REG - Quilter PLC - Quilter plc 2023 Half Year Results - Part 2
08/08/2023 07:00
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RNS Number : 5659I Quilter PLC 08 August 2023
Statement of Directors' responsibilities in respect of the interim financial statements
For the period ended 30 June 2023
Each of the Directors of Quilter plc confirms to the best of their knowledge
and belief that:
· The condensed consolidated interim financial statements, which
comprises the consolidated income statement, the consolidated statement of
comprehensive income, the consolidated statement of changes in equity, the
consolidated statement of financial position, the consolidated statement of
cash flows and the related explanatory notes, has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the United Kingdom and
gives a true and fair view of the assets, liabilities, financial position and
profits of the Group for the period ended 30 June 2023. These interim
financials have been prepared and published in compliance with the acceptable
accounting frameworks of the London Stock Exchange ("LSE"), where the Company
has its primary listing.
· The interim management report includes a fair review of the
information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being
an indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
consolidated financial statements, and a description of the principal risks
and uncertainties for the remaining six months of the year, and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the financial year and that have materially affected the financial position or
performance of the Group during that period, and any changes in the related
party transactions described in the Group's 2022 Annual Report that could do
so.
Consistent with principle N of the UK Corporate Governance Code, the results
for the six months ended 30 June 2023 taken as a whole, present a fair,
balanced and understandable assessment of the Company's position and
prospects.
Quilter plc is listed with a primary listing on the LSE and a secondary
listing on the Johannesburg Stock Exchange ("JSE").
A list of the current Directors is maintained on the Group's website:
https://plc.quilter.com/about-us/quilter-leadership/.
Signed on behalf of the Board
Steven Levin
Mark Satchel
Chief Executive Officer
Chief Financial Officer
7 August
2023
7 August 2023
Independent review report to Quilter plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Quilter plc's condensed consolidated interim financial
statements (the "interim financial statements") in the interim results of
Quilter plc for the 6 month period ended 30 June 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK‑adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Condensed consolidated statement of financial position as at
30 June 2023;
· the Condensed consolidated income statement and Condensed
consolidated statement of comprehensive income for the period then ended;
· the Condensed consolidated statement of cash flows for the period
then ended;
· the Condensed consolidated statement of changes in equity for the
period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results of Quilter
plc have been prepared in accordance with UK‑adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the interim results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting or that the
Directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the Group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The interim results, including the interim financial statements, are the
responsibility of, and have been approved by the Directors. The Directors are
responsible for preparing the interim results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the interim results, including the
interim financial statements, the Directors are responsible for assessing the
Group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the interim results based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion section of this report. This report, including the conclusion, has
been prepared for and only for the Company for the purpose of complying with
the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
7 August 2023
Condensed consolidated income statement
For the period ended 30 June 2023
£m
Notes Six months Six months Full year
2023 2022 2022
Income
Fee income and other income from service activities 6(b) 277 292 581
Investment return 1,302 (5,326) (4,649)
Other income 2 21 28
Total income 1,581 (5,013) (4,040)
Expenses
Change in investment contract liabilities 17 (1,018) 4,825 4,318
Fee and commission expenses, and other acquisition costs (25) (26) (54)
Change in third-party interests in consolidated funds (202) 555 438
Other operating and administrative expenses (297) (297) (584)
Finance costs (11) (7) (13)
Total expenses (1,553) 5,050 4,105
Profit before tax from continuing operations 28 37 65
Tax (expense)/credit attributable to policyholder returns 7 (21) 145 134
Profit before tax attributable to equity holders from continuing operations 7 182 199
Income tax (expense)/credit 7 (23) 114 110
Less: tax expense/(credit) attributable to policyholder returns 21 (145) (134)
Tax expense attributable to equity holders (2) (31) (24)
Profit after tax from continuing operations 5 151 175
Loss after tax from discontinued operations 4(b) - (1) -
Profit after tax 5 150 175
Attributable to:
Equity holders of Quilter plc 5 150 175
Earnings per Ordinary Share on profit attributable to Ordinary Shareholders of
Quilter plc(1)
Basic earnings per Ordinary Share (pence) 8(b) 0.4 9.8 12.2
Diluted earnings per Ordinary Share (pence) 8(b) 0.4 9.7 12.0
(1)The Financial Reporting Council ("FRC") published a thematic review on
earnings per share in September 2022. The EPS figures presented above for the
six months to 30 June 2022 and the year to 31 December 2022 were calculated
using the weighted average number of shares which was determined without
making any retrospective adjustment for the impact of the Share Consolidation
completed in May 2022 in line with the FRC's guidance and IAS 33 Earnings per
Share. In the Group's interim financial statements for the six months to 30
June 2022, the disclosed EPS metrics for June 2022 were calculated using a
weighted average number of shares which allowed for a retrospective adjustment
for the impact of the May 2022 Share Consolidation. The June 2022 EPS metrics
shown above were corrected following the FRC thematic review.
Condensed consolidated statement of comprehensive income
For the period ended 30 June 2023
£m
Note Six months Six months Full year
2023 2022 2022
Profit after tax 5 150 175
Total comprehensive income 5 150 175
Attributable to:
Continuing operations 5 151 175
Discontinued operations 4(b) - (1) -
Equity holders of Quilter plc 5 150 175
Condensed consolidated statement of changes in equity
For the period ended 30 June 2023
£m
Notes Ordinary Ordinary Share B shares Capital redemption reserve Merger Share-based payments reserve Other reserves Retained earnings Total
Share premium reserve reserve share-
capital holders'
equity
Balance at 1 January 2022 116 58 - 17 25 42 (1) 1,482 1,739
Profit after tax - - - - - - - 150 150
Total comprehensive income - - - - - - - 150 150
Dividends 9 - - - - - - - (62) (62)
Ordinary Shares repurchased in the buyback programme(1) 16 (1) - - 1 - - - - -
Issue of B shares(2) 16 - - 328 - (25) - - (303) -
Redemption of B shares(2) 16 - - (328) 328 - - - (328) (328)
Exchange rate movement (ZAR/GBP)(3) - - - - - - - (4) (4)
Movement in own shares - - - - - - - 19 19
Equity share-based payment transactions - - - - - (8) - 19 11
Aggregate tax effects of items recognised directly in equity - - - - - (2) - - (2)
Total transactions with the owners of the Company (1) - - 329 (25) (10) - (659) (366)
Balance at 30 June 2022 115 58 - 346 - 32 (1) 973 1,523
Profit after tax - - - - - - - 25 25
Total comprehensive income - - - - - - - 25 25
Dividends 9 - - - - - - - (16) (16)
Movement in own shares - - - - - - - 3 3
Equity share-based payment transactions - - - - - 9 - 4 13
Total transactions with the owners of the Company - - - - - 9 - (9) -
Balance at 31 December 2022 115 58 - 346 - 41 (1) 989 1,548
Profit after tax - - - - - - - 5 5
Total comprehensive income - - - - - - - 5 5
Dividends 9 - - - - - - - (45) (45)
Exchange rate movement (ZAR/GBP)(3) - - - - - - - 2 2
Movement in own shares - - - - - - - (13) (13)
Equity share-based payment transactions - - - - - (9) - 17 8
Total transactions with the owners of the Company - - - - - (9) - (39) (48)
Transfer to retained earnings - - - - - - 1 (1) -
Balance at 30 June 2023 115 58 - 346 - 32 - 954 1,505
(1)On 11 March 2020, the Company announced a share buyback programme to
purchase Ordinary Shares up to a maximum value of £375 million, in order to
return the net surplus proceeds to shareholders arising from the sale of
Quilter Life Assurance which reduced the share capital of the Company. During
the year ending 31 December 2022, the Company acquired 17.7 million shares for
a total consideration of £26 million and incurred additional costs of £1
million. The Company had committed to the buyback of these shares during the
year to 31 December 2021 and had recognised an accrual for £26 million as at
31 December 2021. This was the final tranche of the share buyback programme
and was completed in January 2022. The shares, which have a nominal value of
£1 million, were cancelled in the six months ending 30 June 2022, giving rise
to a capital redemption reserve of the same value as required by the Companies
Act 2006.
(2)On 9 March 2022, the Company announced a capital return of £328 million
from the net surplus proceeds arising from the sale of Quilter International
by way of a B Share Scheme accompanied by a Share Consolidation. Refer to note
4 in the Group's 2022 Annual Report for further details of the capital return
and Share Consolidation. Following the issue and redemption of the B
preference shares as part of the B Share Scheme, the Company transferred £328
million from retained earnings to the capital redemption reserve, as required
under the provisions of sections 688 and 733 of the Companies Act 2006, being
an amount equal to the nominal value of the B shares redeemed in the year. The
increase in the capital redemption reserve results from the UK company law
requirement to maintain the Company's capital when shares are redeemed out of
the Company's distributable profits.
(3)The South African Rand value of the proposed capital return for shares
registered on the Johannesburg Stock Exchange was set on 9 March 2022. The
impact of exchange rate movements between the year-end Market Announcement on
9 March 2022 and the redemption of the B shares on 24 May 2022 on the pound
sterling equivalent of payments to JSE shareholders in South African Rand is
recognised directly in equity. Additionally, the impact of exchange rate
movements between the announcement dates of dividends payable and the payment
dates on the pound sterling equivalent of payments to JSE shareholders in
South African Rand are recognised directly in equity. The Group held cash in
South African Rand equal to the expected cash outflows and therefore was
economically hedged for the outflows.
Condensed consolidated statement of financial position
At 30 June 2023
£m
Notes 30 June 30 June 31 December
2023 2022 2022
Assets
Goodwill and intangible assets 10 391 433 413
Property, plant and equipment 97 117 112
Investment property 11 10 - -
Investments in associated undertakings 2 1 1
Contract costs 10 10 10
Loans and advances 40 34 34
Financial investments 12 45,506 42,106 43,617
Deferred tax assets 68 110 94
Current tax receivable 18 - 10
Trade, other receivables and other assets 646 523 303
Derivative assets 26 8 40
Cash and cash equivalents 15 1,800 1,793 1,782
Assets held for sale 4(e) - - 1
Total assets 48,614 45,135 46,417
Equity and liabilities
Equity
Ordinary Share capital 16 115 115 115
Ordinary Share premium reserve 16 58 58 58
Capital redemption reserve 346 346 346
Share-based payments reserve 32 32 41
Other reserves - (1) (1)
Retained earnings 954 973 989
Total equity 1,505 1,523 1,548
Liabilities
Investment contract liabilities 17 40,070 37,167 38,186
Third-party interests in consolidated funds 5,930 5,404 5,843
Provisions 18 61 64 69
Deferred tax liabilities 21 29 24
Current tax payable 1 10 1
Borrowings and lease liabilities 284 293 290
Trade, other payables and other liabilities 731 615 436
Derivative liabilities 11 30 20
Total liabilities 47,109 43,612 44,869
Total equity and liabilities 48,614 45,135 46,417
Approved by the Board of Directors on 7 August 2023 and signed on its behalf
by
Steven Levin Mark Satchel
Chief Executive Officer Chief Financial Officer
Condensed consolidated statement of cash flows
For the period ended 30 June 2023
The cash flows presented in this statement cover all the Group's activities
(continuing and discontinued operations) and include flows from both
policyholder and shareholder activities. All cash and cash equivalents are
available for general use by the Group for the purposes of the disclosures
required under IAS 7 Statement of Cash Flows except for cash and cash
equivalents in consolidated funds (as shown in note 15). Cash flows for
discontinued operations are shown separately in note 4(c).
£m
Notes Six months Six months Full year
2023 2022(1) 2022
Cash flows from operating activities
Cash flows from operating activities 941 1,093 1,698
Taxation paid (8) (12) (22)
Total net cash flows from operating activities 933 1,081 1,676
Cash flows from investing activities
Net acquisitions of financial investments (837) (913) (1,494)
Acquisition of property, plant and equipment (1) - (3)
Proceeds from sale of property, plant and equipment held for sale 1 - -
Acquisition of interests in subsidiaries(2) 4(d) - (5) (5)
Investment in associate (1) - -
Net payments from the disposal of interests in subsidiaries - (1) -
Total net cash flows from investing activities (838) (919) (1,502)
Cash flows from financing activities
Dividends paid to equity holders of the Company 9 (45) (62) (78)
Finance costs on external borrowings (10) (5) (9)
Payment of interest on lease liabilities (1) (1) (3)
Payment of principal of lease liabilities (4) (9) (11)
Quilter plc shares acquired for use within the Group's employee share scheme (15) - -
Redemption of B shares(3) - (328) (328)
Repurchase and cancellation of Ordinary Shares(4) - (28) (28)
Exchange rate movements passed to shareholders(5) 2 (4) (4)
Proceeds from the issue of subordinated debt 3 199 - -
Subordinated debt repaid 3 (200) - -
Total net cash flows from financing activities (74) (437) (461)
Net increase/(decrease) in cash and cash equivalents 21 (275) (287)
Cash and cash equivalents at the beginning of the year 1,782 2,064 2,064
Effect of exchange rate changes on cash and cash equivalents (3) 4 5
Cash and cash equivalents at end of the period 15(a) 1,800 1,793 1,782
(1)The June 2022 figures have been re-presented to address a minor
classification difference between net cash flows from operating activities and
net cash flows from financing activities relating to the classification of
exchange rate movements passed to shareholders. Net cash flows from financing
activities includes a £4 million outflow that was originally presented within
net cash flows from operating activities.
(2)The acquisition of interests in subsidiaries results from contingent
consideration payments relating to historical acquisitions.
(3)In March 2022, the Company announced a capital return of £328 million from
the net surplus proceeds arising from the sale of Quilter International by way
of a B Share Scheme accompanied by a Share Consolidation. The capital return
was completed in May 2022.
(4)The repurchase and cancellation of Ordinary Shares outflow relates to the
cash movements associated with the share buyback programme. Further details
are included within the condensed consolidated statement of changes in equity.
(5)The exchange rate movements passed to shareholders relate to foreign
exchange gains or losses that have arisen on the capital return and dividend
payments to JSE shareholders. Further details are included within the
condensed consolidated statement of changes in equity.
( )
Notes to the condensed consolidated interim financial statements
For the period ended 30 June 2023
General information
Quilter plc (the "Company"), a public limited company incorporated in England
and Wales and domiciled in the United Kingdom ("UK"), together with its
subsidiaries (collectively, the "Group") offers investment and wealth
management services, long-term savings and financial advice primarily in the
UK. Quilter plc is listed on the London and Johannesburg Stock Exchanges.
The Parent Company's registration number is 06404270. The address of the
registered office is Senator House, 85 Queen Victoria Street, London, EC4V
4AB.
1: Basis of preparation
The results for the six months ended 30 June 2023 have been prepared in
accordance with the UK-adopted IAS 34 Interim Financial Reporting and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority, and although unaudited, have been reviewed by the
Company's Auditor, PricewaterhouseCoopers LLP, and their report is included
earlier in this document. These condensed consolidated interim financial
statements ("interim financial statements") of Quilter plc for the six months
ended 30 June 2023 do not constitute statutory accounts as defined by section
434 of the Companies Act 2006. Comparative financial information for the full
year 2022 has been presented from the Group's 2022 Annual Report, which has
been filed with the Registrar of Companies and was prepared in accordance with
the UK-adopted International Accounting Standards and with the requirements of
the Companies Act 2006 as applicable to companies reporting under those
standards. The auditor's report on those financial statements was not
qualified, did not include a reference to any matters to which the auditor
drew attention by the way of emphasis without qualifying the report and did
not contain statements under section 498(2) or (3) of the Companies Act 2006.
Copies of the Group's 2022 Annual Report are available online at
plc.quilter.com.
These interim financial statements do not include all of the information
required for a complete set of IFRS compliant financial statements. Selected
notes are included to explain events and transactions that are significant to
an understanding of the changes in the Group's financial position and
performance since the publication of the Group's 2022 Annual Report. The Board
considers that the alternative performance measures provided, such as adjusted
profit, are also useful for both management and investors. Any seasonal or
cyclical factors, to the extent that they materially impact the Group's
results, are described in the Financial review.
There have been no changes in the Group's material accounting policies during
the period. All accounting policies for recognition, measurement,
consolidation and presentation are as outlined in the Group's 2022 Annual
Report. These interim financial statements have been prepared on a historical
cost basis, except for the revaluation of certain financial instruments, and
are presented in pounds sterling, which is the currency of the primary
economic environment in which the Group operates.
Going concern
The Directors have considered the resilience of the Group, its current
financial position, the principal risks facing the business and the
effectiveness of any mitigating strategies which are or could be applied. This
included an assessment of capital and liquidity over a three-year business
planning period covering 2023 to 2025. As part of the going concern
assessment, the Group took into consideration the current position of the UK
economy including the impact of inflation and increases in the cost of living.
The Group also took into consideration risks related to climate change. Based
on the assessment, the Directors believe that both the Group and Quilter plc
as the Parent Company, have sufficient financial resources to continue in
business for a period of at least 12 months from the date of approval of these
interim financial statements and continue to adopt the going concern basis in
preparing the interim financial statements.
Critical accounting estimates and judgements
The preparation of financial statements requires management to exercise
judgement in applying the Group's material accounting policies and in making
estimates and assumptions that affect the reported assets and liabilities at
the date of the financial statements. The Board Audit Committee reviews these
areas of judgement and estimates and the appropriateness of material
accounting policies adopted in the preparation of these financial statements.
The critical estimates and judgements disclosed in detail in the Group's 2022
Annual Report on pages 126 to 127 continue to be critical to the Group during
the six months ended 30 June 2023. The Group's critical accounting estimates
and judgements are detailed below:
Critical accounting judgements
The Group's critical accounting judgements are those that management makes
when applying its material accounting policies and that have the greatest
effect on the net profit and net assets recognised in the Group's financial
statements. There are no new critical accounting judgements for the Group for
the current period.
Critical accounting estimates
The Group's critical accounting estimates involve the most complex or
subjective assessments and assumptions, which have a significant risk of
resulting in material adjustment to the carrying amounts of assets and
liabilities within the next financial year. Management uses its knowledge of
current facts and circumstances and applies estimation and assumption setting
techniques that are aligned with relevant actuarial and accounting standards
and guidance to make predictions about future actions and events. Actual
results may differ from those estimates.
Provision for cost of defined benefit pension advice
An estimate was determined for potential unsuitable advice which may be found
via the Group-managed past business review of defined benefit to defined
contribution ("DB to DC") pension transfer advice using a methodology which
takes account of recent experience of redress payments calculated by an
independent expert, including the recent skilled person review, and applying a
proportion of transfer value to determine redress payable as an indicative
provision. The calculations are based upon FCA guidelines and modelling
performed, and factors including pension transfer value, date of retirement,
discount rate and inflation rate assumptions.
Measurement of deferred tax
The estimate of future taxable profits is performed as part of the annual
business planning process, and is based on estimated levels of AuMA, which are
subject to a large number of factors including global stock market movements,
related movements in foreign exchange rates and net client cash flows,
together with estimates of expenses and other charges. The Business Plan,
adjusted for known and estimated tax sensitivities, is used to determine the
extent to which deferred tax assets are recognised. In general, the Group
assesses recoverability of shareholder assets based on estimated taxable
profits over a three-year planning horizon and assesses policyholder assets
based on estimated investment growth over the medium term. Management has
reassessed the sensitivity on the recoverability of deferred tax assets based
on the latest forecast cash flows. See note 29 of the 2022 Annual Report for
further details.
2: New standards, amendments to standards, and interpretations adopted by the
Group
The IASB issued IFRS 17 Insurance Contracts in May 2017 and Amendments to IFRS
17 in June 2020. IFRS 17 became effective on 1 January 2023. The Group has
assessed all relevant contracts with policyholders. Based on this assessment,
it was determined that there are no contracts that will be accounted for under
IFRS 17.
The amendments to accounting standards in the table below became applicable
for the current reporting period. The Group has applied the exception to
recognising and disclosing information about deferred tax assets and
liabilities related to Pillar 2 income taxes as disclosed in note 7.
Adopted by the Group from Amendments to standards
1 January 2023 Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors - Definition of Accounting Estimates
1 January 2023 Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice
Statement 2 Making Materiality Judgements - Disclosure of Accounting Policies
1 January 2023 Amendments to IAS 12 Income Taxes - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction
1 January 2023 Amendments to IAS 12 Income Taxes - International Tax Reform - Pillar Two
Model Rules
3: Significant changes in the current reporting period
Repayment and new issue of Fixed Rate Reset Subordinated Notes
On 18 January 2023, the Company issued £200,000,000 8.625% Fixed Rate Reset
Subordinated Notes (due 18 April 2033) and received net cash proceeds of £199
million. After deducting structuring costs and professional fees, the retained
cash proceeds were £197 million. The Notes are now listed and regulated under
the terms of the London Stock Exchange. On 28 February 2023, the Company
repaid the existing £200,000,000 4.478% Fixed Rate Reset Subordinated Notes
(due 28 February 2028).
4: Discontinued operations, assets and liabilities held for sale, acquisitions
and disposals
4(a): Business disposals
There have been no material disposals of businesses during the period ended 30
June 2023 or the year ended 31 December 2022.
4(b): Discontinued operations - income statement and statement of
comprehensive income
There was a loss on discontinued operations for the six months to 30 June 2022
of £1 million due to an increase in accrued expenses in relation to the
Single Strategy business (sold in 2018). The additional accrual was reversed
at the end of 2022. The final payment relating to the sale of the Single
Strategy business was made during the six months to 30 June 2023. There were
no other changes in provisions relating to discontinued operations in any of
the periods reported in these condensed consolidated interim financial
statements.
4(c): Discontinued operations - net cash flows
The Group made the final payment of £4 million during the six months to 30
June 2023 in respect of the closure of the warranty relating to the sale of
the Single Strategy business. There were no inflows or outflows of cash
relating to discontinued operations during 2022.
4(d): Business acquisitions
There have been no material acquisitions of businesses during the period ended
30 June 2023 or during 2022.
Contingent consideration arising from historical business acquisitions:
The table below details the movements in the contingent consideration balance
during the current and prior periods arising from the business acquisitions in
previous periods.
£m
30 June 30 June 31 December
2023 2022 2022
Opening balance - 5 5
Payments - (5) (5)
Closing balance - - -
Contingent consideration represents the Group's best estimate of the amount
payable in relation to each acquisition discounted to net present value. The
basis used for each acquisition varies but includes payments based on a
percentage of the level of assets under administration, funds under management
and levels of ongoing fee income at future dates.
4(e): Assets and liabilities held for sale
Assets classified as held for sale at 31 December 2022 related to a leasehold
interest in an office property which was vacant and was subsequently sold in
April 2023.
5: Alternative performance measures ("APMs")
5(a): Adjusted profit before tax and reconciliation to profit after
tax
Basis of preparation of adjusted profit before tax
Adjusted profit before tax is one of the Group's alternative performance
measures and represents the Group's IFRS profit, adjusted for specific items
that management considers to be outside of the Group's normal operations or
one-off in nature, as detailed in note 5(b). Adjusted profit before tax does
not provide a complete picture of the Group's financial performance, which is
disclosed in the IFRS income statement, but is instead intended to provide
additional comparability and understanding of the financial results.
£m
Six months 2023 Six months 2022 Full year 2022
Notes Total Continuing operations Discontinued operations(1) Total Total
Affluent 54 47 - 47 105
High Net Worth 23 23 - 23 45
Head Office (1) (9) - (9) (16)
Adjusted profit before tax 76 61 - 61 134
Adjusting items:
Impact of acquisition and disposal-related accounting 5(b)(i) (21) (22) - (22) (42)
Business transformation costs 5(b)(ii) (16) (17) - (17) (30)
Finance costs 5(b)(iii) (10) (5) - (5) (10)
Customer remediation 5(b)(iv) (3) 15 - 15 12
Voluntary customer repayments 5(b)(v) - - - - (6)
Loss on business disposals 4(b) - - (1) (1) -
Exchange rate movement (ZAR/GBP) 5(b)(vi) (2) 4 - 4 4
Policyholder tax adjustments 5(b)(vii) (18) 146 - 146 138
Other adjusting items 5(b)(viii) 1 - - - (1)
Total adjusting items before tax (69) 121 (1) 120 65
Profit before tax attributable to equity holders 7 182 (1) 181 199
Tax attributable to policyholder returns 7 21 (145) - (145) (134)
Income tax (expense)/credit 7 (23) 114 - 114 110
Profit after tax(2) 5 151 (1) 150 175
(1)Discontinued operations relate to changes in the warranty provision on the
sale of the Single Strategy business.
(2)IFRS profit after tax.
5(b): Adjusting items
In determining adjusted profit before tax, the Group's IFRS profit before tax
is adjusted for specific items that management considers to be outside of the
Group's normal operations or one-off in nature. These are detailed below.
5(b)(i): Impact of acquisition and disposal-related accounting
The Group excludes any impairment of goodwill from adjusted profit as well as
the amortisation and impairment of acquired intangible assets, any acquisition
costs, finance costs related to the discounting of contingent consideration
and incidental items relating to past disposals.
The effect of these adjustments to determine adjusted profit are summarised
below. All adjustments are in respect of continuing operations.
£m
Six months Six months Full year
2023 2022 2022
Amortisation of acquired intangible assets 20 22 42
Impairment of acquired intangible assets(1) 1 - -
Total impact of acquisition and disposal-related accounting 21 22 42
(1)The impairment of acquired intangible assets results from the impairment of
specific client books held within the Affluent operating segment as the Group
can no longer support the carrying value.
5(b)(ii): Business transformation costs
Business transformation costs include three key items: costs associated with
the Business Simplification programme, Optimisation programme and investment
in business costs. For the six-month period to 30 June 2023, these costs
totalled £16 million (30 June 2022: £17 million, 31 December 2022: £30
million) in aggregate, the principal components of which are described below:
Business Simplification costs - 30 June 2023: £14 million, 30 June 2022: £12
million, 31 December 2022: £17 million
The Business Simplification programme continues to track towards the £45
million target of annualised run-rate cost savings, announced in November
2021. This target will be largely achieved by the end of 2023, and £50
million of additional costs savings are targeted to be achieved by the end of
2025. The aggregate cost to achieve the combined £95 million savings target
is estimated to be £120 million. To date, the programme has delivered £33
million of annualised run-rate cost savings with an implementation cost of
£31 million.
Optimisation programme costs - 30 June 2023: £nil, 30 June 2022: £3 million,
31 December 2022: £6 million
The Optimisation programme commenced in 2018 to provide closer business
integration, create central support, rationalise technology and reduce
third-party spend. The programme has now achieved its target of delivering
annualised run-rate cost savings of £65 million with total implementation
costs since inception of £88 million. This programme concluded in 2022 and no
costs were incurred in the six-month period to 30 June 2023.
Investment in business costs - 30 June 2023: £1 million, 30 June 2022: £nil,
31 December 2022: £4 million
Investment in business costs of £1 million were incurred in the period to
June 2023 as the Group continues to enable and support advisers and clients
and improve productivity through better utilisation of technology.
Business separation costs following the disposal of Quilter International - 30
June 2023: £1 million, 30 June 2022: £nil, 31 December 2022: £nil
The Group sold Quilter International to Utmost Group on 30 November 2021 and
entered into a Transitional Service Agreement with the acquirer. The cost to
the Group of running the Transitional Service Agreement was £1 million for
the six-month period to 30 June 2023.
Restructuring costs following the disposal of Quilter Life Assurance - 30 June
2023: £nil, 30 June 2022: £2 million, 31 December 2022: £3 million
The Transitional Service Agreement following the sale of Quilter Life
Assurance in 2019 has now concluded. No restructuring costs following this
disposal were incurred in the six-month period to 30 June 2023.
5(b)(iii): Finance costs
The nature of much of the Group's operations means that, for management's
decision-making and internal performance management, the effects of interest
costs on external borrowings are removed when calculating adjusted profit. For
the period ended 30 June 2023, finance costs were £10 million (30 June 2022:
£5 million, 31 December 2022: £10 million).
5(b)(iv): Customer remediation
Lighthouse pension transfer advice provision - 30 June 2023: £3 million, 30
June 2022: £15 million net income, 31 December 2022: £12 million net income
The provision for the redress of British Steel Pension Scheme cases and other
DB to DC pension transfer advice cases, excluding the impact of payments made,
has increased by £2 million in the period, which has been recognised in the
income statement as an increase in expenses (30 June 2022: £5 million credit,
31 December 2022: £4 million credit). This increase reflects the impact of
the initial review for suitability of additional cases by an independent
expert as part of the Group-led past business review of DB to DC pension
transfer advice. During the period, £1 million of additional legal,
consulting, and other costs were incurred (30 June 2022: £nil, 31 December
2022: £4 million). These items have been excluded from adjusted profit on the
basis that the advice activities, to which the charge and benefit relate, took
place prior to the Group's acquisition of the business. In the six months to
30 June 2022, insurance proceeds in relation to claims in respect of legal
liabilities arising in connection with Lighthouse's DB to DC pension transfer
advice cases were received, contributing £10 million (31 December 2022: £12
million) to the Group's profit before tax. Further details of the provision
are provided in note 18.
5(b)(v): Voluntary customer repayments
For the period ended 30 June 2023, these costs were £nil (30 June 2022:
£nil, 31 December 2022: £6 million) and relate to a change in business
policy during H2 2022. The voluntary repayments represent amounts to be paid
to customers relating to revenue previously recognised in respect of Final
Plan Closure receipts.
5(b)(vi): Exchange rate movements (ZAR/GBP)
For the period ended 30 June 2023, an expense of £2 million was incurred (30
June 2022: £4 million income, 31 December 2022: £4 million income) and
related to a foreign exchange loss on cash held in South African Rand in
preparation for payments to shareholders. In the year to 31 December 2022,
these payments related to the capital return and final dividend paid in May
2022. In the period to 30 June 2023, these payments related to the final
dividend paid in May 2023. Cash was converted to South African Rand upon
announcement of the details of the capital return and dividend payments to
provide an economic hedge for the Group. The foreign exchange movements are
fully offset by an equal amount taken directly to retained earnings.
5(b)(vii): Policyholder tax adjustments
For the period ended 30 June 2023, the total amount of policyholder tax
adjustments to adjusted profit is £18 million credit (30 June 2022: £146
million charge, 31 December 2022: £138 million charge). Adjustments to
policyholder tax are made to remove distortions arising from market volatility
that can, in turn, lead to volatility in the policyholder tax adjustments
between periods. The recognition of the income received from policyholders
(which is included within the Group's income) to fund the policyholder tax
liability can vary in timing to the recognition of the corresponding tax
expense, creating volatility in the Group's IFRS profit or loss before tax
attributable to equity holders. Note 7 provides further information on the
impact of markets on the policyholder tax adjustment. Adjustments are also
made to remove policyholder tax distortions from other non-operating adjusting
items.
5(b)(viii): Other adjusting items
For the period ended 30 June 2023, income of £1 million was received (30 June
2022: £nil, 31 December 2022: £1 million cost) in relation to the settlement
offer received for the indemnification asset that was impaired in H2 2022.
5(c): Reconciliation of IFRS income and expenses to "Total net fee revenue"
and "Operating expenses" within adjusted profit
This reconciliation shows how each line of the Group's condensed consolidated
IFRS income statement is allocated to the Group's APMs: Net management fees,
Other revenue, Investment revenue, Total net revenue and Operating expenses,
and form the Group's adjusted profit before tax for continuing operations. The
IFRS income statement column in the table below, down to "Profit before tax
attributable to equity holders from continuing operations", reconciles to each
line of the Group's condensed consolidated income statement. Allocations are
determined by management and aim to show the Group's sources of profit (net of
relevant directly attributable expenses). These allocations remain consistent
from period to period to ensure comparability, unless otherwise stated.
£m
Six months 2023 Net mgmt. fees(1) Other revenue(1) Investment revenue(1) Total net revenue(1) Operating expenses(1) Adjusted profit before tax Consol. of funds(2) Condensed consolidated income statement
Income
Fee income and other income from service activities 268 41 - 309 - 309 (32) 277
Investment return(3) 19 1,007 28 1,054 - 1,054 248 1,302
Other income - (2) - (2) 4 2 - 2
Total income 287 1,046 28 1,361 4 1,365 216 1,581
Expenses
Change in investment contract liabilities(3) (12) (1,006) - (1,018) - (1,018) - (1,018)
Fee and commission expenses, and other acquisition costs (23) - - (23) - (23) (2) (25)
Change in third-party interests in consolidated funds - - - - - - (202) (202)
Other operating and administrative expenses (7) - - (7) (278) (285) (12) (297)
Finance costs - - - - (11) (11) - (11)
Total expenses (42) (1,006) - (1,048) (289) (1,337) (216) (1,553)
Tax expense attributable to policyholder returns (21) - - (21) - (21) - (21)
Profit before tax attributable to equity holders from continuing operations 224 40 28 292 (285) 7 - 7
Adjusting items:
Impact of acquisition and disposal-related accounting - - - - 21 21
Business transformation costs - - - - 16 16
Finance costs - - - - 10 10
Customer remediation - - - - 3 3
Exchange rate movement (ZAR/GBP) - 2 - 2 - 2
Policyholder tax adjustments 18 - - 18 - 18
Other adjusting items - - - - (1) (1)
Adjusting items 18 2 - 20 49 69
Adjusted profit before tax - continuing operations 242 42 28 312 (236) 76
(1)The APMs "Net management fees", "Other revenue", "Investment revenue",
"Total net revenue" and "Operating expenses" are commented on within the
Financial review. In the financial statements for the year to 31 December 2022
and in the June 2022 interim financial statements, interest income on
shareholder cash and cash equivalents and interest income on customer cash and
cash equivalents was previously presented within "Other revenue". For the six
months to 30 June 2023, to provide additional information to the users of the
Group's financial reporting, interest income on shareholder cash and cash
equivalents has been presented separately as Investment revenue and interest
income on customer cash and cash equivalents has been presented within Net
management fees. Disclosures for prior periods have been re-presented to
ensure comparability.
(2)Consolidation of funds shows the grossing up impact to the Group's
condensed consolidated income statement as a result of the consolidation of
funds requirements, as described within note 5(a) of the Group's 2022 Annual
Report. This grossing up is excluded from the Group's adjusted profit.
(3)Investment return of £19 million less £12 million change in investment
contract liabilities, as reported within net management fees, represents £7
million interest income on customer cash and cash equivalents which was
retained by the Group for the six-month period to 30 June 2023. The £28
million investment return, as reported within investment revenue, relates to
interest income on shareholder cash and cash equivalents.
( )
£m
Six months 2022 Net mgmt. fees(1) Other revenue(1) Investment revenue(1) Total net revenue(1) Operating expenses(1) Adjusted profit before tax Consol. of funds(2) Condensed consolidated income statement
Income
Fee income and other income from service activities 277 50 - 327 - 327 (35) 292
Investment return(3) 2 (4,824) 3 (4,819) - (4,819) (507) (5,326)
Other income - 16 - 16 4 20 1 21
Total income 279 (4,758) 3 (4,476) 4 (4,472) (541) (5,013)
Expenses
Change in investment contract liabilities - 4,825 - 4,825 - 4,825 - 4,825
Fee and commission expenses, and other acquisition costs (23) - - (23) - (23) (3) (26)
Change in third-party interests in consolidated funds - - - - - - 555 555
Other operating and administrative expenses (8) - - (8) (278) (286) (11) (297)
Finance costs - - - - (7) (7) - (7)
Total expenses (31) 4,825 - 4,794 (285) 4,509 541 5,050
Tax credit attributable to policyholder returns 145 - - 145 - 145 - 145
Profit before tax attributable to equity holders from continuing operations 393 67 3 463 (281) 182 - 182
Adjusting items:
Impact of acquisition and disposal-related accounting - - - - 22 22
Business transformation costs - - - - 17 17
Finance costs - - - - 5 5
Customer remediation - (10) - (10) (5) (15)
Exchange rate movement (ZAR/GBP) - (4) - (4) - (4)
Policyholder tax adjustments (146) - - (146) - (146)
Adjusting items (146) (14) - (160) 39 (121)
Adjusted profit before tax - continuing operations 247 53 3 303 (242) 61
(1)The APMs "Net management fees", "Other revenue", "Investment revenue",
"Total net revenue" and "Operating expenses" are commented on within the
Financial review. In the financial statements for the year to 31 December 2022
and in the June 2022 interim financial statements, interest income on
shareholder cash and cash equivalents and interest income on customer cash and
cash equivalents was previously presented within "Other revenue". For the six
months to 30 June 2023, to provide additional information to the users of the
Group's financial reporting, interest income on shareholder cash and cash
equivalents has been presented separately as Investment revenue and interest
income on customer cash and cash equivalents has been presented within Net
management fees. Disclosures for prior periods have been re-presented to
ensure comparability.
(2)Consolidation of funds shows the grossing up impact to the Group's
condensed consolidated income statement as a result of the consolidation of
funds requirements, as described within note 5(a) of the Group's 2022 Annual
Report. This grossing up is excluded from the Group's adjusted profit.
(3)Investment return of £2 million, as reported within net management fees,
represents the interest income on customer cash and cash equivalents which was
retained by the Group for the six-month period to 30 June 2022. The £3
million investment return, as reported within investment revenue, relates to
interest income on shareholder cash and cash equivalents.
£m
Year ended 31 December 2022 Net mgmt. fees(1) Other revenue(1) Investment revenue(1) Total net revenue(1) Operating expenses(1) Adjusted profit before tax Consol. of funds(2) Condensed consolidated income statement
Income
Fee income and other income from service activities 548 95 - 643 - 643 (62) 581
Investment return(3) 12 (4,320) 16 (4,292) - (4,292) (357) (4,649)
Other income - 5 - 5 21 26 2 28
Total income 560 (4,220) 16 (3,644) 21 (3,623) (417) (4,040)
Expenses
Change in investment contract liabilities(3) (5) 4,323 - 4,318 - 4,318 - 4,318
Fee and commission expenses, and other acquisition costs (46) 1 - (45) - (45) (9) (54)
Change in third-party interests in consolidated funds - - - - - - 438 438
Other operating and administrative expenses (15) - - (15) (557) (572) (12) (584)
Finance costs - - - - (13) (13) - (13)
Total expenses (66) 4,324 - 4,258 (570) 3,688 417 4,105
Tax credit attributable to policyholder returns 134 - - 134 - 134 - 134
Profit before tax attributable to equity holders from continuing operations 628 104 16 748 (549) 199 - 199
Adjusting items:
Impact of acquisition and disposal-related accounting - - - - 42 42
Business transformation costs - - - - 30 30
Finance costs - - - - 10 10
Customer remediation - - - - (12) (12)
Voluntary customer repayments - - - - 6 6
Exchange rate movement (ZAR/GBP) - (4) - (4) - (4)
Policyholder tax adjustments (138) - - (138) - (138)
Other adjusting items - - - - 1 1
Adjusting items (138) (4) - (142) 77 (65)
Adjusted profit before tax - continuing operations 490 100 16 606 (472) 134
(1)The APMs "Net management fees", "Other revenue", "Investment revenue",
"Total net revenue" and "Operating expenses" are commented on within the
Financial review. In the financial statements for the year to 31 December 2022
and in the June 2022 interim financial statements, interest income on
shareholder cash and cash equivalents and interest income on customer cash and
cash equivalents was previously presented within "Other revenue". For the six
months to 30 June 2023, to provide additional information to the users of the
Group's financial reporting, interest income on shareholder cash and cash
equivalents has been presented separately as Investment revenue and interest
income on customer cash and cash equivalents has been presented within Net
management fees. Disclosures for prior periods have been re-presented to
ensure comparability.
(2)Consolidation of funds shows the grossing up impact to the Group's
condensed consolidated income statement as a result of the consolidation of
funds requirements, as described within note 5(a) of the Group's Annual
Report. This grossing up is excluded from the Group's adjusted profit.
(3)Investment return of £12 million less £5 million change in investment
contract liabilities, as reported within net management fees, represents the
£7 million interest income on customer cash and cash equivalents which was
retained by the Group for the year ended 31 December 2022. The £16 million
investment return, as reported within investment revenue, relates to interest
income on shareholder cash and cash equivalents.
6: Segmental information
6(a): Segmental presentation
The Group's operating segments comprise High Net Worth and Affluent, which is
consistent with the manner in which the Group is structured and managed. For
all reporting periods, these segments have been classified as continuing
operations in the condensed consolidated income statement. Head Office
includes certain revenues and central costs that are not allocated to the
segments. There have been no changes to the basis of segmentation for the
periods presented within these condensed consolidated interim financial
statements.
Adjusted profit before tax is an APM reported to the Group's management and
Board. Management and the Board use additional performance indicators to
assess the performance of each of the segments, including net client cash
flows, assets under management and administration, total net revenue and
operating margin.
Consistent with internal reporting, income and expenses that are not directly
attributable to a particular segment are allocated between segments where
appropriate. The Group accounts for inter-segment income and transfers as if
the transactions were with third parties at current market prices. Intra-group
recharges in respect of operating and administration expenses within
businesses disclosed as discontinued operations are not adjusted for potential
future changes to the level of remaining costs following the disposal of those
businesses.
The segmental information in this note reflects the adjusted and IFRS profit
measures for each operating segment as provided to management and the Board.
Income is analysed in further detail for each operating segment in note 6(b).
Continuing operations:
High Net Worth
This segment comprises Quilter Cheviot and Quilter Private Client Advisers.
Quilter Cheviot provides discretionary investment management predominantly in
the United Kingdom with bespoke investment portfolios tailored to the
individual needs of High Net Worth clients, charities, companies and
institutions through a network of branches in London and the regions.
Investment management services are also provided by operations in the Channel
Islands and Ireland.
Quilter Private Client Advisers provide financial advice for protection,
mortgages, savings, investments and pensions predominantly to High Net Worth
clients.
Affluent
This segment is comprised of Quilter Investment Platform, Quilter Investors
and Quilter Financial Planning.
Quilter Investment Platform is a leading investment platform provider of
advice-based wealth management products and services in the UK, which serves a
largely Affluent client base through advised multi-channel distribution.
Quilter Investors is a leading provider of investment solutions in the UK
multi-asset market. It develops and manages investment solutions in the form
of funds for the Group and third-party clients. It has several fund ranges
which vary in breadth of underlying asset class.
Quilter Financial Planning is a restricted and independent financial adviser
network including Quilter Financial Advisers and Lighthouse, providing
mortgage and financial planning advice and financial solutions for both
individuals and businesses through a network of intermediaries. It operates
across all markets, from wealth management and retirement planning advice
through to dealing with property wealth and personal and business protection
needs.
Head Office
In addition to the Group's two operating segments, Head Office comprises the
investment return on centrally held assets, central support function expenses,
central core structural borrowings and certain tax balances.
6(b)(i): Adjusted profit statement - segmental information for the period
ended 30 June 2023
The table below presents the Group's continuing operations split by operating
segment, reconciling the segmented IFRS income statement (to "Profit/(loss)
before tax attributable to equity holders from continuing operations") to
adjusted profit before tax.
£m
Operating segments
Notes Affluent High Head Office Consolidation adjustments(1) Condensed consolidated income statement
Net Worth
Income
Premium-based fees 32 10 - - 42
Fund-based fees 172 89 - (32) 229
Fixed fees 1 - - - 1
Other fee and commission income 5 - - - 5
Fee income and other income from service activities 210 99 - (32) 277
Investment return(2) 1,036 9 12 245 1,302
Other income 49 - (2) (45) 2
Segment income 1,295 108 10 168 1,581
Expenses
Change in investment contract liabilities(2) (1,018) - - - (1,018)
Fee and commission expenses, and other acquisition costs (24) - - (1) (25)
Change in third-party interests in consolidated funds - - - (202) (202)
Other operating and administrative expenses (202) (102) (25) 32 (297)
Finance costs (1) - (13) 3 (11)
Segment expenses (1,245) (102) (38) (168) (1,553)
Profit/(loss) before tax from continuing operations 50 6 (28) - 28
Tax expense attributable to policyholder returns (21) - - - (21)
Profit/(loss) before tax attributable to equity holders from continuing 29 6 (28) - 7
operations
Adjusted for non-operating items:
Impact of acquisition and disposal-related accounting 5(b)(i) 4 17 - - 21
Business transformation costs 5(b)(ii) - 1 15 - 16
Finance costs 5(b)(iii) - - 10 - 10
Customer remediation 5(b)(iv) 3 - - - 3
Exchange rate movement (ZAR/GBP) 5(b)(vi) - - 2 - 2
Policyholder tax adjustments 5(b)(vii) 18 - - - 18
Other adjusting items 5(b)(viii) - (1) - - (1)
Adjusting items before tax 25 17 27 - 69
Adjusted profit before tax - continuing operations 54 23 (1) - 76
(1)Consolidation adjustments comprise the elimination of inter-segment
transactions and the consolidation of investment funds.
(2)Investment return and change in investment contract liabilities includes
net £7 million interest income on customer cash and cash equivalents retained
by the Group. Investment return total also includes £28 million interest
income on shareholder cash and cash equivalents.
6(b)(ii): Adjusted profit statement - segmental information for the six months
ended 30 June 2022
£m
Operating segments
Notes Affluent High Net Worth Head Office Consolidation adjustments(1) Condensed consolidated income statement
Income
Premium-based fees 38 12 - - 50
Fund-based fees 180 93 - (35) 238
Fixed fees 1 - - - 1
Other fee and commission income 3 - - - 3
Fee income and other income from service activities 222 105 - (35) 292
Investment return(2) (4,822) 3 1 (508) (5,326)
Other income 52 1 5 (37) 21
Segment income (4,548) 109 6 (580) (5,013)
Expenses
Change in investment contract liabilities 4,825 - - - 4,825
Fee and commission expenses, and other acquisition costs (23) - - (3) (26)
Change in third-party interests in consolidated funds - - - 555 555
Other operating and administrative expenses (203) (103) (19) 28 (297)
Finance costs (2) - (5) - (7)
Segment expenses 4,597 (103) (24) 580 5,050
Profit/(loss) before tax from continuing operations 49 6 (18) - 37
Tax credit attributable to policyholder returns 145 - - - 145
Profit/(loss) before tax attributable to equity holders from continuing 194 6 (18) - 182
operations
Adjusted for non-operating items:
Impact of acquisition and disposal-related accounting 5(b)(i) 5 17 - - 22
Business transformation costs 5(b)(ii) 9 - 8 - 17
Finance costs 5(b)(iii) - - 5 - 5
Customer remediation 5(b)(iv) (15) - - - (15)
Exchange rate movement (ZAR/GBP) 5(b)(vi) - - (4) (4)
Policyholder tax adjustments 5(b)(vii) (146) - - - (146)
Adjusting items before tax (147) 17 9 - (121)
Adjusted profit before tax - continuing operations 47 23 (9) - 61
(1)Consolidation adjustments comprise the elimination of inter-segment
transactions and the consolidation of investment funds.
(2)Investment return includes net £2 million interest income on customer cash
and cash equivalents retained by the Group. Investment return total also
includes £3 million interest income on shareholder cash and cash equivalents.
6(b)(iii): Adjusted profit statement - segmental information for the year
ended 31 December 2022
£m
Operating segments
Notes Affluent High Head Office Consolidation adjustments(1) Condensed consolidated income statement
Net Worth
Income
Premium-based fees 75 21 - - 96
Fund-based fees 356 181 - (62) 475
Fixed fees 2 - - - 2
Other fee and commission income 8 - - - 8
Fee income and other income from service activities 441 202 - (62) 581
Investment return(2) (4,307) 9 8 (359) (4,649)
Other income 112 3 5 (92) 28
Segment income (3,754) 214 13 (513) (4,040)
Expenses
Change in investment contract liabilities(2) 4,318 - - - 4,318
Fee and commission expenses, and other acquisition costs (46) - - (8) (54)
Change in third-party interests in consolidated funds - - - 438 438
Other operating and administrative expenses (410) (202) (53) 81 (584)
Finance costs (3) - (12) 2 (13)
Segment expenses 3,859 (202) (65) 513 4,105
Profit/(loss) before tax from continuing operations 105 12 (52) - 65
Tax credit attributable to policyholder returns 134 - - - 134
Profit/(loss) before tax attributable to equity holders from continuing 239 12 (52) - 199
operations
Adjusted for non-operating items:
Impact of acquisition and disposal-related accounting 5(b)(i) 10 32 - - 42
Business transformation costs 5(b)(ii) - - 30 - 30
Finance costs 5(b)(iii) - - 10 - 10
Customer remediation 5(b)(iv) (12) - - - (12)
Voluntary customer repayments 5(b)(v) 6 - - - 6
Exchange rate movement (ZAR/GBP) 5(b)(vi) - - (4) - (4)
Policyholder tax adjustments 5(b)(vii) (138) - - - (138)
Other adjusting items 5(b)(viii) - 1 - - 1
Adjusting items before tax (134) 33 36 - (65)
Adjusted profit before tax - continuing operations 105 45 (16) - 134
(1)Consolidation adjustments comprise the elimination of inter-segment
transactions and the consolidation of investment funds.
(2)Investment return and change in investment contract liabilities includes
net £7 million interest income on customer cash and cash equivalents retained
by the Group . Investment return total also includes £16 million interest
income on shareholder cash and cash equivalents.
7: Tax
£m
Six months Six months Full year
2023 2022 2022
Current tax
United Kingdom - 20 12
Overseas tax - - 1
Total current tax charge - 20 13
Deferred tax
Origination and reversal of temporary differences 23 (133) (120)
Effect on deferred tax of changes in tax rates 1 (1) (1)
Adjustments to deferred tax in respect of prior periods (1) - (2)
Total deferred tax charge/(credit) 23 (134) (123)
Total tax charged/(credited) to income statement - continuing operations 23 (114) (110)
Attributable to policyholder returns - continuing operations 21 (145) (134)
Attributable to equity holders - continuing operations 2 31 24
Total tax charged/(credited) to income statement 23 (114) (110)
Policyholder tax
Certain products are subject to tax on policyholders' investment returns. This
"policyholder tax" is an element of total tax expense. To make the tax expense
more meaningful, tax attributable to policyholder returns and tax attributable
to equity holders' profits are shown separately in the condensed consolidated
income statement.
The tax attributable to policyholder returns is the amount payable in the
period plus the movement of amounts expected to be payable in future periods.
The remainder of the tax expense is attributed to shareholders as tax
attributable to equity holders.
The Group's income tax charge on continuing operations was £23 million for
the period ended 30 June 2023, compared to a credit of £114 million for the
six-month period to 30 June 2022. This income tax charge can vary
significantly period-on-period as a result of market volatility and the impact
this has on policyholder tax. The recognition of the income received from
policyholders to fund the policyholder tax liability (which is included within
the Group's income) can vary in timing to the recognition of the corresponding
policyholder tax expense, creating volatility in the Group's IFRS profit
before tax attributable to equity holders. An adjustment is made to adjusted
profit to remove these distortions, as explained further in note 5(b)(vii).
Market movements during the period ended 30 June 2023 resulted in investment
gains of £80 million on products subject to policyholder tax. The gain is a
component of the total "investment return" gain of £1,302 million shown in
the condensed consolidated income statement. The impact of the £80 million
investment return gain is the primary reason for the £21 million tax charge
attributable to policyholder returns in respect of the continuing operations
for the period ended 30 June 2023 (30 June 2022: £145 million credit).
UK Corporation Tax rate
The main rate of Corporation Tax increased from 1 April 2023 from 19% to 25%.
The blended rate of 23.5% has been used in calculating current tax for 2023
and any deferred tax assets and liabilities have been recognised at the new
rate of 25%.
Top-up tax
On 20 June 2023, The Finance (No.2) Act 2023 was substantively enacted in the
UK, introducing a global minimum effective tax rate of 15%. The legislation
implements a domestic top-up tax and a multinational top-up tax, effective for
accounting periods starting on or after 31 December 2023. The Group has
applied the exception under the IAS 12 amendment to recognising and disclosing
information about deferred tax assets and liabilities related to top-up income
taxes.
8: Earnings per share
The Group calculates earnings per share ("EPS") on a number of different
bases. IFRS requires the calculation of basic and diluted EPS. Adjusted EPS
reflects earnings that are consistent with the Group's adjusted profit measure
and Headline earnings per share ("HEPS") is a requirement of the Johannesburg
Stock Exchange.
The bases for the calculation of the Group's EPS are disclosed in note 5(t) of
the Group's 2022 Annual Report.
Pence
Framework Notes Six months Six months Full year
2023 2022(1) 2022
Basic earnings per share IFRS 8(b) 0.4 9.8 12.2
Diluted basic earnings per share IFRS 8(b) 0.4 9.7 12.0
Adjusted basic earnings per share Group policy 8(b) 4.3 3.3 8.0
Adjusted diluted earnings per share Group policy 8(b) 4.3 3.2 7.9
Headline basic earnings per share (net of tax)(2) JSE Listing Requirements 8(c) 0.4 10.2 12.6
Headline diluted earnings per share (net of tax)(2) JSE Listing Requirements 8(c) 0.4 10.1 12.4
(1)The Financial Reporting Council published a thematic review on earnings per
share in September 2022. The EPS figures presented above for the six months to
30 June 2022 and the year to 31 December 2022 were calculated using the
weighted average number of shares which was determined without making any
retrospective adjustment for the impact of the Share Consolidation completed
in May 2022 in line with the FRC's guidance and IAS 33 Earnings per Share. In
the Group's interim financial statements for the six months to 30 June 2022,
the disclosed EPS metrics for June 2022 were calculated using a weighted
average number of shares which allowed for a retrospective adjustment for the
impact of the May 2022 Share Consolidation. The June 2022 EPS metrics shown
above were corrected following the FRC thematic review.
(2)The basic and diluted headline earnings per share figures for the prior
periods have been re-presented as disclosed in note 8(c).
8(a): Weighted average number of Ordinary Shares
The table below summarises the calculation of the weighted average number of Ordinary Shares for the purposes of calculating basic and diluted earnings per share for each profit measure (IFRS, adjusted and headline profit). Details of the impact on the number of shares from the Quilter share buyback scheme are detailed in note 16.
Million
Six months Six months Full year
2023 2022(1) 2022
Weighted average number of Ordinary Shares 1,404 1,589 1,496
Own shares including those held in consolidated funds and employee benefit (51) (63) (58)
trusts
Basic weighted average number of Ordinary Shares 1,353 1,526 1,438
Adjustment for dilutive share awards and options 5 11 20
Diluted weighted average number of Ordinary Shares 1,358 1,537 1,458
(1)The Financial Reporting Council published a thematic review on earnings per
share in September 2022. The EPS figures presented above for the six months to
30 June 2022 and the year to 31 December 2022 were calculated using the
weighted average number of shares which was determined without making any
retrospective adjustment for the impact of the Share Consolidation completed
in May 2022 in line with the FRC's guidance and IAS 33 Earnings per Share. In
the Group's interim financial statements for the six months to 30 June 2022,
the disclosed EPS metrics for June 2022 were calculated using a weighted
average number of shares which allowed for a retrospective adjustment for the
impact of the May 2022 Share Consolidation. The June 2022 EPS metrics shown
above were corrected following the FRC thematic review.
8(b): Basic and diluted EPS (IFRS and adjusted profit)
£m
Six months 2023 Six months 2022 Full year 2022
Notes Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total
Profit after tax 5 - 5 151 (1) 150 175 - 175
Total adjusting items before tax 5(a) 69 - 69 (121) 1 (120) (65) - (65)
Tax on adjusting items 2 - 2 (126) - (126) (133) - (133)
Less: Policyholder tax adjustments (18) - (18) 146 - 146 138 - 138
Adjusted profit after tax 58 - 58 50 - 50 115 - 115
Six months 2023 Six months 2022(1) Full year 2022
Post-tax profit measure used Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total
Pence Pence Pence Pence Pence Pence Pence Pence Pence
Basic EPS IFRS profit 0.4 - 0.4 9.9 (0.1) 9.8 12.2 - 12.2
Diluted EPS IFRS profit 0.4 - 0.4 9.8 (0.1) 9.7 12.0 - 12.0
Adjusted basic EPS Adjusted profit 4.3 - 4.3 3.3 - 3.3 8.0 - 8.0
Adjusted diluted EPS Adjusted profit 4.3 - 4.3 3.2 - 3.2 7.9 - 7.9
(1)The Financial Reporting Council published a thematic review on earnings per
share in September 2022. The EPS figures presented above for the six months to
30 June 2022 and the year to 31 December 2022 were calculated using the
weighted average number of shares which was determined without making any
retrospective adjustment for the impact of the Share Consolidation completed
in May 2022 in line with the FRC's guidance and IAS 33 Earnings per Share. In
the Group's interim financial statements for the six months to 30 June 2022,
the disclosed EPS metrics for June 2022 were calculated using a weighted
average number of shares which allowed for a retrospective adjustment for the
impact of the May 2022 Share Consolidation. The June 2022 EPS metrics shown
above were corrected following the FRC thematic review.
8(c): Headline earnings per share
+ + £m
Six months Six months Full year
2023 2022(1) 2022
Gross Net of tax Gross Net of tax Gross Net of tax
Profit attributable to equity holders 5 150 175
Adjusted for:
- add back of impairment loss on property, plant and equipment(2) - - 7 6 7 6
- add back of impairment loss on intangible assets 1 1 - - - -
Headline earnings 6 156 181
Headline basic EPS (pence) 0.4 10.2 12.6
Headline diluted EPS (pence) 0.4 10.1 12.4
(1)The Financial Reporting Council published a thematic review on earnings per
share in September 2022. The EPS figures presented above for the six months to
30 June 2022 and the year to 31 December 2022 were calculated using the
weighted average number of shares which was determined without making any
retrospective adjustment for the impact of the Share Consolidation completed
in May 2022 in line with the FRC's guidance and IAS 33 Earnings per Share. In
the Group's interim financial statements for the six months to 30 June 2022,
the disclosed EPS metrics for June 2022 were calculated using a weighted
average number of shares which allowed for a retrospective adjustment for the
impact of the May 2022 Share Consolidation. The June 2022 EPS metrics shown
above were corrected following the FRC thematic review.
(2)Figures were re-presented to address an issue with the signage of an
adjusting item for the year to 31 December 2022 and to clearly present the tax
effects of each adjusting item in the prior periods in line with the relevant
guidance.
9: Dividends
£m
Payment Six months Six months Full year
date 2023 2022 2022
2021 Final dividend paid - 3.9p per Ordinary Share 16 May 2022 - 62 62
2022 Interim dividend paid - 1.2p per Ordinary Share 20 September 2022 - - 16
2022 Final dividend paid - 3.3p per Ordinary Share 22 May 2023 45 - -
Dividends paid to Ordinary Shareholders 45 62 78
Final and interim dividends paid to Ordinary Shareholders are calculated using
the number of shares in issue at the record date less own shares held in
employee benefit trusts.
10: Goodwill
10(a): Allocation of goodwill to cash-generating units ("CGUs") and impairment
testing
Goodwill is monitored by management at the level of the Group's two operating
segments: Affluent and High Net Worth. Both operating segments represent a
group of CGUs. The allocation of goodwill to these segments was based on their
individual value-in-use calculations relative to the combined total.
£m
30 June 30 June 31 December
2023 2022(1) 2022
Goodwill (net carrying amount)
Affluent 223 223 223
High Net Worth 83 83 83
Total goodwill 306 306 306
(1)The prior period figures have been re-presented to correct a minor
classification difference between the two segments. The amount attributable to
Affluent has decreased by £2 million from the amount originally presented
with a corresponding increase in High Net Worth.
Impairment review
In accordance with the requirements of IAS 36 Impairment of Assets, goodwill
in both the Affluent and High Net Worth CGU groups is tested for impairment
annually, or earlier if an indicator of impairment exists, by comparing the
carrying value of the CGU group to which the goodwill relates to the
recoverable value of that CGU group, being the higher of that CGU group's
value-in-use or fair value less costs to sell. If applicable, an impairment
charge is recognised when the recoverable amount is less than the carrying
value. Goodwill impairment indicators include sudden stock market falls, the
absence of positive Net Client Cash Flows ("NCCF"), significant falls in
profits and significant increases in the discount rate.
The Group considers that there are indicators of impairment for the period due
to rises in interest rates and inflation and the impact of the ongoing
conflict in Ukraine on global equity markets and the potential effect this may
have on the Group's AuMA and revenue in future periods. Consequently, the
goodwill balance has been tested for impairment at 30 June 2023 and continues
to demonstrate a surplus of the recoverable amount over the carrying value of
the CGUs. As a result, no impairment is required.
The following table shows the percentage change required in each key
assumption before the carrying value would exceed the recoverable amount,
assuming all other variables remain the same. This highlights that further
adverse movements in the key assumptions used in the CGU value-in-use
calculation would be required before an impairment would need to be
recognised.
Affluent High Net Worth
Reduction in forecast cash flows 19% 48%
Percentage point increase in the discount rate 6% 19%
Forecast cash flows are impacted by movements in underlying assumptions,
including equity market levels, revenue margins and NCCF. The Group considers
that forecast cash flows are most sensitive to movements in equity markets
because they have a direct impact on the level of the Group's fee income.
The principal sensitivity within equity market level assumptions relates to
the estimated growth in equity market indices included in the three-year cash
flow forecasts. Management forecasts equity market growth for each business
using estimated asset-specific growth rates that are supported by internal
research, historical performance, Bank of England forecasts and other external
estimates.
Value-in-use methodology
The value-in-use calculations are determined as the sum of net tangible assets
and the expected cash flows from existing and expected future new business
derived from the Business Plans. Future cash flow elements allow for the cost
of capital needed to support the business.
The cash flows that have been used to determine the value-in-use of the CGUs
are based on the most recent management approved three-year profit forecasts,
which are contained in the Group's Business Plan. These profit forecasts
incorporate anticipated equity market growth on the Group's future cash flows
and take into account climate-related risks and other responsible business
considerations. These cash flows change at different rates because of the
different strategies of the CGUs. In cases where the CGUs have made
significant acquisitions in the recent past, the cash flows are forecast to
grow faster than the more mature businesses. Post the three-year forecast
period, the growth rate used to determine the terminal value of the CGUs in
the annual assessment was 2.0% (2022: 2.0%). Market share and market growth
information is also used to inform the expected volumes of future new
business.
IAS 36 does not permit any cost savings linked to future restructuring
activity to be included within the value-in-use calculation unless an
associated restructuring provision has also been recognised. Consequently, for
the purpose of the value-in-use calculation, a number of planned cost savings
and the related implementation costs, primarily in relation to the Business
Simplification programme, have been removed from the future cash flows.
The Group uses a single cost of capital of 11.5% (2022: 11.4%) to discount
expected future cash flows across its two groups of CGUs because they are
considered to present a similar level of risk. Capital is provided to the
Group predominantly by shareholders with a relatively small amount of debt
financing. The cost of capital is the weighted average of the cost of equity
(return required by shareholders) and the cost of debt (return required by
bondholders and owners of properties leased by the Group). When assessing the
systematic risk (i.e. the beta value) within the calculation of the cost of
equity, a triangulation approach is used that combines beta values obtained
from historical data, a forward-looking view on the progression of beta values
and the external views of investors.
11: Investment property
During the period ended 30 June 2023, the Group entered into a contract to
sublet a property to one tenant under an operating lease with rentals payable
monthly. This is valued under the cost model in line with IFRS 16 Leases.
Lease income from operating leases where the Group is a lessor is recognised
in income on a straight-line basis over the sublease term.
12: Financial investments
The table below analyses the investments and securities that the Group invests
in, either on its own proprietary behalf (shareholder funds) or on behalf of
third parties (policyholder funds).
£m
30 June 30 June 31 December
2023 2022 2022
Government and government-guaranteed securities 243 194 225
Other debt securities, preference shares and debentures 1,867 1,553 1,609
Equity securities 6,452 5,667 6,225
Pooled investments 36,943 34,691 35,557
Short-term funds and securities treated as investments 1 1 1
Total financial investments 45,506 42,106 43,617
Recoverable within 12 months 45,506 42,106 43,617
Total financial investments 45,506 42,106 43,617
The financial investments recoverability profile is based on the intention
with which the financial assets are held. These assets are held to cover the
liabilities for linked investment contracts, all of which can be withdrawn by
policyholders on demand.
13: Categories of financial instruments
The analysis of financial assets and liabilities into their categories as
defined in IFRS 9 Financial Instruments is set out in the following tables.
Assets and liabilities of a non-financial nature, or financial assets and
liabilities that are specifically excluded from the scope of IFRS 9, are
reflected in the non-financial assets and liabilities category.
For information about the methods and assumptions used in determining fair
value, refer to note 14. The Group's exposure to various risks associated with
financial instruments is discussed in the 2022 Group's Annual Report, note 37.
During the period there have been no material changes in the Groups exposure
to those risks.
30 June 2023
£m
Measurement basis Fair value
Mandatorily at FVTPL Designated at FVTPL Amortised cost Non-financial assets and liabilities Total
Assets
Investments in associated undertakings - - - 2 2
Loans and advances - - 40 - 40
Financial investments 45,506 - - - 45,506
Trade, other receivables and other assets - - 605 41 646
Derivative assets 26 - - - 26
Cash and cash equivalents 1,059 - 741 - 1,800
Total assets that include financial instruments 46,591 - 1,386 43 48,020
Total other non-financial assets - - - 594 594
Total assets 46,591 - 1,386 637 48,614
Liabilities
Investment contract liabilities - 40,070 - - 40,070
Third-party interests in consolidated funds 5,930 - - - 5,930
Borrowings and lease liabilities - - 284 - 284
Trade, other payables and other liabilities - - 674 57 731
Derivative liabilities 11 - - - 11
Total liabilities that include financial instruments 5,941 40,070 958 57 47,026
Total other non-financial liabilities - - - 83 83
Total liabilities 5,941 40,070 958 140 47,109
30 June 2022
£m
Measurement basis Fair value
Mandatorily at FVTPL Designated at FVTPL Amortised cost Non-financial assets and liabilities Total
Assets
Investments in associated undertakings - - - 1 1
Loans and advances - - 34 - 34
Financial investments 42,106 - - - 42,106
Trade, other receivables and other assets - - 467 56 523
Derivative assets 8 - - - 8
Cash and cash equivalents 924 - 869 - 1,793
Total assets that include financial instruments 43,038 - 1,370 57 44,465
Total other non-financial assets - - - 670 670
Total assets 43,038 - 1,370 727 45,135
Liabilities
Investment contract liabilities - 37,167 - - 37,167
Third-party interests in consolidation of funds 5,404 - - - 5,404
Borrowings and lease liabilities - - 293 - 293
Trade, other payables and other liabilities - - 493 122 615
Derivative liabilities 30 - - - 30
Total liabilities that include financial instruments 5,434 37,167 786 122 43,509
Total other non-financial liabilities - - - 103 103
Total liabilities 5,434 37,167 786 225 43,612
31 December 2022
£m
Measurement basis Fair value
Mandatorily at FVTPL Designated at FVTPL Amortised cost Non-financial assets and liabilities Total
Assets
Investments in associated undertakings - - - 1 1
Loans and advances - - 34 - 34
Financial investments 43,617 - - - 43,617
Trade, other receivables and other assets - - 261 42 303
Derivative assets 40 - - - 40
Cash and cash equivalents 1,112 - 670 - 1,782
Total assets that include financial instruments 44,769 - 965 43 45,777
Total other non-financial assets - - - 640 640
Total assets 44,769 - 965 683 46,417
Liabilities
Investment contract liabilities - 38,186 - - 38,186
Third-party interests in consolidated funds 5,843 - - - 5,843
Borrowings and lease liabilities - - 290 - 290
Trade, other payables and other liabilities - - 358 78 436
Derivative liabilities 20 - - - 20
Total liabilities that include financial instruments 5,863 38,186 648 78 44,775
Total other non-financial liabilities - - - 94 94
Total liabilities 5,863 38,186 648 172 44,869
14: Fair value methodology
This section explains the judgements and estimates made in determining the
fair values of financial instruments that are recognised and measured at fair
value in the financial statements. Classifying financial instruments into the
three levels of the fair value hierarchy (see note 14(b)), prescribed under
IFRS, provides an indication about the reliability of inputs used in
determining fair value.
14(a): Determination of fair value
The fair value of financial instruments that are actively traded in organised
financial markets is determined by reference to quoted market exit prices for
assets and offer prices for liabilities, at the close of business on the
reporting date, without any deduction for transaction costs:
· for units in unit trusts and shares in open-ended investment
companies, fair value is determined by reference to published quoted prices
representing exit values in an active market;
· for equity and debt securities not actively traded in organised
markets and where the price cannot be retrieved, the fair value is determined
by reference to similar instruments for which market observable prices exist;
· for assets that have been suspended from trading on an active
market, the last published price is used. Many suspended assets are still
regularly priced. At the reporting date, all suspended assets are assessed for
impairment; and
· where the assets are private equity investments or within
consolidated investment funds, the valuation is based on the latest available
set of audited financial statements, or if more recent is available, from
investment managers or professional valuation experts at the value of the
underlying assets of the private equity investment or fund.
There have been no significant changes in the valuation techniques applied
when valuing financial instruments. Where assets are valued by the Group, the
general principles applied to those instruments measured at fair value are
outlined below:
Financial investments
Financial investments include government and government-guaranteed securities,
listed and unlisted debt securities, preference shares and debentures, listed
and unlisted equity securities, listed and unlisted pooled investments (see
below), short-term funds and securities treated as investments and certain
other securities.
Pooled investments represent the Group's holdings of shares/units in
open-ended investment companies, unit trusts, mutual funds and similar
investment vehicles. Pooled investments are recognised at fair value. The fair
values of pooled investments are based on widely published prices that are
regularly updated.
Other financial investments that are measured at fair value use observable
market prices where available. In the absence of observable market prices,
these investments and securities are fair valued using various approaches
including discounted cash flows, the application of an earnings before
interest, tax, depreciation and amortisation multiple or any other relevant
technique.
Derivatives
The fair value of derivatives is determined with reference to the
exchange-traded prices of the specific instruments. The fair value of
over-the-counter forward foreign exchange contracts is determined by reference
to the relevant exchange rates.
Investment contract liabilities
The fair value of the investment contract liabilities is determined with
reference to the underlying funds that are held by the Group.
Third-party interests in consolidated funds
Third-party interests in consolidated funds are measured at the attributable
net asset value of each fund.
14(b): Fair value hierarchy
Fair values are determined according to the following hierarchy:
Description of hierarchy Types of instruments classified in the respective levels
Level 1 - quoted market prices: financial assets and liabilities with quoted Listed equity securities, government securities and other listed debt
prices for identical instruments in active markets. securities and similar instruments that are actively traded, actively traded
pooled investments, certain quoted derivative assets and liabilities and
investment contract liabilities directly linked to other Level 1 financial
assets.
Level 2 - valuation techniques using observable inputs: financial assets and Unlisted equity and debt securities where the valuation is based on models
liabilities with quoted prices for similar instruments in active markets or involving no significant unobservable data.
quoted prices for identical or similar instruments in inactive markets and
financial assets and liabilities valued using models where all significant Over-the-counter ("OTC") derivatives, certain privately placed debt
inputs are observable. instruments and third-party interests in consolidated funds which meet the
definition of Level 2 financial instruments.
Level 3 - valuation techniques using significant unobservable inputs: Unlisted equity and securities with significant unobservable inputs,
financial assets and liabilities valued using valuation techniques where one securities where the market is not considered sufficiently active, including
or more significant inputs are unobservable. certain inactive pooled investments.
The judgement as to whether a market is active may include, for example,
consideration of factors such as the magnitude and frequency of trading
activity, the availability of prices and the size of bid/offer spreads. In
inactive markets, obtaining assurance that the transaction price provides
evidence of fair value or determining the adjustments to transaction prices
that are necessary to measure the fair value of the asset or liability
requires additional work during the valuation process.
The majority of valuation techniques employ only observable data and so the
reliability of the fair value measurement is high. Certain financial assets
and liabilities are valued on the basis of valuation techniques that feature
one or more significant inputs that are unobservable and, for them, the
derivation of fair value is more judgemental. A financial asset or liability
in its entirety is classified as valued using significant unobservable inputs
if a significant proportion of that asset or liability's carrying amount is
driven by unobservable inputs.
In this context, 'unobservable' means that there is little or no current
market data available from which to determine the price at which an arm's
length transaction would be likely to occur. It generally does not mean that
there is no market data available at all upon which to base a determination of
fair value. Furthermore, in some cases the majority of the fair value derived
from a valuation technique with significant unobservable data may be
attributable to observable inputs.
14(c): Transfer between fair value hierarchies
The Group deems a transfer to have occurred between Level 1 and Level 2 or
Level 3 when an active, traded primary market ceases to exist for that
financial instrument. A transfer between Level 2 and Level 3 occurs when the
majority of the significant inputs used to determine the fair value of the
instrument become unobservable. Transfers from Levels 3 or 2 to Level 1 are
also possible when assets become actively priced.
There were no transfers of financial investments from Level 1 to Level 2
during the period (30 June 2022: £nil, 31 December 2022: £nil). There were
no transfers of financial investments from Level 2 to Level 1 during the
period (30 June 2022: £nil 31 December 2022: £nil).
See note 14(e) for the reconciliation of Level 3 financial instruments.
14(d): Financial assets and liabilities measured at fair value, classified according to the fair value hierarchy
The majority of the Group's financial assets are measured using quoted market
prices for identical instruments in active markets (Level 1) and there have
been no significant changes during the period.
The linked assets are held to cover the liabilities for linked investment
contracts. The difference between linked assets and linked liabilities is
principally due to short-term timing differences between policyholder premiums
being received and invested in advance of policies being issued, and tax
liabilities within funds which are reflected within the Group's tax
liabilities.
Differences between assets and liabilities within the respective levels of the
fair value hierarchy also arise due to the mix of underlying assets and
liabilities within consolidated funds. In addition, third-party interests in
consolidated funds are classified as Level 2.
The table below presents a summary of the Group's financial assets and
liabilities that are measured at fair value in the condensed consolidated
statement of financial position according to their IFRS 9 classification (see
note 13 for further details).
£m
30 June 30 June 2022 31 December 2022
2023
Financial assets measured at fair value
Level 1 39,756 37,312 38,452
Level 2 6,818 5,702 6,288
Level 3 17 24 29
Total 46,591 43,038 44,769
Financial liabilities measured at fair value
Level 1 40,060 37,145 38,161
Level 2 5,941 5,434 5,863
Level 3 10 22 25
Total 46,011 42,601 44,049
The tables below further analyse the Group's financial assets and liabilities
measured at fair value by the fair value hierarchy described in note 14(b):
£m
30 June 2023 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Financial investments 38,697 6,792 17 45,506
Cash and cash equivalents 1,059 - - 1,059
Derivative assets - 26 - 26
Mandatorily (fair value through profit or loss) 39,756 6,818 17 46,591
Total assets measured at fair value 39,756 6,818 17 46,591
Financial liabilities measured at fair value
Third-party interests in consolidated funds - 5,930 - 5,930
Derivative liabilities - 11 - 11
Mandatorily (fair value through profit or loss) - 5,941 - 5,941
Investment contract liabilities 40,060 - 10 40,070
Designated (fair value through profit or loss) 40,060 - 10 40,070
Total liabilities measured at fair value 40,060 5,941 10 46,011
£m
30 June 2022 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Financial investments 36,388 5,694 24 42,106
Cash and cash equivalents 924 - - 924
Derivative assets - 8 - 8
Mandatorily (fair value through profit or loss) 37,312 5,702 24 43,038
Total assets measured at fair value 37,312 5,702 24 43,038
Financial liabilities measured at fair value
Third-party interests in consolidated funds - 5,404 - 5,404
Derivative liabilities - 30 - 30
Mandatorily (fair value through profit or loss) - 5,434 - 5,434
Investment contract liabilities 37,145 - 22 37,167
Designated (fair value through profit or loss) 37,145 - 22 37,167
Total liabilities measured at fair value 37,145 5,434 22 42,601
£m
31 December 2022 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Financial investments 37,340 6,248 29 43,617
Cash and cash equivalents 1,112 - - 1,112
Derivative assets - 40 - 40
Mandatorily (fair value through profit or loss) 38,452 6,288 29 44,769
Total assets measured at fair value 38,452 6,288 29 44,769
Financial liabilities measured at fair value
Third-party interests in consolidated funds - 5,843 - 5,843
Derivative liabilities - 20 - 20
Mandatorily (fair value through profit or loss) - 5,863 - 5,863
Investment contract liabilities 38,161 - 25 38,186
Designated (fair value through profit or loss) 38,161 - 25 38,186
Total liabilities measured at fair value 38,161 5,863 25 44,049
14(e): Level 3 fair value hierarchy disclosure
The majority of the assets classified as Level 3 are held within linked
policyholder funds. Where this is the case, all of the investment risk
associated with these assets is borne by policyholders and the value of these
assets is exactly matched by a corresponding liability due to policyholders.
The Group bears no risk from a change in the market value of these assets
except to the extent that it has an impact on management fees earned.
Level 3 assets also include investments within consolidated funds. The Group
bears no risk from a change in the market value of these assets except to the
extent that it has an impact on fund management fee income. Any changes in
market value are matched by a corresponding Level 2 liability within
third-party interests in consolidated funds.
The table below reconciles the opening balance of Level 3 financial assets to
the closing balance at each period end:
£m
30 June 30 June 31 December
2023 2022 2022
At beginning of the period 29 27 27
Fair value (losses)/gains charged to the income statement(1) (1) 5 (5)
Sales (1) (1) (2)
Transfers in 6 105 125
Transfers out (16) (112) (116)
Total Level 3 financial assets at the end of the period 17 24 29
Unrealised fair value (losses)/gains recognised in the income statement (1) 2 (9)
relating to assets held at the period end
(1)Included in Investment return within condensed consolidated income
statement.
All of the assets that are classified as Level 3 are suspended funds for each
of the periods presented.
Transfers into Level 3 assets in the current period total £6 million (30 June
2022: £105 million, 31 December 2022: £125 million). This is mainly due to
suspended funds previously shown within Level 1. Suspended funds are valued
based on external valuation reports received from fund managers. Transfers out
of Level 3 assets in the current period of £16 million (30 June 2022: £112
million, 31 December 2022: £116 million) result from a transfer to Level 1
assets relating to assets that are now being actively repriced (that were
previously stale) and where fund suspensions have been lifted.
The table below reconciles the opening balance of Level 3 financial
liabilities to the closing balance at each period end:
£m
30 June 30 June 31 December
2023 2022 2022
At beginning of the period 25 24 24
Fair value gains/(losses) charged to the income statement(1) - 5 (2)
Transfers in 2 105 119
Transfers out (17) (112) (116)
Total Level 3 financial liabilities at the end of the period 10 22 25
Unrealised fair value losses recognised in the income statement relating to (1) (2) (5)
liabilities held at the period end
(1)Included in Investment return within condensed consolidated income
statement.
Excluding investments within consolidated funds, changes in level 3 assets
relates to assets held within linked policyholder funds which are exactly
matched by corresponding changes in the value of liabilities due to
policyholders and therefore have no impact on the Group's net asset value or
profit or loss, except to the extent of the impact on management fees earned.
14(f): Effect of changes in significant unobservable assumptions to reasonable
possible alternatives
Details of the valuation techniques applied to the different categories of
financial instruments can be found in note 14(a) above, including the
valuation techniques applied when significant unobservable assumptions are
used to value Level 3 assets.
For Level 3 assets and liabilities, no reasonable alternative assumptions are
applicable and the Group therefore performs a sensitivity test of an aggregate
10% change in the value of the financial asset or liability (30 June 2022:
10%, 31 December 2022: 10%), representing a reasonable alternative judgement
in the context of the current macroeconomic environment in which the Group
operates. It is therefore considered that the impact of this sensitivity will
be in the range of £2 million to the reported fair value of Level 3 assets,
both favourable and unfavourable (30 June 2022: £2 million, 31 December 2022:
£3 million).
14(g): Fair value hierarchy for assets and liabilities not measured at fair
value
Certain financial instruments of the Group are not carried at fair value. The
carrying values of these are considered reasonable approximations of their
respective fair values as they are either short term in nature or are repriced
to current market rates at frequent intervals.
15: Cash and cash equivalents
15(a): Analysis of cash and cash equivalents
£m
30 June 30 June 31 December
2023 2022 2022
Cash at bank 420 582 406
Money market funds 1,059 924 1,112
Cash and cash equivalents in consolidated funds 321 287 264
Total cash and cash equivalents per statement of cash flows 1,800 1,793 1,782
The Group's management does not consider that the cash and cash equivalents
balance arising due to consolidation of funds of £321 million (30 June 2022:
£287 million, 31 December 2022: £264 million) is available for use in the
Group's day-to-day operations. The remainder of the Group's cash and cash
equivalents balance of £1,479 million (30 June 2022: £1,506 million, 31
December 2022: £1,518 million) is considered to be available for general use
by the Group for the purposes of the disclosures required under IAS 7
Statement of Cash Flows. This balance includes policyholder cash as well as
cash and cash equivalents held by regulated subsidiaries to meet their capital
and liquidity requirements.
16: Share capital
At 30 June 2023, the Company's equity capital comprises 1,404,105,498 Ordinary
Shares of 8 1/6 pence each with an aggregated nominal value of £114,668,616
(30 June 2022: 1,404,105,498 Ordinary Shares of 8 1/6 pence each with an
aggregated nominal value of £114,668,616, 31 December 2022: 1,404,105,498
Ordinary Shares of 8 1/6 pence each with an aggregated nominal value of
£114,668,616). All Ordinary Shares have been called up and fully paid.
This note gives details of the movements in Ordinary Share capital during the
period to 30 June 2023 and during 2022.
£m £m
Number of Nominal value Ordinary Share
Ordinary Shares of Ordinary premium
Shares
At 1 January 2022 1,655,827,217 116 58
Shares cancelled through share buyback programme (17,704,132) (1) -
Share Consolidation (including shares cancelled) (234,017,587) - -
At 30 June 2022 1,404,105,498 115 58
At 31 December 2022 1,404,105,498 115 58
At 30 June 2023 1,404,105,498 115 58
On 11 March 2020, the Company announced a share buyback programme to purchase
shares up to a maximum value of £375 million, in order to return the net
surplus proceeds to shareholders arising from the sale of Quilter Life
Assurance which had the impact of reducing the share capital of the Company.
The programme completed in January 2022.
On 9 March 2022, the Company announced a capital return of £328 million,
equivalent to 20 pence per share, from the net surplus proceeds arising from
the sale of Quilter International by way of a B share scheme. Following the
return of capital, a share consolidation was completed so that comparability
between the market price for Quilter plc's Ordinary Shares before and after
the implementation of the B share scheme was maintained.
New Ordinary Shares were issued for existing Ordinary Shares in a ratio of six
new shares of 8 1/6 pence each for seven existing shares of 7 pence each
resulting in a reduction in the numbers of shares by 234,017,587.
At 30 June 2023, there is one class of share capital being the Ordinary Shares
of 8 1/6 pence each.
17: Investment contract liabilities
The following table provides a summary of the Group's investment contract
liabilities:
£m
30 June 2023 30 June 2022 31 December 2022
Carrying amount at 1 January 38,186 41,071 41,071
Fair value movements 862 (5,020) (4,878)
Investment income 156 195 560
Movements arising from investment return 1,018 (4,825) (4,318)
Contributions received 2,507 2,404 4,408
Withdrawals and surrenders (1,537) (1,370) (2,759)
Claims and benefits (117) (112) (219)
Other movements 13 (1) 3
Change in liability 1,884 (3,904) (2,885)
Investment contract liabilities at end of the period 40,070 37,167 38,186
For unit-linked investment contracts, movements in asset values are offset by
corresponding changes in liabilities, limiting the net impact on profit.
The benefits offered under the unit-linked investment contracts are based on
the risk appetite of policyholders and the return on their selected
investments and collective fund investments, whose underlying investments
include equities, debt securities, property and derivatives. This investment
mix is unique to individual policyholders.
For unit-linked business, the unit liabilities are determined as the value of
units credited to policyholders. Since these liabilities are determined on a
retrospective basis, no assumptions for future experience are required.
Assumptions for future experience are required for unit-linked business in
assessing whether the total of the contract costs asset and contract liability
is greater than the present value of future profits expected to arise on the
relevant blocks of business (the "recoverability test"). If this is the case,
then the contract costs asset is restricted to the recoverable amount. For
linked contracts, the assumptions are on a best estimate basis.
18: Provisions
£m
30 June 2023 Compensation Sale of subsidiaries provision Property provisions Clawback and other provisions Total
provisions
Balance at beginning of the year 23 15 12 19 69
Charge to income statement 8 - - 4 12
Used during the period (9) (7) (1) - (17)
Unused amounts reversed (2) - - (1) (3)
Balance at 30 June 2023 20 8 11 22 61
£m
30 June 2022 Compensation Sale of subsidiaries provision Property provisions Clawback and other provisions Total
provisions
Balance at beginning of the year 41 22 9 21 93
Charge to income statement 3 1 4 1 9
Used during the period (20) (4) - (1) (25)
Unused amounts reversed (11) - - (2) (13)
Balance at 30 June 2022 13 19 13 19 64
£m
31 December 2022 Compensation Sale of subsidiaries provision Property provisions Clawback and other provisions Total
provisions
Balance at beginning of the year 41 22 9 21 93
Charge to income statement 22 - 4 3 29
Used during the year (28) (7) (1) (2) (38)
Unused amounts reversed (12) - - (4) (16)
Reclassification within the statement of financial position(1) - - - 1 1
Balance at 31 December 2022 23 15 12 19 69
(1)Clawback and other provisions included the balancing premium payable for
the bulk annuity purchased for the Quilter Cheviot Limited Retirement Benefits
scheme which was reclassified during the year to 31 December 2022 from
accruals reflecting the uncertainty of the amounts to be settled.
Compensation provisions
Compensation provisions total £20 million (30 June 2022: £13 million, 31
December 2022: £23 million). The net reduction of £3 million during the
period consists of additional charges to the income statement of £8 million,
compensation payments made during the period of £9 million and £2 million
release of unused amounts during 2023 following further review work completed
during the period. Compensation provisions are comprised of the following:
Lighthouse pension transfer advice provision of £6 million (30 June 2022: £3
million, 31 December 2022: £5 million)
Lighthouse pension transfer advice provided to British Steel Pension Scheme
members of £3 million (30 June 2022: £2 million, 31 December 2022: £4
million)
A total provision of £3 million (30 June 2022: £2 million, 31 December 2022:
£4 million) remains for the redress of British Steel Pension Scheme cases,
including anticipated costs associated with the redress activity. This is
comprised of two parts:
(a) Client redress provision of £2 million (30 June 2022: £nil, 31
December 2022: £3 million). During the period, no significant payments have
been made to customers, and the redress provision has been recalculated for
the latest suitability assessment performed.
(b) Anticipated costs associated with redress activity of £1 million (30
June 2022: £2 million, 31 December 2022: £1 million). This provision is
recognised in respect of the anticipated costs of legal and professional fees
related to the cases and redress process, which includes the expected costs to
review advice. Legal and professional fees of £1 million have been paid
during the period.
During the year to 31 December 2022, the skilled person completed their review
of all British Steel Pension Scheme cases within the scope of the skilled
person's review, reflecting the outcome of the review of the suitability of
the DB to DC pension transfer advice for each case, and all remaining offers
were made to customers who received unsuitable DB to DC pension transfer
advice which caused them to sustain a loss.
Certain customers who were included in the skilled person review have referred
their case to the Financial Ombudsman Service, relating to cases where: (i)
relevant DB to DC pension transfer advice was found to be suitable by the
skilled person; or (ii) where relevant DB to DC pension transfer advice was
found to be unsuitable by the skilled person, but the customer disagrees with
the way in which their redress offer has been calculated by the skilled
person. The Financial Ombudsman Service has upheld some challenges and the
future redress payments or estimated liabilities in relation to such cases are
included within the amounts stated above in this note. Further challenges may
be upheld.
In November 2022, the FCA published a policy statement containing the final
rules for a redress scheme for former members of the British Steel Pension
Scheme who received unsuitable advice (the "BSPS Redress Scheme"). The BSPS
Redress Scheme covers those persons who received advice between 26 May 2016
and 29 March 2018 to transfer out of the British Steel Pension Scheme. The
final rules for the BSPS Redress Scheme set out how advisers must determine
whether they gave unsuitable advice and whether they must pay redress. The
Group may therefore face further costs of redress as a result of the BSPS
Redress Scheme. The BSPS Redress Scheme does not cover individuals that have
accepted redress for the advice provided, referred the matter to the Financial
Ombudsman Service or received a final outcome following a suitability
assessment of their case conducted through a skilled person review. Therefore,
based on the rules of the BSPS Redress Scheme, this process will not include
Lighthouse cases that have already been reviewed by the skilled person where
the customer received a final outcome.
However, based on the rules for the BSPS Redress Scheme, there are
approximately 30 Lighthouse cases relating to British Steel Pension Scheme
members that fall within the scope of the BSPS Redress Scheme. These customers
have been written to during the period ending 30 June 2023, in line with the
timeline prescribed within the BSPS Redress Scheme. The client redress
provision includes an estimate for these customers' cases. Any redress payable
is expected to be paid during the second half of 2023.
Lighthouse pension transfer advice provided to members of other schemes of £3
million (30 June 2022: £1 million, 31 December 2022: £1 million)
The skilled person review of Lighthouse DB to DC pension transfer advice cases
identified unsuitable DB to DC pension transfer advice provided by Lighthouse
advisers for pension schemes other than the British Steel Pension Scheme. The
initial scope of the review concluded in 2022, with £3 million paid to
customers and the remaining provision released to the income statement. The
skilled person review then concluded in December 2022.
The skilled person recommended a review of a further sample of Lighthouse DB
to DC pension transfer advice cases not relating to the British Steel Pension
Scheme. In December 2022, the FCA confirmed to the Group that it agreed with
the skilled person's recommendation. The FCA also confirmed that, given the
cooperation of the Group in relation to the skilled person review and
established past business review methodology and consistent with the
recommendation made by the skilled person, this further sample should be
reviewed under a Group-managed past business review process . The FCA also
agreed with the skilled person that the further sample should be selected on a
risk-based approach and has set out to the Group the key risk factors to be
used in determining the sample. The review of this sample has identified some
additional cases where customer redress is required. Until the review of the
relevant sample has been completed, uncertainty exists as to the number of
cases where this will be required and the value of total redress which may be
payable. A provision for redress relating to the review of this further sample
of cases of £1 million was established at 31 December 2022 and has been
increased to £3 million at 30 June 2023, based upon the suitability review of
cases to date. Any redress payable is expected to be paid during the second
half of 2023.
Compensation provisions (other) of £14 million (30 June 2022: £10 million,
31 December 2022: £18 million)
Other compensation provisions of £14 million include amounts relating to the
cost of correcting deficiencies in policy administration systems, including
restatements, any associated litigation costs and the related costs to
compensate previous or existing policyholders and customers. This provision
represents management's best estimate of expected outcomes based upon previous
experience, and a review of the details of each case. Due to the nature of the
provision, the timing of the expected cash outflows is uncertain. The best
estimate of the timing of outflows is that the majority of the balance is
expected to be settled within 12 months.
A provision of £6 million, included within the balance, has been recognised
at 30 June 2023 (30 June 2022: £4 million, 31 December 2022: £7 million)
relating to potentially unsuitable DB to DC pension transfer advice provided
by advisers, including advice provided prior to Quilter's acquisition of the
relevant advice businesses other than Lighthouse. Of this balance, £2 million
(30 June 2022: £2 million, 31 December 2022: £2 million) has been recognised
for potentially unsuitable DB to DC pension transfer advice provided to
British Steel Pension Scheme members by Quilter Financial Planning firms other
than Lighthouse. This provision was recognised following the receipt of a
"Dear CEO" letter from the FCA in December 2021, and subsequent establishment
of the BSPS Redress Scheme in 2022. During 2023, relevant British Steel
Pension Scheme cases have been reviewed for suitability by an independent
expert. The estimate of the provision has been updated for the current status
of the review and redress estimated based upon the Group's experience of the
Lighthouse skilled person review. Customer redress is expected to be
calculated and paid to relevant customers during the second half of 2023.
A provision of £4 million, included within the balance at 31 December 2022,
related to Final Plan Closure ("FPC") receipts previously recognised as
revenue since 2013 for distributions the Group received from investments for
customers who had previously closed their accounts. FPC receipts represent
distributions, including tax gross ups where relevant, and rebates received
after a customer has left the Quilter platform, which the terms and conditions
of the pension and insured bonds legally entitled the Group to retain. A
review in 2022 led to a change in business policy, and Quilter made the
decision to voluntarily return these amounts to those impacted customers
backdated to inception, with an appropriate rate of interest applied to each
balance. A provision of £6 million was initially recognised in 2022, and
payments of £2 million were made to customers during 2022. The remaining
provision outstanding at 31 December 2022 of £4 million has been paid to
customers during the current period.
The Group estimates a reasonably possible change of +/- £3 million from the
£14 million balance, based upon a review of the cases and the range of
potential outcomes for the customer redress payments.
Sale of subsidiaries
Sale of subsidiaries provisions total £8 million at 30 June 2023 (30 June
2022: £19 million, 31 December 2022: £15 million), and include the
following:
Provisions arising on the disposal of Quilter International of £8 million (30
June 2022: £14 million, 31 December 2022: £11 million)
Quilter International was sold on 30 November 2021, resulting in provisions
totalling £17 million being established in respect of costs related to the
disposal including the costs of business separation and data migration
activities.
The costs of business separation arise from the process required to separate
Quilter International's infrastructure, which is complex and covers a wide
range of areas including people, IT systems, data, contracts and facilities. A
programme team has been established to ensure the transition of these areas to
the acquirer. These provisions have been based on external quotations and
estimates, together with estimates of the incremental time and resource costs
required to achieve the separation, which is expected to occur over a
two-to-three-year period from the date of the sale.
The most significant element of the provision is the cost of migration of IT
systems and data to the acquirer. Calculation of the provision is based on
management's best estimate of the work required, the time it is expected to
take, the number and skills of the staff required and their cost, and the cost
of related external IT services to support the work. In reaching these
judgements and estimates, management has made use of its past experience of
previous IT migrations following business disposals.
During the period, £3 million (30 June 2022: £2 million, 31 December 2022:
£6 million) of the provision has been used. The Group estimates a provision
sensitivity of +/-25% (£2 million), based upon a review of the range of time
periods expected to complete the work required. The remaining balance of £8
million is forecast to be paid within one year.
Sale of Single Strategy business provision of £nil (30 June 2022: £5
million, 31 December 2022: £4 million)
The provision in the prior periods related to sale-related future commitments
made to the buyer (now known as Jupiter Investment Management ("Jupiter")) of
the Single Strategy business, which was initially recognised in 2018, in
relation to the level of revenues for Jupiter in future years arising from
funds invested by customers of Quilter. In 2021, £2 million was settled
relating to the 2020 measurement year.
In the period to 30 June 2023, £4 million was agreed and settled relating to
the 2022 measurement year, which is the final measurement year according to
the sale agreement. This was the final amount payable under this arrangement
with Jupiter.
Property provisions
Property provisions represent the discounted value of expected future costs of
reinstating leased property to its original condition at the end of the lease
term, and any onerous commitments which may arise in cases where a leased
property is no longer fully used by the Group. The estimate is based upon
property location, size of property and an estimate of the charge per square
foot. Property provisions are used or released when the reinstatement
obligations have been fulfilled. The associated asset for the property
provisions relating to the cost of reinstating property is included within
"Property, plant and equipment".
Of the £11 million provision outstanding, £3 million is estimated to be
payable within one year. The majority of the balance relates to leased
property which have a lease term maturity of more than five years.
Clawback and other provisions
Other provisions include amounts for the resolution of legal uncertainties and
the settlement of other claims raised by contracting parties and indemnity
commission provisions. Where material, provisions are discounted at discount
rates specific to the risks inherent in the liability. The timing and final
amounts of payments, particularly those in respect of litigation claims and
similar actions against the Group, are uncertain and could result in
adjustments to the amounts recorded.
Included within the balance at 30 June 2023 is £13 million (30 June 2022:
£14 million, 31 December 2022: £14 million) of clawback provisions in
respect of potential refunds due to product providers on indemnity commission
within the Quilter Financial Planning business. This provision, which is
estimated and charged as a reduction of revenue on the income statement at the
point of sale of each policy, is based upon assumptions determined from
historical experience of the proportion of policyholders cancelling their
policies, which requires Quilter to refund a portion of commission previously
received. Reductions to the provision result from the payment of cash to
product providers as refunds or the recognition of revenue where a portion is
assessed as no longer payable. The provision has been assessed at the
reporting date and adjusted for the latest cancellation information available.
At 30 June 2023, an associated balance of £8 million recoverable from brokers
is included within "Trade, other receivables and other assets" (30 June 2022:
£8 million, 31 December 2022: £8 million).
The Group estimates a reasonably possible change of +/- £3 million, based
upon the potential range of outcomes for the proportion of cancelled policies
within the clawback provision, and a detailed review of the other provisions.
Of the total £22 million provision outstanding, £11 million is estimated to
be payable within one year (30 June 2022: £9 million, 31 December 2022: £8
million).
19: Contingent liabilities
The Group, in the ordinary course of business, enters into transactions that
expose it to tax, legal, regulatory and business risks. The Group recognises a
provision when it has a present obligation as a result of past events, it is
probable that a transfer of economic benefits will be required to settle the
obligation and a reliable estimate of the amount can be made (see note 18).
Possible obligations and known liabilities where no reliable estimate can be
made or it is considered improbable that an outflow would result are reported
as contingent liabilities in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets.
The Group routinely monitors and assesses contingent liabilities arising from
matters such as business reviews, litigation, warranties and indemnities
relating to past acquisitions and disposals.
Contingent liabilities - DB to DC pension transfer advice redress
The skilled person review which covered British Steel Pension Scheme DB to DC
pension transfer advice activity undertaken by Lighthouse advisers, and a
representative sample of other Lighthouse DB to DC pension transfer advice
activity in the skilled person review concluded in December 2022. The skilled
person recommended a review of a further sample of Lighthouse DB to DC pension
transfer advice cases not relating to the British Steel Pension Scheme, and
this further sample will be reviewed under a Group-managed past business
review process. Details of provisions for redress payable and payments made
are included within provisions as set out in note 18. Until the review has
finalised, uncertainty exists as to the number of cases where further review
will be required and the value of total redress that will be payable.
Customers have the legal right to challenge the outcome of the skilled person
review in respect of their case via a complaint to the Financial Ombudsman
Service. Certain customers have made such complaints. The skilled person was
independent from the Group and ran a robust process, which was overseen by the
FCA. The Financial Ombudsman Service has upheld some challenges and the future
redress payments or estimated liabilities in relation to such cases are
included within the amounts stated in note 18. Further challenges may be
upheld.
At the conclusion of its enforcement investigation, the FCA issued a Final
Notice to Lighthouse in May 2023. The FCA found that Lighthouse had provided
unsuitable DB to DC pension transfer advice but imposed no financial penalty.
The FCA acknowledged in its decision that Lighthouse provided very high levels
of co-operation in relation to the FCA's investigation and that the Group, on
its own initiative, promptly paid redress to customers who received unsuitable
DB to DC pension transfer advice from Lighthouse and sustained losses as a
result of that advice.
It is possible that further material costs of redress may be incurred in
relation to past business reviews and the BSPS Redress Scheme. Further
customer redress costs may also be incurred for other potential unsuitable DB
to DC pension transfer advice provided across the Group.
Any further redress costs, and any differences between the provision and the
final payment to be made for any unsuitable DB to DC pension transfer cases,
will be recognised as an expense or credit in the income statement.
Tax
The tax authorities in the countries in which the Group operates routinely
review historical transactions undertaken and tax law interpretations made by
the Group. The Group is committed to conducting its tax affairs in accordance
with the tax legislation of the countries in which it operates. All
interpretations made by the Group are made with reference to the specific
facts and circumstances of the transaction and the relevant legislation.
There are occasions where the Group's interpretation of tax law may be
challenged by the tax authorities. The condensed consolidated interim
financial statements include provisions that reflect the Group's assessment of
liabilities which might reasonably be expected to materialise as part of their
review. The Group is satisfied that adequate provisions have been made to
allow for the resolution of tax uncertainties and that the resources available
to fund such potential settlements are sufficient.
Due to the level of estimation required in determining tax provisions, amounts
eventually payable may differ from the provision recognised.
Complaints, disputes and regulations
The Group is committed to treating customers fairly and supporting its
customers in meeting their lifetime goals. During the normal course of
business, from time to time, the Group receives complaints and claims from
customers including, but not limited to, complaints to the Financial Ombudsman
Service and legal proceedings related thereto, enters into commercial disputes
with service providers and other parties, and is subject to discussions and
reviews with regulators. The costs, including legal costs, of these issues as
they arise can be significant and, where appropriate, provisions have been
established in accordance with IAS 37 Provisions, Contingent Liabilities and
Contingent Assets.
20: Related party transactions
In the normal course of business, the Group enters into transactions with
related parties. Loans to related parties are conducted on an arm's length
basis and are not material to the Group's results. There were no transactions
with related parties during the current period or the prior period which had a
material effect on the results or financial position of the Group.
21: Events after the reporting date
Interim dividend
Subsequent to 30 June 2023, the Board has declared an interim dividend of 1.5
pence per Ordinary Share. This amounts to £20 million in total and will be
accounted for as an appropriation of retained earnings in the year ending 31
December 2023. The interim dividend will be paid on 18 September 2023 to
shareholders on the UK and South African share registers.
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