Quilter plc preliminary results for the year ended 31 December 2021

9 March 2022

Revenue growth and cost management drive 28% profit growth

Management basis - Continuing business (excluding Quilter International)

• Assets under Management and Administration (“AuMA”) of £111.8 billion at the end of December 2021, an increase of 13% from 31 December 2020 (£99.0 billion), with growth supported by improved net flows and positive market movement.
  • Net inflows of £4.0 billion (2020: £1.5 billion) representing 4% of opening AuMA (2020: 2%), with particularly strong performance from the new Quilter Investment Platform with £3.5 billion of net inflows, up 133% on prior year.
• Improved operating margin of 22% (2020: 19%) with growth in revenues of 10% and expenses of 5% given the unusual operating environment of the prior year due to COVID-19.
• Adjusted profit before tax increased by 28% to £138 million (2020: £108 million).
• IFRS profit before tax attributable to equity holders from continuing operations of £12 million (2020: loss of £27 million) given the increase in profit attributable to favourable equity market movements throughout the year resulting in higher AuMA.
• Adjusted diluted earnings per share from continuing operations increased 42% to 7.4 pence (2020: 5.2 pence), supported by a low tax rate (arising from a deferred tax credit in the first half of 2021) and a reduced share count due to the capital return programme.
• Final dividend of 3.9 pence per share versus 3.6 pence for 2020, bringing the total dividend for the year to 5.6 pence per share an increase of 22% (2020: 4.6 pence per share) inclusive of contribution of £25 million, or 1.6 pence per share, from Quilter International. Excluding the contribution from Quilter International, the dividend contribution from continuing operations has increased 39% to 4.0 pence.

Group highlights (including Quilter International)

• Adjusted profit before tax increased 12% to £188 million (2020: £168 million) of which £50 million (2020: £60 million) from Quilter International.
• IFRS profit after tax of £154 million (2020: £88 million).
• Adjusted diluted earnings per share of 10.4 pence, of which 3.0 pence is in respect of Quilter International (2020: 8.5 pence, of which 3.3 pence was in respect of Quilter International).

Statutory results

• IFRS profit after tax from continuing operations of £23 million (2020: £13 million).
• Basic earnings per share from continuing operations of 1.4 pence (2020: 0.8 pence).
• Diluted earnings per share from continuing operations of 1.4 pence (2020: 0.8 pence).
• Solvency II ratio of 275% after payment of the recommended final dividend (2020: 217%).

Strategic progress

• Successfully completed migration of advisers and clients onto the new Quilter Investment Platform in February 2021 with a substantial increase in gross flows onto our platform (58%), with gross flows from independent financial advisers increasing by 63%.
• Completion, in January 2022, of the £375 million share buyback programme from the Quilter Life Assurance sale proceeds. 264 million shares purchased at an average price of 141.97 pence per share, leading to a c.14% reduction in share count since programme inception.
• Sale of Quilter International at end November 2021 for £481 million completes the corporate restructuring of Quilter that has been in progress since prior to our Listing in June 2018.
• Proposed £328 million capital return (20 pence per share), equivalent to c.17% of market capitalisation, through B share scheme accompanied by a share consolidation, subject to regulatory engagement and shareholder approval at a General Meeting to be held on 12 May 2022. A separate announcement providing details of the timetable for the B share scheme and share consolidation has also been published today.
• Our Capital Markets Day in November 2021 set out a simpler customer-centric business structure, announced additional cost savings of £45 million through Simplification and set out targets, assuming stable markets, to double adjusted profit by the end of 2025 (from the continuing 2020 base); deliver mid-teens compound growth in earnings per share through 2025 (from the continuing 2020 base); and achieve an operating margin of at least 25% and 30% by 2023 and 2025 respectively.

Paul Feeney, Chief Executive Officer, said:

“2021 was an important year for Quilter as we completed our planned strategic evolution through the successful migration of customers and advisers onto our new platform and completed the sale of Quilter International for £481 million. We also demonstrated strong financial performance with more than doubled net inflows of £4 billion and achieved revenue growth of 10% while limiting cost growth to 5% to deliver adjusted profit growth of 28%.

Our confidence in our prospects is reflected in the Board’s decision to lift the full-year dividend by 22% to 5.6 pence. Capital discipline remains a key element of the Quilter philosophy – we completed our £375 million buyback from the Quilter Life Assurance proceeds in early 2022 and I am pleased to confirm the Board is proposing a capital return of £328 million, equivalent to 20 pence per share, from the Quilter International sale proceeds, subject to regulatory engagement and shareholder approval at General Meeting on 12 May.

We are pleased to be delivering good results in these difficult times with significant geopolitical tensions at the centre of all our concerns. In 2022, our focus remains on managing our business towards delivering the targets we set out at our Capital Markets Day last November. This will include increasing flows to our Platform, particularly from third party advisers, product innovation and growth in our restricted adviser base”.

Adjusted profit presented in this announcement

Adjusted profit is presented in this announcement in a number of ways to provide readers with a view of adjusted profit for the Group excluding Quilter International (on a continuing basis) and for the total Group (on a continuing and discontinued basis). A full reconciliation of these views is provided on page 16 and definitions of adjusted profit are explained on page 4.

IFRS accounting standards require £10 million of costs (2020: £17 million), previously reported as part of Quilter International, to be disclosed within continuing operations as these costs do not transfer to Utmost Group on completion. Adjusted profit before tax is presented both before and after the reallocation of these costs in this announcement. These costs are expected to be incurred in 2022 to provide services to Utmost Group under the Transitional Services Agreement, with corresponding income to cover these costs.

Alternative Performance Measures (“APMs”)

We assess our financial performance using a variety of measures including APMs, as explained further on pages 4 to 7. In the headings and tables presented from page 11 onwards, these measures are indicated with an asterisk: *.

Chief Executive Officer’s statement

Execution

2021 was a year where the world began to adapt to a new normal, living with COVID as a permanent feature of our lives. This has meant blending homeworking with the traditional office environment, maintaining a high level of firm-wide communication and employee engagement while continuing to engage with our customers through whichever channels suit them best.

There were three significant corporate-defining moments for Quilter in 2021:

• completing our Platform Transformation Programme early in the year;
• completing the sale of Quilter International at the end of November; and
• the reorganisation of the business into new segments that we announced at our Capital Markets Day on 3 November.

Together these events mark the culmination of a strategic journey we have been on since our Listing in June 2018 and which has made Quilter a UK- focused modern wealth manager. We now look forward to delivering on the opportunity we see before us and our 2021 results demonstrate excellent progress towards those goals.

Transformation

A year ago, I said that there were three strands to our strategic transformation agenda at Quilter:

• we would leverage the transformational power of our new UK Platform to drive faster growth and productivity;
• we would make Quilter a simpler business, focused on customer segments, to deliver even better customer outcomes and journeys; and
• we would optimise our business by completing the cost reduction plans we set out in March 2019, to drive operational leverage.

We have made substantial progress on each of these goals during 2021. Taking each in turn:

We completed the migration of client and adviser relationships onto our new UK Platform in February 2021; a significant milestone. We rebranded the UK Platform to the Quilter Investment Platform in July and decommissioned our legacy platform at the end of the summer. I am delighted with the high levels of engagement and adoption we have enjoyed from both our own advisers (the Quilter channel) and independent advisers (the IFA channel). Notably, gross flows in the IFA channel were up significantly year-on-year (+63%) after a number of years of sequential declines. This growth is already having a beneficial impact on our operating momentum.

Secondly, making Quilter a simpler business, the sale of Quilter International has allowed us to simplify our operating model. We announced plans to reorganise our Company into two new segments, Affluent and High Net Worth, at our Capital Markets Day in November 2021. These segments are now focused on driving growth, improving efficiency and delivering good customer outcomes across their respective client bases.

Lastly, we delivered £61 million of cost savings from our Optimisation plans by end-2021 and are on track to deliver £65 million of total savings from this programme by mid-2022. These actions are already benefitting our operating margins. As well as simplifying our operating model, the sale of Quilter International will allow us to deliver meaningful cost savings through eliminating legacy complexity in our IT infrastructure once the Transitional Service Agreement with the purchaser comes to an end. We announced a further £45 million of cost savings at our November Capital Markets Day which we expect to deliver by the end of 2024 as part of our goal to increase our operating margin to at least 25% and 30% by 2023 and 2025 respectively.

Operational delivery

We experienced substantial improvement in both gross and net flows year-on-year. Gross client flows into the business were around 35% higher at £13.2 billion. Net flows increased to £4.0 billion versus £1.5 billion in 2020. This reflected stable persistency in client assets across Quilter Cheviot and the Quilter Investment Platform. The overall level of flows in respect of Defined Benefit (“DB”) to Defined Contribution pension transfers at £581 million were lower than 2020 (£862 million) and remain a modest amount of our overall business.

Overall AuMA balances increased by 13% over the course of the year with a closing balance of £111.8 billion at 31 December 2021 compared with £99.0 billion at 31 December 2020 on a continuing basis. Average AuMA, the principal driver of net management fee revenue, of £105.3 billion for the year, was 17% ahead of the 2020 level of £90.2 billion on a continuing business basis.

Delivering good customer outcomes through a trusted advice relationship is at the core of the Quilter business model. The Quilter Investment Platform is central to our business, providing the investment ‘wrappers’ and support functions to meet both our clients’ and their advisers’ needs, while our investment solutions provide the intellectual capability to deliver the outcomes our clients seek. Confidence in our proposition is demonstrated through the continued attraction of our solutions to independent financial advisers.

As I noted earlier, I was particularly pleased to see the increase in flows of £9.0 billion gross (+58%) and £3.5 billion net (+133%) onto the Quilter Investment Platform during the year. Notably, we saw a near five-fold increase, to £1.7 billion, in net inflows from the IFA channel onto our new platform (2020: £0.4 billion), reflecting the good acceptance our new platform has received from the IFA community. I expect this momentum to continue to build as we begin to encourage new IFA firms to start using our new platform given the wider range of products we can offer, assets we can hold and quality of our service.

This time last year, we indicated that ahead of our new platform coming on stream, we wished to increasingly focus on the productivity of our own advisers and ensure greater alignment with the integrated Quilter proposition. As a result of this, we finished the year with a total of 1,623 Restricted Financial Planners net of departures. As targeted, we have also seen a meaningful step-up in productivity with Quilter advisers generating £2.3 million of Quilter channel gross flows per adviser in 2021, up from £1.8 million in 2020. We expect to return to growth in adviser numbers during 2022 as we complete the repositioning of our advice business. The pipeline of firms seeking to join our network remains good in a competitive market.

In our High Net Worth business, I was delighted with a near four-fold uplift in our net inflows to £1.1 billion. Our team of client-facing professionals are our key client relationship interface. This can be through an investment manager, a financial adviser or both. With the creation of the High Net Worth segment, 62 financial advisers moved from Quilter Financial Planning to work closely alongside Quilter Cheviot colleagues to create our High Net Worth segment and we expect to build on this number over time. We have continued to add to the investment team and our Investment Manager headcount increased to 170 at the end of 2021 from 169 in December 2020 after a few expected retirements during the year.

Our investment solutions continue to deliver good investment performance for clients. The medium- and long-term performance at Quilter Cheviot continued to outperform relevant ARC benchmarks, remaining first or second quartile, to the end of December 2021. Quilter Investors’ multi-asset solutions performance was solid, with performance on the biggest range, Cirilium Active, remaining good over the longer term with all risk profiles having achieved returns ahead of their sector average since inception. The three-year performance metrics also improved meaningfully during the course of 2021. The Active and the Passive Blend WealthSelect portfolios continue to deliver strong performance over the longer term and have shown improved relative performance on a shorter-term basis. Over both three and five years, 12 out of 16 portfolios are in the top two quartiles.

Business performance

Total adjusted profit before tax, including a contribution of £50 million from Quilter International for the 11 months until completion, was £188 million.

On a continuing business basis, adjusted profit before tax for 2021 of £138 million, up 28% on 2020, was a pleasing out-turn. Higher total net management fee income of £500 million (2020: £446 million) reflected the higher average AuMA experienced in 2021, offset by a single basis point decline in average revenue margins as a result of the mix shift in Quilter Investors and the strong performance of the Quilter Investment Platform which generates a lower revenue margin for us than the overall average. Other revenue of £118 million was unchanged on 2020 (£118 million) reflecting the reorganisation of our advice business.

We remain committed to achieving operating margins in excess of 25% and 30% in 2023 and 2025 respectively and have made good progress towards those goals in 2021. In 2020 our cost management initiatives partly protected the P&L from volatility in the external environment by delivering tactical cost reductions of c.£40 million through lower variable compensation costs, reduced marketing and development spend and other short-term initiatives. As expected, better market levels and operating conditions have allowed us to reverse around three quarters of those cost reductions during 2021, and while this contributed to a drag on operating margin expansion, we still delivered an improvement in the continuing business operating margin of three percentage points to 22% (2020: 19%), excluding Quilter International.

A 6% adjusted profit increase to £111 million (2020: £105 million) within our Affluent segment was more muted than the increase achieved by the High Net Worth segment, impacted by the anticipated reversal of the tactical cost savings implemented in 2020, more normal levels of annual incentive accruals and the impact of stranded costs following the sale of Quilter International. Within our High Net Worth segment, adjusted profit increased 44% to £56 million (2020: £39 million) reflecting our high-end advice business, Private Client Advisers, moving into profit as well as strong operating leverage with much faster income growth than cost growth in the discretionary fund management business. Head Office costs reduced to £29 million from £36 million, in line with the guidance we provided at the Capital Markets Day in November 2021.

Our IFRS profit after tax from continuing operations was £23 million, compared to a profit of £13 million in 2020. The difference between this measure and our adjusted profit is largely due to non-cash amortisation of intangible assets, our Business Transformation expenses and the impact of policyholder tax positions on the Group’s results. Business Transformation expenses will remain in 2022 reflecting the expenditure on our Optimisation and Simplification programmes and are expected to reduce substantially over the next three years.

Total Group adjusted diluted earnings per share was 10.4 pence, of which 3.0 pence is in respect of Quilter International, an increase of 22% (2020: 8.5 pence, of which 3.3 pence was in respect of Quilter International).

Adjusted diluted earnings per share from continuing operations increased to 7.4 pence (2020: 5.2 pence). We have targeted a mid-teens compound annual growth rate in EPS to 2025 from the 2020 base. The initial growth of 42% in 2021 off that base represents an excellent start against that metric, albeit that this year’s progress has been supported by both a reduced share count due to the capital return programme and a lower than usual tax charge. On an IFRS basis, we delivered basic EPS from continuing operations of 1.4 pence versus of 0.8 pence per share for the comparable period of 2020 on the same basis. Period-end shares declined by 128 million as a result of our share buyback programme which completed in January 2022 and which reduced our overall share count by c.14% over the course of the programme.

The Board is recommending a final dividend of 3.9 pence per share which, together with the Interim Dividend of 1.7 pence per share, takes the proposed Full Year Dividend to 5.6 pence per share (inclusive of a distribution of £25 million, or 1.6 pence per share, in respect of Quilter International’s profit contribution). This compares to a 2020 Dividend of 4.6 pence per share. Excluding the contribution from Quilter International, the dividend contribution from continuing operations has increased 39% to 4.0 pence.

As indicated at our Capital Markets Day in November 2021, we intend to return £328 million to shareholders as a capital return reflecting the net surplus proceeds from the sale of Quilter International after retaining £90 million to fund planned Business Simplification and selected revenue enhancing investments. The B share scheme will be accompanied by a share consolidation, subject to regulatory engagement, and shareholder approval at a General Meeting on 12 May 2022. Further details of the B share scheme and share consolidation have been provided in a separate announcement to the market published today.

Finally, the provision made in respect of certain DB to DC pension transfer advice provided by Lighthouse advisers prior to Quilter’s acquisition of Lighthouse has increased by £7 million from the end-2020 level predominantly due to the identification of some instances of unsuitable DB transfer advice being given by Lighthouse advisers beyond that relating to former British Steel Pension Scheme members, which may have caused customers to sustain losses. We continue to work proactively with the FCA and the skilled person review relating to DB to DC pension transfers by Lighthouse to ensure good customer outcomes for the clients involved. Even though the advice to transfer these pensions predated Lighthouse transitioning to our systems and controls after our acquisition of Lighthouse, we will ensure that these clients are treated fairly, consistent with the FCA’s requirements and our values.

Governance and culture

In October 2021, our Chair, Glyn Jones, informed the Board of his intention to retire in 2022 once a successor is identified and appointed. Ruth Markland, our Senior Independent Director is chairing a newly constituted sub-committee of the Board Corporate Governance and Nominations Committee to identify and recommend to the Board an appropriate individual to be appointed as a Director and the next Chair of Quilter. The Committee is working with an external recruitment firm to facilitate the search. Since taking up the role of Chair prior to our Listing, Glyn has not only built a Board of many talents but has provided wise and valuable counsel to both me and my executive team as we have reshaped Quilter over the last four years. He will leave with our deepest gratitude and best wishes for the future when he departs later this year.

2021 saw two additions to the Board with Tazim Essani and Chris Samuel being appointed to the Board in March 2021 and July 2021 respectively.

• Tazim’s experience in senior executive roles at regulated financial services businesses equips her well to provide strategic guidance and constructive challenge to Quilter’s leadership team. Alongside Paul Matthews, Tazim is a designated Non-executive Director for employee engagement with a particular interest in promoting and building on the diversity and inclusion of our people.
• Chris is an experienced non-executive and has chaired the Quilter Financial Planning Board, our financial advice business, since June 2020. He has considerable experience in financial services, particularly in the areas of investment and asset management. This experience will enable him to provide challenge, advice and support to Quilter’s management team on business performance and operational matters.

In January 2022, Rosie Harris who has been Chair of the Quilter Board Risk Committee since 2017, announced that she would not stand for re-election at the 2022 AGM as a recent external appointment had created practical difficulties for her attending Quilter meetings. Rosie will step down from the Quilter Board effective 30 April 2022 and a search for her successor to Chair the Board Risk Committee is under way. The Board has appointed George Reid as interim Chair of the Board Risk Committee with effect from 1 May 2022 while a permanent successor for Rosie Harris is being sought.

Creating an inclusive and diverse culture where all colleagues feel they can be themselves has always been a core tenet of our cultural agenda. We have remained focused on progressing our Inclusion and Diversity agenda, appointing a new Head of Inclusion and Diversity and launching our new cultural engagement programme, ‘We-Rise’, designed to engage colleagues with the next phase of our strategic journey. We have also continued to progress our workplace strategy with the successful re-opening of our refurbished Quilter House in Southampton our most significant achievement. As we have gradually reopened access to our offices, we have seen colleagues embrace the new flexible approach our workplace strategy was designed to encourage. Whilst we continue to be mindful of reminding colleagues of the importance of collaborating face-to-face at least a few days per week, our “new normal” should enable us to continue to rationalise our property estate over the coming years.

Quilter is committed to responsible investment and earlier this year we updated our matrix for our restricted network advisers to incorporate ESG ratings and introduced two specific ESG solutions, one of which was our own Climate Assets fund managed by Quilter Cheviot. As a result, ascertaining clients’ ESG preferences is now a core input into the advice process for our restricted advisers. Our investment teams incorporate ESG analysis into their investment processes. We continue to make good progress with ensuring all model portfolio holdings for equities and funds within Quilter Cheviot and Quilter Investors are appropriately evaluated against ESG metrics.

Climate change is undoubtedly one of the most significant challenges the world faces and tackling it is a responsibility of everyone. In 2021, we formalised our climate change strategy with the objective to reduce Quilter’s contribution to climate change and support the transition to a low carbon economy. To achieve this ambition, we have developed a framework which is helping us to reduce our direct carbon footprint, embed climate considerations in our investment management and stewardship activity, offer clients climate-focused investment solutions and align with the Task Force on Climate-related Financial Disclosure. I am pleased with our progress on incorporating ESG considerations across our entire value chain: we are embedding ESG into our standard advice process to help clients invest according to their ESG preferences, and we are embedding ESG even more deeply into our standard investment management processes, both within our multi-asset investment solutions and our discretionary wealth management.

To provide clients and advisers with greater transparency, we have included ESG ratings for third-party funds available on our UK Platform. Upon this solid foundation we will enhance our approach to responsible investment further in 2022.

Outlook

We are pleased with our 2021 performance but we are facing difficult times with significant geopolitical tensions at the centre of all our concerns. Our hearts are with the people of Ukraine and their struggle puts the market volatility we face into an appropriate perspective. Up to the end of February, our year-to-date net inflows were comfortably ahead of the comparable period in 2021, although the conflict in Ukraine is likely to have a bearing on equity and bond markets, investor sentiment and inflation amongst other factors.  While it remains too early to predict the impact or the likely duration of these events, it is at times like this that our advice-based model is particularly valued by customers providing support as they navigate through this period of uncertainty. In 2022, our focus remains on managing our business towards delivering the targets we set out at our Capital Markets Day last November. This includes targeting increasing flows to our Platform, particularly from third party advisers, product innovation and growth in our restricted adviser base.

Paul Feeney

Chief Executive Officer

Click here to read the full results announcement. 

Quilter plc results for the year ended 31 December 2021

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.