Quilter plc Half Year Results 2020 - Part 1
NEWS RELEASE
11 August 2020
Quilter plc interim results for the six months ended 30 June 2020
Financial results ahead of market expectations in a challenging environment, demonstrating operational resilience and cost discipline with a strong balance sheet driving shareholder returns
Management basis - continuing business
· Adjusted profit before tax for the Group of £71 million (H1 2019: £89 million) demonstrating a resilient performance in challenging markets.
· Adjusted diluted earnings per share from continuing operations of 3.5 pence (H1 2019: 4.1 pence) supported by a lower tax rate and a modest reduction in average share count as a result of the Group's capital return programme.
· Interim dividend of 1.0 pence per share positioned at the low end of the Group's target pay-out range with the Board to make a decision on the overall 2020 pay-out ratio with the Full Year Results in March 2021.
· Assets under Management/Administration ("AuMA") of £107.4 billion at 30 June 2020 (FY 2019: £110.4 billion) showing a recovery from the first quarter-end position of £95.3 billion.
· Net Client Cash Flow ("NCCF") of £1.1 billion representing a significant increase on the comparative period (H1 2019: £0.3 billion) due to lower outflows and stable gross sales of £5.8 billion (H1 2019: £6.0 billion).
· Integrated net flows of £1.4 billion (H1 2019: £1.4 billion) demonstrating the consistency of the Group's multi-channel model.
· IFRS profit before tax attributable to equity holders from continuing operations of £46 million (H1 2019: loss of £40 million).
· Operating margin of 21% (H1 2019: 26%) reflecting the challenging revenue environment.
· Expense discipline maintained with year-on-year cost growth limited to £5 million despite incremental costs from acquired businesses of c.£12 million and an increase in the FSCS levy of £4 million, reflecting further savings from the Optimisation programme and additional savings of £15 million from management actions.
Statutory results
· IFRS profit after tax of £43 million (H1 2019: loss of £17 million) supported by higher policyholder tax benefits due to market movements in the period.
· Basic earnings per share of 2.4 pence (H1 2019: (0.9) pence).
· Diluted earnings per share from continuing operations of 2.4 pence (H1 2019: (1.7) pence).
· Solvency II ratio of 197% after payment of the interim dividend (H1 2019: 181% (including QLA)).
Strategic progress
· UK Platform Transformation Programme on track.
o Initial migration of 38,500 accounts from 25,000 clients representing Assets under Administration ("AuA") of £4.3 billion (c.8% of Platform assets) in February 2020 has progressed well.
o Significant migration encompassing c.75% of total Platform assets is targeted for the fourth quarter 2020, with the remaining migration planned for early 2021.
· Capital return programme of £375 million initiated through a share buyback after full year results:
o Tranche 1 of £50 million completed at an average price of 116.1 pence per share; and
o Tranche 2 of up to £125 million initiated on 25 June 2020. £27 million of Tranche 2a completed up to close of business on 10 August 2020 at an average price of 144.1 pence per share.
· Share register simplification through completion of the Odd-lot Offer at a price of 120.2 pence (ZAR 2813 cents) per share, which has reduced the total number of shareholders on the Quilter share register by c.45% at a cost of £21 million.
Paul Feeney, Chief Executive Officer, said:
" The first half of 2020 was a uniquely challenging environment which has forced us all to reconsider the way we socially interact and undertake business activities. In terms of our financial performance, strategic progress and focus on operational improvement, I am pleased Quilter has come through this period extremely well and delivered for all our stakeholders - colleagues, clients, communities as well as our owners. I wish to acknowledge the fantastic efforts and resolute focus of my colleagues right across the organisation, whose dedication has made that happen in these very challenging times.
In response to revenue challenges in the first half of 2020 , we pulled hard on the cost lever, both through structural cost reduction via our Optimisation programme and tactically with a planned reduction in discretionary expenditure of around £30 million this year . Our cautious outlook with broadly stable market conditions for the remainder of the year means we continue to expect revenue headwinds. As a consequence, we will maintain a firm handle on expenses with a modestly lower second half out-turn for costs anticipated to offset the expected impact from revenue headwinds.
We are pleased to see the significant pick-up in net flows across the business in the first half , with gross flows remaining resilient despite the market turmoil and retention rates improving . This gives us confidence that we can deliver improving flows as the Platform migration project completes. That project is now in its final stages with c.80% of total UK Platform assets expected to be migrated this year despite us adapting our plans to meet the logistical challenges presented by COVID-19. Our priority is to ensure adviser readiness to deliver a smooth and safe migration for all our customers and advisers.
Notwithstanding short-term uncertainties, Quilter remains well positioned in an industry with secular long-term growth prospects. The business is in good shape and we look forward to the future with confidence ."
|
Quilter highlights from continuing operations 1 |
H1 2020 |
H1 2019 |
|
|
|
|
|
Assets and flows |
|
|
|
|
|
|
|
AuMA (£bn)2 |
107.4 |
107.3 |
|
Gross sales (£bn)2 |
5.8 |
6.0 |
|
NCCF (£bn)2 |
1.1 |
0.3 |
|
NCCF/opening AuMA2 |
2% |
1% |
|
Integrated flows (£bn)2 |
1.4 |
1.4 |
|
Productivity (£m)2,3 |
1.5 |
1.6 |
|
Asset retention2 |
92% |
88% |
|
|
|
|
|
Profit & loss |
|
|
|
|
|
|
|
IFRS profit/(loss) before tax attributable to equity holders from continuing operations (£m)2 |
46 |
(40) |
|
IFRS profit/(loss) after tax from continuing operations (£m) |
44 |
(32) |
|
Adjusted profit before tax (£m)2 |
71 |
89 |
|
Operating margin2 |
21% |
26% |
|
Revenue margin (bps)2 |
52 |
55 |
|
Return on equity2 |
6.2% |
9.2% |
|
Adjusted diluted EPS from continuing operations (pence)2 |
3.5 |
4.1 |
|
Diluted earnings per share from continuing operations (pence) |
2.4 |
(1.7) |
|
|
|
|
|
Non-financial |
|
|
|
|
|
|
|
Restricted Financial Planners ("RFPs")4 |
1,808 |
1,803 |
|
Investment Managers ("IMs")4 |
169 |
163 |
|
1 Continuing operations represent Quilter plc excluding results of Quilter Life Assurance ("QLA") (for 2019) which was sold on 31 December 2019 to ReAssure. |
||
|
2 Alternative Performance Measures ("APMs") are detailed and defined on pages 5 to 7. |
|
|
|
3 Is the measure of the value created by integrated NCCF from our advice business per average Restricted Financial Planner. 4 Closing headcount as at 30 June. |
|
|
|
Alternative Performance Measures ("APMs") We assess our financial performance using a variety of measures including APMs, as explained further on pages 5 to 7. In the headings and tables presented from page 11 onwards, these measures are indicated with an asterisk: *.
|
||
Quilter plc results for the six months ended 30 June 2020
|
John-Paul Crutchley |
UK |
+44 77 4138 5251 |
|
Keilah Codd |
UK |
+44 77 7664 9681 |
|
|
|
|
Media |
||
|
Jane Goodland |
UK |
+44 77 9001 2066 |
|
Tim Skelton-Smith |
UK |
+44 78 2414 5076 |
|
|
|
|
|
Camarco |
|
|
|
Geoffrey Pelham-Lane |
UK |
+44 20 3757 4985 |
Paul Feeney, CEO, and Mark Satchel, CFO, will host a virtual presentation and Q&A session for investors and analysts at 08:00am (BST) today, 11 August 2020, accessible via our website.
Live and on-demand: www.quilter.com/investor-relations
Alternatively, if you would like to join the presentation and Q&A via the telephone, please use the numbers below.
We strongly advise dialling-in five to ten minutes prior to the start of the presentation.
To join by telephone:
|
United Kingdom/ Other |
+44 333 300 0804 |
|
South Africa |
+27 21 672 4118 |
|
United States |
+1 631 913 1422 |
|
Access Code |
91948385 # |
Note: Neither the content of the Company's website nor the content of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement .
Disclaimer
This announcement may contain certain forward-looking statements with respect to certain Quilter plc's plans and its current goals and expectations relating to its future financial condition, performance and results.
By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Quilter plc's control including amongst other things, international and global economic and business conditions, the implications and economic impact of the COVID-19 pandemic, the implications and economic impact of several scenarios of the UK's future relationship with the EU in relation to financial services, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Quilter plc and its affiliates operate. As a result, Quilter plc's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Quilter plc's forward looking statements.
Quilter plc undertakes no obligation to update the forward-looking statements contained in this announcement or any other forward-looking statements it may make. Nothing in this announcement should be construed as a profit forecast.
Business unit descriptor:
Previous Business Unit Name | New Business Unit Name |
|
|
Advice & Wealth Management |
|
Multi-Asset | Quilter Investors |
Quilter Cheviot | No change |
Intrinsic | Quilter Financial Planning |
Old Mutual Wealth Private Client Advisers | Quilter Private Client Advisers |
|
|
Wealth Platforms |
|
Old Mutual UK Platform | Quilter Investment Platform |
International | Quilter International |
Quilter Life Assurance | Sold on 31 December 2019 to ReAssure |
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures. APMs are not defined by the relevant financial reporting framework, which for the Group is IFRS, but we use them to provide greater insight into the financial performance, financial position and cash flows of the Group and the way it is managed.
APMs should be read together with the Group's consolidated financial statements, which include the Group's income statement, statement of financial position and statement of cash flows, which are presented on pages 32 to 36.
Further details of APMs used by the Group in its financial review are provided below. The Group's APMs have not changed due to the adoption of new accounting standards during the period, as disclosed in note 1 to the consolidated financial statements.
APM | Definition |
Adjusted profit before tax | Adjusted profit before tax for the Group represents the Group's IFRS profit, adjusted for key items and excludes non-core operations, as detailed on page 41 in the consolidated financial statements. Due to the nature of the Group's businesses, management believe that adjusted profit before tax is an appropriate basis by which to assess the Group's underlying operating results as it enhances comparability and understanding of the financial performance of the Group. A detailed reconciliation of the adjusted profit before tax metrics presented, and how these reconcile to IFRS, is provided on page 17. 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 13. A reconciliation from each line item on the IFRS income statement to adjusted profit before tax is provided is note 5(c) to the consolidated financial statements on page 45. In the Group's 2019 Annual Report, the reconciliation for full year 2019 included the results of the QLA business within adjusted profit before tax. QLA is now excluded from this reconciliation for comparability with the current period following its disposal on 31 December 2019, which now presents continuing operations only. |
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 in a UK life insurance entity, as defined in UK tax legislation, 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 entities to match against related unit-linked liabilities in respect of clients' policies, and for which the company charges fees to clients. As such, policyholder tax can be a charge or credit in any period depending on underlying market movements on those assets held to cover linked liabilities. Shareholder tax is the remaining tax after deducting policyholder tax, and is more reflective of the profitability of the entity. This metric is included on the face of the Group's income statement on page 32 and is included in the adjusted profit to IFRS profit after tax reconciliation in note 5(a) to the consolidated financial statements. |
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 14 of the Financial review. |
Operating margin | Operating margin represents adjusted profit before tax divided by total net fee revenue. Management use this APM as this is an efficiency measure that reflects the percentage of total net fee revenue that becomes adjusted profit before tax. Operating margin is referred to in the Chief Executive Officer's statement and Financial review, with comparison to the prior period explained in the adjusted profit section on page 14. |
Gross sales | Gross sales are the gross client cash inflows received from customers during the period and represent our ability to increase AuMA and revenue. Gross sales are disclosed by business on page 12 of the Financial review and by business and segment in the Supplementary information on pages 23 to 28.
|
Gross outflows | Gross outflows are the gross client cash outflows returned to customers during the period and results in a decrease to AuMA and revenue. Gross outflows are disclosed by business on page 12 of the Financial review and by business and segment in the Supplementary information on pages 23 to 28.
|
Net client cash flows ("NCCF") | NCCF 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 considered to be a lead indicator of total net fee revenue.NCCF is referred to throughout this document, with a separate section in the Financial review on pages 12 to 13, and is presented by business and segment in the Supplementary information on pages 23 to 28. |
Integrated net flows | Integrated net flows are total NCCF from continuing operations, before intra-Group eliminations that have flowed through two or more segments within the Group. It is considered to be a lead indicator of revenue generation driven by our integrated business model. Integrated net flows are explained in the NCCF section of the Financial review on page 13. |
Assets under Management and Administration ("AuMA") | AuMA represents the total market value of all financial assets managed and administered on behalf of customers. For reporting, the Advice and Wealth Management segment presents Assets under Management and Wealth Platforms segment presents Assets under Administration. AuMA is referred to throughout this document, with a separate section in the Financial review on page 13, and is presented by business and segment in the Supplementary information on page 24. |
Average AuMA | Average AuMA represents the average total market value of all financial assets managed and administrated on behalf of customers. Average AuMA is calculated using a 7-point average (half year) and 13-point average (full year) of monthly closing AuMA. |
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 14 of the Financial review and note 5(c) in the consolidated financial statements. |
Net management fees | Net management fees consists 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 is 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 14 and note 5(c) in the consolidated financial statements. |
Other revenue | Other revenue represents revenue not directly linked to AuMA (e.g. encashment charges, closed book unit-linked policies, non-linked Protect policies, adviser initial fees and adviser fees linked to AuMA in Quilter Financial Planning (recurring fees)). Other revenue is a part of total net fee revenue, which is a key input into the Group's operating margin. Further information on other revenue is provided on page 14 and note 5(c) in the consolidated financial statements. |
Expenses |
Expenses represent the underlying costs for the Group, which need to be incurred to earn total net fee revenue, and excludes the impact of material one-off items. Expenses are included in the calculation of adjusted profit before tax, and impact the Group's operating margin.
A reconciliation of expenses to the applicable IFRS line items is included in note 5(c) to the consolidated financial statements, and the adjusting items excluded from expenses are explained in note 5(b). Expenses are explained on page 15 of the Financial review.
|
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 17 of the Financial review. |
Asset retention | The asset retention rate measures our ability to retain assets from delivering good customer outcomes and investment performance. Asset retention reflects the annualised gross outflows of the assets under management during the period as a percentage of opening assets under management and administration. Asset retention is calculated as: 1 - (annualised gross outflow divided by opening AuMA). Asset retention is provided for the Group on page 2, and by segment on pages 27 to 28. |
Productivity | Productivity is a measure of the value created by integrated net flows from our advice business, and is an indicator of the success of our integrated business model. Productivity is calculated as integrated net client cash flow per average Restricted Financial Planner. Productivity is provided on pages 2, 13 and 27. |
NCCF/opening AuMA (excluding QLA) | This measure is calculated as total NCCF annualised (as described above) divided by opening AuMA presented as a percentage. This metric is provided on page 2. |
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. |
Adjusted diluted earnings per share
| Adjusted diluted earnings per share represents the adjusted profit earnings per share, calculated as adjusted profit after tax divided by the weighted average number of shares. Refer to page 15 and note 8 in the consolidated financial statements. A continuing and discontinued view of diluted earnings per share has also been presented, and the calculation of all EPS metrics, in note 8 to the consolidated financial statements. Adjusted diluted earnings per share is referred to throughout this document, with additional details in the EPS section in the Financial reviewon page 15. |
Headline earnings per share1 | 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 02/2015. This is calculated on a basic and diluted basis. For details of the calculation, refer to note 8 of the consolidated financial statements. |
| |
Chief Executive Officer's statement
Execution
The first half of 2020 was a more challenging environment than we have experienced for more than a generation. As a sector, we have become used to managing through financial market volatility, but a global pandemic leading to social lock-down, severe economic contraction and unprecedented market volatility present an altogether different scale of management challenges. At Quilter, our response to this environment has been to adopt a three-pillar approach focussed on maintaining staff health and safety, ensuring operational resilience to maintain high standards of client service, and rising to the challenge of broader social responsibility.
Ø When the scale of the COVID-19 crisis became clear, our first concern was to ensure the health and safety of our staff and so we mobilised, at pace, to make sure colleagues could work from home as quickly as possible. By early April we had over 98% of Quilter staff working remotely, including all of our contact centre-based colleagues servicing our UK and International platforms whose roles are not traditionally enabled for remote working. Since that time, we have reconfigured our offices to enable staff to operate safely in a COVID-19 context and allowed a modest number of staff to return to the office environment, principally in locations beyond the UK mainland where measures to control the COVID-19 virus are at a more advanced stage. In the UK, a small number of staff have returned to the office, undertaken in line with Government guidelines and with staff operating in a socially-distanced manner.
Ø Our second focus was to ensure continuity of excellent service to our clients and advisers. I am immensely proud of how all my colleagues across Quilter rose to that challenge. Technology enabled our remote working transition and in the space of three weeks from mid-March our IT teams implemented new network telephony systems and delivered thousands of laptops, headsets, docking stations, monitors and softphones to enable colleagues servicing clients and advisers to work effectively from home.Our teams have achieved outcomes during lock-down that we did not expect to be possible such as remotely implementing a significant CRM system upgrade for Quilter Cheviot. We have also used technology to deliver solutions such as digital signatures, with many legacy paper-based processes reengineered to allow a greater degree of automation and client focus. Online customer registrations on the UK Platform are up ten-fold versus last year as customers adapted their engagement preferences, and in the International business over half the interactions with advisers are now online through Wealth Interactive digital accounts.
Ø Thirdly, while social responsibility has always been a cornerstone of Quilter's culture, we have gone beyond our established practices to care for and support our customers, advisers and colleagues throughout this period:
o We put in place specific support for network adviser firms, with deferred fee arrangements where needed.
o We updated "Thrive", our Quilter-wide well-being programme, to provide colleagues with appropriate mental, financial, physical and social wellbeing support to manage through lock-down, and subsequently rolled this out to 23,000 advisers across the UK as part of our "There for You" campaign.
o Certain staff reductions within the organisation which were planned as part of our Optimisation plans in the second quarter were deferred. We did not think it appropriate to have those conversations with impacted staff during a period of peak pandemic and economic uncertainty and while the UK Government were implementing significant schemes to avoid increasing short-term redundancies. It was right to raise our focus beyond the short-term and offer temporary support.
o Our Financial Adviser School recognised at an early stage of lock-down that a number of furloughed individuals across the UK might be concerned about their prospects and would be considering alternative career options. To further our goal of increasing adviser numbers across the industry, the School made the first unit of the Financial Adviser Diploma available on-line free to anyone who wanted to explore whether becoming a financial adviser was for them, and 300 people enrolled on the programme during lock-down.
o The Quilter Foundation stepped up its financial support to all the charities we support including the Carers Trust where COVID-19 has placed an even heavier burden on young carers. I am pleased we were also one of the very first firms to contribute to the UK's National Emergency Trust Appeal.
o Given our financial strength and business circumstances, Quilter has not participated in any of the support schemes which the UK Government has put in place in response to the economic crisis.
In summary, I am delighted with how Quilter has operated through this period, from a human, business and a financial perspective. Our balance sheet strength and strong liquidity following the sale of Quilter Life Assurance meant the Board were comfortable paying our 2019 final dividend, and were able to take advantage of Quilter's lower stock market price with our ongoing share buyback programme. The vast majority of our retail shareholders holding less than 100 shares participated in our Odd-lot Offer which provided an inexpensive and convenient way for them to exit their modest shareholdings. In aggregate over 200,000 shareholders participated in the offer resulting in the number of shareholders on our register nearly halving at a cost of £21 million.
Of course, the point of managing through challenging times is not just to survive but to ensure the business is better positioned to thrive in the new business conditions. To achieve this, we questioned and challenged established practices and cultural norms, and ensured those learnings were embedded within the organisation to deliver better outcomes and efficiencies. At Quilter, in some areas of our business, evolution which was expected to take three to five years has happened in the space of a similar number of months. For example, all our advisers are now communicating and conducting client business digitally, which, if sustained, will potentially drive significant productivity gains. The future has arrived early, and we will embrace this new normal by increasingly pivoting our business towards meeting the needs of our customer segments rather than expecting clients to fit our organisational structures and behaviours.
Despite the crisis, we have maintained our focus on integrating acquired businesses. We completed the re-brand of the Charles Derby business to form Quilter Financial Advisers, our mass-affluent National business which also includes Lighthouse Financial Advice and Lighthouse Mortgage and Protection. The integration of Lighthouse plc ("Lighthouse") is progressing well with advisers adopting the Quilter Financial Planners proposition, advice standards and technology where appropriate. Generation of new client queries through our affinity relationships has remained strong despite the inevitable impact of COVID-19.
We have purposefully not undertaken any significant advice business acquisitions in 2020 as we focus on fully integrating those undertaken in 2019. During the course of the first half we recruited 106 Restricted Financial Planners, bringing our total to 1,808 net of departures. Limited net organic growth was a function of the external environment coupled with increased focus on individual adviser productivity which is an area of increasing importance to us and has led to some specific departures. Our pipeline of firms seeking to join our network remains strong. Our advisers have adapted well to remote working, engaging positively and proactively with clients via video and other means to deliver ongoing service and meet client needs.
Business performance
Profitability over the course of the first half of 2020 was impacted by external conditions. Given the market decline came in mid to late March, we benefited from good performance in the first quarter with a more challenging second quarter, reflecting both lower markets and the impact of the higher 2020 FSCS and regulatory levies of £15 million, the majority of which was charged in full in April, with a further £5 million expected in the second half.
Against this backdrop, I am satisfied with our adjusted profit before tax for the first half of 2020 of £71 million, against £89 million from continuing operations in 2019. Lower total net fee revenue of £335 million reflected a decline in revenue margins as a result of the mix shift in Quilter Investors and planned repricing on the Quilter Investment Platform. As previously guided, we expect further erosion of Quilter Investors' margin in the second half as we grow assets in our newer lower margin products such as Cirilium Blend, Passive and Income solutions. Given the UK housing market moved into stasis during lock-down, we also expect temporarily lower revenues from the mortgage and protection business within Quilter Financial Planning until the measures taken by the Chancellor to support the housing market feed through into renewed activity.
Total expenses of £264 million in the first half grew by £5 million (2019: £259 million), demonstrating that our cost discipline has been maintained through Optimisation and complemented by a targeted programme to reduce discretionary expenses by £30 million this year. The cost base for the first half reflected a full period contribution from the QFP acquisitions made during 2019, which added £12 million of costs including restructuring spend, as well as a £4 million higher charge for the 2020 FSCS levy. We also accommodated stranded costs resulting from the sale of Quilter Life Assurance. Separately, incremental one-off 2020 COVID-19 related costs of £2 million arose from support arrangements and costs of additional equipment required to enable staff to work from home. Underlying costs, excluding the impact from acquisitions and COVID-19 related expenses, were lower than 2019.
Our operating margin declined to 21% (H1 2019: 26%, excluding Quilter Life Assurance) primarily reflecting the impact on revenues from a lower revenue margin coupled with the aforementioned cost drag from stranded costs, higher FSCS levies and unanticipated COVID-19 related costs. Our IFRS profit after tax was £43 million, compared to a loss of £17 million in the first half 2019.
Overall AuMA declined from £110.4 billion at 31 December 2019 to £95.3 billion at the end of the first quarter of 2020, recovering to £107.4 billion by end June 2020. The market decline began late in the first quarter, with March seeing significant rapid declines in a short period of time before a recovery in most global indices over the course of the second quarter. This led to average AuMA, the principal driver of net management fee revenue, for the period of £105.1 billion modestly ahead of £103.2 billion in the first half of 2019. As we look ahead to the second half, we expect a slightly higher level of average AuMA relative to the first half, assuming markets remain broadly stable. We expect subdued revenue momentum in the second half of 2020 to lead to broad stability in the operating margin, with a targeted improvement in 2021 of two percentage points from the eventual 2020 out-turn, as envisaged in our original optimisation targets.
Adjusted diluted earnings per share of 3.5 pence compared with 4.1 pence from Quilter's continuing operations in the first half of 2019. On an IFRS basis, we delivered basic EPS f 2.5 pence versus a loss of 1.7 pence per share for the comparable period of 2019 on the same basis. Period-end shares declined by 2.4% or 46 million as a result of our share buyback. The Board will make a considered decision on the pay-out ratio and final dividend for 2020 shortly before the Full Year Results, which will be announced in March 2021, with that decision dependent on market conditions, progress on the share buyback and the business outlook at that time. The Board considers it appropriate to pay a 2020 interim dividend and has adopted a cautious position given the market uncertainties which remain. The interim pay-out ratio has been set at the lower end of the 40% to 60% target range with a declared 2020 interim dividend of 1.0 pence per share. This compares to a 2019 interim dividend of 1.7 pence per share (inclusive of a distribution of 0.43 pence per share in respect of Quilter Life Assurance's profit contribution).
As indicated at the 2019 Full Year Results, the provision made in respect of certain Defined Benefit ("DB") pension transfers for former British Steel Pension Scheme ("BSPS") members undertaken by Lighthouse prior to its acquisition by Quilter remained under review. This has now been increased to £24 million net of anticipated deferred tax benefits and a prudent assumption regarding recoverability under Lighthouse's professional indemnity insurance. £19 million of this net provision has been taken as an adjustment to the acquisition balance sheet of Lighthouse and £5 million has been taken to the IFRS P&L as a charge. This covers our current estimated liability for redress in respect of the BSPS pension transfers undertaken by Lighthouse. As previously indicated, we continue to work proactively with the FCA to ensure good customer outcomes for the clients involved.
Client flows
Delivering good customer outcomes through a trusted advice relationship is central to the Quilter business model. The Quilter Investment Platform is key to our business, providing the investment 'wrappers' and other functionality to meet both our client and their adviser needs, while our investment solutions provide the intellectual capability to deliver the outcomes our clients seek. Confidence in our proposition is demonstrated through both the continued attraction of our solutions to independent financial advisers and the resilience of our integrated flows.
While gross client cash flows into the business in the first half of 2020 remained stable at c.£6 billion, we saw substantial improvement in net flows. NCCF increased to £1.1 billion versus £0.3 billion in the comparable period of 2019. This reflected improved persistency in client assets across each of Quilter Cheviot, Quilter International and the Quilter Investment Platform. The overall level of DB to DC flows in the first half modestly increased on the comparable period of 2019. We welcomed the FCA announcement on plans to reform the DB transfer market which will help promote better, industry-wide, customer outcomes and their proposals are wholly consistent with Quilter's existing approach to this business.
I am particularly pleased to see stable gross flows of c.£3 billion onto the Quilter Investment Platform in the period to end-June coupled with the increase in NCCF from £0.5 billion in 2019 to £1.0 billion in 2020. This stability provides a solid foundation from which our new platform will be able to deliver stronger flows once migration onto our new platform is completed.
Quilter International saw broadly stable gross flows, with lower redemptions driving an improvement in NCCF versus the prior year which has been supported by a focussed digital strategy to encourage advisers to consider "topping up" client investments.
Across the business, overall levels of client retention improved to 92% versus 88% (89% excluding the impact of the specific team departure in Quilter Cheviot) in 2019.
Investment performance
Our investment propositions have continued 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 March 2020. I was particularly pleased that Quilter Cheviot's Climate Assets Fund, a fossil fuel-free strategy investing in the growth markets of sustainability and environmental technologies, celebrated its ten-year anniversary in June and has delivered consistently strong investment performance for investors, with top quartile rankings over one, three, five and ten years.
We continued to add to the Quilter Cheviot investment team and our Investment Manager headcount increased to 169 at the end of June 2020 from 167 in December 2019 and a low of 155 at the end of December 2018. We expect our new hires to contribute to support growth in Assets under Management over time.
The medium and longer-term performance of Quilter Investors' multi-asset solutions has also remained good. While the performance on the biggest range, Cirilium Active, has been more disappointingon a one-year view, it has performed well in the recovery since 23 March 2020. This underperformance is being addressed with the investment team looking to rotate out of underperforming asset classes as markets rise. We have simplified and broadened the Quilter Investors product range through fund consolidation and new product launches, including our new multi-asset income suite and Cirilium Blend proposition. Both of these new investment propositions have raised significant assets and are performing well. Wealth Select has continued to perform well and we have broadened access to this range by adding it to our restricted adviser panel.
Transformation
In June 2020, I was pleased to announce two notable changes to my leadership team:
Ø Firstly, I am delighted Bambos Hambi will be joining us in November from Aberdeen Standard Investments ("ASI") as Chief Executive Officer of Quilter Investors. Bambos succeeds Paul Simpson who, as previously announced, will be retiring later this year. At ASI, Bambos was Head of Multi-Manager Strategies and led one of the biggest fund selection teams in the UK. Bambos is an industry veteran and holds a strong reputation for his down-to-earth, patient long-term investment approach - he will be a strong cultural fit with Quilter. I would like to thank Paul Simpson for building Quilter Investors into the business it is today and for overseeing its successful separation from Merian Global Investors.
Ø Secondly, having built the second-largest advice business in the UK through a number of acquisitions over recent years in Quilter Financial Planning, we are now looking to drive the next phase of our business strategy with an increased focus on organic growth and closer pan-Quilter integration. To develop the business and drive this next phase of organisational strategy, I appointed Stephen Gazard as Chief Executive Officer. I would like to thank Andy Thompson for his support and leadership.
These appointments will support Quilter's transformation agenda which is built on three core principles:
Ø We will deliver our new UK Platform and the anticipated benefits following migration of existing clients and adviser firms;
Ø We will make Quilter a simpler and more focussed business, delivering faster organic growth through closer business integration; and
Ø We will optimise our business by delivering the cost reduction plans we set out in March 2019, improve operational leverage through scaling up our UK Platform and Investment Solutions business, and invest to drive productivity.
In respect of our UK Platform Transformation Programme, following a rigorous approach to validating our migration readiness plans, which incorporated two dry runs and three dress rehearsals, we undertook a successful initial migration of c.8% of the total platform assets under administration in February 2020. This represented the funds associated with around 60 adviser firms and 25,000 customers and demonstrates that our platform technology works well at scale. As the year has progressed, we have focused on supporting customers and advisers through the post migration period, incorporated adviser feedback to drive system improvements and taken lessons learned from our first migration into our planning for the second migration.
While it is early days, and it has been set against a period of market turbulence, we have seen evidence of a better flow dynamic from advisers who have switched to the new platform. For example, around half the firms who were in the first migration have written increased NCCF in first half of 2020 versus the prior period. In addition, there has been encouraging take up of some of the products we are now able to offer such as Junior ISAs.
Our second and final platform migration had been planned for late Summer 2020. The logistical constraints imposed by COVID-19, including its impact on independent financial adviser firms' resource availability, remains a concern and has made our priority of ensuring a smooth adviser transition more of a challenge. Consequently, we have decided to modify our approach to ensure we are able to deliver good customer and adviser outcomes with a lower execution risk tolerance by splitting the planned second migration into two phases:
Ø We expect to migrate the majority (c.75%) of total platform assets in the fourth quarter of 2020, with this covering c.2,000 adviser firms, including all network firms supported by Quilter Financial Planning, and
Ø Undertake a final migration of the remaining assets during early 2021. This final group represents c.5,500 adviser firms who, in a number of instances due to limited existing platform functionality, only use Quilter as their second or third choice platform. We believe they will find our new platform proposition compelling and therefore view their successful migration as a gateway to a stronger business relationship over time.
By taking this approach, we expect to have migrated c.80% of Quilter Investment Platform's assets by the end of 2020, with completion of the project expected in early 2021. The total costs associated with extending the programme in this way are expected to be around £200 million representing an increase of £15 million on previous guidance.
Our Optimisation programme continues to progress in line with plan. There are three strands to Optimisation - driving closer integration of activities across businesses, rationalising technology and discretionary spend processes, and driving efficiency as interdependencies are streamlined. By end-June, our net Optimisation run-rate savings increased by £8 million from that at the end of 2019. We realised a further £2 million saving in H1 against the 2018 cost baseline. While we delayed some staff restructuring activities given the COVID-19 situation, good progress on the overall programme has been maintained. Our new firm-wide general ledger is expected to come on stream in early 2021 and will bring opportunity for continued efficiencies.
As indicated in our first quarter trading update, the Group expects to reduce expenses by c.£30 million in 2020 through lower variable compensation, reduced marketing spend and other initiatives such as deferment of some development spend. By their nature, the majority of these savings are not anticipated to continue in a post-COVID-19 environment. In the first half of 2020 some £15 million of such savings were realised.
Finally, in terms of business improvement, we have delivered our planned CRM upgrade in Quilter Cheviot during the first half and within Quilter Financial Planning, we have largely completed the roll out of our back-office technology upgrade. This will enhance our straight-through processing capabilities and improve our advice control environment. We remain on track to deliver an upgraded payments system for advisers by the year end.
Stewardship
Monitoring employee engagement on a quarterly basis is an established process at Quilter that has been in place since prior to our Listing. We purposefully stepped up our colleague engagement over the period of lock-down with both myself and my Executive Committee sending regular weekly video messages to all staff across the organisation and encouraging direct feedback to help foster a greater spirit of involvement while colleagues were working remotely. I am delighted that our regular engagement reviews remain at a consistently high level.
Separately, we announced two changes to the Quilter Board since our AGM in May 2020:
Ø We welcomed Tim Breedon to the Board at the beginning of June. Tim brings a unique blend of experience and expertise as a former CEO in a highly successful FTSE 100 savings and pensions business, and as a very seasoned non-executive director in both a FTSE 100 company and private equity backed businesses. He brings a deep understanding of UK regulated financial services, corporate governance in UK public companies, effective board challenge and support in building a sustainable business for the long-term.
Ø Jon Little has recently taken on a new full-time role that will not allow him to commit the required time to his role with Quilter and he will step down from the Quilter Board on 30 September 2020. We thank him for his support since joining the Board in May 2017. His valued insights into the asset management industry have been very informative as we have reshaped our business. I wish him well in his future endeavours.
Outlook
We remain cautious in our market outlook given that the full economic impact of COVID-19 has yet to be felt, and there remains the potential risk for further local lock-downs and waves of infection. Other external geo-political factors, such as the US election in November 2020, deterioration in US-Sino relations and the conclusion of the Brexit transition period at the end of the year, may also cause bouts of market volatility.
While advice revenues were more robust than we anticipated in the first half of 2020, we expect a more muted contribution from the mortgage and protection business in the second half as the housing market restabilises. As already noted, we expect further margin erosion in Quilter Investors as a result of ongoing mix shift driven by client and adviser behaviour. Boosting accessibility to our Wealth Select range by adding it to our restricted adviser panel in Quilter Financial Planning is likely to improve asset retention and integrated flows but will have an additional impact on the revenue margin in Quilter Investors.
We remain focussed on controlling costs through both our Optimisation programme and other management initiatives. We expect the full year out-turn for costs to be marginally below the annualised first half level. Should markets remain around current levels, relative to the first half, we expect the impact in the second half of the ongoing mix shift within Quilter Investors and temporary lower revenues from the Advice business to be broadly offset by lower costs.
While our socially responsible approach to business meant we deferred certain Optimisation related restructuring in the first half of 2020, being responsible in our actions does not mean avoiding difficult decisions. We need to ensure Quilter is fit for the future and so our Optimisation plans remain on track to deliver planned cost savings and a year-on-year improvement of two percentage points in our operating margin by end-2021, albeit off a lower starting base, assuming markets remain broadly stable.
Notwithstanding short-term uncertainties, Quilter remains well positioned in an industry with secular long-term growth prospects.Completing the first migration onto our new UK platform in early February was a major milestone for the Group. We are now focussed on delivering the second migration to a high-quality outcome to ensure that the c.80% of client assets are transferred this year with a final migration of the remaining assets to follow in early 2021. Each of our businesses is well-placed to drive growth in their respective areas and we continue to believe the new platform will strengthen the cohesion between our different business capabilities and will be a catalyst for faster growth in the future.
Paul Feeney
Chief Executive Officer
Financial review
Review of financial performance
Overview
The market environment in H1 2020 has been challenging for the Group, with significant equity market falls as a result of COVID-19. With some recovery in equity markets since the low point in March 2020, the Group's AuMA ended the period at £107.4 billion, a 3% decrease from the opening position at the start of 2020. This is comprised of £4.1 billion of negative overall market movements, with the FTSE-100 index down 18% for the period, offset by positive net client cash flow of £1.1 billion. Adjusted profit before tax decreased by 20% to £71 million, with revenue impacted by the fall in equity markets and a decline in overall revenue margins as a result of asset mix shifts in Quilter Investors and planned repricing on the Quilter Investment Platform. The Group's IFRS profit after tax from continuing operations was £44 million, compared to a loss after tax of £32 million in H1 2019, primarily due to the positive impact on policyholder tax following the decline in equity market values which can vary year-on-year as a result of market volatility.
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including APMs, as explained further on pages 5 to 7. In the headings and tables presented, these measures are indicated with an asterisk: *.
Key financial highlights
For six months ended 30 June 2020 Continuing operations | Advice & Wealth Management | Wealth Platforms | Eliminations | Total Group |
|
|
|
|
|
Gross sales (£bn)* | 4.3 | 3.8 | (2.3) | 5.8 |
Gross outflows (£bn)* | (3.8) | (2.6) | 1.7 | (4.7) |
NCCF (£bn)* | 0.5 | 1.2 | (0.6) | 1.1 |
Integrated net flows (£bn)* | 0.7 | 0.7 | - | 1.4 |
AuMA (£bn)* | 44.1 | 76.6 | (13.3) | 107.4 |
NCCF/opening AuMA (%)* | 2% | 3% | n/a | 2% |
Asset retention (%)* | 83% | 93% | n/a | 92% |
|
|
|
|
|
For six months ended 30 June 2019 Continuing operations | Advice & Wealth Management | Wealth Platforms | Eliminations | Total Group |
|
|
|
|
|
Gross sales (£bn)* | 3.2 | 3.8 | (1.0) | 6.0 |
Gross outflows (£bn)* | (3.2) | (3.2) | 0.7 | (5.7) |
NCCF (£bn)* | - | 0.6 | (0.3) | 0.3 |
Integrated net flows (£bn)* | 0.9 | 0.5 | - | 1.4 |
AuMA (£bn)* | 44.7 | 74.8 | (12.2) | 107.3 |
NCCF/opening AuMA (%)* | - | 2% | n/a | 1% |
Asset retention (%)* | 84% | 91% | n/a | 88% |
Net client cash flow ("NCCF")*
NCCF inflows were £1.1 billion for the period (H1 2019: £0.3 billion). The Group experienced slightly lower gross sales due the impact of the COVID-19 pandemic on global economies and market sentiment, which was more than offset by lower outflows in comparison to the first half of 2019, particularly for Quilter Investment Platform, Quilter Cheviot, and Quilter International. Detailed analysis on NCCF by business is shown in the supplementary information section of this announcement.
Net inflows to Quilter Investors were down 25% on prior year at £0.3 billion (H1 2019: £0.4 billion), as higher outflows from the Cirilium Active range were offset by inflows into the lower margin Cirilium Blend and Cirilium Passive products. The majority of net flows in H1 2020 to Quilter Investors were through our own restricted channel, Quilter Financial Planning.
Quilter Cheviot experienced net inflows of £0.2 billion (H1 2019: outflow of £0.4 billion), which was an improvement on the prior year primarily due to lower levels of outflows linked to the Investment Managers ("IMs") who resigned in mid-2018 (H1 2019: outflows of £0.5 billion) and the loss of a £0.2 billion quasi-institutional mandate in the second quarter of 2019. Excluding the departures of IMs who resigned in summer 2018, NCCF was £0.4 billion (H1 2019: £0.1 billion).
Quilter Investment Platform recorded net inflows of £1.0 billion, double that of the prior year (H1 2019: £0.5 billion). Gross sales were in line with the comparative period at £3.0 billion (H1 2019: £3.0 billion) as the acquisitions made in Quilter Financial Planning in 2019 increased flows despite lower levels of flow in the overall market during the period. Additionally, defined benefit ("DB") to defined contribution ("DC") scheme pension transfers were up 25% to £0.5 billion (H1 2019: £0.4 billion). Gross outflows were £2.0 billion during the first half of the year (H1 2019: £2.5 billion) due to lower than typical levels of transfer-out activity between our platform to other platforms in the industry that took place as our Platform's operational resilience during COVID-19 was better than some of our peers.
Quilter International's NCCF improved to £0.2 billion (H1 2019: £0.1 billion) as inflows of predominantly high-net-worth cases offset the slowdown of business activity in regions impacted by local government lock-downs, cumulatively resulting in lower gross sales. Persistency in Quilter International saw an improvement on the prior year comparative period, with lower redemption levels.
Flows (£bn) | H1 2020 | H1 2019 | % Change |
|
|
|
|
Total integrated net flows* | 1.4 | 1.4 | - |
Direct net flows | 0.3 | (0.8) | - |
Eliminations | (0.6) | (0.3) | (100%) |
|
|
|
|
Total Quilter plc NCCF* | 1.1 | 0.3 | 267% |
Integrated net flows of £1.4 billion were in line to those in the first half of 2019 (£1.4 billion). Acquisitions from the previous year increased gross sales from Quilter Financial Planning despite the impact of COVID-19 on new business more generally. The restricted channel of Quilter Financial Planning accounted for £0.4 billion (H1 2019: £0.7 billion) of Quilter Investors' net flows and £0.7 billion (H1 2019: £0.5 billion) of Quilter Investment Platforms' net flows.
Total Restricted Financial Planner ("RFP") headcount was 1,808 at 30 June 2020, up by 1% from 1,799 at 31 December 2019. Quilter Financial Planning experienced limited net organic growth in RFP numbers this period as a result of the external environment coupled with increased focus on individual adviser productivity. Productivity* for Quilter Financial Planning was £1.5 million per RFP for the period (H1 2019: £1.6 million), due to improving net inflows to Quilter Investment Platform and Quilter Cheviot, while reduced net inflows were made to Quilter Investors in the period.
Asset retention* has increased to 92% (H1 2019: 88%), predominantly as a result of lower outflows from Quilter Investment Platform and Quilter Cheviot.
Assets under Management/Administration*
AuMA was £107.4 billion at 30 June 2020, down 3% from 31 December 2019 (£110.4 billion), driven by negative market movements of £4.1 billion, partially offset by net inflows of £1.1 billion.
Quilter Investors' AuM was £20.8 billion, down 4% since the start of the year (2019: £21.6 billion). The Cirilium fund range AuM decreased by 1% to £11.0 billion at 30 June 2020 (2019: £11.1 billion), with £0.1 billion of net inflows and £0.2 billion of negative market movements. Within the Cirilium fund range, net outflows from Cirilium Active to Cirilum Passive and Cirilium Blend solutions was a notable characteristic of the period, with the COVID-19 environment adding some acceleration to the trend experienced during 2019. The WealthSelect fund range AuM increased by 1% to £6.8 billion at the end of June 2020 (2019: £6.7 billion). Quilter Cheviot AuM of £23.3 billion decreased by 4% in the year, primarily as a result of negative market movements. Quilter Investment Platforms' AuA decreased by 2% to £56.2 billion, which is primarily comprised of £27.7 billion within pension propositions (of which £5.0 billion has been generated from the restricted channel and £22.7 billion from third party advisers) and £16.1 billion of ISA products. Quilter International AuA of £20.4 billion was broadly in line with December 2019 (2019: £20.5 billion) primarily due to modest client inflows and a favourable mix of asset where foreign exchange movements have broadly offset market impacts.
IFRS profit after tax
The Group's IFRS profit after tax was £43 million for H1 2020, compared to a loss after tax of £17 million in the comparative period, primarily due to the decline in equity markets, and the impact on policyholder tax which can vary year on year as a result of market volatility.
IFRS income was a loss of £(1.1) billion, compared to a gain of £5.5 billion in H1 2019, due to the fall of equity markets during the period and the negative investment return of £(1.5) billion (H1 2019: gain of £5.0 billion). IFRS total expenses were a credit of £(1.1) billion, compared to a debit of £5.5 billion for H1 2019, again due to the fall in equity markets during the period and the impact this had on the 'Change in investment contract liabilities'.
The profit after tax from discontinued operations in H1 2019 of £15 million related to the QLA business, which was sold on 31 December 2019. The loss after tax from discontinued operations of £(1) million in H1 2020 relates to residual costs from the sale of the QLA business.
Adjusted profit before tax*
Adjusted profit before tax reflects the Board's view of the underlying performance of the Group and is used for management decision making and internal performance management. Adjusted profit before tax is a non-GAAP measure which adjusts IFRS profit for specific items, as detailed in note 5 of the consolidated financial statements on page 41 of this announcement, and is the profit measure presented in the Group's segmental reporting.
Adjusted profit before tax for H1 2020 was £71 million, 20% lower than the prior year (H1 2019: £89 million). Adjusted profit before tax for the Advice and Wealth Management segment decreased by 18% and the Wealth Platforms segment decreased by 16% compared to the prior year.
Total net fee revenue was £335 million, 4% lower than the prior year (H1 2019: £348 million). Net management fees of £273 million were lower than those of the prior year (H1 2019: £284 million) principally due to the impact of the COVID-19 pandemic on financial markets, and therefore on AuMA, and a lower average revenue margin for the Group during the period. The revenue margin was impacted by the Quilter Investment Platform reprice in April 2020, a continuation of net movement of client assets into the broader suite of Quilter Investor solutions, and the anticipated trend in Quilter International where the proportion of assets on older-style pricing structures is reducing relative to the size of the overall book. The revenue margin within Quilter Cheviot remained stable period-on-period. Other revenue of £62 million was marginally down against prior year (H1 2019: £64 million), primarily due to the impact of adverse FX movements, lower interest rates, and lower surrender experience for Quilter International, which were offset by higher advisory revenues generated by Quilter Financial Planning.
Expenses for the Group increased from £259 million to £264 million, mainly due to inflation, an increase in FSCS levies and regulatory costs, one-off costs in relation to COVID-19 as remote working was mobilised, and the inclusion of a full period run-rate of costs for the Quilter Financial Planning acquisitions made during 2019. These cost increases were partially offset by lower travel, entertainment, and marketing costs as a consequence of the lock-down restrictions during the period, lower variable compensation costs, delayed development spend and cost savings realised from the Optimisation programme.
The Group's overall operating margin has decreased to 21% (H1 2019: 26%) as a result of the reduction in revenue.
Financial performance from continuing operations H1 2020 (£m) | Advice & Wealth Management | Wealth Platforms | Head Office | Total Group | |
Net management fees* | 138 | 135 | - | 273 | |
Other revenue* | 59 | 1 | 2 | 62 | |
Total net fee revenue* | 197 | 136 | 2 | 335 | |
Expenses* | (156) | (89) | (19) | (264) | |
Adjusted profit before tax* | 41 | 47 | (17) | 71 | |
Tax |
|
|
| (7) | |
Adjusted profit after tax |
|
|
| 64 | |
|
|
|
|
| |
Operating margin (%)* | 21% | 35% |
| 21% | |
Revenue margin (bps)* | 64 | 36 |
| 52 |
|
|
|
|
| |
Financial performance from continuing operations H1 2019 (£m) | Advice & Wealth Management1 | Wealth Platforms | Head Office | Total Group1 | |
Net management fees* | 144 | 140 | - | 284 | |
Other revenue* | 51 | 11 | 2 | 64 | |
Total net fee revenue* | 195 | 151 | 2 | 348 | |
Expenses* | (145) | (95) | (19) | (259) | |
Adjusted profit before tax* | 50 | 56 | (17) | 89 | |
Tax |
|
|
| (13) | |
Adjusted profit after tax |
|
|
| 76 | |
|
|
|
|
| |
Operating margin (%)* | 26% | 37% |
| 26% | |
Revenue margin (bps)* | 67 | 39 |
| 55 |
1Total adjusted profit before tax including Quilter Life Assurance for H1 2019: £115 million. Refer to reconciliation on page 17.
Total net fee revenue*
The Group's total net fee revenue decreased by 4% to £335 million (H1 2019: £348 million) due to the COVID-19 pandemic and the adverse impact this had on equity markets. In addition, the blended revenue margin for the Group reduced by 3 bps, predominantly due to the mix shift in underlying assets in Quilter Investors, the repricing of the Quilter Investment Platform, and anticipated asset mix changes in Quilter International. While this reduction in revenue margin was expected, the change in asset mix in Quilter Investors has been slightly faster than anticipated and has been accelerated by the COVID-19 environment.
Total net fee revenue for the Advice and Wealth Management segment increased by 1% during the year, to £197 million (H1 2019: £195 million). Quilter Investors net management fee revenue decreased by £4 million from the prior year as a consequence of a non-recurring provision release of c.£3m in H1 2019 and the mix shift to lower margin products, as referenced earlier. Total net fee revenue within Quilter Cheviot was 3% lower at £86 million (H1 2019: £89 million) as average AuM was 2% lower than prior year and fee margins remained stable. Other revenue increased to £59 million (H1 2019: £51 million), principally due to the increase in advice fees in Quilter Financial Planning as a result of the acquisitions in 2019, which was offset by lower mortgage and pension business volumes as a consequence of a slowdown in this business written due to the COVID-19 restrictions.
Total net fee revenue for the Wealth Platforms segment was £136 million, down 10% in comparison to H1 2019 of £151 million. Quilter Investment Platforms' net fee revenue decreased by £6 million (7%) to £80 million, despite higher average asset levels, due to the continued increase in the proportion of the assets sourced from Quilter Financial Planning where clients benefit from a discounted pricing tariff, as well as the reduction in the standard platform tariff implemented in April 2020. Quilter International's net fee revenue was £9 million lower than the prior year at £56 million, mainly as a result of the impact of adverse FX movements, lower interest rates, and lower surrender experience, which is reflected in the decrease in other revenue.
The Group's revenue margin* of 52 bps was 3 bps lower than prior year (H1 2020: 55 bps).
The revenue margin for Advice and Wealth Management of 64 bps was 3 bps lower in comparison to the prior year. This decrease was predominantly due to a 6 bps decrease in the revenue margin for Quilter Investors to 53 bps during the period, driven predominantly by the continued trend for clients to switch from Cirlium Active to the lower margin Cirilium Passive and Cirilium Blend funds, and the impact of non-recurring revenue provision releases in H1 2019. Quilter Cheviot's revenue margin remained in line with prior year at 73 bps.
The revenue margin for Wealth Platforms decreased by 3 bps to 36 bps, as new business written for Quilter International was, as anticipated, in products with lower revenue than the average for the current book of business. Within Quilter Investment Platform, the charging structure of the platform was repriced from April, as previously announced, which also resulted in a slightly reduced average revenue margin.
Expenses*
Expenses increased by £5 million to £264 million in the period (H1 2019: £259 million). The Group incurred additional FSCS and regulatory levy costs compared to the same period last year (£4 million increase), and the acquisitions made by Quilter Financial Planning in 2019 increased expenses by £12 million. These cost increases, and those arising from inflation, were partially offset by lower variable compensation costs and cost discipline across the business with savings continued to be achieved through Optimisation, as well as additional management actions.
Expense split (£m) |
|
|
H1 2020 | H1 2019 | |
|
|
|
Front office and operations | 116 | 98 |
IT and development | 46 | 53 |
Support functions | 56 | 58 |
Other | 15 | 10 |
Variable compensation | 31 | 40 |
Expenses* | 264 | 259 |
|
| |
Front office and operations expenses increased by 18% to £116 million (2019: £98 million), primarily due to the impact of the Quilter Financial Planning acquisitions, with a full run-rate of costs this period and one-off integration costs.
IT and development expenses decreased by 13% to £46 million (2019: £53 million). The decrease was mainly due to reduced IT run costs, lower development costs due to a reduction in regulatory change requirements in H1 2020 compared to H1 2019 and a reduction in change activity as a consequence of COVID-19 where some development activity has been delayed.
Support function expenses relate to back office expenses, which decreased by 3% to £56 million in the period (H1 2019: £58 million). Included within the 2020 costs are property dual-run costs associated with the London Office move, as previously guided, and increased costs in relation to the COVID-19 pandemic to mobilise remote working across the business. These cost increases were offset by savings made across various functions as part of the Optimisation programme.
Other costs include Professional Indemnity Insurance, and charges for regulation and licencing fees. FSCS and regulatory levies increased by £4 million this year due to an increase in levies across the industry and our business lines.
Variable compensation has decreased by 23% due to the decrease in the Group's revenue and the corresponding impact on profit which is currently anticipated to result in lower variable compensation charges for the full year.
Expenses for the second half of 2020 are expected to be marginaly lower than H1 2020, primarily due to the non-recurrence of expenses at the same level for the FSCS levy, which were substantially incurred in April, and the costs associated with the Group's response to the COVID-19 pandemic. We will continue to remain disciplined on costs, as we have in the first half of the year, with the savings we have experienced to date expected to continue for the remainder of the year.
Taxation
The effective tax rate ("ETR") on adjusted profit before tax was 10% (2019:15%). The Group's ETR is lower than the UK corporation tax rate of 19% principally due to profits from Quilter International being taxed at lower rates than the UK and the change in the UK corporation tax rate from 1 April 2020 from 17% to 19%, rebasing the Group's deferred tax assets and liabilities. The Group's ETR is dependent upon a number of factors including the level of Quilter International profits, as well as the UK corporation tax rate.
The Group's IFRS income tax expense on continuing business was a credit of £36 million for the period ended 30 June 2020, compared to a charge of £70 million for the prior year. This income tax expense or credit can vary significantly year-on-year as a result of market volatility and the impact market movements have on policyholder tax. The recognition of the income received from policyholders (which is included within the Group's IFRS revenue) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility to the Group's IFRS profit or loss before tax attributable to equity holders. An adjustment is made to adjusted profit before tax to remove these distortions, as explained further on page 17 and in note 5(b) of the consolidated financial statements.
Earnings Per Share ("EPS")
Basic EPS for H1 2020 was 2.4 pence (H1 2019: (0.9) pence and FY 2019: 8.0 pence). Basic EPS is based on the Group's IFRS profit (including both continuing and discontinued operations). For H1 2020, the basic EPS relating to continuing business was 2.5 pence (H1 2019: (1.7) pence, FY 2019: (1.1) pence), and (0.1) pence relates to discontinued operations (H1 2019: 0.8 pence, FY 2019: 9.1 pence). Discontinued operations in 2019 included profit attributable to the QLA business, whilst 2020 only includes a residual amount of costs associated with the sale of that business. During the period, the average number of shares in issue decreased to 1,879 million (H1 2019 and FY 2019: 1,902 million). The average number of shares in issue used for the basic EPS calculation was 1,801 million (H1 2019: 1,834 million, FY 2019: 1,835 million), after the deduction of own shares held in Employee Benefit Trusts ("EBTs") and consolidated funds of 78 million (H1 2019: 68 million, FY 2019: 67 million). The reduction in the number of shares in issue in the year is due to the share buyback programme, which commenced in 2020. At 30 June 2020, 46 million shares had been bought and cancelled by Quilter plc.
The average number of shares in issue used for the diluted EPS calculation was 1,837 million (June 2019: 1,852 million, December 2019: 1,863 million). This includes the dilutive effect of shares and options awarded to employees under share-based payment arrangements of 36 million (June 2019: 18 million, December 2019: 28 million). The dilutive effect of share awards has continued to increase due to more share options being awarded to employees.
Optimisation
Our strategic Optimisation programme has continued to make significant progress in the delivery of initiatives to drive efficiencies and improvements in operational performance for the Group. Our technology-enabled transformation initiatives, including the consolidation and modernisation of our general ledgers and other associated finance, HR and procurement modules, are continuing to progress well. Quilter International was the first of our businesses to automate manual operational processes using robotics and we are considering other areas for potential deployment.
In addition to benefits arising from prior years, we delivered a further £2 million of cost reduction in H1 2020 against the 2018 cost base, with an £8 million run rate benefit bringing the total delivered run rate to £32 million. Given COVID-19, the business decision to delay certain planned activities in the short-term reduced the H1 2020 realised benefit profile. The Optimisation programme remains on track to deliver the expected margin uplifts as previously communicated. Both forecast benefits and implementation costs associated with our Optimisation programme remain in line with previous guidance.
Lighthouse DB to DC complaints
At 31 December 2019, a provision for pension transfer advice was established for £12 million within the fair value of the Lighthouse assets and liabilities acquired, which included £9 million for the anticipated redress costs and £3 million of expected legal and professional fees. The provision made at 31 December 2019 related to approximately 30 complaints received in the first quarter of 2020 on advice provided by Lighthouse in respect of pension transfers for British Steel pension scheme members, prior to the Group's acquisition of Lighthouse in June 2019. All the complaints received related to transfers before that date.
During the first half of 2020, the FCA reported their results of a thematic review into the general market of pension transfers, which included British Steel pension transfers. The FCA review determined that the percentage of unsuitable files across the industry for British Steel transfers was higher than those for other pension schemes in the general industry. The FCA review included a sample of British Steel pension transfer advice provided by Lighthouse. Additionally, approximately 30 further complaints have been received from British Steel pension scheme members subsequent to the publication of the Group's 2019 Annual Report. As such, the Group has extended the provision to include consideration of the full population of 266 British Steel transfers on which Lighthouse advisers provided advice and the relevant customer proceeded to make a transfer, in order to determine a more reliable approximation of the estimated redress payable.
At 30 June 2020, a total provision of £29 million (31 December 2019: £12 million) has been recognised for the potential redress of all British Steel cases where Lighthouse advisers provided advice and the anticipated legal and professional fees, based upon additional information obtained since the year end, with £24 million recognised within the acquisition balance sheet for Lighthouse and £5 million recognised within the income statement of the Group in H1 2020 (outside of adjusted profit). A prudent view has also been taken with regards to insurance recoveries against the provision made while discussions with Lighthouse's insurers remain ongoing. Accordingly, an insurance recovery asset of £3 million related to the provision has been recognised at 30 June 2020. A deferred tax asset of £2 million has also been recognised, which is the estimate of the tax relief that will be obtained as a consequence of the redress. Collectively, this has resulted in a decrease in net assets within the acquisition balance sheet of £19 million since the acquisition date. The actual redress amount paid could differ from the amount provided depending on the number of cases where, in due course, it is established that redress is due and the actual amount of the insurance recovery. In addition, the redress, when paid, will be influenced by market performance, amongst other factors, at the time that each redress payment is settled with the relevant customer. Any further increases or releases of the provision are anticipated to be recognised in the IFRS income statement of the Group. Further details are provided in notes 4(a), 17 and 18 to the financial statements.
Reconciliation of adjusted profit before tax* to IFRS profit
Adjusted profit before tax for the Group was £71 million (H1 2019: £89 million).
The Group's IFRS profit after tax from continuing operations was £44 million, compared to a loss after tax of £(32) million in H1 2019, primarily due to the change in policyholder tax, which can vary significantly year on year as a result of market volatility. The table below provides the reconciliation of the Group's adjusted profit before tax to the IFRS profit/(loss) after tax for H1 2020 and H1 2019.
Reconciliation of adjusted profit before tax to IFRS profit/(loss) after tax | For the six months ended 30 June 2020 | For the six months ended 30 June 2019 | ||||
|
|
|
|
|
|
|
| Continuing Operations | Discontinued Operations1 | Total | Continuing Operations | Discontinued Operations1 | Total |
£m | ||||||
Advice and Wealth Management | 41 | - | 41 | 50 | - | 50 |
Wealth Platforms | 47 | - | 47 | 56 | 26 | 82 |
Head Office | (17) | - | (17) | (17) | - | (17) |
Adjusted profit before tax* | 71 | - | 71 | 89 | 26 | 115 |
|
|
|
|
|
|
|
Adjusting for the following: |
|
|
|
|
|
|
Goodwill impairment and impact of acquisition accounting | (23) | - | (23) | (26) | - | (26) |
Business transformation costs | (39) | - | (39) | (35) | - | (35) |
Customer remediation | (5) | - | (5) | - | 6 | 6 |
Managed Separation costs | - | - | - | (2) | - | (2) |
Profit on business disposals | - | (1) | (1) | - | - | - |
Finance costs | (5) | - | (5) | (5) | - | (5) |
Policyholder tax adjustments | 47 | - | 47 | (61) | (15) | (76) |
Total adjusting items before tax | (25) | (1) | (26) | (129) | (9) | (138) |
Profit/(loss) before tax attributable to equity holders* | 46 | (1) | 45 | (40) | 17 | (23) |
Tax attributable to policyholder returns | (38) | - | (38) | 78 | 59 | 137 |
Income tax credit/(expense) | 36 | - | 36 | (70) | (61) | (131) |
Profit/(loss) after tax | 44 | (1) | 43 | (32) | 15 | (17) |
1Discontinued operations includes the results of the Quilter Life Assurance ("QLA") business in 2019.
| ||||||
*Adjusted profit before tax reflects the profit from the Group's core operations and is calculated by making certain adjustments to IFRS profit to reflect the Directors' view of the Group's underlying performance. Details of these adjustments are provided in note 5 of the consolidated financial statements.
Business transformation costs of £39 million in H1 2020 (H1 2019: £35 million) include £20 million (H1 2019: £30 million) incurred on the UK Platform Transformation Programme and £19 million of costs (H1 2019: £5 million) in relation to the Optimisation programme.
The customer remediation adjustment of £5 million in H1 2020 relates to the impact of post-acquisition market movements on the British Steel complaints provision relating to Lighthouse. The £6 million credit in the prior period relates to the release of the voluntary customer remediation provision in Quilter Life Assurance associated with certain legacy products.
Managed Separation costs were nil (H1 2019: £2 million), reflecting costs associated with our successful separation from Old Mutual plc and Listing in June 2018. In 2019, this cost was primarily incurred on the rebranding activities within the business, with costs expected to be incurred in late 2020/early 2021 for the final rebranding activity.
Finance costs were £5 million (H1 2019: £5 million) wholly related to the interest and amortisation of setup fees on the Tier 2 bond and Revolving Credit Facility.
Policyholder tax adjustments were a credit of £47 million for H1 2020 (H1 2019: debit of £61 million) in relation to the removal of distortions arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from policyholders (which is included within the Group's 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 (loss)/profit before tax attributable to equity holders.
Cash generation*
Cash generation measures the proportion of adjusted profit before tax that is recognised in the form of cash generated from operations.
The Group achieved a cash generation rate of 83% of adjusted profit before tax over H1 2020 (H1 2019: 85%). Note that the H1 2019 comparative cash generation rate for the Group has been restated following the disposal of Quilter Life Assurance.
Review of financial position
Capital and liquidity
Solvency II
The Group's Solvency II surplus is £946 million at 30 June 2020 (31 December 2019: £1,168 million), representing a Solvency II ratio of 197% (31 December 2019: 221%). The Solvency II information for the six months to 30 June 2020 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 interim dividend payment of £18 million (31 December 2019: £65 million) and after deducting £150 million in respect of the Odd-lot Offer and Tranches 1 and 2a of the share buyback programme. The own funds deduction of £150 million includes £73 million in respect of share buybacks that had yet to take place as at the reporting date. No deduction was made for Tranche 2b of the share buyback (anticipated to be £50 million, being the excess over Tranche 2a on which regulatory approval has been received) and which remains subject to approval by the Board.
|
| At | At |
|
| 30 June | 31 December |
Group regulatory capital (£m) |
| 20201 | 20192 |
Own funds |
| 1,918 | 2,132 |
Solvency capital requirement ("SCR") |
| 972 | 964 |
Solvency II surplus |
| 946 | 1,168 |
Solvency II coverage ratio |
| 197% | 221% |
1Based on preliminary estimates. Formal filing due to the PRA by 15 September 2020. |
|
| |
2As disclosed in the Group Solvency and Financial Condition Report for 2019. |
|
| |
| |||
The 24 percentage point decrease in the Group Solvency II ratio from the 2019 position is primarily due to the capital movements associated with the Odd-lot Offer and Tranches 1 and 2a of the share buyback.
The Board believes that the Group Solvency II surplus includes sufficient free cash and capital to complete all committed strategic investments (including the UK Platform Transformation Programme). Quilter expects to continue to maintain a solvency position significantly in excess of its internal target in the near term.
Composition of qualifying Solvency II capital
The Group's own funds include the Quilter plc issued subordinated debt security which qualifies as capital under Solvency II. The composition of own funds by tier is presented in the table below.
|
|
|
|
|
| At | At |
|
| 30 June | 31 December |
Group own funds (£m) |
| 2020 | 2019 |
Tier 11 |
| 1,708 | 1,925 |
Tier 22 |
| 210 | 207 |
Total Group Solvency II own funds |
| 1,918 | 2,132 |
1All Tier 1 capital is unrestricted for tiering purposes. | |||
2 Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond, which was issued at £200 million in February 2018. | |||
The Group SCR is covered by Tier 1 capital, which represents 176% of the Group SCR of £972 million. Tier 1 capital represents 89% of Group Solvency II own funds. Tier 2 capital represents 11% of Group Solvency II own funds and 22% of the Group surplus.
Dividend
The Board has declared an interim dividend for 2020 of 1.0 pence per share at a total cost of £18 million. The interim dividend will be paid on 21 September 2020 to shareholders on the UK and South African share registers on 4 September 2020. For shareholders on our South African share register an interim dividend of 22.97432 South African cents per share will be paid on 21 September 2020, using an exchange rate of 22.97432.
Holding company cash
The holding company cash statement includes cash flows generated by the three main holding companies within the business: Quilter plc, Old Mutual Wealth Holdings Limited and Old Mutual Wealth UK Holding Limited. The flows associated with these companies will differ markedly from those disclosed in the statutory statement of cash flows, which comprises flows from the entire Quilter plc Group 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 |
|
| H1 2020 | FY 2019 |
Opening cash at holding companies at 1 January |
|
| 815 | 416 |
|
|
|
|
|
Quilter Life Assurance business sale - cash proceeds |
|
| - | 446 |
Single Strategy business sale - deferred consideration |
|
| 7 | - |
Share repurchase and Odd-lot offer |
|
| (95) | - |
Costs of disposal |
|
| (23) | (7) |
Dividends paid |
|
| (64) | (92) |
Net capital movements |
|
| (175) | 347 |
|
|
|
|
|
Head office costs and Optimisation |
|
| (33) | (49) |
Interest costs |
|
| (5) | (9) |
Net operational movements |
|
| (38) | (58) |
|
|
|
|
|
Cash remittances from subsidiaries |
|
| 27 | 307 |
Net capital contributions and investments |
|
| (64) | (200) |
Other |
|
| 4 | 3 |
Internal capital and strategic investments |
|
| (33) | 110 |
|
|
|
|
|
Closing cash at holding companies at end of period |
|
| 569 | 815 |
Net capital movements
Net capital movements in the period were an outflow of £175 million and include £95 million relating to the share repurchase and Odd-lot Offer, together with £64 million of dividend payments to shareholders on 18 May 2020. £23 million of anticipated costs relating to the disposal of the Quilter Life Assurance business were also incurred during the period in line with expectations, and £7 million was received in respect of final proceeds from the Single Strategy business sale.
Net operational movements
Net operational movements were £38 million for the period, which comprises corporate and transformation costs, which totalled £33 million. Interest paid of £5 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 outflow in the period of £33m is principally due to £64 million of capital contributions, distributed to support business unit operational activities, particularly during COVID-19 and the Platform Transformation Programme. This was partially offset by £27 million of cash remittances from the trading businesses.
Balance sheet |
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
Summary balance sheet (£m) | At 30 June 2020 | At 31 December 2019 |
| ||
Total | Total |
| |||
Assets |
|
|
| ||
|
|
|
| ||
Financial investments | 57,872 | 59,345 |
| ||
Contract costs/deferred acquisition costs | 435 | 455 |
| ||
Cash and cash equivalents | 2,467 | 2,473 |
| ||
Goodwill and intangible assets | 578 | 592 |
| ||
Trade, other receivables and other assets | 566 | 424 |
| ||
Other assets | 468 | 449 |
| ||
Total assets | 62,386 | 63,738 |
| ||
|
|
|
| ||
Equity | 1,965 | 2,071 |
| ||
|
|
|
| ||
Liabilities |
|
|
| ||
Investment contract liabilities | 52,267 | 52,455 |
| ||
Third-party interests in consolidated funds | 6,582 | 7,675 |
| ||
Contract liabilities/deferred revenue | 185 | 191 |
| ||
Borrowings - sub-ordinated debt | 198 | 198 |
| ||
Lease liabilities | 132 | 137 |
| ||
Trade, other payables and other liabilities | 843 | 836 |
| ||
Other liabilities | 214 | 175 |
| ||
Total liabilities | 60,421 | 61,667 |
| ||
Total equity and liabilities | 62,386 | 63,738 |
| ||
The Group balance sheet at 30 June 2020 has total equity of £1,965 million (31 December 2019: £2,071 million).
Financial investments have reduced from £59,345 million at 31 December 2019 to £57,872 million at 30 June 2020, predominantly due to negative market performance partially offset by growth in net client cash flows in Quilter Investment Platform and Quilter International. The corresponding reduction is reflected in Investment contract liabilities (a decrease from £52,455 million at 31 December 2019 to £52,267 million at 30 June 2020), and Third-party interests in consolidated funds (a decrease from £7,675 million at 31 December 2019 to £6,582 million at 30 June 2020).
Cash and cash equivalents of £2,467 million have decreased by £6 million from £2,473 million at 31 December 2019. Included within this balance are cash investments due to policyholders, and cash to support the capital and funding requirements of the business.
Goodwill and intangible assets have decreased by £14 million to £578 million at 30 June 2020. The decrease is largely due to the amortisation of intangible assets of £23 million, partially offset by a £7 million increase in the Lighthouse goodwill balance, which is £40 million at 30 June 2020 (31 December 2019: £33 million).
Trade, other receivables and other assets have increased by £142 million to £566 million, mainly due to an increase in unsettled trades across the business, an increase in the debtor balance for pension tax relief at source due to higher contributions being made at the tax year end which remain outstanding at 30 June 2020, and an increase in other debtors relating to the Group's new London office, which will be capitalised upon completion in September 2020.
Other assets of £468 million, principally reflects Property, plant and equipment, and loans and advances. Loans and advances include increases of £23 million in policyholder loans and £3 million in Practice Buy Out ("PBO") loans, offset by a reduction of £6 million due to the repayment of the TA Associates loan receivable and £2 million of reductions in adviser loans.
Trade, other payables and other liabilities have increased by £7 million to £843 million as at 30 June 2020, primarily due to an increase in outstanding trade payables and other liabilities associated with the consolidation of funds, offset by a reduction in contingent consideration and variable compensation accruals settled in March 2020.
Other liabilities have increased from £175 million to £241 million primarily due to an increase provisions and an increase in derivative liabilities associated with the consolidation of funds.
Principal risks and uncertainties
The first six months of 2020 has seen unprecedented global impacts of the COVID-19 pandemic; in particular, driven by the necessary social distancing measures that have been implemented worldwide. Quilter, and its key third-party partners, have responded well to the operational challenges of adapting to mass homeworking, with a crisis command structure assessing COVID-related risks and implementing appropriate management responses. Feedback continues to indicate Quilter's response, and the continuity of service to customers, has compared favourably with peers. Quilter remains focussed on completing principal projects including the Platform Transformation Programme and Optimisation plans.
Quilter's principal revenue streams are asset value based. A significant market fall was experienced in late Q1 2020, with the FTSE-100 falling by c.35% at 23 March 2020 compared with the 2019 year-end position. While markets have since recovered (down 18% at 30 June 2020 compared to 31 December 2019) continued uncertainty with respect to the possible emergence of second waves of infection, and the success and timing of vaccine programmes continues to expose Quilter to risks associated with equity market levels and adverse investor sentiment. Management is taking a number of actions to reduce the short term spend profile and help mitigate the financial impact. While the length and severity of the impact remains unclear, the Group would not expect these to adversely affect the underlying medium to long-term prospects of the business. Beyond COVID-19, continuing uncertainty of the final terms of the Brexit negotiations, and broader global geopolitical concerns, create a heightened macro-economic environment which further weighs on investor sentiment.
Despite these current economic headwinds, the group remains financially resilient, and paid the 2019 final dividend in May 2020 and has commenced the planned share buyback programme.
In June 2020, Quilter announced that the Financial Conduct Authority has commenced an enforcement investigation into the conduct of its subsidiary Lighthouse Advisory Services Limited (Lighthouse) in relation to advising on and arranging defined benefit pension transfers in the period from 1 April 2015 to 30 April 2019. The FCA has also required Quilter to appoint a skilled person under section 166 of the Financial Services and Markets Act 2000 to conduct a review of certain DB pension transfers advised on or arranged by Lighthouse in the period 1 April 2015 to 27 January 2020. The period of the FCA's investigation covers the period before Lighthouse was acquired by Quilter and the period of the skilled person review covers the period before the Lighthouse acquisition up until 27 January 2020 - the date on which Lighthouse's internal processes in relation to DB pension transfers were fully replaced by those of Quilter Group. The Company and its subsidiaries (including Lighthouse) are fully co-operating with the FCA in relation to the investigation and skilled person review.
The principal risks and uncertainties faced by the group are:
· Strategic risks: The risk that Quilter's strategy to be the leading UK advice-led wealth manager does not yield the anticipated benefits for the business, as a result of a misalignment of the strategy with customer needs or the prevailing market environment, or a failure to establish appropriate activities to support delivery of the strategy.
· Business risks: The risk Quilter's strategy is undermined by a failure to successfully deliver key priorities, for example delivery of suitable advice, strong investment performance, and strong financial performance.
· Market risks: The risk of an adverse change in the level or volatility of market prices of assets, since Quilter's key revenue streams are asset value related.
· Operational risks: The risk of losses arising from inadequate or failed internal processes, or from personnel and systems, or from external events. Given Quilter's technology-enabled client service model, particular exposures arise in relation to information technology, information security and third-party risks.
· Legal and regulatory risks: That risk that Quilter fails to achieve compliance with the regulations and laws to which it is subject in the jurisdictions in which it operates, exposing Quilter to penalties or restrictions on its permissions to provide financial services.
Shareholder information
The Quilter Board has declared an interim dividend of 1.0 pence per share. The interim dividend will be paid on Monday 21 September 2020 to shareholders on the UK and South African share registers on Friday 4 September 2020.
Dividend Timetable
ZAR rate set for dividend payable to shareholders on the South Africa branch register | Friday 7 August 2020 |
Dividend announcement in pounds sterling with South Africa ZAR equivalent | Tuesday 11 August 2020 |
Last day to trade cum dividend in South Africa | Tuesday 1 September 2020 |
Shares trade ex-dividend in South Africa | Wednesday 2 September 2020 |
Shares trade ex-dividend in the UK | Thursday 3 September 2020 |
Record Date in UK and South Africa | Friday 4 September 2020 |
Interim dividend payment date | Monday 21 September 2020 |
From the opening of trading on Tuesday 11 August 2020 until the close of business on Friday 4 September 2020, no transfers between the London and Johannesburg registers will be permitted. Share certificates for shareholders on the South African register may not be dematerialised or rematerialised between Wednesday 2 September and Friday 4 September 2020, both dates inclusive.
Additional information
For Shareholders on our South African share register a dividend of 22.97432 cents per share will be paid on Monday 21 September 2020 to shareholders, based on an exchange rate of 22.97432, being the exchange rate set on Friday 7 August 2020. Dividend Tax will be withheld at the rate of 20% from the amount of the gross dividend of 22.97432 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 18.37946 South African cents per share. The Company had a total of 1,840,554,972 shares in issue at today's date.
If you are uncertain as to the tax treatment of any dividends you should consult your own tax advisor.
Odd-lot Offer
In March 2020, as part of our drive for greater efficiency and in line with our desire to act in the best interests of all our shareholders, the Board launched an Odd-lot Offer for shareholders registered on the London and Johannesburg Stock Exchanges. The Odd-lot Offer was a way of offering shareholders who held fewer than 100 Ordinary Shares the opportunity to sell their shares at a 5% premium to the market price (the 'Offer Price'), without incurring any dealing costs. Odd-lot Holders could choose to sell all of their shares at the Offer Price or they could choose to keep their shareholding in Quilter.
The Odd-lot Offer closed on 15 May 2020. Quilter purchased a total of 16,263,364 of its own ordinary shares of 7 pence each. Following the implementation of the Odd-lot Offer, the Company's shareholder base has been reduced by circa 45% (209,282 shareholders). This reduction will reduce administrative costs, including, for example, the costs of printing and distributing financial statements, circulars and notices.
The Odd-lot Shares were held in Treasury and subsequently on 1 June 2020 were transferred to the Company's Employee Benefit Trust to satisfy awards under employee share schemes.
Share Buyback
Following the completion of the sale of Quilter Life Assurance to Reassure Group plc for £425 million (and interest income of £21 million), the Quilter Board announced that they planned to return the full net surplus sale proceeds (after disposal costs) of £375 million to shareholders.
Quilter commenced a share buyback programme (the 'Programme') on the London and Johannesburg exchanges on 11 March 2020. The initial tranche of £50 million completed on 4 June 2020 with over 43 million shares repurchased. The second tranche of the Programme of up to £75 million commenced on 25 June 2020. As at 7 August 2020 a total of c.£76 million shares have been purchased and cancelled under the share buyback programme.
The Programme is subject to staged regulatory approval and the Board will continue to keep the Programme under review to make sure it remains prudent and the most efficient and effective means of returning capital to shareholders.
Supplementary information
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including APMs, as explained further on pages 5 to 7. These measures are indicated with an asterisk: *.
For the six months ended 30 June 2020
1. Key financial data
| 2020 | Change (H1 2020 vs H1 2019) |
| 2019 | ||||||||
Gross sales* (£bn) |
|
| Q1 | Q2 | H1 | % |
| Q1 | Q2 | Q3 | Q4 | FY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter Investors |
|
| 1.5 | 1.6 | 3.1 | 55% |
| 1.0 | 1.0 | 0.9 | 2.0 | 4.9 |
Quilter Cheviot |
|
| 0.7 | 0.5 | 1.2 | - |
| 0.7 | 0.5 | 0.7 | 0.7 | 2.6 |
Advice & Wealth Management |
|
| 2.2 | 2.1 | 4.3 | 34% |
| 1.7 | 1.5 | 1.6 | 2.7 | 7.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter Investment Platform |
|
| 1.7 | 1.3 | 3.0 | - |
| 1.6 | 1.4 | 1.4 | 1.6 | 6.0 |
Quilter International |
|
| 0.4 | 0.4 | 0.8 | - |
| 0.4 | 0.4 | 0.4 | 0.8 | 2.0 |
Wealth Platforms |
|
| 2.1 | 1.7 | 3.8 | - |
| 2.0 | 1.8 | 1.8 | 2.4 | 8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of intra-Group items |
|
| (1.0) | (1.3) | (2.3) | - |
| (0.6) | (0.4) | (0.6) | (1.6) | (3.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter plc |
|
| 3.3 | 2.5 | 5.8 | 3% |
| 3.1 | 2.9 | 2.8 | 3.5 | 12.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter Life Assurance |
|
| - | - | - | - |
| 0.1 | 0.1 | 0.2 | - | 0.4 |
| 2020 | % of opening AuMA |
| 2019 | ||||||||||||||||||||||||
NCCF* (£bn) |
|
| Q1 | Q2 | H1 |
| Q1 | Q2 | Q3 | Q4 | FY | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Quilter Investors |
|
| 0.2 | 0.1 | 0.3 | 3% |
| 0.2 | 0.2 | - | 0.1 | 0.5 | ||||||||||||||||
Quilter Cheviot |
|
| 0.1 | 0.1 | 0.2 | 2% |
| 0.1 | (0.5) | (0.4) | - | (0.8) | ||||||||||||||||
Advice & Wealth Management |
|
| 0.3 | 0.2 | 0.5 | 2% |
| 0.3 | (0.3) | (0.4) | 0.1 | (0.3) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Quilter Investment Platform |
|
| 0.5 | 0.5 | 1.0 | 3% |
| 0.4 | 0.1 | 0.1 | 0.3 | 0.9 | ||||||||||||||||
Quilter International |
|
| 0.1 | 0.1 | 0.2 | 2% |
| 0.1 | - | 0.1 | 0.3 | 0.5 | ||||||||||||||||
Wealth Platforms |
|
| 0.6 | 0.6 | 1.2 | 3% |
| 0.5 | 0.1 | 0.2 | 0.6 | 1.4 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Elimination of intra-Group items |
|
| (0.4) | (0.2) | (0.6) |
|
| (0.3) | - | (0.3) | (0.2) | (0.8) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Quilter plc |
|
| 0.5 | 0.6 | 1.1 | 2% |
| 0.5 | (0.2) | (0.5) | 0.5 | 0.3 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Quilter Life Assurance |
|
| - | - | - | - |
| (0.8) | (0.4) | (1.1) | (1.2) | (3.5) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Integrated net flows* |
|
| 0.8 | 0.6 | 1.4 | - |
| 0.6 | 0.8 | 0.4 | 0.8 | 2.6 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
| 2020 | Change (H1 2020 vs H1 2019) |
| 2019 | ||||||||||||||||||||||||
AuMA* (£bn) |
|
| Q1 | H1 | % |
| Q1 | H1 | Q3 | FY | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Quilter Investors |
|
| 18.1 | 20.8 | - |
| 19.8 | 20.7 | 21.0 | 21.6 | ||||||||||||||||||
Quilter Cheviot |
|
| 20.7 | 23.3 | (3%) |
| 23.6 | 24.0 | 23.8 | 24.2 | ||||||||||||||||||
Advice & Wealth Management |
|
| 38.8 | 44.1 | (1%) |
| 43.4 | 44.7 | 44.8 | 45.8 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Quilter Investment Platform |
|
| 49.5 | 56.2 | 3% |
| 52.6 | 54.8 | 55.7 | 57.2 | ||||||||||||||||||
Quilter International |
|
| 18.4 | 20.4 | 2% |
| 19.2 | 20.0 | 20.2 | 20.5 | ||||||||||||||||||
Wealth Platforms |
|
| 67.9 | 76.6 | 2% |
| 71.8 | 74.8 | 75.9 | 77.7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Elimination of intra-Group assets |
|
| (11.4) | (13.3) | 9% |
| (11.6) | (12.2) | (12.5) | (13.1) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Quilter plc |
|
| 95.3 | 107.4 | - |
| 103.6 | 107.3 | 108.2 | 110.4 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Quilter Life Assurance |
|
| - | - | - |
| 11.2 | 11.1 | 10.3 | - | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
YTD Gross flows, net flows and AuMA (£bn) |
|
|
|
|
|
| ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
| AuMA as at 31 December 2019* | Gross sales* | Gross outflows* | NCCF* | Market and other movements | AuMA as at 30 June 2020* | ||||||||||||||||||||||
Quilter Investors | 21.6 | 3.1 | (2.8) | 0.3 | (1.1) | 20.8 | ||||||||||||||||||||||
Quilter Cheviot | 24.2 | 1.2 | (1.0) | 0.2 | (1.1) | 23.3 | ||||||||||||||||||||||
Advice & Wealth Management | 45.8 | 4.3 | (3.8) | 0.5 | (2.2) | 44.1 | ||||||||||||||||||||||
Quilter Investment Platform | 57.2 | 3.0 | (2.0) | 1.0 | (2.0) | 56.2 | ||||||||||||||||||||||
Quilter International | 20.5 | 0.8 | (0.6) | 0.2 | (0.3) | 20.4 | ||||||||||||||||||||||
Wealth Platforms | 77.7 | 3.8 | (2.6) | 1.2 | (2.3) | 76.6 | ||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Elimination of intra-group assets | (13.1) | (2.3) | 1.7 | (0.6) | 0.4 | (13.3) | ||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Quilter plc | 110.4 | 5.8 | (4.7) | 1.1 | (4.1) | 107.4 | ||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
| AuMA as at 31 December 2018* | Gross Sales* | Gross Outflows* | NCCF* | Market and other movements | AuMA as at 30 June 2019* | ||||||||||||||||||||||
Quilter Investors | 18.5 | 2.0 | (1.6) | 0.4 | 1.8 | 20.7 | ||||||||||||||||||||||
Quilter Cheviot | 22.2 | 1.2 | (1.6) | (0.4) | 2.2 | 24.0 | ||||||||||||||||||||||
Advice & Wealth Management | 40.7 | 3.2 | (3.2) | - | 4.0 | 44.7 | ||||||||||||||||||||||
Quilter Investment Platform | 49.4 | 3.0 | (2.5) | 0.5 | 4.9 | 54.8 | ||||||||||||||||||||||
Quilter International | 18.3 | 0.8 | (0.7) | 0.1 | 1.6 | 20.0 | ||||||||||||||||||||||
Wealth Platforms | 67.7 | 3.8 | (3.2) | 0.6 | 6.5 | 74.8 | ||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Elimination of intra-group assets | (10.7) | (1.0) | 0.7 | (0.3) | (1.2) | (12.2) | ||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Quilter plc | 97.7 | 6.0 | (5.7) | 0.3 | 9.3 | 107.3 | ||||||||||||||||||||||
Estimated asset allocation (%) | H1 2020 | FY 2019 | ||||||||||||||||||||||||||
Fund profile by Investment type | Total client AuMA | Total client AuMA | ||||||||||||||||||||||||||
Quilter |
|
| ||||||||||||||||||||||||||
Fixed interest | 27% | 26% | ||||||||||||||||||||||||||
Equities | 61% | 64% | ||||||||||||||||||||||||||
Cash | 5% | 4% | ||||||||||||||||||||||||||
Property and alternatives | 7% | 6% | ||||||||||||||||||||||||||
Total | 100% | 100% | ||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Total net fee revenue* H1 2020 (£m) |
| Quilter Investors | Quilter Cheviot | Quilter Financial Planning | Advice & Wealth Management | Quilter Investment Platform | Quilter International | Wealth Platforms | Head Office | Group | ||||
Net management fee* |
| 54 | 84 | - | 138 | 82 | 53 | 135 | - | 273 | ||||
Other revenue* |
| 1 | 2 | 56 | 59 | (2) | 3 | 1 | 2 | 62 | ||||
Total net fee revenue* |
| 55 | 86 | 56 | 197 | 80 | 56 | 136 | 2 | 335 | ||||
|
|
| ||||||||||||
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Total net fee revenue* H1 2019 (£m) |
| Quilter Investors | Quilter Cheviot | Quilter Financial Planning | Advice & Wealth Management | Quilter Investment Platform | Quilter International | Wealth Platforms | Head Office | Group | ||||
Net management fee* |
| 58 | 85 | 1 | 144 | 84 | 56 | 140 | - | 284 | ||||
Other revenue* |
| 2 | 4 | 45 | 51 | 2 | 9 | 11 | 2 | 64 | ||||
Total net fee revenue* |
| 60 | 89 | 46 | 195 | 86 | 65 | 151 | 2 | 348 | ||||
2. Advice and Wealth Management
The following table presents certain key financial metrics utilised by management with respect to the business units of the Advice & Wealth Management segment, for the periods indicated.
Key financial highlights | H1 2020 | H1 2019 | % change |
|
|
|
|
Quilter Financial Planning |
|
|
|
Net management fee (£m)* | - | 1 | - |
Other revenue (£m)* | 56 | 45 | 24% |
Total net fee revenue (£m)* | 56 | 46 | 22% |
|
|
|
|
RFPs + PCA (#) | 1,808 | 1,803 | - |
Productivity (£m)* | 1.5 | 1.6 | (6%) |
|
|
|
|
Quilter Investors |
|
|
|
Net management fee (£m)* | 54 | 58 | (7%) |
Other revenue (£m)* | 1 | 2 | (50%) |
Total net fee revenue (£m)* | 55 | 60 | (8%) |
|
|
|
|
NCCF (£bn)* | 0.3 | 0.4 | (25%) |
Closing AuM (£bn)* | 20.8 | 20.7 | - |
Average AuM (£bn)* | 20.4 | 19.7 | 4% |
Revenue margin (bps)* | 53 | 59 | (6) bps |
Asset retention (%)* | 74% | 83% | (9) pp |
|
|
|
|
Quilter Cheviot |
|
|
|
Net management fee (£m)* | 84 | 85 | (1%) |
Other revenue (£m)* | 2 | 4 | (50%) |
Total net fee revenue (£m)* | 86 | 89 | (3%) |
|
|
|
|
NCCF (£bn)* | 0.2 | (0.4) | - |
Closing AuM (£bn)* | 23.3 | 24.0 | (3%) |
Average AuM (£bn)* | 22.9 | 23.4 | (2%) |
Revenue margin (bps)* | 73 | 73 | - |
Asset retention (%)* | 92% | 86% | 6 pp |
|
|
|
|
Investment managers (#) | 169 | 163 | 4% |
3. Wealth Platforms
The following table presents certain key financial metrics utilised by management with respect to the business units of the Wealth Platforms segment, for the periods indicated.
Key financial highlights | H1 2020 | H1 2019 | % change |
|
|
|
|
Quilter Investment Platform |
|
|
|
Net management fee (£m)* | 82 | 84 | (2%) |
Other revenue (£m)* | (2) | 2 | - |
Total net fee revenue (£m)* | 80 | 86 | (7%) |
|
|
|
|
NCCF (£bn)* | 1.0 | 0.5 | 100% |
Closing AuA (£bn)* | 56.2 | 54.8 | 3% |
Average AuA (£bn)* | 54.7 | 52.4 | 4% |
Revenue margin (bps)* | 29 | 31 | (2) bp |
Asset retention (%)* | 93% | 90% | 3 pp |
|
|
|
|
Quilter International |
|
|
|
Net management fee (£m)* | 53 | 56 | (5%) |
Other revenue (£m)* | 3 | 9 | (67%) |
Total net fee revenue (£m)* | 56 | 65 | (14%) |
|
|
|
|
NCCF (£bn)* | 0.2 | 0.1 | 100% |
Closing AuA (£bn)* | 20.4 | 20.0 | 2% |
Average AuA (£bn)* | 19.9 | 19.1 | 4% |
Revenue margin (bps)* | 53 | 59 | (6) bp |
Asset retention (%)* | 94% | 92% | 2 pp |
|
|
|
|
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
Latest directors dealings
- 23 hours ago Savannah Energy
- 1 day ago Buccaneer Energy PLC
- 1 day ago Savannah Energy
- 1 day ago Carclo
- 1 day ago Schroder Japan Growth Fund