Quilter plc interims 2021 - part 1
NEWS RELEASE
11 August 2021
Quilter plc interim results for the six months ended 30 June 2021
UK Platform delivers significantly higher flows, supporting the outlook for faster growth and operational efficiency
Highlights (including Quilter International)
· Net Client Cash Flow ("NCCF") of £2.5 billion increased 127% on the prior period (H1 2020: £1.1 billion) representing 4% of opening Assets under Management and Administration ("AuMA").
· Adjusted profit before tax increased 20% to £85 million (H1 2020: £71 million) of which £29 million (H1 2020: £24 million) from Quilter International.
· Operating margin of 24% (H1 2020: 21%) despite absorbing cost headwinds from higher regulatory costs and levies, and an unwind of prior year tactical cost savings.
· IFRS profit after tax of £20 million (H1 2020: £43 million).
· Adjusted diluted earnings per share of 5.0 pence, of which 1.7 pence is in respect of Quilter International (H1 2020: 3.5 pence, of which 1.3 pence was in respect of Quilter International).
· Interim dividend per share of 1.7 pence versus 1.0 pence for H1 2020, inclusive of a contribution of 0.5 pence from Quilter International.
· Total AuMA up 7% to £126.6 billion at 30 June 2021 (31 December 2020: £117.8 billion).
· Regulatory approval granted for final £100 million share buyback of £375 million capital return programme with this expected to commence in early September 2021, shortly after completion of current tranche.
Continuing business (excluding Quilter International)
· NCCF of £2.1 billion more than doubled on the prior period (H1 2020: £0.9 billion).
o Strongly improved integrated net inflows of £2.0 billion (H1 2020: £1.3 billion).
o Reshaping of Quilter Financial Planning delivering improved adviser productivity with £2.2 million integrated NCCF (annualised) per adviser (2020: £1.5 million).
· Adjusted profit before tax increased 19% to £56 million (H1 2020: £47 million).
· Improved operating margin of 18% (H1 2020: 17%) after higher FSCS levies (£10 million increase) and a reversal of tactical cost savings of £11 million in respect of variable compensation in 2021.
· IFRS loss after tax from continuing operations of £13 million (H1 2020: profit of £11 million).
· Adjusted diluted earnings per share from continuing operations increased 50% to 3.3 pence (H1 2020: 2.2 pence), supported by a reduced share count due to the capital return programme and a low effective tax rate.
· AuMA up 8% to £104.8 billion at 30 June 2021 (31 December 2020: £97.4 billion).
Statutory results
· IFRS loss before tax attributable to equity holders from continuing operations of £21 million (H1 2020: profit of £13 million) given the impact that rising equity markets have on policyholder tax accounting recognition.
· Basic (loss)/earnings per share from continuing operations of (0.8) pence (H1 2020: 0.6 pence).
· Diluted (loss)/earnings per share from continuing operations of (0.8) pence (H1 2020: 0.6 pence).
· Solvency II ratio of 203% after payment of the recommended interim dividend (December 2020: 217%).
Strategic progress
· Successful completion of asset, client and adviser migration onto the new UK platform technology in February 2021. Decommissioning of legacy systems underway.
· Announced sale of Quilter International approved by shareholders in June 2021. Completion subject to regulatory approvals and is expected to occur during Q4 2021.
· Capital Markets Day planned for 3 November 2021.
Paul Feeney, Chief Executive Officer, said:
I am pleased with our Interim results which demonstrate strong growth in flows across our business, with a material improvement from our new platform following our final migration of clients and advisers in February. This improving momentum sets us up well to achieve our medium-term target of 6% net flows from 2022 onwards. With the sale of Quilter International, our results demonstrate good early progress on our more focused, UK-based strategic path and gives a taste of what we know our business can deliver in the future.
As well as making important progress on our strategic initiatives, we also delivered robust financial results, with further operating efficiency improvements from our Optimisation initiatives. We are ahead of where we planned to be at this stage and are on track to meet our operating margin targets of 25% in 2023 and 30% by 2025. With the platform at the core of our business, we are well placed to deliver faster growth and we look forward to updating the market on our plans at our Capital Markets Day on 3 November 2021.
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Quilter highlights from continuing operations1 |
H1 2021 |
H1 2020 |
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Assets and flows |
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AuMA (£bn)2 |
104.8 |
88.3 |
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Gross sales (£bn)2 |
6.6 |
4.6 |
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NCCF (£bn)2 |
2.1 |
0.9 |
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NCCF/opening AuMA2 |
4% |
2% |
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Integrated net inflows (£bn)2 |
2.0 |
1.3 |
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Productivity (£m)2,3 |
2.2 |
1.5 |
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Asset retention2 |
91% |
92% |
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Profit & loss |
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IFRS (loss)/profit before tax attributable to equity holders from continuing operations (£m)2 |
(21) |
13 |
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IFRS (loss)/profit after tax from continuing operations (£m) |
(13) |
11 |
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Adjusted profit before tax (£m)2 |
56 |
47 |
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Operating margin2 |
18% |
17% |
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Revenue margin (bps)2 |
48 |
51 |
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Return on equity2 |
7.3% |
4.5% |
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Adjusted diluted earnings per share from continuing operations (pence)2 |
3.3 |
2.2 |
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Basic (loss)/earnings per share from continuing operations (pence) |
(0.8) |
0.6 |
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Non-financial |
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Restricted Financial Planners ("RFPs")4 |
1,701 |
1,808 |
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Investment Managers ("IMs")4 |
168 |
169 |
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Quilter highlights from continuing operations including Quilter International |
H1 2021 |
H1 2020 |
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Assets and flows |
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AuMA (£bn)2 |
126.6 |
107.4 |
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Gross sales (£bn)2 |
7.7 |
5.4 |
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NCCF (£bn)2 |
2.5 |
1.1 |
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NCCF/opening AuMA2 |
4% |
2% |
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Integrated net inflows (£bn)2 |
1.9 |
1.4 |
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Asset retention2 |
91% |
92% |
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Profit & loss |
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IFRS profit after tax (£m) |
20 |
43 |
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Adjusted profit before tax (£m)2 |
85 |
71 |
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Operating margin2 |
24% |
21% |
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Revenue margin (bps)2 |
48 |
52 |
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Adjusted diluted earnings per share (pence)2 |
5.0 |
3.5 |
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Basic earnings per share (pence) |
1.2 |
2.4 |
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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 (H1 2020: £24 million). Adjusted diluted EPS for Quilter International in H1 2021 was 1.7 pence per share (H1 2020: 1.3 pence per share). |
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2 Alternative Performance Measures ("APMs") are detailed and defined on pages 4 to 7. |
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3 Productivity is the measure of the value created by integrated net inflows (annualised) from our advice business per average Restricted Financial Planner. |
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4 Closing headcount as at 30 June. Adjusted profit presented in this announcement Adjusted profit is presented in this announcement in a number of ways, to provide readers with a view of adjusted profit for the Group excluding Quilter International (on a continuing basis) and for the total Group (on a continuing and discontinued basis). A full reconciliation of these views is provided on page 16 and definitions of adjusted profit are explained on page 4. IFRS accounting standards require £5 million of costs (H1 2020: £9 million), previously reported as part of Quilter International, to be disclosed within continuing operations, as these costs do not transfer to Utmost Group on completion. Adjusted profit before tax is presented both before and after the reallocation of these costs in this announcement. These costs are expected to be incurred in 2022 to provide services to Utmost Group under the Transitional Services Agreement, with corresponding income to cover these costs .
Alternative Performance Measures ("APMs") We assess our financial performance using a variety of measures including APMs, as explained further on pages 4 to 7. In the headings and tables presented from page 11 onwards, these measures are indicated with an asterisk: *.
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Quilter plc results for the six months ended 30 June 2021
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Investor Relations |
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John-Paul Crutchley |
UK |
+44 77 4138 5251 |
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Keilah Codd |
UK |
+44 77 7664 9681 |
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Media |
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Tim Skelton-Smith |
UK |
+44 78 2414 5076 |
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Camarco |
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Geoffrey Pelham-Lane |
UK |
+44 77 3312 4226 |
Paul Feeney, CEO, and Mark Satchel, CFO, will host a virtual presentation and Q&A session for investors and analysts at 08:15am (GMT) today, 11 August 2021, accessible via our website.
Live and on-demand: www.quilter.com/investor-relations
Alternatively, if you would like to join the presentation and Q&A via the telephone, please use the numbers below. We strongly advise dialling-in five to ten minutes prior to the start of the presentation.
To join by telephone:
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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 |
19290821# |
Note: Neither the content of the Company's website nor the content of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement .
Disclaimer
This announcement may contain certain forward-looking statements with respect to certain Quilter plc's plans and its current goals and expectations relating to its future financial condition, performance, and results.
By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Quilter plc's control including amongst other things, international and global economic and business conditions, the implications and economic impact of the COVID-19 pandemic, the implications and economic impact of several scenarios of the UK's future relationship with the EU in relation to financial services, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Quilter plc and its affiliates operate. As a result, Quilter plc's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Quilter plc's forward-looking statements.
Quilter plc undertakes no obligation to update the forward-looking statements contained in this announcement or any other forward-looking statements it may make.
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures. APMs are not defined by the relevant financial reporting framework, which for the Group is IFRS, but we use them to provide greater insight into the financial performance, financial position and cash flows of the Group and the way it is managed.
APMs should be read together with the Group's consolidated financial statements, which include the Group's income statement, statement of financial position and statement of cash flows, which are presented on pages 31 to 35.
Further details of APMs used by the Group in its financial review are provided below. The Group's APMs have not changed due to the adoption of new accounting standards during the period, as disclosed in note 1 to the condensed consolidated interim financial statements.
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APM |
Definition |
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Adjusted profit before tax |
Adjusted profit before tax for the Group represents the Group's IFRS profit, adjusted for key items, and excludes non-core operations, as detailed on page 41 in the consolidated financial statements. Due to the nature of the Group's businesses, management believe that adjusted profit before tax is an appropriate basis by which to assess the Group's underlying operating results as it enhances comparability and understanding of the financial performance of the Group. Adjusted profit before tax is presented for the continuing Group (excluding Quilter International), for discontinued operations (Quilter International), and for the total Group for continuing and discontinued operations. IFRS accounting standards require £5 million of costs (H1 2020: £9 million), previously reported as part of Quilter International, to be disclosed within continuing operations, as these costs do not transfer to Utmost Group on completion. Adjusted profit before tax is presented both before and after the reallocation of these costs in this announcement. These costs are expected to be incurred in 2022 to provide services to Utmost Group under the Transitional Services Arrangement, with corresponding income to cover these costs. A detailed reconciliation of the adjusted profit before tax metrics presented, and how these reconcile to IFRS, is provided on page 16. Adjusted profit before tax is referred to throughout the Chief Executive Officer's statement and financial review, with comparison to the prior period explained on page 13 . A reconciliation from each line item on the IFRS income statement to adjusted profit before tax is provided in note 5(c) to the consolidated financial statements on page 43 . |
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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 do 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 interim financial statements on page 43. |
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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 entities to match against related unit-linked liabilities in respect of clients' policies, and for which the company charges fees to clients. As such, policyholder tax can be a charge or credit in any period depending on underlying market movements on those assets held to cover linked liabilities. Shareholder tax is the remaining tax after deducting policyholder tax and is more reflective of the profitability of the entity. This metric is included on the face of the Group's income statement on page 31 and is included in the adjusted profit before tax to IFRS profit after tax reconciliation in note 5(a) to the condensed consolidated interim financial statements. |
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Revenue margin (bps) |
Revenue margin represents net management fees, divided by average AuMA. Management uses this APM as it represents the Group's ability to earn revenue from AuMA. Revenue margin by segment and for the Group is explained on page 12 of the financial review. |
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Operating margin |
Operating margin represents adjusted profit before tax divided by total net fee revenue. Management 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 sales |
Gross sales are the gross client cash inflows received from customers during the period and represent our ability to increase AuMA and revenue. Gross sales are disclosed by business in the supplementary information on pages 23 to 27. |
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Gross outflows |
Gross outflows are the gross client cash outflows returned to customers during the period and results in a decrease to AuMA and revenue. Gross outflows are disclosed by business in the supplementary information on pages 23 to 27 . |
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Net client cash flows ("NCCF") |
NCCF is the difference between money received from and returned to customers during the relevant period for the Group or for the business indicated. This measure is a lead indicator of total net fee revenue. NCCF is referred to throughout this document, with a separate section in the financial review on pages 11 to 12 and is presented by business and segment in the supplementary information on pages 23 to 27. |
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Integrated net inflows |
Integrated net inflows are total NCCF from continuing operations, before intra-group eliminations that have flowed through two or more segments within the Group. It is a lead indicator of revenue generation driven by our integrated business model. Integrated net inflows are explained in the NCCF section of the financial review on page 12 . |
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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. For reporting, the Advice and Wealth Management segment presents Assets under Management and Wealth Platforms segment presents Assets under Administration. AuMA is referred to throughout this document, with a separate section in the financial review on page 12 and is presented by business and segment in the supplementary information on page 24. |
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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 interim 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 interim 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 interim financial statements. |
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Operating expenses |
Operating expenses represent the underlying costs for the Group, which are incurred to earn total net fee revenue and excludes the impact of material one-off items. 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 interim financial statements, and the adjusting items excluded from operating expenses are explained in note 5(b). Operating expenses are explained on page 14 of the financial review.
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Cash generation |
Cash generated from operations is calculated by removing non-cash generative items from adjusted profit before tax, such as deferrals required under IFRS to spread fee income and acquisition costs over the lives of the underlying contracts with customers. It is stated after deducting an allowance for net cash required to support the capital requirements generated by new business offset by a release of capital from the in-force book. Cash generation is explained on page 16 of the financial review. |
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Asset retention |
The asset retention rate measures our ability to retain assets from delivering good customer outcomes and investment performance. Asset retention reflects the annualised gross outflows of the AuMA during the period as a percentage of opening AuMA. Asset retention is calculated as: 1 - (annualised gross outflow divided by opening AuMA). Asset retention is provided for the Group on page 2 , and by segment on page 27. |
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NCCF/opening AuMA |
This measure is calculated as total NCCF annualised (as described above) divided by opening AuMA presented as a percentage. This metric is provided on page 2 . |
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NCCF/opening AuMA (excluding Quilter International) |
This measure is calculated as total NCCF annualised (as described above) divided by opening AuMA presented as a percentage. Quilter International is excluded from this metric due to the proposed sale to Utmost Group with an assumed completion date of 31 December 2021. This metric is provided on page 2. |
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Productivity |
Productivity is a measure of the value created by integrated net inflows from our advice business and is an indicator of the success of our integrated business model. Productivity is calculated as integrated net client cash flow (annualised) per average Restricted Financial Planner. Productivity is provided on pages 2, 12 and 27 . |
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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 52 and note 8 in the condensed consolidated interim financial statements. A continuing and discontinued view of diluted earnings per share has also been presented, and the calculation of all EPS metrics, in note 8 to the condensed consolidated interim 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 15. |
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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 interim financial statements. |
Chief Executive Officer's statement
Execution
After the broader challenges and market volatility of 2020, the first half of 2021 represented a welcome return to more normal market conditions with improving inflows and rising equity markets. Adapting to life with the pandemic continues to reshape the way we work, live, and go about our day-to-day activities. I am pleased to report that Quilter is fully open for business and continues to deliver for our clients, advisers, and wider stakeholders. We enjoyed a marked improvement in both gross and net flows while higher market levels were also accretive to total Assets under Management and Administration ("AuMA").
Over the first half of 2021, we continued to make good strides in progressing our strategic agenda to simplify our business, focused as one-Quilter, built to serve our core customer groupings. The most notable achievements included the completion of the final migration of customers and advisers onto our new platform technology in February, and the agreed sale of Quilter International to Utmost Group in April which was overwhelmingly approved by shareholders in June. Completion of this transaction, once regulatory approvals are in place, is anticipated in the fourth quarter of this year.
We will hold a Capital Markets Day on 3 November 2021 to showcase our strategy focused on growth and efficiency, together with detail on the principal customer segments by which our business will be managed from the beginning of 2022.
Business performance
We delivered improved profitability in 2021 while absorbing the unwind of the tactical cost savings implemented in 2020 and higher FSCS levies. We have been repositioning our advice business to ensure a greater focus on productivity. In addition, we expect to continue our investment in simplifying end to end processes and strengthening controls within our advice business. This has led to a decline in the number of advisers with an associated impact on revenues. I am therefore pleased with the 20% increase in our adjusted profit before tax for the first half of 2021 to £85 million, against £71 million in 2020. On a continuing basis (excluding Quilter International), adjusted profit increased by 19% to £56 million. The remainder of my comments on the financial performance of the business will focus on the total Quilter business, including Quilter International, and the subsequent financial review will split out continuing business financial performance with separate sections on the discontinued operations.
Overall AuMA increased to £126.6 billion at the end of June 2021 from £117.8 billion at 31 December 2020, with average AuMA, the principal driver of net management fee revenue, for the period of £121.1 billion, comfortably ahead of £105.1 billion in the first half of 2020.
Total net fee revenue of £357 million increased by £22 million reflecting higher AuMA partially offset by a mix-related decline in revenue margins. The growth in operating expenses in the first half was contained to £8 million to give total operating expenses of £272 million (H1 2020: £264 million), lower than the combined unwind of tactical cost saves and incremental FSCS levies, demonstrating that our cost discipline has been maintained through continued focus on Optimisation initiatives.
Our operating margin improved to 24% (H1 2020: 21%). We expect further normalisation of the cost base in the second half of the year, particularly as we start to return to a more normal working environment, and we are making good progress towards our stated 2023 and 2025 operating margin targets.
IFRS profit after tax was £20 million, compared to a profit of £43 million in the first half 2020. The profit after tax in H1 2020 was impacted by a £50 million favourable timing difference arising on tax credits driven by market losses. Under IAS12, the tax credit for losses is required to be recognised immediately through the IFRS policyholder tax credit, whereas tax credits within the life company technical provisions are recognised when future policyholder gains arise. As markets recovered in H2 2020, resulting in policyholder gains, £44 million of this timing difference unwound, with a further £4 million unwind during H1 2021.
Adjusted diluted earnings per share of 5.0 pence compared with 3.5 pence in the first half of 2020, supported by an ongoing reduction in the share count and the benefit of a lower than usual tax charge arising from the change in corporate tax rates in the UK announced by the Chancellor in 2021. This has resulted in a net deferred tax credit being recognised in our earnings in the first half. This is expected to normalise in the second half and the charge is anticipated to revert to our previous tax charge guidance. On an IFRS basis, we delivered basic EPS of 1.2 pence versus 2.4 pence per share for the comparable period of 2020 on the same basis. Period-end shares have declined by c.10% or 181 million shares since the beginning of 2020, reflecting our ongoing £375 million share buyback programme which is expected to complete later this year.
In line with the broad one third: two thirds dividend policy communicated at the time of our Listing, the Board considers it appropriate to declare a 2021 interim dividend of 1.7 pence per share, with the pay-out ratio in the upper half of our 40% to 60% target range. This compares to a 2020 interim dividend of 1.0 pence per share which was positioned at a conservative level given the substantial uncertainties prevailing at that 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. Our investment platform is central to our proposition, providing the tax efficient investment 'wrappers' and other functionality to meet both our client and their adviser needs, while linking advisers with our investment solutions and competitively priced third-party alternatives to deliver the outcomes sought by our clients. Confidence in our proposition is demonstrated through both the continued attraction to our solutions by financial advisers and increased integrated net inflows.
I am pleased with the early signs of stronger flows following the full migration of advisers and customers to our new platform in the first half of 2021. Gross client cash flows increased by 43% to £7.7 billion from £5.4 billion in the first half of 2020. We also experienced a substantial improvement in net flows. NCCF more than doubled to £2.5 billion versus £1.1 billion in the comparable period of 2020. This reflected broadly stable persistency in client assets across each of our businesses together with higher sales volumes. Within this, the overall level of Defined Benefit ("DB") to Defined Contribution ("DC") flows at £0.3 billion were lower than the comparable period of 2020 (£0.5 billion), with this continuing to be a modest proportion of our overall flows. Across the business, overall levels of client retention remained broadly stable at 91% versus 92% in 2020.
Following the completion of our platform migration in February, I was particularly pleased with the 50% increase in gross flows of £4.5 billion onto the Quilter Investment Platform in the period to end-June, coupled with the 80% increase in NCCF to £1.8 billion (£1.0 billion in 2020). This improvement reflects the broader capabilities and functionality of our new platform in supportive market conditions and provides a strong base from which we intend to accelerate flow momentum over the coming years.
Quilter Investors achieved broadly stable gross flows and improved net flows with better investment performance, notably in the Cirilium Active portfolios, delivering lower redemptions and an improvement in NCCF versus the prior period.
Quilter Cheviot delivered better retention levels and modestly higher gross sales which contributed to an improvement in net flows to £0.4 billion from £0.2 billion in the prior period. Across all our business capabilities, the remote working environment has posed the most significant challenges for Quilter Cheviot in terms of new client acquisition. We anticipate growth momentum will build as UK lockdown restrictions ease in the UK and other markets. We were delighted that the Quilter Cheviot Climate Assets fund reached its £200 million milestone in the period. Doubling its AuM in under 12 months, the sustainable fund's momentum underlines Quilter's ability to meet the specific wishes of clients who increasingly are seeking investments that generate more than just a financial return.
Quilter International delivered an improvement in NCCF with this supported by a particularly strong second quarter. Net flows of £0.4 billion were double that of the prior period.
Investment performance
Our investment propositions continued to deliver good investment performance for clients. Quilter Cheviot continued to outperform relevant ARC benchmarks, remaining principally first or second quartile, to the end of March 2021.
The medium and longer-term performance of Quilter Investors' multi-asset solutions has also remained good. The performance on the biggest range, Cirilium Active, has been excellent on a one-year view, with a strong rebound in performance since the market lows in March 2020. The repositioning of our managed portfolio solution, Wealth Select, to provide an additional proposition on our restricted adviser panel has been well received by clients and advisers. Wealth Select's performance remains strong over one, three and five years.
Transformation
Our transformation agenda remains firmly on track with its focus on:
Ø delivering a material improvement in client flows to the Quilter Investment Platform;
Ø repositioning our advice business through a focus on adviser productivity and continued investment to simplify end-to-end processes and strengthen controls;
Ø investing in efficiency and digital initiatives to improve productivity while making Quilter a simpler and more focused business; and
Ø improving operational leverage by scaling up our investment platform and investment solutions business.
In respect of our UK Platform Transformation Programme, while we are in the early days of being fully operational on the new platform, we are pleased with the level of engagement with the new platform. By way of example:
Ø over 2,700 firms on the platform have conducted more business with us in the first half of 2021 when compared with the first half of 2020;
Ø our enhanced discretionary investment management functionality enables advisers to efficiently outsource investment management through portfolios offered by around 60 investment managers, including Quilter Cheviot. The pace of adoption has been swift with an additional £2.4 billion of AuA switching from existing investments to using this capability, including £1.0 billion of AuA with investment managers added to the platform since the migration. This functionality is a key NCCF growth enabler allowing the platform to capitalise on the structural shift to outsourced portfolio management.
Ø 37% of new business flows in H1 2021 benefitted from our market-leading family linking platform functionality to join accounts and reduce charges.
At the beginning of 2021 we indicated that Quilter Financial Planning expected to shift its focus towards advisor productivity. We wish to ensure that restricted advisers within our network are fully aligned with our integrated proposition and that those advisers within the network who have remained independent have a pathway towards adopting restricted status where appropriate within a reasonable timeframe. Where this has not been the case, we have facilitated a number of departures and this has led to a decrease in the total numbers of Quilter restricted advisers from 1,842 at the end of December 2020 to 1,701 at the end of June 2021. Together with stronger markets, the corollary to this has been a marked improvement in productivity, with NCCF per adviser increasing to £2.2 million from £1.6 million and £1.5 million in the comparable periods of 2019 and 2020 respectively. While our work to reshape our Advice business is ongoing, we expect the rate of attrition in adviser numbers to reduce in the second half before returning to a growth path from 2022 onwards.
Overall Quilter Cheviot Investment Manager headcount eased modestly to reflect a couple of expected retirements. With the transfer of Quilter Private Client Advisers into Quilter Cheviot at the end of July 2021 to build out its multi-channel offering, Quilter Cheviot has 230 client facing professionals and we expect this number to gradually increase over time.
Our Optimisation programme continues to progress to plan. There are three strands to Optimisation: closer business integration, rationalising technology and discretionary spend, and process simplification. During the period, our new firm-wide general ledger, which replaced five previous separate general ledger systems, came on stream and will bring opportunity for continued efficiencies. By end-June, our net Optimisation run-rate savings increased by £11 million from the run-rate at the end of 2020. We realised a further £3 million saving in the first half against the 2018 cost baseline.
Responsible business and stewardship
Quilter is committed to responsible investment and earlier this year we updated our matrix for our restricted network advisers to incorporate ESG ratings and two specific ESG solutions, one of which was our own climate assets fund managed by Quilter Cheviot. As a result, ascertaining clients ESG preferences is now a core input into the advice process for our restricted advisers. Our investment teams are focused on incorporating ESG analysis into their investment processes. We continue to make good progress with ensuring that, where possible, all model holdings for equities and funds within Quilter Cheviot and Quilter Investors are appropriately evaluated against ESG metrics.
During the period, we have continued 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 has identified some instances of further unsuitable DB to DC advice given by Lighthouse advisers beyond that relating to British Steel Pension Scheme transfers. As a result of this, we have increased our provision by £7 million to cover the potential for additional remediation together with the associated costs. We expect the skilled persons review to conclude in the first half of 2022.
We were delighted to welcome Chris Samuel to the Board as an independent Non-executive Director from the beginning of July. Chris is also Chair of Quilter Financial Planning Limited and has joined both the Board Risk Committee and the Board Technology and Operations Committee. Chris' deep experience and expertise as an executive and as a Non-executive Director in the asset management industry will enable him to make a strong contribution to the deliberations of the Quilter Board.
Tazim Essani, who was appointed to the Quilter Board in March 2021, has agreed to act as the second designated Non-executive Director for employee engagement, with a particular focus on promoting diversity and inclusion. Tazim has also been appointed to the Board Audit Committee from 1 September 2021.
Outlook
Quilter remains well positioned in an industry with long-term secular growth prospects. We are pleased with progress made in executing our strategy to date, and remain on track to meet the operating margin targets set out with the announcement of the sale of Quilter International.
Market levels remain generally buoyant globally, supported by accommodative monetary policies which are likely to be withdrawn as economies and societies adjust to the post-pandemic world. More recently, we have experienced bouts of volatility reflecting uncertainty over the heightened US-China tensions, coupled with concerns over the direction of inflation and interest rates. This leaves us cautious on expectations of further substantial near-term market appreciation.
Mortgage and protection advice revenues in the first half benefitted from the acceleration in residential property transactions ahead of the withdrawal of measures to stimulate the UK housing market and so we expect a more muted contribution from this business activity in the second half. As previously guided, we also expect gradual mix-related revenue margin decline in Quilter Investors over time, reflecting client and adviser behaviour.
We remain focused on controlling costs through both our Optimisation programme and other management initiatives, with the full year out-turn for costs to be no higher than the £560 million guidance provided in March 2021, assuming broadly stable market levels and including Quilter International for the full year.
Completing the migration onto our new investment platform in February was a major milestone, strengthening the cohesion between our business capabilities, and will be a catalyst for faster growth. We are focused on improving operational efficiency and driving profit growth, and look forward to updating the market on plans at our Capital Markets Day on 3 November 2021.
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 and prior period comparative.
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including APMs, as explained further on pages 4 to 7 . In the headings and tables presented, these measures are indicated with an asterisk: *.
Key financial highlights
|
Quilter highlights from continuing operations1 |
|
H1 2021 |
H1 2020 |
|
|
|
|
|
|
Assets and flows |
|
|
|
|
|
|
|
|
|
AuMA (£bn)2 |
|
104.8 |
88.3 |
|
Gross sales (£bn)2 |
|
6.6 |
4.6 |
|
NCCF (£bn)2 |
|
2.1 |
0.9 |
|
Of which total integrated net inflows* |
|
2.0 |
1.3 |
|
Of which direct net inflows |
|
0.7 |
0.1 |
|
Of which eliminations |
|
(0.6) |
(0.5) |
|
NCCF/opening AuMA2 |
|
4% |
2% |
|
Productivity (£m)2,3 |
|
2.2 |
1.5 |
|
Asset retention2 |
|
91% |
92% |
|
|
|
|
|
|
Profit & loss |
|
|
|
|
|
|
|
|
|
IFRS (loss)/profit before tax from continuing operations attributable to equity holders (£m)2 |
|
(21) |
13 |
|
IFRS (loss)/profit after tax from continuing operations (£m) |
|
(13) |
11 |
|
Adjusted profit before tax (£m)2 |
|
56 |
47 |
|
Operating margin2 |
|
18% |
17% |
|
Revenue margin (bps)2 |
|
48 |
51 |
|
Return on equity2 |
|
7.3% |
4.5% |
|
Adjusted diluted EPS from continuing operations (pence)2 |
|
3.3 |
2.2 |
|
Basic (loss)/earnings per share from continuing operations (pence) |
|
(0.8) |
0.6 |
|
|
|
|
|
|
Non-financial |
|
|
|
|
|
|
|
|
|
Restricted Financial Planners ("RFPs")4 |
|
1,701 |
1,808 |
|
Investment Managers ("IMs")4 |
|
168 |
169 |
|
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 (H1 2020: £24 million). Adjusted diluted EPS for Quilter International in H1 2021 was 1.7 pence per share (H1 2020: 1.3 pence per share). |
|||
|
2 Alternative Performance Measures ("APMs") are detailed and defined on pages 4 to 7. |
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|
3 Productivity is the measure of the value created by integrated net inflows (annualised) from our advice business per average Restricted Financial Planner. |
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|
4 Closing headcount as at 30 June. |
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Overview
The Group delivered robust results for the first half of 2021, with significantly improved net client cash flows, supported by positive equity market movements during the period. The FTSE-100 index ended the period up 9% on closing 2020 levels, while the MSCI World index (GBP) was up 11% on the 2020 closing index value. In the first quarter of 2021, government bond yields saw divergent performance. US 10-year yields fell while yields rose in Europe resulting in weaker performance on the Group's AuMA.
Net client cash inflows were £2.1 billion for the period (H1 2020: £0.9 billion), with an increase in net inflows across all business lines. The Group experienced higher gross sales in H1 2021 driven by increased adviser activity on the Quilter Investment Platform. NCCF (annualised) as a percentage of opening AuMA was 4%, representing pleasing progress towards our 6% target. Detailed analysis on NCCF by business is shown in the supplementary information section of this announcement.
· Net inflows to Quilter Investors were up 33% on H1 2020 at £0.4 billion (H1 2020: £0.3 billion), driven by a decrease in gross outflows from Cirilium Active of £0.4 billion due to improved fund performance, offset by reduced gross sales to Cirilium Passive, Cirilium Blend and the Income range. Quilter Financial Planning attracted net inflows into Cirilium Blend, Cirilium Passive and WealthSelect during the period. Net inflows into WealthSelect via the Quilter Investment Platform were £0.9 billion, up on the prior period (H1 2020: £0.3 billion).
· Quilter Cheviot attracted net inflows of £0.4 billion (H1 2020: £0.2 billion), due to a general uplift in market confidence promoting higher levels of activity. The comparative performance of Quilter Cheviot was particularly dampened in the prior period by market uncertainty arising from COVID-19.
· Quilter Investment Platform recorded net inflows of £1.8 billion, up 80% on the prior period (H1 2020: £1.0 billion). The platform's enhanced proposition helped to drive a 50% increase in gross sales on the prior period, supported by strong momentum during the tax year end, with 37% of all new business flows utilising the family linking functionality of the platform to join accounts and reduce charges. Outflows during the period were higher than H1 2020 as investor sentiment generally improved leading to increased levels of client and adviser activity following a more muted period for outflows in 2020 given the prevailing equity market conditions.
Integrated net inflows of £2.0 billion were up 54% from H1 2020 (£1.3 billion). The restricted channel of Quilter Financial Planning accounted for £0.9 billion (H1 2020: £0.4 billion) of Quilter Investors' net flows, £0.9 billion (H1 2020: £0.7 billion) of Quilter Investment Platforms' net flows and £0.2 billion (H1 2020: £0.2 billion) of Quilter Cheviot net flows. The improvement in direct net inflows in H1 2021 compared to the prior period was primarily driven by an increase in external flows to Quilter Investment Platform and Quilter Cheviot.
Productivity* for Quilter Financial Planning was £2.2 million per RFP for the period (H1 2020: £1.5 million) with average net flows per adviser increasing across both Quilter Investors and Quilter Investment Platform. Net inflows to Quilter Investors have benefited from the addition of Wealth Select on to the Quilter Financial Planning investment matrix, driving an additional £0.3 billion of inflows. Net inflows to Quilter Investment Platform have delivered a 30% improvement between periods with NCCF up £0.2 billion, as a result of adviser productivity.
The Group's AuMA ended the period at £104.8 billion, an 8% increase from the opening position at the start of 2021. This increase comprised £5.3 billion of positive market movements as a consequence of the equity market rally earlier this year, and positive net client cash flow of £2.1 billion. Quilter Investors' AuM was £24.8 billion, up 7% since the start of the year (2020: £23.2 billion). The Cirilium fund range AuM increased by 7% to £13.1 billion at the end of June 2021 (2020: £12.3 billion), with £0.1 billion of net inflows and £0.7 billion of positive market movements. Within the Cirilium fund range, net outflows from Cirilium Active to Cirilium Passive and Cirilium Blend solutions continued, albeit at lower volume levels than those experienced in 2020. The WealthSelect fund range AuM increased by 15% to £9.1 billion at the end of June 2021 (2020: £7.9 billion) with £0.9 billion of net inflows and £0.3 billion of positive market movement. Quilter Cheviot AuM of £27.0 billion increased by 7% in the period, primarily as a result of positive market movements and net inflows of £0.4 billion. Quilter Investment Platforms' AuA ("Assets under Administration") increased by 9% to £68 billion, driven by increases in the market value of assets and strong net inflows of £1.8 billion. Net inflows of £0.9 billion were received from Quilter Financial Planning and total assets held by Quilter Financial Planning clients on the platform was £10.8 billion, an increase of £1.1 billion (11%) since the start of the year. Net inflows of £0.9 billion were received from Independent Financial Advisers during the period (H1 2020: £0.3 billion) due to increased general market activity and the successful launch of the new platform which has been operating for all clients and advisers from February 2021.
The Group's revenue margin * of 48 bps was 3 bps lower than the prior period (H1 2020: 51 bps), with Quilter Investors' revenue margin decreasing to 51 bps (H1 2020: 53 bps) due to the anticipated increased AuM concentration in lower revenue margin products. Quilter Cheviot's revenue margin decreased by 1 bp to 72 bps, primarily due to a decrease in commission and contract charges. Within Quilter Investment Platform the revenue margin decreased by 2 bps to 27 bps, due to the reprice that was implemented in April 2020, an uplift in assets arising from higher market levels which contributes incremental revenue at lower pricing tiers, and expected lower margins on net inflows, particularly those from our restricted advisers which contribute to integrated flows. Gross outflows are predominantly from older, higher margin channels, and new business coming on the platform are at lower margins through the restricted and Independent Financial Adviser channels.
Adjusted profit before tax increased by 19% to £56 million, primarily due to increases in revenue generated from the higher average AuMA levels experienced in H1 2021 across the Group. Operating expenses in H1 2021 of £248 million were 7% higher than the prior period driven by increases in FSCS levies and regulatory fees and higher variable compensation, partially offset by continued reductions in staff, travel, entertainment and marketing costs. The Group's overall operating margin increased to 18% (H1 2020: 17%) due to the impact of increases in revenue of 9%, being partially offset by a 7% rise in operating expenses in the period.
The Group's IFRS loss after tax from continuing operations was £13 million, compared to a profit of £11 million in H1 2020. The profit after tax in H1 2020 was impacted by a £50 million favourable timing difference arising on tax credits driven by market losses. Under IAS12, the tax credit for losses is required to be recognised immediately through the IFRS policyholder tax credit, whereas tax credits within the life company technical provisions are recognised when future policyholder gains arise. As markets recovered in H2 2020, resulting in policyholder gains, £44 million of this timing difference unwound, with a further £4 million unwind during H1 2021.
Adjusted diluted earnings per share were 50% above previous period at 3.3 pence (H1 2020: 2.2 pence).
Discontinued operations
The following table presents key financial metrics relating to Quilter International, for the periods indicated.
Key financial highlights |
| H1 2021 | H1 2020 | % change |
|
|
|
|
|
Quilter International |
|
|
|
|
Net management fees (£m)* |
| 47 | 53 | (11%) |
Other revenue (£m)* |
| 6 | 3 | 100% |
Total net fee revenue (£m)* |
| 53 | 56 | (5%) |
|
|
|
|
|
NCCF (£bn)* |
| 0.4 | 0.2 | 100% |
Closing AuA (£bn)* |
| 23.2 | 20.4 | 14% |
Average AuA (£bn)* |
| 22.3 | 19.9 | 12% |
Revenue margin (bps)* |
| 42 | 53 | (11) bps |
Asset retention (%)* |
| 94% | 94% | - |
On 1 April 2021, the Group announced the proposed disposal of Quilter International to Utmost Group for approximately £483 million. Quilter International has subsequently been classified as a discontinued operation.
Total net fee revenue decreased 5% to £53 million in the period, due to continued outflows from higher margin products compared to H1 2020. Quilter International's net inflows doubled in H1 2021 to £0.4 billion (H1 2020: £0.2 billion) due to a marked increase in new business written in high value single premium policies. The average revenue margin on the high value single premium policies was less than 10 bps for gross new business and top ups in the period. Quilter International AuA of £23.2 billion is up 6% from the start of the year (FY 2020: £21.8 billion), primarily due to strong market growth and net inflows. Revenue margin declined in Quilter International when comparing period to period, partly as a consequence of charges on AuA being fixed in quantum and partly due to higher revenue margin AuA outflows not being fully replaced, in revenue terms, by lower margin AuA inflows.
Financial performance by segment
Adjusted profit before tax reflects the Board's view of the underlying performance of the Group and is used for management decision making and internal performance management. Adjusted profit before tax is a non-GAAP measure which adjusts IFRS profit for specific items, as detailed in note 5 of the condensed consolidated interim financial statements on page 41, and is the profit measure presented for the Group's segmental reporting.
Financial performance from continuing operations and Quilter International | Advice & Wealth Management | Wealth Platforms | Head Office | Continuing Operations | Discontinued Operations | Total Group |
| |
| ||||||||
Net management fee* | 154 | 88 | - | 242 | 47 | 289 |
| |
Other revenue* | 59 | 3 | - | 62 | 6 | 68 |
| |
Total net fee revenue* | 213 | 91 | - | 304 | 53 | 357 |
| |
Operating expenses* | (168) | (66) | (14) | (248) | (24) | (272) |
| |
Adjusted profit before tax* | 45 | 25 | (14) | 56 | 29 | 85 |
| |
Tax |
|
|
| 1 | (1) | - |
| |
Adjusted profit after tax* |
|
|
| 57 | 28 | 85 |
| |
|
|
|
|
|
|
|
| |
Operating margin (%)* | 21% | 27% |
| 18% | 55% | 24% |
| |
Revenue margin (bps)* | 62 | 27 |
| 48 | 42 | 48 |
| |
|
|
|
|
|
|
|
| |
Financial performance from continuing operations and Quilter International | Advice & Wealth Management | Wealth Platforms | Head Office | Continuing Operations | Discontinued Operations | Total Group |
| |
| ||||||||
Net management fee* | 138 | 82 | - | 220 | 53 | 273 |
| |
Other revenue* | 59 | (2) | 2 | 59 | 3 | 62 |
| |
Total net fee revenue* | 197 | 80 | 2 | 279 | 56 | 335 |
| |
Operating expenses* | (156) | (57) | (19) | (232) | (32) | (264) |
| |
Adjusted profit before tax* | 41 | 23 | (17) | 47 | 24 | 71 |
| |
Tax |
|
|
| (7) | - | (7) |
| |
Adjusted profit after tax* |
|
|
| 40 | 24 | 64 |
| |
|
|
|
|
|
|
|
| |
Operating margin (%)* | 21% | 29% |
| 17% | 43% | 21% |
| |
Revenue margin (bps)* | 64 | 29 |
| 51 | 53 | 52 |
|
Total net fee revenue*
The Group's total net fee revenue on a continuing basis increased by 9% to £304 million (H1 2020: £279 million) due tohigher average AuMA of £100.2 billion (H1 2020: £86.5 billion) across the Group, resulting from the positive equity market performance and strong mortgage advice volumes within Quilter Financial Planning. The blended revenue margin, calculated with reference to net management fees, for the Group decreased by 3 bps to 48 bps.
Total net fee revenue for the Advice and Wealth Management segment increased by 8% during the period, to £213 million (H1 2020: £197 million), principally due to increased levels of average AuM which increased 15% over the period to £49.7 billion (H1 2020: £43.3 billion). This resulted in £154 million of net management fees, an increase of 12% (H1 2020: £138 million). Quilter Investors' net management fee revenue increased by £7 million to £61 million from the prior period (H1 2020: £54 million) as a result of higher levels of AuM, partially offset by the shift to lower margin products. Total net fee revenue within Quilter Cheviot was 8% higher at £93 million (H1 2020: £86 million), with revenue generated from higher average AuM being partially offset by reduced levels of commissions as the proportion of clients on a fee-only model continues to increase. Other revenue of £59 million was in line with prior period (H1 2020: £59 million). Within the revenue generated by advice, recurring and fixed fees increased by £3 million against prior period, while revenues generated through initial fees reduced marginally on that of the prior period.
Total net fee revenue for the Wealth Platforms segment was £91 million, up 14% from the prior period (H1 2020: £80 million), principally due to the impact of higher levels of assets. Average AuA increased £10 billion in H1 2021 resulting in an additional £6 million of net management fees, which is partially offset by lower margins due to the continuing trend of new business margins being lower than the existing back book rates, an increase in the proportion of assets from Quilter Financial Planning clients, and the platform reprice implemented in April 2020. The improvement in other revenue is mainly a consequence of the recognition of an increase in the amortisation period for deferred acquisition costs resulting from improved persistency of client assets over the last number of years.
Operating expenses*
Operating expenses from continuing business increased by £16 million to £248 million (H1 2020: £232 million). The Group incurred £10 million of additional FSCS levy and regulatory costs compared to the prior year, with higher variable compensation accruals of £11 million as a result of improved business performance in 2021. These cost increases were partially mitigated by continuing suppressed discretionary spend which has not yet returned to pre pandemic levels in H1 2021.Excluding Quilter International, the operating margin saw a one percentage point improvement. The decline in the first half relative to the pro forma 2020 out-turn reflected the timing of the FSCS levy which principally occurs in the first half. We expect improvement in the second half operating margingiven the first half weighting of this expense item.
The Group delivered a further £3 million of cost reduction in H1 2021 against the 2018 cost base as part of the Optimisation initiatives, with £11 million of run-rate benefit. Included within operating expenses, and as described further below, are £5 million of costs that were allocated to Quilter International in 2020 and which will continue to be incurred by the continuing business after the anticipated completion of the Quilter International disposal.
| H1 2021 | H1 2020 | ||||
Operating expense split (£m) | Continuing Operations | Discontinued Operations | Total Group | Continuing Operations | Discontinued Operations | Total Group |
|
|
|
|
|
|
|
Front office and operations | 93 | 9 | 102 | 94 | 13 | 107 |
IT and development | 43 | 6 | 49 | 39 | 8 | 47 |
Support functions | 31 | 6 | 37 | 40 | 7 | 47 |
Property | 17 | 1 | 18 | 16 | 2 | 18 |
Regulatory fees and levies | 25 | - | 25 | 15 | - | 15 |
Variable compensation | 39 | 2 | 41 | 28 | 2 | 30 |
Operating expenses* | 248 | 24 | 272 | 232 | 32 | 264 |
Discontinued Operations relate to the sale of Quilter International, where operating expenses have decreased by 25% to £24 million (H1 2020: £32 million). Operating expenses have decreased in front office and operations as a consequence of reduced discretionary spend in travel, entertainment and marketing due to ongoing restrictions arising from COVID-19 and a reduction in legal fee provisions held. Quilter International's cost base now purely relates to its direct costs and those that can be reclaimed under the TSA post the anticipated disposal of the business and excludes allocated costs that would have previously been borne by Quilter International. Therefore, the continuing business is absorbing approximately £5 million of costs which predominantly relate to IT and property expenses.
Front office and operations expenses for continuing operations decreased by 1% to £93 million (H1 2020: £94 million), primarily due to a reduction in discretionary spend associated with travel, entertainment and marketing given the ongoing restrictions in the UK arising from COVID-19. This impact was partially experienced in the comparative period, with these restrictions being effective from March 2020. Quilter Financial Planning front office and operations costs decreased in H1 2021 as a result of actions taken to reduce the number of lower producing financial planners,whilst a further £2 million was invested in Quilter Financial Planning as we continue to build out systems, processes and controls.
IT and development expenses increased by 10% to £43 million (H1 2020: £39 million), reflecting the increase in allocated costs to the continuing business mentioned above as well as continued investment in the business, offset by delivery of Optimisation efficiencies.
Support functions expenses decreased by 23% to £31 million (H1 2020: £40 million) driven by continued savings realised as part of the Optimisation programme and H1 2020 includes one-off costs relating to the COVID-19 response.
Property costs remain broadly in line at £17 million (H1 2020: £16 million), reflecting a reduction in London property costs offset by increased facilities management costs in ensuring our workplaces are COVID-19 compliant.
Regulatory fees and levies, which includes the Group's FSCS levies and FCA fees, have increased by 67% to £25 million (H1 2020: £15 million) in line with the substantial increases in levies across the industry and, with the exception of supplementary levies which will be reported in H2 2021, represents the full year charge in line with generally accepted accounting principles.
Variable compensation costs increased by 39% to £39 million reflecting the improved business performance in 2021 compared to the impact experienced in 2020 as a consequence of COVID-19.
Taxation
The effective tax rate ("ETR") on adjusted profit before tax for the Group's continuing operations was -1% (2020: 16%). The Group's ETR is lower than the UK corporation tax rate of 19% principally due to the change in the UK corporation tax rate from 1 April 2023 from 19% to 25% which resulted in a rebase in the Group's deferred tax assets and liabilities. This had a net positive impact to the tax expense as a consequence of the Group currently being in a net deferred tax asset position. The Group's ETR is dependent on a number of factors, including future changes in the UK corporation tax rate. The Group's IFRS income tax expense on continuing operations was a charge of £40 million for the period ended 30 June 2021, compared to a credit of £36 million for the prior period. The income tax expense or credit can vary significantly between periods 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. We usually anticipate a policyholder tax charge to arise in a period of strong market performance (as was the situation for H1 2021), and would generally expect a policyholder tax credit to arise during a period of market decline (as was the situation in H1 2020). 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 condensed consolidated interim financial statements.
Earnings Per Share ("EPS")
Basic EPS for H1 2021 was 1.2 pence (H1 2020: 2.4 pence). Basic EPS is based on the Group's IFRS profit (including both continuing and discontinued operations). For H1 2021, the basic EPS relating to continuing business was (0.8) pence (H1 2020: 0.6 pence), and 2.0 pence relates to discontinued operations (H1 2020: 1.8 pence). Discontinued operations include profit attributable to Quilter International. The average number of shares in issue used for the basic EPS calculation was 1,676 million (H1 2020: 1,801 million), after the deduction of own shares held in Employee Benefit Trusts ("EBTs") and consolidated funds of 79 million (H1 2020: 78 million). The reduction in the number of shares in issue in the period is due to the share buyback programme, which commenced in 2020. At 30 June 2021, a total of 181 million shares had been bought and cancelled by Quilter plc.
The average number of shares in issue used for the diluted EPS calculation was 1,712 million (H1 2020: 1,837 million). This includes the dilutive effect of shares and options awarded to employees under share-based payment arrangements of 36 million (H1 2020: 36 million). The dilutive effect of share awards has continued to increase due to more share options being awarded to employees.
The Board continues to support the existing dividend policy which is a pay-out ratio towards the upper end of the pay-out ratio range of 40%-60% (on an annual basis), and declared an interim dividend of 1.7 pence per share in line with the policy. A cautious approach was adopted for the H1 2020 interim dividend of 1.0 pence per share reflecting the uncertain market conditions that existed at the point of the dividend declaration and this serves to distort the comparison between periods for the interim dividend.
Optimisation
The Optimisation programme has delivered further efficiencies and improvements in operational performance for the Group through greater technology utilisation, integration and simplification activity. During the first half of 2021 we successfully deployed our new finance, HR and procurement modules as part of our general ledger consolidation and modernisation activity. Efficiency gains and further technical releases will follow during 2021 and the early part of 2022. We continue to consolidate our technology estate with work commencing on our data centre, telephony and data reporting solutions. In Quilter Financial Planning the streamlining and improvement in productivity of the business has delivered cost savings in the first half of the year.
The Group delivered £3 million of sustainable cost savings in H1 2021 against the 2018 cost base, with £11 million of annualised run-rate benefit. With the addition of benefits arising from prior years, the total run-rate delivered is £57 million and associated implementation costs since inception are £69 million. The Optimisation programme remains on track to deliver its target of annualised run-rate cost savings of £65 million by mid-2022, with an anticipated total associated delivery cost of £91 million.
Lighthouse pension transfer advice provision
As reported in the Group's 2020 Annual Report, a provision has been recognised in relation to a number of complaints received on pension transfer advice provided by Lighthouse for British Steel Pension Scheme members, and results to date from the skilled persons review into historical advice provided by Lighthouse prior to the Group's acquisition. All the advice provided related to transfers before the Group's acquisition of Lighthouse.
A total provision of £35 million (30 June 2020: £29 million, 31 December 2020: £28 million) has been calculated for the potential redress of British Steel cases and other pension transfer cases, subject to the skilled person review, and includes anticipated costs of legal and professional fees associated with the redress activity. The provision was increased by £7 million during 2021, which has been recognised within expenses of the Group (and excluded from adjusted profit before tax), including results on non-British Steel Pension Scheme member advice included in the skilled person's review. We anticipate the skilled person review will complete during H1 2022.
The final costs of redress for cases upheld will depend on specific calculations on a case-by-case basis, which will be impacted by the final detailed redress methodology to be finalised between the skilled person and the FCA, and also impacted by market movements and other parameters affecting the defined contribution scheme asset. Final redress costs are therefore exposed to volatility from these movements which may result in final settlement cost varying from the amounts currently provided.
Further details are provided in notes 5(b)(vi) and 17 to the financial statements.
Reconciliation of adjusted profit before tax* to IFRS profit
Adjusted profit before tax for the Group on a continuing basis was £56 million (H1 2020: £47 million).
IFRS accounting standards require £5 million of costs (H1 2020: £9 million), previously reported as part of Quilter International, to be disclosed within continuing operations, as these costs do not transfer to Utmost Group on completion. Adjusted profit before tax is presented both before and after the reallocation of these costs in this announcement. These costs are expected to be incurred in 2022 to provide services to Utmost Group under the Transitional Services Agreement, with corresponding income to cover these costs.
Reconciliation of adjusted profit before tax to IFRS (loss)/profit after tax | For the six months ended 30 June 2021
| For the six months ended 30 June 2020
| ||||
£m | Continuing Operations | Discontinued Operations | Total | Continuing Operations | Discontinued Operations | Total |
Advice and Wealth Management | 45 | - | 45 | 41 | - | 41 |
Wealth Platforms | 25 | 29 | 54 | 23 | 24 | 47 |
Head Office | (14) | - | (14) | (17) | - | (17) |
Adjusted profit before tax* | 56 | 29 | 85 | 47 | 24 | 71 |
Reallocation of Quilter International costs | (5) | 5 | - | (9) | 9 | - |
Adjusted profit before tax after reallocation* | 51 | 34 | 85 | 38 | 33 | 71 |
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Adjusting for the following: |
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Impact of acquisition and disposal related accounting | (23) | - | (23) | (23) | - | (23) |
Loss on business disposals | - | - | - | - | (1) | (1) |
Business transformation costs | (32) | - | (32) | (39) | - | (39) |
Managed Separation costs | (1) | - | (1) | - | - | - |
Finance costs | (5) | - | (5) | (5) | - | (5) |
Policyholder tax adjustments | (4) | - | (4) | 47 | - | 47 |
Customer remediation | (7) | - | (7) | (5) | - | (5) |
Total adjusting items before tax | (72) | - | (72) | (25) | (1) | (26) |
(Loss)/profit before tax attributable to equity holders* | (21) | 34 | 13 | 13 | 32 | 45 |
Tax attributable to policyholder returns | 48 | - | 48 | (38) | - | (38) |
Income tax (expense)/credit | (40) | (1) | (41) | 36 | - | 36 |
(Loss)/profit after tax2 | (13) | 33 | 20 | 11 | 32 | 43 |
1Discontinued operations includes the results of Quilter International.
2IFRS (loss)/ profit after tax.
Adjusted profit before tax* reflects the profit from the Group's core operations and is calculated by making certain adjustments to IFRS profit to reflect the Directors' view of the Group's underlying performance. Details of these adjustments are provided in note 5 of the condensed consolidated interim financial statements.
Business transformation costs of £32 million in H1 2021 (H1 2020: £39 million) include £22 million (H1 2020: £20 million) incurred on the UK Platform Transformation Programme and £10 million of costs (H1 2020: £19 million) in relation to the Optimisation programme.
The customer remediation adjustment of £7 million in H1 2021 relates to a redress provision on advice in Lighthouse as part of the ongoing skilled person review. £5 million recognised in H1 2020 related solely to the impact of post-acquisition market movements on the British Steel complaints provision relating to Lighthouse.
Policyholder tax adjustments were a debit of £4 million for H1 2021 (H1 2020: credit of £47 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 (loss)/profit before tax attributable to equity holders.
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 81% of adjusted profit after tax over H1 2021 (H1 2020: 83%).
Review of financial position
Capital and liquidity
In this section, review of financial position, unless indicated otherwise, all results are presented including Quilter International in both the current and prior periods comparative. The Solvency II information for the six months to 30 June 2021 contained in this results disclosure has been prepared on a pro forma basis and has not been audited.
Solvency II
The Group's Solvency II surplus is £947 million at 30 June 2021 (31 December 2020: £1,021 million), representing a Solvency II ratio of 203% (31 December 2020: 217%) before Tranche 4 of the share buyback.
The Group's Solvency II capital position is stated after allowing for the impact of the foreseeable dividend payment of £28 million (31 December 2020: £61 million).
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| At | At |
|
| 30 June | 31 December |
Group pro forma capital (£m) |
| 20211 | 20202 |
Own funds |
| 1,866 | 1,897 |
Solvency capital requirement ("SCR") |
| 919 | 876 |
Solvency II surplus |
| 947 | 1,021 |
Solvency II coverage ratio |
| 203% | 217% |
1Based on preliminary estimates and including the impact of year to date profits. |
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2As disclosed in the Group Solvency and Financial Condition Report for 2020. |
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The 14-percentage point decrease in the Group Solvency II ratio from the 31 December 2020 position is primarily due to the capital movements associated with the £100 million share buyback (Tranches 3a and 3b), the net profit recognised in the period and changes in capital requirements for the Group.
The Board believes that the Group Solvency II surplus includes sufficient free cash and capital to complete all committed strategic investments. Quilter expects to continue to maintain a solvency position significantly in excess of its internal target in the near term as a consequence of the surplus capital still intended to be returned to shareholders arising from the sale of Quilter Life Assurance.
On 1 April 2021, the Group announced the proposed sale of Quilter International for consideration of approximately £483 million. The Board is minded to undertake a capital distribution to shareholders of the majority of the net surplus cash proceeds from the sale. Quilter will continue to engage with its shareholders on the range of strategic growth opportunities available to the Group and the optimum means of returning capital prior to reaching any conclusions in this regard. Any such distribution will be subject to normal regulatory approvals.
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.
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| At | At |
|
| 30 June | 31 December |
Group own funds (£m) |
| 2021 | 2020 |
Tier 11 |
| 1,659 | 1,688 |
Tier 22 |
| 207 | 209 |
Total Group Solvency II own funds |
| 1,866 | 1,897 |
1All Tier 1 capital is unrestricted for tiering purposes. | |||
2Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond, which was issued at £200 million in February 2018. | |||
The Group SCR is covered by Tier 1 capital, which represents 181% of the Group SCR of £919 million. Tier 1 capital represents 89% of Group Solvency II own funds. Tier 2 capital represents 11% of Group Solvency II own funds and 22% of the Group surplus.
Dividend
The Board declared an interim dividend for 2021 of 1.7 pence per share at a total cost of £28 million. The interim dividend will be paid on 20 September 2021 to shareholders on the UK and South African share registers on 3 September 2021. For shareholders on our South African share register an interim dividend of 34.88104 South African cents per share will be paid on 20 September 2021, using an exchange rate of 20.51826.
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 cash flows associated with these companies will differ markedly from those disclosed in the statutory statement of cash flows, which comprises flows from the entire Quilter plc Group including policyholder movements.
The holding company cash statement illustrates cash received from the key trading entities within the business together with other cash receipts, and cash paid out in respect of corporate costs and capital servicing (including interest and dividends). Other capital movements, including those in respect of acquisitions and disposals together with funding for ongoing business requirements, are also included. It is an unaudited non-GAAP analysis and aims to give a more illustrative view of business cash flows as they relate to the Group's holding companies compared to the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7 (statement of cash flows) and includes commingling of policyholder related flows.
£m |
|
| H1 2021 | FY 2020 |
Opening cash at holding companies at 1 January |
|
| 517 | 815 |
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|
|
Single Strategy business sale - (warranty)/deferred consideration |
|
| (2) | 7 |
Share repurchase and Odd-lot offer |
|
| (102) | (198) |
Costs of disposal |
|
| - | (24) |
Dividends paid |
|
| (61) | (81) |
Net capital movements |
|
| (165) | (296) |
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|
Head Office costs and Optimisation programme funding |
|
| (28) | (74) |
Interest costs |
|
| (5) | (9) |
Net operational movements |
|
| (33) | (83) |
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|
|
Cash remittances from subsidiaries |
|
| 111 | 170 |
Net capital contributions, loan repayments and investments |
|
| (39) | (94) |
Other net movements |
|
| - | 5 |
Internal capital and strategic investments |
|
| 72 | 81 |
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Closing cash at holding companies at end of period |
|
| 391 | 517 |
Net capital movements
Net capital movements in the period were an outflow of £165 million. This includes £102 million relating to the share repurchase programme (including £3 million of costs), a final dividend payment made to shareholders of £61 million in May 2021 and £2 million of costs relating to the disposal of the Single Strategy business in line with expectations.
Net operational movements
Net operational movements were an outflow of £33 million for the period and includes £28 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 £72 million is principally due to £111 million of cash remittances from the trading businesses partially offset by £39 million of net capital contributions distributed to support business operational activities, and the Platform Transformation Programme.
Balance Sheet
Summary balance sheet (£m) | At 30 June 2021 | At 31 December 2020 | ||||
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Continuing Operations | Discontinued Operations1 | Total Group1 | Continuing Operations | Discontinued Operations | Total Group | |
Assets |
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Financial investments | 45,037 | 23,019 | 68,056 | 41,670 | 21,604 | 63,274 |
Contract costs | 8 | 384 | 392 | 5 | 408 | 413 |
Cash and cash equivalents | 1,703 | 186 | 1,889 | 1,782 | 139 | 1,921 |
Goodwill and intangible assets | 479 | 54 | 533 | 554 | 2 | 556 |
Trade, other receivables and other assets | 615 | 218 | 833 | 430 | 271 | 701 |
Other assets | 272 | 185 | 457 | 309 | 198 | 507 |
Total assets | 48,114 | 24,046 | 72,160 | 44,750 | 22,622 | 67,372 |
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Equity | 1,388 | 354 | 1,742 | 1,603 | 275 | 1,878 |
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Liabilities |
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Investment contract liabilities | 38,804 | 23,202 | 62,006 | 35,591 | 21,816 | 57,407 |
Third-party interests in consolidated funds | 6,698 | - | 6,698 | 6,513 | - | 6,513 |
Contract liabilities | - | 369 | 369 | 1 | 378 | 379 |
Borrowings - sub-ordinated debt | 199 | - | 199 | 199 | - | 199 |
Lease liabilities | 113 | 12 | 125 | 108 | 12 | 120 |
Trade, other payables and other liabilities | 671 | 102 | 773 | 543 | 129 | 672 |
Other liabilities | 241 | 7 | 248 | 192 | 12 | 204 |
Total liabilities | 46,726 | 23,692 | 70,418 | 43,147 | 22,347 | 65,494 |
Total equity and liabilities | 48,114 | 24,046 | 72,160 | 44,750 | 22,622 | 67,372 |
1Quilter International's assets and liabilities are classified as held for sale at 30 June 2021 in the Group's IFRS consolidated statement of financial position but have been presented in the summary balance sheet above against the line items in which they would normally appear in order to aid comparisons between periods.
Financial investments increased by £4,782 million from £63,274 million at 31 December 2020 to £68,056 million at 30 June 2021, predominantly due to positive market performance and positive net client cash flows. A corresponding increase is reflected in investment contract liabilities, with the main difference between the two being the impact of consolidated funds, which resulted in a £241 million increase in financial investments since 31 December 2020 (with no investment contract liability to offset).
Cash and cash equivalents of £1,889 million decreased by £32 million from £1,921 million at 31 December 2020, principally due to the payment of the 2020 final dividend of £61 million, £102 million of payments in respect of the share buyback programme, partially offset by cash profits in the period and other working capital movements. Cash within consolidated funds increased by £34 million.
Goodwill and intangible assets decreased by £23 million since 31 December 2020, principally due to the amortisation of intangible assets. In the Group's IFRS statement of financial position, £52 million of goodwill has been classified as held for sale in relation to the proposed sale of Quilter International.
Changes to comparative amounts
Following a review in 2020 of the Group's consolidated investment funds, changes to previously reported comparative amounts on the consolidated statement of financial position, consolidated income statement, and consolidated statement of cash flows have been identified and changes to H1 2020 comparative amounts have been accordingly reflected in the current period's financial statements. There has been no impact on the Group's profit for the current or prior period, including the Group's KPIs and alternative performance measures, and no impact on equity for any of the periods presented. Full details, and the financial line items impacted, are included in note 3(a) on page 37 of the condensed consolidated interim financial statements.
Principal risks and uncertainties
Effective risk management is key to Quilter delivering on its strategy to be a modern, UK-focused wealth manager. Our Enterprise Risk Management Framework is embedded across Quilter, and helps Quilter assess and manage its risk exposures.
Quilter's principal revenue streams are asset value based. Despite the ongoing COVID-19 pandemic, global markets continue to perform well, with positive performance in H1 2021. During H1 2021 Quilter's AuMA has increased, supported by positive market and investment performance and improved net flows. Quilter continues to operate effectively in the COVID-19 operating conditions, and is preparing its return to the office plans in accordance with local government guidelines. The proposed sale of Quilter International to Utmost Group will further focus Quilter's operations on its core UK market, and will reduce Quilter's risk profile accordingly.
As announced in June 2020, the FCA has initiated a skilled persons (s.166) review into historical advice given by Lighthouse, prior to its acquisition by Quilter. In addition, as previously announced, the FCA has also commenced an enforcement investigation into whether Lighthouse had breached certain FCA requirements in connection with advising on and arranging DB pension transfers in the period from 1 April 2015 to 30 April 2019. We continue to work and co-operate with the FCA and the skilled person who has been appointed in relation to this matter. Although the relevant advice pre-dated our acquisition of Lighthouse, we have ensured that Lighthouse has responded to the situation consistent with our values.
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. The evolving COVID-19 pandemic continues to have significant impacts on economic activity although global markets have continued the trend of positive performance in H1 2021. While vaccination programmes are well advanced in most advanced economies, the path and pace of recovery remains uncertain, with further volatility likely. 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 | A more favourable economic outlook, positive global markets and improved flows have reduced COVID-19 related pressures on short term performance, although the COVID-19 environment has expedited longer-term margin pressures. Prudent cost management, including through Optimisation initiatives, has reduced the cost base, though increasing Financial Services Compensation Scheme levies present a further cost challenge. Any unmitigated negative impact on earnings, share price and/or capital position, could have a resulting adverse effect on Quilter's market credibility and financial standing. |
Strategic delivery | Quilter has a strong ambition to be a modern UK-focused wealth manager. Achievement of this ambition requires Quilter to deliver across a number of strategic priorities, including enhancing the customer proposition, increasing digitisation, improving efficiency and effectiveness of operations, and embracing the environmental, social, and governance (ESG) agenda as a responsible wealth manager. Development of Quilter's capabilities across these disciplines will be key in meeting the expectations of customers and investors. |
Change execution | Quilter is continuing to conclude a range of key business transformation programmes, with the final migration of the Platform Transformation Programme having been completed in February 2021. A series of new business change programmes, including work to strengthen controls at Quilter Financial Planning, are being pursued in 2021 and add to the change portfolio. This change agenda carries execution risk and has a dependence on key individuals. There will be a need to ensure these projects remain on track to deliver the intended benefits, without risking disruption to continuing operations and the control environment. |
Operational and regulatory risks | |
Advice | Quilter's financial advice services are subject to fundamental regulatory conduct requirements to assure suitability of advisory recommendations. Failure to operate effective arrangements to support the delivery of suitable advice could expose Quilter to risks associated with customer detriment, regulatory censure and remediation programmes, and consequential impacts to the Group's business, financial condition and reputation. The current scrutiny of the defined benefit transfer advice provided by Lighthouse has increased the risk profile given the need to remediate impacted cases where relevant and deliver fair outcomes for customers. |
Information technology | Quilter's business is highly dependent on its technology infrastructure and applications to perform necessary business functions, including to support the provision of services to customers. COVID-19 has required adaptation to mass home working, which has been successfully achieved across Quilter. Much of Quilter's legacy IT estate is currently being replaced, with a move to Software as a Service (SAAS) applications reducing the Group's internal technology complexity, though increasing reliance on third parties. Failure to manage technology risk could have a material adverse impact on Quilter's business, its resilience capabilities, financial condition, operations 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. The COVID-19 conditions continue to result in increased remote handling of data. Quilter is subject to the risk of information security breaches from parties with criminal or malicious intent. Should Quilter's intrusion detection and anti-penetration software 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 to implement the broad range of strategic change initiatives that are currently being delivered. As the pandemic conditions subside, and Quilter and its staff members adapt to the post-pandemic working environment, a strategic focus on talent will be key. Failure to retain key staff or to attract suitable talent may impact 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, including outsourcing | Quilter procures certain services from third parties, which has increased as the Platform Transformation Programme concludes and results in significant business process and technology outsourcing to FNZ. If Quilter does not effectively oversee its third-party providers, they do not perform as anticipated, or Quilter experiences technological or other problems with a third party, Quilter may experience operational difficulties, increased costs and loss of business, potential customer detriment and damage to its reputation. |
Operational resilience | The pandemic has tested Quilter's ability to respond and adapt to sudden disruptions and has shown Quilter to successfully manage during a crisis period. Following the maturing of crisis management protocols, the focus in 2021 has switched to reviewing standards for articulating Quilter's important business services, and of the effectiveness of testing such that the firm can robustly demonstrate preparedness for future scenarios, and manage the risk that future events could pose to customers or Quilter. |
Regulatory | Quilter is subject to regulation in the UK by the Prudential Regulation Authority and the Financial Conduct Authority, and by a range of regulators internationally. Additionally, the firm is subject to the privacy regulations enforced by 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. |
Shareholder information
The Quilter Board has declared an Interim Dividend of 1.7 pence per share. The Interim Dividend will be paid on Monday 20 September 2021 to shareholders on the UK and South African share registers on Friday 3 September 2021.
Dividend Timetable
Dividend announcement in pounds sterling with South Africa ZAR Equivalent | Wednesday 11 August 2021 |
Last day to trade cum dividend in South Africa | Tuesday 31 August 2021 |
Shares trade ex-dividend in South Africa | Wednesday 1 September 2021 |
Shares trade ex-dividend in the UK | Thursday 2 September 2021 |
Record Date in UK and South Africa | Friday 3 September 2021 |
Interim Dividend payment date | Monday 20 September 2021 |
From the opening of trading on Wednesday 11 August 2021 until the close of business on Friday 3 September 2021, 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 1 September 2021 and Friday 3 September 2021, both dates inclusive.
Additional information
For shareholders on our South African share register a dividend of 34.88104 South African cents per share will be paid on Monday 20 September 2021, based on an exchange rate of 20.51826. Dividend Tax will be withheld at the rate of 20% from the amount of the gross dividend of 34.88104 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 27.90483 South African cents per share. The Company had a total of 1,713,363,464 shares in issue at today's date.
If you are uncertain as to the tax treatment of any dividends you should consult your own tax adviser.
Share Buyback Programme
Following the completion of the sale of Quilter Life Assurance to Reassure Group plc for £425 million (and interest income of £21 million), the Board announced that they planned to return the full net surplus sale proceeds (after disposal costs) of £375 million to shareholders, by way of a share buyback programme (the 'Programme').
Following receipt of regulatory approval, Quilter commenced the Programme on the London and Johannesburg exchanges on Wednesday 11 March 2020. The Programme is subject to staged regulatory and Board approvals and the following staged tranches have so far been launched:
- The initial tranche of £50 million completed on 4 June 2020.
- The first part of tranche 2 of the Programme of up to £75 million commenced on Thursday 25 June 2020 and completed on Wednesday 30 September 2020.
- The second part of tranche 2 of up to £50 million commenced on Tuesday 13 October 2020 and completed on Monday 8 March 2021.
- The first part of tranche 3 of up to £50 million commenced on Wednesday 7 April 2021 and completed on Friday 14 May 2021.
- The most recent tranche, second part of tranche 3, of up to £50 million commenced on Thursday 27 May 2021 and will complete no later than Tuesday 31 August 2021.
As at Tuesday 10 August 2021, a total of 188.9 million shares have been purchased and cancelled at an average price of 140 pence under the Programme.
Regulatory approval has been granted for the fourth and final £100 million tranche of the buyback which, subject to Board approval, is expected to commence in early September 2021. The Board continues to keep the Programme under review to make sure it remains prudent to return capital in this manner after undertaking consideration of the financial position and prospects of the business, given the market environment, and that it remains the most efficient and effective means of returning capital to shareholders.
Supplementary information
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including APMs, as explained further on pages 4 to 7. These measures are indicated with an asterisk: *.
For the six months ended 30 June 2021
1. Key financial data
Gross sales* (£bn) | 2021 | Change (HY 2021 vs HY 2020) |
| 2020 | ||||||
| Q1 | Q2 | H1 | % |
| Q1 | Q2 | Q3 | Q4 | FY |
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Quilter Investors | 1.5 | 1.4 | 2.9 | 7% |
| 1.5 | 1.2 | 1.1 | 1.2 | 5.0 |
Quilter Cheviot | 0.7 | 0.6 | 1.3 | 8% |
| 0.7 | 0.5 | 0.5 | 0.4 | 2.1 |
Advice & Wealth Management | 2.2 | 2.0 | 4.2 | 8% |
| 2.2 | 1.7 | 1.6 | 1.6 | 7.1 |
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Quilter Investment Platform | 2.2 | 2.3 | 4.5 | 50% |
| 1.7 | 1.3 | 1.2 | 1.5 | 5.7 |
Wealth Platforms | 2.2 | 2.3 | 4.5 | 50% |
| 1.7 | 1.3 | 1.2 | 1.5 | 5.7 |
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Elimination of intra-group items | (1.1) | (1.0) | (2.1) | - |
| (1.0) | (1.3) | (0.4) | (0.8) | (3.5) |
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Continuing Operations | 3.3 | 3.3 | 6.6 | 44% |
| 2.9 | 1.7 | 2.4 | 2.3 | 9.3 |
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Quilter International | 0.5 | 0.6 | 1.1 | 38% |
| 0.4 | 0.4 | 0.3 | 0.5 | 1.6 |
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Quilter plc | 3.8 | 3.9 | 7.7 | 43% |
| 3.3 | 2.1 | 2.7 | 2.8 | 10.9 |
NCCF* (£bn) | 2021 | % of Opening AuMA |
| 2020 | ||||||
| Q1 | Q2 | H1 |
| Q1 | Q2 | Q3 | Q4 | FY | |
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Quilter Investors | 0.2 | 0.2 | 0.4 | 3% |
| 0.2 | 0.1 | - | - | 0.3 |
Quilter Cheviot | 0.2 | 0.2 | 0.4 | 3% |
| 0.1 | 0.1 | - | 0.1 | 0.3 |
Advice & Wealth Management | 0.4 | 0.4 | 0.8 | 3% |
| 0.3 | 0.2 | - - | 0.1 | 0.6 |
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Quilter Investment Platform | 1.0 | 0.8 | 1.8 | 6% |
| 0.5 | 0.5 | 0.1 | 0.4 | 1.5 |
Wealth Platforms | 1.0 | 0.8 | 1.8 | 6% |
| 0.5 | 0.5 | 0.1 | 0.4 | 1.5 |
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Elimination of intra-group items | (0.3) | (0.2) | (0.5) | - |
| (0.4) | (0.2) | - | (0.2) | (0.8) |
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Continuing Operations | 1.1 | 1.0 | 2.1 | 4% |
| 0.4 | 0.5 | 0.1 | 0.3 | 1.3 |
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Quilter International | 0.1 | 0.3 | 0.4 | 4% |
| 0.1 | 0.1 | - | 0.1 | 0.3 |
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Quilter plc | 1.2 | 1.3 | 2.5 | 4% |
| 0.5 | 0.6 | 0.1 | 0.4 | 1.6 |
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Integrated net inflows (Quilter plc)* | 1.0 | 0.9 | 1.9 |
| - | 0.8 | 0.6 | 0.4 | 0.5 | 2.3 |
Integrated net inflows (continuing operations)* | 1.0 | 1.0 | 2.0 |
| - | 0.8 | 0.5 | 0.3 | 0.5 | 2.1 |
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AuMA* (£bn) | 2021 |
| Change (HY 2021 vs HY 2020) |
| 2020 | |||
| Q1 | H1 | % |
| Q1 | H1 | Q3 | FY |
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Quilter Investors | 23.7 | 24.8 | 19% |
| 18.1 | 20.8 | 21.3 | 23.2 |
Quilter Cheviot | 25.4 | 27.0 | 16% |
| 20.7 | 23.3 | 23.6 | 25.3 |
Advice & Wealth Management | 49.1 | 51.8 | 17% |
| 38.8 | 44.1 | 44.9 | 48.5 |
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Quilter Investment Platform | 64.3 | 68.0 | 21% |
| 49.5 | 56.2 | 57.7 | 62.5 |
Wealth Platforms | 64.3 | 68.0 | 21% |
| 49.5 | 56.2 | 57.7 | 62.5 |
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Elimination of intra-group assets | (15.5) | (16.4) | 23% |
| (11.4) | (13.3) | (13.7) | (15.0) |
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Continuing Operations1 | 99.3 | 104.8 | 19% |
| 78.1 | 88.3 | 90.2 | 97.4 |
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Quilter International | 22.0 | 23.2 | 14% |
| 18.4 | 20.4 | 20.6 | 21.8 |
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Quilter plc | 119.9 | 126.6 | 18% |
| 95.3 | 107.4 | 109.5 | 117.8 |
1Continuing operations includes AuMA managed by Quilter International that is held on the Quilter Investment Platform (Q1 2020: £1.2 bn, H1 2020: £1.3bn, Q3 2020: £1.3bn, FY 2020: £1.4bn, Q1 2021 £1.4bn, H1 2021: £1.4bn). These assets will be reported within Quilter Investment Platform and form part of the total Quilter plc AuMA following the completion of the sale of Quilter International.
YTD Gross flows, net flows and AuMA (£bn)1 |
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| |
| AuMA as at 31 December 2020* | Gross sales* | Gross outflows* | NCCF* | Market and other movements | AuMA as at 30 June 2021* |
Quilter Investors | 23.2 | 2.9 | (2.5) | 0.4 | 1.2 | 24.8 |
Quilter Cheviot | 25.3 | 1.3 | (0.9) | 0.4 | 1.3 | 27.0 |
Advice & Wealth Management | 48.5 | 4.2 | (3.4) | 0.8 | 2.5 | 51.8 |
Quilter Investment Platform | 62.5 | 4.5 | (2.7) | 1.8 | 3.7 | 68.0 |
Wealth Platforms | 62.5 | 4.5 | (2.7) | 1.8 | 3.7 | 68.0 |
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Elimination of intra-group assets | (15.0) | (2.1) | 1.6 | (0.5) | (0.9) | (16.4) |
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Continuing Operations1 | 97.4 | 6.6 | (4.5) | 2.1 | 5.3 | 104.8 |
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Quilter International | 21.8 | 1.1 | (0.7) | 0.4 | 1.0 | 23.2 |
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Quilter plc | 117.8 | 7.7 | (5.2) | 2.5 | 6.3 | 126.6 |
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| AuMA as at 31 December 2019* | Gross sales* | Gross outflows* | NCCF* | Market and other movements | AuMA as at 30 June 2020* |
Quilter Investors | 21.6 | 2.7 | (2.4) | 0.3 | (1.1) | 20.8 |
Quilter Cheviot | 24.2 | 1.2 | (1.0) | 0.2 | (1.1) | 23.3 |
Advice & Wealth Management | 45.8 | 3.9 | (3.4) | 0.5 | (2.2) | 44.1 |
Quilter Investment Platform | 57.2 | 3.0 | (2.0) | 1.0 | (2.0) | 56.2 |
Wealth Platforms | 57.2 | 3.0 | (2.0) | 1.0 | (2.0) | 56.2 |
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Elimination of intra-group assets | (13.1) | (2.3) | 1.7 | (0.6) | 0.4 | (13.3) |
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Continuing Operations1 | 91.2 | 4.6 | (3.7) | 0.9 | (3.8) | 88.3 |
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Quilter International | 20.5 | 0.8 | (0.6) | 0.2 | (0.3) | 20.4 |
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Quilter plc | 110.4 | 5.4 | (4.3) | 1.1 | (4.1) | 107.4 |
1Continuing operations includes AuMA managed by Quilter International that is held on the Quilter Investment Platform (Q1 2020: £1.2 bn, H1 2020: £1.3 bn, Q3 2020: £1.3 bn, FY 2020: £1.4 bn, Q1 2021 £1.4bn, H1 2021: £1.4 bn). These assets will be reported within Quilter Investment Platform and form part of the total Quilter plc AuMA following the completion of the sale of Quilter International.
| ||||||
Estimated asset allocation (%) | H1 2021 | FY 2020 |
Fund profile by Investment type | Total client AuMA | Total client AuMA |
Quilter |
|
|
Fixed interest | 24% | 24% |
Equities | 65% | 65% |
Cash | 5% | 5% |
Property and alternatives | 6% | 6% |
Total | 100% | 100% |
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Total net fee revenue* H1 2021 (£m) | Quilter Investors | Quilter Cheviot | Quilter Financial Planning | Advice & Wealth Management | Quilter Investment Platform | Wealth Platforms | Head Office | Continuing Group | Quilter International | Quilter plc |
Net management fee* | 61 | 93 | - | 154 | 88 | 88 | - | 242 | 47 | 289 |
Other revenue* | - | - | 59 | 59 | 3 | 3 | - | 62 | 6 | 68 |
Total net fee revenue* | 61 | 93 | 59 | 213 | 91 | 91 | - | 304 | 53 | 357 |
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Total net fee revenue* H1 2020 (£m) | Quilter Investors | Quilter Cheviot | Quilter Financial Planning | Advice & Wealth Management | Quilter Investment Platform | Wealth Platforms | Head Office | Continuing Group | Quilter International | Quilter plc |
Net management fee* | 54 | 84 | - | 138 | 82 | 82 | - | 220 | 53 | 273 |
Other revenue* | 1 | 2 | 56 | 59 | (2) | (2) | 2 | 59 | 3 | 62 |
Total net fee revenue* | 55 | 86 | 56 | 197 | 80 | 80 | 2 | 279 | 56 | 335 |
2. Advice and Wealth Management
The following table presents certain key financial metrics utilised by management with respect to the business units of the Advice & Wealth Management segment, for the periods indicated.
Key financial highlights | H1 2021 | H1 2020 | % change |
|
|
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|
Quilter Financial Planning |
|
|
|
Net management fees (£m)* | - | - | - |
Other revenue (£m)* | 59 | 56 | 5% |
Total net fee revenue (£m)* | 59 | 56 | 5% |
|
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|
RFPs (#) | 1,701 | 1,808 | (6%) |
Productivity (£m) | 2.2 | 1.5 | 47% |
|
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|
Of which - Quilter Private Client Advisers |
|
|
|
Net management fees (£m)* | - | - | - |
Other revenue (£m)* | 13 | 12 | 8% |
Total net fee revenue (£m)* | 13 | 12 | 8% |
|
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|
PCA RFPs (#) | 62 | 84 | (26%) |
PCA Productivity (£m) | 9.5 | 8.4 | 13% |
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Quilter Investors |
|
|
|
Net management fees (£m)* | 61 | 54 | 13% |
Other revenue (£m)* | - | 1 | (100%) |
Total net fee revenue (£m)* | 61 | 55 | 11% |
|
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|
NCCF (£bn)* | 0.4 | 0.3 | 33% |
Closing AuM (£bn)* | 24.8 | 20.8 | 19% |
Average AuM (£bn)* | 23.9 | 20.4 | 17% |
Revenue margin (bps)* | 51 | 53 | (2) bps |
Asset retention (%)* | 78% | 78% | - |
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|
Quilter Cheviot |
|
|
|
Net management fees (£m)* | 93 | 84 | 11% |
Other revenue (£m)* | - | 2 | (100%) |
Total net fee revenue (£m)* | 93 | 86 | 8% |
|
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|
NCCF (£bn)* | 0.4 | 0.2 | 100% |
Closing AuM (£bn)* | 27.0 | 23.3 | 16% |
Average AuM (£bn)* | 25.8 | 22.9 | 13% |
Revenue margin (bps)* | 72 | 73 | (1) bp |
Asset retention (%)* | 93% | 92% | 1 pp |
Investment managers (#)* | 168 | 169 | (1%) |
3. Wealth Platforms
The following table presents certain key financial metrics utilised by management with respect to the Wealth Platforms segment, for the periods indicated.
Key financial highlights | H1 2021 | H1 2020 | % change |
|
|
|
|
Quilter Investment Platform |
|
|
|
Net management fees (£m)* | 88 | 82 | 7% |
Other revenue (£m)* | 3 | (2) | - |
Total net fee revenue (£m)* | 91 | 80 | 14% |
|
|
|
|
NCCF (£bn)* | 1.8 | 1.0 | 80% |
Closing AuA (£bn)* | 68.0 | 56.2 | 21% |
Average AuA (£bn)* | 64.7 | 54.7 | 18% |
Revenue margin (bps)* | 27 | 29 | (2) bps |
Asset retention (%)* | 91% | 93% | (2) pp |
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