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.
-- 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
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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
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(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
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+1 631 913
United States 1422
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Access Code 91213038#
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Playback facility:
United Kingdom/ +44 333 300
Other 0819
+27 21 672
South Africa 4123
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+1 866 931
United States 1566
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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.
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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.
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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.
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Gross sales Gross sales are the gross client cash inflows received
from customers during the period and represent our ability
to increase AuMA and revenue. Gross sales are disclosed
by business on page 12 of the Financial review and by business
and segment in the Supplementary information on pages 24
and 26.
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Gross outflows Gross outflows are the gross client cash outflows returned
to customers during the period and results in a decrease
to AuMA and revenue. Gross outflows are disclosed by business
on page 12 of the Financial review and by business and
segment in the Supplementary information on pages 24 and
26.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Asset retention The asset retention rate measures our ability to retain
assets from delivering good customer outcomes and investment
performance. Asset retention reflects the annualised 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.
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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.
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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.
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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.
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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.
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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.
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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.
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(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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