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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Quilter Plc | LSE:QLT | London | Ordinary Share | GB00BNHSJN34 | ORD 8 1/6P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 3.90 | 3.29% | 122.40 | 122.00 | 122.30 | 122.30 | 117.70 | 119.00 | 1,367,626 | 16:35:24 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | 4.49B | 42M | 0.0299 | 40.87 | 1.66B |
From Jul 2019 to Jul 2024
TIDMQLT
RNS Number : 6868F
Quilter PLC
11 March 2020
NEWS RELEASE
11 March 2020
Quilter plc preliminary results for the year ended 31 December 2019
A year of significant strategic progress, underlying profit performance ahead of market expectations and GBP375 million capital return with additional c.GBP30 million Odd-lot Offer announced
Highlights (including Quilter Life Assurance ("QLA"))
-- Adjusted profit before tax up 1% to GBP235 million (2018: GBP233 million excluding Single Strategy business; 2018: GBP259 million including Single Strategy business) of which GBP53 million (2018: GBP57 million) from QLA.
-- Adjusted diluted earnings per share of 11.3 pence (2018: 13.5 pence, of which 1.2 pence is in respect of the Single Strategy business).
Management basis - continuing business (excludes QLA)
-- Adjusted profit before tax for the Group up 3% to GBP182 million (2018: GBP176 million); for further details see overleaf.
-- Adjusted diluted earnings per share from continuing operations of 8.6 pence (2018: 8.9 pence) reflecting more normal tax charge.
-- Recommended final dividend of 3.5 pence per share (2018: 3.3 pence per share), bringing the total dividend for the year to 5.2 pence per share (2018: 3.3 pence per share, excluding the special dividend of 12.0 pence per share).
-- Assets under Management/Administration ("AuMA") up 13% from 31 December 2018 to GBP110.4 billion (2018: GBP97.7 billion).
-- Operating margin stable at 26% (2018: 26%), despite investment in distribution, supported by optimisation initiatives.
Hot Features
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-- Net Client Cash Flow ("NCCF") of GBP0.3 billion (2018: GBP4.7 billion).
-- Integrated net flows of GBP2.6 billion (2018: GBP4.7 billion).
Statutory results
-- IFRS loss before tax attributable to equity holders from continuing operations of GBP53 million (2018: profit of GBP41 million) reflecting a higher policyholder tax charge due to the increase in market levels during 2019.
-- Diluted earnings per share of 7.8 pence (2018: 26.5 pence).
-- Solvency II ratio of 221% after payment of the recommended final dividend (2018: 190% (including QLA)).
Strategic progress
-- The sale of the QLA business to ReAssure Group for GBP425 million (plus interest of GBP21 million) completed on 31 December 2019. The net surplus proceeds of GBP375 million are planned to be returned to shareholders. A share buyback on both the London and Johannesburg Stock Exchanges will commence imminently.
-- Odd-Lot Offer to reduce number of shareholders by up to c.50% at a cost of up to c.GBP30 million announced alongside full year results.
-- UK Platform Transformation Programme - initial migration of 38,500 accounts from 25,000 clients representing AuA of GBP4.3 billion successfully transitioned over the weekend of 22/23 February 2020, in line with plan.
-- Business optimisation and cost saving initiatives ahead of plan with GBP14 million of savings realised during the year with an end-2019 run rate benefit of GBP24 million.
-- Integration of Charles Derby completed and Lighthouse Group plc progressing in line with plan. Charles Derby rebranded to Quilter Financial Advisers early in 2020.
-- Quilter Investors disengagement from Transition Service Agreement with Merian completed six months ahead of schedule and on budget.
Paul Feeney, Chief Executive Officer, said:
"2019 was a pivotal year for Quilter. Not only were we pleased with a 3% increase in adjusted profit to GBP182 million, excluding QLA, after business investment via acquisitions and new premises expenditure of around GBP10 million, it was also a great year for delivering on our transformation agenda.
Our optimisation plans remain on track and our advice acquisitions will contribute to flows in the coming years. Quilter Investors is now a highly scalable business with a broader range of solutions to meet client needs. Quilter International delivered strong performance in 2019 supported by a focus on cost containment to offset revenue pressures.
The Board has proposed a final dividend of 3.5 pence per share to provide a full year dividend of 5.2 pence per share. We intend to undertake a capital return of GBP375 million to shareholders from the net surplus proceeds from the Quilter Life Assurance sale, and a share buyback will commence imminently. We have also announced an Odd-Lot Offer to provide small shareholders with a cost effective means of selling their shares.
2020 began well but the sharp Coronavirus induced market correction beginning in late February has created a level of uncertainty as to the outlook for the remainder of 2020. It is currently too early to ascertain what impact market volatility will have on investor sentiment, NCCF and the consequential impact this may have on revenues and profitability.
Notwithstanding short term market sentiment, we remain optimistic on the long-term secular opportunity across our markets and Quilter is strategically well positioned to benefit from this. Completing the first migration onto our new UK platform in early February was a major milestone for the Group. We are now focussed on delivering the second and final migration to a high quality outcome in the summer. Our new platform will strengthen the cohesion between our different business capabilities and be a catalyst for faster growth."
Quilter highlights from continuing operations(1) 2019 2018
======================================================================= ====== ======
Assets and flows
AuMA (GBPbn)(2) 110.4 97.7
Gross sales (GBPbn)(2) 12.3 14.2
NCCF (GBPbn)(2) 0.3 4.7
NCCF/opening AuMA(2) - 5%
Integrated flows (GBPbn)(2) 2.6 4.7
Productivity (GBPm)(2,3) 1.0 1.7
Asset retention(2) 88% 91%
Profit & loss
IFRS (loss)/profit before tax attributable to equity
holders from continuing operations (GBPm) (53) 41
IFRS (loss)/profit after tax from continuing operations
(GBPm) (21) 66
Adjusted profit before tax before reallocation of QLA
costs (GBPm)(2,4) 182 176
Adjusted profit before tax (GBPm)(2,4) 156 148
Operating margin(2) 26% 26%
Revenue margin (bps)(2) 55 55
Return on equity(2) 8.3% 9.8%
Non-financial
Restricted Financial Planners ("RFPs")(6) 1,799 1,621
Investment Managers ("IMs")(6) 167 155
----------------------------------------------------------------------- ------ ------
Quilter highlights from continuing operations and Quilter
Life Assurance 2019 2018
======================================================================= ====== ======
Profit & loss
Adjusted profit before tax (GBPm)(2) 235 233
Operating margin(2) 29% 30%
Revenue margin (bps)(2) 57 57
Adjusted diluted earnings per share (pence)(2,5) 11.3 12.3
----------------------------------------------------------------------- ------ ------
(1) Continuing operations represent Quilter plc excluding results of
QLA (for both 2018 and 2019) and the Single Strategy business (up to the
date of sale which completed on 29 June 2018).
(2) Alternative Performance Measures ("APMs") are detailed
on pages 5 to 7.
(3) Average integrated NCCF per Restricted Financial
Planner.
(4) Adjusted profit from continuing operations includes GBP26 million
of costs (2018: GBP28 million) previously reported as part of the QLA
business to be reallocated from discontinued to continuing operations,
as these costs do not transfer to ReAssure on disposal at 31 December
2019. Of the GBP26 million of costs reallocated, GBP14 million will recur
in 2020 to provide services to ReAssure under the Transitional Services
Arrangement, with corresponding income to cover these costs. Management
actions are being taken to manage the remaining costs, which are expected
to continually decline over the next two years. Refer to page 16 for a
full reconciliation.
(5) Adjusted diluted earnings per share in 2018 of 13.5 pence, of which
1.2 pence in respect of the Single Strategy business.
(6) Closing headcount as at the year end date.
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 total Group,
excluding QLA, and on a continuing and discontinued basis. A full reconciliation
of these views is provided on page 16 and a definition of adjusted profit
is explained on page 5.
For adjusted profit before tax on a continuing basis, IFRS accounting
standards require GBP26 million of costs (2018: GBP28 million), previously
reported as part of the QLA business, to be reallocated from discontinued
to continuing operations, as these costs do not transfer to ReAssure on
disposal at 31 December 2019. Of the GBP26 million of costs re-allocated,
GBP14 million will be incurred in 2020 to provide services to ReAssure
under the Transitional Services Arrangement, with corresponding income
to cover these costs. Management actions are being taken to manage the
remaining costs, which are expected to continually decline over the next
two years.
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including
APMs, as explained further on pages 5 to 7. In the headings and tables
presented from page 8 onwards, these measures are indicated with an asterix:
*.
Quilter plc results for the year ended 31 December 2019
Enquiries
Investor Relations John-Paul Crutchley UK +44 20 7002 7016 Media Jane Goodland UK +44 77 9001 2066 Tim Skelton-Smith UK +44 78 2414 5076 Camarco Geoffrey Pelham-Lane UK +44 20 3757 4985 Aprio (South Africa) Julian Gwillim SA +27 11 880 0037
Paul Feeney, CEO, and Mark Satchel, CFO, will host a presentation for investors and analysts at 08:30am (GMT) today, 11 March 2020, 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:
United Kingdom/ +44 333 300
Other 0804
+27 21 672
South Africa 4118
------------
+1 631 913
United States 1422
------------
Access Code 91213038#
------------
Playback facility:
United Kingdom/ +44 333 300
Other 0819
+27 21 672
South Africa 4123
------------
+1 866 931
United States 1566
------------
Access Code 301307701#
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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 several scenarios of the UK leaving the EU in relation to financial services, market related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Quilter plc and its affiliates operate. As a result, Quilter plc's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Quilter plc's forward looking statements.
Quilter plc undertakes no obligation to update the forward-looking statements contained in this announcement or any other forward-looking statements it may make. Nothing in this announcement should be construed as a profit forecast.
Business unit descriptor:
Previous Business Unit Name New Business Unit Name
Advice & Wealth Management
Multi-Asset Quilter Investors
Quilter Cheviot No change
Intrinsic Quilter Financial Planning
Old Mutual Wealth Private Client Advisers Quilter Private Client Advisers
Wealth Platforms
UK Platform Quilter Wealth Solutions
International Quilter International
Heritage Quilter Life Assurance
-------------------------------
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures. APMs are not defined by the relevant financial reporting framework which for the Group is IFRS, but we use them to provide greater insight into the financial performance, financial position and cash flows of the Group and the way it is managed.
APMs should be read together with the Group's consolidated financial statements, which include the Group's income statement, statement of financial position and statement of cash flows, which are presented on pages 32 to 37.
A number of our metrics exclude Quilter Life Assurance, which was historically excluded due to the closure of the institutional life book of business announced in 2017, and the run-off of the closed legacy book of business. At 31 December 2019, this business was sold to ReAssure, as explained in note 3(b) to the financial statements, and has been classified as a discontinued operation accordingly.
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 in the year, which includes the impact of IFRS 16, as disclosed in note 1 to the consolidated financial statements.
APM Definition
Adjusted profit Represents the adjusted profit before tax of the Group.
before tax Adjusted profit before tax represents the Group's IFRS
profit, adjusted for key items and excludes non-core operations,
as detailed on page 34 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.
In 2019, total adjusted profit before tax is presented
for the total Group, as well as adjusted profit before
tax for the Group excluding QLA, and adjusted profit before
tax for QLA.
A continuing and discontinued view of adjusted profit before
tax has also been presented, as IFRS accounting standards
require GBP26 million of costs (2018: GBP28 million) previously
reported as part of the QLA business to be reallocated
from discontinued to continuing operations, as these costs
do not transfer to ReAssure on disposal at 31 December
2019.
A detailed reconciliation of the adjusted profit before
tax metrics presented, and how these reconcile to IFRS,
is provided on page 16. Adjusted profit is referred to
throughout the Chief Executive Officer's statement and
Financial review, with comparison to the prior period explained
on page 13.
-----------------------------------------------------------------
Revenue margin Represents net management fees, divided by average AuMA.
(bps) Management uses this APM as it represents the Group's ability
to earn revenue from AuMA.
Revenue margin by segment and for the Group is explained
on page 14 of the Financial review.
-----------------------------------------------------------------
Operating margin Represents adjusted profit before tax divided by total
net fee revenue including policyholder tax contributions
and adviser fees. Operating margin excludes financing costs
on external debt (as disclosed in note 5(a) to the consolidated
financial statements as 'Interest payable on borrowed funds').
Operating margin is presented for the total group, including
QLA, and the group excluding QLA (before the reallocation
of the QLA costs as described in the adjusted profit before
tax section above).
Management use this APM as this is an efficiency measure
that reflects the percentage of total net fee revenues
that become adjusted profit before tax.
Operating margin is referred to in the Chief Executive
Officer's statement and Financial review, with comparison
to the prior year explained in the adjusted profit section
on page 14.
-----------------------------------------------------------------
Gross sales Gross sales are the gross client cash inflows received
from customers during the period and represent our ability
to increase AuMA and revenue. Gross sales are disclosed
by business on page 12 of the Financial review and by business
and segment in the Supplementary information on pages 24
and 26.
-----------------------------------------------------------------
Gross outflows Gross outflows are the gross client cash outflows returned
to customers during the period and results in a decrease
to AuMA and revenue. Gross outflows are disclosed by business
on page 12 of the Financial review and by business and
segment in the Supplementary information on pages 24 and
26.
-----------------------------------------------------------------
Net client cash The difference between money received from and returned
flows ("NCCF") to customers during the relevant period for the Group or
for the business indicated.
This measure is considered to be a lead indicator of total
net fee revenue.
NCCF is referred to throughout this document, with a separate
section in the Financial review on pages 12 to 13, and
is presented by business and segment in the Supplementary
information on pages 24 to 26.
-----------------------------------------------------------------
Integrated net Total NCCF (excluding QLA), before intra-Group eliminations
flows that have flowed through two or more segments within the
Group. It is considered to be a lead indicator of revenue
generation driven by our integrated business model.
Integrated net flows are explained in the NCCF section
of the Financial review on page 13.
Assets under Management Represents the total market value of all financial assets
and Administration managed and administered on behalf of customers.
("AuMA") For reporting, the Advice and Wealth Mangement segment
presents Assets under Management and Wealth Platforms segment
presents Assets under Administration.
AuMA is referred to throughout this document, with a separate
section in the Financial review on page 13, and is presented
by business and segment in the Supplementary information
on page 25.
------------------------------------------------------------------
Average AuMA Represents the average total market value of all financial
assets managed and administrated on behalf of customers.
Average AuMA is calculated using a 7-point average (half
year) and 13-point average (full year) of monthly closing
AuMA.
------------------------------------------------------------------
Total net fee Total net fee revenue represents revenue earned from net
revenue(1) management fees and other revenue listed below, and is
a key input into the Group's operating margin.
Further information on total net fee revenue is provided
on page 14 of the Financial review and note 5(c) in the
consolidated financial statements.
------------------------------------------------------------------
Net management Consists of revenue generated from AuMA, fixed fee revenues
fees 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 treatment
and presentation commonly used across our industry. Net
management fees is a part of total net fee revenue , which
is a key input into the Group's operating margin.
Further information on net management fees is provided
on page 14 and note 5(c) in the consolidated financial
statements.
------------------------------------------------------------------
Other revenue 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 part of total net fee revenue, which is
a key input into the Group's operating margin.
Further information on other revenue is provided on page
14 and note 5(c) in the consolidated financial statements.
------------------------------------------------------------------
Expenses(1)
Expenses represent the underlying costs for the Group,
excluding the impact of one-off items that need to be incurred
to earn total net fee revenue. Expenses are included in
the calculation of adjusted profit before tax, and impact
the Group's operating margin.
A reconciliation of expenses to the applicable IFRS line
items is included in note 5(c) to the consolidated financial
statements, and the adjusting items excluded from expenses
are explained in note 5(a). Expenses are explained on page
15 of the Financial review.
------------------------------------------------------------------
Cash generation This presents a shareholder view of underlying cash earnings.
The IFRS consolidated statement of cash flows includes
policyholder cash flows and non-operating items. Cash generated
from operations is calculated by removing non-cash items
from adjusted profit after tax. For 2019, the cash generation
has been calculated using the total adjusted profit for
the Group (including QLA), as well as for adjusted profit
(excluding QLA) before the reallocation of QLA costs (as
explained on page 2). The capital requirements of the business
are assessed on each company's solo regulatory solvency
basis.
Cash generation is explained on page 17 of the Financial
review.
------------------------------------------------------------------
Asset retention The asset retention rate measures our ability to retain
assets from delivering good customer outcomes and investment
performance. Asset retention reflects the annualised outflows
of the assets under management during the period as a percentage
of opening assets under management. Asset retention is
calculated as: 1 - (annualised gross outflow divided by
opening assets under management).
Asset retention is provided for the Group on page 2, and
by segment on pages 28 to 29.
------------------------------------------------------------------
Productivity Productivity is a measure of the value created by Integrated
net flows from our advice business, and is an indicator
of the success of our integrated business model. Productivity
is calculated as average integrated net flow per Restricted
Financial Planner.
Productivity is provided on pages 2 and 28.
------------------------------------------------------------------
NCCF/opening AuMA This measure is calculated as total NCCF annualised (as
(excluding QLA) described above) divided by opening AuMA presented as a
percentage.
Quilter Life Assurance is excluded from this metric principally
due to the closure of the institutional life book of business
announced in 2017 and run-off of the legacy book as it
is a closed-book business. The completion of the sale of
this business took place on 31 December 2019. This metric
is provided on page 2.
------------------------------------------------------------------
Return on Equity This calculates how many pounds of profit the Group generates
("RoE") (excl. with each pound of shareholder equity. This measure is
discontinued operations) calculated as adjusted profit after tax divided by average
equity. For the 2018 comparative, equity was adjusted for
the acquisition of Skandia UK from Old Mutual plc as part
of Managed Separation and equity allocated to the discontinued
operations arising from the sale of the Single Strategy
business and, for both 2018 and 2019, sale of the Quilter
Life Assurance business.
------------------------------------------------------------------
IFRS profit before This profit metric is calculated using the Group's IFRS
tax (excluding profit before tax, from continuing and discontinued operations,
amortisation, and is adjusted to exclude amortisation of intangible assets,
policyholder tax policyholder tax adjustments, and other one-off items as
adjustments and disclosed in the reconciliation in note 5(b) to the consolidated
other one-off financial statements.
items)(1) This APM has been relabeled in 2019, to provide a more
meaningful title (was previously called IFRS profit before
tax (excluding policyholder tax and life tax contributions)).
The 2018 comparative has also been restated for comparability
with the current year, which is also explained in note
5(b) to the consolidated financial statements.
This metric is used as the basis for remuneration, which
is explained in the Remuneration Report in the Group's
Annual Report.
------------------------------------------------------------------
Represents the adjusted profit earnings per share. Calculated
as adjusted profit after tax divided by the weighted average
Adjusted diluted number of shares. Refer to page 15 and note 7 in the consolidated
earnings per share financial statements.
In 2019 adjusted diluted earnings per share is presented
for the total Group, as well as adjusted profit before
tax for the Group excluding QLA.
A continuing and discontinued view of diluted earnings
per share has also been presented, as IFRS accounting standards
require GBP26 million of costs (2018: GBP28 million) previously
reported as part of the QLA business to be re-allocated
from discontinued to continuing operations, as these costs
do not transfer to ReAssure on disposal at 31 December
2019. The calculation of all EPS metrics is included in
note 7 to the consolidated financial statements
Adjusted diluted earnings per share is referred to throughout
this document, with additional details in the EPS section
in the Financial review on page 15.
------------------------- ------------------------------------------------------------------
Headline earnings The Group is required to calculate headline earnings per
per share(1) share in accordance with the Johannesburg Stock Exchange
Limited Listing Requirements, determined by reference to
the South African Institute of Chartered Accountants' circular
02/2015 . This is calculated on a basic and diluted basis.
For details of the calculation, refer to note 7 to the
consolidated financial statements.
------------------------------------------------------------------
(1) New APM definition in 2019.
Chief Executive Officer's Statement
Execution
Last year I noted that Quilter had come to market not as the finished article but as a work in progress. In 2019 we made significant strides towards achieving our goals. We have a clear vision about what we want Quilter to be: a modern advice-led, wealth management company built on the principles of fairness, transparency and choice with each of these supported by great service. Our core UK customer propositions are free of exit charges or surrender penalties. Delivering good customer outcomes through the provision of trusted advice is central to everything we do. The combination of our own restricted financial planners together with the c.4,000 independent adviser firms who use Quilter's UK Platform on a regular basis provides us with two strong channels to drive business growth.
Our ambitions are considerable and the growth opportunity across our markets remains compelling, so during 2019 we have been moving at pace to transform Quilter by:
-- a relentless focus on optimisation and the development of our new UK platform; -- reshaping our business through both acquisitions and disposals;
-- investing in our revenue generation capability through growth in restricted financial planners and adding investment managers to replace the departures we saw in 2018; and
-- maintaining the capital discipline we demonstrated with 2018's special dividend through a commitment to return the GBP375 million net surplus sale proceeds from the disposal of Quilter Life Assurance through on-market share repurchases.
Remaining key milestones include the migration of customers from our existing platform onto our new UK platform, the first stage of which was completed in early 2020. We also need to complete the first phase of our optimisation plans by the end of 2021. As we look ahead, we believe that the secular growth characteristics of our markets remain strong, and each of our businesses are well positioned strategically in each of the markets in which they operate. Our objective is to deliver on our potential by making Quilter more than the sum of its parts and delivering excellent outcomes for all our stakeholders.
Financial performance
We have delivered a solid profit performance in 2019 in a market that has had to contend with extreme political and economic uncertainty due to Brexit in the UK, and trade and geopolitical concerns more broadly across the globe. Business conditions in 2019 were the opposite of those experienced in the previous year. In 2018, Quilter benefited from good new business flows but a challenging environment which was exacerbated by the market sell off late in that year. By contrast, in 2019 the net flow environment has been more challenging due to the aforementioned geopolitical uncertainty coupled with certain Quilter-specific issues, discussed below. However, the market rebound early in 2019 was stronger than we expected at the end of 2018, which, coupled with the high level of retention of our assets under management and administration, meant we closed the year with record AuMA of GBP110.4 billion.
Against this backdrop, I am pleased with our adjusted profit before tax for the year of GBP182 million (2018: GBP176 million) (excluding Quilter Life Assurance), up 3% on last year, or GBP235 million (2018: GBP233 million), up 1%, including Quilter Life Assurance. This reflected stable revenue margins coupled with a 4% increase in average AuMA and was supported by strong cost discipline and our optimisation activities. Expenses increased modestly as a result of investment in the business through our distribution acquisitions and the normalisation of the charge for the FSCS levy. Excluding the impact from acquisitions, underlying costs (including Quilter Life Assurance) were broadly unchanged on 2018, in line with the guidance provided at the beginning of the year. On an IFRS basis, our continuing business made a loss after tax of GBP21 million (2018: profit after tax of GBP66 million). The difference between our IFRS and adjusted profit is predominantly due to the amortisation of (non-cash) intangibles related to acquisitions, the costs of our platform transformation programme (which will fall away in 2021) and the restructuring costs associated with our optimisation plans, which will continue to be incurred in 2020 and 2021.
Transformation
A key initiative in 2019 was broadening the reach of our advice business. We acquired Charles Derby Group in February 2019 which, in one-step, gave us UK-wide scale in our recently formed national advice business. The subsequent addition of 390 financial advisers through the acquisition of Lighthouse Group plc in June 2019 added critical mass to the national advice business as well as broadening our network business. We will enhance the Lighthouse restricted proposition through access to Quilter Investors solutions which have been specifically designed to meet the needs of customers of advice businesses. In line with the trend in previous acquisitions, over time, we expect a number of the 250 Lighthouse independent financial advisers to convert to a restricted proposition based upon the ability of our propositions to meet their customers' needs.
The integration of both the above acquisitions are progressing in line with expectations and should contribute to flows during 2020. While these acquisitions were strategically important, we also experienced good levels of organic growth in RFPs across our wider business. We added a net 41 RFPs across the firm representing organic growth of 3% and have a strong pipeline of new joiners expected for 2020 which is partly due to the scaling up of our investment in our Financial Adviser School. Given the focus on broadening of our business, we were delighted that Quilter was named as the top-ranked financial adviser firm in 2019 by FTAdviser which provides external validation of our commitment to providing high-quality advice.
The sale of Quilter Life Assurance was in line with our strategic objectives. Once the FCA thematic review into fair treatment of long-standing customers closed with a favourable outcome in late 2018, we decided to undertake a strategic review of the business which concluded that a sale was in the best interests of customers, shareholders and employees. The sale of Quilter Life Assurance to ReAssure helps simplify and focus our business and removes a drag from our growth trajectory. We were delighted with the sale price achieved of GBP425 million (and interest income of GBP21 million) representing 120% of proforma own funds which set a new benchmark for pricing of closed life book transactions in the UK. Our Board is highly focussed on capital discipline and we intend to return the full net surplus sale proceeds (after disposal costs) of GBP375 million to shareholders. We will commence a share buyback on the London and Johannesburg exchanges shortly and it will be subject to staged regulatory approval and the Board will keep the programme under review to make sure it continues to be the most efficient and effective means of returning capital to shareholders.
In terms of our operational transformation through optimisation, we continue to make excellent progress. In late 2018 and 2019 our focus was on initiatives with near-term benefits such as supplier contract renegotiation and reduction, driving savings in property and facility costs, and reducing dependence on higher cost contracting staff. We are now focussed on delivering the longer-term sustainable cost savings which will allow us to deliver the planned operating margin improvements in 2020 and 2021. This will be achieved through technology enabled transformation, such as implementing a single payroll system, a firm-wide general ledger and enhancing the straight through processing capabilities within our advice business. We have started the consolidation of the support functions which is designed to create centres of excellence across the business by removing duplication and ensuring tasks are only performed once. This has already contributed to our lower costs in activities such as finance and marketing.
Our optimisation plans have contributed to keeping our operating margin stable year-on-year, despite the impact of our Advice acquisitions which have a lower operating margin than the rest of the Group. We remain committed to delivering the targeted improvement in our operating margin in 2020 and in 2021. As a result of the sale of Quilter Life Assurance, this will be off a lower base than we originally expected when we announced our targets in March 2019. We target an operating margin of 27% for 2020 and 29% for 2021.
Turning to our UK Platform Transformation Programme, this has been a priority over the course of 2019. We spent the year with the system in soft launch phase which was used to verify core system functionality, processes and controls in a live environment. This provided valuable insight as we worked through to the core code delivery in the summer and the delivery of the master version of the code in early November 2019. Alongside our rigorous testing approach, we undertook two dry runs and three dress rehearsals as part of our migration readiness plans before our initial migration in February 2020.
This initial migration of c.8% of the total platform assets under administration represented the funds associated with around 60 adviser firms and 25,000 customers. In the period immediately after migration, operational activity has been in line with expectations and initial feedback from advisers using the new system has been positive. We will incorporate lessons learnt from this process into our plans and ensure the new platform is operating well and at scale, ahead of undertaking our final migration by the end of summer, with scheduling of this timed to reduce potential disruption to our customers and advisers.
Ensuring that assets are transferred from our existing platform onto the new platform on a high quality, low risk basis is mission-critical. The total costs of the project are expected to be around GBP185 million, in line with the revised estimates we set out in August 2019. Of this sum, GBP136 million had been spent by end-December 2019.
Separately, we executed well on the programme to build out Quilter Investors' capability as a standalone business independent of the transitional support provided by Merian Global Investors (formerly Old Mutual Global Investors). This project was completed more than six months ahead of schedule and within budget.
Operational performance
Delivering good customer outcomes through a trusted advice relationship is core to the Quilter business model. Both our restricted and third party independent advisers drive client flows to our platform - the centre of our business which provides the investment 'wrappers', where needed, to meet clients needs. Our investment solutions provide the intellectual capital to deliver the financial outcomes that our clients seek. Excellent service delivery underpins the customer and adviser experience. Confidence in our proposition is demonstrated through both the continued attraction of our solutions to independent financial advisers and the resilience of our integrated net flows.
Gross client cash flows (excluding Quilter Life Assurance) into the business were lower at GBP12.3 billion (2018: GBP14.2 billion) and as already noted, 2019 was challenging in terms of NCCF. 2019 NCCF (excluding Quilter Life Assurance) of GBP0.3 billion was down from GBP4.7 billion in 2018. As well as general market uncertainty caused by Brexit and broader geopolitical and macro-economic concerns, the 2019 result includes two Quilter-specific issues:
First, despite higher gross sales in 2019 from Quilter Cheviot, the departures of a group of Investment Managers who resigned in mid-2018 had an impact on outflows in the business once their non-compete restrictions expired in the second quarter 2019. We recorded outflow requests totalling GBP1.3 billion from clients looking to follow these Investment Managers and, as previously announced, we also experienced the transfer of a quasi-institutional GBP0.2 billion mandate from Quilter Cheviot late in the second quarter.
Secondly, partly due to market uncertainty, we have experienced a lower level of new gross flows onto our UK platform from both our and third party financial advisers ahead of our planned platform migration this year. This has led to lower levels of flow into Quilter Investors, with the combination of these factors leading to lower net flows.
Quilter International's NCCF was up 67% on the prior year, albeit off a low base. The current business flows are consistent with repositioning the business to have deeper roots in fewer markets, and to ensure the product range and client offering across our international markets is consistent with Quilter's risk appetite in all markets where we operate.
We are pleased that overall levels of client retention across the business were broadly unchanged, outside of the isolated impact from the Quilter Cheviot departures.
AuMA, excluding Quilter Life Assurance, increased 13% to GBP110.4 billion from GBP97.7 billion at 31 December 2018. The market recovery began late in the first quarter and overall market levels oscillated around the higher levels for most of the year, with the FTSE-100 up 12% during the year. This led to average AuMA, excluding Quilter Life Assurance, of GBP105.7 billion, the principal driver of management fee revenue, modestly higher than the 2018 average level of GBP101.9 billion.
Investment performance
Our solutions have continued to deliver good investment performance for our clients. Performance at Quilter Cheviot, our discretionary fund management business, continued to outperform relevant ARC benchmarks, with strong returns from our stock selection. We recorded first or second quartile performance over 1, 3 and 5 years, and top quartile over 10 years across all categories.
The medium and longer-term performance of Quilter Investors' multi-asset funds has also remained strong, although the shorter-term performance on the biggest range, Cirilium Active, has been more mixed reflecting some tactical positioning over the prior year end and the start of 2019 that did not perform in the short-term to our medium and long-term expectations. This underperformance partially recovered in a strong finish to the year. Our Cirilium passive range has continued to perform strongly. The second largest range, our Managed Portfolio Service, continued to deliver good performance.
We have both simplified and broadened the Quilter Investors product range through fund consolidation and new product launches during 2019. These new products, including our new multi-asset income suite and the Cirilium blend proposition, have been launched in response to the specific needs of our customers based upon direct research we conducted through our advice business. These products have lower revenue margins than our current stock of business and equally, have a lower cost to manufacture. We are pleased with the early response from clients and advisers to these new products and look forward to them contributing to the Group's net flows in the years to come.
Brand
Ensuring Quilter brand consistency and strengthening the ties that bind our people to deliver our purpose is a core focus for the management team. Feedback from the gradual transition to a single Quilter brand across our business from both staff and advisers has been overwhelmingly positive. The move to the Quilter brand allows our network of advisers to enhance their relationship with their clients by demonstrating the backing of a strong FTSE-250 listed business and for staff it reinforces their importance to the broader Quilter business.
Culture and values
Creating a responsible business which builds positive stakeholder relationships is very important to me. In particular I want Quilter to be a place where our people can fulfil their potential and thrive. During 2019 we continued our colleague wellbeing initiative, Thrive, which supports our people's emotional, mental, physical, financial and social wellbeing. Colleagues are engaged in the community via the Quilter Foundation which is our registered charity. It supports young people by enhancing financial capability, improving employment prospects and supporting good mental health. As we complete our transition to a unified brand I am delighted that our employee engagement scores remain strong and we will continue to strengthen our cutlure and the ties that bind us across the organisation.
Our vision for Quilter is to be a modern, advice led, Wealth Manager delivering good customer outcomes. Our foundations are built on three simple principles; delivering customer choice, being transparent and ensuring fairness in all our dealings with customers, with all of this underpinned by high quality service levels.
Choice is about delivering quality assured choice rather than unlimited choice to customers and being agnostic as to active versus passive solutions and in terms of how customers wish to approach us - whether it is via their own independent adviser or through one of our own restricted financial planners.
Transparency means no hidden charges and no lock-ins so that customers only pay Quilter for what they use and are free to go elsewhere if they choose.
Fairness is about always doing the right thing for our customers. In this regard, we are aware of current market commentary surrounding British Steel pension transfer advice. Prior to our acquisition in June last year, Lighthouse advised around 300 British Steel pension scheme members to undertake a defined benefit transfer. Of this sum, approximately 80 were undertaken prior to June 2017 after which the transfer values of the pension scheme were fundamentally enhanced. Since the year-end we have been notified of around 30 complaints relating to advice provided by Lighthouse, all of which related to the pre-June 2017 period. We are in the process of reviewing those complaints and have written directly to the customers involved. Whilst Lighthouse has professional indemnity insurance cover in place, we have taken a provision of GBP12 million on a gross basis to cover potential costs and this has been reflected as an adjustment to the acquisition balance sheet of Lighthouse. We have initiated a review of all cases advised by Lighthouse, prior to its acquisition by Quilter in June 2019, to assess the standard of advice given to British Steel pension scheme members and have actively engaged with the regulator. While this situation is obviously disappointing, our priority is to do the right thing for our customers.
Outlook
Quilter's performance during the early part of 2020 was broadly in line with our expectations. Markets were initially resilient, we were seeing a more confident tone from clients and their advisers and the overall NCCF flow trends for the UK business were consistent with the trends seen in late 2019. Net flows onto the UK platform continued at a similar level and the outflows at Quilter Cheviot continued to decline leading to a modest NCCF inflow in that business. NCCF for Quilter International was at a similar run-rate to the first quarter of 2019.
The sharp Coronavirus induced market correction beginning in late February has created a level of uncertainty as to the outlook for the remainder of 2020. As we all try to understand the potential impact of this on people, economies and markets, my focus is two-fold; firstly, making sure our people are safe and secondly, a customer focus. We have contingency plans in place for home-working across the organisation and we are following Public Health England guidelines, as they develop. In times of turbulence like this, we want our advisers and investment managers to be right there to support and guide our clients, so they are not left to deal with this level of uncertainty alone. At this stage, it is too early to ascertain the impact of this situation on investor sentiment, NCCF and revenues.
Our optimisation programme will deliver the cost savings that are embedded in our operating margin targets for 2020/2021. However, as we have previously indicated, those targets were based on an expectation of broadly stable markets from the base level at time they were set, coupled with a modest aggregate NCCF contribution over the period. If markets were to remain at recent post correction levels for an extended period, or to decline further, then delivering our operating margin target for 2020 will be a challenge. We remain committed to our targets but recognise that attainability will be subject to market levels, investor activity and management actions over the remainder of the year.
Irrespective of short term market sentiment, we remain optimistic on the long-term secular opportunity across our markets and we are strategically well positioned to benefit from this. Completing the first migration onto our new UK platform in early February was a major milestone for the Group. We are now focussed on delivering the second and final migration to a high quality outcome in the summer. The new platform will strengthen the cohesion between our different business capabilities and be a catalyst for faster growth.
Paul Feeney
Chief Executive Officer
Financial review
Review of financial performance
Overview
In this financial review, unless indicated otherwise, all results are presented including QLA in both the current year and prior year comparative. Unless indicated otherwise, the prior year comparative will exclude the results of the Single Strategy business that was disposed on 29 June 2018.
The Group delivered solid results for 2019, in a challenging environment for flows. Platform industry statistics indicate that 2019 was the lowest year for net flows since 2013, due to broader UK political and economic uncertainty. NCCF for the Group was GBP0.3 billion, excluding the Quilter Life Assurance business, which was sold to ReAssure in December 2019. AuMA, excluding the Quilter Life Assurance business, increased by 13% to close at GBP110.4 billion, benefitting from the rebound in equity markets during the year, with the FTSE-100 index up 12% for the year. Adjusted profit before tax (including QLA) increased by 1% to GBP235 million, with stable revenue, supported by continued cost discipline across the business. The Group's IFRS loss after tax from continuing operations (excluding QLA) was GBP21 million, compared to a profit after tax of GBP66 million in 2018, primarily due to the change in policyholder tax, which can vary significantly year on year as a result of market volatility.
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including APMs, as explained further on pages 5 to 7. In the headings and tables presented, these measures are indicated with an asterix: *.
Key financial highlights
Advice
Year ended 31 December 2019 & Wealth Wealth
Continuing operations (excluding QLA) Management Platforms Eliminations Total Group
======================================= =========== ========== ============ ===========
Gross sales (GBPbn)* 7.5 8.0 (3.2) 12.3
Gross outflows (GBPbn)* (7.8) (6.6) 2.4 (12.0)
NCCF (GBPbn)* (0.3) 1.4 (0.8) 0.3
Integrated net flows (GBPbn)* 1.6 1.0 - 2.6
AuMA (GBPbn)* 45.8 77.7 (13.1) 110.4
NCCF/opening AuMA (%)* (1%) 2% n/a -
Asset retention (%)* 81% 90% n/a 88%
--------------------------------------- ----------- ---------- ------------ -----------
Advice
Year ended 31 December 2018 & Wealth Wealth
Continuing operations (excluding QLA) Management Platforms Eliminations Total Group
======================================= ----------- ---------- ------------ -----------
Gross sales (GBPbn)* 8.0 9.5 (3.3) 14.2
Gross outflows (GBPbn)* (4.5) (6.1) 1.1 (9.5)
NCCF (GBPbn)* 3.5 3.4 (2.2) 4.7
Integrated net flows (GBPbn)* 3.6 1.1 - 4.7
AuMA (GBPbn)* 40.7 67.7 (10.7) 97.7
NCCF/opening AuMA (%)* 8% 5% n/a 5%
Asset retention (%)* 89% 91% n/a 91%
--------------------------------------- ----------- ---------- ------------ -----------
Net client cash flow ("NCCF")*
NCCF, excluding Quilter Life Assurance, was a net inflow of GBP0.3 billion (2018: GBP4.7 billion). After a good first quarter, the Group experienced net outflows in the second and third quarters of the year, which modestly reversed in the final quarter. Gross sales were lower due to challenging market conditions, with Brexit and broader geopolitical and macro-economic concerns weighing on investor sentiment. The Group also experienced higher gross outflows during the year, primarily as a result of the Investment Manager ("IM") departures from Quilter Cheviot, who resigned during 2018. Detailed analysis on NCCF by business is shown in the supplementary information section of this announcement.
Net inflows into Quilter Investors were GBP0.5 billion, down 82% from 2018 (GBP2.8 billion) reflecting lower new business volumes from Quilter Financial Planning, Quilter's own platform (Quilter Wealth Solutions) and third party platforms. As reported during the year, new business flows from Quilter Financial Planning and independent financial advisers were particularly impacted by investor uncertainty over Brexit in the UK and the macro environment more generally. This had a knock-on impact for Quilter Investors, where net flows from the restricted channel were GBP1.2 billion (2018: GBP2.4 billion), of which GBP0.3 billion (2018: GBP1.1 billion) were from third party platforms and GBP0.9 billion (2018: GBP1.3 billion) from our own platform, Quilter Wealth Solutions. Flows from the Wealth Platform segment to Quilter Investors were net outflows of GBP0.1 billion in 2019 (2018: net inflow GBP0.8 billion). Third party net outflows in Quilter Investors were GBP0.6 billion in 2019 (2018: outflow GBP0.4 billion).
Quilter Cheviot experienced NCCF outflows of GBP0.8 billion (2018: inflow of GBP0.7 billion), which included GBP1.3 billion of outflows linked to the departures of the IMs who resigned in mid-2018 and the loss of a GBP0.2 billion quasi-institutional mandate.
Quilter Wealth Solutions recorded net inflows of GBP0.9 billion, down 71% on prior year (2018: GBP3.1 billion). Gross sales of GBP6.0 billion (2018: GBP7.7 billion) decreased by GBP1.7 billion, primarily as a result of lower levels of defined benefit scheme ("DB") to defined contribution scheme ("DC") pension transfers, which were down 50% to GBP0.8 billion (2018: GBP1.6 billion) and lower levels of market activity more generally, particularly from independent financial advisers. NCCF from Quilter Wealth Solutions was further impacted by the impending migration of client assets to our new technology platform.
Quilter International's NCCF increased by 67% to GBP0.5 billion (2018: GBP0.3 billion), supported by a small number of investments from Hong Kong and Latin America in the fourth quarter, which totalled GBP0.3 billion.
Flows from continuing operations 2019 2018 % Change
----- -----
Total integrated net flows* 2.6 4.7 (45%)
Direct net flows (1.5) 2.2 -
Eliminations (0.8) (2.2) 64%
Total Quilter plc NCCF from continuing operations 0.3 4.7 (94%)
-------------------------------------------------- ----- ----- ------------------
Integrated net flows (excluding Quilter Life Assurance) were GBP2.6 billion, down 45% from 2018 (GBP4.7 billion), as cautious investment sentiment led to a decrease in gross sales from Quilter Financial Planning. Similarly, Quilter Wealth Solutions experienced a decline in net flows primarily due to weaker flows across the industry due to a combination of Brexit, defined benefit transfer head winds and lower pension limits having an impact. The restricted channel of Quilter Financial Planning accounted for GBP1.2 billion (2018: GBP2.4 billion) of Quilter Investors' net flows and GBP1.0 billion (2018: GBP1.1 billion) of Quilter Wealth Solutions net flows.
Total Restricted Financial Planner ("RFP") headcount of 1,799 at 31 December 2019 included an additional 137 RFPs following the acquisition of Lighthouse Group plc. Excluding RFPs added through the Lighthouse Group plc acquisition, net RFP growth of 41 represents an annualised growth rate of 3%. We continue to generate good levels of new RFP appointments within existing businesses and through the recruitment of newly appointed representative firms, driven in part by the appointment of new recruitment leadership to drive our organic recruitment capability. The Quilter Financial Adviser School continues to be popular with firms and is on schedule to add around 100 graduates into Quilter Financial Planning firms in 2020. New RFP appointments have been partially offset by the natural attrition of advisers, with turnover levels within our appointed representative firms remaining stable throughout the year. Productivity* for Quilter Financial Planning was GBP1.0 million per RFP for the year (2018: GBP1.7 million), reflecting the challenging market conditions in 2019. Our strategic focus of building scale within the National model will help drive overall productivity levels in 2020 and beyond, boosted by the integration of Lighthouse Group plc and the acquisition of Prescient in December 2019.
Asset retention* (excluding Quilter Life Assurance) has declined marginally to 88% (2018: 91%), as a result of the outflows in Quilter Cheviot from the departing IMs. Adjusting for these outflows, asset retention is 90%, in line with prior year and previous medium-term experience.
Assets under management/administration ("AuMA")*
AuMA was GBP110.4 billion at 31 December 2019, up 13% from 31 December 2018 (GBP97.7 billion, excluding Quilter Life Assurance), driven by positive market performance of GBP12.4 billion and net inflows of GBP0.3 billion.
Quilter Investors' AuM was GBP20.8 billion, up 18% since the start of the year (2018: GBP17.7 billion). The Cirilium fund range AuM increased by 23% to GBP11.1 billion at 31 December 2019 (2018: GBP9.0 billion), with GBP0.8 billion of net inflows and GBP1.3 billion of market movement. The WealthSelect fund range increased by 22% to GBP6.7 billion of AuM at the end of December 2019 (2018: GBP5.5 billion). Quilter Cheviot AuM of GBP24.2 billion increased by 9% in the year, primarily as a result of positive market movements. Quilter Wealth Solutions' AuA increased by 16% to GBP57.2 billion, which is primarily comprised of GBP27.8 billion within pension propositions (of which GBP4.4 billion has been generated from the restricted channel and GBP23.4 billion from third party advisers) and GBP16.5 billion of ISA products. Quilter International AuA was GBP20.5 billion, up 12% (2018: GBP18.3 billion) predominantly due to favourable markets over the year and modest client inflows.
Adjusted profit before tax*
Adjusted profit before tax reflects the Board's view of the underlying performance of the Group and is used for management decision making and internal performance management. Adjusted profit before tax is a non-GAAP measure which adjusts IFRS profit for specific items, as detailed in note 5 in the consolidated financial statements on page 49 of this announcement, and is the profit measure presented in the Group's segmental reporting.
Adjusted profit before tax for 2019 (including QLA) was GBP235 million, 1% higher than the prior year (2018: GBP233 million excluding the Single Strategy business; 2018: GBP259 million including Single Strategy business). Adjusted proft for the Advice and Wealth Management segment grew by 1% (excluding the Single Strategy business) and the Wealth Platforms segment grew by 2% during the year. Excluding Quilter Life Assurance, adjusted profit for the Wealth Platforms segment grew by 7%.
Total net fee revenue of GBP808 million increased by 3% (2018: GBP788 million) over the year. Net management fees of GBP649 million were broadly stable on those of the prior year (2018: GBP647 million) as the growth in revenues from higher average AuMA in Quilter Investors and Quilter Wealth Solutions was offset by a decreasing revenue contribution from Quilter Life Assurance given the run-off nature of that business. Other revenue of GBP159 million grew by 13% (2018: GBP141 million), where the growth in Quilter Financial Planning contributed to the increase.
Expenses for the Group increased from GBP555 million to GBP573 million, mainly due to the impact of the Quilter Financial Planning acquisitions made in the year. Excluding acquisitions, expenses remained stable year on year.
The Group's overall operating margin has remained broadly stable at 29% (2018: 30%). Realised optimisation benefits have offset the impact of the Quilter Financial Planning acquisitions, which initially provide a drag on operating margin.
Financial performance from continuing operations Advice
and Quilter Life Assurance & Wealth Wealth Total
2019 (GBPm) Management Platforms Head Office Group
-------------- ---------- -----------
Net management fee* 296 353 - 649
Other revenue* 111 45 3 159
------------------------------------------------- -------------- ---------- ----------- ---------
Total net fee revenue* 407 398 3 808
Expenses* (304) (233) (36) (573)
------------------------------------------------- -------------- ---------- ----------- ---------
Adjusted profit before tax* 103 165 (33) 235
Tax (25)
------------------------------------------------- -------------- ---------- ----------- ---------
Adjusted profit after tax 210
------------------------------------------------- -------------- ---------- ----------- ---------
Operating margin (%)* 25% 41% 29%
Revenue margin (bps)* 67 42 57
------------------------------------------------- -------------- ---------- ----------- ---------
Financial performance from continuing operations Advice
and Quilter Life Assurance & Wealth Wealth Total 2018 (GBPm) Management(1) Platforms Head Office Group(1) ------------------------------------------------- -------------- ---------- ----------- --------- Net management fee* 276 371 - 647 Other revenue* 97 43 1 141 ------------------------------------------------- -------------- ---------- ----------- --------- Total net fee revenue* 373 414 1 788 Expenses* (271) (252) (32) (555) ------------------------------------------------- -------------- ---------- ----------- --------- Adjusted profit before tax* 102 162 (31) 233 Tax (6) ------------------------------------------------- -------------- ---------- ----------- --------- Adjusted profit after tax 227 ------------------------------------------------- -------------- ---------- ----------- --------- Operating margin (%)* 27% 39% 30% Revenue margin (bps)* 65 45 57 ------------------------------------------------- -------------- ---------- ----------- ---------
(1) Total adjusted profit before tax including the Single Strategy business for 2018 is GBP259 million. Refer to reconciliation on page 16.
Total net fee revenue*
The Group's total net fee revenue increased by 3% to GBP808 million (2018: GBP788 million) due to higher average AuMA across all businesses, primarily as a result of the rebound in equity markets in 2019 and increased advice fees as a result of the Quilter Financial Planning acquisitions in both 2018 and 2019.
Total net fee revenue for the Advice and Wealth Management segment grew by 9% during the year, to GBP407 million (2018: GBP373 million). Quilter Investors average AuM increased by 10% to GBP19.6 billion, with GBP17 million of additional net management fee revenue compared to the prior year. This included non-recurring net revenue for Quilter Investors from the release of revenue provisions that were no longer required and which relate to the separation of the business from the Single Strategy business that was sold in 2018 (c. GBP8 million). Quilter Cheviot average AuM was flat year-on-year, as market growth offset the impact of the assets lost as a consequence of the IM departures. Total net fee revenue within Quilter Cheviot was 2% higher in 2019 at GBP178 million (2018: GBP175 million). Other revenue increased by GBP14 million to GBP111 million, principally due to the increase in advice fees in Quilter Financial Planning as a result of the acquisitions in 2019, as well as the full year revenue contribution from acquisitions made in 2018.
Total net fee revenue for the Wealth Platforms segment (including QLA) was GBP398 million, which was down 4% (2018: GBP414 million) primarily due to a reduction in Quilter Life Assurance and Quilter International's revenue. Quilter Wealth Solutions' net fee revenue increased by GBP7 million (4%) to GBP177 million due to higher average AuA of 6% over the course of the year. Quilter International's net fee revenue was GBP10 million lower than the prior year due to the continued movement of the book towards products that attract lower revenue. As expected, revenues from Quilter Life Assurance continued to decrease given the run-off nature of the book, and totalled GBP96 million (2018: GBP109 million).
The Group's revenue margin* from continuing business of 55 bps remained consistent with the prior year (2018: 55 bps).
The revenue margin for Advice and Wealth Management of 67 bps was 2 bps higher compared to the prior year. This increase was due to a 4 bps increase in the revenue margin for Quilter Investors to 63 bps, primarily due to the revenue provision releases (c. 2 bps) and income received from the Compass fund range previously managed by Merian. Quilter Cheviot's revenue margin remained in line with prior year at 72 bps.
The revenue margin for Wealth Platforms (excluding QLA) decreased by 2 bps to 38 bps, as new business written for Quilter Wealth Solutions and Quilter International is generally in products or in revenue tiering structures that have a slightly lower margin than the average for the current book of business.
Expenses*
Expenses increased by GBP18 million to GBP573 million (2018: GBP555 million) in the year. The acquisitions made by Quilter Financial Planning in 2019, and a full year run-rate for those made in 2018, increased expenses by GBP24 million, and the continued build out of the Quilter Investors business increased costs by a further GBP4 million year-on-year. The Quilter Investors business is now fully independent following the separation from the Single Strategy business, with a stable cost base. Expenses also increased as a result of the London office move, which added an additional GBP3 million as previously guided. The impact of these cost increases and those arising from inflation were more than mitigated by the continued cost disciplines across the business and savings achieved through optimisation. Overall expenses were broadly flat on 2018, excluding the impact of the acquisitions.
Expense split (GBPm)(1) 2019 2018
------------------------------- --------------------------
Front office and operations 339 319
IT and development 130 123
Support functions 83 96
Other 21 17
Expenses* 573 555
--------------------------------- ------------------------------- --------------------------
(1) For the 2018 comparatives, some costs have been reallocated
between categories to align with current year presentation.
Front office and operations expenses increased by 6% to GBP339 million (2018: GBP319 million), primarily due to the impact of the Quilter Financial Planning acquisitions made during the year.
IT and development expenses increased by 6% to GBP130 million (2018: GBP123 million), mainly due to increased IT run costs to facilitate the growth in the business and general inflation, partly offset by a reduction in development costs due to less regulatory change requirements in 2019 compared to 2018.
Support function expenses relate to back office expenses, which have decreased by 14% to GBP83 million (2018: GBP96 million). Savings have been made across various functions as part of optimisation and are expanded on further below.
Other costs include Professional Indemnity Insurance, and charges for regulation and licencing fees. FSCS levies increased by GBP3 million this year due to an increase in levies for asset managers across the industry and a normalised full year charge for Quilter Financial Planning, following the nine month charge in 2018 as the FCA changed the timing of making charges to regulated entities within the industry.
Taxation
The effective tax rate ("ETR") on adjusted profit was 10.7% (2018: 4.5%). The Group's ETR is lower than the UK corporation tax rate of 19% principally due to profits from Quilter International being taxed at lower rates than the UK and the utilisation of brought forward capital losses. The Group's ETR is dependent upon a number of factors including the level of Quilter International profits, the utilisation of capital losses, which can be volatile, as well as the UK corporation tax rate. A further reduction in the corporation tax rate to 17% from 1 April 2020 was enacted in 2016.
The Group's IFRS income tax expense on continuing business was GBP66 million for the year ended 31 December 2019, compared to a credit of GBP86 million for the prior year. This income tax expense or credit can vary significantly year-on-year as a result of market volatility and the impact market movements have on policyholder tax. The recognition of the income received from policyholders (which is included within the Group's IFRS revenue) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility to the Group's IFRS profit or loss before tax attributable to equity holders. An adjustment is made to adjusted profit to remove these distortions, as explained further on page 17 and in note 5(a) of the consolidated financial statements.
Earnings Per Share ("EPS")
Basic EPS was 8.0 pence, compared to 26.6 pence in 2018. Basic EPS is based on the Group's IFRS profit (including both continuing and discontinued operations), with the decrease within discontinued operations due principally to the profit on sale of the Single Strategy business in 2018. During the year, the number of shares in issue remained at 1,902 million. The average number of shares in issue used for basic EPS was 1,835 million (2018: 1,832 million), after the deduction of shares held in Employee Benefit Trusts ("EBTs") of 67 million (2018: 70 million) which are held in respect of staff share schemes.
Adjusted diluted EPS* (based on the Group's adjusted profit after tax) was 11.3 pence (2018: 13.5 pence), of which 8.6 pence relates to the continuing business before the reallocation of QLA costs. Refer to note 7 of the consolidated financial statements. The average number of shares in issue used for adjusted diluted EPS was 1,863 million (2018: 1,839 million), following inclusion of the dilutive effect of shares and options awarded to employees under share-based payment arrangements of 28 million (2018: 7 million). The dilutive effect of share awards has increased year-on-year due to more share options being awarded to employees during 2019. Further details are included in note 7 of the consolidated financial statements.
Optimisation
As announced in March 2019, we have commenced our phased, multi-year optimisation programme, targeting a 4 percentage point uplift in the Group's operating margin on an on-going business by 2021. Phase 1 is aiming to unify and simplify the Group through a number of efficiency initiatives that will deliver improvements in operational performance.
Throughout 2019 delivery and benefits were ahead of plan, with GBP14 million of savings realised during the period when compared to 2018. Together with the initiatives delivered in 2018, this amounts to a run-rate annualised benefit to the Group of approximately GBP24 million. Implementation costs remain in line with previous guidance.
A number of quick win tactical efficiencies have been delivered, which included targeted staff restructuring, third party contract renegotiation and termination, and property and facilities savings. Some more complex initiatives, such as the insourcing of technology capabilities as well as the simplification of group support functions, have also been delivered. All the planned programmes that will transform our business through technology enablement, such as the consolidation and modernisation of our general ledgers and other associated finance, HR and procurement modules, have been initiated. The use of robotics to automate manual operational processes in our International business, as well as streamlining and automating some of the processes used in our advice business, are also underway.
Reconciliation of adjusted profit before tax* to IFRS profit
Adjusted profit before tax for the group, including QLA, was GBP235 million (2018: GBP233 million), which includes GBP182 million for the group excluding QLA (2018: GBP176 million), and GBP53 million (2018: GBP57 million) for QLA.
For adjusted profit before tax on a continuing basis, IFRS accounting standards require GBP26 million of costs (2018: GBP28 million), previously reported as part of the QLA business, to be reallocated from discontinued to continuing operations, as these costs do not transfer to ReAssure on disposal at 31 December 2019. Of the GBP26 million of costs reallocated, GBP14 million will be incurred in 2020 to provide services to ReAssure under the Transitional Services Arrangement, with corresponding income to cover these costs. Management actions are being taken to manage the remaining costs, which are expected to continually decline over the next two years. Due to the sale of the QLA business, we expect to incur additional one-off business transformation costs of up to GBP10 million over the next two years, as we restructure certain parts of our business and decommission IT infrastructure previously associated with QLA.
The Group's IFRS loss after tax from continuing operations was GBP21 million, compared to a profit after tax of GBP66 million in 2018, primarily due to the change in policyholder tax, which can vary significantly year on year as a result of market volatility. The table reconciles the Group's adjusted profit to the IFRS results in 2019 and 2018.
Reconciliation of
adjusted
profit before tax
to profit For the year ended For the year ended 31 December
after tax 31 December 2019 2018
Discontinued Discontinued Discontinued
operations operations operations
GBPm Sub-total
of Continuing
Operations Single
Continuing Quilter Continuing Quilter and Quilter Strategy
Operations Life Assurance Total Operations Life Assurance Life Assurance business Total
----------------- ---------------- -------------------- ------ -------------- ------------------ -------------------- ------------------ -----
Advice and Wealth
Management 103 - 103 102 - 102 26 128
Wealth Platforms 112 53 165 105 57 162 - 162
Head Office (33) - (33) (31) - (31) - (31)
----------------- ---------------- -------------------- ------ -------------- ------------------ -------------------- ------------------ -----
Adjusted profit
before
tax before
reallocation* 182 53 235 176 57 233 26 259
Reallocation of
QLA costs(1) (26) 26 - (28) 28 - - -
----------------- ---------------- -------------------- ------ -------------- ------------------ -------------------- ------------------ -----
Adjusted profit
before
tax* 156 79 235 148 85 233 26 259
----------------- ---------------- -------------------- ------ -------------- ------------------ -------------------- ------------------ -----
Adjusting for the
following:
Goodwill
impairment and
impact of
acquisition
accounting (54) - (54) (50) - (50) - (50)
Profit on
business
disposals - 103 103 - - - 290 290
Business
transformation
costs (77) - (77) (84) - (84) - (84)
Managed
Separation costs (6) - (6) (24) - (24) - (24)
Finance costs (10) - (10) (13) - (13) - (13)
Policyholder tax
adjustments (62) (12) (74) 64 37 101 - 101
Voluntary
customer
remediation
provision - 10 10 - - - - -
----------------- ---------------- -------------------- ------ -------------- ------------------ -------------------- ------------------ -----
Total adjusting
items
before tax (209) 101 (108) (107) 37 (70) 290 220
----------------- ---------------- -------------------- ------ -------------- ------------------ -------------------- ------------------ -----
(Loss)/profit
before tax
attributable to
equity
holders (53) 180 127 41 122 163 316 479
Tax attributable
to policyholder
returns 98 76 174 (61) (97) (158) - (158)
Income tax
(expense)/credit (66) (89) (155) 86 83 169 (2) 167
----------------- ---------------- -------------------- ------ -------------- ------------------ -------------------- ------------------ -----
(Loss)/profit
after tax (21) 167 146 66 108 174 314 488
----------------- ---------------- -------------------- ------ -------------- ------------------ -------------------- ------------------ -----
(1) Adjusted profit from continuing operations includes GBP26 million of
costs (2018: GBP28 million) previously reported as part of the QLA business
to be reallocated from discontinued to continuing operations, as these costs
do not transfer to ReAssure on disposal at 31 December 2019. Of the GBP26
million of costs reallocated, GBP14 million will recur in 2020 to provide
services to ReAssure under the Transitional Services Arrangement, with corresponding
income to cover these costs. Management actions are being taken to manage
the remaining costs, which are expected to continually decline over the next
two years.
Adjusted profit before tax reflects the profit from the Group's core operations, and is calculated by making certain adjustments to IFRS profit to reflect the Directors' view of the Group's underlying performance. Details of these adjustments are provided in note 5 of the consolidated financial statements.
Business transformation costs of GBP77 million in 2019 (2018: GBP84 million) include GBP57 million (2018: GBP58 million) incurred on the UK Platform Transformation Programme and GBP18 million of costs (2018: GBP7 million) in relation to the optimisation programme. In 2019, a credit of GBP1 million (2018 cost: GBP19 million) has been recognised in relation to the separation of Quilter Investors as a result of the sale of the Single Strategy business and restructuring costs of GBP3 million (2018: nil) as a result of the sale of QLA.
Managed Separation costs were GBP6 million (2018: GBP24 million), reflecting costs associated with our successful separation from Old Mutual plc and Listing in June 2018. In 2019, this cost was primarily incurred on the rebranding activities within the business, with a further GBP4 million expected to be incurred in 2020 for the final rebranding activity.
Finance costs were GBP10 million (2018: GBP13 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 GBP74 million expense for 2019 (2018: credit of GBP101 million) relate to the removal of distortions arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from policyholders ( which is included within the Group's IFRS revenue) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding tax expense, creating volatility to the Group's IFRS (loss)/profit before tax attributable to equity holders.
Cash generation*
Cash generation measures the proportion of adjusted profit 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. 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.
The Group, including Quilter Life Assurance, achieved a cash generation rate of 94% of adjusted profit over 2019 (2018: 88%). The cash generation rate for the Group excluding Quilter Life Assurance and before the reallocation of Quilter Life Assurance costs is 85% (2018: 81%).
Review of financial position
Capital and liquidity
Solvency II
The Group's pro forma Solvency II surplus is GBP769 million at 31 December 2019 (31 December 2018: GBP1,059 million), representing a Solvency II ratio of 180% (31 December 2018: 190%). The Solvency II information for the year to 31 December 2019 contained in this results disclosure has not been audited.
The pro forma Solvency II position is stated after allowing for the impact of the recommended final dividend payment of GBP65 million (2018: GBP61 million), the proposed distribution to shareholders of the net surplus proceeds from the QLA sale of GBP375 million and the Odd-lot Offer to shareholders of c.GBP30 million.
The Solvency II position for regulatory purposes is also presented below. Under Solvency II rules, the impact of future distribution of share buybacks and Odd-lot Offer to shareholders is not taken into account as at 31 December 2019, thereby increasing the Group's Solvency II surplus to GBP1,168 million and the Solvency II ratio to 221%.
Pro forma
at At At
31 December 31 December 31 December
Group regulatory capital (GBPm) 2019(1) 2019(1,2) 2018(3)
------------------------------------- -------------------- ---------------------- --------------------
Own funds 1,727 2,132 2,237
Solvency capital requirement ("SCR") 958 964 1,178
Solvency II surplus 769 1,168 1,059
------------------------------------- -------------------- ---------------------- --------------------
Solvency II coverage ratio 180% 221% 190%
------------------------------------- -------------------- ---------------------- --------------------
(1) Based on preliminary estimates.
(2) Formal filing to the PRA by 19 May 2020.
(3) As represented within the Quilter plc Group Solvency and Financial
Condition report for the year ended 31 December 2018.
The 10 percentage point decrease in the Group Solvency II ratio on a pro forma basis from the 2018 position is primarily due to corporate activity in the year, with the main contributors being the acquisitions of Charles Derby Group, Lighthouse Group plc and Prescient during 2019. The goodwill and intangible assets arising in respect of these acquisitions are not recognised within Solvency II own funds, thereby reducing the Solvency II ratio.
The Board believes that the Group Solvency II surplus includes sufficient free cash and capital to complete all committed strategic investments (including the UK Platform Transformation Programme). The impact of this prudent policy is that Quilter expects to continue to maintain a solvency position in excess of its internal target in the near term.
Composition of qualifying Solvency II capital
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.
Pro forma At At
at
31 December 31 December 31 December
Group own funds (GBPm) 2019 2019 2018
---------------------------------- ----------- ----------- -----------------
Tier 1(1) 1,520 1,925 2,036
Tier 2(2) 207 207 201
---------------------------------- ----------- ----------- -----------------
Total Group Solvency II own funds 1,727 2,132 2,237
---------------------------------- ----------- ----------- -----------------
(1) All Tier 1 capital is unrestricted for tiering purposes.
(2) Comprises a Solvency II compliant subordinated debt security in the
form of a Tier 2 bond, which was issued at GBP200 million in February
2018.
On a pro forma basis:
-- t he Group SCR is covered by Tier 1 capital, which represents 159% of the Group SCR of GBP958 million;
-- Tier 1 capital represents 88% of Group Solvency II own funds; and -- Tier 2 capital represents 12% of Group Solvency II own funds and 27% of the Group surplus.
Dividend
The Board has recommended a final dividend of 3.5 pence per share at a total cost of GBP65 million. Subject to shareholder approval, the recommended final dividend will be paid on 18 May 2020 to shareholders on the UK and South African share registers on 3 April 2020. For shareholders on our South African share register a dividend of 72.78519 South African cents per share will be paid on 18 May 2020, using an exchange rate of 20.79577. This will bring the dividend for the full year to 5.2 pence per share (2018: 3.3 pence per share).
Holding company cash
The holding company cash statement includes cash flows generated by the three holding companies within the business: Quilter plc, Old Mutual Wealth Holdings Limited and Old Mutual Wealth 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.
GBPm 2019 2018
--------------------
Opening cash at holding companies at 1 January 416 36
------------------------------------------------------- -------------------- ---------------------
Short term loan and Tier 2 bond proceeds - 500
Loans repaid to Old Mutual plc - (200)
Quilter Life Assurance business sale - cash proceeds 446 -
Single Strategy business sale - cash proceeds - 576 Short-term loan repayment - (300) Costs of disposal and external financing fees (7) (19) Dividends to market (92) (221) ------------------------------------------------------- -------------------- --------------------- Net capital movements 347 336 ------------------------------------------------------- -------------------- --------------------- Managed Separation and head office costs (49) (54) Interest costs (9) (6) ------------------------------------------------------- -------------------- --------------------- Net operational movements (58) (60) ------------------------------------------------------- -------------------- --------------------- Cash remittances from subsidiaries 307 167 Net capital contributions and investments (200) (65) Other 3 2 ------------------------------------------------------- -------------------- --------------------- Internal capital and strategic investments 110 104 ------------------------------------------------------- -------------------- --------------------- Closing cash at holding companies at end of period 815 416 ------------------------------------------------------- -------------------- ---------------------
Net capital movements
Net capital movements in the period include the cash proceeds of GBP446 million resulting from the sale of the Quilter Life Assurance business to ReAssure on 31 December 2019. There was also a further GBP7 million of outflows in connection with disposal costs as a consequence of the sale. Also included are the two dividend payments made to shareholders of GBP61 million on 20 May 2019 and GBP31 million on 17 September 2019.
Net operational movements
Net operational movements were GBP58 million for the year, which comprises corporate and transformation costs, including the Managed Separation and optimisation programmes, totalling GBP49 million. Interest paid of GBP9 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 in the year of GBP110 million is principally due to GBP307 million of cash remittances from the trading businesses, partially offset by GBP200 million of capital contributions, made to support business unit operational activities, the Platform Transformation Programme and funding for the strategic acquisitions of Charles Derby Group, Lighthouse Group plc and acquisitions by Private Client Advisers within Quilter Financial Planning.
Balance sheet
At 31 December
2019 At 31 December 2018
--------------------------------------
Continuing Quilter
Summary balance sheet (GBPm) Total Operations Life Assurance Total
-------------------------------------- -------------- ----------- ----------------------- ------
Assets
Financial investments 59,345 49,533 9,686 59,219
Reinsurers' share of policyholder
liabilities - - 2,162 2,162
Contract costs/deferred acquisition
costs 455 498 64 562
Cash and cash equivalents 2,473 1,881 514 2,395
Goodwill and intangible assets 592 520 30 550
Trade, other receivables and other
assets 424 500 30 530
Other assets 449 349 23 372
-------------------------------------- -------------- ----------- ----------------------- ------
Total assets 63,738 53,281 12,509 65,790
-------------------------------------- -------------- ----------- ----------------------- ------
Equity 2,071 1,593 412 2,005
Liabilities
Investment contract liabilities 52,455 45,211 11,239 56,450
Third-party interests in consolidated
funds 7,675 5,116 - 5,116
Contract liabilities/deferred revenue 191 195 31 226
Borrowings - sub-ordinated debt 198 197 - 197
Lease liabilities 137 - - -
Trade, other payables and other
liabilities 836 841 158 999
Other liabilities 175 128 669 797
-------------------------------------- -------------- ----------- ----------------------- ------
Total liabilities 61,667 51,688 12,097 63,785
-------------------------------------- -------------- ----------- ----------------------- ------
Total equity and liabilities 63,738 53,281 12,509 65,790
-------------------------------------- -------------- ----------- ----------------------- ------
The Group balance sheet at 31 December 2019 has total equity of GBP2,071 million (2018: GBP2,005 million).
Financial investments have increased from GBP49,533 million for continuing operations at 31 December 2018 to GBP59,345 million at 31 December 2019, predominantly due to positive market performance. The corresponding increase is reflected in Investment contract liabilities (an increase from GBP45,211 million for continuing operations at 31 December 2018 to GBP52,455 million at 31 December 2019), and Third-party interests in consolidated funds (an increase from GBP5,116 million at 31 December 2018 to GBP7,675 million at 31 December 2019).
Cash and cash equivalents of GBP2,473 million have increased by GBP592 million from GBP1,881 million at 31 December 2018 for continuing operations. This increase includes GBP446 million of the cash proceeds received on the sale of Quilter Life Assurance, of which GBP375 million is planned to be returned to shareholders. Included within this balance are cash investments due to policyholders, and cash to support the capital and funding requirements of the business.
Goodwill and intangible assets have increased by GBP72 million to GBP592 million at 31 December 2019. The balance increased by GBP117 million during the year due to the acquisitions made by Quilter Financial Planning, which was offset by the amortisation of the intangible assets of GBP45 million charged during the year.
Trade, other receivables and other assets have decreased by GBP76 million to GBP424 million mainly due to a reduction in unsettled trades across the business and lower management fees as Quilter Investors no longer acts as authorised corporate director ("ACD") for certain Merian funds.
Other assets of GBP449 million, which principally reflects property, plant and equipment and loans and advances, increased by GBP100 million during the year. The implementation of IFRS 16 resulted in an increase in other assets, where a right of use asset has been created in respect of property leases, which have totaled GBP124 million. Included within this balance are Practice Buy Out ("PBO") loans of GBP19 million, a GBP6 million increase during the year.
The lease liability of GBP137 million has arisen due to the implementation of IFRS 16, which represents the Group's obligation to pay lease rentals on certain property, plant and equipment.
Trade, other payables and other liabilities have reduced by GBP5 million to GBP836 million as at 31 December 2019, primarily due to a reduction in outstanding trade payables as Quilter Investors no longer acts as ACD for Merian funds.
Other liabilities have increased from GBP128 million to GBP175 million primarily due to an increase in deferred tax liabilities.
Contingent liability/post balance sheet event
Prior to the Group's acquisition of Lighthouse in June 2019, Lighthouse provided pension transfer advice to around 300 British Steel pension scheme members between 2016 and 2018. The Group was advised after the reporting date of a number of complaints on the advice given by Lighthouse. The Group has initiated a review of all cases advised by Lighthouse, prior to its acquisition by Quilter in June 2019, to assess the standard of advice given to British Steel pension scheme members.
For the cases where a complaint has been received on the advice given by Lighthouse, the likelihood of redress is probable, and an estimate of the amount of redress payable has been made of GBP9 million. For the remaining cases, it is possible that further costs of redress may be incurred following the outcome of the reviews. Of the pension transfers Lighthouse advised on between 2016 and 2018, approximately 80 cases were undertaken prior to mid-2017 after which the British Steel pension scheme was restructured and transfer values were enhanced considerably.
An additional provision for GBP3 million has been established in respect of the cost of legal and professional fees related to the complaints and redress process, which includes the anticipated costs to review advice provided of a similar nature in relation to cases that management believe may have similar characteristics.
As the advice was provided before the Group's acquisition of Lighthouse, any further redress costs will be recognised as a pre-acquisition liability within the fair value of the net assets acquired, with a corresponding increase in goodwill. Any adjustments to the acquisition balance sheet must be finalised within 12 months after the acquisition, in June 2020.
Principal risks and uncertainties
The Group continues to operate in a challenging political and economic environment. While the Brexit deal struck in October 2019 and the subsequent General Election of 12 December 2019 has provided greater stability on possible outcomes, the detail of the UK's future trading relationships is still to be determined. Although Quilter's UK-focused business model has limited the cross-border challenges faced by Quilter in comparison with others in the sector, the firm is strongly exposed to any detriment to future UK economic performance and consequential impacts such as loss of investor confidence. The Group is continuing to closely monitor developments and has developed a range of actions to mitigate any implications to our business and customers.
The Group's business has become simpler during 2019. The successful sale of the Quilter Life Assurance business significantly reduces the financial and regulatory complexities associated with delivering life assurance business, and good progress has been made to move towards transitioning the UK Platform business onto FNZ's market-leading technology platform.
The principal risks and uncertainties faced by the group are:
-- Strategic risks: The risk that Quilter's strategy to be the leading UK advice-led wealth manager does not yield the anticipated benefits for the business as result of misalignment with customer needs or failure to establish appropriate arrangements to deliver the strategy.
-- Business risks: The risk Quilter's strategy is undermined by a failure to successfully deliver key strategic priorities, for example delivery of suitable advice, strong investment performance, and strong Group financial performance.
-- Market risks: The risk of an adverse change in the level or volatility of market prices of assets, since Quilter's key revenue streams are asset value related.
-- Operational risks: The risk of losses arising from inadequate or failed internal processes, or from personnel and systems, or from external events. Given Quilter's technology-enabled client service model, particular exposures arise in relation to information technology, information security and third party risks.
-- Legal and regulatory: Quilter is subject to regulation and laws of the jurisdictions in which it operates and failure to achieve compliance could expose Quilter to penalties or restrictions on its permissions to provide financial services.
At this time, there remain the much publicised concerns about the risk of Coronavirus becoming a global pandemic and further impact to global supply chains, global growth and employee availability. The Group could be adversely impacted by falls in equity market levels, adverse investor sentiment affecting NCCF and increased operational risks should employment availability be badly affected. The length and severity of the impact remains unclear but the Group would not expect these to adversely change the underlying medium to long-term prospects of the business.
Shareholder information
The Quilter Board has agreed to recommend to shareholders the payment of a final dividend of 3.5 pence per share. This will be considered at the Quilter plc Annual General Meeting, which will be held on Thursday 14 May 2020. The final dividend will be paid on Monday 18 May 2020 to shareholders on the UK and South African share registers on Friday 3 April 2020.
Dividend Timetable
Dividend announcement in pounds sterling Wednesday 11 March 2020
with South Africa ZAR Equivalent
Last day to trade cum dividend in South Tuesday 31 March 2020
Africa
------------------------
Shares trade ex-dividend in South Africa Wednesday 1 April 2020
------------------------
Shares trade ex-dividend in the UK Thursday 2 April 2020
------------------------
Record Date in UK and South Africa Friday 3 April 2020
------------------------
Annual General Meeting Thursday 14 May 2020
------------------------
Final dividend payment date Monday 18 May 2020
------------------------
From the opening of trading on Wednesday 11 March 2020 until the close of business on Friday 3 April 2020, no transfers between the London and Johannesburg registers will be permitted. Share certificates for shareholders on the South African register may not be dematerialised or rematerialised between Wednesday 1 April and Friday 3 April 2020, both dates inclusive.
Additional information
For Shareholders on our South African share register a dividend of 72.78519 cents per share will be paid on Monday 18 May 2020 to shareholders, based on an exchange rate of 20.79577. Dividend Tax will be withheld at the rate of 20% from the amount of the gross dividend of 72.78519 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 58.22815 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.
Odd-lot Offer
As part of our drive for greater efficiency and in line with our desire to act in the best interests of all our shareholders, the Board will today announce the launch of an Odd-lot Offer, for shareholders registered on the London and Johannesburg Stock Exchanges. The Odd-lot Offer entails Quilter making an offer to eligible shareholders (holders of less than 100 shares) to repurchase their shares at a 5% premium to the market price. Full details will be provided in this morning's announcement.
The proposed Odd-lot Offer will reduce the complexity and cost to Quilter of managing our shareholder base and will allow investors holding small numbers of shares to dispose of their holdings in a timely and cost effective manner. Eligible shareholders can, of course, elect to retain their shareholding in Quilter, if they so choose.
Odd-lot Holders will receive the final dividend on their Odd-lot Offer shares providing they still hold their shares on the dividend record date, Friday 3 April 2020.
Further information will be released to the market this morning and documentation for completion will be provided to eligible shareholders shortly.
Capital return
Following the completion of the sale of Quilter Life Assurance to Reassure Group plc for GBP425 million (and interest income of GBP21 million), the Quilter Board intends to return the full net surplus sale proceeds (after disposal costs) of GBP375 million to shareholders. Quilter will commence a share buyback on the London and Johannesburg exchanges imminently and it will be subject to staged Board and regulatory approvals. The Board will keep the programme under review to make sure it continues to be the most efficient and effective means of returning capital to shareholders.
Supplementary information
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including APMs, as explained further on pages 5 to 7. These measures are indicated with an asterix: *.
For the year ended 31 December 2019
1. Key financial data
2019 Change 2018
(FY 2019
vs FY
2018)
Gross sales* (GBPbn) Q1 Q2 Q3 Q4 FY % Q1 Q2 Q3 Q4 FY
=========================== ===== ===== ===== ===== ===== ========= ===== ===== ===== ===== =====
Quilter Investors 1.0 1.0 0.9 2.0 4.9 (11%) 1.6 1.5 1.3 1.1 5.5
Quilter Cheviot 0.7 0.5 0.7 0.7 2.6 4% 0.8 0.6 0.5 0.6 2.5
=========================== ===== ===== ===== ===== ===== ========= ===== ===== ===== ===== =====
Advice & Wealth Management 1.7 1.5 1.6 2.7 7.5 (6%) 2.4 2.1 1.8 1.7 8.0
=========================== ===== ===== ===== ===== ===== ========= ===== ===== ===== ===== =====
Quilter Wealth Solutions 1.6 1.4 1.4 1.6 6.0 (22%) 2.3 2.0 1.8 1.6 7.7
Quilter International 0.4 0.4 0.4 0.8 2.0 11% 0.5 0.4 0.4 0.5 1.8
=========================== ===== ===== ===== ===== ===== ========= ===== ===== ===== ===== =====
Wealth Platforms 2.0 1.8 1.8 2.4 8.0 (16%) 2.8 2.4 2.2 2.1 9.5
=========================== ===== ===== ===== ===== ===== ========= ===== ===== ===== ===== =====
Elimination of intra-Group
items (0.6) (0.4) (0.6) (1.6) (3.2) (3%) (1.0) (0.9) (0.6) (0.8) (3.3)
Quilter plc excl. Quilter
Life Assurance 3.1 2.9 2.8 3.5 12.3 (13%) 4.2 3.6 3.4 3.0 14.2
--------------------------- ----- ----- ----- ----- ----- --------- ----- ----- ----- ----- -----
Quilter Life Assurance 0.1 0.1 0.2 - 0.4 (33%) 0.2 0.1 0.1 0.2 0.6
--------------------------- ----- ----- ----- ----- ----- --------- ----- ----- ----- ----- -----
2019 % of 2018
opening
AuMA
========
NCCF* (GBPbn) Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
============== ====== ====== ====== ===== ===== ======== ====== ========= ====== ===== =====
Quilter
Investors 0.2 0.2 - 0.1 0.5 3% 1.0 0.8 0.5 0.5 2.8
Quilter
Cheviot 0.1 (0.5) (0.4) - (0.8) (4%) 0.3 0.2 0.1 0.1 0.7
============== ====== ====== ====== ===== ===== ======== ====== ========= ====== ===== =====
Advice &
Wealth
Management 0.3 (0.3) (0.4) 0.1 (0.3) (1%) 1.3 1.0 0.6 0.6 3.5
============== ====== ====== ====== ===== ===== ======== ====== ========= ====== ===== =====
Quilter Wealth
Solutions 0.4 0.1 0.1 0.3 0.9 2% 1.3 0.8 0.6 0.4 3.1
Quilter
International 0.1 - 0.1 0.3 0.5 3% 0.1 - - 0.2 0.3
============== ====== ====== ====== ===== ===== ======== ====== ========= ====== ===== =====
Wealth
Platforms 0.5 0.1 0.2 0.6 1.4 2% 1.4 0.8 0.6 0.6 3.4
============== ====== ====== ====== ===== ===== ======== ====== ========= ====== ===== =====
Elimination of
intra-Group
items (0.3) - (0.3) (0.2) (0.8) (0.7) (0.8) (0.1) (0.6) (2.2)
Quilter plc
excl. Quilter
Life
Assurance 0.5 (0.2) (0.5) 0.5 0.3 0% 2.0 1.0 1.1 0.6 4.7
============== ====== ====== ====== ===== ===== ======== ====== ========= ====== ===== =====
Quilter Life
Assurance (0.8) (0.4) (1.1) (1.2) (3.5) (31%) (0.5) (0.5) (0.5) (0.8) (2.3)
============== ====== ====== ====== ===== ===== ======== ====== ========= ====== ===== =====
Integrated net
flows (excl.
Quilter Life
Assurance)* 0.6 0.8 0.4 0.8 2.6 1.5 1.3 0.9 1.0 4.7
============== ====== ====== ====== ===== ===== ======== ====== ========= ====== ===== =====
2019 Change 2018
(FY 2019
vs FY
2018)
AuMA* (GBPbn) Q1 H1 Q3 FY % Q1 H1 Q3 FY
============== ====== ====== ====== ============ ======== ====== ========= ====== ============
Quilter
Investors 19.0 19.9 20.2 20.8 18% 17.0 18.3 18.6 17.7
Quilter
Cheviot 23.6 24.0 23.8 24.2 9% 22.7 24.0 24.2 22.2
Quilter
Financial
Planning 0.8 0.8 0.8 0.8 - 1.0 1.0 1.0 0.8
============== ====== ====== ====== ============ ======== ====== ========= ====== ============
Advice &
Wealth
Management 43.4 44.7 44.8 45.8 13% 40.7 43.3 43.8 40.7
============== ====== ====== ====== ============ ======== ====== ========= ====== ============
Quilter Wealth
Solutions 52.6 54.8 55.7 57.2 16% 49.1 51.8 52.9 49.4
Quilter
International 19.2 20.0 20.2 20.5 12% 18.5 19.1 19.5 18.3
============== ====== ====== ====== ============ ======== ====== ========= ====== ============
Wealth
Platforms 71.8 74.8 75.9 77.7 15% 67.6 70.9 72.4 67.7
============== ====== ====== ====== ============ ======== ====== ========= ====== ============
Elimination of
intra-Group
assets (11.6) (12.2) (12.5) (13.1) 22% (10.1) (10.9) (11.0) (10.7)
Quilter plc
excl. Quilter
Life
Assurance 103.6 107.3 108.2 110.4 13% 98.2 103.3 105.2 97.7
============== ====== ====== ====== ============ ======== ====== ========= ====== ============
Quilter Life
Assurance 11.2 11.1 10.3 - (100%) 13.4 13.4 12.9 11.2
============== ====== ====== ====== ============ ======== ====== ========= ====== ============
YTD Gross
flows, net
flows
and AuMA
(GBPbn)
-------------- -------------- ------ ------------ ---------------- --------- --------------------
AuMA AuMA
as at 31 Market as at 31
December Gross Gross and other December
2018* sales* outflows* NCCF* movements 2019*
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Quilter
Investors 17.7 4.9 (4.4) 0.5 2.6 20.8
Quilter
Cheviot 22.2 2.6 (3.4) (0.8) 2.8 24.2
Quilter
Financial
Planning 0.8 - - - - 0.8
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Advice &
Wealth
Management 40.7 7.5 (7.8) (0.3) 5.4 45.8
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Quilter Wealth
Solutions 49.4 6.0 (5.1) 0.9 6.9 57.2
Quilter
International 18.3 2.0 (1.5) 0.5 1.7 20.5
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Wealth
Platforms 67.7 8.0 (6.6) 1.4 8.6 77.7
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Elimination of
intra-group
assets (10.7) (3.2) 2.4 (0.8) (1.6) (13.1)
Quilter plc
excl. Quilter
Life
Assurance 97.7 12.3 (12.0) 0.3 12.4 110.4
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Quilter Life
Assurance 11.2 0.4 (3.9) (3.5) (7.7) -
-------------- -------------- ------ ------------ ---------------- --------- --------------------
AuMA AuMA
as at 31 Market as at 31
December Gross Gross and other December
2017* Sales* Outflows* NCCF* movements 2018*
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Quilter
Investors 16.7 5.5 (2.7) 2.8 (1.8) 17.7
Quilter
Cheviot 23.5 2.5 (1.8) 0.7 (2.0) 22.2
Quilter
Financial
Planning 1.1 - - - (0.3) 0.8
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Advice &
Wealth
Management 41.3 8.0 (4.5) 3.5 (4.1) 40.7
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Quilter Wealth
Solutions 49.6 7.7 (4.6) 3.1 (3.3) 49.4
Quilter
International 19.2 1.8 (1.5) 0.3 (1.2) 18.3
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Wealth
Platforms 68.8 9.5 (6.1) 3.4 (4.5) 67.7
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Elimination of
intra-group
assets (9.8) (3.3) 1.1 (2.2) 1.3 (10.7)
Quilter plc
excl. Quilter
Life
Assurance 100.3 14.2 (9.5) 4.7 (7.3) 97.7
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Quilter Life
Assurance 14.6 0.6 (2.9) (2.3) (1.1) 11.2
-------------- -------------- ------ ------------ ---------------- --------- --------------------
Estimated asset allocation (%) 2019 2018
Total client Total client
Fund profile by Investment type AuMA AuMA
-------------------------------------------------------------- ----------------- --------------------
Quilter
Fixed interest 26% 26%
Equities 64% 64%
Cash 4% 4%
Property and alternatives 6% 6%
============================================================== ================= ====================
Total 100% 100%
============================================================== ================= ====================
Retail 99% 99%
Institutional 1% 1%
============================================================== ================= ====================
Total 100% 100%
============================================================== ================= ====================
Total net
fee
revenue* Quilter Advice Quilter Quilter
2019 Quilter Quilter Financial & Wealth Wealth Quilter Life Wealth Head
(GBPm) Investors Cheviot Planning Management Solutions International Assurance Platforms Office Group
=========== ========= ======= ========= ========== ========= ============= ========= ========= ======= =====
Net
management
fee* 123 171 2 296 173 110 70 353 - 649
Other
revenue* 1 7 103 111 4 15 26 45 3 159
=========== ========= ======= ========= ========== ========= ============= ========= ========= ======= =====
Total net
fee
revenue* 124 178 105 407 177 125 96 398 3 808
----------- --------- ------- --------- ---------- --------- ------------- --------- --------- ------- -----
Total net
fee
revenue* Quilter Advice Quilter Quilter
2018 Quilter Quilter Financial & Wealth Wealth Quilter Life Wealth Head
(GBPm) Investors Cheviot Planning Management Solutions International Assurance Platforms Office Group
=========== ========= ======= ========= ========== ========= ============= ========= ========= ======= =====
Net
management
fee* 106 168 2 276 168 112 91 371 - 647
Other
revenue* 3 7 87 97 2 23 18 43 1 141
=========== ========= ======= ========= ========== ========= ============= ========= ========= ======= =====
Total net
fee
revenue* 109 175 89 373 170 135 109 414 1 788
----------- --------- ------- --------- ---------- --------- ------------- --------- --------- ------- -----
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 2019 2018 % change
===== =====
Quilter Financial Planning
Net management fee* 2 2 -
Other revenue* 103 87 18%
--------------------------- ----- ----- -----------------
Total net fee revenue* 105 89 18%
--------------------------- ----- ----- -----------------
RFPs + PCA (#) 1,799 1,621 11%
Productivity (GBPm)* 1.0 1.7 (41%)
=========================== ===== ===== =================
Quilter Investors
Net management fee* 123 106 16%
Other revenue* 1 3 (67%)
--------------------------- ----- ----- -----------------
Total net fee revenue* 124 109 14%
--------------------------- ----- ----- -----------------
NCCF (GBPbn)* 0.5 2.8 (82%)
Closing AuM (GBPbn)* 20.8 17.7 18%
Average AuM (GBPbn)* 19.6 17.8 10%
Revenue margin (bps)* 63 59 4 bps
Asset retention (%)* 75% 84% (9) pp
=========================== ===== ===== =================
Quilter Cheviot
Net management fee* 171 168 2%
Other revenue* 7 7 -
--------------------------- ----- ----- -----------------
Total net fee revenue* 178 175 2%
--------------------------- ----- ----- -----------------
NCCF (GBPbn)* (0.8) 0.7 -
Closing AuM (GBPbn)* 24.2 22.2 9%
Average AuM (GBPbn)* 23.6 23.5 0%
Revenue margin (bps)* 72 72 -
Asset retention (%)* 85% 92% (7) pp
Investment managers (#) 167 155 8%
=========================== ===== ===== =================
3. Wealth Platforms
The following table presents certain key financial metrics utilised by management with respect to the business units of the Wealth Platforms segment, for the periods indicated.
Key financial highlights 2019 2018 % change ============================ ===== ===== ==================== Quilter Wealth Solutions Net management fee* 173 168 3% Other revenue* 4 2 100% ---------------------------- ----- ----- -------------------- Total net fee revenue* 177 170 4% ---------------------------- ----- ----- -------------------- NCCF (GBPbn)* 0.9 3.1 (71%) Closing AuA (GBPbn)* 57.2 49.4 16% Average AuA (GBPbn)* 54.1 51.0 6% Revenue margin (bps)* 31 32 (1) bp Asset retention (%)* 90% 91% (1) pp ============================ ===== ===== ==================== Quilter International Net management fee* 110 112 (2%) Other revenue* 15 23 (35%) ---------------------------- ----- ----- -------------------- Total net fee revenue* 125 135 (7%) ---------------------------- ----- ----- -------------------- NCCF (GBPbn)* 0.5 0.3 67% Closing AuA (GBPbn)* 20.5 18.3 12% Average AuA (GBPbn)* 19.6 19.0 3% Revenue margin (bps)* 56 59 (3) bp Asset retention (%)* 92% 92% - ============================ ===== ===== ==================== Quilter Life Assurance Net management fee* 70 91 (23%) Other revenue* 26 18 44% ---------------------------- ----- ----- -------------------- Total net fee revenue* 96 109 (12%) Expenses* (43) (52) (17%) ---------------------------- ----- ----- -------------------- Adjusted profit before tax* 53 57 (7%) Tax 3 (7) - ---------------------------- ----- ----- -------------------- Adjusted profit after tax 50 64 (22%) ---------------------------- ----- ----- -------------------- Operating margin %* 55% 52% 3 pp NCCF (GBPbn)* (3.5) (2.3) (52%) Closing AuA (GBPbn)* - 11.2 (100%) Average AuA (GBPbn)* - 13.2 (100%) Revenue margin (bps)* 66 69 - Asset retention (%)* - 80% - ---------------------------- ----- ----- --------------------
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.
END
FR JMMLTMTBBBAM
(END) Dow Jones Newswires
March 11, 2020 03:00 ET (07:00 GMT)
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