Quilter plc Interim Results 2018 - Part 1
NEWS RELEASE
Ref: 001/18
LEI: 54930092XIVK28RZGM95
8 August 2018
Quilter plc interim results for the six months ended 30 June 2018
Quilter plc reports record adjusted profit before tax of £110 million and a special interim dividend of 12.0 pence per share in its first results as a listed company
Highlights
Ø Assets under Management/Administration ("AuMA") up 2% from 31 December 2017 to £116.5 billion (FY 2017: £114.4 billion) as a result of positive net flows of £2.2 billion, marginally offset by a weaker overall market performance of £0.1 billion.
Ø Net Client Cash Flow ("NCCF") (excl. Quilter Life Assurance) of £3.0 billion (H1 2017: £3.4 billion) representing 6% of NCCF/opening AuMA (annualised).
Ø Integrated NCCF (excl. Quilter Life Assurance) up 17% to £2.8 billion (H1 2017: £2.4 billion).
Ø Adjusted profit before tax of £110 million (H1 2017: £95 million), up 16% from H1 2017.
Ø IFRS profit before tax from continuing operations of £17 million, up 240% (H1 2017: £5 million).
Ø Diluted earnings per share of 18.7 pence (H1 2017: 5.1 pence) and adjusted diluted earnings per share of 5.5 pence (H1 2017: 4.4 pence), up 25%.
Ø Special interim dividend of 12.0 pence per share, returning £221 million surplus proceeds from the sale of the Single Strategy business to shareholders.
Ø Solvency II ratio of 195% after payment of special interim dividend (FY 2017: 154%).
Ø Further strengthening of the Board with the appointments of Ruth Markland as Senior Independent Director, and Paul Matthews and Dr. Suresh Kana as Independent Non-Executive Directors.
Ø UK Platform Transformation Programme now in testing phase and remains on time, on track and within previous cost guidance.
Ø Business optimisation project now mobilised and underlying work streams in planning phase.
Ø The Group continues to make good progress on delivering our voluntary remediation programme for customers as announced at the year end.
Paul Feeney, Chief Executive, said:
"I am delighted to announce a good set of results for our first reporting period since we listed on the London and Johannesburg stock exchanges. Growth in integrated flows of 17% and profit of 16% demonstrate the strength of the Quilter business model. We are also delighted to announce a special interim dividend of 12 pence per share, returning £221 million from the sale of our Single Strategy business to our shareholders.
We are focused on delivering what our customers want, an integrated wealth management offering that delivers good outcomes through the cycle. Our market offers significant growth opportunities and, while we have built a leading wealth management business, we are someway from demonstrating its full potential. Our priority now is to optimise the way we work to maximise the value of our integrated business for all our stakeholders over the coming years."
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Quilter highlights (from continuing operations1 only) |
H1 2018 |
H1 2017 |
Change |
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Assets and flows |
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AuMA (£bn)2 |
116.5 |
107.3 |
9% |
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NCCF (£bn)2 |
2.2 |
3.2 |
(31%) |
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NCCF (excl. Quilter Life Assurance) (£bn)2 |
3.0 |
3.4 |
(12%) |
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NCCF/opening AuMA (excl. Quilter Life Assurance)3 |
6% |
8% |
(2pp) |
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Integrated NCCF (excl. Quilter Life Assurance) (£bn)2 |
2.8 |
2.4 |
17% |
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Productivity (£m)4 |
1.8 |
1.6 |
13% |
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Asset retention % (excl. Quilter Life Assurance)5 |
91% |
90% |
1pp |
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Profit & loss |
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IFRS profit before tax from continuing operations (£m) |
17 |
5 |
240% |
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IFRS profit after tax (£m) |
342 |
94 |
264% |
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Adjusted profit before tax (£m)2 |
110 |
95 |
16% |
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Operating margin2 |
29% |
27% |
2pp |
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Revenue margin (bps)2 |
57 |
56 |
1 bp |
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Non-financial |
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Restricted Financial Planners ("RFPs") |
1,590 |
1,582 |
1% |
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Investment Managers ("IMs") |
168 |
159 |
6% |
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1 Continuing operations represent Quilter plc excluding results of the Single Strategy business and Old Mutual Wealth Italy S.p.A (up to the date its sale completed on 9 January 2017) |
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2 Alternative Performance Measures ("APMs") are detailed on page 18. |
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3 NCCF (annualised) as a % of opening AuMA (excluding Quilter Life Assurance) |
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4 Average NCCF per Restricted Financial Planner. |
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5 Calculated as 1 - (gross outflow/opening AuMA). Outflows are calculated on an annualised basis. |
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Quilter plc interim results for six months ended 30 June 2018
Enquiries
Investor Relations |
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John-Paul Crutchley |
UK |
+44 20 7002 7016 |
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Media |
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Vee Montebello |
UK |
+44 20 7778 9550
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Camarco |
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Geoffrey Pelham-Lane |
UK |
+ 44 20 3757 4985 |
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Aprio (South Africa) |
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Julian Gwillim |
SA |
+ 27 11 880 0037 |
An analyst presentation will take place today, 8 August 2018 at 8:15am for an 8:30am start (BST) at:
Quilter plc, Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4AJ
Alternatively, if you are unable to attend but would like to watch a live webcast of the presentation, please click on the link below to join via our website
Live and on-demand: https://www.quilter.com/investor-relations
To join by telephone (listen only audio):
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United Kingdom |
+44 (0)333 300 0804 |
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South Africa |
+27 (0)21 672 4118 |
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United States |
+1 631 913 1422 |
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Access Code |
46111936# |
Playback facility:
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United Kingdom/ Other |
+44 (0)333 300 0819 |
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South Africa |
+27 (0)21 672 4123 |
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United States |
+1 866 931 1566 |
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Access Code |
301236152# |
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, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Quilter plc and its affiliates operate. As a result, Quilter plc's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Quilter plc's forward looking statements.
Quilter plc undertakes no obligation to update the forward-looking statements contained in this announcement or any other forward-looking statements it may make.
Nothing in this announcement should be construed as a profit forecast.
Business unit descriptor:
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Previous Business Unit Name |
New Business Unit Name |
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Advice & Wealth Management |
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Multi-Asset |
Quilter Investors |
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Quilter Cheviot |
No change |
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Intrinsic |
Quilter Financial Planning |
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Old Mutual Wealth Private Client Advisers |
Quilter Private Client Advisers |
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Wealth Platforms |
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UK Platform |
Quilter Wealth Solutions |
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International |
Quilter International |
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Heritage |
Quilter Life Assurance |
Chief Executive's Review
Execution
In the first half of 2018 we celebrated a significant moment in the history of Quilter. Six years after we set out to build a modern UK wealth management company and after two years of work to get the business ready for listing, on 25 June we demerged from Old Mutual plc and our stock began trading on the London and Johannesburg stock exchanges. We were delighted with the level of investor engagement and interest in Quilter from both new and existing investors throughout this process and we look forward to delivering prosperity for both our shareholders and broader stakeholders in the coming years.
I would particularly like to thank the teams within both Quilter plc and Old Mutual plc who worked tirelessly over the last two years to deliver this outcome which has been wholly focussed on delivering value for shareholders.
Despite all the work that has gone into the listing of Quilter plc, this is just the start of the next phase of Quilter's development. For this reason, we are delighted to announce a good set of results for our first reporting period as an independent listed company.
After three years of essentially flat annual profits given the investment in the business, the return to growth with an increase in adjusted profit of 16% to £110 million is particularly pleasing. Our financial performance is discussed in more detail below.
Clients
While the listing process placed significant demands across the business, the operational performance we have delivered during the first half illustrates the strength of the proposition we are building for our customers and our shareholders as well as the energy and commitment of our employees.
Good customer outcomes are at the heart of everything we do. Delivering that starts with trusted advice. Client confidence in our proposition is demonstrated through the strength of our increased integrated flows. This holds true despite lower overall levels of flows across the industry and for us after the record levels of 2017 including a slowing of overall NCCF in the second quarter.
The strength of our integrated business model is shown by our NCCF and increased integrated flows. Excluding Quilter Life Assurance, NCCF was £3.0 billion, a reduction of £0.4 billion from the record levels of £3.4 billion a year ago. This represented 6% of opening AuMA and was ahead of our annualised target growth of 5% over the medium-term. Overall NCCF of £2.2 billion was down 31% on prior year (H1 2017: £3.2 billion) with this largely due to the pre-announced run off of the institutional life book within our Quilter Life Assurance business and the natural attrition of the rest of that book.
In total, our integrated flows excluding Quilter Life Assurance grew 17% from £2.4 billion in H1 2017 to £2.8 billion in H1 2018. The restricted channel within Quilter Financial Planning accounted for £0.6 billion (29%) of Quilter Wealth Solutions net inflows in 2018 and £1.4 billion (78%) of net flows into Quilter Investors in 2018, principally into the Cirilium and Generation fund ranges. Integrated net inflows from Quilter Financial Planning into Quilter Cheviot amounted to £117 million, of which £52 million was through Quilter Private Client Advisers ("QPCA"). Direct flows onto our platforms and into our overall propositions remain an important source of new business generation for us. During the period we attracted non-integrated NCCF totalling £1.7 billion (H1 2017: £2.2 billion).
The subdued levels of NCCF experienced at the start of the year from Quilter International continued into the second quarter. This reflected the impact of the record 2017 fourth quarter, which depleted the pipeline and our strategy to reduce the geographical footprint and focus on the quality of new business. NCCF for Quilter Cheviot was slower in the second quarter resulting in H1 2018 NCCF of £0.5 billion against £0.6 billion for H1 2017. However, the level of new client proposals continued to rise, with Q2 figures higher than Q1, providing comfort that the pipeline for new business remains strong.
We have also shown growth in AuMA which increased by 2% from £114.4 billion at 31 December 2017 to £116.5 billion at the end of H1 2018. Markets were challenging in the first quarter but recovered in the second quarter, with the FTSE 100 down 1% overall in H1 2018.
Performance
As we discuss in the financial review below, our financial metrics for the first half of 2018 were strong. Adjusted profit for the first half of 2018 was £110 million, an increase of 16% on the prior year, despite an increase in Head Office costs of £10 million from the prior period, principally reflecting the increase in costs to become a standalone listed group. Our IFRS profit after tax from continuing operations was £32 million, compared to a loss of £17 million in H1 2017. We achieved a 29% operating margin (H1 2017: 27%).
We have added to our distribution capabilities within our QPCA business through the acquisition of Saint & Co, in Carlisle, DG Pryde in Duns outside Edinburgh, and A&M Financial Services based in Wiltshire. Across our appointed representative firms, we saw growth in adviser numbers, albeit this being lower than we had planned for. However, we saw good growth in Restricted Financial Planners within Charles Derby Group, in which we have a 10% shareholding, and have recruited newly appointed representative firms to our business, which overall have added a net 18 Restricted Financial Planners across the firm.
We have continued to deliver good medium and long-term investment performance for our clients. All of our discretionary and multi-asset funds are performing well against customer targets and have met the relevant target outcome. Within Quilter Investors we remain pleased with medium and long-term performance, especially in the Cirilium range. Short-term performance in certain portfolios has been held back somewhat by a range of factors but investment performance over the long-term remains a top priority.
During the last 12 months we have been investing in the Quilter Cheviot investment team and Investment Manager headcount has increased by 9 since June 2017 to reach 168 at June 2018. Since listing we have seen 12 resignations, which indicate that the IM headcount will fall back in the short-term to around the level of June 2017. This may lead to higher than trend outflows in 12 to 18 months' time.
Stewardship
The sale of our Single Strategy asset management business, which completed at the end of June, was consistent with the execution of our strategy and vision of building the UK's leading wealth management company. The full consideration from the sale of the business to its management team and funds managed by TA Associates was £583 million. We have received initial cash consideration of £576 million with a further £7 million expected by 2021.
Following the repayment of the £300 million senior unsecured term loan on the 29 June, the Board has decided to pay a special interim dividend of 12.0 pence per share from the proceeds of this transaction, equivalent to a return of capital to shareholders of £221 million representing the surplus capital proceeds from this disposal. All of our shareholders, those who were investors in Old Mutual plc and those who joined us since listing, will benefit from the investments we made to grow this business over the last five years. This special distribution underpins our philosophy towards running our business. We do not expect to retain excess capital without good reason and we are acutely aware that we are responsible for the stewardship of the capital that has been entrusted to us by our shareholders.
As we set out in our prospectus ahead of listing, we are not paying a normal interim dividend but we expect to declare a final dividend for 2018 when we announce our full year results in March 2019.
As we have previously said, we intend to grow our business and improve returns by:
Ø A relentless focus on ensuring good customer outcomes and strong investment returns while delivering quality customer service and building out our range of investment propositions and solutions;
Ø Growing our Advice business by adding advisers through acquisitions and recruitment, embedding recently acquired firms and supporting the Financial Adviser School intake and graduates as well as supporting our advisers to improve their individual productivity;
Ø Delivering the expected benefits from the implementation of our UK Platform Transformation Programme and investing in further training to support productivity; and
Ø Focusing on our recently initiated optimisation review where we intend to drive operational leverage through delivering enhanced scale and efficiency.
We are making good progress in delivering our remediation programme for customers within our Quilter Life Assurance business. We are still confident that the existing £69 million provision established at year end remains sufficient to meet the costs of the remediation that we have identified as we have gone through the review process.
We were also delighted that Ruth Markland joined the Board, as the Senior Independent Director, upon our listing. Ruth's extensive skills and her public company experience will be invaluable to the Board following our move into a listed environment. As noted in the prospectus, we are now fully compliant with the corporate governance code. We are also pleased to announce the appointments of Paul Matthews and Dr. Suresh Kana as Independent Non-Executive Directors, effective from 8 August 2018. Paul's deep knowledge of our industry, particularly distribution, and Suresh's extensive knowledge and experience in the South African business community, will make valuable additions to our Board.
Transformation
We are pleased to confirm that we remain on track and within budget with our UK Platform Transformation Programme. User acceptance and integration testing are well advanced, thousands of tests have been run, and defect fixing is underway. We are still planning for a soft launch either later this year or early in 2019. This will be on a limited basis and will be used to verify system functionality in a live environment. This will be followed by a phased controlled migration of our existing book. Maintaining high quality delivery is of utmost importance to us and we are preparing detailed migration plans to ensure customers and advisers remain well supported throughout the transition period.
Responsibility
We monitor employee engagement on a quarterly basis and are delighted that it has remained at a consistently high level throughout the period despite the significant work that that has been required to prepare us for listing.
Building an environment where our people can thrive is very important to me. One of the most important aspects of Quilter being liberated as a standalone business will be to reinforce the strength of our own identity and strengthen the ties that bind our people to deliver our purpose. Virtually all of our staff became shareholders in Quilter on listing and so have a direct stake in the outcomes of their efforts as we build the UK's leading wealth management company.
Our purpose is to create prosperity for the generations of today and tomorrow. Whether it is an adviser in one of our appointed representative firms or within our QPCA business, the staff working in our Quilter Wealth Solutions or Quilter Life Assurance businesses, our international colleagues or the investment professionals within Quilter Investors or Quilter Cheviot, we all share a single goal - to build prosperity for our customers and for their families.
We also appreciate that organisations need to have a broader moral compass beyond profit maximisation. Our shared prosperity plan is at the centre of this which seeks to build financial knowledge and skills across society to enhance public financial capability and engagement. By equipping people to make better financial decisions, we enable more people to have a secure financial future and we aim to protect customer assets over the long-term through inclusive and responsible investment.
We were also delighted to launch The Quilter Foundation at listing. As a registered charity, the Foundation's mission is to tackle the barriers to prosperity in our society - the flip side of the coin to our overarching corporate purpose. The Foundation's first step towards its mission is an innovative and collaborative partnership which will support hundreds of thousands of young carers in the UK to overcome the barriers they face such as isolation, mental health issues and poor outcomes in education and employment. We believe that unpaid carers play a critical, but often overlooked, role in society and their contribution will be increasingly important as our society ages in the coming years.
Outlook
As I highlighted at our Capital Markets Showcase event earlier this year, our near-term agenda is focussed on three key priorities:
First, we need to successfully implement our new platform and execute a smooth migration for existing customers.
Second, we will continue to invest in growth by recruiting and building our Adviser and Investment Manager base.
Third, I want to ensure that we optimise our business so that we deliver increased operating leverage, and I look forward to updating the market on our plans with our full year results in March 2019.
These are all on track and we remain confident in our strategic path and the growth prospects that we set out in our prospectus ahead of listing. We are very much where we expected to be at this stage on the Quilter journey. While short-term market fluctuations and Brexit induced uncertainty may exacerbate market volatility or temper momentum in near-term flows, we operate in a large and fragmented market that has plenty of growth potential. We are a young company with a 250 year heritage and we're just getting started.
Paul Feeney
Chief Executive
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Summary financial information |
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Reconciliation of adjusted profit to profit after tax (£m) |
H1 2018 |
H1 2017 |
% Change |
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Net management fee |
319 |
285 |
12% |
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Other revenue |
66 |
61 |
8% |
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Total revenue |
385 |
346 |
11% |
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Expenses |
(275) |
(251) |
(10%) |
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Adjusted profit before tax |
110 |
95 |
16% |
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Total adjusting items before tax |
(75) |
(119) |
37% |
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Profit/(loss) before tax attributable to shareholders' profits |
35 |
(24) |
246% |
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Income tax (expense)/credit attributable to policyholder returns |
(18) |
29 |
(162%) |
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Profit before tax from continuing operations |
17 |
5 |
240% |
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Income tax credit/(expense) on continuing operations |
15 |
(22) |
168% |
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Profit/(loss) after tax from continuing operations |
32 |
(17) |
288% |
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Profit after tax from discontinued operations |
310 |
111 |
179% |
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Profit for the period after tax |
342 |
94 |
264% |
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Adjusted weighted average number of ordinary shares (millions) |
1,830 |
1,830 |
- |
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Basic earnings per ordinary share (pence) |
18.7 |
5.1 |
267% |
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Adjusted profit before shareholder tax |
110 |
95 |
16% |
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Shareholder tax on adjusted profit |
(9) |
(15) |
40% |
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Adjusted profit after tax attributable to ordinary shareholders of Quilter plc |
101 |
80 |
26% |
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Adjusted weighted average number of ordinary shares used to calculate adjusted basic and diluted earnings per share (millions) |
1,830 |
1,830 |
- |
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Adjusted basic and diluted earnings per share (pence) |
5.5 |
4.4 |
25% |
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Summary balance sheet (£m) |
At |
At |
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30 June |
31 December |
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2018 |
2017 |
Change % |
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Assets |
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Financial investments |
64,569 |
64,250 |
0% |
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Reinsurers' share of policyholder liabilities |
2,666 |
2,908 |
(8%) |
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Deferred acquisition costs |
12 |
611 |
(98%) |
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Cash and cash equivalents |
3,375 |
2,360 |
43% |
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Other assets |
2,915 |
1,844 |
58% |
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Total assets |
73,537 |
71,973 |
2% |
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Equity and liabilities |
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Equity |
2,060 |
1,099 |
87% |
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Liabilities |
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Investment contract liabilities |
60,140 |
59,139 |
2% |
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Third-party interests in consolidated funds |
8,105 |
7,905 |
3% |
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Borrowings |
197 |
782 |
(75%) |
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Trade, other payables and other liabilities |
1,937 |
1,331 |
46% |
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Other liabilities |
1,098 |
1,717 |
(36%) |
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Total liabilities |
71,477 |
70,874 |
1% |
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Total equity and liabilities |
73,537 |
71,973 |
2% |
Review of Financial Performance
Analysis of performance for six months ended 30 June 2018
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Key financial highlights For six months ended 30 June 2018 (continuing operations only)
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Advice & Wealth Management |
Wealth Platforms |
Head Office & Eliminations |
Total Group |
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Gross inflows (£bn) |
4.5 |
5.5 |
(1.9) |
8.1 |
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Gross outflows (£bn) |
(2.2) |
(4.3) |
0.6 |
(5.9) |
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NCCF (£bn) |
2.3 |
1.2 |
(1.3) |
2.2 |
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NCCF (excl. Quilter Life Assurance (£bn)) |
2.3 |
2.2 |
(1.5) |
3.0 |
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Integrated NCCF (excl. Quilter Life Assurance) (£bn) |
2.1 |
0.7 |
- |
2.8 |
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AuMA (£bn) |
43.7 |
86.0 |
(13.2) |
116.5 |
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NCCF/opening AuMA (excl. Quilter Life Assurance (%)) |
11% |
6% |
n/a |
6% |
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Asset retention (excl. Quilter Life Assurance (%)) |
89% |
91% |
n/a |
91% |
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Key financial highlights For six months ended 30 June 2017 (continuing operations only)
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Advice & Wealth Management |
Wealth Platforms |
Head Office & Eliminations |
Total Group |
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Gross inflows (£bn) |
4.0 |
6.3 |
(1.7) |
8.6 |
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Gross outflows (£bn) |
(1.9) |
(4.3) |
0.8 |
(5.4) |
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NCCF (£bn) |
2.1 |
2.0 |
(0.9) |
3.2 |
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NCCF (excl. Quilter Life Assurance (£bn)) |
2.1 |
2.5 |
(1.2) |
3.4 |
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Integrated NCCF (excl. Quilter Life Assurance) (£bn) |
1.6 |
0.8 |
- |
2.4 |
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AuMA (£bn) |
37.8 |
79.3 |
(9.8) |
107.3 |
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NCCF/opening AuMA (excl. Quilter Life Assurance (%)) |
13% |
9% |
n/a |
8% |
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Asset retention (excl. Quilter Life Assurance (%)) |
88% |
90% |
n/a |
90% |
Net client cash flow (NCCF)
The Group had positive net flows of £2.2 billion in the first half of 2018, with NCCF as a percentage of opening AuMA (excl. Quilter Life Assurance) on an annualised basis of 6%, ahead of our 5% target. Excluding Quilter Life Assurance, the Group's NCCF stands at £3.0 billion, 12% down from the record flows in H1 2017, reflecting strong flows for Quilter Investors, more than offset by weaker flows for Quilter International and Quilter Cheviot, which were down 75% and 17% respectively on prior period. Detailed analysis of NCCF by business unit is shown on page 19 of this announcement.
Integrated flows (excl. Quilter Life Assurance) increased 17% to £2.8 billion (H1 2017: £2.4 billion). The restricted channel of Quilter Financial Planning accounted for £1.4 billion (78%) of Quilter Investors' net flows and £0.6 billion (29%) of Quilter Wealth Solutions' net flows. Integrated flows from Quilter Financial Planning and Quilter Private Client Advisers ("QPCA") into Quilter Cheviot amounted to £117 million of which £52 million was through QPCA.
NCCF for the Advice and Wealth Management segment of £2.3 billion was up 10% from H1 2017 (£2.1 billion), principally reflecting strong flows for Quilter Investors into Cirilium, which represented 57% of the segment's net flows. Net flows of £1.4 billion were from the restricted channel, of which £0.7 billion was from third party platforms and £0.7 billion from Wealth Solutions. Independent third party flows through Wealth Solutions was £0.6 billion for the period. NCCF for Quilter Cheviot was slower in the second quarter resulting in H1 2018 NCCF of £0.5 billion against £0.6 billion for H1 2017. However, the level of new client proposals continued to rise, with Q2 figures higher than Q1, providing comfort that the pipeline for new business remains strong.
The Wealth Platforms segment contributed total NCCF of £1.2 billion (H1 2017: £2.0 billion), with stable flows within Quilter Wealth Solutions more than offset by weaker flows for Quilter International and as expected outflows in Quilter Life Assurance. Quilter Wealth Solutions had net flows of £2.1 billion, in line with H1 2017. Our pension propositions continue to perform well with sales of £2.7 billion representing 61% of total Quilter Wealth Solutions gross sales (FY 2017: £5.4 billion representing 61% of FY 2017 gross sales). Within this, the industry-wide benefit from the Defined Benefit ("DB") to Defined Contribution ("DC") schemes continues despite some advisers withdrawing from advising on such transfers following regulatory commentary. In H1 2018, 41% (£1.1 billion) of Quilter Wealth Solutions total gross pension sales were attributable to DB to DC transfers. Continuing the trend reported within our Q1 trading update, Quilter International had a slow first half of the year, following a very strong final quarter in 2017, with net inflows of £0.1 billion, down 75% on prior year (H1 2017: £0.4 billion). International markets remain challenging, particularly given the changing regulatory environment, however the reduction in flows also reflects the Group's strategy to reduce its offshore geographic footprint and focus on the quality of new business. Quilter Life Assurance had net outflows of £1.0 billion for the first half (H1 2017: £0.5 billion) with the increase, as expected, being primarily due to the closure of the institutional life book of business, as announced in 2017.
Productivity for Quilter Financial Planning increased 13% to £1.8 million per RFP (H1 2017: £1.6 million per RFP) as a result of longer average adviser tenure leading to growth in the number of customers, continued strong investment performance, and an increase in flows from existing clients over time. Across our appointed representative firms, we saw growth in adviser numbers albeit this being lower than we had planned for. However, we saw good growth in RFPs within Charles Derby Group, in which we hold a 10% shareholding, and have recruited new appointed representatives firms to the business, which overall have added a net 18 RFPs to our business. Further growth is expected in the second half of the year.
Asset retention (excl. Quilter Life Assurance) on an annualised basis has remained broadly stable at 91% as a result of strong fund performance, our comprehensive product offering and high customer service standards, together with our continued focus on good customer outcomes.
Assets under management/administration (AuMA)
AuMA was £116.5 billion, up 2% from the end of 2017 (31 December 2017: £114.4 billion), driven by positive net flows (£2.2 billion) slightly offset by negative market movement of £0.1 billion. Markets were challenging in the first quarter but largely recovered in the second quarter, with the FTSE 100 down 1% overall in H1 2018.
Since the start of the year, the Cirilium fund range has increased by 17% to £8.8 billion in H1 2018, and the WealthSelect fund range has increased by 17% to £5.6 billion. Quilter Cheviot AuMA of £24.1 billion has increased 2% in the period, and reflects £11.1 billion from financial advisers and £13.0 billion from direct business. Quilter Wealth Solutions' AuMA increased by 4% to £52.3 billion, which includes £23.6 billion within pension propositions (of which £3.1 billion has been generated from the restricted channel and £20.5 billion from third party advisers) and £15.5 billion of ISA products.
Adjusted profit before tax
Adjusted profit (previously named "Operating profit" in the prospectus) reflects the directors' view of the underlying performance of the Group and is used for management decision making and internal performance management. It is the profit measure presented in the Group's segmental reporting. Adjusted profit is a non-GAAP measure which adjusts the IFRS profit for specific agreed items as detailed in note 7(a).
Adjusted profit before tax for the six months to 30 June 2018 was £110 million, 16% higher than the prior year (H1 2017: £95 million), driven by higher revenue from higher AuMA, partially offset by higher expenses due to the increased costs of operating as a standalone listed group.
Adjusted profit before tax for Advice and Wealth Management increased to £47 million, up 47% from prior year (H1 2017: £32 million). This increase was driven by high levels of NCCF and good investment performance driving higher revenue. Other revenue within Quilter Financial Planning was up 17% to £41 million, driven by growth in advice fees with the increase in the number of RFPs. Expenses increased from £116 million to £134 million, reflecting the cost of expanding the national advice business, the inclusion of full run rate costs for Caerus, which was acquired on 1 June 2017, increased variable incentive costs, and higher costs for Quilter Investors as they build out the standalone functionality of the business.
Adjusted profit before tax for Wealth Platforms increased to £83 million, up 12% from prior year (H1 2017: £74 million). This reflects higher revenue for Quilter Wealth Solutions from higher average AuMA, and lower expenses primarily due to an increase in VAT recoveries.
The Group's overall operating margin has remained broadly stable at 29% from 31 December 2017, as the increase in revenue has been offset by a proportionate increase in expenses.
|
Financial performance (from continuing operations only) Six months ended 30 June 2018 (£m)
|
Advice & Wealth Management |
Wealth Platforms |
Head Office |
Total Group |
|
|
|
|
|
|
|
Net management fee |
136 |
183 |
- |
319 |
|
Other revenue |
45 |
20 |
1 |
66 |
|
Total revenue |
181 |
203 |
1 |
385 |
|
|
|
|
|
|
|
Expenses |
(134) |
(120) |
(21) |
(275) |
|
|
|
|
|
|
|
Adjusted profit/(loss) before tax |
47 |
83 |
(20) |
110 |
|
Tax |
|
|
|
(9) |
|
Adjusted profit after tax |
|
|
|
101 |
|
|
|
|
|
|
|
Operating margin (%) |
26% |
41% |
|
29% |
|
Revenue margin (bps) |
65 |
44 |
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial performance (from continuing operations only) Six months ended 30 June 2017 (£m)
|
Advice & Wealth Management |
Wealth Platforms |
Head Office |
Total Group |
|
|
|
|
|
|
|
Net management fee |
112 |
173 |
- |
285 |
|
Other revenue |
36 |
25 |
- |
61 |
|
Total revenue |
148 |
198 |
- |
346 |
|
|
|
|
|
|
|
Expenses |
(116) |
(124) |
(11) |
(251) |
|
|
|
|
|
|
|
Adjusted profit/(loss) before tax |
32 |
74 |
(11) |
95 |
|
Tax |
|
|
|
(15) |
|
Adjusted profit after tax |
|
|
|
80 |
|
|
|
|
|
|
|
Operating margin (%) |
21% |
37% |
|
27% |
|
Revenue margin (bps) |
64 |
46 |
|
56 |
Revenue
The Group's revenue increased by 11% to £385 million due to higher average AuMA, driven by strong NCCF, and positive market performance in 2017. Net management fee revenue, which principally comprises asset-based revenues including fixed fees, increased by £34 million to £319 million during the period, accounting for 83% of total revenue. Other revenue within Quilter Financial Planning was up 17% to £41 million, driven by growth in advice fees with the increase in the number of RFPs.
Higher AuM was the primary driver of revenue growth in the Advice and Wealth Management segment, with average assets increasing 14% from the start of the year to £42.0 billion in H1 2018, as a result of higher net management fee revenue for both Quilter Investors and Quilter Cheviot. Other revenue increased by £9 million to £45 million, principally due to growth in advice fees in Quilter Financial Planning, due to the benefit of the increased number of RFPs.
Total revenue for the Wealth Platforms segment increased to £203 million in H1 2018 (H1 2017: £198 million) as a result of higher net management fee revenue from increased average AuA to £83.2 billion, primarily in Quilter Wealth Solutions. The higher net management fee revenue was partially offset by a decline in other revenue, due to higher claims experience within the Protection book of business in Quilter Life Assurance.
The Group's blended revenue margin of 57 bps has remained broadly consistent with the prior period (H1 2017: 56 bps) as a result of the growth in AuMA for Advice and Wealth Management, which is generally at a higher revenue margin, offsetting continued revenue margin pressure within the industry.
The revenue margin for Advice and Wealth Management of 65 bps was 1 bp higher compared to the prior year, due to an increase in the revenue margin for Quilter Investors of 5 bps to 56 bps due to a change in the overall mix of AuM towards investment in products which earn a higher margin. Quilter Cheviot's revenue margin remained in line with prior year at 73 bps.
The revenue margin for Wealth Platforms decreased by 2 bps from the prior period to 44 bps. This decline was driven by lower margin gross inflows for Quilter Wealth Solutions and gross outflows of higher margin products for Quilter International. The revenue margin for Quilter Life Assurance increased by 6 bps to 63 bps, reflecting the continued run-off of the very low margin institutional life book.
Expenses
Total expenses increased by £24 million (H1 2017: £251 million) to £275 million in H1 2018, as a result of increased variable incentives (£11 million); incremental investment in new business initiatives (£6 million); additional recurring managed separation and standalone costs (£5 million); and other net organic and inflationary costs (£2 million). Investment in new business initiatives increased by 56% to £14 million in the period, due to the inclusion of the full run rate costs for Caerus, which was acquired on 1 June 2017, and the continued expansion of the QPCA business, which has undertaken nine business acquisitions over the past 12 months.
Compared to the second half of 2017, when total expenses were £268 million, H1 2018 expenses are up £7 million, or 3%. This includes the impact of FSCS levies of £11 million in H1 2018 and which arise in the first half of each financial year. Allowing for this and the continued investment in new business initiatives, the trend in expenses is pleasing as it reflects the increased focus on expense management to increase operating leverage. Total expenses in H1 2018 benefitted from the delayed timing of around £4 million of technology spend, which is expected to be incurred in the second half of 2018. The business optimisation programme is now fully mobilised, which will seek to further focus on the efficiency of the Group's operations as we grow the business.
|
Expenses by segment (£m) |
H1 2018 |
H1 2017 |
FY 2017 |
FY 2016 |
|
Advice & Wealth Management |
134 |
116 |
234 |
194 |
|
Wealth Platforms |
120 |
124 |
253 |
226 |
|
|
|
|
|
|
|
Head Office |
21 |
11 |
32 |
18 |
|
|
|
|
|
|
|
Total expenses |
275 |
251 |
519 |
438 |
Advice & Wealth Management expenses increased to £134 million, up 16% from the prior period (H1 2017: £116 million), primarily driven by further investment in QPCA in Quilter Financial Planning and the inclusion of full run rate expenses for Caerus acquired on 1 June 2017, increased costs for Quilter Investors as we build out the functionality for the business to be standalone, increased variable incentive costs, and other organic and inflationary costs. These increases were partially offset by a small one-off reduction in FSCS levies in H1 2018, due to a change in the charging period by the FCA during the period.
Expenses for Wealth Platforms decreased by 3% to £120 million in H1 2018 (H1 2017: £124 million), primarily driven by an increase in VAT recoveries in the period and the benefit of delayed timing of technology spend of around £4 million, which is expected to be incurred in the second half of the year.
Head Office costs have increased by £10 million from the prior period, to £21 million (H1 2017: £11 million), reflecting the increase in costs to become a standalone listed group, and the increase in variable compensation and share-based payment costs in the period.
Taxation
The effective tax rate (ETR) in H1 2018 was 8% (H1 2017: 16%), which we expect to be broadly consistent with the ETR for the full year. This is lower than the 2017 effective tax rate due to utilisation of previously unrecognised deferred tax assets. The Group's ETR is lower than the UK corporation tax rate of 19%, principally due to utilisation of previously unrecognised deferred tax assets and the profits from our International business which are taxed at much lower rates.
Earnings Per Share (EPS)
Basic EPS was 18.7 pence, compared to 5.1 pence in H1 2017. During the period, the number of shares in issue increased to 1.9 billion following completion of the share capital restructure as part of the separation from Old Mutual plc. Comparative EPS has been restated accordingly. Adjusted basic EPS was 5.5 pence (H1 2017: 4.4 pence).
Reconciliation of adjusted profit to IFRS profit
IFRS profit after tax was £342 million for H1 2018, compared to £94 million in H1 2017, which has increased due to the profit on sale of £290 million (after tax) in relation to the sale of the Single Strategy business on 29 June 2018. The table below reconciles the Group's adjusted profit to the IFRS results in H1 2018 and H1 2017.
|
Reconciliation of adjusted profit to profit after tax For the 6 month period ended 30 June 2018 (£m) |
H1 2018 |
H1 2017 |
% change |
|
Adjusted profit before tax |
|
|
|
|
Advice and Wealth Management |
47 |
32 |
47% |
|
Wealth Platforms |
83 |
74 |
12% |
|
Head Office |
(20) |
(11) |
(82%) |
|
Adjusted profit before tax |
110 |
95 |
16% |
|
|
|
|
|
|
Adjusting for the following: |
|
|
|
|
Goodwill impairment and impact of acquisition accounting |
(28) |
(28) |
0% |
|
Business transformation costs |
(37) |
(59) |
37% |
|
Managed separation costs |
(17) |
(12) |
(42%) |
|
Finance costs |
(8) |
(20) |
60% |
|
Policyholder tax adjustments |
15 |
- |
|
|
Total adjusting items before tax |
(75) |
(119) |
37% |
|
Profit/(Loss) before tax attributable to shareholders' profits |
35 |
(24) |
246% |
|
Income tax (expense)/credit attributable to policyholder returns |
(18) |
29 |
(162%) |
|
Profit before tax from continuing operations |
17 |
5 |
240% |
|
Income tax credit/(expense) on continuing operations |
15 |
(22) |
168% |
|
Profit/(Loss) after tax from continuing operations |
32 |
(17) |
288% |
|
Profit after tax from discontinued operations |
310 |
111 |
179% |
|
Profit for the period after tax |
342 |
94 |
264% |
Adjusted profit 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 long-term performance. Details of these adjustments are provided in note 7(a) of the consolidated financial statements and in respect of tax in note 10(c). A summary of significant adjustments is provided below.
Goodwill impairment and impact of acquisition accounting represents costs of completed acquisitions and the amortisation of intangible assets acquired by the Group. These charges remain broadly in line with prior period.
Business transformation costs were £37 million at H1 2018 (H1 2017: £59 million). H1 2018 includes £27 million in relation to the UK Platform Transformation Programme and £10 million of one-off costs associated with the separation of Quilter Investors as a result of the sale of the Single Strategy business. In H1 2017, the costs associated with the UK Platform Transformation Programme included £6 million relating to the new contract with FNZ and £53 million relating to the previous programme, including the contracts with IFDS which came to an end by mutual agreement with effect from 2 May 2017.
Managed separation costs of £17 million in H1 2018 (H1 2017: £12 million) represent the one-off transition costs to separate the Group from Old Mutual plc to become standalone and additional one off costs associated with listing. The increase from H1 2017 reflects the increase in advisor costs associated with the prospectus and subsequent listing coupled with costs associated with the debt financing. Remaining costs yet to be incurred are expected to be £19 million, in line with previous guidance.
Finance costs were £8 million in H1 2018 (H1 2017: £20 million). The prior year includes the cost of interest and finance charges on the Group's borrowings from Old Mutual plc. As previously reported, these were converted into equity or repaid in February 2018.
Policyholder tax adjustments of £15m for H1 2018 (H1 2017: nil) relate to the removal of distortions arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods.
Profit after tax from discontinued operations in H1 2018 relates to the trading profit and profit on sale of the Single Strategy business. The comparative figure for H1 2017 relates to the sale of Old Mutual Italy. Full details of these items are set out in note 5(d) to the consolidated interim financial statements.
Cash generation
Cash generation measures the proportion of adjusted profit that is recognised in the form of cash generated from operations.
Cash generated from operations is calculated by removing non-cash generative items from adjusted profit, such as deferrals required under IFRS to spread fee income and acquisition costs over the lives of the underlying contracts with customers. Cash generated from operations is stated after deducting an allowance for cash required to support the capital requirements of the business generated from normal operations (e.g. business growth).
The Group (excluding the now disposed Single Strategy business) achieved a cash generation rate of 83% of adjusted profit at H1 2018 (FY 2017: 83%).
Review of Financial Position
Capital & Liquidity
The Group aims to maintain a strong solvency and liquidity position through disciplined management of capital resources and risks. This is important given the security and peace of mind that it affords customers and advisers.
The Group will maintain a disciplined approach to capital, in order to balance its current and anticipated liquidity, regulatory capital and investment needs, with a view to returning excess capital to shareholders as appropriate. As part of its disciplined approach to capital, the Group has a prudent capital management and liquidity policy.
On 23 February 2018, the Group entered into, and fully drew down on 28 February 2018 a £300 million senior unsecured term loan with a number of relationship banks. This term loan was fully repaid on 29 June 2018 from the proceeds of the sale of the Single Strategy business.
Also on 28 February 2018, we entered into a £125 million revolving credit facility, which remains undrawn, and we issued a £200 million subordinated debt security. This was issued in the form of a 10-year Tier 2 bond with a one-time issuer call option after five years to J.P. Morgan Securities plc, paying a semi-annual coupon of 4.478% p.a. The debt security is listed on the London Stock Exchange and has a Fitch instrument rating of BBB-. On 13 April 2018, the debt security was sold by J.P. Morgan Securities plc to traditional debt capital market investors. Including the impact of amortisation of set-up costs, the issuance of this security will increase financing costs by approximately £10 million on an annual basis.
The subordinated debt security and the revolving credit facility are in place to ensure that the Group has sufficient capital and liquidity to maintain strong capital ratios and free cash balances to withstand severe but plausible stress scenarios. The full amount of the subordinated debt security remains outstanding as at 30 June 2018, representing a leverage ratio of 12% (defined as the ratio of debt to debt plus the consolidated IFRS equity after deducting the intangible assets) before the payment of the special interim dividend.
Solvency II
The Group Solvency II surplus is £1,116 million at 30 June 2018 (31 December 2017: £651 million), representing a Solvency II ratio of 195% (31 December 2017: 154%) calculated under the standard formula. The Solvency II information in this results disclosure has not been audited.
|
Group regulatory capital (£m) |
At |
At |
|
|
30 June |
31 December |
|
|
20181 |
20172 |
|
Own funds |
2,297 |
1,849 |
|
Solvency capital requirements ("SCR") |
1,181 |
1,198 |
|
Solvency II surplus |
1,116 |
651 |
|
Solvency II coverage ratio |
195% |
154% |
|
1Based on preliminary estimates. Formal filing due to the PRA by 21 September 2018. |
|
|
|
2As represented within the Annual 2017 Solvency II submission of Old Mutual plc, the group of which Quilter plc previously formed part of, to the Prudential Regulation Authority (PRA). Own funds include a £566 million subordinated loan from the parent company. This subordinated loan has been effectively converted to equity after the year-end following the acquisition of the entity holding the loan. |
||
The 41% increase in the Group Solvency II ratio is mainly due to corporate activity in the period with the two main contributors being the issuance in February 2018 of the Tier 2 bond described above and the proceeds received in respect of the sale of Single Strategy business exceeding its carrying value on the Solvency II balance sheet. The Group Solvency II ratio is stated after allowing for the impact of the special interim dividend payment to shareholders, and the actual changes in the capital requirements relating to the sale of the Single Strategy business. Other impacts were largely offsetting.
The Board believes that the Group Solvency II ratio includes sufficient free cash and capital to complete all committed strategic investments (including the UK Platform Transformation Programme) and to allow for any further potential costs arising from the FCA's review of the treatment of certain customers within our Quilter Life Assurance business, including for any potential penalty which may be imposed by the FCA, in respect of which no provision has yet been made (refer to note 24 of the consolidated interim financial statements). The impact of this prudent policy is that Quilter expects to continue to maintain a solvency position in excess of its target in the near-term.
Composition of qualifying Solvency II capital
The Group own funds for Solvency II purposes reflect the resources of the underlying businesses after excluding foreseeable dividends of £221 million. The Group own funds include the Quilter plc issued subordinated debt security which qualifies as capital under Solvency II. The composition of own funds by tier is presented in the table below.
|
|
|
|
Group own funds (£m) |
At |
|
|
30 June |
|
|
2018 |
|
Tier 11 |
2,093 |
|
Tier 22 |
204 |
|
Total Group Solvency II own funds |
2,297 |
|
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 177% of the Group SCR of £1,181 million. Tier 1 capital represents 91% of Group Solvency II own funds. Tier 2 capital represents 9% of Group Solvency II own funds and 18% of Group surplus.
Net Asset Value ("NAV")
The NAV of the Group was £2.1 billion at 30 June 2018 (31 December 2017: £1.1 billion). The increase reflects the conversion of previous loans from Old Mutual plc into equity in February 2018 and the increased resources following the gain of £290 million on the sale of the Single Strategy business. The NAV at 30 June 2018 is stated before the provision for the special interim dividend of £221 million.
Dividend
In line with statements given at the time of the company's listing, there is no normal interim dividend in relation to the first half of 2018. However, the Board has declared a special interim dividend of 12.0 pence per share from the surplus proceeds from the sale of the Single Strategy business. The special interim dividend will be paid on 21 September 2018 to shareholders on the UK and South African share registers on 24 August 2018. For Shareholders on our South African share register a dividend of 206.42952 South African cents per share will be paid on 21 September 2018, using an exchange rate of 17.20246.
Return on Equity ("RoE")
Adjusted RoE for the period ended 30 June 2018, calculated as annualised adjusted profit after tax divided by average equity (after adjusting for the special interim dividend) was 12.5%. This remained stable with the adjusted RoE of 12.7% for the full year ended 31 December 2017 (after adjusting equity for the acquisition of Skandia UK and equity allocated to the discontinued operations).
Holding company cash
At 30 June 2018, Quilter holding companies retained £587 million of cash resources and had £200 million of external debt liabilities represented in full by the Tier 2 bond. Of these cash resources, £221 million is held for the forthcoming payment of the special interim dividend. Other balances are held to be in line with, or in excess of, the Group's capital and liquidity policy ensuring that the Group can accommodate all committed strategic activity (including completing the UK Platform Transformation Project) and further potential costs arising from the FCA's review of the treatment of certain customers within our Quilter Life Assurance business, including any potential penalty which may be imposed by the FCA, in respect of which no provision has yet been made (refer to note 24 of the consolidated interim financial statements).
Principal Risks and Uncertainties
The principal risks and uncertainties that could impact the Group are summarised below. Further details of these risks are set out in the Quilter plc Listing Prospectus issued on 20 April 2018. The principal risks and uncertainties are regularly considered by the Board and these remain appropriate for the second half of this financial year.
Non-financial risks
|
Strategy |
The Group may not be able to successfully execute its strategic initiatives including the delivery of the UK Platform Transformation Programme and the business optimisation programme. If the Group fails to execute on or benefit from its strategy of aiming to be the leading UK wealth manager by continuing to focus on delivering good customer outcomes, it may have a material adverse effect on the Group's business, financial condition, results of operations and prospects. |
|
Brand and reputation |
The Group is dependent on the strength of its brands, which are vulnerable to adverse market perception or negative publicity, and the Group may face challenges with regard to its ongoing rebranding initiative. |
|
People and culture |
The Group may fail to attract and retain talented advisers, investment managers, portfolio managers, senior management and other key employees, which presents a significant risk to the delivery of the Group's overall strategy, in particular during this period of significant change across all business units, and could have a material adverse effect on the Group's culture, business, financial condition, results of operations and prospects. |
|
Competitive pressure |
The Group's business is conducted in a competitive environment and, if the Group is not successful in anticipating and responding to competitive change, adviser or customer preferences or demographic trends in a timely and cost-effective manner, its business, financial condition, results of operations and prospects could be materially adversely affected. |
|
Conduct |
Conduct risk is the risk that decisions and behaviours of a company, its employees, its advisers or its appointed representatives lead to its customers being treated unfairly or otherwise result in detrimental customer outcomes. Conduct risk may arise where the Group fails to design, implement or adhere to appropriate policies and procedures, offer products, services or other propositions that do not meet the needs of customers or fails to perform in accordance with its intended design, fails to communicate appropriately with customers, fails to deal with complaints effectively, sells or recommends unsuitable products or solutions to customers, fails to provide them with adequate information to make informed decisions or provide unsuitable investment or financial planning advice to customers, or fails to do any of the foregoing on an ongoing basis after initial sales, among other things. This risk may also arise as a result of employee (mis)conduct. |
|
Adviser and customer proposition |
Failure by the Group to offer products, services and platforms that meet adviser and customer needs and which are considered suitable could result in advisers ceasing to recommend the Group's products or services, or recommending fewer of the Group's products or services, and declining persistency of the Group's products. The asset classes or investment strategies underlying the portfolios managed by the Group may become less attractive to customers or their advisers, which could reduce demand for the Group's products and have a material adverse effect on the Group's business, financial condition, results of operations and prospects. |
|
Conflicts of interest |
The Group faces significant potential and actual conflicts of interest, including those which result from the Group's advised distribution channel. If the Group fails to manage conflicts of interest between its advice channel and other businesses across the Group, it could result in reputational damage, regulatory liability or customer restitution, which could have a material adverse effect on the Group's business, financial condition, results of operations and prospects. |
|
Information technology |
The Group uses computer systems to conduct its business, which involves managing and administering assets on behalf of customers in its wealth portfolios and on its platforms. The Group's business is highly dependent on its ability to access these systems to perform necessary business functions and to provide adviser and customer support, administer products, make changes to existing policies, file and pay claims, manage customers' investment portfolios and produce financial statements and regulatory returns. |
|
Data Information and cyber-threats |
The Group's business, by its nature, requires it to store, retrieve, evaluate and utilise customer and company data and information, which is highly sensitive. The Group is subject to the risk of actual or attempted IT security breaches from parties with criminal or malicious intent (including cyber-crime). Should the Group's intrusion detection and anti-penetration software not anticipate, prevent or mitigate a network failure or disruption, or should an incident occur in a system for which there is no duplication, it may have a material adverse effect on the Group's business, financial condition, results of operations and prospects. |
|
|
|
|
Third party |
The Group outsources and procures certain functions and services externally to third parties and may increase its use of outsourcing in the future. If the Group does not effectively develop and implement its outsourcing strategies and its internal capability to manage such strategies, third party providers do not perform as anticipated, or the Group experiences technological or other problems with a transition, it may not realise productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business. |
|
Legal and regulatory |
The Group's regulated businesses are subject to extensive regulation both in the UK and internationally, and the Group faces risks associated with compliance with these regulations. The Group's businesses are subject to the risk of adverse changes in the laws, regulations and regulatory requirements in the markets in which they operate. Regulatory reform initiatives could also lead to increased compliance costs or other adverse consequences for firms within the financial services industry, including the Group. |
|
Financial crime |
The Group is required to comply with applicable anti-money laundering, anti-terrorism, sanctions, anti-tax evasion, anti-fraud, anti-bribery and corruption, insider dealing and other laws and regulations in the jurisdictions in which it operates. Where the Group is unable to comply with applicable laws, regulations and expectations, regulators and relevant law enforcement agencies have the ability and authority to impose significant fines and other penalties, including requiring a complete review of business systems, day-to-day supervision by external consultants and ultimately the revocation of regulatory authorisations and licences. |
Financial risks
|
Market risks |
The Group's results may be materially adversely affected by conditions in global capital markets, the global economy generally and the UK economy in particular that result in a decrease in the value of customer investment portfolios. The volatility and strength of debt and equity markets, the direction and pace of change of interest rates and inflation all affect the economic environment, investor confidence and, ultimately, the volume and profitability of the Group's business. |
|
Insurance risks |
The Group has exposure to mortality risk (the risk related to the frequency of deaths) and morbidity risk (the risk related to the prevalence of a disease) from its life assurance business, which issues policies that carry certain guaranteed benefits upon the death, or defined illness, of the policyholder. These risks could be aggravated by any potential failure in underwriting processes and standards designed to identify sub-standard lives at the new business stage. |
|
Investment performance |
An important factor in the Group's ability to maintain and grow its customer base and its network of advisers is the investment performance of the customer assets that the Group manages. Actual or perceived underperformance of customer assets that are managed by the Group could have a material adverse effect on the Group's business, financial condition, results of operations and prospects. |
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 IFRS consolidated income statement, IFRS consolidated statement of financial position and IFRS consolidated statement of cash flows, which are presented in the financial statements of this release.
Further details of APMs used by the consolidated Group in our financial review are provided below.
|
APM |
Definition |
|
Adjusted profit |
Represents the underlying operating profit of the Group. It therefore adjusts IFRS profits for key adjusting items and excludes non-core operations, as detailed in note 7(a) in the financial statements. Due to the nature of the Group's businesses, we believe that adjusted profit is an appropriate basis by which to assess the Group's underlying operating results and it enhances comparability and understanding of the financial performance of the Group. |
|
Revenue margin (bps) |
Represents net management fees, divided by average AuMA. |
|
Operating margin |
Represents adjusted profit from continuing operations divided by total revenue (net management fees and other revenue). Operating margin excludes financing costs. Management use this APM as this represents an efficiency measure that allows users of our financial statements to assess what percentage of net revenues becomes adjusted profit. |
|
Gross sales |
Gross sales are the gross cash inflows received from customers during the period. |
|
Net client cash flows (NCCF) |
The difference between money received from and returned to customers during the relevant period for the Group or for the business indicated. This measure is considered to be a lead indicator of reported net revenue. |
|
Integrated net flows |
Total NCCF, before intra-Group eliminations that have flowed through two or more segments within the Group. It is considered to be a lead indicator of revenue generation driven by our integrated business model. |
|
AuMA |
Represents the total market value of all financial assets managed and administered on behalf of customers and includes shareholder assets. |
|
Average AuMA |
Represents the average total market value of all financial assets managed and administrated on behalf of customers. Average AuMA is calculated using a 7-point average (half year) and 13-point average (full year) of monthly closing AuMA. |
|
Net management fees |
Consists of revenue generated from AuMA, fixed fee revenues including charges for policyholder tax contributions, less trail commissions payable. |
|
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). |
|
Cash generation |
This presents a shareholder view of underlying cash earnings. The IFRS consolidated statement of cash flows includes policyholder cash flows, and does not exclude adjustments for non-operating items. Cash generated from operations is calculated by removing non-cash items from adjusted profit. Cash generated from operations is stated after deducting an allowance for cash required to support the capital requirements of the business generated from normal operations. The capital requirements of the business are assessed on each company's solo regulatory solvency basis. |
|
Asset retention |
The asset retention rate measures the outflows of the assets under management during the period as a percentage of opening assets under management. Asset retention is calculated as 1 - (gross outflow divided by opening assets under management) |
Supplementary Information
AuMA and NCCF
|
Gross sales (£bn) |
2018 |
Change (H1-18 vs H1-17) |
|
2017 |
||||||||
|
|
Q1 |
Q2 |
H1 |
Value |
% |
|
Q1 |
Q2 |
H1 |
Q3 |
Q4 |
FY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter Investors |
1.6 |
1.5 |
3.1 |
0.6 |
24% |
|
1.2 |
1.3 |
2.5 |
1.4 |
1.4 |
5.3 |
|
Quilter Cheviot |
0.8 |
0.6 |
1.4 |
(0.1) |
(7%) |
|
0.7 |
0.8 |
1.5 |
0.7 |
0.6 |
2.8 |
|
Advice & Wealth Management |
2.4 |
2.1 |
4.5 |
0.5 |
13% |
|
1.9 |
2.1 |
4.0 |
2.1 |
2.0 |
8.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter Wealth Solutions |
2.3 |
2.0 |
4.3 |
(0.1) |
(2%) |
|
2.2 |
2.2 |
4.4 |
2.3 |
2.2 |
8.9 |
|
Quilter International |
0.5 |
0.4 |
0.9 |
(0.2) |
(18%) |
|
0.5 |
0.6 |
1.1 |
0.4 |
1.3 |
2.8 |
|
Quilter Life Assurance |
0.2 |
0.1 |
0.3 |
(0.5) |
(63%) |
|
0.4 |
0.4 |
0.8 |
0.2 |
0.1 |
1.1 |
|
Wealth Platforms |
3.0 |
2.5 |
5.5 |
(0.8) |
(13%) |
|
3.1 |
3.2 |
6.3 |
2.9 |
3.6 |
12.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of intra-Group items |
(1.0) |
(0.9) |
(1.9) |
(0.2) |
12% |
|
(0.8) |
(0.9) |
(1.7) |
(0.9) |
(1.0) |
(3.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter plc |
4.4 |
3.7 |
8.1 |
(0.5) |
(6%) |
|
4.2 |
4.4 |
8.6 |
4.1 |
4.6 |
17.3 |
|
NCCF (£bn) |
2018 |
% of Opening AuMA Annualised |
|
2017 |
|||||||
|
|
Q1 |
Q2 |
H1 |
|
Q1 |
Q2 |
H1 |
Q3 |
Q4 |
FY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter Investors |
1.0 |
0.8 |
1.8 |
21% |
|
0.7 |
0.8 |
1.5 |
0.9 |
0.9 |
3.3 |
|
Quilter Cheviot |
0.3 |
0.2 |
0.5 |
4% |
|
0.2 |
0.4 |
0.6 |
0.4 |
0.1 |
1.1 |
|
Advice & Wealth Management |
1.3 |
1.0 |
2.3 |
11% |
|
0.9 |
1.2 |
2.1 |
1.3 |
1.0 |
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter Wealth Solutions |
1.3 |
0.8 |
2.1 |
8% |
|
1.0 |
1.1 |
2.1 |
1.2 |
1.2 |
4.5 |
|
Quilter International |
0.1 |
- |
0.1 |
1% |
|
0.2 |
0.2 |
0.4 |
0.2 |
0.8 |
1.4 |
|
Quilter Life Assurance |
(0.5) |
(0.5) |
(1.0) |
(13%) |
|
(0.3) |
(0.2) |
(0.5) |
(0.7) |
(0.4) |
(1.6) |
|
Wealth Platforms |
0.9 |
0.3 |
1.2 |
3% |
|
0.9 |
1.1 |
2.0 |
0.7 |
1.6 |
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of intra-Group items |
(0.6) |
(0.7) |
(1.3) |
|
|
(0.4) |
(0.5) |
(0.9) |
(0.7) |
(0.8) |
(2.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter plc |
1.6 |
0.6 |
2.2 |
4% |
|
1.4 |
1.8 |
3.2 |
1.3 |
1.8 |
6.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quilter plc (excl. Quilter Life Assurance) |
2.0 |
1.0 |
3.0 |
6% |
|
1.5 |
1.9 |
3.4 |
1.9 |
2.3 |
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integrated flows (excl. Quilter Life Assurance) |
|
|
2.8 |
|
|
|
|
2.4 |
|
|
5.2 |
|
AuMA (£bn) |
2018 |
Change (H1-18 vs H1-17) |
|
2017 |
|||||
|
|
Q1 |
H1 |
Value |
% |
|
Q1 |
H1 |
Q3 |
FY |
|
|
|
|
|
|
|
|
|
|
|
|
Quilter Investors |
17.1 |
18.4 |
4.3 |
30% |
|
13.1 |
14.1 |
15.3 |
16.9 |
|
Quilter Cheviot |
22.8 |
24.1 |
1.6 |
7% |
|
21.8 |
22.5 |
23.0 |
23.6 |
|
Quilter Financial Planning |
1.2 |
1.2 |
- |
0% |
|
- |
1.2 |
1.2 |
1.2 |
|
Advice & Wealth Management |
41.1 |
43.7 |
5.9 |
16% |
|
34.9 |
37.8 |
39.5 |
41.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Quilter Wealth Solutions |
49.7 |
52.3 |
6.4 |
14% |
|
44.0 |
45.9 |
47.6 |
50.2 |
|
Quilter International |
18.6 |
19.2 |
1.4 |
8% |
|
17.5 |
17.8 |
18.0 |
19.3 |
|
Quilter Life Assurance 1 |
14.4 |
14.5 |
(1.1) |
(7%) |
|
16.0 |
15.6 |
15.1 |
15.3 |
|
Wealth Platforms |
82.7 |
86.0 |
6.7 |
8% |
|
77.5 |
79.3 |
80.7 |
84.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of intra-Group items |
(12.2) |
(13.2) |
(3.4) |
35% |
|
(9.1) |
(9.8) |
(10.6) |
(12.1) |
|
|
|
|
|
|
|
|
|
|
|
|
Quilter plc |
111.6 |
116.5 |
9.2 |
9% |
|
103.3 |
107.3 |
109.6 |
114.4 |
|
1 Includes other shareholder assets of £0.3bn in Q1 2018 and £0.4bn in H1 2018 (Q1 2017: £0.1bn, H1 2017: £nil, Q3 2017: £0.1bn and FY 2017: £0.2bn) |
|||||||||
|
Revenue (£m) H1 2018 |
Quilter Investors |
Quilter Cheviot |
Quilter Financial Planning |
Advice & Wealth Management |
Quilter Wealth Solutions |
Quilter International |
Quilter Life Assurance |
Wealth Platforms |
Head Office |
|
|
Net management fee |
49 |
86 |
1 |
136 |
83 |
56 |
44 |
183 |
- |
|
|
Other revenue |
1 |
3 |
41 |
45 |
2 |
10 |
8 |
20 |
1 |
|
|
Total revenue |
50 |
89 |
42 |
181 |
85 |
66 |
52 |
203 |
1 |
|
|
|
|
|
||||||||
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (£m) H1 2017 |
Quilter Investors |
Quilter Cheviot |
Quilter Financial Planning |
Advice & Wealth Management |
Quilter Wealth Solutions |
Quilter International |
Quilter Life Assurance |
Wealth Platforms |
Head Office |
Group |
|
Net management fee |
33 |
79 |
- |
112 |
75 |
55 |
43 |
173 |
- |
285 |
|
Other revenue |
- |
1 |
35 |
36 |
2 |
11 |
12 |
25 |
- |
61 |
|
Total revenue |
33 |
80 |
35 |
148 |
77 |
66 |
55 |
198 |
- |
346 |
Advice and Wealth Management
The following table sets forth certain key metrics utilised by management with respect to the business units of the Advice & Wealth Management segment, for the periods indicated.
|
|
H1 2018 |
H1 2017 |
% change |
|
|
|
|
|
|
Quilter Financial Planning |
|
|
|
|
Net management fee |
1 |
- |
- |
|
Other revenue |
41 |
35 |
17% |
|
Total revenue |
42 |
35 |
20% |
|
|
|
|
|
|
RFPs + QPCA (#) |
1,590 |
1,582 |
1% |
|
Productivity (£m) |
1.8 |
1.6 |
13% |
|
|
|
|
|
|
Quilter Investors |
|
|
|
|
Net management fee |
49 |
33 |
48% |
|
Other revenue |
1 |
- |
- |
|
Total revenue |
50 |
33 |
52% |
|
|
|
|
|
|
NCCF (£bn) |
1.8 |
1.5 |
20% |
|
Closing AuM (£bn) |
18.4 |
14.1 |
30% |
|
Average AuM (£bn) |
17.5 |
13.1 |
34% |
|
Revenue margin (bps) |
56 |
51 |
5 bps |
|
|
|
|
|
|
Quilter Cheviot |
|
|
|
|
Net management fee |
86 |
79 |
9% |
|
Other revenue |
3 |
1 |
200% |
|
Total revenue |
89 |
80 |
11% |
|
|
|
|
|
|
NCCF (£bn) |
0.5 |
0.6 |
(17%) |
|
Closing AuM (£bn) |
24.1 |
22.5 |
7% |
|
Average AuM (£bn) |
23.5 |
21.6 |
9% |
|
Revenue margin (bps) |
73 |
73 |
- |
|
Asset retention (%) |
92% |
91% |
1 pp |
|
Investment managers (#) |
168 |
159 |
6% |
Wealth Platforms
The following table sets forth certain key metrics utilised by management with respect to the business units of the Wealth Platforms segment, for the periods indicated.
|
|
H1 2018 |
H1 2017 |
% change |
|
|
|
|
|
|
Quilter Wealth Solutions |
|
|
|
|
Net management fee |
83 |
75 |
11% |
|
Other revenue |
2 |
2 |
- |
|
Total revenue |
85 |
77 |
10% |
|
|
|
|
|
|
NCCF (£bn) |
2.1 |
2.1 |
- |
|
Closing AuA (£bn) |
52.3 |
45.9 |
14% |
|
Average AuA (£bn) |
51.8 |
44.7 |
16% |
|
Revenue margin (bps) |
32 |
34 |
(2) bps |
|
Asset retention (%) |
91% |
89% |
2 pp |
|
|
|
|
|
|
Quilter International |
|
|
|
|
Net management fee |
56 |
55 |
2% |
|
Other revenue |
10 |
11 |
(9%) |
|
Total revenue |
66 |
66 |
- |
|
|
|
|
|
|
NCCF (£bn) |
0.1 |
0.4 |
(75%) |
|
Closing AuA (£bn) |
19.2 |
17.8 |
8% |
|
Average AuA (£bn) |
18.9 |
17.3 |
9% |
|
Revenue margin (bps) |
59 |
64 |
(5) bps |
|
% premium-based charging (%) |
58% |
53% |
5 pp |
|
Asset retention (%) |
92% |
92% |
- |
|
|
|
|
|
|
Quilter Life Assurance |
|
|
|
|
Net management fee |
44 |
43 |
2% |
|
Other revenue |
8 |
12 |
(33%) |
|
Total revenue |
52 |
55 |
(5%) |
|
|
|
|
|
|
NCCF (£bn) |
(1.0) |
(0.5) |
(100%) |
|
Closing AuA (£bn) |
14.5 |
15.6 |
(7%) |
|
Average AuA (£bn) |
13.9 |
15.0 |
(7%) |
|
Revenue margin (bps) |
63 |
57 |
6 bps |
|
Asset retention (%) |
83% |
83% |
- |
Shareholder Information
In line with statements given at the time of the Company's listing, there is no routine interim dividend in relation to the first half of 2018. However, the Board has declared a special interim dividend of 12.0 pence per share from the surplus proceeds from the sale of the Single Strategy business. The special interim dividend will be paid on 21 September 2018 to shareholders on the UK and South African share registers on 24 August 2018.
Dividend Timetable
Dividend Declaration in pounds sterling with South Africa ZAR Equivalent |
Wednesday 8 August 2018 |
Last day to trade cum dividend in South Africa |
Tuesday 21 August 2018 |
Shares trade ex-dividend in South Africa |
Wednesday 22 August 2018 |
Shares trade ex-dividend in the UK |
Thursday 23 August 2018 |
Record Date in UK and South Africa |
Friday 24 August 2018 |
Payment date |
Friday 21 September 2018 |
From the opening of trading on Wednesday 8 August 2018 until the close of business on Friday 24 August 2018, 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 22 and 24 August 2018, both dates inclusive.
Additional information
For Shareholders on our South African share register a dividend of 206.42952 South African cents per share will be paid on 21 September 2018 to shareholders, based on an exchange rate of 17.20246. Dividend Tax will be withheld at the rate of 20% from the amount of the gross dividend of 206.42952 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 165.14362 South African cents per share. The Company had a total of 1,902,251,098 shares in issue at today's date.
If you are uncertain as to the tax treatment of any dividends you should consult your own tax advisor.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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