REG - Quilter PLC - Quilter plc - 2024 Half Year Results Part 2
07/08/2024 07:00
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RNS Number : 4478Z Quilter PLC 07 August 2024
Statement of Directors' responsibilities in respect of the interim financial statements
For the period ended 30 June 2024
Each of the Directors of Quilter plc confirms to the best of their knowledge
and belief that:
· The condensed consolidated interim financial statements, which
comprise the consolidated statement of comprehensive income, the consolidated
statement of financial position, the consolidated statement of changes in
equity, the consolidated statement of cash flows and the related explanatory
notes, have been prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the United Kingdom and give a true and fair view of
the assets, liabilities, financial position and profits of the Group for the
period ended 30 June 2024. 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 consolidated
interim 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 2023 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 2024 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
6 August
2024
6 August 2024
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 2024 (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 2024;
· the 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
6 August 2024
Condensed consolidated statement of comprehensive income
For the period ended 30 June 2024
£m
Notes Six months Six months
2024 2023
Income
Fee income and other income from service activities 6(b) 286 277
Investment return 3,085 1,302
Other income 14 2
Total income 3,385 1,581
Expenses
Change in investment contract liabilities (2,606) (1,018)
Fee and commission expenses and other acquisition costs (25) (25)
Change in third-party interests in consolidated funds (371) (202)
Other operating and administrative expenses (296) (297)
Finance costs (10) (11)
Total expenses (3,308) (1,553)
Profit before tax 77 28
Income tax expense attributable to policyholder returns 7 (59) (21)
Profit before tax attributable to shareholder returns 18 7
Income tax expense 7 (64) (23)
Less: income tax expense attributable to policyholder returns 59 21
Income tax expense attributable to shareholder returns 7 (5) (2)
Profit after tax attributable to the owners of the Company 13 5
Total comprehensive income 13 5
Earnings per Ordinary Share
Basic earnings per Ordinary Share (pence) 8 1.0 0.4
Diluted earnings per Ordinary Share (pence) 8 0.9 0.4
All income and expenses relate to continuing operations.
Condensed consolidated statement of financial position
At 30 June 2024
£m
Notes 30 June 31 December
2024 2023
Assets
Goodwill and intangible assets 10 352 372
Property, plant and equipment 87 91
Investment property 9 10
Investments in associates 3 2
Contract costs 20 16
Loans and advances 50 38
Financial investments 11 54,962 50,329
Deferred tax assets 84 91
Current tax receivable 33 33
Trade, other receivables and other assets 555 447
Derivative assets 24 57
Cash and cash equivalents 14 1,899 1,859
Total assets 58,078 53,345
Equity and liabilities
Equity
Ordinary Share capital 15 115 115
Ordinary Share premium reserve 58 58
Capital redemption reserve 346 346
Share-based payments reserve 32 42
Retained earnings 931 958
Total equity 1,482 1,519
Liabilities
Investment contract liabilities 47,797 43,396
Third-party interests in consolidated funds 7,704 7,444
Provisions 16 39 46
Deferred tax liabilities 92 64
Current tax payable 2 2
Borrowings and lease liabilities 277 279
Trade, other payables and other liabilities 666 570
Derivative liabilities 19 25
Total liabilities 56,596 51,826
Total equity and liabilities 58,078 53,345
The financial statements were approved by the Board of Directors on 6 August
2024.
Steven Levin Mark Satchel
Chief Executive Officer Chief Financial Officer
Condensed consolidated statement of changes in equity
For the period ended 30 June 2024
£m
Notes Ordinary Ordinary Share Capital redemption reserve Share-based payments reserve Other reserves Retained earnings Total
Share premium reserve shareholders'
capital equity
Balance at 1 January 2023 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)(1) - - - - - 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
Balance at 1 January 2024 115 58 346 42 - 958 1,519
Profit after tax - - - - - 13 13
Total comprehensive income - - - - - 13 13
Dividends 9 - - - - - (50) (50)
Exchange rate movement (ZAR/GBP)(1) - - - - - (1) (1)
Movement in own shares - - - - - (6) (6)
Equity share-based payment transactions - - - (11) - 17 6
Aggregate tax effects of items recognised directly in equity - - - 1 - - 1
Total transactions with the owners of the Company - - - (10) - (40) (50)
Balance at 30 June 2024 115 58 346 32 - 931 1,482
(1)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 cash flows
For the period ended 30 June 2024
The cash flows presented in this statement cover all the Group's activities
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
14).
£m
Notes Six months Six months
2024 2023
Cash flows from operating activities
Cash flows from operating activities 1,984 941
Taxation paid (26) (8)
Total net cash flows from operating activities 1,958 933
Cash flows from investing activities
Net purchases and sales of financial investments (1,847) (837)
Purchase of property, plant and equipment - (1)
Proceeds from sale of property, plant and equipment held for sale - 1
Increase in investment in associate (1) (1)
Total net cash flows from investing activities (1,848) (838)
Cash flows from financing activities
Dividends paid to the owners of the Company 9 (50) (45)
Exchange rate movements passed to shareholders(1) (1) 2
Finance costs on borrowings (9) (10)
Payment of interest on lease liabilities (2) (1)
Payment of principal of lease liabilities (3) (4)
Quilter plc shares acquired for use within the Group's employee share scheme (6) (15)
Proceeds from the issue of subordinated debt - 199
Subordinated debt repaid - (200)
Total net cash flows from financing activities (71) (74)
Net increase in cash and cash equivalents 39 21
Cash and cash equivalents at the beginning of the year 1,859 1,782
Effect of exchange rate changes on cash and cash equivalents 1 (3)
Cash and cash equivalents at the end of the period 14(a) 1,899 1,800
(1)The exchange rate movements passed to shareholders relate to foreign
exchange gains or losses that have arisen on 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 2024
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 with a primary listing on the London Stock Exchange
and a secondary listing on the Johannesburg Stock Exchange ("JSE").
The 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 2024 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. Although unaudited, the results 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 (the "interim financial statements") of Quilter
plc for the six months ended 30 June 2024 do not constitute statutory accounts
as defined by section 434 of the Companies Act 2006. Comparative financial
information for the full year 2023 has been presented from the Group's 2023
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 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 2023 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 2023 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 2023 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 2024 to 2026. This assessment incorporated a number
of stress tests covering a broad range of scenarios, including economic and
market shocks of up to 40% falls in equity markets, mass lapse events, new
business growth scenarios and severe business interruptions, equivalent to
1-in-50 and 1-in-200 year events. The assessment also considered the potential
implications of the Skilled Person review which could include the payment of
remediation and associated administrative costs (see note 17). As part of the
going concern assessment, the Group took into consideration the current
position of the UK and global economy including the impact of inflation and
increases in the cost of living. The Group also considered how climate-related
risks and opportunities affect operations, investments, advice and
distribution, and their impact on specific projects and initiatives, estimates
and judgements. Based on the assessment, the Directors believe that, both the
Group and Quilter plc 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
assumptions and estimates that affect the reported amounts of assets and
liabilities at the date of the financial statements. The Board Audit Committee
reviews these assumptions, estimates and judgements and the appropriateness of
material accounting policies adopted in the preparation of these financial
statements.
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.
Ongoing Advice Evidence
A Skilled Person was appointed in June 2024 to assess and provide a view to
the FCA on whether, based on the available evidence, the delivery of ongoing
advice services by Appointed Representative firms in the Quilter Financial
Planning network has been compliant with applicable regulatory requirements
during the period from 1 January 2017 to 31 December 2023. Given the early
stage of the review at the reporting date, it has been determined that a
present obligation for any potential customer remediation does not exist, and
therefore no liability in respect of remediation associated with this process
and the associated administrative costs has been recognised in the accounts.
See note 17 for further details of the contingent liability.
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 until those amounts are settled. 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.
Measurement of deferred tax
The annual business planning process estimates future taxable profits based on
estimated levels of assets under management and administration ("AuMA"), which
are subject to a large number of factors including global stock market
movements, related movements in foreign exchange rates, net client cash flows
and estimates of expenses and other charges. The Business Plan, adjusted for
known and estimated tax adjusting items, is used to determine the extent to
which deferred tax assets are recognised. The Group assesses the
recoverability of shareholder deferred tax assets based on estimated taxable
profits over a five-year horizon and assesses policyholder deferred tax assets
based on estimated investment growth over the medium term. To the extent that
profit estimates extend beyond the normal three-year planning cycle, average
profits over the final two years of the plan are used. This approach is
considered reasonable based on historical profitability. Future profit
projections show the majority of deferred tax assets being utilised over the
next three years. Management has reassessed the sensitivity of the
recoverability of deferred tax assets based on the latest forecast cash flows.
2: New standards, amendments to standards, and interpretations adopted by the
Group
The amendments to accounting standards in the table below became applicable
for the current reporting period, with no material impact on the Group's
consolidated results, financial position or disclosures.
Adopted by the Group from Amendments to standards
1 January 2024 Amendments to IAS 1 Presentation of Financial Statements - classification of
liabilities as current and non-current
1 January 2024 Amendments to IFRS 16 Leases - Sale and leaseback transactions
1 January 2024 Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments:
Disclosures - Supplier Finance Arrangements
3: Significant changes in the current reporting period
Except for the matters disclosed in the notes to these financial statements
there are no significant changes in the current reporting period to be
disclosed.
We continually review the principal risks and uncertainties facing the Group
which could pose a threat to the delivery of our strategic objectives. The
Group considers that the nature of the principal risks and uncertainties that
may have a material effect on the Group's performance over the remainder of
the financial year remains unchanged from those presented within the 2023
Annual Report and Accounts.
4: Discontinued operations, acquisitions and disposals
There have been no material acquisitions of businesses during the six months
to 30 June 2024 or during 2023.
There have been no material disposals of businesses during the period ended 30
June 2024 or during 2023 and there were no profit or loss impacts relating to
past business disposals in either period.
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 the period ended 30 June 2024 or
during 2023 other than described above.
5: Alternative performance measures
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 ("APMs") 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 statement of comprehensive income, but
is instead intended to provide additional comparability and understanding of
the financial results.
£m
Notes Six months Six months
2024 2023
Affluent 72 54
High Net Worth 25 23
Head Office - (1)
Adjusted profit before tax 6(b) 97 76
Adjusting items:
Impact of acquisition and disposal-related accounting 5(b)(i) (19) (21)
Business transformation costs 5(b)(ii) (12) (16)
Customer remediation 5(b)(iii) - (3)
Ongoing Advice Evidence 5(b)(iv) (2) -
Exchange rate movement (ZAR/GBP) 5(b)(v) 1 (2)
Policyholder tax adjustments 5(b)(vi) (38) (18)
Other adjusting items 5(b)(vii) - 1
Finance costs 5(b)(viii) (9) (10)
Total adjusting items before tax (79) (69)
Profit before tax attributable to shareholder returns 18 7
Income tax attributable to policyholder returns 7 59 21
Income tax expense 7 (64) (23)
IFRS profit after tax 13 5
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.
£m
Six months Six months
2024 2023
Amortisation of acquired intangible assets 19 20
Impairment of acquired intangible assets(1) - 1
Total impact of acquisition and disposal-related accounting 19 21
(1)The impairment of acquired intangible assets resulted from the impairment
of specific client books held within the Affluent operating segment in the six
months to 30 June 2023 as the Group could no longer support the carrying
value.
5(b)(ii): Business transformation costs
For the six months to 30 June 2024, business transformation costs totalled
£12 million (30 June 2023: £16 million), the principal components of which
are described below:
Business Simplification costs - 30 June 2024: £11 million, 30 June 2023: £14
million
During the six months to 30 June 2024, the Group spent £11 million on
delivering Simplification initiatives (30 June 2023: £14 million). The
implementation costs to deliver the remaining £24 million of annualised
run-rate savings for the programme are estimated to be £67 million.
Investment in business costs - 30 June 2024: £1 million, 30 June 2023: £1
million
Investment in business costs of £1 million (30 June 2023: £1 million) were
incurred as Group continues to enable and support advisers and clients and
improve productivity through better utilisation of technology.
Business separation costs following the sale of Quilter International - 30
June 2024: £nil, 30 June 2023: £1 million
The Group sold Quilter International to Utmost Group in 2021 and entered into
a Transitional Service Agreement with the acquirer. The cost to the Group of
running the Transitional Service Agreement which ended in November 2023 was
£nil for the period to 30 June 2024 (30 June 2023: £1 million).
5(b)(iii): Customer remediation
Lighthouse pension transfer advice provision - 30 June 2024: £nil, 30 June
2023: £3 million
For the period ended 30 June 2023, the customer remediation expense of £3
million reflected £1 million of legal, consulting and other costs and a £2
million provision increase related to non-British Steel Pension Scheme redress
payments. This was the result of the Group-managed past business review of DB
to DC pension transfer advice suitability by an independent expert. At 30 June
2024, the provision for potential redress and associated professional fees
decreased from the 2023 year end by £1 million as a result of professional
fees paid during 2024 to £5 million. Further details of the provision are
provided in note 16.
5(b)(iv): Ongoing Advice Evidence
Ongoing Advice Evidence costs of £2 million (30 June 2023: £nil) include the
estimated external cost to support and perform the Skilled Person review of
historical data and practices across the Quilter Financial Planning network of
Appointed Representative firms (see note 17). This cost is excluded from
adjusted profit as management considers it to be outside of the Group's normal
operations and one-off in nature.
5(b)(v): Exchange rate movements (ZAR/GBP)
For the period ended 30 June 2024, income of £1 million was recognised (30
June 2023: £2 million expense) due to foreign exchange movements on cash held
in South African Rand in preparation for payments of dividends to
shareholders. Cash was converted to South African Rand upon announcement of
the 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)(vi): Policyholder tax adjustments
For the period ended 30 June 2024, the total amount of policyholder tax
adjustments to adjusted profit is a credit of £38 million (30 June 2023: £18
million credit). 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. 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)(vii): Other adjusting items
For the period ended 30 June 2024 these costs were £nil. For the period ended
30 June 2023, £1 million income was received in relation to the settlement
offer for the indemnification asset that was impaired in 2022.
5(b)(viii): 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 2024, finance costs were £9 million (30 June 2023:
£10 million).
5(c): Reconciliation of IFRS income and expenses to "Total net revenue" and
"Operating expenses" within adjusted profit
This reconciliation shows how each line of the Group's IFRS income and
expenses are 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. The total column in the table
below, down to "Profit before tax attributable to shareholder returns",
reconciles to each line of the condensed consolidated statement of
comprehensive income. 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 2024 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) Total
Income
Fee income and other income from service activities 281 44 - 325 - 325 (39) 286
Investment return(3) 30 2,590 40 2,660 - 2,660 425 3,085
Other income - 3 - 3 10 13 1 14
Total income 311 2,637 40 2,988 10 2,998 387 3,385
Expenses
Change in investment contract liabilities(3) (14) (2,589) (3) (2,606) - (2,606) - (2,606)
Fee and commission expenses and other acquisition costs (24) - - (24) - (24) (1) (25)
Change in third-party interests in consolidated funds - - - - - - (371) (371)
Other operating and administrative expenses (7) - - (7) (274) (281) (15) (296)
Finance costs - - - - (10) (10) - (10)
Total expenses (45) (2,589) (3) (2,637) (284) (2,921) (387) (3,308)
Income tax expense attributable to policyholder returns (59) - - (59) - (59) - (59)
Profit before tax attributable to shareholder returns 207 48 37 292 (274) 18 - 18
Adjusting items:
Impact of acquisition and disposal-related accounting - - - - 19 19
Business transformation costs - - - - 12 12
Ongoing Advice Evidence - - - - 2 2
Exchange rate movements (ZAR/GBP) - (1) - (1) - (1)
Policyholder tax adjustments 38 - - 38 - 38
Finance costs - - - - 9 9
Adjusting items 38 (1) - 37 42 79
Adjusted profit before tax 245 47 37 329 (232) 97
( 1)The APMs "Net management fees", "Other revenue", "Investment revenue",
"Total net revenue" and "Operating expenses" are commented on within the
Financial review.
(2)Consolidation of funds shows the grossing up impact to the Group's income
and expenses as a result of the consolidation of funds requirements, as
described within note 5(a) to the Group's 2023 Annual Report. This grossing up
is excluded from the Group's adjusted profit.
(3)Reported within net management fees, investment return of £30 million
represents £19 million interest income on investments held for the benefit of
policyholders and £11 million net interest income on client money balances.
Change in investment contract liabilities of £14 million represents the
amount of interest income paid to policyholders. The net balance of £16
million of interest income on customer balances was retained by the Group for
the six months to 30 June 2024. The £40 million investment return less £3
million change in investment contract liabilities paid to customers on
transactional cash balances, as reported within investment revenue, represents
£37 million of interest income on shareholder cash and cash equivalents.
£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) Total
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)
Income tax expense attributable to policyholder returns (21) - - (21) - (21) - (21)
Profit before tax attributable to shareholder returns 224 40 28 292 (285) 7 - 7
Adjusting items:
Impact of acquisition and disposal-related accounting - - - - 21 21
Business transformation costs - - - - 16 16
Customer remediation - - - - 3 3
Exchange rate movement (ZAR/GBP) - 2 - 2 - 2
Policyholder tax adjustments 18 - - 18 - 18
Other adjusting items - - - - (1) (1)
Finance costs - - - - 10 10
Adjusting items 18 2 - 20 49 69
Adjusted profit before tax 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.
(2)Consolidation of funds shows the grossing up impact to the Group's income
and expenses as a result of the consolidation of funds requirements, as
described within note 5(a) to the Group's 2023 Annual Report. This grossing up
is excluded from the Group's adjusted profit.
(3)Reported within net management fees, investment return of £19 million
represents £12 million interest income on investments held for the benefit of
policyholders and £7 million net interest income on client money balances.
Change in investment contract liabilities of £12 million represents the
amount of interest income paid to policyholders. The net balance of £7
million of interest income on customer balances was retained by the Group for
the six months to 30 June 2023. The £28 million investment return, as
reported within investment revenue, represents interest income on shareholder
cash and cash equivalents.
6: Segment information
6(a): Segment presentation
The Group has two operating segments: High Net Worth and Affluent. The
segments used for reporting purposes are consistent with the structure and
management of the Group. Head Office includes certain revenues and central
costs that are not allocated to the segments.
Adjusted profit before tax is an APM reported to the Group's management and
Board. The segment information in this note reflects the adjusted and IFRS
profit measures for each operating segment as provided to management and the
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. Income is analysed in further detail for each operating
segment in note 6(b).
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.
High Net Worth
This segment comprises Quilter Cheviot and Quilter Cheviot Financial Planning.
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 Cheviot Financial Planning provides financial advice for protection,
mortgages, savings, investments and pensions predominantly to high net worth
clients.
Affluent
This segment comprises 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
an 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 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): Adjusted profit statement - segment information
The table below presents the Group's operations split by operating segment,
reconciling IFRS profit (or loss) to adjusted profit before tax. The Total
column reconciles to the consolidated statement of comprehensive income.
£m
Operating segments
Six months 2024 Notes Affluent High Head Office Consolidation adjustments(1) Total
Net
Worth
Income
Premium-based fees 35 9 - - 44
Fund-based fees 167 91 - (39) 219
Fixed fees 1 - - - 1
Other fee and commission income 22 - - - 22
Fee income and other income from service activities 225 100 - (39) 286
Investment return(2) 2,638 11 16 420 3,085
Other income 48 1 1 (36) 14
Segment income 2,911 112 17 345 3,385
Expenses
Change in investment contract liabilities(2) (2,606) - - - (2,606)
Fee and commission expenses and other acquisition costs (25) - - - (25)
Change in third-party interests in consolidated funds - - - (371) (371)
Other operating and administrative expenses (195) (106) (17) 22 (296)
Finance costs (1) - (13) 4 (10)
Segment expenses (2,827) (106) (30) (345) (3,308)
Profit/(loss) before tax 84 6 (13) - 77
Income tax expense attributable to policyholder returns (59) - - - (59)
Profit/(loss) before tax attributable to shareholder returns 25 6 (13) - 18
Adjusting items:
Impact of acquisition and disposal-related accounting 5(b)(i) 3 16 - - 19
Business transformation costs 5(b)(ii) 4 3 5 - 12
Ongoing Advice Evidence 5(b)(iv) 2 - - - 2
Exchange rate movement (ZAR/GBP) 5(b)(v) - - (1) - (1)
Policyholder tax adjustments 5(b)(vi) 38 - - - 38
Finance costs 5(b)(viii) - - 9 - 9
Adjusting items before tax 47 19 13 - 79
Adjusted profit before tax 72 25 - - 97
(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 £16 million of interest income on customer cash and cash equivalents
retained by the Group. Investment return total also includes £37 million of
interest income on shareholder cash and cash equivalents.
£m
Operating segments
Six months 2023 Notes Affluent High Head Office Consolidation adjustments(1) Total
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 50 6 (28) - 28
Income tax expense attributable to policyholder returns (21) - - - (21)
Profit/(loss) before tax attributable to shareholder returns 29 6 (28) - 7
Adjusting items:
Impact of acquisition and disposal-related accounting 5(b)(i) 4 17 - - 21
Business transformation costs 5(b)(ii) - 1 15 - 16
Customer remediation 5(b)(iii) 3 - - - 3
Exchange rate movements (ZAR/GBP) 5(b)(v) - - 2 - 2
Policyholder tax adjustments 5(b)(vi) 18 - - - 18
Other adjusting items 5(b)(vii) - (1) - - (1)
Finance costs 5(b)(viii) - - 10 - 10
Adjusting items before tax 25 17 27 - 69
Adjusted profit before tax 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.
7: Tax
£m
Six months Six months
2024 2023
Current tax
United Kingdom 28 -
Total current tax charge 28 -
Deferred tax
Origination and reversal of temporary differences 37 23
Effect on deferred tax of changes in tax rates - 1
Adjustments to deferred tax in respect of prior periods (1) (1)
Total deferred tax charge 36 23
Total tax charged 64 23
Attributable to policyholder returns 59 21
Attributable to shareholder returns 5 2
Total tax charged 64 23
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 shareholder returns are shown separately in the condensed consolidated
statement of comprehensive income.
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 shareholder returns.
The Group's income tax charge was £64 million for the six months to 30 June
2024 (30 June 2023: £23 million). The 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. An adjustment is made to adjusted profit to remove these
distortions, as explained further in note 5(b)(vi).
Market movements for the six months to 30 June 2024 resulted in investment
gains of £242 million on products subject to policyholder tax. The gain is a
component of the total "investment return" gain of £3,085 million shown in
the condensed consolidated statement of comprehensive income. The tax impact
of the £242 million investment return gain is the primary reason for the £59
million tax charge attributable to policyholder returns for the six months to
30 June 2024 (30 June 2023: £21 million charge).
Pillar II taxes
Pillar II legislation has been substantively enacted in the UK, introducing a
Pillar II minimum effective tax rate of 15%. The legislation implements a
Multinational Top-up Tax ("MTT") and a Domestic Top-up Tax ("DTT"), effective
for the Group's financial year beginning 1 January 2024. The Group has applied
the exemption under IAS 12.4A and accordingly will not recognise or disclose
information about deferred tax assets and liabilities related to Pillar II
income taxes.
The assessment of the exposure to Pillar II income taxes has shown that the
majority of the Group's profits arise in countries with tax rates above 15%.
The position in respect of these rules in each of the Group's main territories
is summarised below.
UK
The Group has assessed that its Pillar II UK effective tax rate exceeds the
15% minimum rate and therefore there is no additional liability in relation to
the UK.
The scope of the MTT means that a top-up tax charge may also arise in the UK
on profits earned in countries with lower tax rates in which the Group
operates, subject to a local qualifying domestic minimum tax. The Group's main
non-UK operations are in Jersey and Ireland. Ireland has enacted a qualifying
domestic minimum tax (see below), so no additional tax charge is due in the UK
on Irish operations. Jersey is expected to introduce a qualifying domestic
minimum tax in 2025. The Group's effective tax rate in Jersey is 8% and
therefore a MTT liability of £83 thousand in relation to Jersey profits
arises in the UK during 2024. This does not have a material impact on the
Group's tax charge.
Jersey, Guernsey and the Isle of Man
The three Crown Dependencies issued a joint statement in May 2023 stating
their intention to introduce a domestic minimum tax in 2025. The Group does
not therefore expect to pay additional local tax in these countries during
2024. The Group will continue to monitor the developments in these countries.
Until such time as a qualifying domestic minimum tax is introduced, the Group
expects to pay a MTT in the UK in respect of any taxable profits arising in
these countries (see above).
Ireland
Ireland has introduced a qualifying domestic minimum tax. This has been
substantively enacted, effective for the Group's financial year beginning 1
January 2024. The Group's effective tax rate in Ireland is 10% and therefore
an additional minimum tax charge of £43 thousand arises in Ireland in 2024.
This does not have a material impact on the Group's tax charge.
Other
The Group has assessed there are no material Pillar II tax charge in any other
countries in which it has a presence in 2024.
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.
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 profit and Headline earnings).
The bases for the calculation of the Group's EPS are disclosed in note 5(u) of
the Group's 2023 Annual Report.
Million
Six months Six months
2024 2023
Weighted average number of Ordinary Shares 1,404 1,404
Own shares including those held in consolidated funds and employee benefit (63) (51)
trusts
Basic weighted average number of Ordinary Shares 1,341 1,353
Adjustment for dilutive share awards and options(1) 41 11
Diluted weighted average number of Ordinary Shares 1,382 1,364
(1)The adjustment for dilutive share awards and options includes dividend
equivalent shares in line with the requirements of IAS 33. Previously, these
shares were not included in the figures presented in the condensed
consolidated interim financial statements for the period ended 30 June 2023.
The June 2023 adjustment for dilutive share awards and options presented above
was increased by 8 million shares to ensure comparability.
8(b): Basic and diluted EPS (IFRS and adjusted profit)
£m
Note Six months Six months
2024 2023
Profit after tax 13 5
Total adjusting items before tax 5(a) 79 69
Tax on adjusting items 18 2
Less: policyholder tax adjustments (38) (18)
Adjusted profit after tax 72 58
Pence
Post-tax profit Six months Six months
measure used 2024 2023
Basic EPS IFRS profit 1.0 0.4
Diluted EPS IFRS profit 0.9 0.4
Adjusted basic EPS Adjusted profit 5.4 4.3
Adjusted diluted EPS Adjusted profit 5.2 4.3
8(c): Headline earnings per share
+ + £m
Six months Six months
2024 2023
Gross Net of tax Gross Net of tax
Profit 13 5
Adjusted for:
- add back of impairment loss on intangible assets - - 1 1
Headline earnings 13 6
Headline basic EPS (pence) 1.0 0.4
Headline diluted EPS (pence) 0.9 0.4
9: Dividends
£m
Payment Six months Six months
date 2024 2023
2022 Final Dividend paid - 3.3p per Ordinary Share 22 May 2023 - 45
2023 Final Dividend paid - 3.7p per Ordinary Share 28 May 2024 50 -
Dividends paid to Ordinary Shareholders 50 45
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
consideration of the need for an impairment review
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.
£m
30 June 31 December
2024 2023
Goodwill (net carrying amount)
Affluent 223 223
High Net Worth 83 83
Total goodwill 306 306
Consideration of the need for an impairment review
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.
During the six months to 30 June 2024, management considers there to be no
indicators of impairment for the Affluent and High Net Worth CGU groups. The
positive movements in equity markets and resulting increase in AuMA have
contributed to higher revenues and this, together with continued cost
discipline, has led to adjusted profit before tax of £97 million, which is a
28% increase from the prior period to 30 June 2023 of £76 million. NCCF has
also been stronger compared to the prior period due to higher gross sales.
11: 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 31 December
2024 2023
Government and government-guaranteed securities 209 202
Other debt securities, preference shares and debentures 2,130 2,175
Equity securities 9,153 8,488
Pooled investments 43,468 39,462
Short-term funds and securities treated as investments 1 1
Other 1 1
Total financial investments 54,962 50,329
Recoverable within 12 months 54,962 50,329
Total financial investments 54,962 50,329
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.
12: Categories of financial instruments
The analysis of financial assets and liabilities into 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 13. The Group's exposure to various risks associated with
financial instruments is discussed in note 37 to the Group's 2023 Annual
Report. During the period, there have been no material changes in the Groups
exposure to those risks.
30 June 2024
£m
Measurement basis Fair value
Mandatorily at FVTPL Designated at FVTPL Amortised cost Non-financial assets and liabilities Total
Assets
Loans and advances - - 50 - 50
Financial investments 54,962 - - - 54,962
Trade, other receivables and other assets - - 511 44 555
Derivative assets 24 - - - 24
Cash and cash equivalents 1,194 - 705 - 1,899
Total assets that include financial instruments 56,180 - 1,266 44 57,490
Total other non-financial assets - - - 588 588
Total assets 56,180 - 1,266 632 58,078
Liabilities
Investment contract liabilities - 47,797 - - 47,797
Third-party interests in consolidated funds 7,704 - - - 7,704
Borrowings and lease liabilities - - 277 - 277
Trade, other payables and other liabilities - - 597 69 666
Derivative liabilities 19 - - - 19
Total liabilities that include financial instruments 7,723 47,797 874 69 56,463
Total other non-financial liabilities - - - 133 133
Total liabilities 7,723 47,797 874 202 56,596
31 December 2023
£m
Measurement basis Fair value
Mandatorily at FVTPL Designated at FVTPL Amortised cost Non-financial assets and liabilities Total
(Restated) (Restated)
Assets
Loans and advances - - 38 - 38
Financial investments 50,329 - - - 50,329
Trade, other receivables and other assets - - 404 43 447
Derivative assets 57 - - - 57
Cash and cash equivalents 1,091 - 768 - 1,859
Total assets that include financial instruments 51,477 - 1,210 43 52,730
Total other non-financial assets - - - 615 615
Total assets 51,477 - 1,210 658 53,345
Liabilities
Investment contract liabilities - 43,396 - - 43,396
Third-party interests in consolidated funds 7,444 - - - 7,444
Borrowings and lease liabilities - - 279 - 279
Trade, other payables and other liabilities(1) 1 - 476 93 570
Derivative liabilities 25 - - - 25
Total liabilities that include financial instruments 7,470 43,396 755 93 51,714
Total other non-financial liabilities - - - 112 112
Total liabilities 7,470 43,396 755 205 51,826
(1)The disclosures for 2023 have been restated to reclassify £8 million of
Trade, other payables and other liabilities from the amortised cost category
to the non-financial liabilities category. The relevant balances which were
presented in the amortised cost category in the Group's 2023 financial
statements arose in connection with the Group's statutory and constructive
obligations as opposed to arising in connection with the Group's contractual
obligations.
13: 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 13(b)) provides an
indication of the reliability of inputs used in determining fair value.
13(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, reports
from investment managers or professional valuation experts on the value of the
underlying assets of the private equity investment or fund.
During the six months to 30 June 2024, 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 valuations based on discounted cash flows and earnings before
interest, tax, depreciation and amortisation multiples.
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.
13(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 derivatives, certain privately placed debt instruments and
inputs are observable. 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.
13(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 actively traded primary market ceases to exist for that
financial instrument. A transfer between Level 2 and Level 3 occurs when one
or more 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 between Level 1 and Level 2
during the six months to 30 June 2024 (31 December 2023: £nil). In addition,
there were no transfers of financial investments from Level 2 to Level 1
during the period (31 December 2023: £nil).
See note 13(e) for the reconciliation of Level 3 financial instruments.
13(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 the value of linked assets and that of
linked liabilities is mainly 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 tables below analyse the Group's financial assets and liabilities measured
at fair value by the fair value hierarchy described in note 13(b). All items
are recognised mandatorily at fair value through profit or loss, apart from
Investment contract liabilities which are designated at fair value through
profit or loss.
£m
30 June 2024 Level 1 Level 2 Level 3 Total
Financial investments 45,901 9,041 20 54,962
Cash and cash equivalents 1,194 - - 1,194
Derivative assets - 24 - 24
Total financial assets measured at fair value through profit or loss 47,095 9,065 20 56,180
Third-party interests in consolidated funds - 7,704 - 7,704
Derivative liabilities - 19 - 19
Investment contract liabilities 47,780 - 17 47,797
Total financial liabilities measured at fair value through profit or loss 47,780 7,723 17 55,520
£m
31 December 2023 Level 1 Level 2 Level 3 Total
Financial investments 41,691 8,605 33 50,329
Cash and cash equivalents 1,091 - - 1,091
Derivative assets - 57 - 57
Total financial assets measured at fair value through profit or loss 42,782 8,662 33 51,477
Third-party interests in consolidated funds - 7,444 - 7,444
Other liabilities - 1 - 1
Derivative liabilities - 25 - 25
Investment contract liabilities 43,372 - 24 43,396
Total financial liabilities measured at fair value through profit or loss 43,372 7,470 24 50,866
13(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 management fees earned. 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 31 December
2024 2023
At beginning of the year 33 29
Fair value gains/(losses) credited/(charged) to profit or loss(1) 5 (1)
Sales (17) (1)
Transfers in 8 27
Transfers out (9) (21)
Total Level 3 financial assets at the end of the period 20 33
Unrealised fair value (losses)/gains recognised in profit or loss relating to (2) 2
assets held at the period end
(1)Included in Investment return.
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 £8 million (31
December 2023: £27 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 £9 million, (31 December 2023: £21 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 31 December
2024 2023
At beginning of the year 24 25
Fair value losses charged to profit or loss(1) (2) -
Transfers in - 20
Transfers out (5) (21)
Total Level 3 financial liabilities at the end of the period 17 24
Unrealised fair value losses recognised in profit or loss relating to 2 -
liabilities at the period end
(1)Included in Investment return.
13(f): Effect of changes in significant unobservable assumptions to reasonable
alternatives
Details of the valuation techniques applied to the different categories of
financial instruments can be found in note 13(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 (31 December 2023:
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 (31 December 2023: £3 million).
13(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.
14: Cash and cash equivalents
14(a): Analysis of cash and cash equivalents
£m
30 June 31 December
2024 2023
Cash at bank 337 444
Money market funds 1,194 1,091
Cash and cash equivalents in consolidated funds 368 324
Total cash and cash equivalents per statement of cash flows 1,899 1,859
The Group's management does not consider that the cash and cash equivalents
balance arising due to consolidation of funds of £368 million (31 December
2023: £324 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
£1,531 million (31 December 2023: £1,535 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.
15: Ordinary Share capital
At 30 June 2024, 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
(31 December 2023: 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.
16: Provisions
£m
30 June 2024 Compensation Sale of subsidiaries provision Property provisions Clawback and other provisions Total
provisions
Balance at beginning of the year 17 3 10 16 46
Charge to profit or loss 4 - - 5 9
Used during the period (2) (2) (1) (6) (11)
Unused amounts reversed (4) - - (1) (5)
Balance at 30 June 2024 15 1 9 14 39
£m
31 December 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 profit or loss 17 - - 6 23
Used during the year (14) (12) (2) (8) (36)
Unused amounts reversed (9) - - (1) (10)
Balance at 31 December 2023 17 3 10 16 46
Compensation provisions
At 30 June 2024, compensation provisions total £15 million (31 December 2023:
£17 million). The net reduction of £2 million during the period consists of
additional charges to profit or loss of £4 million, compensation and
professional fees payments of £2 million and £4 million release of unused
amounts following further review work completed during the period.
Compensation provisions comprise the following:
Lighthouse pension transfer advice provision of £5 million (31 December 2023:
£6 million)
A further review of a sample of Lighthouse DB to DC pension transfer advice
cases not relating to the British Steel Pension Scheme is being conducted by
an independent expert to identify any cases of unsuitable DB to DC pension
transfer advice. The review is being conducted under a Group-managed past
business review process, and the sample has been selected on a risk-based
approach. 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 was increased
at 31 December 2023, based upon the suitability review of cases, and the
anticipated number of cases required to be reviewed. Payments of £1 million
were made to customers during 2023. Anticipated costs associated with the
redress activity of £2 million were included within the provision at 31
December 2023. Payments of £1 million of professional fees were made during
2024.
The Group estimates a reasonably possible change of +/- £4 million from the
£5 million balance, based upon an increase or decrease of five percentage
points in redress as a percentage of transfer value.
Compensation provisions (other) of £10 million (31 December 2023: £11
million)
Other compensation provisions of £10 million include amounts relating to the
cost of correcting deficiencies in policy administration systems, including
redress, 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 past 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 £2 million, included within the balance, has been recognised
at 30 June 2024 (31 December 2023: £3 million) relating to potentially
unsuitable DB to DC pension transfer advice provided by adviser businesses
other than Lighthouse. The estimate of the provision has been updated for the
current status of the past business reviews and redress estimated based upon
the Group's experience of past business reviews. Customer redress is expected
to be calculated and paid to relevant customers during the second half of
2024.
The Group estimates a reasonably possible change of +/- £3 million from the
£10 million balance, based upon a review of the cases and the range of
potential outcomes for the customer redress payments.
Sale of subsidiaries provision
The sale of subsidiaries provision totals £1 million at 30 June 2024 (31
December 2023: £3 million), and includes the following:
Provisions arising on the sale of Quilter International of £nil (31 December
2023: £2 million)
Quilter International was sold in 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 was complex and covered a wide
range of areas including people, IT systems, data, contracts and facilities. A
programme team was established to ensure the transition of these areas to the
acquirer. These provisions were based on external quotations and estimates,
together with estimates of the incremental time and resource costs required to
achieve the separation, which was expected to occur over a two-to-three-year
period from the date of the sale.
The most significant element of the provision was the cost of migration of IT
systems and data to the acquirer. Calculation of the provision was 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 made use of its past experience of
previous IT migrations following business disposals.
During the period, £2 million (31 December 2023: £9 million) of the
provision related to decommissioning works has been used, and the project is
materially complete.
Property provisions
Property provisions total £9 million (31 December 2023: £10 million).
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 cost per square
foot. Property provisions are used or released when the reinstatement
obligations are satisfied. The associated asset for the property provisions
relating to the cost of reinstating property is included within Property,
plant and equipment.
Of the £9 million provision outstanding, £2 million (31 December 2023: £3
million) is estimated to be payable within one year. The majority of the
balance relates to leased properties which have a lease term maturity of more
than five years.
Clawback and other provisions
Clawback and other provisions total £14 million (31 December 2023: £16
million) and include amounts for the resolution of legal uncertainties and the
settlement of other claims raised by contracting parties and indemnity
commission provisions. Where the impact of discounting is 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 2024 is £10 million (31 December 2023:
£12 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 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 2024, an associated balance of £8 million
recoverable from brokers is included within Trade, other receivables and other
assets (31 December 2023: £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 £14 million provision outstanding, £7 million is estimated to
be payable within one year (31 December 2023: £7 million).
17: 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 16).
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.
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.
Tax
The Group is committed to conducting its tax affairs in accordance with the
tax legislation of the countries in which it operates and this includes
compliance with legislation related to levies, sales taxes and payroll
deductions.
The tax authorities in the countries in which the Group operates routinely
review historical transactions undertaken and tax law interpretations made by
the Group. 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 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.
Due to the level of estimation required in determining tax provisions, amounts
eventually payable may differ from the provision recognised.
DB to DC pension transfer advice redress
As set out in note 16, a sample of Lighthouse DB to DC pension transfer advice
cases not relating to the British Steel Pension Scheme is being reviewed under
a Group-managed past business review process. 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 review and the
BSPS Redress Scheme in respect of their case via a complaint to the Financial
Ombudsman Service. The review is being undertaken by a party who is
independent from the Group and has run a robust process overseen by the FCA.
The Financial Ombudsman Service may uphold further challenges, which may lead
to further redress payable by the Group.
It is possible that further material costs of redress may be incurred in
relation to past business reviews. 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 profit or loss.
Complaints, disputes and regulations
The Group is committed to treating customers fairly and remains focussed on
delivering good outcomes for customers to support them 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,
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.
Ongoing Advice Evidence
In the preliminary results announcement on 6 March 2024, the Group committed
to undertake a review of historical data and practices across the Appointed
Representative firms in the Quilter Financial Planning network. Following
discussion with the FCA, the review is being conducted by a Skilled Person,
and the Skilled Person was appointed in June 2024 (see note 1).
Uncertainty exists as to the results of the Skilled Person review, and what
recommendation, if any, the Skilled Person may make as to the nature and form
of any potential future remediation exercise and the outcome of any related
discussions with the FCA. As the Skilled Person review is not sufficiently
advanced, a present obligation for any potential liability does not exist, and
therefore no liability in respect of remediation associated with this process
and the associated administrative costs of any potential future remediation
exercise is recognised in the interim financial statements. The related
critical accounting judgement is disclosed in note 1. By early 2025, the Group
expects to be able to provide an update on the Skilled Person review.
Where the Group's regular adviser oversight controls have determined, based on
the available evidence, that a customer may not have received the servicing
that they have paid for, or where the Group has received complaints from
customers regarding ongoing servicing, this has been investigated, and, where
appropriate, remediation has been undertaken and recognised as a normal
business as usual expense.
The Group has considered the potential implications of the Skilled Person
review and Ongoing Advice Evidence as part of its going concern assessment
(see note 1).
18: 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 during 2023 which had a
material effect on the results or financial position of the Group.
19: Events after the reporting date
Interim Dividend
On 6 August 2024, the Board declared an Interim Dividend of 1.7 pence per
Ordinary Share amounting to £23 million in total. The Interim Dividend will
be paid on 23 September 2024 to shareholders on the UK and South African share
registers. These condensed consolidated interim financial statements do not
reflect this dividend payable.
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