regulatory engagement and shareholder approval at a General Meeting on 12 May 2022.
Subject to shareholder approval, B shares will be issued to shareholders on 23 May 2022. The B shares are expected to be redeemed for 20 pence per share on 24 May 2022. For shareholders on our South African share register, the B shares will be redeemed for 401.33300 South African cents per share on 24 May 2022, using an exchange rate of 20.06665, the average rate achieved on 7 and 8 March 2022, the two days immediately preceding the announcement of the capital return.
Holding company cash
The holding company cash statement includes cash flows generated by the three main holding companies within the business: Quilter plc, Quilter Holdings Limited and Quilter UK Holding Limited. The flows associated with these companies will differ markedly from those disclosed in the statutory statement of cash flows, which comprises flows from the entire Quilter plc Group including policyholder movements.
The holding company cash statement illustrates cash received from the key trading entities within the business together with other cash receipts, and cash paid out in respect of corporate costs and capital servicing (including interest and dividends). Other capital movements, including those in respect of acquisitions and disposals together with funding for ongoing business requirements, are also included. It is an unaudited non-GAAP analysis and aims to give a more illustrative view of business cash flows as they relate to the Group's holding companies compared to the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7 (statement of cash flows) and includes commingling of policyholder-related flows.
£m |
|
| 2021 | 2020 |
Opening cash at holding companies at 1 January |
|
| 517 | 815 |
Single Strategy business sale - (warranty)/deferred consideration |
|
| (2) | 7 |
Quilter International sale proceeds |
|
| 481 | - |
Share repurchase and Odd-lot offer |
|
| (197) | (198) |
Costs of disposal |
|
| - | (24) |
Dividends paid |
|
| (89) | (81) |
Net capital movements |
|
| 193 | (296) |
|
|
|
|
|
Head Office costs and Optimisation programme funding |
|
| (74) | (74) |
Interest costs |
|
| (9) | (9) |
Net operational movements |
|
| (83) | (83) |
|
|
|
|
|
Cash remittances from subsidiaries |
|
| 184 | 170 |
Net capital contributions, loan repayments and investments |
|
| (53) | (94) |
Other net movements |
|
| (2) | 5 |
Internal capital and strategic investments |
|
| 129 | 81 |
|
|
|
|
|
Closing cash at holding companies at end of period |
|
| 756 | 517 |
Net capital movements
Net capital movements in the year were an inflow of £193 million. This includes £481 million of proceeds from the sale of Quilter International, offset by £197 million relating to the share repurchase programme dividend payments made to shareholders of £61 million in May 2021 and £28 million in September 2021, and £2 million of costs relating to the disposal of the Single Strategy business in line with expectations. The costs associated with the disposal of Quilter International will be incurred, in cash terms, in 2022.
Net operational movements
Net operational movements were an outflow of £83 million for the period and include £74 million of corporate and transformation costs. Interest paid of £9 million relates to coupon payments on the Tier 2 bond and non-utilisation fees for the revolving credit facility.
Internal capital and strategic investments
The net inflow of £129 million is principally due to £184 million of cash remittances from the trading businesses, partially offset by £53 million of net capital contributions made to support business operational activities, and the Platform Transformation Programme.
Balance sheet
Summary balance sheet (£m) |
|
| At 31 December 2021 | At 31 December 2020 | ||
|
|
Total Group | Continuing operations | Discontinued operations | Total Group | |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial investments |
|
| 47,565 | 41,670 | 21,604 | 63,274 |
Contract costs |
|
| 9 | 5 | 408 | 413 |
Cash and cash equivalents |
|
| 2,064 | 1,782 | 139 | 1,921 |
Goodwill and intangible assets |
|
| 457 | 504 | 52 | 556 |
Trade, other receivables, and other assets |
|
| 381 | 430 | 271 | 701 |
Other assets |
|
| 264 | 309 | 198 | 507 |
Total assets |
|
| 50,740 | 44,700 | 22,672 | 67,372 |
|
|
|
|
|
|
|
Equity |
|
| 1,739 | 1,553 | 325 | 1,878 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Investment contract liabilities |
|
| 41,071 | 35,591 | 21,816 | 57,407 |
Third-party interests in consolidated funds |
|
| 6,898 | 6,513 | - | 6,513 |
Contract liabilities |
|
| - | 1 | 378 | 379 |
Borrowings - subordinated debt |
|
| 199 | 199 | - | 199 |
Lease liabilities |
|
| 100 | 108 | 12 | 120 |
Trade, other payables, and other liabilities |
|
| 484 | 543 | 129 | 672 |
Other liabilities |
|
| 249 | 192 | 12 | 204 |
Total liabilities |
|
| 49,001 | 43,147 | 22,347 | 65,494 |
Total equity and liabilities |
|
| 50,740 | 44,700 | 22,672 | 67,372 |
Financial investments excluding the impact of consolidated funds increased by £5,895 million from £41,670 million at 31 December 2020 to £47,565 million at 31 December 2021, due to an increase in net inflows and positive market performance predominantly driven by the recovery in the financial markets in 2021. A corresponding increase is reflected in investment contract liabilities, with the main difference between the two being the impact of consolidated funds, which resulted in a £415 million reduction in financial investments since 31 December 2020 (as a result of certain funds no longer being subject to consolidation at 31 December 2021).
Cash and cash equivalents of £2,064 million increased by £282 million from £1,782 million at 31 December 2020, primarily due to receipt of £481 million of sales proceeds following the sale of Quilter International on 30 November 2021, together with inflows from pre-tax profits partially offset by £197 million cash consideration for the share buyback programme and £89 million of dividend paid.
Goodwill and intangible assets decreased by £47 million since 31 December 2020, principally due to the amortisation of intangible assets.
Principal risks and uncertainties
Effective risk management is key to Quilter delivering on the next phase of its development, as the business focuses on growth and efficiency in its newly defined Affluent and High Net Worth client segments, with increasing digitisation, and a commitment to becoming the responsible wealth manager. Our Enterprise Risk Management Framework is embedded across Quilter, and helps Quilter assess and manage its risk exposures.
Quilter's principal revenue streams are asset value based. During 2021, global equity markets generally performed well following the market falls in 2020 caused by the pandemic. However, consequential impacts including inflationary pressures and an increase in the cost of living could impact customers' ability to invest and therefore investment inflows. More recently the evolving Ukraine crisis is likely to have far reaching social, economic, and political implications, which could impact consumer confidence. The COP 26 Climate Change Conference in November 2021 has further highlighted the need for all firms to play their role in achieving net zero, with Quilter having built its climate obligations into its strategic priorities.
During 2021, Quilter has reduced the complexity of its operations, including through the disinvestment of Quilter International to Utmost Group, realising a strong UK focus for the business, and the completion of a number key technology transformations, including the successful final migration of the Quilter Platform onto FNZ's technology.
Quilter continues to work with the FCA's appointed skilled person to address historic DB to DC pension transfer advice provided by Lighthouse advisers to British Steel Pension Scheme ("BSPS") members and some other pension transfer cases. Quilter is committed to ensuring fair outcomes for impacted customers who have received unsuitable advice and suffered losses, and a provision of £29 million is held in respect of delivering the remediation and redress programme to these customers. Quilter Financial Planning is also undertaking control environment enhancement programme to ensure a strong and modern control infrastructure supports the delivery of suitable financial advice.
Quilter takes its responsibilities to the environment and society seriously, with responsible business at the heart of Quilter's strategy. The Risk taxonomy has been updated to reflect climate risk aspects, and the Risk Function will be placing increased focus on ESG risk management, including ensuring that Quilter is clear on its commitments, and has appropriate arrangements in place to support the achievement of ESG commitments, including playing our part in the drive to net zero emissions.
The Directors have carried out a robust assessment of the principal risks facing Quilter, including those that would threaten its business model, future performance, solvency and liquidity, as well as those that are non-financial in nature. The articulation of these principal risks and uncertainties is consistent with Quilter's 'Top Risk' reporting that is reviewed quarterly by the Board Risk Committee and Board. The table below sets out Quilter's current principal risks and uncertainties.
Risk | Summary |
Business and strategic risks | |
Economic environment | Quilter's principal revenue streams are asset value related and as such Quilter is exposed to the condition of global economic markets. Whilst market conditions generally stabilised during 2021 from the COVID-19 pandemic, the evolving Ukraine crisis is having an impact on the economic environment resulting in short term market volatility. Volatility in debt, equity and currency markets may adversely impact customer investment portfolios which in turn impacts Quilter's ability to generate fee-based revenue. |
Business financial performance | While the direct impact of the pandemic on business performance moderated during 2021, consequential impacts including inflationary pressures and an increase in the cost of living could impact customers' ability to invest and therefore investment inflows. The Russian invasion of Ukraine creates increasing economic and political uncertainty which could impact consumer confidence. The potential for tax increases as well as direct inflationary impacts could result in adverse cost impacts for Quilter, acting as headwinds to our performance. Any negative impact on earnings, share price and/or capital position could have a resulting adverse effect on Quilter's market credibility and financial standing. |
Strategic delivery | Quilter has embarked on an ambitious strategy focused on growth and efficiency, while increasing digitisation and embedding ESG wherever possible. Achieving this ambition will require the operation of a robust strategic delivery framework, and investment in capabilities. As we are now embarking on our next strategic phase and with the ambitious programme of work needed to deliver it, we are further increasing our focus in this area. Any failure to deliver on the strategic delivery programme, could expose the Group to competitive risks and impact Quilter's franchise value. |
Change execution | Quilter continues to be subject to change execution risk given an ongoing programme of material change projects, although the maturing of Quilter's change execution capabilities, and the successful completion of several key projects in 2021, including the Platform Transformation Programme, has reduced the impact of this risk. The effective embedding of new technology and process across Quilter is key for the next phase. Any loss of focus on change execution disciplines could impact the delivery of intended benefits, and risk disruption to continuing operations and the control environment. |
Climate strategy
| Quilter takes its responsibility to the environment seriously and is determined to play its part in reducing climate impacts. To do this, Quilter must develop and deliver an achievable, coherent, comprehensive and robust long-term climate strategy to manage climate related financial and non-financial risks. Failure to do so would result in Quilter being unable to meet regulatory and other stakeholder expectations and fulfil our strategic priority to become the responsible wealth manager. |
Operational and regulatory risks | |
Advice | Quilter's financial advice services are subject to fundamental regulatory conduct requirements to assure suitability of advisory recommendations. This risk remains elevated and stable, as Quilter continues to address historic DB to DC transfer advice shortcomings of the acquired Lighthouse Group, as announced by Quilter in 2020. Remediation programmes are ongoing to ensure impacted customers receive fair outcomes and to ensure robustness of the control framework to support the ongoing delivery of suitable advice. Failure to operate effective arrangements to support the ongoing delivery of suitable advice could expose Quilter to risks associated with customer detriment, regulatory censure and remediation programmes, with consequential impacts to the Group's business, financial condition and reputation. |
Information technology | Quilter's business is dependent on its technology infrastructure and applications to perform necessary business functions. Much of Quilter's legacy technology estate is currently being replaced by cloud-based applications, thereby reducing internal complexity. Nevertheless, a range of legacy applications are still supported, including the technology platform underpinning the disinvested Quilter International business, which will be supported until 2023 under a Transitional Services Agreement. Failure to manage technology risk could have a material adverse impact on Quilter's business, its resilience capabilities, operations, financial condition, and its reputation. |
Information security | Quilter's business, by its nature, requires it to store, retrieve, evaluate and utilise customer and company data and information, some of which is highly sensitive. Quilter and its service providers are subject to the risk of information security breaches from parties with criminal or malicious intent. Should intrusion detection and anti-penetration processes not anticipate, prevent or mitigate a network failure or disruption, it may have a material adverse effect on Quilter's customers, business, financial condition, operations and reputation. |
People | Quilter relies on its talent to deliver its service to customers. People risk has remained heightened during the pandemic as Quilter's people have adapted to new ways of working during a period of significant change. Delivery of Quilter's ambitious new strategic objectives will require particular skills, including in digital and ESG-related competencies. Failure to attract and retain suitable talent may impact on the delivery of Quilter's strategy and may have an adverse impact on Quilter's business, its financial and operational performance and its delivery of service to customers. |
Third party | Quilter procures certain services from third parties, which has increased given the significant business process and technology outsourcing to FNZ and the deployment of multiple new cloud-based technologies. If Quilter does not effectively oversee its third-party providers, they do not perform as anticipated, or Quilter experiences technological or other problems with a third party, Quilter may experience operational difficulties, increased costs and loss of business, potential customer detriment and damage to its reputation. |
Operational resilience | Quilter provides important services for its customers, and its ability to maintain these services during unforeseen events is key. The continuing COVID-19 pandemic has provided comfort on Quilter's ability to operate in a severe operational resilience scenario. Any failures in Quilter's preparation for, or response to, sudden disruptions could compromise the maintenance of important business services, resulting in the potential for customer detriment, financial loss, damage to reputation or regulatory sanction. |
Regulatory | Quilter is subject to regulation in the UK by the PRA and the FCA, and following the sale of Quilter International, by a now reduced number of other regulators internationally. Additionally, the firm is subject to the privacy regulations enforced by the Information Commissioner's Office and international equivalents. Quilter faces risks associated with compliance with these regulations and to changes in regulations or regulatory focus or interpretation in the markets in which Quilter operates. Failure to manage regulatory compliance effectively could result in regulatory censure, including the possibility of fines or prohibitions which could impact business performance and reputation. |
Quilter monitors its emerging risk profile on a regular basis, with the risk profile being regularly reviewed by the Board Risk Committee and Board. The current emerging risks being tracked are:
Emerging risks | |
Near term
| |
Cyber threat developments | Evolving sophistication in cyber criminality presents an ever-changing cyber-attack threat profile, which could result in impacts to the continuity of operations and security of information. |
Margin pressure | Increasing market pressures may require provision of services at a lower overall cost to customers to remain competitive. |
Economic outlook and geopolitical risk | Rising cost pressures, post-pandemic supply issues, post-Brexit trading issues, geopolitical tensions, and the reversal of temporary taxation relief has caused inflation to rise, potentially adversely impacting investment performance, business costs and Quilter's customers' ability to save. |
Medium term
| |
Disruptive competition and technology | Increasing competitive activity and accelerating technological capabilities at peer firms could result in the potential to erode Quilter's market share. |
Climate change - disorderly transition to net zero | Securing global net zero emissions by mid-century is a stretching demand. A disorderly transition to a low carbon economy could have financial impacts for Quilter caused by investment volatility or increased costs due to additional regulatory burden. |
Political changes and taxation | Restoration of public finances after the pandemic may require further changes to the tax regime, in addition to the rises in UK National Insurance that have been announced. Adverse taxation changes could adversely impact customers' ability to save. |
Longer term | |
| |
Generational shifts | Intergenerational changes to wealth dynamics will require adaptation to retain market share. |
Shareholder information
The Quilter Board has agreed to recommend to shareholders the payment of a final dividend of 3.9 pence per share. This will be considered at the Quilter plc Annual General Meeting which will be held on Thursday 12 May 2022. The final dividend will be paid on Monday 16 May 2022 to shareholders on the UK and South African share registers on Friday 8 April 2022.
Dividend Timetable
Dividend announcement in pounds sterling with South Africa ZAR Equivalent | Wednesday 9 March 2022 |
Last day to trade cum dividend in South Africa | Tuesday 5 April 2022 |
Shares trade ex-dividend in South Africa | Wednesday 6 April 2022 |
Shares trade ex-dividend in the UK | Thursday 7 April 2022 |
Record Date in UK and South Africa | Friday 8 April 2022 |
Final dividend payment date | Monday 16 May 2022 |
From the opening of trading on Wednesday 9 March 2022 until the close of business on Wednesday 25 May 2022, no transfers between the London and Johannesburg registers will be permitted. This extended period is to facilitate the B Share Scheme and Share Consolidation. Further details of the B Share Scheme and Share Consolidation have been published in a separate market announcement. Share certificates for shareholders on the South African register may not be dematerialised or rematerialised between Wednesday 6 April 2022 and Friday 8 April 2022, both dates inclusive.
Additional information
For shareholders on our South African share register a dividend of 78.25993 South African cents per share will be paid on Monday 16 May 2022, based on an exchange rate of 20.06665. Dividend Tax will be withheld at the rate of 20% from the amount of the gross dividend of 78.25993 South African cents per share paid to South African shareholders unless a shareholder qualifies for exemption. After the Dividend Tax has been withheld, the net dividend will be 62.60794 South African cents per share. The Company had a total of 1,638,123,085 shares in issue at today's date.
If you are uncertain as to the tax treatment of any dividends you should consult your own tax adviser.
Share buyback programme
Following the completion of the sale of Quilter Life Assurance to Reassure Group plc for £425 million (and interest income of £21 million), the Board announced that they planned to return the full net surplus sale proceeds (after disposal costs) of £375 million to shareholders by way of a share buyback programme (the 'Programme').
Quilter commenced the Programme on the London and Johannesburg Stock Exchanges on 11 March 2020. The Programme was subject to staged regulatory and Board approvals and at completion of the Programme on 27 January 2022, a total of 264.1 million shares had been purchased and cancelled at an average price of 141.97 pence per share.
Supplementary information
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including APMs, as explained further on pages 4 to 7. These measures are indicated with an asterisk: *.
For the year ended 31 December 2021
1. Key financial data
2021 full year gross flows, net flows & AuMA (£bn), unaudited | AuMA* 2020 | Gross | Net Flows* (£m) | AuMA* as at 31 December 2021 | Of which Quilter solutions AuM as at |
|
|
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|
|
|
AFFLUENT SEGMENT |
|
|
|
|
|
Quilter channel | 9.6 | 2,606 | 1,830 | 11.7 | 7.7 |
IFA channel | 52.8 | 6,333 | 1,690 | 60.0 | 7.8 |
Non-core business1 | 1.4 | 103 | (24) | 1.5 | - |
Sub-total (Quilter Platform) | 63.8 | 9,042 | 3,496 | 73.2 | 15.5 |
Via other platforms |
|
|
|
|
|
Quilter channel | 4.7 | 950 | 203 | 4.7 | 5.0 |
IFA channel | 2.4 | 312 | (451) | 2.5 | 2.5 |
Non-core businesses1 | 2.8 | 175 | (340) | 2.7 | 2.6 |
Sub-total | 9.9 | 1,437 | (588) | 9.9 | 10.1 |
Total Affluent Segment | 73.7 | 10,479 | 2,908 | 83.1 | 25.6 |
|
|
|
|
|
|
HIGH NET WORTH SEGMENT |
|
|
|
|
|
Quilter channel | 2.1 | 462 | 360 | 2.5 | 2.5 |
IFA channel incl. Direct | 23.2 | 2,234 | 699 | 26.2 | 26.2 |
Total High Net Worth Segment | 25.3 | 2,696 | 1,059 | 28.7 | 28.7 |
|
|
|
|
|
|
Quilter plc | 99.0 | 13,175 | 3,967 | 111.8 | 54.3 |
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|
|
|
|
|
AuMA breakdown: |
|
|
|
|
|
Affluent administered (Quilter Platform) | 63.8 | 9,042 | 3,496 | 73.2 | 15.5 |
Affluent managed (Quilter Investors) | 23.2 | 5,293 | 538 | 25.6 | 25.6 |
HNW managed and administered (Quilter Cheviot) | 25.3 | 2,696 | 1,059 | 28.7 | 28.7 |
|
|
|
|
|
|
Quilter channel | 16.4 | 4,018 | 2,393 | 18.9 | 15.2 |
IFA channel | 78.4 | 8,879 | 1,938 | 88.7 | 36.5 |
Non-core business1 | 4.2 | 278 | (364) | 4.2 | 2.6 |
1Non-core includes lines of business which were disposed but some of the assets continue to be administered by Quilter and their expected outflow over time constitutes a headwind to performance.
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2020 full year gross flows, net flows & AuMA (£bn),unaudited | AuMA* 2019 | Gross | Net flows* (£m) | AuMA* as at 31 December 2020 | Of which Quilter solutions AuM as at | |
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AFFLUENT SEGMENT |
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Quilter channel | 7.4 | 1,793 | 1,183 | 9.6 | 6.3 | |
IFA channel | 49.9 | 3,888 | 351 | 52.8 | 6.6 | |
Non-core business1 | 1.3 | 46 | (56) | 1.4 | 0.2 | |
Sub-total (Quilter Platform) | 58.6 | 5,727 | 1,478 | 63.8 | 13.1 | |
Via other platforms |
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Quilter channel | 5.5 | 1,053 | 69 | 4.7 | 4.8 | |
IFA channel | 1.5 | 342 | (292) | 2.4 | 2.4 | |
Non-core businesses1 | 2.6 | 599 | (28) | 2.8 | 2.9 | |
Sub-total | 9.6 | 1,994 | (251) | 9.9 | 10.1 | |
Total Affluent Segment | 68.2 | 7,721 | 1,227 | 73.7 | 23.2 | |
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HIGH NET WORTH SEGMENT |
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Quilter channel | 1.7 | 460 | 347 | 2.1 | 2.1 | |
IFA channel incl. Direct | 22.5 | 1,682 | (83) | 23.2 | 23.2 | |
Total High Net Worth Segment | 24.2 | 2,142 | 264 | 25.3 | 25.3 | |
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Quilter plc | 92.4 | 9,863 | 1,491 | 99.0 | 48.5 | |
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AuMA breakdown: |
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Affluent administered (Quilter Platform) | 58.6 | 5,727 | 1,478 | 63.8 | 13.1 | |
Affluent managed (Quilter Investors) | 21.6 | 4,986 | 284 | 23.2 | 23.2 | |
HNW managed and administered (Quilter Cheviot) | 24.2 | 2,142 | 264 | 25.3 | 25.3 | |
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Quilter channel | 14.6 | 3,306 | 1,599 | 16.4 | 13.2 | |
IFA channel | 73.9 | 5,912 | (24) | 78.4 | 32.2 | |
Non-core business1 | 3.9 | 645 | (84) | 4.2 | 3.1 | |
1Non-core includes lines of business which were disposed but some of the assets continue to be administered by Quilter and their expected outflow over time constitutes a headwind to performance.
Estimated asset allocation (%) | 2021 | 2020 | |||||||||
Fund profile by investment type, unaudited | Total client AuMA | Total client AuMA | |||||||||
Quilter |
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Fixed interest | 24% | 26% | |||||||||
Equities | 67% | 65% | |||||||||
Cash | 4% | 4% | |||||||||
Property and alternatives | 5% | 5% | |||||||||
Total | 100% | 100% | |||||||||
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Total net fee revenue* 2021 (£m) | Quilter Investors | Quilter Financial Planning | Quilter Investment Platform | Affluent | Quilter Cheviot | Quilter Private Client Advisers | High Net Worth | Head Office | Continuing Operations | ||
Net management fee* | 127 | - | 184 | 311 | 189 | - | 189 | - | 500 | ||
Other revenue* | - | 90 | 5 | 95 | - | 23 | 23 | - | 118 | ||
Total net fee revenue* | 127 | 90 | 189 | 406 | 189 | 23 | 212 | - | 618 | ||
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Total net fee revenue* 2020 (£m) | Quilter Investors | Quilter Financial Planning | Quilter Investment Platform | Affluent | Quilter Cheviot | Quilter Private Client Advisers | High Net Worth | Head Office | Continuing Operations | ||
Net management fee* | 111 | - | 167 | 278 | 168 | - | 168 | - | 446 | ||
Other revenue* | - | 92 | - | 92 | 3 | 22 | 25 | 1 | 118 | ||
Total net fee revenue* | 111 | 92 | 167 | 370 | 171 | 22 | 193 | 1 | 564 | ||
1. Affluent
The following table presents certain key financial metrics utilised by management with respect to the business units of the Affluent segment, for the periods indicated.
Key financial highlights | 2021 | 2020 | % change |
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Quilter Investors |
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Net management fees (£m)* | 127 | 111 | 14% |
Other revenue (£m)* | - | - | - |
Total net fee revenue | 127 | 111 | 14% |
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Net inflows (£bn)* | 0.5 | 0.3 | 67% |
Closing AuM (£bn)* | 25.6 | 23.2 | 10% |
Average AuM (£bn)* | 24.5 | 21.0 | 17% |
Revenue margin (bps)* | 52 | 53 | (1) bps |
Asset retention (%)* | 79% | 78% | 1 pp |
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Quilter Financial Planning |
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Net management fees (£m)* | - | - | - |
Other revenue (£m)* | 90 | 92 | (2%) |
Total net fee revenue* | 90 | 92 | (2%) |
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RFPs (#) | 1,563 | 1,765 | (11%) |
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Quilter Investment Platform |
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Net management fees (£m)* | 184 | 167 | 10% |
Other revenue (£m)* | 5 | - | - |
Total net fee revenue | 189 | 167 | 13% |
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Net inflows (£bn)* | 3.5 | 1.5 | 133% |
Closing AuM (£bn)* | 73.2 | 63.8 | 15% |
Average AuM (£bn)* | 68.6 | 57.8 | 19% |
Revenue margin (bps)* | 27 | 29 | (2) bps |
Asset retention (%)* | 91% | 93% | (2) pp |
2. High Net Worth
The following table presents certain key financial metrics utilised by management with respect to the business units of the High Net Worth segment, for the periods indicated.
Key financial highlights | 2021 | 2020 | % change |
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Quilter Cheviot |
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Net management fees (£m)* | 189 | 168 | 13% |
Other revenue (£m)* | - | 3 | (100%) |
Total net fee revenue | 189 | 171 | 11% |
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Net inflows (£bn)* | 1.1 | 0.3 | 267% |
Closing AuM (£bn)* | 28.7 | 25.3 | 13% |
Average AuM (£bn)* | 26.8 | 23.3 | 15% |
Revenue margin (bps)* | 71 | 72 | (1) bps |
Asset retention (%)* | 94% | 92% | 2 pp |
Investment managers (#)* | 170 | 169 | 1% |
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Quilter Private Client Advisers |
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Net management fees (£m)* | - | - | - |
Other revenue (£m)* | 23 | 22 | 5% |
Total net fee revenue* | 23 | 22 | 5% |
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PCA RFPs (#) | 60 | 77 | (22%) |
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