Quilter plc Interim Results 2022 - part 1
NEWS RELEASE
10 August 2022
Quilter plc interim results for the six months ended 30 June 2022
Stable revenue and cost discipline drive 9% increase in adjusted profit
Management basis - Continuing business (excluding Quilter International for comparative data)
· Assets under Management and Administration ("AuMA") of £98.7 billion at the end of June 2022, a decrease of 12% from 31 December 2021 (£111.8 billion) principally due to adverse market movements of £14.5 billion and:
o Quilter Investment Platform net inflows of £1.6 billion (H1 2021: £1.8 billion) representing 4% of opening AuMA (H1 2021: 6%), reflecting an industry wide slowdown in new client flows during the second quarter.
o Quilter channel flows onto the Quilter Investment Platform of £954 million up 10% on the £868 million achieved in 2021.
o Quilter High Net Worth net inflows of £0.5 billion (H1 2021: £0.4 billion) representing 3% of opening AuMA (H1 2021: 4%).
o Net outflows of £0.6 billion (H1 2021: net outflows £0.3 billion) of assets held on third party platforms reflecting non-core, legacy business in run off and transition of assets advised by Quilter Financial Planning on other platforms to the Quilter Investment Platform.
o Leading to Group net inflows of £1.4 billion for the first half (H1 2021: 2.0 billion).
· Flat revenues and cost discipline drove a 9% increase in adjusted profit before tax to £61 million (H1 2021: £56 million).
· Improved operating margin of 20% (H1 2021: 18%), reflecting stable revenues and a reduction in expenses of 2% through lower FSCS levies and tight control of costs despite the inflationary environment and the return to more normalised investment spend post-pandemic.
· Adjusted diluted earnings per share decreased 5% to 3.7 pence (H1 2021: 3.9 pence), reflecting a more normal tax rate (as a result of the non-repetition of a deferred tax credit in the first half of 2021) partially offset by a reduced share count following completion of our capital return programme.
· Interim dividend of 1.2 pence per share unchanged on 2021 (excluding the contribution from Quilter International).
Statutory results
· IFRS profit before tax attributable to equity holders from continuing operations of £182 million (H1 2021: £(21) million), largely driven by policyholder tax credits of £145 million (H1 2021: tax charge £(48) million). This income tax credit/(charge) can vary significantly period-on-period as a result of market volatility and the impact this has on policyholder tax.
· Negotiations concluded with the insurers who provided professional indemnity cover for Lighthouse resulting in the payment of the full amount due under the policy of £15 million, including amounts received since the period end, with the benefit of this excluded from adjusted profit. Net cost of post-acquisition Lighthouse remediation totals £12 million.
· Basic earnings/(loss) per share from continuing operations of 11.3 pence (H1 2021: (0.9) pence).
· Diluted earnings/(loss) per share from continuing operations of 11.2 pence (H1 2021: (0.9) pence).
· Solvency II ratio of 219% after payment of the interim dividend (December 2021: 275%).
Strategic progress
· Significant expansion of our successful WealthSelect managed portfolios, with a simpler charging structure. We now offer a full spectrum of portfolios to cover clients' risk, investment preferences with an ESG overlay.
· Good progress building incremental platform flows from targeted IFA firms with 80 adviser firms adopting Quilter as a platform of choice during the period and contributing to incremental gross inflows.
· Continued build out of our integrated advice and investment proposition in the High Net Worth segment, with eight additional investment managers added since June 2021.
· Good initial progress with our £45 million Business Simplification programme, with annualised run-rate savings of £13 million achieved to date.
· Completion, in January 2022, of the £375 million share buyback programme from the Quilter Life Assurance sale proceeds. Since the programme's inception, 264 million shares were purchased at an average price of 141.97 pence per share.
· £328 million capital return in June 2022, (20 pence per share) through B share scheme accompanied by a 6 for 7 share consolidation to return the net surplus proceeds from the sale of Quilter International to shareholders.
Paul Feeney, Chief Executive Officer, said:
"Operating conditions in the first six months of 2022 have been challenging. Global equity markets have experienced one of the worst periods of negative performance in recent years and traditional 60:40 multi-asset portfolios have had their largest negative year-to-date return on record. In that context, our overall AuMA has been relatively resilient, down 12% to £98.7 billion on the December 2021 level. Despite the market volatility, we generated net inflows of £1.6 billion (H1 2021: £1.8 billion) on the Quilter Investment Platform and a further £0.5 billion of net inflows (H1 2021 £0.4 billion) through our High Net Worth segment, modestly reducing the negative mark-to-market and third party platform net outflow impacts.
"Against this backdrop we delivered a 9% increase in our adjusted profit in the first half of 2022. Our focus remains on managing our business towards the targets set out at our Capital Markets Day last November, although an absence of an improvement in market levels and investor sentiment over the remainder of this year and 2023 may impact on the timing of delivery. My priorities continue to be growth in the IFA and Quilter adviser franchises, cost discipline to deliver a right-sized cost base for the new streamlined Quilter, investing for future growth through initiatives such as hybrid advice, and embedding ESG into the services we provide for clients and tools we provide for advisers".
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Quilter highlights from continuing operations1 |
H1 2022 |
H1 2021 |
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Assets and flows |
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AuMA (£bn)2, 5 |
98.7 |
106.4 |
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Gross flows (£bn)2, 5 |
5.9 |
6.7 |
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Net inflows (£bn)2, 5 |
1.4 |
2.0 |
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Net inflows/opening AuMA2 |
3% |
4% |
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Gross flows per adviser (£m)2, 3 |
2.4 |
2.4 |
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Asset retention3 |
92% |
91% |
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Profit and loss |
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IFRS profit/(loss) before tax attributable to equity holders (£m)2 |
182 |
(21) |
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IFRS profit/(loss) after tax (£m) |
151 |
(13) |
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Adjusted profit before tax (£m)2 |
61 |
56 |
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Operating margin2 |
20% |
18% |
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Revenue margin (bps)2 |
47 |
48 |
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Return on equity2 |
5.9% |
7.3% |
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Adjusted diluted earnings per share (pence)2 |
3.7 |
3.9 |
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Basic earnings/(loss) per share (pence) |
11.3 |
(0.9) |
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Non-financial |
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Restricted Financial Planners ("RFPs") in Affluent segment4 |
1,512 |
1,639 |
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Discretionary Investment Managers in High Net Worth segment4 |
176 |
168 |
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Quilter Private Client RFPs in High Net Worth segment4 |
55 |
62 |
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1 Continuing operations represent Quilter plc, excluding the results of Quilter International. Adjusted profit before tax for Quilter International in H1 2021 was £ 29 million. Adjusted diluted EPS from Quilter International in H1 2021 was 1.9 pence per share. |
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2 Alternative Performance Measures ("APMs") are detailed and defined on pages 4 to 6. |
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3 Gross flows per adviser is a measure of the value created by our Quilter distribution channel. |
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4 Closing headcount as at 30 June. 5 H1 2021 asset and flow comparators have been restated to exclude amounts relating to Quilter International to align with information presented at the Company's Capital Markets Day on 3 November 2021 and its fourth quarter trading statement 2021 on 26 January 2022. Adjusted profit presented in this announcement Adjusted profit is presented in this announcement in a number of ways to provide readers with a view of adjusted profit for the Group excluding Quilter International (on a continuing basis) and for the total Group (on a continuing and discontinued basis). A full reconciliation of these views is provided on page 16 and definitions of adjusted profit are explained on page 4.
Alternative Performance Measures ("APMs") We assess our financial performance using a variety of measures including APMs, as explained further on pages 4 to 6. In the headings and tables presented from page 11 onwards, these measures are indicated with an asterisk: *.
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Quilter plc results for the six months ended 30 June 2022
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Investor Relations |
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John-Paul Crutchley |
UK |
+44 77 4138 5251 |
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Keilah Codd |
UK |
+44 77 7664 9681 |
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Media |
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Tim Skelton-Smith |
UK |
+44 78 2414 5076 |
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Camarco |
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Geoffrey Pelham-Lane |
UK |
+44 77 3312 4226 |
Paul Feeney, CEO, and Mark Satchel, CFO, will host a presentation and Q&A session via webcast at 08:30am (BST) today, 10 August 2022.
The presentation will be webcast live and is available via our website: 2022 results and presentations | Quilter plc
A conference call facility will also be available should you wish to join by telephone:
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United Kingdom / Other |
+44 333 300 0804 |
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South Africa |
+27 21 672 4118 |
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United States |
+1 631 913 1422 |
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Access Code |
11389415# |
Note: Neither the content of the Company's website nor the content of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.
Disclaimer
This announcement may contain certain forward-looking statements with respect to Quilter plc's plans and its current goals and expectations relating to its future financial condition, performance, and results.
By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Quilter plc's control including amongst other things, international and global economic and business conditions, the implications and economic impact of the COVID-19 pandemic, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Quilter plc and its affiliates operate. As a result, Quilter plc's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Quilter plc's forward-looking statements.
Quilter plc undertakes no obligation to update the forward-looking statements contained in this announcement or any other forward-looking statements it may make.
Alternative Performance Measures
We assess our financial performance using a variety of alternative performance measures ("APMs"). APMs are not defined under IFRS, but we use them to provide further insight into the financial performance, financial position and cash flows of the Group and the way it is managed.
APMs should be read together with the Group's condensed consolidated financial statements, which include the Group's income statement, statement of financial position and statement of cash flows, which are presented on pages 32 to 36.
Further details of APMs used by the Group in its Financial review are provided below.
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APM |
Definition |
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Adjusted profit before tax |
Adjusted profit before tax represents the Group's IFRS profit, adjusted for specific items that management consider to be outside of the Group's normal operations or one-off in nature, as detailed on page 41 in the condensed consolidated financial statements. The exclusion of certain adjusting items may result in adjusted profit before tax being materially higher or lower than the IFRS profit after tax. Adjusted profit before tax does not provide a complete picture of the Group's financial performance, which is disclosed in the IFRS income statement, but is instead intended to provide additional comparability and understanding of the financial results. Adjusted profit before tax is presented for the continuing Group (excluding Quilter International), for discontinued operations (Quilter International), and for the total Group for continuing and discontinued operations. A detailed reconciliation of the adjusted profit before tax metrics presented, and how these reconcile to IFRS, is provided on page 16 of the Financial review. Adjusted profit before tax is referred to throughout the Chief Executive Officer's statement and Financial review, with comparison to the prior period explained on page 12. A reconciliation from each line item on the IFRS income statement to adjusted profit before tax is provided in note 5(c) to the condensed consolidated financial statements on page 44. |
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Adjusted profit after tax |
Adjusted profit after tax represents the post-tax equivalent of the adjusted profit before tax measure, as defined above. |
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Adjusted profit before tax after reallocation |
Adjusted profit before tax after reallocation reflects adjusted profit before tax including certain costs within continuing operations relating to Quilter International that did not transfer to Utmost Group on completion of the sale, as detailed above. A reconciliation from each line item on the IFRS income statement to adjusted profit before tax after reallocation is provided in note 5(c) to the condensed consolidated financial statements on page 44. |
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IFRS profit before tax attributable to equity holders |
IFRS profit before tax attributable to equity holders represents the profit after policyholder tax ('tax attributable to policyholder returns') but before shareholder tax (' tax attributable to equity holders'). The tax charge for the Group's UK life insurance entity, Quilter Life & Pensions Limited, comprises policyholder tax and shareholder tax. Policyholder tax is regarded economically as a pre-tax cost to the Group, in that it is based on the return on assets held by the Group's life insurance entity to match against related unit-linked liabilities in respect of clients' policies, and for which the Company charges fees to clients. As such, policyholder tax can be a charge or credit in any period depending on underlying market movements on those assets held to cover linked liabilities. Shareholder tax is the remaining tax after deducting policyholder tax and is more reflective of the profitability of the entity. This metric is included on the face of the Group's income statement on page 32 and is included in the adjusted profit before tax to IFRS profit after tax reconciliation in note 5(a) to the condensed consolidated financial statements. |
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Revenue margin (bps) |
Revenue margin represents net management fees, divided by average AuMA. Management use this APM as it represents the Group's ability to earn revenue from AuMA. Revenue margin by segment and for the Group is explained on page 12 of the Financial review. |
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Operating margin |
Operating margin represents adjusted profit before tax divided by total net fee revenue. Management 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 12. |
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Gross flows |
Gross flows are the gross client cash inflows received from customers during the period and represent our ability to increase AuMA and revenue. Gross flows are referred to in the Financial review on page 12 and disclosed by segment in the supplementary information on pages 24 to 25.
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Net flows |
Net flows is the difference between money received from and returned to customers during the relevant period for the Group or for the business indicated. This measure is a lead indicator of total net fee revenue. Net flows is referred to throughout this document, with a separate section in the Financial review on page 12 and is presented by business and segment in the supplementary information on pages 24 to 25. |
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Assets under Management and Administration ("AuMA") |
AuMA represents the total market value of all financial assets managed and administered on behalf of customers. AuMA is referred to throughout this document, with a separate section in the Financial review on page 12 and is presented by business and segment in the supplementary information on pages 24 to 25. |
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Average AuMA |
Average AuMA represents the average total market value of all financial assets managed and administered on behalf of customers. Average AuMA is calculated using a 7-point average (half year) and 13-point average (full year) of monthly closing AuMA. |
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Total net fee revenue |
Total net fee revenue represents revenue earned from net management fees and other revenue listed below and is a key input into the Group's operating margin. Further information on total net fee revenue is provided on page 13 of the Financial review and note 5(c) in the condensed consolidated financial statements. |
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Net management fees |
Net management fees consist of revenue generated from AuMA, fixed fee revenues including charges for policyholder tax contributions, less trail commissions payable. Net management fees are presented net of trail commission payable as trail commission is a variable cost directly linked to revenue, which is a treatment and presentation commonly used across our industry. Net management fees are a part of total net fee revenue and is a key input into the Group's operating margin. Further information on net management fees is provided on page 13 and note 5(c) in the condensed consolidated financial statements. |
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Other revenue |
Other revenue represents revenue not directly linked to AuMA (e.g. encashment charges, closed book unit-linked policies, non-linked Protect policies, adviser initial fees and adviser fees linked to AuMA in Quilter Financial Planning (recurring fees). Other revenue is a part of total net fee revenue, which is included in the calculation of the Group's operating margin. Further information on other revenue is provided on page 13 and note 5(c) in the condensed consolidated financial statements. |
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Operating expenses |
Operating expenses represent the costs for the Group, which are incurred to earn total net fee revenue and excludes the impact of specific items that management considers to be outside of the Group's normal operations or one-off in nature. Operating expenses are included in the calculation of adjusted profit before tax and impact the Group's operating margin. A reconciliation of operating expenses to the applicable IFRS line items is included in note 5(c) to the condensed consolidated financial statements, and the adjusting items excluded from operating expenses are explained in note 5(b). Operating expenses are explained on page 14 of the Financial review. |
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Cash generation |
Cash generation 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. |
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Asset retention |
The asset retention rate measures our ability to retain assets from delivering good customer outcomes and investment performance. Asset retention reflects the annualised gross outflows of the AuMA during the period as a percentage of opening AuMA. Asset retention is calculated as: 1 - (annualised gross outflow divided by opening AuMA). Asset retention is provided for the Group on page 11 , and by segment on page 27. |
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Net inflows/opening AuMA |
This measure is calculated as total net flows annualised (as described above) divided by opening AuMA presented as a percentage. This metric is provided on page 2. |
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Gross flows per adviser |
Gross flows per adviser is a measure of the value created by our Quilter distribution channel and is an indicator of the success of our multi-channel business model. Gross flows per adviser is calculated as gross flows generated by the Quilter channel through the Quilter Investment Platform, Quilter Investors or Quilter Cheviot (annualised) per average Restricted Financial Planner in both segments. Gross flows per adviser is provided on pages 2, 11 and 12. |
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Return on Equity ("RoE") |
Return on equity calculates how many pounds of profit the Group generates from continuing operations with each pound of shareholder equity. This measure is calculated as adjusted profit after tax divided by average equity. Equity is adjusted for the impact of discontinued operations, if applicable . Return on equity is provided on page 2. |
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Adjusted diluted earnings per share
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Adjusted diluted earnings per share represents the adjusted profit earnings per share, calculated as adjusted profit after tax divided by the weighted average number of shares. Refer to page 54 and note 8 in the condensed consolidated financial statements. A continuing and discontinued view of diluted earnings per share has also been presented, and the calculation of all EPS metrics, is shown in note 8 to the condensed consolidated financial statements. Adjusted diluted earnings per share is referred to throughout this document, with additional details in the EPS section in the Financial review on page 14. |
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Headline earnings per share |
The Group is required to calculate headline earnings per share in accordance with the Johannesburg Stock Exchange Limited Listing Requirements, determined by reference to the South African Institute of Chartered Accountants' circular 1/2021 Headline Earnings . This is calculated on a basic and diluted basis. For details of the calculation, refer to note 8 of the condensed consolidated financial statements. |
Chief Executive Officer's statement
Since Quilter listed just over four years ago, we have successfully transformed our business to be a simpler, more focused client centric organisation while responding to a number of external challenges including:
Ø the market and broader political uncertainty following the Brexit referendum;
Ø the COVID-19 pandemic and its consequences from both a health and social perspective as well as the changes it has brought to our working practices; and
Ø geopolitical uncertainty which has manifested both through rising tensions between global superpowers over the last few years and, more directly, this year through the war in Ukraine with its huge humanitarian cost. We have all felt the broader consequences of this through increased oil prices and concerns over food sufficiency driving sharply higher inflation which has led to a global tightening of monetary policy and a "cost of living" crisis.
This year global equity markets have experienced one of the worst periods of negative performance in recent years. While the UK has been perceived as an outperformer with the FTSE 100 'only' down 3% over the same period, in contrast the FTSE 250 and the FTSE AIM 100 both declined 20% and 25% respectively in the six months to end June 2022.
Moreover, the traditional 60:40 multi-asset portfolio mix, a bedrock of retirement planning, delivered the largest negative year-to-date return on record as falling equity markets coupled with rising bond yields led to both lower bond and equity portfolio valuations. Our multi-asset portfolios are not constrained in this manner and include liquid alternatives. This allows us to diversify beyond equities and bonds. Some of our managers were able to implement value biases in their portfolios, which has also proved useful. We also use cash tactically and the majority of Quilter Investors' assets performed well as they were defensively positioned. Overall AuMA, declined 12% to £98.7 billion from 31 December 2021.
The first half of 2022 brought a tough operating environment, probably the most challenging we have faced since Listing, but we have delivered a good first half financial performance this year. What differentiates Quilter at times like these is how we respond and the opportunities we seize.
Our focus remains resolutely on both growing and simplifying our business, improving business efficiency, and serving and supporting our two core customer groupings in all market conditions. Notable strategic achievements in the first six months of the year include:
Ø significant expansion of our WealthSelect managed portfolios, which introduced a simpler charging structure and increased the number of portfolios to cover both risk appetite, investment style and ESG preferences. These portfolios, together with two new tools (client profiler and solution explorer), allow advisers to incorporate clients' ESG preferences when determining the most appropriate investment solution;
Ø the build out of our combined advice and investment proposition in the High Net Worth segment which is already bearing fruit with net inflows from the Quilter channel remaining strong;
Ø the acceleration of cost savings from our £45 million Business Simplification programme;
Ø building on the operational emissions reduction targets announced in Q1, we commenced the wider development of our Climate Action Plan, which will outline how we will seek to align our business operations, value chain and investment activity with science-based emissions reduction targets; and
Ø the launch of our inclusion and diversity plan.
Separately, I was also delighted to complete the £328 million capital return to shareholders following the sale of Quilter International to Utmost Group in November 2021.
Business performance
Given the market context, we are pleased with the 9% higher out turn in adjusted profit before tax of £61 million (H1 2021: £56 million). Despite revenue headwinds, our cost discipline delivered positive operating leverage and a solid P&L outturn in an environment where costs were naturally higher than 2021 as we emerged from the pandemic.
Average AuMA, the principal driver of net management fee revenue, for the period of £105.3 billion is modestly ahead of £101.7 billion in the first half of 2021. The decline in markets over the course of the first half of 2022 took our end-June AuMA below the end June 2021 level. Unless markets recover, this will provide a headwind to our second half revenues relative to the second half of 2021 when markets continued to rise from the end-June 2021 reference point.
Total net fee revenue of £303 million decreased by £1 million. The modestly higher average AuMA base was offset by a small mix-related decline in revenue margins. The repositioning of our advice business since the beginning of 2021 contributed to lower other revenues reflecting the decline in advisers over the course of 2021, coupled with a reduced contribution from mortgage and protection fees.
Despite heightened cost inflation pressures, we managed operating expenses down £6 million in the first half as we adjusted to the market environment. This took the cost base to £242 million, with an £8 million reduction in the base costs of running the business to £112 million (H1 2021: £120 million). An increase in variable costs reflected investment in the business and higher development spend relative to subdued pandemic levels in the prior period. We also enjoyed the benefit of lower FSCS levies due to the surplus carried forward from last year. Positive operating leverage demonstrates our cost discipline has been maintained despite the inflationary pressures across the business.
Our operating margin improved to 20% (H1 2021: 18%). Markets' performance in the second half of 2021 helped support a strong operating margin outcome for 2021. Should market levels remain around current levels, we expect the full-year operating margin to be lower than the level achieved in 2021. We remain committed to our stated 2023 and 2025 operating margin targets but note current market levels provide a meaningful headwind. Without an improvement in market levels in the remainder of this year and over the course of 2023, this may delay achievement of these targets.
The Group's IFRS profit after tax from continuing operations was £151 million, compared to a loss of £13 million for H1 2021. The increase in profit is attributable to a policyholder tax credit of £145 million to June 2022 (H1 2021: tax charge £(48) million).
Adjusted diluted earnings per share was 3.7 pence (H1 2021: 3.9 pence), supported by a reduction in the share count from our capital return programmes, with this offset by a more normalised tax charge as the net deferred tax credit in the comparable period of 2021 did not repeat. On an IFRS basis, we delivered basic EPS of 11.3 pence versus a loss of (0.9) pence per share for the comparable period of 2021 on the same basis.
Period-end shares of 1.404 billion have declined 26% and by c.500 million shares since the beginning of 2020 reflecting the completion of our £375 million share buyback programme in early 2022 and the £328 million capital return through a B share issuance and share consolidation which completed in early June 2022.
Given the uncertain outlook, the Board considers it appropriate to declare an unchanged 2022 interim dividend at 1.2 pence per share (excluding the contribution from Quilter International in 2021). As was the case in 2020 with the uncertainty caused by the COVID-19 pandemic, the Board will make an appropriate decision on the overall dividend for the 2022 financial year when it considers the final dividend, with a view to maintaining a progression up our target pay-out range of 50% to 70%, over time.
Client flows
Supporting trusted, advice-based relationships through two distribution channels - our restricted financial advisers and open-market independent financial advisers - is at the core of the Quilter business model. It is in difficult markets that the resilience of this model becomes evident. We support our customers to ensure they are engaged with their long-term financial plan and continue to save for retirement despite the near-term vagaries of markets.
Our investment platform is central to our proposition, providing the tax efficient investment 'wrappers' to meet client needs, while linking advisers with our investment solutions and competitively priced third-party alternatives to deliver the outcomes sought by clients. Confidence in our proposition is demonstrated through both the continued attraction to our solutions by financial advisers and the increased integrated nature of net inflows.
The environment for new inflows has become more challenging over the course of the first half of the year. Up until the end of March, our net flows were broadly comparable with the same period in 2021 despite total market flows being lower, pointing to an improvement in market share in the first quarter that has been sustained in the second quarter. While we continued to enjoy net inflows throughout the second quarter, we also experienced clients stepping back from discretionary investment. As a result, gross inflows in the first half were 12% lower at £5.9 billion (H1 2021: £6.7 billion). While we experienced improved persistency in client assets across each of our businesses, the lower level of new sales volumes translated into lower net inflows which were 30% lower at £1.4 billion versus £2.0 billion in the comparable period of 2021. The main decline in net flows was recorded in outflows on external third party platforms.
The Quilter Investment Platform continued to perform well attracting £4.2 billion of new sales making it the leading platform for retail advised sales in the first half. After redemptions, this led to £1.6 billion of net inflows, while the High Net Worth segment improved on the prior period flows by delivering £0.5 billion of net inflows. Within this, the overall level of Defined Benefit ("DB") to Defined Contribution ("DC") flows at £0.2 billion were 33% lower than the comparable period of 2021 (£0.3 billion) and continue to be a decreasing proportion of our overall flows.
Our High Net Worth segment delivered better retention and stable gross sales which contributed to a strong improvement in net flows at £0.5 billion against £0.4 billion in the prior period. The Quilter Cheviot Climate Assets fund continued to make excellent progress, reaching the £400 million milestone in the period, of which c.£150 million is held on the Quilter Investment Platform within our Affluent segment. The fund's momentum underlines Quilter's ability to meet the specific wishes of clients who are increasingly seeking investments that deliver a broader out turn than just financial performance.
Investment performance
Quilter Cheviot continued to outperform relevant ARC benchmarks, remaining principally first or second quartile, to the end of March 2022, the most recent available performance period. Our investment manager headcount within the High Net Worth segment increased by 8 year on year as we continued to build out our advice and investment management capabilities.
The medium and longer-term performance of Quilter Investors' multi-asset solutions remained good. The repositioning of our managed portfolio solution, WealthSelect, has been well received by clients and advisers, attracting £378 million of net inflows in the period through the Quilter Investment Platform. WealthSelect's performance remains strong over one, three and five years and since inception seven years ago, having been predominantly first or second quartile over all periods. Cirilium Active performance remains strong on long-term metrics but, not surprisingly as a more quality growth focused proposition, its short-term performance has been weaker in these markets.
Transformation
Our transformation agenda remains firmly on track, with its focus on:
Ø delivering an improvement in client flows to the Quilter Investment Platform and into our investment solutions;
Ø repositioning our advice business through a focus on adviser productivity; and
Ø investment in efficiency and digital initiatives to improve productivity and client experience.
Taking each of these in turn:
A year on from the launch of our new platform, we have experienced good take-up by IFA firms who were not active users of our previous platform. As we said at our Capital Markets Day, we are targeting increased business from 700 firms over a three-year period. Thus far, we have secured commitment from 80 of these firms who have gone through their due diligence and appointed us as a platform of choice. Many have already started writing new business on our platform with this representing around 10% of our gross flows from the IFA channel this year. We are engaged in discussions with another 60 firms and are in the early stage of negotiation with a further 100 firms. This improvement reflects the broader capabilities and functionality of our new platform and provides a strong base from which we intend to accelerate flow momentum over the coming years. We also continue to make good progress in increasing usage of our new platform by Quilter Financial Planning clients given its improved functionality. This is evidenced by an improvement in Quilter channel flows onto the new platform and the reduced flows from the Quilter channel onto third party platforms.
The introduction of our new platform last year was a catalyst to drive higher adviser productivity in Quilter Financial Planning by increasingly aligning our advisers to our integrated proposition. While this led to an expected reduction in advisers over the course of 2021, the more modest reduction in the current year has been caused by challenges in the speed of recruiting external advisers into the business, while our attrition rates of advisers have normalised to pre-review levels. We have stepped up our new adviser recruitment and resourcing. Our core focus has delivered a sustained improvement in our adviser productivity, with the Quilter channel gross flows per adviser being stable at £2.4 million despite a more challenging market environment. While our work to reshape our Advice business is ongoing, we currently expect adviser numbers to stabilise and to resume growth by the end of the year.
Our Optimisation programme is now complete having achieved cost savings of more than £65 million over the three-year programme. Our second phase of efficiency initiatives, known as Business Simplification, continues to progress well. In recognition of the more challenging operating environment, we are continuously seeking opportunities to accelerate some of our identified plans to bring forward anticipated cost savings. An example achieved is the faster consolidation of our two Southampton offices into a single building which was completed earlier this year, over a year ahead of the original intended schedule.
We have continued to invest in technology to deliver better customer outcomes and experiences. In the first half, this included investing in mobile to allow Affluent customers to access our Platform via a mobile app. The technology is in beta testing with a select group of clients and, once we have gained relevant feedback, we expect to be able to commence a wider roll out later this year. Our hybrid advice investment plans are also progressing well. We are advancing our plans here and expect to move the initiative into its pilot stage in 2023.
Responsible business and stewardship
Quilter is committed to being a responsible business in the way we act and by building these principles into both our investment and advice processes.
First , in terms of how we act, we recognise the current environment is not just tough for our business, but it is also extremely challenging for our staff. Our people are our most important asset and have been magnificent over the past two years, digging deep to keep our services running and supporting our clients throughout the various COVID-19-induced lockdowns. We are putting in place additional support for our people to help them through the cost of living crisis. All employees earning £50,000 and less will receive a one-off payment of £1,200 in August 2022 at a total cost of around £4 million in the second half. We know this payment will not fully mitigate rising food and energy costs, but we hope it will go some way to ease current difficulties felt by some employees due to the strain of the increased cost of living.
We also launched our Inclusion and Diversity Action Plan earlier this year. We believe that financial services companies who fail to address systemic diversity issues within the industry will ultimately get left behind. The companies who make a concerted effort to improve employee diversity will be able to attract talented individuals, who may have previously not considered a career in our sector and Quilter will benefit as a result. Our new two-year action plan prioritises solutions with measurable impact which we will track and sustain over the long-term so we can better meet the differing needs of underrepresented groups.
Second , in terms of embedding behaviours, earlier this year we updated our matrix for our restricted network advisers to incorporate ESG ratings and specific responsible investment solutions. The new responsible and sustainable portfolios allow (alongside our two new tools: client profiler and solution explorer) advisers to take clients' ESG preferences into account in determining the most appropriate solution. We believe this approach is market leading.
Third , we continue to work closely with the skilled person review investigating the Lighthouse DB to DC transfers. Our focus remains on doing the right thing by any customers who were poorly advised, even though this advice predates our acquisition of Lighthouse. The skilled persons review is reaching its final stages and I can report we concluded negotiations with the insurers who provided professional indemnity cover for Lighthouse resulting in the payment of the full amount due under the policy of £15 million, including amounts received since the period end, with this benefit excluded from adjusted profit.
In respect of Board matters, Glyn Jones stepped down as Chair at the conclusion of the Company's 2022 Annual General Meeting, with Ruth Markland appointed as Chair and Tim Breedon assuming the role of Senior Independent Director, until such time as the permanent Chair successor was confirmed. We were delighted to welcome Glyn Barker to the Board as a Non-executive Director at the beginning of June 2022 and, subject to regulatory approval for his permanent appointment, Chair Designate.
Outlook
Quilter is well positioned in an industry with long-term secular growth prospects, and we have made further good progress in the execution of our strategy. Our focus remains on improving operational efficiency through our Business Simplification programme and driving the business towards the financial targets we set out at the November 2021 Capital Markets Day, albeit that current market levels provide a revenue headwind which may delay the achievement of our operating margin targets.
My priorities continue to be growth in the IFA and Quilter adviser franchises, cost discipline to deliver a right-sized cost base for the new streamlined Quilter, investing for future growth through hybrid advice, and embedding ESG into the services we provide for clients and tools we provide for advisers. We remain confident in our simpler, more focused, business model, our ability to improve our market share of flows through our new platform, and our prospects to deliver strong sustainable returns to shareholders through the cycle.
Paul Feeney
Chief Executive Officer
Financial review
Review of financial performance
In this section, review of financial performance, unless indicated otherwise, all results are presented excluding Quilter International in both the current year and prior year comparative, following its sale to Utmost Group in November 2021.
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including APMs, as explained further on pages 4 to 6 . In the headings and tables presented, these measures are indicated with an asterisk: *.
Key financial highlights
|
Quilter highlights from continuing operations 1 |
|
H1 2022 |
H1 2021 |
|
|
|
|
|
|
|
|
Assets and flows |
|
|
|
|
|
|
|
|
|
|
|
AuMA* (£bn)2, 5 |
|
98.7 |
106.4 |
|
|
Of which Affluent |
|
74.2 |
79.6 |
|
|
Of which High Net Worth |
|
25.2 |
27.0 |
|
|
Inter-segment dual assets |
|
(0.7) |
(0.2) |
|
|
|
|
|
|
|
|
Gross flows* (£bn)2, 5 |
|
5.9 |
6.7 |
|
|
Of which Affluent |
|
4.8 |
5.3 |
|
|
Of which High Net Worth |
|
1.3 |
1.4 |
|
|
Inter-segment dual assets |
|
(0.2) |
0.0 |
|
|
|
|
|
|
|
|
Net inflows* (£bn)2, 5 |
|
1.4 |
2.0 |
|
|
Of which Affluent |
|
1.0 |
1.6 |
|
|
Of which High Net Worth |
|
0.5 |
0.4 |
|
|
Inter-segment dual assets |
|
(0.1) |
0.0 |
|
|
Net inflows/opening AuMA*2 |
|
3% |
4% |
|
|
Gross flows per adviser* (£m)2, 3 |
|
2.4 |
2.4 |
|
|
Asset retention*3 |
|
92% |
91% |
|
|
|
|
|
|
|
|
Profit and loss |
|
|
|
|
|
|
|
|
|
|
|
IFRS profit/(loss) before tax from continuing operations attributable to equity holders* (£m)2 |
|
182 |
(21) |
|
|
IFRS profit/(loss) after tax from continuing operations (£m) |
|
151 |
(13) |
|
|
Adjusted profit before tax* (£m)2 |
|
61 |
56 |
|
|
Operating margin*2 |
|
20% |
18% |
|
|
Revenue margin* (bps)2 |
|
47 |
48 |
|
|
Return on equity*2 |
|
5.9% |
7.3% |
|
|
Adjusted diluted EPS* from continuing operations (pence)2 |
|
3.7 |
3.9 |
|
|
Basic earnings/(loss) per share from continuing operations (pence) |
|
11.3 |
(0.9) |
|
|
|
|
|
|
|
|
Non-financial |
|
|
|
|
|
|
|
|
|
|
|
Restricted Financial Planners ("RFPs") in Affluent segment4 |
|
1,512 |
1,639 |
|
|
Discretionary Investment Managers in High Net Worth segment4 |
|
176 |
168 |
|
|
Quilter Private Client RFPs in High Net Worth segment4 |
|
55 |
62 |
|
|
1 Continuing operations represent Quilter plc, excluding the results of Quilter International. Adjusted profit before tax for Quilter International in H1 2021 was £29 million. Adjusted diluted EPS from Quilter International in H1 2021 was 1.9 pence per share. |
|
|||
|
2 Alternative Performance Measures ("APMs") are detailed and defined on pages 4 to 6. |
|
|||
|
3 Gross flows per adviser is a measure of the value created by our Quilter distribution channel. |
|
|||
|
4 Closing headcount as at 30 June. 5 H1 2021 asset and flow comparators have been restated to exclude amounts relating to Quilter International to align with information presented at the Company's Capital Markets Day on 3 November 2021 and its fourth quarter trading statement 2021 on 26 January 2022. |
||||
Overview
The Group's financial performance was resilient for the first six months of the year in light of the volatile market environment, with adjusted profit before tax up 9% to £61 million (H1 2021: £56 million). This reflected stable revenues and a disciplined focus on cost control as we regain momentum following the pandemic and a reduction in FSCS levies. Global equity markets were down for the first six months of the year, with the FTSE 100 down 3%, MSCI World Index (GBP) down 12%, PIMFA Private Investor Balanced (Net) down 9%, and Russell 1000 down 22% from the closing 2021 index levels. The UK's rate of inflation hit a new 40-year high, with corporate bond markets adversely affected by rising rates: the Bloomberg Global Aggregate Bond index fell 10% from closing 2021 levels. The Group's AuMA ended the period at £98.7 billion, a 12% decrease from the opening position at the start of 2022, resulting from £14.5 billion of negative market movements more than offsetting net inflows of £1.4 billion.
Net inflows of £1.4 billion for the period were down 30% on the prior period (H1 2021: £2.0 billion), impacted by a dampening in investor sentiment in light of the volatile global markets and a weakening macro-economic environment. The net inflows are stated inclusive of net outflows arising from assets on third party platforms of £0.6 billion (H1 2021: £0.3 billion). Gross flows for the Group were 12% lower than the prior period at £5.9 billion (H1 2021: £6.7 billion), primarily as a result of lower flows into the Affluent segment due to lower adviser gross sales as investor sentiment weighed on client's propensity to invest. As a consequence, net inflows as a percentage of opening AuMA was 3% (H1 2021: 4%). Detailed analysis of net inflows by business segment is shown in the Supplementary Information section of this announcement.
· The Affluent segment's net inflows of £1.0 billion were down 38% on the prior period (H1 2021: £1.6 billion) due to c.£0.2 billion lower net inflows in the Quilter Investment Platform against a strong prior period comparative, and net outflows of £0.6 billion (H1 2021: net outflows of £0.3 billion) in assets managed by Quilter solutions on third-party platforms in relation to legacy and closed books of business. Net inflows of £1.6 billion onto the Quilter Investment Platform were down 11% (H1 2021: £1.8 billion), with lower sales in the IFA channel as the prior period experienced strong inflows following the completion of the Platform Transformation Programme and as investor confidence improved as national lockdown restrictions eased. Lower IFA channel flows were offset in the period by an increase in net inflows in the Quilter distribution channel where the Platform is winning a greater share of restricted sales, weighted towards pensions, and we have established a simplified procedure to allow us to accelerate back book transfers. Gross flows on the Quilter Investment Platform of £4.2 billion (H1 2021: £4.5 billion) were 7% lower as clients reacted to the macro environment. Pension and ISA product sales comprise £3.1 billion (H1 2021: £3.3 billion) of the Quilter Investment Platform gross flows of £4.2 billion, reflecting a similar proportion of overall sales in comparison to the prior period.
· The High Net Worth segment recorded net inflows of £0.5 billion which were up 25% from the prior period (H1 2021: £0.4 billion). Gross inflows of £1.3 billion were marginally down on H1 2021 of £1.4 billion, offset by lower outflows on the prior period. This is reflected in improved persistency at 94% versus 92% in H1 2021.
Quilter channel gross flows per adviser* were stable at £2.4 million for the period (H1 2021: £2.4 million). Total average RFP's for both segments combined have decreased 9% in H1 2022 to 1,603 (H1 2021: 1,765).
The Group's AuMA ended the period at £98.7 billion, down 12% from the opening position at the start of 2022 (FY 2021: £111.8 billion), due to the fall in global equity and bond indices. The Affluent segment AuMA of £74.2 billion decreased by 11% (FY 2021: £83.3 billion) of which £24.5 billion is managed by Quilter, down on the opening position at the start of 2022 (FY 2021: £27.4 billion). High Net Worth's AuM was £25.2 billion, down 12% from opening 2022 (FY 2021: £28.7 billion), with all assets managed by Quilter. In total, £49.5 billion of AuMA is managed by Quilter across the Group (FY 2021: £56.1 billion).
The Group's revenue margin of 47 bps was 1 bp lower than the prior period (H1 2021: 48 bps). For assets administered within the Affluent segment, the revenue margin decreased by 1 bp to 26 bps (H1 2021: 27 bps) as a result of higher average AuMA leading to more clients moving into lower revenue margin tiers as the value of their investments increase. Similarly, for assets managed in the Affluent segment, the revenue margin decreased by 1 bp to 47 bps (H1 2021: 48 bps) as a result of anticipated mix shifts in underlying assets towards lower margin products. Within the High Net Worth segment, the revenue margin of 70 bps decreased from the prior period by 2 bps (H1 2021: 72 bps) as a result of the expected reduction of non-recurring revenue from commission and contract charges, and the impact of tiered fee structures on higher average AuM.
Adjusted profit before tax increased by 9% to £61 million (H1 2021: £56 million). Higher net management fees of £245 million (H1 2021: £242 million) were a result of higher average AuMA period on period (H1 2022: £105.3 billion compared to H1 2021: £101.7 billion) offset by lower other revenue of £58 million (H1 2021: £62 million), due to lower mortgage and protection new business levels and lower adviser headcount . Operating expenses in H1 2022 were £242 million, 2% lower than the prior period (H1 2021: £248 million), primarily due to cost discipline and a decrease in FSCS levies. The Group's operating margin increased to 20% (H1 2021: 18%), driven by the reduction in operating expenses.
The Group's IFRS profit after tax from continuing operations was £151 million, compared to a loss of £13 million for H1 2021. The increase in profit is attributable to policyholder tax credits of £145 million to June 2022 (H1 2021: tax charge £(48) million).
Adjusted diluted earnings per share for continuing operations decreased 5% to 3.7 pence (H1 2021: 3.9 pence), due to reduced adjusted profit after tax as a result of the non-repetition of the benefit from a deferred tax credit in 2021.
Financial performance by segment
|
Financial performance from continuing operations |
|
|
Affluent |
High Net Worth |
Head Office |
Continuing operations |
|
|
|
|
|
|||||||
|
Net management fee* |
|
|
151 |
94 |
- |
245 |
|
|
|
Other revenue* |
|
|
42 |
14 |
2 |
58 |
|
|
|
Total net fee revenue* |
|
|
193 |
108 |
2 |
303 |
|
|
|
Operating expenses* |
|
|
(146) |
(85) |
(11) |
(242) |
|
|
|
Adjusted profit before tax* |
|
|
47 |
23 |
(9) |
61 |
|
|
|
Tax |
|
|
|
|
|
(11) |
|
|
|
Adjusted profit after tax* |
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin (%)* |
|
|
24% |
21% |
|
20% |
|
|
|
Revenue margin (bps)* |
|
|
38 |
70 |
|
47 |
|
|
|
Financial performance from continuing operations |
|
|
Affluent |
High Net Worth |
Head Office |
Continuing operations |
|
|
|
|
|
|||||||
|
Net management fee* |
|
|
149 |
93 |
- |
242 |
|
|
|
Other revenue* |
|
|
50 |
12 |
- |
62 |
|
|
|
Total net fee revenue* |
|
|
199 |
105 |
- |
304 |
|
|
|
Operating expenses* |
|
|
(155) |
(79) |
(14) |
(248) |
|
|
|
Adjusted profit before tax*1 |
|
|
44 |
26 |
(14) |
56 |
|
|
|
Tax |
|
|
|
|
|
1 |
|
|
|
Adjusted profit after tax* |
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin (%)* |
|
|
22% |
25% |
|
18% |
|
|
|
Revenue margin (bps)* |
|
|
39 |
72 |
|
48 |
|
|
1 Total adjusted profit before tax including Quilter International for H1 2021: £85 million. See note 5(a) to the condensed consolidated financial statements on page 41.
Total net fee revenue*
The Group's total net fee revenue of £303 million (H1 2021: £304 million), is broadly unchanged on the prior period. Net management fee revenue is up 1% on that of the prior period due to the higher average Group AuMA of £105.3 billion (H1 2021: £101.7 billion). The blended revenue margin for the Group, calculated in reference to net management fees, marginally decreased by 1 bp to 47 bps.
Total net fee revenue for Affluent was £193 million, down 3% from the prior year (H1 2021: £199 million). Net management fees of £151 million were marginally ahead of the prior period due to the impact of higher average AuMA which increased by 4% to £78.8 billion in H1 2022. Other revenue predominantly reflects revenue generated from the provision of advice within Quilter Financial Planning. Within the revenue generated by advice, mortgage and protection, recurring charges and fixed fees were at lower levels than the prior period due to lower markets and lower average adviser headcount.
Total net fee revenue in High Net Worth was £108 million for the period, up 3% from the prior period (H1 2021: £105 million). This was principally driven by higher average AuM which increased by 5% to £27.0 billion, partially offset by an expected reduction in commission revenue as the proportion of clients on fee-only propositions continues to increase. Other revenue predominantly reflects the revenue generated from Quilter Private Client Advisers which was at similar levels to those of H1 2021. Within Quilter Cheviot, other revenue was up £3 million (H1 2021: £nil) due to fees generated from clients' cash assets as a result of the rise in UK interest rates.
Operating expenses*
Operating expenses decreased by £6 million to £242 million (2021: £248 million) despite the obvious pressures of a higher UK inflationary environment and more normalised level of investment spend which was suppressed during 2021 due to the pandemic. The Group continues to exercise cost discipline with a particular focus on managing discretionary spend in the wider context of inflationary pressures in the global economy and supressed market conditions. In H1 2022, the Group incurred lower FSCS levies and regulatory fees (an overall reduction of £10 million) compared to the prior period primarily as a result of updated FSCS levy guidance from the FCA for 2022/23.
|
|
H1 2022 |
|
H1 2021 |
|
|
||
|
Operating expense split (£m) |
|
|
Continuing operations |
As a percentage of revenues |
Continuing operations |
As a percentage of revenues |
|
|
|
|
|
|
|
|
|
|
|
Support staff costs |
|
|
58 |
|
63 |
|
|
|
Operations |
|
|
9 |
|
13 |
|
|
|
Technology |
|
|
14 |
|
16 |
|
|
|
Property |
|
|
16 |
|
15 |
|
|
|
Other base costs1 |
|
|
15 |
|
13 |
|
|
|
Sub-total base costs |
|
|
112 |
37% |
120 |
39% |
|
|
Revenue-generating staff base costs |
|
|
49 |
16% |
46 |
15% |
|
|
Variable staff compensation |
|
|
39 |
13% |
39 |
13% |
|
|
Other variable costs2 |
|
|
26 |
9% |
17 |
6% |
|
|
Sub-total variable costs |
|
|
114 |
38% |
102 |
34% |
|
|
Regulatory/professional indemnity costs |
|
|
16 |
5% |
26 |
9% |
|
|
Operating expenses* |
|
|
242 |
80% |
248 |
82% |
|
|
1 Other base costs includes depreciation and amortisation, audit fees, shareholder costs, listed Group costs and governance. |
|||||||
|
2 Other variable costs includes FNZ costs, development spend and corporate functions variable costs. |
|||||||
Support staff costs decreased by 8% to £58 million (2021: £63 million) driven by transformation programmes continuing to deliver sustainable benefits.
Operations costs decreased by 31% to £9 million (H1 2021: £13 million), reflecting the move to the outsourced operations model within the Quilter Investment Platform for the full period in 2022, and a simpler operational base following the business divestments made in preceding years.
Technology costs decreased by 13% to £14 million (H1 2021: £16 million). Technology costs reduced as a result of continuing transformation activity, cessation of dual running activity following the completion of the Platform Transformation Programme, and the consolidation of contracts following the sale of Quilter International.
Property costs increased by 7% to £16 million (H1 2021: £15 million) driven by an increase in operating costs as a result of higher occupancy post-pandemic, and inflationary increases arising from providing property management infrastructure, such as heating and electricity.
Other base costs increased by 15% to £15 million (H1 2021: £13 million) driven by increased depreciation charges following the completion of capital projects in the property portfolio.
Revenue-generating staff base costs increased by 7% to £49 million (H1 2021: £46 million) principally as a result of the build out of the combined advice and investment proposition in the High Net Worth segment, and the increase in the number of discretionary investment managers.
Variable staff compensation remained stable at £39 million (H1 2021: £39 million). Reductions in share based-payment accruals following global equity market falls experienced in the first 6 months of 2022 is offset by increased short-term compensation accruals reflecting inflationary base salary increases and improved business performance versus that of the prior period.
Other variable costs increased by 53% to £26 million (H1 2021: £17 million) principally driven by operating expenses associated with the new platform, which are partially offset by decreases in base costs, and increases in development spend as we regain momentum following the deferral of change activity during the pandemic.
Regulatory and insurance charges decreased by 38% to £16 million (H1 2021: £26 million) largely driven by the reduced FSCS levy for 2022/23. This decrease across the industry, while welcomed, is unlikely to be sustained in future years as part of the decrease reflects the FSCS levy for the industry carrying forward a surplus from 2021 following significant increases in the levy over the past few years.
Taxation
The effective tax rate ("ETR") on adjusted profit before tax for H1 2022 was 18% (H1 2021: (2)%). The Group's ETR is not materially different from the UK corporation tax rate of 19%. The Group's ETR is dependent on a number of factors, including future changes in the UK corporation tax rate.
The Group's IFRS income tax expense for H1 2022 was a credit of £114 million (H1 2021: charge of £(40) million). The 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 16 and in note 5(b) of the consolidated financial statements.
Earnings Per Share ("EPS")
Following the £328 million return of capital, a share consolidation was completed so that comparability between the market price for Quilter Ordinary Shares before and after the implementation of the B share scheme was maintained.
New Ordinary Shares were issued for existing Ordinary Shares in a ratio of six new shares of 8 1/6 pence each for seven existing shares of 7 pence each resulting in a reduction in the numbers of shares by 234 million. The prior period average number of shares have been restated following the share consolidation, in line with IAS33.
For H1 2022, basic EPS relating to the continuing business was 11.3 pence (H1 2021: (0.9) pence). The average number of shares in issue used for the basic EPS calculation was 1,342 million (H1 2021: 1,443 million), after the deduction of own shares held in Employee Benefit Trusts ("EBTs") and consolidated funds of 63 million (HY 2021: 79 million). The reduction in the number of shares in issue in the period is due to the share buyback programme, which completed in January 2022. The Share Buyback Programme completed before the share consolidation, and the unadjusted number of shares bought and cancelled over the life of the programme was 264 million.
The average number of shares in issue used for the diluted EPS calculation was 1,353 million (HY 2021: 1,479 million). This includes the dilutive effect of shares and options awarded to employees under share-based payment arrangements of 11 million (HY 2021: 36 million). The dilutive effect of share awards has decreased due to movements in value of employee share schemes compared to the prior period.
Optimisation
In H1 2022, we successfully deployed the final delivery of our Group wide General Ledger and further consolidated our data centre, telephony and data reporting solutions within the IT estate. This work delivered £4 million of annualised sustainable cost savings in H1 2022 against the 2018 cost base. The Optimisation programme, which we announced in 2018, has now achieved its target of delivering annualised run-rate cost savings of £65 million by mid-2022, with total implementation costs since inception of £84 million. A limited amount of work on the programme remains underway, and we anticipate the total delivery cost of the programme to be no more than £87 million when it concludes at the end of 2022, below the original £91 million estimate. Further implementation costs in H2 2022 will include the final decommissioning of the legacy finance systems together with anticipated support costs.
Business Simplification
As announced at our Capital Markets Day in November 2021, our Business Simplification programme is anticipated to reduce operating costs by around £45 million by the end of 2024 on a run-rate basis, with costs to achieve expected to be £55 million. In H1 2022 we started to simplify Quilter's structures and organise ourselves to support our two segments, Affluent and High Net Worth, with further work planned into 2024. During the period we also delivered early simplification benefits related to our property strategy and technology estate enabled by the completion of the Platform Transformation Programme and sale of Quilter International. To date the programme has delivered £13 million of annualised run-rate cost savings with an implementation cost of £12 million.
Lighthouse DB pension transfer advice provision
As reported in the Group's 2021 Annual Report, a provision was recognised in relation to DB to DC pension transfer advice provided by Lighthouse advisers prior to Lighthouse transitioning to our systems and controls following our acquisition of Lighthouse.
A total provision of £3 million (31 December 2021: £29 million) has been calculated for the remaining redress of British Steel Pension Scheme cases and other DB to DC pension transfer cases which are subject to the skilled person review. This includes anticipated costs of legal and professional fees associated with the redress activity. The provision reflects the outcome of the suitability review for all cases currently identified as being in scope, redress calculations performed by the skilled person and the offers made to customers who received unsuitable advice which caused them to sustain a loss. The provision decreased by £5 million during 2022, which has been recognised as a reduction within expenses of the Group (and excluded from adjusted profit before tax), in order to reflect the results of the redress calculations performed under the skilled person review. Redress on British Steel Pension Scheme cases and other DB to DC pension transfer cases of £18 million and professional fees of £2 million were paid during the period. Payments are expected to be completed during 2022. Subject to FCA confirmation of whether any additional work is required, we anticipate the skilled person review will conclude during 2022.
Insurance coverage in relation to claims in respect of legal liabilities arising in connection with Lighthouse British Steel Pension Scheme cases has been confirmed and a portion of the proceeds received, contributing £10 million to the profit of the Group, which has also been excluded from adjusted profit before tax.
Reconciliation of adjusted profit before tax* to IFRS profit
Adjusted profit before tax for the Group on a continuing basis was £61 million (H1 2021: £56 million).
|
Reconciliation of adjusted profit before tax to IFRS profit/(loss) after tax |
For the six months ended 30 June 2022 |
For the six months ended 30 June 20213 |
||||
|
£m |
Continuing operations |
Discontinued operations1 |
Total |
Continuing operations |
Discontinued operations1 |
Total |
|
Affluent |
47 |
- |
47 |
44 |
29 |
73 |
|
High Net Worth |
23 |
- |
23 |
26 |
- |
26 |
|
Head Office |
(9) |
- |
(9) |
(14) |
- |
(14) |
|
Adjusted profit before tax* |
61 |
- |
61 |
56 |
29 |
85 |
|
Reallocation of Quilter International costs |
- |
- |
- |
(5)
|
5 |
- |
|
Adjusted profit before tax after reallocation* |
61 |
- |
61 |
51 |
34 |
85 |
|
|
|
|
|
|
|
|
|
Adjusting for the following: |
|
|
|
|
|
|
|
Impact of acquisition and disposal-related accounting |
(22) |
- |
(22) |
(23) |
- |
(23) |
|
Loss on business disposals |
- |
(1) |
(1) |
- |
- |
- |
|
Business transformation costs |
(17) |
- |
(17) |
(32) |
- |
(32) |
|
Managed Separation costs |
- |
- |
- |
(1) |
- |
(1) |
|
Finance costs |
(5) |
- |
(5) |
(5) |
- |
(5) |
|
Policyholder tax adjustments |
146 |
- |
146 |
(4) |
- |
(4) |
|
Customer remediation |
15 |
- |
15 |
(7) |
- |
(7) |
|
Exchange rate gain (ZAR/GBP) |
4 |
- |
4 |
- |
- |
- |
|
Total adjusting items before tax |
121 |
(1) |
120 |
(72) |
- |
(72) |
|
Profit/(loss) before tax attributable to equity holders* |
182 |
(1) |
181 |
(21) |
34 |
13 |
|
Tax attributable to policyholder returns |
(145) |
- |
(145) |
48 |
- |
48 |
|
Income tax (expense)/credit |
114 |
- |
114 |
(40) |
(1) |
(41) |
|
Profit/(loss) after tax2 |
151 |
(1) |
150 |
(13) |
33 |
20 |
1 Discontinued operations in 2022 relate to the increase in the Merian warranty provision on the Single Strategy Asset Management business. In 2021, discontinued operations include the results related to Quilter International.
2 IFRS profit/(loss) after tax.
3 The new segments replace the segments reported in the 2020 Annual Report: Advice and Wealth Management and Wealth Platforms. June 2021 comparatives have been restated as appropriate to reflect the new segmentation.
Adjusted profit before tax represents the Group's IFRS profit, adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature, as detailed on page 41 in the condensed consolidated financial statements. The exclusion of certain adjusting items may result in adjusted profit before tax being materially higher or lower than the IFRS profit after tax.
Adjusted profit before tax does not provide a complete picture of the Group's financial performance, which is disclosed in the IFRS income statement, but is instead intended to provide additional comparability and understanding of the financial results.
The impact of acquisition and disposal related accounting costs of £22 million (H1 2021: £23 million) include amortisation of acquired intangible assets. These costs remained stable on those of the prior period.
Business transformation costs of £17 million were incurred in H1 2022 (H1 2021: £32 million) consisting of:
· Business Simplification costs of £12 million (H1 2021: £nil). In H1 2022, Group simplified its structures to support the two segments, Affluent and High Net Worth, with further work planned into 2024. During the period we also delivered early simplification benefits related to our property strategy and technology estate enabled by the completion of the Platform Transformation Programme and sale of Quilter International. To date the programme has delivered £13 million of annualised run-rate cost savings with an implementation cost of £12 million.
· The Optimisation programme incurred costs of £3 million (H1 2021: £10 million). The Optimisation programme commenced in 2018 to provide closer business integration, create central support, rationalise technology and reduce third-party spend and is now materially complete.
· Restructuring costs following the disposal of Quilter Life Assurance of £2 million in H1 2022 (H1 2021: £nil), including property exit costs after the conclusion of the Transitional Service Agreement with ReAssure.
· The Platform Transformation Programme concluded in 2021 (H1 2021: £22 million) with lifetime costs of £202 million. No further costs were incurred in 2022.
Policyholder tax adjustments were a credit of £146 million for H1 2022 (H1 2021: debit of £4 million) in relation to the removal of timing differences arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from policyholders (which is included within the Group's IFRS revenue) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding tax expense, creating volatility to the Group's IFRS profit/(loss) before tax attributable to equity holders.
The customer remediation adjustment of £15 million in H1 2022 (H1 2021: expense of £7 million) reflects the impact of the final redress calculations performed compared with the provision estimated, as part of the ongoing skilled person review. Consequently, a provision release of £5 million has been recognised in the current period (H1 2021: net increase in provision of £7 million). Additionally, insurance proceeds in relation to claims in respect of legal liabilities arising in connection with Lighthouse British Steel pension transfer advice have been received, contributing £10 million to the profit of the Group. These have been excluded from adjusted profit on the basis that the advice activities to which the charge and benefit relates was provided prior to the Group's acquisition of the business. Further details of the provision are provided in note 17.
Foreign exchange movements for H1 2022 were £4 million (H1 2021: £nil) and relate to foreign exchange gains on cash held in South African Rand in preparation for the capital return and final dividend payments in May 2022. Cash was converted to South African Rand upon announcement of the details of the capital return and dividend payment providing an economic hedge for the Group. The foreign exchange gain is equally offset by an amount processed directly to retained earnings. See note 5(b)(vi) for further detail.
Cash generation*
Cash generation measures the proportion of adjusted profit after tax that is recognised in the form of cash generated from operations. The Group achieved a cash generation rate of 72% of adjusted profit after tax over H1 2022 (FY 2021: 76%, continuing business only following the disposal of Quilter International).
Review of financial position
Capital and liquidity
Solvency II
The Group's Solvency II surplus is £783 million at 30 June 2022 (31 December 2021: £1,030 million), representing a Solvency II ratio of 219% (31 December 2021: 275%). The Solvency II information for the six months to 30 June 2022 contained in this results disclosure has been prepared on a pro forma basis and has not been audited.
The Group's Solvency II capital position is stated after allowing for the impact of the foreseeable dividend payment of £16 million (31 December 2021: £62 million).
|
|
|
At |
At |
|
|
|
30 June |
31 December |
|
Group Solvency II capital (£m) |
|
20221 |
20212 |
|
Own funds |
|
1,440 |
1,617 |
|
Solvency capital requirement ("SCR") |
|
657 |
587 |
|
Solvency II surplus |
|
783 |
1,030 |
|
Solvency II coverage ratio |
|
219% |
275% |
|
1 Based on preliminary estimates and including the impact of year-to-date profits. |
|
|
|
|
2 As disclosed in the Group Solvency and Financial Condition Report for 2021. |
|
|
|
The 56 percentage point decrease in the Group Solvency II ratio from the 31 December 2021 position is primarily due to the capital return of £328 million from the net surplus proceeds arising from the sale of Quilter International to Utmost Group, partly offset by the net profit recognised in the period.
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) |
|
2022 |
2021 |
|
Tier 11 |
|
1,238 |
1,412 |
|
Tier 22 |
|
202 |
205 |
|
Total Group Solvency II own funds |
|
1,440 |
1,617 |
|
1 All Tier 1 capital is unrestricted for tiering purposes. |
|||
|
2 Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond, which was issued at £200 million in February 2018. |
|||
The Group SCR is covered by Tier 1 capital, which represents 188% of the Group SCR of £657 million. Tier 1 capital represents 86% of Group Solvency II own funds. Tier 2 capital represents 14% of Group Solvency II own funds and 26% of the Group surplus.
Dividend
The Board declared an interim dividend for 2022 of 1.2 pence per share at a total cost of £16 million. The interim dividend will be paid on 19 September 2022 to shareholders on the UK and South African share registers on 2 September 2022. For shareholders on our South African share register an interim dividend of 24.14419 South African cents per share will be paid on 19 September 2021, using an exchange rate of 20.12016.
At our Capital Markets Day on 3 November 2021, we announced a revised Group dividend policy. The new policy sets a target pay-out range of 50% to 70% of post-tax, post-interest adjusted profits, revised from 40% to 60% of post-tax adjusted profits previously and will apply for the 2022 financial year.
Capital return
Following the completion of the sale of Quilter International at the end of November 2021, the Board announced they planned to return the majority of the net surplus sale proceeds to shareholders, amounting to £328 million, through the issuance and redemption of B Class shares followed by an Ordinary Share consolidation.
Following receipt of regulatory approval and shareholder approval at a General Meeting on 12 May 2022, the B shares were issued to shareholders on 23 May 2022. The B shares were subsequently redeemed on 24 May 2022 in the form of a payment of 20 pence per Ordinary Share for shareholders on our UK share register. For shareholders on our South African share register this equates to a return of 401.33300 South African cents per Ordinary Share, using an exchange rate of 20.06665 South African cents to one pence, the average rate achieved on 7 and 8 March 2022, the two days immediately preceding the announcement of the capital return. In total, £328 million of capital was returned to our shareholders through this process.
Holding company cash
The holding company cash statement includes cash flows generated by the three main holding companies within the business: Quilter plc, Quilter Holdings Limited and Quilter UK Holding Limited. The flows associated with these companies will differ markedly from those disclosed in the statutory statement of cash flows, which comprises flows from the entire Quilter plc Group including policyholder movements.
The holding company cash statement illustrates cash received from the key trading entities within the business together with other cash receipts, and cash paid out in respect of corporate costs and capital servicing (including interest and dividends). Other capital movements, including those in respect of acquisitions and disposals together with funding for ongoing business requirements, are also included. It is an unaudited non-GAAP analysis and aims to give a more illustrative view of business cash flows as they relate to the Group's holding companies compared to the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7 (statement of cash flows) and includes commingling of policyholder related flows and consolidated funds.
|
£m |
|
|
H1 2022 |
FY 2021 |
|
Opening cash at holding companies at 1 January |
|
|
756 |
517 |
|
|
|
|
|
|
|
Single Strategy business sale - warranty |
|
|
- |
(2) |
|
Quilter International sale proceeds |
|
|
- |
481 |
|
Return of capital to shareholders |
|
|
(328) |
- |
|
Share repurchase |
|
|
(28) |
(197) |
|
Cost of disposal |
|
|
(23) |
- |
|
Dividends paid |
|
|
(62) |
(89) |
|
Net capital movements |
|
|
(441) |
193 |
|
|
|
|
|
|
|
Head Office costs, Business Simplification and Optimisation programme funding |
|
|
(17) |
(74) |
|
Interest costs |
|
|
(5) |
(9) |
|
Net operational movements |
|
|
(22) |
(83) |
|
|
|
|
|
|
|
Cash remittances from subsidiaries |
|
|
107 |
184 |
|
Net capital contributions, loan repayments and investments |
|
|
(15) |
(53) |
|
Other net movements |
|
|
1 |
(2) |
|
Internal capital and strategic investments |
|
|
93 |
129 |
|
|
|
|
|
|
|
Closing cash at holding companies at end of period |
|
|
386 |
756 |
Net capital movements
Net capital movements in the year were an outflow of £441 million. This includes £328 million of capital returned to shareholders following the sale of Quilter International, £28 million relating to the share repurchase programme, a dividend payment made to shareholders of £62 million in May 2022 and £23 million of costs relating to the disposal of Quilter International.
Net operational movements
Net operational movements were an outflow of £22 million for the period and includes £17 million of corporate and transformation costs. 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 inflow of £93 million is principally due to £107 million of cash remittances from the trading businesses, partially offset by £15 million of net capital contributions to support business operational activities.
Balance sheet
|
Summary balance sheet (£m) |
|
|
At 30 June 2022 |
At 31 December 2021 |
||
|
|
|
Total Group |
|
|
Total Group |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial investments |
|
|
42,106 |
|
|
47,565 |
|
Contract costs |
|
|
10 |
|
|
9 |
|
Cash and cash equivalents |
|
|
1,793 |
|
|
2,064 |
|
Goodwill and intangible assets |
|
|
433 |
|
|
457 |
|
Trade, other receivables, and other assets |
|
|
523 |
|
|
381 |
|
Other assets |
|
|
270 |
|
|
264 |
|
Total assets |
|
|
45,135 |
|
|
50,740 |
|
|
|
|
|
|
|
|
|
Equity |
|
|
1,523 |
|
|
1,739 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Investment contract liabilities |
|
|
37,167 |
|
|
41,071 |
|
Third-party interests in consolidated funds |
|
|
5,404 |
|
|
6,898 |
|
Borrowings and lease liabilities |
|
|
293 |
|
|
299 |
|
Trade, other payables, and other liabilities |
|
|
615 |
|
|
484 |
|
Other liabilities |
|
|
133 |
|
|
249 |
|
Total liabilities |
|
|
43,612 |
|
|
49,001 |
|
Total equity and liabilities |
|
|
45,135 |
|
|
50,740 |
Financial investments decreased by £5,459 million from £47,565 million at 31 December 2021 to £42,106 million at 30 June 2022 due to the fall in market value of assets driven by the conflict in Ukraine. £1,453 million of the total decrease relates to consolidated funds as a result of adverse market conditions and six funds no longer being subject to consolidation at H1 2022. A corresponding matching decrease is reflected in investment contract liabilities.
Cash and cash equivalents of £1,793 million decreased by £271 million from £2,064 million at 31 December 2021, primarily due to the £328 million capital redemption of the B Shares, £62 million dividend payment and £28 million cash consideration for shares repurchased as part of the final share buyback programme. This has been partially offset with inflows of £88 million of pre-tax profits adjusted for non-cash items and net policyholder investment flows of £128 million, less cash outflows of £41 million arising from changes in the composition in working capital.
Goodwill and intangible assets decreased by £24 million since 31 December 2021, principally due to the amortisation of intangible assets.
Principal risks and uncertainties
Effective risk management is key to Quilter successfully delivering the next phase of its strategy, involving a focus on growth and efficiency across its newly defined Affluent and High Net Worth client segments. Our Enterprise Risk Management Framework is embedded across Quilter and supports the organisation in the ongoing assessment and management of risk exposures.
Quilter's principal revenue streams are asset value based. During H1 2022 cost of living and inflationary pressures, coupled with the geopolitical shock of Russia's invasion of Ukraine, created extremely challenging market conditions and led to a decline in consumer confidence which has impacted investment inflows. In addition, competition in our key markets continues to intensify. These conditions present challenges for short-term financial performance and the pace of delivery of our strategy. Nonetheless, Quilter continues to invest in growth and propositional developments in order to position itself to capture opportunities when market conditions recover. This includes increasing digitisation and a commitment to becoming a leading responsible wealth manager.
As reported in the Group's 2021 Annual Report, a provision has been recognised in relation to DB to DC pension transfer advice that was provided by Lighthouse advisers prior to Lighthouse transitioning to our systems and controls following our acquisition of Lighthouse. A total provision of £3 million (31 December 2021: £29 million) has been calculated for the remaining redress of British Steel Pension Scheme cases and other DB to DC pension transfer cases which are subject to the skilled person review. Redress on British Steel Pension Scheme cases and other DB to DC pension transfer cases of £18 million and professional fees of £2 million have been paid during the period. Payments are expected to be completed during 2022. Subject to FCA confirmation, we anticipate the skilled person review will conclude during 2022. It is also expected that during 2022 the FCA will confirm whether the skilled person review should be closed, or whether any additional work is required. Additionally, a provision of £4 million (31 December 2021: £6 million) has been recognised at 30 June 2022 relating to potentially unsuitable pension advice provided by advisers including advice provided prior to Quilter's acquisition of the relevant advice businesses by Quilter Financial Planning firms other than Lighthouse. Quilter Financial Planning continues to progress its control environment enhancement programme.
The Directors have carried out a robust assessment of the principal risks facing Quilter, including those that would threaten its business model, future performance, solvency and liquidity, as well as those that are non-financial in nature. The articulation of these principal risks and uncertainties is consistent with Quilter's 'Top Risk' reporting that is reviewed quarterly by the Board Risk Committee and Board. The table below sets out Quilter's current principal risks and uncertainties.
|
Risk |
Summary |
|
Business and strategic risks |
|
|
Economic environment |
Quilter's principal revenue streams are asset value related and as such Quilter is exposed to the condition of global economic markets. Global markets are likely to remain volatile given the conflict in Ukraine, declining consumer confidence, and increasing inflation. Volatility in debt, equity and currency markets may adversely impact customer investment portfolios which in turn impacts Quilter's ability to generate fee-based revenue. |
|
Business financial performance |
Inflationary pressures and an increase in the cost of living are impacting customers' ability to invest, which in turn has a bearing on investment inflows, acting as a headwind to our performance. Any negative impact on earnings, share price and/or capital position could have a resulting adverse effect on Quilter's market credibility and financial standing. The risk of further reductions of AuMA levels in 2022 (driven by equity and bond market indices performance) remains, with associated negative impacts to the Group's revenue generation capabilities. |
|
Strategic delivery |
Quilter has embarked on an ambitious strategy focused on growth and efficiency. As the external environment is expected to remain challenging for an extended period, the strategic risk profile is likely to continue to be elevated . Any failure to deliver on Quilter's strategy, could expose the Group to competitive risks and impact Quilter's franchise value. |
|
Change execution |
Quilter continues to be exposed to change execution risk given an ongoing programme of material change projects. should Quilter not be successful in delivering these change projects within intended time, cost or quality parameters, this could impact the delivery of intended benefits, and risk disruption to continuing operations and the control environment. |
|
Climate strategy
|
Quilter takes its responsibility to the environment seriously and is determined to play its part in reducing climate impacts. Failure to do so would result in Quilter being unable to meet regulatory and other stakeholder expectations and fulfil our strategic priority to become a leading responsible wealth manager. We are developing our Climate Action plan, which includes how we will align our operations, value chain and investments across Quilter with Science Based Targets. |
|
Investment proposition |
Quilter's investment propositions are key to retaining and attracting customers and enabling them to fulfil their financial goals. The risk of customer dissatisfaction in the performance of investment propositions may be heightened during periods of challenging market conditions which may result in an increase in outflows and associated impact on revenues. |
|
Operational and regulatory risks |
|
|
Advice |
Quilter's financial advice services are subject to regulatory conduct requirements to assure suitability of advisory recommendations. Failure to operate effective arrangements to support the ongoing delivery of suitable advice could expose Quilter to risks associated with customer detriment, regulatory censure and remediation programmes, with consequential impacts to the Group's business, financial condition and reputation. Quilter continues to work with the FCA to address historic DB to DC transfer advice shortcomings of the acquired Lighthouse Group. Subject to FCA confirmation, it is anticipated that the skilled person review will conclude during 2022. |
|
Information technology |
Quilter's business is dependent on its technology infrastructure and applications to perform necessary business functions. Good progress continues to be made in retiring Quilter's legacy technology estate, thereby reducing internal complexity. Nevertheless, a range of legacy applications are still supported, including the technology platform underpinning the disinvested Quilter International business, which will be supported until 2023 under a Transitional Services Agreement. Failure to manage technology risk could have a material adverse impact on Quilter's business, its resilience capabilities, operations, financial condition, and its reputation. |
|
Information security |
Quilter's business, by its nature, requires it to store, retrieve, evaluate and utilise customer and company data and information, some of which is highly sensitive. Quilter and its service providers are subject to the risk of information security breaches from parties with criminal or malicious intent. Monitoring is in place to proactively identify any potential new threats arising from the Russia/ Ukraine conflict or elsewhere. Should intrusion detection and anti-penetration processes not anticipate, prevent or mitigate a network failure or disruption, it may have a material adverse effect on Quilter's customers, business, financial condition, operations and reputation. |
|
People |
Quilter relies on its talent to deliver its service to customers and implement its strategic objectives. People risk remains heightened due to a buoyant job market for key talent. Failure to attract and retain suitable talent may impact on the delivery of Quilter's strategy and may have an adverse impact on Quilter's business, its financial and operational performance and its delivery of service to customers. |
|
Third party |
Quilter procures certain services from third parties, including the significant business process and technology outsourcing to FNZ. If Quilter does not effectively oversee its third-party providers, Quilter may experience operational difficulties, increased costs and loss of business, potential customer detriment and damage to its reputation. |
|
Operational resilience |
Quilter provides important services for its customers, and its ability to maintain these services during unforeseen events is key. Any failures in Quilter's preparation for, or response to, sudden disruptions could compromise the maintenance of important business services, resulting in the potential for customer detriment, financial loss, damage to reputation or regulatory sanction. |
|
Regulatory |
Quilter is subject to regulation in the UK by the Prudential Regulation Authority and the Financial Conduct Authority. Additionally, the firm is subject to the privacy regulations enforced by the Information Commissioner's Office and international equivalents. Quilter faces risks associated with compliance with these regulations and to changes in regulations or regulatory focus or interpretation in the markets in which Quilter operates. Failure to manage regulatory compliance effectively could result in regulatory censure, including the possibility of fines or prohibitions which could impact business performance and reputation. |
Quilter monitors its emerging risk profile on a regular basis, with the risk profile being regularly reviewed by the Board Risk Committee and Board. The current emerging risks being tracked are:
|
Emerging risks |
|
|
Near term
|
|
|
Cyber threat developments |
Evolving sophistication in cyber criminality presents an ever-changing cyber-attack threat profile, which could result in impacts to the continuity of operations and security of information. |
|
Margin pressure |
Increasing market pressures may require provision of services at a lower overall cost to customers to remain competitive. |
|
Economic outlook and geopolitical risk |
Rising cost pressures, post-pandemic supply issues, post-Brexit trading issues, geopolitical tensions, and the reversal of temporary taxation relief has caused inflation to rise, potentially adversely impacting investment performance, business costs and Quilter's customers' ability to save. |
|
Medium term
|
|
|
Disruptive competition and technology |
Increasing competitive activity and accelerating technological capabilities at peer firms could result in the potential to erode Quilter's market share. |
|
Climate change - disorderly transition to net zero |
Securing global net zero emissions by mid-century is a stretching demand. A disorderly transition to a low carbon economy could have financial impacts for Quilter caused by investment volatility or increased costs due to additional regulatory burden. |
|
Political changes and taxation |
Restoration of public finances after the pandemic may require further changes to the tax regime, in addition to the rises in UK National Insurance that have been announced. Adverse taxation changes could adversely impact customers' ability to save. |
|
Longer term |
|
|
|
|
|
Generational shifts |
Intergenerational changes to wealth dynamics will require adaptation to retain market share. |
Shareholder information
The Quilter Board has declared an Interim Dividend of 1.2 pence per share. The Interim Dividend will be paid on Monday 19 September 2022 to shareholders on the UK and South African share registers on Friday 2 September 2022.
Dividend Timetable
|
Dividend announcement in pounds sterling with South Africa ZAR Equivalent |
Wednesday 10 August 2022 |
|
Last day to trade cum dividend in South Africa |
Tuesday 30 August 2022 |
|
Shares trade ex-dividend in South Africa |
Wednesday 31 August 2022 |
|
Shares trade ex-dividend in the UK |
Thursday 1 September 2022 |
|
Record Date in UK and South Africa |
Friday 2 September 2022 |
|
Interim dividend payment date |
Monday 19 September 2022 |
From the opening of trading on Wednesday 10 August 2022 until the close of business on Friday 2 September 2022, 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 31 August 2022 and Friday 2 September 2022, both dates inclusive.
Additional information
For shareholders on our South African share register a dividend of 24.14419 South African cents per share will be paid on Monday 19 September 2022, based on an exchange rate of 20.12016. Dividend Tax will be withheld at the rate of 20% from the amount of the gross dividend of 24.14419 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 19.31535 South African cents per share. The Company had a total of 1,404,105,498 shares in issue at today's date.
If you are uncertain as to the tax treatment of any dividends you should consult your own tax adviser.
Return of capital related to the Sale of Quilter International
Following approval by shareholders at a General Meeting held on Thursday 12 May 2022, Quilter returned £328 million of the net proceeds arising from the sale of Quilter International to shareholders by way of a B Share Scheme and Share Consolidation (the 'Return of Capital').
The Return of Capital, which was initially announced on Wednesday 9 March 2022, involved the issue of new redeemable B shares to shareholders on Monday 23 May 2022, which Quilter subsequently redeemed for cash on Tuesday 24 May 2022. Under the Return of Capital, shareholders on our UK share register received 20 pence per Ordinary Share. This equated to a return of 401.33300 South African cents per Ordinary Share for shareholders on our South African share register, using an exchange rate of 20.06665 South African cents to one pence, the average rate achieved on 7 and 8 March 2022. The Share Consolidation was implemented on Monday 23 May 2022 and resulted in each shareholder receiving six new Ordinary Shares of 8 1/6 pence each for every seven existing Ordinary Shares of 7 pence each that they held on the record date of Friday 20 May 2022.
In connection with the Return of Capital, Quilter purchased for cancellation four existing Ordinary Shares of 7 pence each on Thursday 12 May 2022 to ensure that the number of existing Ordinary Shares in issue at the time the Share Consolidation was implemented was exactly divisible by seven (being the denominator in the Share Consolidation ratio).
Supplementary information
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including APMs, as explained further on pages 4 to 6. These measures are indicated with an asterisk: *.
For the six months ended 30 June 2022
1. Key financial data
|
2022 YTD gross flows, net flows & AuMA (£bn), unaudited |
AuMA* as at 31 December 2021 |
Gross |
Net Flows* (£m) |
AuMA* as at 30 June 2022 |
Of which managed by Quilter
AuM as at 2022 |
|
|
|
|
|
|
|
|
AFFLUENT SEGMENT |
|
|
|
|
|
|
Q uilter channel |
11.7 |
1,323 |
954 |
10.8 |
7.4 |
|
IFA channel |
60.0 |
2,874 |
654 |
53.7 |
8.7 |
|
Non-core business |
1.5 |
27 |
(23) |
1.3 |
- |
|
Sub-total (Quilter Platform) |
73.2 |
4,224 |
1,585 |
65.8 |
16.1 |
|
Via other platforms |
|
|
|
|
|
|
Quilter channel1 |
4.9 |
390 |
(88) |
4.0 |
4.0 |
|
IFA channel |
2.5 |
141 |
(326) |
2.2 |
2.2 |
|
Non-core businesses |
2.7 |
82 |
(141) |
2.2 |
2.2 |
|
Sub-total |
10.1 |
613 |
(555) |
8.4 |
8.4 |
|
Total Affluent Segment |
83.3 |
4,837 |
1,030 |
74.2 |
24.5 |
|
|
|
|
|
|
|
|
HIGH NET WORTH SEGMENT |
|
|
|
|
|
|
Quilter channel |
2.5 |
194 |
160 |
2.3 |
2.3 |
|
IFA channel incl. Direct |
26.2 |
1,068 |
352 |
22.9 |
22.9 |
|
Total High Net Worth Segment |
28.7 |
1,262 |
512 |
25.2 |
25.2 |
|
Inter-segment dual assets 1 |
(0.2) |
(190) |
(150) |
(0.7) |
(0.2) |
|
Quilter plc |
111.8 |
5,909 |
1,392 |
98.7 |
49.5 |
|
|
|
|
|
|
|
|
AuMA breakdown: |
|
|
|
|
|
|
Affluent administered only |
55.9 |
2,833 |
1,023 |
49.7 |
|
|
Affluent managed and administered |
17.3 |
1,391 |
562 |
16.1 |
|
|
Affluent external platform |
10.1 |
613 |
(555) |
8.4 |
|
|
|
|
|
|
|
|
|
Quilter channel |
19.1 |
1,907 |
1,026 |
17.1 |
|
|
IFA channel |
88.5 |
3,893 |
530 |
78.1 |
|
|
Non-core business |
4.2 |
109 |
(164) |
3.5 |
|
|
1 Inter-segment dual assets reflect funds sold by Quilter Cheviot and managed by Quilter Investors and the Quilter Cheviot bespoke MPS solution available to advisers on the Quilter Investment Platform. This is excluded from total AuMA to ensure no double count takes place.
|
|||||
|
|
|
|||||
|
2021 YTD gross flows, net flows & AuMA (£bn), unaudited |
AuMA* 2020 |
Gross |
Net flows* (£m) |
AuMA* as at 30 June 2021 |
Of which managed by Quilter AuM as at 30 June 2021 |
|
|
|
|
|
|
|
|
|
|
AFFLUENT SEGMENT |
|
|
|
|
|
|
|
Quilter channel |
9.6 |
1,261 |
868 |
10.8 |
7.3 |
|
|
IFA channel |
52.8 |
3,209 |
950 |
57.2 |
8.9 |
|
|
Non-core business |
1.4 |
43 |
(19) |
1.4 |
- |
|
|
Sub-total (Quilter Platform) |
63.8 |
4,513 |
1,799 |
69.4 |
16.2 |
|
|
Via other platforms |
|
|
|
|
|
|
|
Quilter channel 1 |
4.9 |
569 |
174 |
4.9 |
4.9 |
|
|
IFA channel |
2.4 |
139 |
(233) |
2.5 |
2.5 |
|
|
Non-core businesses |
2.8 |
96 |
(195) |
2.8 |
2.8 |
|
|
Sub-total |
10.1 |
804 |
(254) |
10.2 |
10.2 |
|
|
Total Affluent Segment |
73.9 |
5,317 |
1,545 |
79.6 |
26.4 |
|
|
|
|
|
|
|
|
|
|
HIGH NET WORTH SEGMENT |
|
|
|
|
|
|
|
Quilter channel |
2.1 |
268 |
217 |
2.3 |
2.3 |
|
|
IFA channel incl. Direct |
23.2 |
1,088 |
231 |
24.7 |
24.7 |
|
|
Total High Net Worth Segment |
25.3 |
1,356 |
448 |
27.0 |
27.0 |
|
|
Inter-segment dual assets 1 |
(0.2) |
(2) |
6 |
(0.2) |
(0.1) |
|
|
Quilter plc2 |
99.0 |
6,671 |
1,999 |
106.4 |
53.3 |
|
|
|
|
|
|
|
|
|
|
AuMA breakdown: |
|
|
|
|
|
|
|
Affluent administered only |
49.2 |
2,969 |
1,205 |
53.2 |
|
|
|
Affluent managed and administered |
14.6 |
1,544 |
594 |
16.2 |
|
|
|
Affluent external platform |
10.1 |
804 |
(254) |
10.2 |
|
|
|
|
|
|
|
|
|
|
|
Quilter channel |
16.4 |
2,098 |
1,259 |
18.0 |
|
|
|
IFA channel |
78.4 |
4,434 |
954 |
84.2 |
|
|
|
Non-core business 1 |
4.2 |
139 |
(214) |
4.2 |
|
|
|
|
|
|
|
|
|
|
1 Inter-segment dual assets reflect funds sold by Quilter Cheviot and managed by Quilter Investors and the Quilter Cheviot bespoke MPS solution available to advisers on the Quilter Investment Platform. This is excluded from total AuMA to ensure no double count takes place.
2 H1 2021 asset and flow comparators have been restated to exclude amounts relating to Quilter International to align with information presented at the Company's Capital Markets Day on 3 November 2021 and its fourth quarter trading statement 2021 on 26 January 2022.
|
Estimated asset allocation (%) |
H1 2022 |
FY 2021 |
|
Fund profile by investment type, unaudited |
Total client AuMA |
Total client AuMA |
|
Quilter |
|
|
|
Fixed interest |
25% |
24% |
|
Equities |
65% |
67% |
|
Cash |
5% |
4% |
|
Property and alternatives |
5% |
5% |
|
Total |
100% |
100% |
|
|
|
|
1. Affluent
The following table presents certain key financial metrics utilised by management with respect to the business units of the Affluent segment, for the periods indicated.
|
Key financial highlights |
H1 2022 |
H1 2021 |
% change |
|
|
|
|
|
|
Affluent Administered |
|
|
|
|
Net management fees (£m)* |
91 |
88 |
3% |
|
Other revenue (£m)* |
2 |
3 |
(33%) |
|
Total net fee revenue |
93 |
91 |
2% |
|
Net inflows (£bn)* |
1.6 |
1.8 |
(11%) |
|
Closing AuM (£bn)* |
65.8 |
69.4 |
(5%) |
|
Average AuM (£bn)* |
69.5 |
66.1 |
5% |
|
Revenue margin (bps)* |
26 |
27 |
(1) bp |
|
Asset retention (%)* |
93 |
92 |
1 ppt |
|
|
|
|
|
|
Affluent Managed |
|
|
|
|
Net management fees (£m)* |
61 |
61 |
- |
|
Other revenue (£m)* |
- |
- |
- |
|
Total net fee revenue |
61 |
61 |
- |
|
Net inflows (£bn)* |
0.0 |
0.5 |
- |
|
Closing AuM (£bn)* |
24.5 |
26.4 |
(8%) |
|
Average AuM (£bn)* |
25.9 |
25.4 |
2% |
|
Revenue margin (bps)* |
47 |
48 |
(1) bp |
|
Asset retention (%)* |
85 |
85 |
- |
|
|
|
|
|
|
Advice (Quilter Financial Planning) |
|
|
|
|
Net management fees (£m)* |
- |
- |
- |
|
Other revenue (£m)* |
40 |
47 |
(15%) |
|
Total net fee revenue* |
40 |
47 |
(15%) |
|
RFPs (#) |
1,512 |
1,639 |
(8%) |
2. High Net Worth
The following table presents certain key financial metrics utilised by management with respect to the business units of the High Net Worth segment, for the periods indicated.
|
Key financial highlights |
H1 2022 |
H1 2021 |
% change |
|
|
|
|
|
|
Quilter Cheviot |
|
|
|
|
Net management fees (£m)* |
94 |
93 |
1% |
|
Other revenue (£m)* |
3 |
- |
- |
|
Total net fee revenue |
97 |
93 |
4% |
|
|
|
|
|
|
Net inflows (£bn)* |
0.5 |
0.4 |
25% |
|
Closing AuM (£bn)* |
25.2 |
27.0 |
(7%) |
|
Average AuM (£bn)* |
27.0 |
25.8 |
5% |
|
Revenue margin (bps)* |
70 |
72 |
(2) bps |
|
Asset retention (%)* |
94% |
92% |
2 ppts |
|
Investment managers (#)* |
176 |
168 |
5% |
|
|
|
|
|
|
Advice (Quilter Private Client Advisers) |
|
|
|
|
Net management fees (£m)* |
- |
- |
- |
|
Other revenue (£m)* |
11 |
12 |
(8%) |
|
Total net fee revenue* |
11 |
12 |
(8%) |
|
|
|
|
|
|
PCA RFPs (#) |
55 |
62 |
(11%) |
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