Quilter plc interim results for the six months ended 30 June 2022

10 August 2022

Stable revenue and cost discipline drive 9% increase in adjusted profit

Management basis - Continuing business (excluding Quilter International for comparative data)

• Assets under Management and Administration (“AuMA”) of £98.7 billion at the end of June 2022, a decrease of 12% from 31 December 2021 (£111.8 billion) principally due to adverse market movements of £14.5 billion and:
• Quilter Investment Platform net inflows of £1.6 billion (H1 2021: £1.8 billion) representing 4% of opening AuMA (H1 2021: 6%), reflecting an industry wide slowdown in new client flows during the second quarter.
• Quilter channel flows onto the Quilter Investment Platform of £954 million up 10% on the £868 million achieved in 2021.
• Quilter High Net Worth net inflows of £0.5 billion (H1 2021: £0.4 billion) representing 3% of opening AuMA (H1 2021: 4%).
• Net outflows of £0.6 billion (H1 2021: net outflows £0.3 billion) of assets held on third party platforms reflecting non-core, legacy business in run off and transition of assets advised by Quilter Financial Planning on other platforms to the Quilter Investment Platform.
• Leading to Group net inflows of £1.4 billion for the first half (H1 2021: 2.0 billion).
• Flat revenues and cost discipline drove a 9% increase in adjusted profit before tax to £61 million (H1 2021: £56 million).
• Improved operating margin of 20% (H1 2021: 18%), reflecting stable revenues and a reduction in expenses of 2% through lower FSCS levies and tight control of costs despite the inflationary environment and the return to more normalised investment spend post-pandemic.
• Adjusted diluted earnings per share decreased 5% to 3.7 pence (H1 2021: 3.9 pence), reflecting a more normal tax rate (as a result of the non-repetition of a deferred tax credit in the first half of 2021) partially offset by a reduced share count following completion of our capital return programme.
• Interim dividend of 1.2 pence per share unchanged on 2021 (excluding the contribution from Quilter International).

Statutory results

• IFRS profit before tax attributable to equity holders from continuing operations of £182 million (H1 2021: £(21) million), largely driven by policyholder tax credits of £145 million (H1 2021: tax charge £(48) million). This income tax credit/(charge) can vary significantly period-on-period as a result of market volatility and the impact this has on policyholder tax.
• Negotiations concluded with the insurers who provided professional indemnity cover for Lighthouse resulting in the payment of the full amount due under the policy of £15 million, including amounts received since the period end, with the benefit of this excluded from adjusted profit. Net cost of post-acquisition Lighthouse remediation totals £12 million.
• Basic earnings/(loss) per share from continuing operations of 11.3 pence (H1 2021: (0.9) pence).
• Diluted earnings/(loss) per share from continuing operations of 11.2 pence (H1 2021: (0.9) pence).
• Solvency II ratio of 219% after payment of the interim dividend (December 2021: 275%).

Strategic progress

• Significant expansion of our successful WealthSelect managed portfolios, with a simpler charging structure. We now offer a full spectrum of portfolios to cover clients’ risk, investment preferences with an ESG overlay.
• Good progress building incremental platform flows from targeted IFA firms with 80 adviser firms adopting Quilter as a platform of choice during the period and contributing to incremental gross inflows.
• Continued build out of our integrated advice and investment proposition in the High Net Worth segment, with eight additional investment managers added since June 2021.
• Good initial progress with our £45 million Business Simplification programme, with annualised run-rate savings of £13 million achieved to date.
• Completion, in January 2022, of the £375 million share buyback programme from the Quilter Life Assurance sale proceeds. Since the programme’s inception, 264 million shares were purchased at an average price of 141.97 pence per share.
• £328 million capital return in June 2022, (20 pence per share) through B share scheme accompanied by a 6 for 7 share consolidation to return the net surplus proceeds from the sale of Quilter International to shareholders.

Paul Feeney, Chief Executive Officer, said:

“Operating conditions in the first six months of 2022 have been challenging. Global equity markets have experienced one of the worst periods of negative performance in recent years and traditional 60:40 multi-asset portfolios have had their largest negative year-to-date return on record. In that context, our overall AuMA has been relatively resilient, down 12% to £98.7 billion on the December 2021 level. Despite the market volatility, we generated net inflows of £1.6 billion (H1 2021: £1.8 billion) on the Quilter Investment Platform and a further £0.5 billion of net inflows (H1 2021 £0.4 billion) through our High Net Worth segment, modestly reducing the negative mark-to-market and third party platform net outflow impacts.

“Against this backdrop we delivered a 9% increase in our adjusted profit in the first half of 2022. Our focus remains on managing our business towards the targets set out at our Capital Markets Day last November, although an absence of an improvement in market levels and investor sentiment over the remainder of this year and 2023 may impact on the timing of delivery. My priorities continue to be growth in the IFA and Quilter adviser franchises, cost discipline to deliver a right-sized cost base for the new streamlined Quilter, investing for future growth through initiatives such as hybrid advice, and embedding ESG into the services we provide for clients and tools we provide for advisers”.

Chief Executive Officer’s statement

Since Quilter listed just over four years ago, we have successfully transformed our business to be a simpler, more focused client centric organisation while responding to a number of external challenges including:

• the market and broader political uncertainty following the Brexit referendum;
• the COVID-19 pandemic and its consequences from both a health and social perspective as well as the changes it has brought to our working practices; and
• geopolitical uncertainty which has manifested both through rising tensions between global superpowers over the last few years and, more directly, this year through the war in Ukraine with its huge humanitarian cost. We have all felt the broader consequences of this through increased oil prices and concerns over food sufficiency driving sharply higher inflation which has led to a global tightening of monetary policy and a “cost of living” crisis.

This year global equity markets have experienced one of the worst periods of negative performance in recent years. While the UK has been perceived as an outperformer with the FTSE 100 ‘only’ down 3% over the same period, in contrast the FTSE 250 and the FTSE AIM 100 both declined 20% and 25% respectively in the six months to end June 2022.

Moreover, the traditional 60:40 multi-asset portfolio mix, a bedrock of retirement planning, delivered the largest negative year-to-date return on record as falling equity markets coupled with rising bond yields led to both lower bond and equity portfolio valuations. Our multi-asset portfolios are not constrained in this manner and include liquid alternatives. This allows us to diversify beyond equities and bonds. Some of our managers were able to implement value biases in their portfolios, which has also proved useful. We also use cash tactically and the majority of Quilter Investors’ assets performed well as they were defensively positioned. Overall AuMA, declined 12% to £98.7 billion from 31 December 2021.

The first half of 2022 brought a tough operating environment, probably the most challenging we have faced since Listing, but we have delivered a good first half financial performance this year. What differentiates Quilter at times like these is how we respond and the opportunities we seize.

Our focus remains resolutely on both growing and simplifying our business, improving business efficiency, and serving and supporting our two core customer groupings in all market conditions. Notable strategic achievements in the first six months of the year include:

• significant expansion of our WealthSelect managed portfolios, which introduced a simpler charging structure and increased the number of portfolios to cover both risk appetite, investment style and ESG preferences. These portfolios, together with two new tools (client profiler and solution explorer), allow advisers to incorporate clients’ ESG preferences when determining the most appropriate investment solution;
• the build out of our combined advice and investment proposition in the High Net Worth segment which is already bearing fruit with net inflows from the Quilter channel remaining strong;
• the acceleration of cost savings from our £45 million Business Simplification programme;
• building on the operational emissions reduction targets announced in Q1, we commenced the wider development of our Climate Action Plan, which will outline how we will seek to align our business operations, value chain and investment activity with science-based emissions reduction targets; and
• the launch of our inclusion and diversity plan.

Separately, I was also delighted to complete the £328 million capital return to shareholders following the sale of Quilter International to Utmost Group in November 2021.

Business performance

Given the market context, we are pleased with the 9% higher out turn in adjusted profit before tax of £61 million (H1 2021: £56 million). Despite revenue headwinds, our cost discipline delivered positive operating leverage and a solid P&L outturn in an environment where costs were naturally higher than 2021 as we emerged from the pandemic.

Average AuMA, the principal driver of net management fee revenue, for the period of £105.3 billion is modestly ahead of £101.7 billion in the first half of 2021. The decline in markets over the course of the first half of 2022 took our end-June AuMA below the end June 2021 level. Unless markets recover, this will provide a headwind to our second half revenues relative to the second half of 2021 when markets continued to rise from the end-June 2021 reference point.

Total net fee revenue of £303 million decreased by £1 million. The modestly higher average AuMA base was offset by a small mix-related decline in revenue margins. The repositioning of our advice business since the beginning of 2021 contributed to lower other revenues reflecting the decline in advisers over the course of 2021, coupled with a reduced contribution from mortgage and protection fees.

Despite heightened cost inflation pressures, we managed operating expenses down £6 million in the first half as we adjusted to the market environment. This took the cost base to £242 million, with an £8 million reduction in the base costs of running the business to £112 million (H1 2021: £120 million). An increase in variable costs reflected investment in the business and higher development spend relative to subdued pandemic levels in the prior period. We also enjoyed the benefit of lower FSCS levies due to the surplus carried forward from last year. Positive operating leverage demonstrates our cost discipline has been maintained despite the inflationary pressures across the business.

Our operating margin improved to 20% (H1 2021: 18%). Markets’ performance in the second half of 2021 helped support a strong operating margin outcome for 2021. Should market levels remain around current levels, we expect the full-year operating margin to be lower than the level achieved in 2021. We remain committed to our stated 2023 and 2025 operating margin targets but note current market levels provide a meaningful headwind. Without an improvement in market levels in the remainder of this year and over the course of 2023, this may delay achievement of these targets.

The Group’s IFRS profit after tax from continuing operations was £151 million, compared to a loss of £13 million for H1 2021. The increase in profit is attributable to a policyholder tax credit of £145 million to June 2022 (H1 2021: tax charge £(48) million).

Adjusted diluted earnings per share was 3.7 pence (H1 2021: 3.9 pence), supported by a reduction in the share count from our capital return programmes, with this offset by a more normalised tax charge as the net deferred tax credit in the comparable period of 2021 did not repeat. On an IFRS basis, we delivered basic EPS of 11.3 pence versus a loss of (0.9) pence per share for the comparable period of 2021 on the same basis.

Period-end shares of 1.404 billion have declined 26% and by c.500 million shares since the beginning of 2020 reflecting the completion of our £375 million share buyback programme in early 2022 and the £328 million capital return through a B share issuance and share consolidation which completed in early June 2022.

Given the uncertain outlook, the Board considers it appropriate to declare an unchanged 2022 interim dividend at 1.2 pence per share (excluding the contribution from Quilter International in 2021). As was the case in 2020 with the uncertainty caused by the COVID-19 pandemic, the Board will make an appropriate decision on the overall dividend for the 2022 financial year when it considers the final dividend, with a view to maintaining a progression up our target pay-out range of 50% to 70%, over time.

Client flows

Supporting trusted, advice-based relationships through two distribution channels – our restricted financial advisers and open-market independent financial advisers – is at the core of the Quilter business model. It is in difficult markets that the resilience of this model becomes evident. We support our customers to ensure they are engaged with their long-term financial plan and continue to save for retirement despite the near-term vagaries of markets.

Our investment platform is central to our proposition, providing the tax efficient investment ‘wrappers’ to meet client needs, while linking advisers with our investment solutions and competitively priced third-party alternatives to deliver the outcomes sought by clients. Confidence in our proposition is demonstrated through both the continued attraction to our solutions by financial advisers and the increased integrated nature of net inflows.

The environment for new inflows has become more challenging over the course of the first half of the year. Up until the end of March, our net flows were broadly comparable with the same period in 2021 despite total market flows being lower, pointing to an improvement in market share in the first quarter that has been sustained in the second quarter. While we continued to enjoy net inflows throughout the second quarter, we also experienced clients stepping back from discretionary investment. As a result, gross inflows in the first half were 12% lower at £5.9 billion (H1 2021: £6.7 billion). While we experienced improved persistency in client assets across each of our businesses, the lower level of new sales volumes translated into lower net inflows which were 30% lower at £1.4 billion versus £2.0 billion in the comparable period of 2021. The main decline in net flows was recorded in outflows on external third party platforms.

The Quilter Investment Platform continued to perform well attracting £4.2 billion of new sales making it the leading platform for retail advised sales in the first half. After redemptions, this led to £1.6 billion of net inflows, while the High Net Worth segment improved on the prior period flows by delivering £0.5 billion of net inflows. Within this, the overall level of Defined Benefit (“DB”) to Defined Contribution (“DC”) flows at £0.2 billion were 33% lower than the comparable period of 2021 (£0.3 billion) and continue to be a decreasing proportion of our overall flows.

Our High Net Worth segment delivered better retention and stable gross sales which contributed to a strong improvement in net flows at £0.5 billion against £0.4 billion in the prior period. The Quilter Cheviot Climate Assets fund continued to make excellent progress, reaching the £400 million milestone in the period, of which c.£150 million is held on the Quilter Investment Platform within our Affluent segment. The fund’s momentum underlines Quilter’s ability to meet the specific wishes of clients who are increasingly seeking investments that deliver a broader out turn than just financial performance.

Investment performance

Quilter Cheviot continued to outperform relevant ARC benchmarks, remaining principally first or second quartile, to the end of March 2022, the most recent available performance period. Our investment manager headcount within the High Net Worth segment increased by 8 year on year as we continued to build out our advice and investment management capabilities.

The medium and longer-term performance of Quilter Investors’ multi-asset solutions remained good. The repositioning of our managed portfolio solution, WealthSelect, has been well received by clients and advisers, attracting £378 million of net inflows in the period through the Quilter Investment Platform. WealthSelect’s performance remains strong over one, three and five years and since inception seven years ago, having been predominantly first or second quartile over all periods. Cirilium Active performance remains strong on long-term metrics but, not surprisingly as a more quality growth focused proposition, its short-term performance has been weaker in these markets.

Transformation

Our transformation agenda remains firmly on track, with its focus on:

• delivering an improvement in client flows to the Quilter Investment Platform and into our investment solutions;
• repositioning our advice business through a focus on adviser productivity; and
• investment in efficiency and digital initiatives to improve productivity and client experience.

Taking each of these in turn:

A year on from the launch of our new platform, we have experienced good take-up by IFA firms who were not active users of our previous platform. As we said at our Capital Markets Day, we are targeting increased business from 700 firms over a three-year period. Thus far, we have secured commitment from 80 of these firms who have gone through their due diligence and appointed us as a platform of choice. Many have already started writing new business on our platform with this representing around 10% of our gross flows from the IFA channel this year. We are engaged in discussions with another 60 firms and are in the early stage of negotiation with a further 100 firms. This improvement reflects the broader capabilities and functionality of our new platform and provides a strong base from which we intend to accelerate flow momentum over the coming years. We also continue to make good progress in increasing usage of our new platform by Quilter Financial Planning clients given its improved functionality. This is evidenced by an improvement in Quilter channel flows onto the new platform and the reduced flows from the Quilter channel onto third party platforms.

The introduction of our new platform last year was a catalyst to drive higher adviser productivity in Quilter Financial Planning by increasingly aligning our advisers to our integrated proposition. While this led to an expected reduction in advisers over the course of 2021, the more modest reduction in the current year has been caused by challenges in the speed of recruiting external advisers into the business, while our attrition rates of advisers have normalised to pre-review levels. We have stepped up our new adviser recruitment and resourcing. Our core focus has delivered a sustained improvement in our adviser productivity, with the Quilter channel gross flows per adviser being stable at £2.4 million despite a more challenging market environment. While our work to reshape our Advice business is ongoing, we currently expect adviser numbers to stabilise and to resume growth by the end of the year.

Our Optimisation programme is now complete having achieved cost savings of more than £65 million over the three-year programme. Our second phase of efficiency initiatives, known as Business Simplification, continues to progress well. In recognition of the more challenging operating environment, we are continuously seeking opportunities to accelerate some of our identified plans to bring forward anticipated cost savings. An example achieved is the faster consolidation of our two Southampton offices into a single building which was completed earlier this year, over a year ahead of the original intended schedule.

We have continued to invest in technology to deliver better customer outcomes and experiences. In the first half, this included investing in mobile to allow Affluent customers to access our Platform via a mobile app. The technology is in beta testing with a select group of clients and, once we have gained relevant feedback, we expect to be able to commence a wider roll out later this year. Our hybrid advice investment plans are also progressing well. We are advancing our plans here and expect to move the initiative into its pilot stage in 2023.

Responsible business and stewardship

Quilter is committed to being a responsible business in the way we act and by building these principles into both our investment and advice processes.

First, in terms of how we act, we recognise the current environment is not just tough for our business, but it is also extremely challenging for our staff. Our people are our most important asset and have been magnificent over the past two years, digging deep to keep our services running and supporting our clients throughout the various COVID-19-induced lockdowns. We are putting in place additional support for our people to help them through the cost of living crisis. All employees earning £50,000 and less will receive a one-off payment of £1,200 in August 2022 at a total cost of around £4 million in the second half. We know this payment will not fully mitigate rising food and energy costs, but we hope it will go some way to ease current difficulties felt by some employees due to the strain of the increased cost of living.

We also launched our Inclusion and Diversity Action Plan earlier this year. We believe that financial services companies who fail to address systemic diversity issues within the industry will ultimately get left behind. The companies who make a concerted effort to improve employee diversity will be able to attract talented individuals, who may have previously not considered a career in our sector and Quilter will benefit as a result. Our new two-year action plan prioritises solutions with measurable impact which we will track and sustain over the long-term so we can better meet the differing needs of underrepresented groups.

Second, in terms of embedding behaviours, earlier this year we updated our matrix for our restricted network advisers to incorporate ESG ratings and specific responsible investment solutions. The new responsible and sustainable portfolios allow (alongside our two new tools: client profiler and solution explorer) advisers to take clients’ ESG preferences into account in determining the most appropriate solution. We believe this approach is market leading.

Third, we continue to work closely with the skilled person review investigating the Lighthouse DB to DC transfers. Our focus remains on doing the right thing by any customers who were poorly advised, even though this advice predates our acquisition of Lighthouse. The skilled persons review is reaching its final stages and I can report we concluded negotiations with the insurers who provided professional indemnity cover for Lighthouse resulting in the payment of the full amount due under the policy of £15 million, including amounts received since the period end, with this benefit excluded from adjusted profit.

In respect of Board matters, Glyn Jones stepped down as Chair at the conclusion of the Company's 2022 Annual General Meeting, with Ruth Markland appointed as Chair and Tim Breedon assuming the role of Senior Independent Director, until such time as the permanent Chair successor was confirmed. We were delighted to welcome Glyn Barker to the Board as a Non-executive Director at the beginning of June 2022 and, subject to regulatory approval for his permanent appointment, Chair Designate.

Outlook

Quilter is well positioned in an industry with long-term secular growth prospects, and we have made further good progress in the execution of our strategy. Our focus remains on improving operational efficiency through our Business Simplification programme and driving the business towards the financial targets we set out at the November 2021 Capital Markets Day, albeit that current market levels provide a revenue headwind which may delay the achievement of our operating margin targets.

My priorities continue to be growth in the IFA and Quilter adviser franchises, cost discipline to deliver a right-sized cost base for the new streamlined Quilter, investing for future growth through hybrid advice, and embedding ESG into the services we provide for clients and tools we provide for advisers. We remain confident in our simpler, more focused, business model, our ability to improve our market share of flows through our new platform, and our prospects to deliver strong sustainable returns to shareholders through the cycle.  

Paul Feeney

Chief Executive Officer

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Quilter plc results for the six months ended 30 June 2022

Disclaimer

This announcement may contain certain forward-looking statements with respect to Quilter plc’s plans and its current goals and expectations relating to its future financial condition, performance, and results. 

By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Quilter plc’s control including amongst other things, international and global economic and business conditions, the implications and economic impact of the COVID-19 pandemic, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing and impact of other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Quilter plc and its affiliates operate. As a result, Quilter plc’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Quilter plc’s forward-looking statements.

Quilter plc undertakes no obligation to update the forward-looking statements contained in this announcement or any other forward-looking statements it may make.