Wrap Text
Interim results for the six months ended 30 June 2018
QUILTER PLC
(previously, Old Mutual Wealth Management Limited)
Incorporated under the Companies Act 1985 with registered number 06404270 and re-registered as a public limited company under the Companies Act 2006)
ISIN CODE: GB00BDCXV269
JSE SHARE CODE: QLT
Quilter plc (the "Company")
NEWS RELEASE
Ref: 001/18
8 August 2018
Quilter plc interim results for the six months ended 30 June 2018
Quilter plc reports record adjusted profit before tax of GBP110 million and a special interim dividend of 12.0 pence per share in its first results as a listed company
Highlights
- Assets under Management/Administration ("AuMA") up 2% from 31 December 2017 to GBP116.5 billion (FY 2017:
GBP114.4 billion) as a result of positive net flows of GBP2.2 billion, marginally offset by a weaker overall market performance
of GBP0.1 billion.
- Net Client Cash Flow ("NCCF") (excl. Quilter Life Assurance) of GBP3.0 billion (H1 2017: GBP3.4 billion) representing 6% of
NCCF/opening AuMA (annualised).
- Integrated NCCF (excl. Quilter Life Assurance) up 17% to GBP2.8 billion (H1 2017: GBP2.4 billion).
- Adjusted profit before tax of GBP110 million (H1 2017: GBP95 million), up 16% from H1 2017.
- IFRS profit before tax from continuing operations of GBP17 million, up 240% (H1 2017: GBP5 million).
- Diluted earnings per share of 18.7 pence (H1 2017: 5.1 pence) and adjusted diluted earnings per share of 5.5 pence (H1
2017: 4.4 pence), up 25%.
- Special interim dividend of 12.0 pence per share, returning GBP221 million surplus proceeds from the sale of the Single
Strategy business to shareholders.
- Solvency II ratio of 195% after payment of special interim dividend (FY 2017: 154%).
- Further strengthening of the Board with the appointments of Ruth Markland as Senior Independent Director, and Paul
Matthews and Dr. Suresh Kana as Independent Non-Executive Directors.
- UK Platform Transformation Programme now in testing phase and remains on time, on track and within previous cost
guidance.
- Business optimisation project now mobilised and underlying work streams in planning phase.
- The Group continues to make good progress on delivering our voluntary remediation programme for customers as
announced at the year end.
Paul Feeney, Chief Executive, said:
"I am delighted to announce a good set of results for our first reporting period since we listed on the London and Johannesburg
stock exchanges. Growth in integrated flows of 17% and profit of 16% demonstrate the strength of the Quilter business model. We
are also delighted to announce a special interim dividend of 12 pence per share, returning GBP221 million from the sale of our Single
Strategy business to our shareholders.
We are focused on delivering what our customers want, an integrated wealth management offering that delivers good outcomes
through the cycle. Our market offers significant growth opportunities and, while we have built a leading wealth management
business, we are someway from demonstrating its full potential. Our priority now is to optimise the way we work to maximise the
value of our integrated business for all our stakeholders over the coming years."
Quilter highlights (from continuing operations(1) only) H1 2018 H1 2017 Change
Assets and flows
AuMA (GBPbn)(2) 116.5 107.3 9%
NCCF (GBPbn)(2) 2.2 3.2 (31%)
NCCF (excl. Quilter Life Assurance) (GBPbn)(2) 3.0 3.4 (12%)
NCCF/opening AuMA (excl. Quilter Life Assurance)(3) 6% 8% (2pp)
Integrated NCCF (excl. Quilter Life Assurance) (GBPbn)(2) 2.8 2.4 17%
Productivity (GBPm)(4) 1.8 1.6 13%
Asset retention % (excl. Quilter Life Assurance)(5) 91% 90% 1pp
Profit & loss
IFRS profit before tax from continuing operations (GBPm) 17 5 240%
IFRS profit after tax (GBPm) 342 94 264%
Adjusted profit before tax (GBPm)(2) 110 95 16%
Operating margin(2) 29% 27% 2pp
Revenue margin (bps)(2) 57 56 1 bp
Non-financial
Restricted Financial Planners ("RFPs") 1,590 1,582 1%
Investment Managers ("IMs") 168 159 6%
(1) Continuing operations represent Quilter plc excluding results of the Single Strategy business and Old Mutual Wealth Italy S.p.A
(up to the date its sale completed on 9 January 2017)
(2) Alternative Performance Measures ("APMs") are detailed on page 18.
(3) NCCF (annualised) as a % of opening AuMA (excluding Quilter Life Assurance)
(4) Average NCCF per Restricted Financial Planner.
(5) Calculated as 1 - (gross outflow/opening AuMA). Outflows are calculated on an annualised basis.
Quilter plc interim results for six months ended 30 June 2018
Enquiries
Investor Relations
John-Paul Crutchley UK +44 20 7002 7016
Media
Vee Montebello UK +44 20 7778 9550
Camarco
Geoffrey Pelham-Lane UK + 44 20 3757 4985
Aprio (South Africa)
Julian Gwillim SA + 27 11 880 0037
An analyst presentation will take place today, 8 August 2018 at 8:15am for an 8:30am start (BST) at:
Quilter plc, Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4AJ
Alternatively, if you are unable to attend but would like to watch a live webcast of the presentation, please click on the link
below to join via our website
Live and on-demand: https://www.quilter.com/investor-relations
To join by telephone (listen only audio):
United Kingdom +44 (0)333 300 0804
South Africa +27 (0)21 672 4118
United States +1 631 913 1422
Access Code 46111936#
Playback facility:
United Kingdom/ Other +44 (0)333 300 0819
South Africa +27 (0)21 672 4123
United States +1 866 931 1566
Access Code 301236152#
Note: Neither the content of the Company's website nor the content of any website accessible from hyperlinks on this announcement (or any other
website) is incorporated into, or forms part of, this announcement.
Disclaimer
This announcement may contain certain forward-looking statements with respect to certain Quilter plc's plans and its current goals and expectations
relating to its future financial condition, performance and results.
By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are
beyond Quilter plc's control including amongst other things, international and global economic and business conditions, market related risks such as
fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the
timing and impact of other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other
legislation and other regulations in the jurisdictions in which Quilter plc and its affiliates operate. As a result, Quilter plc's actual future financial
condition, performance and results may differ materially from the plans, goals and expectations set forth in Quilter plc's forward looking statements.
Quilter plc undertakes no obligation to update the forward-looking statements contained in this announcement or any other forward-looking
statements it may make.
Nothing in this announcement should be construed as a profit forecast.
Business Unit descriptor
Previous Business Unit Name New Business Unit Name
Advice & Wealth Management
Multi-Asset Quilter Investors
Quilter Cheviot No change
Intrinsic Quilter Financial Planning
Old Mutual Wealth Private Client Advisers Quilter Private Client Advisers
Wealth Platforms
UK Platform Quilter Wealth Solutions
International Quilter International
Heritage Quilter Life Assurance
Chief Executive's Review
Execution
In the first half of 2018 we celebrated a significant moment in the history of Quilter. Six years after we set out to build a modern UK wealth
management company and after two years of work to get the business ready for listing, on 25 June we demerged from Old Mutual plc and our stock
began trading on the London and Johannesburg stock exchanges. We were delighted with the level of investor engagement and interest in Quilter
from both new and existing investors throughout this process and we look forward to delivering prosperity for both our shareholders and broader
stakeholders in the coming years.
I would particularly like to thank the teams within both Quilter plc and Old Mutual plc who worked tirelessly over the last two years to deliver this
outcome which has been wholly focussed on delivering value for shareholders.
Despite all the work that has gone into the listing of Quilter plc, this is just the start of the next phase of Quilter's development. For this reason, we
are delighted to announce a good set of results for our first reporting period as an independent listed company.
After three years of essentially flat annual profits given the investment in the business, the return to growth with an increase in adjusted profit of
16% to GBP110 million is particularly pleasing. Our financial performance is discussed in more detail below.
Clients
While the listing process placed significant demands across the business, the operational performance we have delivered during the first half
illustrates the strength of the proposition we are building for our customers and our shareholders as well as the energy and commitment of our
employees.
Good customer outcomes are at the heart of everything we do. Delivering that starts with trusted advice. Client confidence in our proposition is
demonstrated through the strength of our increased integrated flows. This holds true despite lower overall levels of flows across the industry and for
us after the record levels of 2017 including a slowing of overall NCCF in the second quarter.
The strength of our integrated business model is shown by our NCCF and increased integrated flows. Excluding Quilter Life Assurance, NCCF was
GBP3.0 billion, a reduction of GBP0.4 billion from the record levels of GBP3.4 billion a year ago. This represented 6% of opening AuMA and was ahead of our
annualised target growth of 5% over the medium-term. Overall NCCF of GBP2.2 billion was down 31% on prior year (H1 2017: GBP3.2 billion) with this
largely due to the pre-announced run off of the institutional life book within our Quilter Life Assurance business and the natural attrition of the rest of
that book.
In total, our integrated flows excluding Quilter Life Assurance grew 17% from GBP2.4 billion in H1 2017 to GBP2.8 billion in H1 2018. The restricted
channel within Quilter Financial Planning accounted for GBP0.6 billion (29%) of Quilter Wealth Solutions net inflows in 2018 and GBP1.4 billion (78%) of
net flows into Quilter Investors in 2018, principally into the Cirilium and Generation fund ranges. Integrated net inflows from Quilter Financial
Planning into Quilter Cheviot amounted to GBP117 million, of which GBP52 million was through Quilter Private Client Advisers ("QPCA"). Direct flows onto our
platforms and into our overall propositions remain an important source of new business generation for us. During the period we attracted non-integrated
NCCF totalling GBP1.7billion (H1 2017: GBP2.2billion).
The subdued levels of NCCF experienced at the start of the year from Quilter International continued into the second quarter. This reflected the
impact of the record 2017 fourth quarter, which depleted the pipeline and our strategy to reduce the geographical footprint and focus on the quality
of new business. NCCF for Quilter Cheviot was slower in the second quarter resulting in H1 2018 NCCF of GBP0.5 billion against GBP0.6 billion for H1
2017. However, the level of new client proposals continued to rise, with Q2 figures higher than Q1, providing comfort that the pipeline for new
business remains strong.
We have also shown growth in AuMA which increased by 2% from GBP114.4 billion at 31 December 2017 to GBP116.5 billion at the end of H1 2018.
Markets were challenging in the first quarter but recovered in the second quarter, with the FTSE 100 down 1% overall in H1 2018.
Performance
As we discuss in the financial review below, our financial metrics for the first half of 2018 were strong. Adjusted profit for the first half of 2018 was
GBP110 million, an increase of 16% on the prior year, despite an increase in Head Office costs of GBP10 million from the prior period, principally reflecting
the increase in costs to become a standalone listed group. Our IFRS profit after tax from continuing operations was GBP32 million, compared to a loss
of GBP17 million in H1 2017. We achieved a 29% operating margin (H1 2017: 27%).
We have added to our distribution capabilities within our QPCA business through the acquisition of Saint & Co, in Carlisle, DG Pryde in Duns
outside Edinburgh, and A&M Financial Services based in Wiltshire. Across our appointed representative firms, we saw growth in adviser numbers,
albeit this being lower than we had planned for. However, we saw good growth in Restricted Financial Planners within Charles Derby Group, in
which we have a 10% shareholding, and have recruited newly appointed representative firms to our business, which overall have added a net 18
Restricted Financial Planners across the firm.
We have continued to deliver good medium and long-term investment performance for our clients. All of our discretionary and multi-asset funds are
performing well against customer targets and have met the relevant target outcome. Within Quilter Investors we remain pleased with medium and long-term
performance, especially within the Cirilium range. Short-term performance in certain portfolios has been held back somewhat by a range of factors
but investment performance over the long-term remains a top priority.
During the last 12 months we have been investing in the Quilter Cheviot investment team and Investment Manager headcount has increased by 9
since June 2017 to reach 168 at June 2018. Since listing we have seen 12 resignations, which indicate that the IM headcount will fall back in the
short-term to around the level of June 2017. This may lead to higher than trend outflows in 12 to 18 months' time.
Stewardship
The sale of our Single Strategy asset management business, which completed at the end of June, was consistent with the execution of our strategy
and vision of building the UK's leading wealth management company. The full consideration from the sale of the business to its management team
and funds managed by TA Associates was GBP583 million. We have received initial cash consideration of GBP576 million with a further GBP7 million
expected by 2021.
Following the repayment of the GBP300 million senior unsecured term loan on the 29 June, the Board has decided to pay a special interim dividend of
12.0 pence per share from the proceeds of this transaction, equivalent to a return of capital to shareholders of GBP221 million representing the surplus
capital proceeds from this disposal. All of our shareholders, those who were investors in Old Mutual plc and those who joined us since listing, will
benefit from the investments we made to grow this business over the last five years. This special distribution underpins our philosophy towards
running our business. We do not expect to retain excess capital without good reason and we are acutely aware that we are responsible for the
stewardship of the capital that has been entrusted to us by our shareholders.
As we set out in our prospectus ahead of listing, we are not paying a normal interim dividend but we expect to declare a final dividend for 2018
when we announce our full year results in March 2019.
As we have previously said, we intend to grow our business and improve returns by:
- A relentless focus on ensuring good customer outcomes and strong investment returns while delivering quality customer service and
building out our range of investment propositions and solutions;
- Growing our Advice business by adding advisers through acquisitions and recruitment, embedding recently acquired firms and supporting
the Financial Adviser School intake and graduates as well as supporting our advisers to improve their individual productivity;
- Delivering the expected benefits from the implementation of our UK Platform Transformation Programme and investing in further training
to support productivity; and
- Focusing on our recently initiated optimisation review where we intend to drive operational leverage through delivering enhanced scale
and efficiency.
We are making good progress in delivering our remediation programme for customers within our Quilter Life Assurance business. We are still
confident that the existing GBP69 million provision established at year end remains sufficient to meet the costs of the remediation that we have
identified as we have gone through the review process.
We were also delighted that Ruth Markland joined the Board, as the Senior Independent Director, upon our listing. Ruth's extensive skills and her
public company experience will be invaluable to the Board following our move into a listed environment. As noted in the prospectus, we are now
fully compliant with the corporate governance code. We are also pleased to announce the appointments of Paul Matthews and Dr. Suresh Kana as
Independent Non-Executive Directors, effective from 8 August 2018. Paul's deep knowledge of our industry, particularly distribution, and Suresh's
extensive knowledge and experience in the South African business community, will make valuable additions to our Board.
Transformation
We are pleased to confirm that we remain on track and within budget with our UK Platform Transformation Programme. User acceptance and
integration testing are well advanced, thousands of tests have been run, and defect fixing is underway. We are still planning for a soft launch either
later this year or early in 2019. This will be on a limited basis and will be used to verify system functionality in a live environment. This will be
followed by a phased controlled migration of our existing book. Maintaining high quality delivery is of utmost importance to us and we are preparing
detailed migration plans to ensure customers and advisers remain well supported throughout the transition period.
Responsibility
We monitor employee engagement on a quarterly basis and are delighted that it has remained at a consistently high level throughout the period
despite the significant work that that has been required to prepare us for listing.
Building an environment where our people can thrive is very important to me. One of the most important aspects of Quilter being liberated as a
standalone business will be to reinforce the strength of our own identity and strengthen the ties that bind our people to deliver our purpose. Virtually
all of our staff became shareholders in Quilter on listing and so have a direct stake in the outcomes of their efforts as we build the UK's leading
wealth management company.
Our purpose is to create prosperity for the generations of today and tomorrow. Whether it is an adviser in one of our appointed representative firms
or within our QPCA business, the staff working in our Quilter Wealth Solutions or Quilter Life Assurance businesses, our international colleagues or
the investment professionals within Quilter Investors or Quilter Cheviot, we all share a single goal - to build prosperity for our customers and for
their families.
We also appreciate that organisations need to have a broader moral compass beyond profit maximisation. Our shared prosperity plan is at the
centre of this which seeks to build financial knowledge and skills across society to enhance public financial capability and engagement. By
equipping people to make better financial decisions, we enable more people to have a secure financial future and we aim to protect customer
assets over the long-term through inclusive and responsible investment.
We were also delighted to launch The Quilter Foundation at listing. As a registered charity, the Foundation's mission is to tackle the barriers to
prosperity in our society - the flip side of the coin to our overarching corporate purpose. The Foundation's first step towards its mission is an
innovative and collaborative partnership which will support hundreds of thousands of young carers in the UK to overcome the barriers they face
such as isolation, mental health issues and poor outcomes in education and employment. We believe that unpaid carers play a critical, but often
overlooked, role in society and their contribution will be increasingly important as our society ages in the coming years.
Outlook
As I highlighted at our Capital Markets Showcase event earlier this year, our near-term agenda is focussed on three key priorities:
First, we need to successfully implement our new platform and execute a smooth migration for existing customers.
Second, we will continue to invest in growth by recruiting and building our Adviser and Investment Manager base.
Third, I want to ensure that we optimise our business so that we deliver increased operating leverage, and I look forward to updating the market on
our plans with our full year results in March 2019.
These are all on track and we remain confident in our strategic path and the growth prospects that we set out in our prospectus ahead of listing. We
are very much where we expected to be at this stage on the Quilter journey. While short-term market fluctuations and Brexit induced uncertainty
may exacerbate market volatility or temper momentum in near-term flows, we operate in a large and fragmented market that has plenty of growth
potential. We are a young company with a 250 year heritage and we're just getting started.
Paul Feeney
Chief Executive
Summary financial information
Reconciliation of adjusted profit to profit after tax (GBPm)
H1 2018 H1 2017 % Change
Net management fee 319 285 12%
Other revenue 66 61 8%
Total revenue 385 346 11%
Expenses (275) (251) (10%)
Adjusted profit before tax 110 95 16%
Total adjusting items before tax (75) (119) 37%
Profit/(loss) before tax attributable to shareholders' profits 35 (24) 246%
Income tax (expense)/credit attributable to policyholder returns (18) 29 (162%)
Profit before tax from continuing operations 17 5 240%
Income tax credit/(expense) on continuing operations 15 (22) 168%
Profit/(loss) after tax from continuing operations 32 (17) 288%
Profit after tax from discontinued operations 310 111 179%
Profit for the period after tax 342 94 264%
Adjusted weighted average number of ordinary shares (millions) 1,830 1,830 -
Basic earnings per ordinary share (pence) 18.7 5.1 267%
Adjusted profit before shareholder tax 110 95 16%
Shareholder tax on adjusted profit (9) (15) 40%
Adjusted profit after tax attributable to ordinary shareholders of Quilter plc 101 80 26%
Adjusted weighted average number of ordinary shares used to calculate adjusted basic 1,830 1,830 -
and diluted earnings per share (millions)
Adjusted basic and diluted earnings per share (pence) 5.5 4.4 25%
Summary balance sheet (GBPm) At At
30 June 31 December
2018 2017 Change %
Assets
Financial investments 64,569 64,250 0%
Reinsurers' share of policyholder liabilities 2,666 2,908 (8%)
Deferred acquisition costs 12 611 (98%)
Cash and cash equivalents 3,375 2,360 43%
Other assets 2,915 1,844 58%
Total assets 73,537 71,973 2%
Equity and liabilities
Equity 2,060 1,099 87%
Liabilities
Investment contract liabilities 60,140 59,139 2%
Third-party interests in consolidated funds 8,105 7,905 3%
Borrowings 197 782 (75%)
Trade, other payables and other liabilities 1,937 1,331 46%
Other liabilities 1,098 1,717 (36%)
Total liabilities 71,477 70,874 1%
Total equity and liabilities 73,537 71,973 2%
Review of Financial Performance
Analysis of performance for six months ended 30 June 2018
Key financial highlights
Advice &
For six months ended 30 June 2018 (continuing operations only) Wealth Wealth Head Office &
Management Platforms Eliminations Total Group
Gross inflows (GBPbn) 4.5 5.5 (1.9) 8.1
Gross outflows (GBPbn) (2.2) (4.3) 0.6 (5.9)
NCCF (GBPbn) 2.3 1.2 (1.3) 2.2
NCCF (excl. Quilter Life Assurance (GBPbn)) 2.3 2.2 (1.5) 3.0
Integrated NCCF (excl. Quilter Life Assurance) (GBPbn) 2.1 0.7 - 2.8
AuMA (GBPbn) 43.7 86.0 (13.2) 116.5
NCCF/opening AuMA (excl. Quilter Life Assurance (%)) 11% 6% n/a 6%
Asset retention (excl. Quilter Life Assurance (%)) 89% 91% n/a 91%
Key financial highlights
Advice &
For six months ended 30 June 2017 (continuing operations only) Wealth Wealth Head Office &
Management Platforms Eliminations Total Group
Gross inflows (GBPbn) 4.0 6.3 (1.7) 8.6
Gross outflows (GBPbn) (1.9) (4.3) 0.8 (5.4)
NCCF (GBPbn) 2.1 2.0 (0.9) 3.2
NCCF (excl. Quilter Life Assurance (GBPbn)) 2.1 2.5 (1.2) 3.4
Integrated NCCF (excl. Quilter Life Assurance) (GBPbn) 1.6 0.8 - 2.4
AuMA (GBPbn) 37.8 79.3 (9.8) 107.3
NCCF/opening AuMA (excl. Quilter Life Assurance (%)) 13% 9% n/a 8%
Asset retention (excl. Quilter Life Assurance (%)) 88% 90% n/a 90%
Net client cash flow (NCCF)
The Group had positive net flows of GBP2.2 billion in the first half of 2018, with NCCF as a percentage of opening AuMA (excl. Quilter Life Assurance)
on an annualised basis of 6%, ahead of our 5% target. Excluding Quilter Life Assurance, the Group's NCCF stands at GBP3.0 billion, 12% down from
the record flows in H1 2017, reflecting strong flows for Quilter Investors, more than offset by weaker flows for Quilter International and Quilter
Cheviot, which were down 75% and 17% respectively on prior period. Detailed analysis of NCCF by business unit is shown on page 19 of this
announcement.
Integrated flows (excl. Quilter Life Assurance) increased 17% to GBP2.8 billion (H1 2017: GBP2.4 billion). The restricted channel of Quilter Financial
Planning accounted for GBP1.4 billion (78%) of Quilter Investors' net flows and GBP0.6 billion (29%) of Quilter Wealth Solutions' net flows. Integrated
flows from Quilter Financial Planning and Quilter Private Client Advisers ("QPCA") into Quilter Cheviot amounted to GBP117 million of which GBP52
million was through QPCA.
NCCF for the Advice and Wealth Management segment of GBP2.3 billion was up 10% from H1 2017 (GBP2.1 billion), principally reflecting strong flows for
Quilter Investors into Cirilium, which represented 57% of the segment's net flows. Net flows of GBP1.4 billion were from the restricted channel, of which
GBP0.7 billion was from third party platforms and GBP0.7 billion from Wealth Solutions. Independent third party flows through Wealth Solutions was GBP0.6
billion for the period. NCCF for Quilter Cheviot was slower in the second quarter resulting in H1 2018 NCCF of GBP0.5 billion against GBP0.6 billion for H1
2017. However, the level of new client proposals continued to rise, with Q2 figures higher than Q1, providing comfort that the pipeline for new
business remains strong.
The Wealth Platforms segment contributed total NCCF of GBP1.2 billion (H1 2017: GBP2.0 billion), with stable flows within Quilter Wealth Solutions more
than offset by weaker flows for Quilter International and as expected outflows in Quilter Life Assurance. Quilter Wealth Solutions had net flows of
GBP2.1 billion, in line with H1 2017. Our pension propositions continue to perform well with sales of GBP2.7 billion representing 61% of total Quilter
Wealth Solutions gross sales (FY 2017: GBP5.4 billion representing 61% of FY 2017 gross sales). Within this, the industry-wide benefit from the
Defined Benefit ("DB") to Defined Contribution ("DC") schemes continues despite some advisers withdrawing from advising on such transfers
following regulatory commentary. In H1 2018, 41% (GBP1.1 billion) of Quilter Wealth Solutions total gross pension sales were attributable to DB to DC
transfers. Continuing the trend reported within our Q1 trading update, Quilter International had a slow first half of the year, following a very strong
final quarter in 2017, with net inflows of GBP0.1 billion, down 75% on prior year (H1 2017: GBP0.4 billion). International markets remain challenging,
particularly given the changing regulatory environment, however the reduction in flows also reflects the Group's strategy to reduce its offshore
geographic footprint and focus on the quality of new business. Quilter Life Assurance had net outflows of GBP1.0 billion for the first half (H1 2017: GBP0.5
billion) with the increase, as expected, being primarily due to the closure of the institutional life book of business, as announced in 2017.
Productivity for Quilter Financial Planning increased 13% to GBP1.8 million per RFP (H1 2017: GBP1.6 million per RFP) as a result of longer average
adviser tenure leading to growth in the number of customers, continued strong investment performance, and an increase in flows from existing
clients over time. Across our appointed representative firms, we saw growth in adviser numbers albeit this being lower than we had planned for.
However, we saw good growth in RFPs within Charles Derby Group, in which we hold a 10% shareholding, and have recruited new appointed
representatives firms to the business, which overall have added a net 18 RFPs to our business. Further growth is expected in the second half of the year.
Asset retention (excl. Quilter Life Assurance) on an annualised basis has remained broadly stable at 91% as a result of strong fund performance,
our comprehensive product offering and high customer service standards, together with our continued focus on good customer outcomes.
Assets under management/administration (AuMA)
AuMA was GBP116.5 billion, up 2% from the end of 2017 (31 December 2017: GBP114.4 billion), driven by positive net flows (GBP2.2 billion) slightly offset by
negative market movement of GBP0.1 billion. Markets were challenging in the first quarter but largely recovered in the second quarter, with the FTSE
100 down 1% overall in H1 2018.
Since the start of the year, the Cirilium fund range has increased by 17% to GBP8.8 billion in H1 2018, and the WealthSelect fund range has increased
by 17% to GBP5.6 billion. Quilter Cheviot AuMA of GBP24.1 billion has increased 2% in the period, and reflects GBP11.1 billion from financial advisers and
GBP13.0 billion from direct business. Quilter Wealth Solutions' AuMA increased by 4% to GBP52.3 billion, which includes GBP23.6 billion within pension
propositions (of which GBP3.1 billion has been generated from the restricted channel and GBP20.5 billion from third party advisers) and GBP15.5 billion of
ISA products.
Adjusted profit before tax
Adjusted profit (previously named "Operating profit" in the prospectus) reflects the directors' view of the underlying performance of the Group and is
used for management decision making and internal performance management. It is the profit measure presented in the Group's segmental
reporting. Adjusted profit is a non-GAAP measure which adjusts the IFRS profit for specific agreed items as detailed in note 7(a).
Adjusted profit before tax for the six months to 30 June 2018 was GBP110 million, 16% higher than the prior year (H1 2017: GBP95 million), driven by
higher revenue from higher AuMA, partially offset by higher expenses due to the increased costs of operating as a standalone listed group.
Adjusted profit before tax for Advice and Wealth Management increased to GBP47 million, up 47% from prior year (H1 2017: GBP32 million). This increase
was driven by high levels of NCCF and good investment performance driving higher revenue. Other revenue within Quilter Financial Planning was
up 17% to GBP41 million, driven by growth in advice fees with the increase in the number of RFPs. Expenses increased from GBP116 million to GBP134
million, reflecting the cost of expanding the national advice business, the inclusion of full run rate costs for Caerus, which was acquired on 1 June
2017, increased variable incentive costs, and higher costs for Quilter Investors as they build out the standalone functionality of the business.
Adjusted profit before tax for Wealth Platforms increased to GBP83 million, up 12% from prior year (H1 2017: GBP74 million). This reflects higher revenue
for Quilter Wealth Solutions from higher average AuMA, and lower expenses primarily due to an increase in VAT recoveries.
The Group's overall operating margin has remained broadly stable at 29% from 31 December 2017, as the increase in revenue has been offset by a
proportionate increase in expenses.
Financial performance (from continuing operations only)
Six months ended 30 June 2018
Advice &
(GBPm) Wealth Wealth
Management Platforms Head Office Total Group
Net management fee 136 183 - 319
Other revenue 45 20 1 66
Total revenue 181 203 1 385
Expenses (134) (120) (21) (275)
Adjusted profit/(loss) before tax 47 83 (20) 110
Tax (9)
Adjusted profit after tax 101
Operating margin (%) 26% 41% 29%
Revenue margin (bps) 65 44 57
Financial performance (from continuing operations only)
Six months ended 30 June 2017
(GBPm) Advice &
Wealth Wealth
Management Platforms Head Office Total Group
Net management fee 112 173 - 285
Other revenue 36 25 - 61
Total revenue 148 198 - 346
Expenses (116) (124) (11) (251)
Adjusted profit/(loss) before tax 32 74 (11) 95
Tax (15)
Adjusted profit after tax 80
Operating margin (%) 21% 37% 27%
Revenue margin (bps) 64 46 56
Revenue
The Group's revenue increased by 11% to GBP385 million due to higher average AuMA, driven by strong NCCF, and positive market performance in
2017. Net management fee revenue, which principally comprises asset-based revenues including fixed fees, increased by GBP34 million to GBP319
million during the period, accounting for 83% of total revenue. Other revenue within Quilter Financial Planning was up 17% to GBP41 million, driven by
growth in advice fees with the increase in the number of RFPs.
Higher AuM was the primary driver of revenue growth in the Advice and Wealth Management segment, with average assets increasing 14% from
the start of the year to GBP42.0 billion in H1 2018, as a result of higher net management fee revenue for both Quilter Investors and Quilter Cheviot.
Other revenue increased by GBP9 million to GBP45 million, principally due to growth in advice fees in Quilter Financial Planning, due to the benefit of the
increased number of RFPs.
Total revenue for the Wealth Platforms segment increased to GBP203 million in H1 2018 (H1 2017: GBP198 million) as a result of higher net management
fee revenue from increased average AuA to GBP83.2 billion, primarily in Quilter Wealth Solutions. The higher net management fee revenue was
partially offset by a decline in other revenue, due to higher claims experience within the Protection book of business in Quilter Life Assurance.
The Group's blended revenue margin of 57 bps has remained broadly consistent with the prior period (H1 2017: 56 bps) as a result of the growth in
AuMA for Advice and Wealth Management, which is generally at a higher revenue margin, offsetting continued revenue margin pressure within the
industry.
The revenue margin for Advice and Wealth Management of 65 bps was 1 bp higher compared to the prior year, due to an increase in the revenue
margin for Quilter Investors of 5 bps to 56 bps due to a change in the overall mix of AuM towards investment in products which earn a higher
margin. Quilter Cheviot's revenue margin remained in line with prior year at 73 bps.
The revenue margin for Wealth Platforms decreased by 2 bps from the prior period to 44 bps. This decline was driven by lower margin gross inflows
for Quilter Wealth Solutions and gross outflows of higher margin products for Quilter International. The revenue margin for Quilter Life Assurance
increased by 6 bps to 63 bps, reflecting the continued run-off of the very low margin institutional life book.
Expenses
Total expenses increased by GBP24 million (H1 2017: GBP251 million) to GBP275 million in H1 2018, as a result of increased variable incentives (GBP11
million); incremental investment in new business initiatives (GBP6 million); additional recurring managed separation and standalone costs (GBP5 million);
and other net organic and inflationary costs (GBP2 million). Investment in new business initiatives increased by 56% to GBP14 million in the period, due to
the inclusion of the full run rate costs for Caerus, which was acquired on 1 June 2017, and the continued expansion of the QPCA business, which
has undertaken nine business acquisitions over the past 12 months.
Compared to the second half of 2017, when total expenses were GBP268 million, H1 2018 expenses are up GBP7 million, or 3%. This includes the impact
of FSCS levies of GBP11 million in H1 2018 and which arise in the first half of each financial year. Allowing for this and the continued investment in
new business initiatives, the trend in expenses is pleasing as it reflects the increased focus on expense management to increase operating
leverage. Total expenses in H1 2018 benefitted from the delayed timing of around GBP4 million of technology spend, which is expected to be incurred
in the second half of 2018. The business optimisation programme is now fully mobilised, which will seek to further focus on the efficiency of the
Group's operations as we grow the business.
Expenses by segment (GBPm) H1 2018 H1 2017 FY 2017 FY 2016
Advice & Wealth Management 134 116 234 194
Wealth Platforms 120 124 253 226
Head Office 21 11 32 18
Total expenses 275 251 519 438
Advice & Wealth Management expenses increased to GBP134 million, up 16% from the prior period (H1 2017: GBP116 million), primarily driven by further
investment in QPCA in Quilter Financial Planning and the inclusion of full run rate expenses for Caerus acquired on 1 June 2017, increased costs
for Quilter Investors as we build out the functionality for the business to be standalone, increased variable incentive costs, and other organic and
inflationary costs. These increases were partially offset by a small one-off reduction in FSCS levies in H1 2018, due to a change in the charging
period by the FCA during the period.
Expenses for Wealth Platforms decreased by 3% to GBP120 million in H1 2018 (H1 2017: GBP124 million), primarily driven by an increase in VAT
recoveries in the period and the benefit of delayed timing of technology spend of around GBP4 million, which is expected to be incurred in the second
half of the year.
Head Office costs have increased by GBP10 million from the prior period, to GBP21 million (H1 2017: GBP11 million), reflecting the increase in costs to
become a standalone listed group, and the increase in variable compensation and share-based payment costs in the period.
Taxation
The effective tax rate (ETR) in H1 2018 was 8% (H1 2017: 16%), which we expect to be broadly consistent with the ETR for the full year. This is
lower than the 2017 effective tax rate due to utilisation of previously unrecognised deferred tax assets. The Group's ETR is lower than the UK
corporation tax rate of 19%, principally due to utilisation of previously unrecognised deferred tax assets and the profits from our International
business which are taxed at much lower rates.
Earnings Per Share (EPS)
Basic EPS was 18.7 pence, compared to 5.1 pence in H1 2017. During the period, the number of shares in issue increased to 1.9 billion following
completion of the share capital restructure as part of the separation from Old Mutual plc. Comparative EPS has been restated accordingly. Adjusted
basic EPS was 5.5 pence (H1 2017: 4.4 pence).
Reconciliation of adjusted profit to IFRS profit
IFRS profit after tax was GBP342 million for H1 2018, compared to GBP94 million in H1 2017, which has increased due to the profit on sale of GBP290 million
(after tax) in relation to the sale of the Single Strategy business on 29 June 2018. The table below reconciles the Group's adjusted profit to the IFRS
results in H1 2018 and H1 2017.
Reconciliation of adjusted profit to profit after tax
H1 2018 H1 2017 % change
For the 6 month period ended 30 June 2018 (GBPm)
Adjusted profit before tax
Advice and Wealth Management 47 32 47%
Wealth Platforms 83 74 12%
Head Office (20) (11) (82%)
Adjusted profit before tax 110 95 16%
Adjusting for the following:
Goodwill impairment and impact of acquisition accounting (28) (28) 0%
Business transformation costs (37) (59) 37%
Managed separation costs (17) (12) (42%)
Finance costs (8) (20) 60%
Policyholder tax adjustments 15 -
Total adjusting items before tax (75) (119) 37%
Profit/(Loss) before tax attributable to shareholders' profits 35 (24) 246%
Income tax (expense)/credit attributable to policyholder returns (18) 29 (162%)
Profit before tax from continuing operations 17 5 240%
Income tax credit/(expense) on continuing operations 15 (22) 168%
Profit/(Loss) after tax from continuing operations 32 (17) 288%
Profit after tax from discontinued operations 310 111 179%
Profit for the period after tax 342 94 264%
Adjusted profit reflects the profit from the Group's core operations, and is calculated by making certain adjustments to IFRS profit to reflect the
directors' view of the Group's long-term performance. Details of these adjustments are provided in note 7(a) of the consolidated financial
statements and in respect of tax in note 10(c). A summary of significant adjustments is provided below.
Goodwill impairment and impact of acquisition accounting represents costs of completed acquisitions and the amortisation of intangible assets
acquired by the Group. These charges remain broadly in line with prior period.
Business transformation costs were GBP37 million at H1 2018 (H1 2017: GBP59 million). H1 2018 includes GBP27 million in relation to the UK Platform
Transformation Programme and GBP10 million of one-off costs associated with the separation of Quilter Investors as a result of the sale of the Single
Strategy business. In H1 2017, the costs associated with the UK Platform Transformation Programme included GBP6 million relating to the new
contract with FNZ and GBP53 million relating to the previous programme, including the contracts with IFDS which came to an end by mutual
agreement with effect from 2 May 2017.
Managed separation costs of GBP17 million in H1 2018 (H1 2017: GBP12 million) represent the one-off transition costs to separate the Group from Old
Mutual plc to become standalone and additional one off costs associated with listing. The increase from H1 2017 reflects the increase in advisor
costs associated with the prospectus and subsequent listing coupled with costs associated with the debt financing. Remaining costs yet to be
incurred are expected to be GBP19 million, in line with previous guidance.
Finance costs were GBP8 million in H1 2018 (H1 2017: GBP20 million). The prior year includes the cost of interest and finance charges on the Group's
borrowings from Old Mutual plc. As previously reported, these were converted into equity or repaid in February 2018.
Policyholder tax adjustments of GBP15m for H1 2018 (H1 2017: nil) relate to the removal of distortions arising from market volatility that can, in turn,
lead to volatility in the policyholder tax charge between periods.
Profit after tax from discontinued operations in H1 2018 relates to the trading profit and profit on sale of the Single Strategy business. The
comparative figure for H1 2017 relates to the sale of Old Mutual Italy. Full details of these items are set out in note 5(d) to the consolidated interim
financial statements.
Cash generation
Cash generation measures the proportion of adjusted profit that is recognised in the form of cash generated from operations.
Cash generated from operations is calculated by removing non-cash generative items from adjusted profit, such as deferrals required under IFRS to
spread fee income and acquisition costs over the lives of the underlying contracts with customers. Cash generated from operations is stated after
deducting an allowance for cash required to support the capital requirements of the business generated from normal operations (e.g. business growth).
The Group (excluding the now disposed Single Strategy business) achieved a cash generation rate of 83% of adjusted profit at H1 2018 (FY 2017: 83%).
Review of Financial Position
Capital & Liquidity
The Group aims to maintain a strong solvency and liquidity position through disciplined management of capital resources and risks. This is
important given the security and peace of mind that it affords customers and advisers.
The Group will maintain a disciplined approach to capital, in order to balance its current and anticipated liquidity, regulatory capital and investment
needs, with a view to returning excess capital to shareholders as appropriate. As part of its disciplined approach to capital, the Group has a prudent
capital management and liquidity policy.
On 23 February 2018, the Group entered into, and fully drew down on 28 February 2018 a GBP300 million senior unsecured term loan with a number
of relationship banks. This term loan was fully repaid on 29 June 2018 from the proceeds of the sale of the Single Strategy business.
Also on 28 February 2018, we entered into a GBP125 million revolving credit facility, which remains undrawn, and we issued a GBP200 million
subordinated debt security. This was issued in the form of a 10-year Tier 2 bond with a one-time issuer call option after five years to J.P. Morgan
Securities plc, paying a semi-annual coupon of 4.478% p.a. The debt security is listed on the London Stock Exchange and has a Fitch instrument
rating of BBB-. On 13 April 2018, the debt security was sold by J.P. Morgan Securities plc to traditional debt capital market investors. Including the
impact of amortisation of set-up costs, the issuance of this security will increase financing costs by approximately GBP10 million on an annual basis.
The subordinated debt security and the revolving credit facility are in place to ensure that the Group has sufficient capital and liquidity to maintain
strong capital ratios and free cash balances to withstand severe but plausible stress scenarios. The full amount of the subordinated debt security
remains outstanding as at 30 June 2018, representing a leverage ratio of 12% (defined as the ratio of debt to debt plus the consolidated IFRS
equity after deducting the intangible assets) before the payment of the special interim dividend.
Solvency II
The Group Solvency II surplus is GBP1,116 million at 30 June 2018 (31 December 2017: GBP651 million), representing a Solvency II ratio of 195% (31
December 2017: 154%) calculated under the standard formula. The Solvency II information in this results disclosure has not been audited.
Group regulatory capital (GBPm) At At
30 June 31 December
2018(1) 2017(2)
Own funds 2,297 1,849
Solvency capital requirements ("SCR") 1,181 1,198
Solvency II surplus 1,116 651
Solvency II coverage ratio 195% 154%
(1) Based on preliminary estimates. Formal filing due to the PRA by 21 September 2018.
(2) As represented within the Annual 2017 Solvency II submission of Old Mutual plc, the group of which Quilter plc previously formed part of, to the
Prudential Regulation Authority (PRA). Own funds include a GBP566 million subordinated loan from the parent company. This subordinated loan has been
effectively converted to equity after the year-end following the acquisition of the entity holding the loan.
The 41% increase in the Group Solvency II ratio is mainly due to corporate activity in the period with the two main contributors being the issuance in
February 2018 of the Tier 2 bond described above and the proceeds received in respect of the sale of Single Strategy business exceeding its
carrying value on the Solvency II balance sheet. The Group Solvency II ratio is stated after allowing for the impact of the special interim dividend
payment to shareholders, and the actual changes in the capital requirements relating to the sale of the Single Strategy business. Other impacts
were largely offsetting.
The Board believes that the Group Solvency II ratio includes sufficient free cash and capital to complete all committed strategic investments
(including the UK Platform Transformation Programme) and to allow for any further potential costs arising from the FCA's review of the treatment of
certain customers within our Quilter Life Assurance business, including for any potential penalty which may be imposed by the FCA, in respect of
which no provision has yet been made (refer to note 24 of the consolidated interim financial statements). The impact of this prudent policy is that
Quilter expects to continue to maintain a solvency position in excess of its target in the near-term.
Composition of qualifying Solvency II capital
The Group own funds for Solvency II purposes reflect the resources of the underlying businesses after excluding foreseeable dividends of GBP221
million. The Group own funds include the Quilter plc issued subordinated debt security which qualifies as capital under Solvency II. The composition
of own funds by tier is presented in the table below.
Group own funds (GBPm) At
30 June
2018
Tier 1(1) 2,093
Tier 2(2) 204
Total Group Solvency II own funds 2,297
(1) All Tier(1) capital is unrestricted for tiering purposes.
(2) Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond, which was issued at GBP200 million in February 2018.
The Group SCR is covered by Tier 1 capital, which represents 177% of the Group SCR of GBP1,181 million. Tier 1 capital represents 91% of Group
Solvency II own funds. Tier 2 capital represents 9% of Group Solvency II own funds and 18% of Group surplus.
Net Asset Value ("NAV")
The NAV of the Group was GBP2.1 billion at 30 June 2018 (31 December 2017: GBP1.1 billion). The increase reflects the conversion of previous loans
from Old Mutual plc into equity in February 2018 and the increased resources following the gain of GBP290 million on the sale of the Single Strategy
business. The NAV at 30 June 2018 is stated before the provision for the special interim dividend of GBP221 million.
Dividend
In line with statements given at the time of the company's listing, there is no normal interim dividend in relation to the first half of 2018. However, the
Board has declared a special interim dividend of 12.0 pence per share from the surplus proceeds from the sale of the Single Strategy business. The
special interim dividend will be paid on 21 September 2018 to shareholders on the UK and South African share registers on 24 August 2018. For
Shareholders on our South African share register a dividend of 206.42952 South African cents per share will be paid on 21 September 2018, using an exchange rate of
17.20246.
Return on Equity ("RoE")
Adjusted RoE for the period ended 30 June 2018, calculated as annualised adjusted profit after tax divided by average equity (after adjusting for the
special interim dividend) was 12.5%. This remained stable with the adjusted RoE of 12.7% for the full year ended 31 December 2017 (after
adjusting equity for the acquisition of Skandia UK and equity allocated to the discontinued operations).
Holding company cash
At 30 June 2018, Quilter holding companies retained GBP587 million of cash resources and had GBP200 million of external debt liabilities represented in
full by the Tier 2 bond. Of these cash resources, GBP221 million is held for the forthcoming payment of the special interim dividend. Other balances are
held to be in line with, or in excess of, the Group's capital and liquidity policy ensuring that the Group can accommodate all committed strategic
activity (including completing the UK Platform Transformation Project) and further potential costs arising from the FCA's review of the treatment of
certain customers within our Quilter Life Assurance business, including any potential penalty which may be imposed by the FCA, in respect of which
no provision has yet been made (refer to note 24 of the consolidated interim financial statements).
The principal risks and uncertainties that could impact the Group are summarised below. Further details of these risks are set out in the Quilter plc
Listing Prospectus issued on 20 April 2018. The principal risks and uncertainties are regularly considered by the Board and these remain
appropriate for the second half of this financial year.
Non-financial risks
The Group may not be able to successfully execute its strategic initiatives including the delivery of the UK Platform
Transformation Programme and the business optimisation programme. If the Group fails to execute on or benefit from
Strategy its strategy of aiming to be the leading UK wealth manager by continuing to focus on delivering good customer
outcomes, it may have a material adverse effect on the Group's business, financial condition, results of operations and
prospects.
Brand and reputation The Group is dependent on the strength of its brands, which are vulnerable to adverse market perception or negative
publicity, and the Group may face challenges with regard to its ongoing rebranding initiative.
The Group may fail to attract and retain talented advisers, investment managers, portfolio managers, senior
management and other key employees, which presents a significant risk to the delivery of the Group's overall strategy,
People and culture in particular during this period of significant change across all business units, and could have a material adverse effect
on the Group's culture, business, financial condition, results of operations and prospects.
The Group's business is conducted in a competitive environment and, if the Group is not successful in anticipating and
responding to competitive change, adviser or customer preferences or demographic trends in a timely and cost-
Competitive pressure effective manner, its business, financial condition, results of operations and prospects could be materially adversely
affected.
Conduct risk is the risk that decisions and behaviours of a company, its employees, its advisers or its appointed
representatives lead to its customers being treated unfairly or otherwise result in detrimental customer outcomes.
Conduct Conduct risk may arise where the Group fails to design, implement or adhere to appropriate policies and procedures,
offer products, services or other propositions that do not meet the needs of customers or fails to perform in accordance
with its intended design, fails to communicate appropriately with customers, fails to deal with complaints effectively,
sells or recommends unsuitable products or solutions to customers, fails to provide them with adequate information to
make informed decisions or provide unsuitable investment or financial planning advice to customers, or fails to do any
of the foregoing on an ongoing basis after initial sales, among other things. This risk may also arise as a result of
employee (mis)conduct.
Failure by the Group to offer products, services and platforms that meet adviser and customer needs and which are
considered suitable could result in advisers ceasing to recommend the Group's products or services, or recommending
Adviser and customer fewer of the Group's products or services, and declining persistency of the Group's products.
proposition The asset classes or investment strategies underlying the portfolios managed by the Group may become less attractive
to customers or their advisers, which could reduce demand for the Group's products and have a material adverse effect
on the Group's business, financial condition, results of operations and prospects.
The Group faces significant potential and actual conflicts of interest, including those which result from the Group's
advised distribution channel. If the Group fails to manage conflicts of interest between its advice channel and other
Conflicts of interest businesses across the Group, it could result in reputational damage, regulatory liability or customer restitution, which
could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.
The Group uses computer systems to conduct its business, which involves managing and administering assets on
behalf of customers in its wealth portfolios and on its platforms. The Group's business is highly dependent on its ability
Information technology to access these systems to perform necessary business functions and to provide adviser and customer support,
administer products, make changes to existing policies, file and pay claims, manage customers' investment portfolios
and produce financial statements and regulatory returns.
The Group's business, by its nature, requires it to store, retrieve, evaluate and utilise customer and company data and
information, which is highly sensitive. The Group is subject to the risk of actual or attempted IT security breaches from
Data Information and parties with criminal or malicious intent (including cyber-crime). Should the Group's intrusion detection and anti-
cyber-threats penetration software not anticipate, prevent or mitigate a network failure or disruption, or should an incident occur in a
system for which there is no duplication, it may have a material adverse effect on the Group's business, financial
condition, results of operations and prospects.
The Group outsources and procures certain functions and services externally to third parties and may increase its use of
outsourcing in the future. If the Group does not effectively develop and implement its outsourcing strategies and its
Third party internal capability to manage such strategies, third party providers do not perform as anticipated, or the Group
experiences technological or other problems with a transition, it may not realise productivity improvements or cost
efficiencies and may experience operational difficulties, increased costs and a loss of business.
The Group's regulated businesses are subject to extensive regulation both in the UK and internationally, and the Group
faces risks associated with compliance with these regulations.
Legal and regulatory
The Group's businesses are subject to the risk of adverse changes in the laws, regulations and regulatory requirements
in the markets in which they operate.
Regulatory reform initiatives could also lead to increased compliance costs or other adverse consequences for firms
within the financial services industry, including the Group.
The Group is required to comply with applicable anti-money laundering, anti-terrorism, sanctions, anti-tax evasion, anti-
fraud, anti-bribery and corruption, insider dealing and other laws and regulations in the jurisdictions in which it operates.
Financial crime Where the Group is unable to comply with applicable laws, regulations and expectations, regulators and relevant law
enforcement agencies have the ability and authority to impose significant fines and other penalties, including requiring a
complete review of business systems, day-to-day supervision by external consultants and ultimately the revocation of
regulatory authorisations and licences.
Financial risks
The Group's results may be materially adversely affected by conditions in global capital markets, the global economy
generally and the UK economy in particular that result in a decrease in the value of customer investment portfolios. The
Market risks volatility and strength of debt and equity markets, the direction and pace of change of interest rates and inflation all affect
the economic environment, investor confidence and, ultimately, the volume and profitability of the Group's business.
The Group has exposure to mortality risk (the risk related to the frequency of deaths) and morbidity risk (the risk related
to the prevalence of a disease) from its life assurance business, which issues policies that carry certain guaranteed
Insurance risks benefits upon the death, or defined illness, of the policyholder. These risks could be aggravated by any potential failure in
underwriting processes and standards designed to identify sub-standard lives at the new business stage.
An important factor in the Group's ability to maintain and grow its customer base and its network of advisers is the
Investment investment performance of the customer assets that the Group manages. Actual or perceived underperformance of
performance customer assets that are managed by the Group could have a material adverse effect on the Group's business, financial
condition, results of operations and prospects.
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures. APMs are not defined by the relevant financial reporting framework (which for the
Group is IFRS), but we use them to provide greater insight into the financial performance, financial position and cash flows of the Group and the
way it is managed.
APMs should be read together with the Group's IFRS consolidated income statement, IFRS consolidated statement of financial position and IFRS
consolidated statement of cash flows, which are presented in the financial statements of this release.
Further details of APMs used by the consolidated Group in our financial review are provided below.
APM Definition
Represents the underlying operating profit of the Group. It therefore adjusts IFRS profits for key
adjusting items and excludes non-core operations, as detailed in note 7(a) in the financial
statements.
Adjusted profit Due to the nature of the Group's businesses, we believe that adjusted profit is an appropriate
basis by which to assess the Group's underlying operating results and it enhances comparability
and understanding of the financial performance of the Group.
Revenue margin (bps) Represents net management fees, divided by average AuMA.
Represents adjusted profit from continuing operations divided by total revenue (net management
fees and other revenue). Operating margin excludes financing costs.
Operating margin
Management use this APM as this represents an efficiency measure that allows users of our
financial statements to assess what percentage of net revenues becomes adjusted profit.
Gross sales Gross sales are the gross cash inflows received from customers during the period.
The difference between money received from and returned to customers during the relevant
Net client cash flows (NCCF) period for the Group or for the business indicated.
This measure is considered to be a lead indicator of reported net revenue.
Total NCCF, before intra-Group eliminations that have flowed through two or more segments
Integrated net flows within the Group.
It is considered to be a lead indicator of revenue generation driven by our integrated business model.
Represents the total market value of all financial assets managed and administered on behalf of
AuMA customers and includes shareholder assets.
Represents the average total market value of all financial assets managed and administrated on
Average AuMA behalf of customers. Average AuMA is calculated using a 7-point average (half year) and 13-point
average (full year) of monthly closing AuMA.
Consists of revenue generated from AuMA, fixed fee revenues including charges for policyholder
Net management fees tax contributions, less trail commissions payable.
Represents revenue not directly linked to AuMA (e.g. encashment charges, closed book unit-
Other revenue linked policies, non-linked Protect policies, adviser initial fees and adviser fees linked to AuMA in
Quilter Financial Planning (recurring fees).
This presents a shareholder view of underlying cash earnings. The IFRS consolidated statement
of cash flows includes policyholder cash flows, and does not exclude adjustments for non-
operating items.
Cash generation
Cash generated from operations is calculated by removing non-cash items from adjusted profit.
Cash generated from operations is stated after deducting an allowance for cash required to
support the capital requirements of the business generated from normal operations. The capital
requirements of the business are assessed on each company's solo regulatory solvency basis.
The asset retention rate measures the outflows of the assets under management during the
Asset retention period as a percentage of opening assets under management.
Asset retention is calculated as 1 - (gross outflow divided by opening assets under management)
Supplementary Information
AuMA and NCCF
Gross sales (GBPbn) 2018 Change 2017
(H1-18 vs H1-17)
Q1 Q2 H1 Value % Q1 Q2 H1 Q3 Q4 FY
Quilter Investors 1.6 1.5 3.1 0.6 24% 1.2 1.3 2.5 1.4 1.4 5.3
Quilter Cheviot 0.8 0.6 1.4 (0.1) (7%) 0.7 0.8 1.5 0.7 0.6 2.8
Advice & Wealth Management 2.4 2.1 4.5 0.5 13% 1.9 2.1 4.0 2.1 2.0 8.1
Quilter Wealth Solutions 2.3 2.0 4.3 (0.1) (2%) 2.2 2.2 4.4 2.3 2.2 8.9
Quilter International 0.5 0.4 0.9 (0.2) (18%) 0.5 0.6 1.1 0.4 1.3 2.8
Quilter Life Assurance 0.2 0.1 0.3 (0.5) (63%) 0.4 0.4 0.8 0.2 0.1 1.1
Wealth Platforms 3.0 2.5 5.5 (0.8) (13%) 3.1 3.2 6.3 2.9 3.6 12.8
Elimination of intra-Group items (1.0) (0.9) (1.9) (0.2) 12% (0.8) (0.9) (1.7) (0.9) (1.0) (3.6)
Quilter plc 4.4 3.7 8.1 (0.5) (6%) 4.2 4.4 8.6 4.1 4.6 17.3
NCCF (GBPbn) 2018 % of Opening 2017
AuMA
Q1 Q2 H1 Annualised Q1 Q2 H1 Q3 Q4 FY
Quilter Investors 1.0 0.8 1.8 21% 0.7 0.8 1.5 0.9 0.9 3.3
Quilter Cheviot 0.3 0.2 0.5 4% 0.2 0.4 0.6 0.4 0.1 1.1
Advice & Wealth Management 1.3 1.0 2.3 11% 0.9 1.2 2.1 1.3 1.0 4.4
Quilter Wealth Solutions 1.3 0.8 2.1 8% 1.0 1.1 2.1 1.2 1.2 4.5
Quilter International 0.1 - 0.1 1% 0.2 0.2 0.4 0.2 0.8 1.4
Quilter Life Assurance (0.5) (0.5) (1.0) (13%) (0.3) (0.2) (0.5) (0.7) (0.4) (1.6)
Wealth Platforms 0.9 0.3 1.2 3% 0.9 1.1 2.0 0.7 1.6 4.3
Elimination of intra-Group items (0.6) (0.7) (1.3) (0.4) (0.5) (0.9) (0.7) (0.8) (2.4)
Quilter plc 1.6 0.6 2.2 4% 1.4 1.8 3.2 1.3 1.8 6.3
Quilter plc (excl. Quilter Life
Assurance) 2.0 1.0 3.0 6% 1.5 1.9 3.4 1.9 2.3 7.6
Integrated flows (excl. Quilter Life
Assurance) 2.8 2.4 5.2
AuMA (GBPbn) 2018 Change 2017
(H1-18 vs H1-17)
Q1 H1 Value % Q1 H1 Q3 FY
Quilter Investors 17.1 18.4 4.3 30% 13.1 14.1 15.3 16.9
Quilter Cheviot 22.8 24.1 1.6 7% 21.8 22.5 23.0 23.6
Quilter Financial Planning 1.2 1.2 - 0% - 1.2 1.2 1.2
Advice & Wealth Management 41.1 43.7 5.9 16% 34.9 37.8 39.5 41.7
Quilter Wealth Solutions 49.7 52.3 6.4 14% 44.0 45.9 47.6 50.2
Quilter International 18.6 19.2 1.4 8% 17.5 17.8 18.0 19.3
Quilter Life Assurance(1) 14.4 14.5 (1.1) (7%) 16.0 15.6 15.1 15.3
Wealth Platforms 82.7 86.0 6.7 8% 77.5 79.3 80.7 84.8
Elimination of intra-Group items (12.2) (13.2) (3.4) 35% (9.1) (9.8) (10.6) (12.1)
Quilter plc 111.6 116.5 9.2 9% 103.3 107.3 109.6 114.4
(1)Includes other shareholder assets of GBP0.3bn in Q1 2018 and GBP0.4bn in H1 2018 (Q1 2017: GBP0.1bn, H1 2017: GBPnil, Q3 2017: GBP0.1bn
and FY 2017: GBP0.2bn)
Revenue (GBPm)
H1 2018 Quilter Advice & Quilter
Quilter Quilter Financial Wealth Wealth Quilter Quilter Life Wealth Head
Investors Cheviot Planning Management Solutions International Assurance Platforms Office Group
Net
management fee 49 86 1 136 83 56 44 183 - 319
Other revenue 1 3 41 45 2 10 8 20 1 66
Total revenue 50 89 42 181 85 66 52 203 1 385
Revenue (GBPm)
H1 2017 Quilter Quilter
Quilter Quilter Financial Advice & Wealth Wealth Quilter Quilter Life Wealth Head
Investors Cheviot Planning Management Solutions International Assurance Platforms Office Group
Net
management fee 33 79 - 112 75 55 43 173 - 285
Other revenue - 1 35 36 2 11 12 25 - 61
Total revenue 33 80 35 148 77 66 55 198 - 346
Advice and Wealth Management
The following table sets forth certain key metrics utilised by management with respect to the business units of the Advice & Wealth Management
segment, for the periods indicated.
GBPm H1 2018 H1 2017 % change
Quilter Financial Planning
Net management fee 1 - -
Other revenue 41 35 17%
Total revenue 42 35 20%
RFPs + QPCA (#) 1,590 1,582 1%
Productivity (GBPm) 1.8 1.6 13%
Quilter Investors
Net management fee 49 33 48%
Other revenue 1 - -
Total revenue 50 33 52%
NCCF (GBPbn) 1.8 1.5 20%
Closing AuM (GBPbn) 18.4 14.1 30%
Average AuM (GBPbn) 17.5 13.1 34%
Revenue margin (bps) 56 51 5 bps
Quilter Cheviot
Net management fee 86 79 9%
Other revenue 3 1 200%
Total revenue 89 80 11%
NCCF (GBPbn) 0.5 0.6 (17%)
Closing AuM (GBPbn) 24.1 22.5 7%
Average AuM (GBPbn) 23.5 21.6 9%
Revenue margin (bps) 73 73 -
Asset retention (%) 92% 91% 1 pp
Investment managers (#) 168 159 6%
Wealth Platforms
The following table sets forth certain key metrics utilised by management with respect to the business units of the Wealth Platforms segment,
for the periods indicated.
H1 2018 H1 2017 % change
Quilter Wealth Solutions
Net management fee 83 75 11%
Other revenue 2 2 -
Total revenue 85 77 10%
NCCF (GBPbn) 2.1 2.1 -
Closing AuA (GBPbn) 52.3 45.9 14%
Average AuA (GBPbn) 51.8 44.7 16%
Revenue margin (bps) 32 34 (2) bps
Asset retention (%) 91% 89% 2 pp
Quilter International
Net management fee 56 55 2%
Other revenue 10 11 (9%)
Total revenue 66 66 -
NCCF (GBPbn) 0.1 0.4 (75%)
Closing AuA (GBPbn) 19.2 17.8 8%
Average AuA (GBPbn) 18.9 17.3 9%
Revenue margin (bps) 59 64 (5) bps
% premium-based charging (%) 58% 53% 5 pp
Asset retention (%) 92% 92% -
Quilter Life Assurance
Net management fee 44 43 2%
Other revenue 8 12 (33%)
Total revenue 52 55 (5%)
NCCF (GBPbn) (1.0) (0.5) (100%)
Closing AuA (GBPbn) 14.5 15.6 (7%)
Average AuA (GBPbn) 13.9 15.0 (7%)
Revenue margin (bps) 63 57 6 bps
Asset retention (%) 83% 83% -
Shareholder Information
In line with statements given at the time of the Company's listing, there is no routine interim dividend in relation to the first half of 2018. However,
the Board has declared a special interim dividend of 12.0 pence per share from the surplus proceeds from the sale of the Single Strategy business.
The special interim dividend will be paid on 21 September 2018 to shareholders on the UK and South African share registers on 24 August 2018.
Dividend Timetable
Dividend Declaration in pounds sterling with South Africa ZAR Equivalent Wednesday 8 August 2018
Last day to trade cum dividend in South Africa Tuesday 21 August 2018
Shares trade ex-dividend in South Africa Wednesday 22 August 2018
Shares trade ex-dividend in the UK Thursday 23 August 2018
Record Date in UK and South Africa Friday 24 August 2018
Payment date Friday 21 September 2018
From the opening of trading on Wednesday 8 August 2018 until the close of business on Friday 24 August 2018, no transfers between the London
and Johannesburg registers will be permitted. Share certificates for Shareholders on the South African register may not be dematerialised or
rematerialised between 22 and 24 August 2018, both dates inclusive.
Additional information
For Shareholders on our South African share register a dividend of 206.42952 South African cents per share will be paid on 21 September 2018 to shareholders,
based on an exchange rate of 17.20246. Dividend Tax will be withheld at the rate of 20% from the amount of the gross dividend of 206.42952 South African cents
per share paid to South African shareholders unless a shareholder qualifies for exemption. After the Dividend Tax has been withheld, the net
dividend will be 165.14362 South African cents per share. The Company had a total of 1,902,251,098 shares in issue at today's date.
If you are uncertain as to the tax treatment of any dividends you should consult your own tax advisor.
Statement of directors' responsibilities in respect of the interim financial statements
For the 6 month period ended 30 June 2018
Each of the directors of Quilter plc, confirms to the best of his or her knowledge and belief that:
- The condensed set of consolidated financial statements, which comprises the consolidated income statement and statement of
comprehensive income, reconciliation of adjusted profit to profit after tax, consolidated statement of changes in equity, consolidated
statement of financial position, consolidated statement of cash flows and the related explanatory notes, has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the European Union.
- The interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact on the condensed set of consolidated financial statements; and
a description of the principal risks and uncertainties for the remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the
first six months of the financial year and that have materially affected the financial position or performance of the entity during
that period; and any changes in the related party transactions described in the Group's 31 December 2017 Historical Financial
Information, within the Group's listing prospectus, that could do so.
As per provision C1 of the UK Corporate Governance Code, the results for the half year 2018 results taken as a whole, present a fair, balanced and
understandable position of the Company's prospects.
Paul Feeney Tim Tookey
Chief Executive Officer Chief Financial Officer
7 August 2018 7 August 2018
Independent review report to Quilter plc
For the 6 month period ended 30 June 2018
Conclusion
We have been engaged by the company to review the condensed set of financial statements for the half-yearly financial report for the six months
ended 30 June 2018 which comprises the consolidated income statement and statement of comprehensive income, reconciliation of adjusted profit
to profit after tax, consolidated statement of changes in equity, consolidated statement of financial position, the consolidated statement of cash
flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the
UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. 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. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent
misstatements or material inconsistencies with the information in the condensed set of financial statements.
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.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards
as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial
report in accordance with IAS 34 as adopted by the EU
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based
on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of
the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
company for our review work, for this report, or for the conclusions we have reached.
Jonathan Mills
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
7 August 2018
Consolidated income statement
For the 6 month period ended 30 June 2018
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
Revenue
Gross earned premiums 75 73 148
Premiums ceded to reinsurers (44) (43) (88)
Net earned premiums 31 30 60
Fee income and other income from service activities 8 523 437 895
Investment return 293 2,681 5,195
Other income 10 5 13
Total revenue 857 3,153 6,163
Expenses
Claims and benefits paid (45) (38) (76)
Reinsurance recoveries 29 25 54
Net insurance claims and benefits incurred (16) (13) (22)
Change in reinsurance assets and liabilities 17(c) 20 26 85
Change in insurance contract liabilities 21(a) (23) (22) (78)
Change in investment contract liabilities (192) (2,264) (4,308)
Fee and commission expenses, and other acquisition costs (230) (154) (320)
Change in third party interest in consolidated funds 3 (325) (673)
Other operating and administrative expenses (392) (376) (816)
Finance costs 9 (10) (20) (39)
Total expenses (840) (3,148) (6,171)
Profit on the acquisition and re-measurement of subsidiaries 5(a) - - 3
Profit/(Loss) before tax from continuing operations 17 5 (5)
Tax credit/(expense) attributable to policyholders' funds 18 (29) (49)
Profit/(Loss) before tax attributable to shareholders' profits 35 (24) (54)
Income tax credit/(expense) 10(a) 15 (22) (41)
Less: tax (credit)/expense attributable to policyholders' funds (18) 29 49
Tax credit/(expense) attributable to shareholders' profits (3) 7 8
Profit/(Loss) after tax from continuing operations 32 (17) (46)
Profit after tax from discontinued operations 5(d) 310 111 203
Profit for the period after tax 342 94 157
Attributable to:
Equity holders of Quilter plc 342 94 157
Earnings per ordinary share on profit attributable to ordinary shareholders of Quilter plc
Basic
From continuing operations (pence) 1.8 (1.0) (2.5)
From discontinued operations (pence) 5(d) 16.9 6.1 11.1
Basic earnings per ordinary share (pence) 11(a) 18.7 5.1 8.6
Diluted
From continuing operations (pence) 1.8 (1.0) (2.5)
From discontinued operations (pence) 5(d) 16.9 6.1 11.1
Diluted earnings per ordinary share (pence) 11(b) 18.7 5.1 8.6
The attached notes form an integral part of these condensed consolidated interim financial statements.
Consolidated statement of comprehensive income
For the 6 month period ended 30 June 2018
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Profit for the period 342 94 157
Other comprehensive income:
Exchange gains on translation of foreign operations(1) - 1 3
Other comprehensive income/(expense) for the period(2) (1) - -
Items that may be reclassified subsequently to income statement (1) 1 3
Income tax on items that will not be reclassified subsequently to income statement(2) - 2 3
Items that will not be reclassified subsequently to income statement - 2 3
Total other comprehensive income, net of tax(1) (1) 3 6
Total comprehensive income for the period 341 97 163
Attributable to:
Continuing operations 31 (13) (47)
Discontinued operations 5e 310 110 210
Equity holders of Quilter plc 341 97 163
(1) In the year ended 31 December 2017, GBP3 million previously shown within the consolidated statement of changes in equity as a change in participation in subsidiaries
has been reclassified to other comprehensive income, to conform with current presentation.
(2) In the year ended 31 December 2017, GBP3 million previously shown within other comprehensive income for the period has been reclassified to income tax on items that
will not be reclassified subsequently to income statement, to conform with current presentation.
The attached notes form an integral part of these condensed consolidated interim financial statements.
Reconciliation of adjusted profit to profit after tax
For the 6 month period ended 30 June 2018
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
Adjusted profit before tax
Advice and Wealth Management 47 32 82
Wealth Platforms 83 74 158
Head Office (20) (11) (31)
Adjusted profit before tax 6(b) 110 95 209
Reconciliation of adjusted profit to Profit after tax
Adjusting for the following:
Goodwill impairment and impact of acquisition accounting (28) (28) (54)
Profit on business acquisitions and disposals - - 3
Business transformation costs (37) (59) (89)
Managed Separation costs (17) (12) (32)
Finance costs (8) (20) (39)
Policyholder tax adjustments 15 - 17
Voluntary customer remediation provision - - (69)
Total adjusting items before tax 7(a) (75) (119) (263)
Profit/(Loss) before tax attributable to shareholders' profits 35 (24) (54)
Income tax attributable to policyholder returns (18) 29 49
Profit/(Loss) before tax from continuing operations 17 5 (5)
Income tax credit/(expense) on continuing operations 10(b) 15 (22) (41)
Profit/(Loss) after tax from continuing operations 32 (17) (46)
Profit after tax from discontinued operations 5(d) 310 111 203
Profit for the period after tax 342 94 157
Adjusted profit after tax attributable to ordinary shareholders of Quilter plc
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
Adjusted profit before shareholder tax 110 95 209
Shareholder tax on adjusted profit 10(c) (9) (15) (14)
Adjusted profit after tax attributable to ordinary shareholders
of Quilter plc 11(c) 101 80 195
Adjusted weighted average number of ordinary shares used to
calculate adjusted basic and diluted earnings per share (millions) 11(c) 1,830 1,830 1,830
Adjusted basic and diluted earnings per share (pence) 11(c) 5.5 4.4 10.7
Basis of preparation of adjusted profit
Adjusted profit (previously named 'Operating profit' in the prospectus) reflects the directors' view of the underlying performance of the Group and is
used for management decision making and internal performance management. It is the profit measure presented in the Group's segmental
reporting. Adjusted profit is a non-GAAP measure which adjusts the IFRS profit for specific agreed items as detailed in note 7(a): Adjusted profit
adjusting items.
Adjusted profit excludes the impairment of goodwill; amortisation and impairment of other intangibles acquired in business combinations; the profit
or loss on business acquisitions and disposals; costs related to business transformation, in particular the development of our new platform capability
and outsourcing of UK business administration and other one-off and restructuring costs; Managed Separation costs; the effects of interest costs on
borrowings; and voluntary customer remediation provisions. Adjusted profit also treats policyholder tax as a pre-tax charge (to offset against the
related income collected from policyholders), though adjusted to remove the impact of non-operating items.
Execution of the Group's strategy of Managed Separation from Old Mutual plc entails a number of significant costs that are regarded as non-
operating, or one-off in nature. These costs are recognised within IFRS profit and excluded from adjusted profit.
Adjusted earnings applied in the calculation of adjusted earnings per share is calculated based on adjusted profit after tax. The calculation of the
adjusted weighted average number of shares includes own shares held in policyholders' funds.
The notes form an integral part of these condensed consolidated interim financial statements.
Consolidated statement of changes in equity
For the 6 month period ended 30 June 2018
GBPm
Foreign Total
Share-based currency share-
Share Share Merger payments Other translation Retained holders'
For the 6 month period ended 30 June 2018 Notes capital premium reserve reserve reserves reserve earnings equity
Balance at 1 January 2018 130 58 - 38 1 - 872 1,099
Profit for the period - - - - - - 342 342
Other comprehensive income/(expense) - - - 1 - - (2) (1)
Total comprehensive income - - - 1 - - 340 341
Acquisition of Skandia UK 19 - - 591 - - - - 591
Issue of share capital 19 3 - (3) - - - - -
Movement in treasury shares - - - - - - 1 1
Equity share-based payment transactions(1) - - - (2) - - 30 28
Change in participation in subsidiaries - - - (12) - - 12 -
Total transactions with the owners of the Company 3 - 588 (14) - - 43 620
Balance at 30 June 2018 133 58 588 25 1 - 1,255 2,060
(1) Equity share-based payment transactions include GBP28 million of IFRS 2 costs and a GBP30 million transfer to retained earnings representing share-based payment
schemes that have fully vested.
GBPm
Foreign Total
Share-based currency share-
Share Share Merger payments Other translation Retained holders'
For the 6 month period ended 30 June 2017 Notes capital premium reserve reserve reserves reserve earnings equity
Balance at 1 January 2017 130 - - 75 3 2 782 992
Profit for the period - - - - - - 94 94
Other comprehensive income - - - - - - 3 3
Total comprehensive income - - - - - - 97 97
Dividends - - - - - - (210) (210)
Issue of share capital 19 200 - - - - - - 200
Equity share-based payment transactions(1) - - - (9) - - - (9)
Change in participation in subsidiaries - - - (1) (1) (2) 4 -
Total transactions with the owners of the Company 200 - - (10) (1) (2) (206) (19)
Balance at 30 June 2017 330 - - 65 2 - 673 1,070
(1) Equity share-based payment transactions include a GBP22 million payment in respect of the shares schemes offset by GBP13 million of IFRS 2 costs.
GBPm
Foreign Total
Share-based currency share-
Share Share Merger payments Other translation Retained holders'
For the year ended 31 December 2017 Notes capital premium reserve reserve reserves reserve earnings equity
Balance at 1 January 2017 130 - - 75 3 2 782 992
Profit for the year - - - - - - 157 157
Other comprehensive income(3) - - - - - - 6 6
Total comprehensive income - - - - - - 163 163
Dividends - - - - - - (210) (210)
Issue of share capital 19 200 58 - - - - - 258
Reduction of share capital 19 (200) - - - - - 200 -
Movement in treasury shares(1) - - - - - - (99) (99)
Equity share-based payment transactions(2) - - - (36) - - 31 (5)
Change in participation in subsidiaries(3) - - - (1) (2) (2) 5 -
Total transactions with the owners of the Company - 58 - (37) (2) (2) (73) (56)
Balance at 31 December 2017 130 58 - 38 1 - 872 1,099
(1) Movement in treasury shares includes GBP99 million of treasury shares within the JSOP Trust that transferred from Old Mutual plc to the Company during 2017. See
note 20(g) for further details.
(2) Equity share-based payment transactions include a GBP31 million transfer to retained earnings representing share-based payment schemes that have fully vested.
(3) A credit to retained earnings of GBP3 million has been reclassified from changes in participation in subsidiaries to other comprehensive income, to conform with
current year presentation.
The notes form an integral part of these condensed consolidated interim financial statements.
Consolidated statement of financial position
At 30 June 2018
GBPm
At At At
30 June 30 June 31 December
Notes 2018 2017 2017
Assets
Goodwill and intangible assets 12 566 678 574
Property, plant and equipment 17 21 18
Investments in associated undertakings(2) 1 1 1
Deferred acquisition costs 12 636 611
Contract costs(1) 575 - -
Contract assets(1) 45 - -
Loans and advances 13 219 200 199
Financial investments(2) 14 64,569 58,493 64,250
Reinsurers' share of policyholder liabilities 17 2,666 3,085 2,908
Deferred tax assets 19 11 22
Current tax receivable 3 24 -
Trade, other receivables and other assets 1,437 1,063 497
Derivative assets 33 84 87
Cash and cash equivalents 18 3,375 2,171 2,360
Assets of operations classified as held for sale 5(g) - - 446
Total assets 73,537 66,467 71,973
Equity and liabilities
Equity
Ordinary share capital 19 133 330 130
Ordinary share premium reserve 19 58 - 58
Merger reserve 19 588 - -
Share-based payments reserve 25 65 38
Other reserves 1 2 1
Retained earnings 1,255 673 872
Total equity 2,060 1,070 1,099
Liabilities
Long-term business insurance policyholder liabilities 21 513 436 489
Investment contract liabilities 21 60,140 55,303 59,139
Third-party interests in consolidated funds 8,105 6,479 7,905
Provisions and accruals 22 115 34 104
Deferred tax liabilities 164 178 190
Current tax payable 12 35 38
Borrowings 23 197 838 782
Trade, other payables and other liabilities 1,937 1,416 1,331
Deferred revenue - 254 244
Contract liabilities(1) 235 - -
Derivative liabilities 59 424 433
Liabilities of operations classified as held for sale 5(g) - - 219
Total liabilities 71,477 65,397 70,874
Total equity and liabilities 73,537 66,467 71,973
(1) The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. It has applied IFRS 15 using the cumulative effect method, under which the comparative
information is not restated. It has also taken advantage of the exemption in paragraph 7.2.15 of IFRS 9 from restating prior periods in respect of IFRS 9's classification
and measurement (including impairment) requirements. Refer to note 4(b) for further information.
(2) As at 31 December 2017, GBP2 million has been reclassified from investments in associated undertakings to financial investments to conform with current year presentation.
Approved by the Board on 7 August 2018.
Paul Feeney Tim Tookey
Chief Executive Officer Chief Financial Officer
The attached notes form an integral part of these condensed consolidated interim financial statements.
Consolidated statement of cash flows
For the 6 month period ended 30 June 2018
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 use by the Group except for cash and cash equivalents in Consolidated Funds.
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
Cash flows from operating activities
Profit before tax 328 123 227
Non-cash movements in profit before tax 853 1,969 4,061
Net changes in working capital(2) (368) 335 1,281
Taxation paid (70) (19) (9)
Total net cash flows from operating activities 743 2,408 5,560
Cash flows from investing activities
Net acquisitions of financial investments (224) (1,982) (4,760)
Acquisition of property, plant and equipment (2) (6) (8)
Acquisition of intangible assets (2) (1) (9)
Acquisition of interests in subsidiaries and associated undertakings joint ventures (568) (24) (33)
Net proceeds from the disposal of interests in subsidiaries(1) 350 208 208
Total net cash used in investing activities (446) (1,805) (4,602)
Cash flows from financing activities
Dividends paid to ordinary equity holders of the Company - (210) (210)
Finance costs (3) (20) (39)
Proceeds from issue of ordinary shares 591 200 258
Proceeds from issue of subordinated and other debt 497 - -
Subordinated and other debt repaid (516) (1) (57)
Total net cash from/(used in) financing activities 569 (31) (48)
Net increase in cash and cash equivalents 866 572 910
Cash and cash equivalents at beginning of the year 2,508 1,595 1,595
Effects of exchange rate changes on cash and cash equivalents 1 4 2
Cash and cash equivalents at end of the period 18 3,375 2,171 2,507
Cash flows include both continuing and discontinued operations and cash held for sale.
(1) Net proceeds from the disposal of interests in subsidiaries includes the cash consideration on disposal of the Single Strategy business of GBP540 million (see note 5(b)),
less cash within the Single Strategy business at the point of disposal of GBP170 million and GBP20 million transaction costs.
(2) In the year end 31 December 2017, the cash flow statement has been amended to include cash of GBP147 million that was previously included in assets held for sale in respect
of the Single Strategy business which has subsequently been sold in 2018.
The notes form a integrated part of these condensed consolidated Interim Financial Statements
Basis of preparation and significant accounting policies
For the 6 month period ended 30 June 2018
General Information
These interim financial statements are the condensed consolidated interim financial statements for the Group, consisting of Quilter plc, formerly
known as Old Mutual Wealth Management Limited, and its subsidiaries. Quilter plc (the 'Company'), a public limited company incorporated and
domiciled in the United Kingdom ('UK'), together with its subsidiaries (collectively, the 'Group') offers investment and wealth management services,
life assurance and long-term savings, and financial advice through its subsidiaries and associates primarily in the UK with a presence in a number
of cross-border markets.
The address of the registered office is Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ.
The Company was, until 25 June 2018, a wholly owned subsidiary of Old Mutual plc, a FTSE 100 listed group. The Company formed part of the Old
Mutual Wealth division of Old Mutual plc, for which it acted as a holding company and delivered strategic and governance oversight. On 25 June
2018, Quilter plc was listed on the London and the Johannesburg Stock Exchanges and is no longer part of the Old Mutual plc group.
1: Basis of preparation
The IFRS condensed consolidated interim financial statements ('interim financial statements') of Quilter plc for the six months to 30 June 2018 have
been prepared in accordance with IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board, as adopted by the
European Union. These interim financial statements, which are unaudited, should be read in conjunction with the Group's Historical Financial
Information ('HFI') as at and for the year ended 31 December 2017 included in the listing prospectus dated 20 April 2018, which is available on the
Group's website.
Pursuant to section 435 of the Companies Act, the comparative figures for the financial year ended 31 December 2017 are not the company's
statutory accounts for that financial year. Those accounts were company only accounts and have been reported on by the company's auditor and
delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
They do not include all of the information required for a complete set of IFRS financial statements. However, 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 2017 HFI report in the prospectus. The Board also believes that alternative performance measures ('APMs') provided, such as
adjusted profit, are also useful for both management and investors.
This is the first set of the Group's financial statements where IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers
have been applied. Changes in significant accounting policies to reflect these new IFRSs are explained in note 4. All other accounting policies for
recognition, measurement, consolidation and presentation are as outlined in the 2017 HFI report in the prospectus. The interim financial statements
have been prepared on the 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, taking into account its current financial position, the principal risks facing the business
and the effectiveness of any mitigating strategies. As a result, the directors believe that the Group is well placed to manage its business risks in the
context of the current economic outlook and 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. They therefore continue to adopt the going concern basis in preparing the interim financial statements.
Critical accounting estimates and judgements
In preparing these interim financial statements, management has made estimates and judgements that affect the amounts of assets and liabilities,
income and expense reported, as well as the application of the Group's accounting policies. The critical areas of accounting estimates and
judgement are the same as the 2017 HFI report in the prospectus, except for new significant judgements and key sources of estimation uncertainty
introduced through applying IFRS 9 and IFRS 15 for the first time. This is explained in more detail in note 4.
Acquisitions and disposals within the period ended 30 June 2018 and year ended 31 December 2017
Within these financial statements, the following acquisitions and disposals have taken place and therefore their financial impacts feature within
certain reporting periods (further details of the acquisitions is included in note 5). As part of the separation from Old Mutual plc, the acquisition of
Skandia UK Limited included GBP566 million of intercompany indebtedness which was replaced with equity in the form of share capital and a merger
reserve (further details are included in note 19).
Acquisitions completed within the six month period ended 30 June 2018:
- Skandia UK Limited - acquired from Old Mutual Plc on 31 January 2018
- Quilter Private Client Advisers ('QPCA') - acquired six adviser businesses
Disposals completed within the six month period ended 30 June 2018:
- Old Mutual Wealth Single Strategy Business - sale completed on 29 June 2018
Acquisitions completed within the twelve month period ended 31 December 2017:
- Caerus Capital Group Limited - acquired on 1 June 2017
- QPCA - acquired eight adviser businesses during the year
- Attivo Investment Management Limited - acquired on 29 March 2017
- Commsale 2000 Limited - acquired from Old Mutual plc on 29 September 2017
- Global Edge Technology Limited - acquired from Old Mutual plc on 30 November 2017
Disposals completed within the twelve month period ended 31 December 2017:
- Old Mutual Wealth Italy S.p.A - sale completed on 9 January 2017
Accounting policy elections
The following significant accounting policy election has been made by the Group:
Financial instruments
The Group has elected to designate at fair value through profit and loss ('FVTPL') some government debt securities, held to back insurance
liabilities, which would ordinarily be held at amortised cost or fair value through other comprehensive income ('FVOCI') under IFRS 9, to eliminate or
reduce an accounting mismatch that would otherwise arise.
Basis of consolidation
The consolidated interim financial statements incorporate the assets, liabilities and the results of the Company and its subsidiary undertakings
(investees). Subsidiary undertakings are those entities, including structured entities, controlled by the Group. Subsidiaries are consolidated from
the date the Group obtains control and are excluded form consolidation from the date the Group loses control.
Where necessary, adjustments are made to financial statements of subsidiaries to bring the accounting policies used in line with Group policies. All
intercompany transactions, balances and unrealised surpluses and deficits on transactions between Group companies are eliminated on
consolidation.
On consolidation, the interests of parties other than the Group are assessed to determine whether they should be classified as liabilities or as non-
controlling interests ('NCIs') on the consolidated statement of financial position under equity. The amounts are reported as a liability and described
as 'Third-party interests in consolidated funds'. Such interests are not recorded as non-controlling interests as these instruments are puttable
instruments as defined by IAS 32 Financial Instruments: Presentation and meet the liability classification requirements set out in IAS 32. These
liabilities are regarded as current, as they are repayable on demand, although it is not expected that they will be settled in a short time period.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated interim financial statements.
Liquidity analysis of the statement of financial position
The Group's statement of financial position is in order of liquidity as is permitted by IAS 1 Presentation of Financial Statements. For each asset and
liability line item, those amounts, expected to be recovered or settled after more than twelve months after the reporting date are disclosed
separately in the notes to the financial statements, except where specific notes are not required within the consolidated interim financial statements.
Critical accounting estimates and judgements
The preparation of financial statements requires management to exercise judgement in applying accounting policies and make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. Critical accounting estimates and
judgements are those that involve the most complex or subjective assessments and assumptions. Management uses its knowledge of current facts
and circumstances and applies estimation and assumption setting techniques that are aligned with relevant actuarial and accounting guidance to
make predictions about future actions and events. Actual results may differ significantly from those estimates.
The Group Audit Committee reviews the reasonableness of judgements and assumptions applied and the appropriateness of significant accounting
policies adopted in the preparation of these financial statements.
The areas where judgements, estimates and assumptions have the most significant effect on the amounts recognised in the condensed
consolidated financial statements are summarised separately below:
Area Critical accounting judgement
Consolidation Assessment of whether the Group controls underlying entities (investees), including investment funds, based on
whether the Group has (1) power over the investee, (2) exposure or rights to variable returns from its involvement
with the investee and (3) the ability to affect those returns through its power over the investee.
Insurance contracts Assessment of the significance of insurance risk transferred to the Group in determining whether a contract should
- classification be classified (and accounted for) as an insurance or investment contract.
Provisions and In assessing whether a provision should be recognised or a contingent liability disclosed, the Group evaluates the
contingent liabilities likelihood of a constructive or legal obligation to settle an event that took place in the past and whether a reliable
- recognition estimate can be made.
Deferred tax The calculation and recognition of temporary differences resulting in deferred tax balances includes judgement as to
the extent to which future taxable profits are available against which temporary differences can be utilised.
Area Critical accounting assumption/estimate
Insurance contracts Measurement involves significant use of assumptions including mortality, morbidity, persistency, expense valuation
- measurement and interest rates.
Provisions The amount of provision is calculated based on the Group's estimation of the expenditure required to settle the
- measurement obligation at the statement of financial position date.
Deferred tax The estimation of future taxable profits is performed as part of the annual business planning process, and is based
on estimated levels of assets under management, which are subject to a large number of factors including worldwide
stock market movements, related movements in foreign exchange rates and net client cash flow, together with
estimates of expenses and other charges.
Goodwill and The valuation of intangible assets that are recognised as the result of a business combination involves the use of
intangible assets valuation models.
In relation to goodwill impairment, the determination of a cash generating unit's ('CGUs') recoverable value is based
on the discounted value of the expected future profits of each business. Significant estimates include forecast cash
flows, new business growth and discount rates.
Intangible assets are tested for impairment using an income approach method using estimates such as forecast cash
flows and discount rate.
Valuation of Where quoted market prices are not available, valuation techniques are used to value financial investments, using
investments both observable and unobservable market inputs. These are categorised as level 3 in the fair value hierarchy.
Impairment of Under IFRS 9, a forward-looking impairment model, based on expected credit losses ('ECLs'), applies to financial
financial assets at assets held at amortised cost. ECLs are probability-weighted estimates of credit losses. In calculating this ECL
amortised cost allowance, the Group considers information about past events and current conditions as well as supportable
information about future events and economic conditions.
In addition, for loans to which the three stage general model of impairment is applied, judgement is required to
determine which indicators represent a significant increase in credit risk and thereby trigger the recognition of a
lifetime ECL allowance.
2: New standards, amendments to standards, and interpretations adopted in the 2018 condensed financial statements
The Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers for the first time in 2018. Although
significant standards, they did not have a material impact on the Group. The majority of the Group's financial assets and liabilities continue to be
measured at fair value through profit or loss ('FVTPL') after the implementation of IFRS 9. In relation to IFRS 15 the Group was already largely
compliant in the way it recognises fee and commission income. The impact of adopting these two new standards is outlined in note 4: Significant
accounting policies.
Other standards:
There are a number of amendments to IFRS that have been issued by the International Accounting Standards Board ('IASB') that become
mandatory during 2018 or in a subsequent accounting period. The Group has evaluated these changes and none are expected to have a significant
impact on the condensed consolidated interim financial statements.
3: Future standards, amendments to standards, and interpretations not early-adopted in these financial statements
Certain new standards, interpretations and amendments to existing standards have been published by the IASB that are mandatory for the Group's
annual accounting periods beginning after 1 January 2018. The Group has not early adopted these standards, amendments and interpretations.
The new standards that will have a significant impact on the Group are summarised below:
- IFRS 16 Leases
The IASB issued IFRS 16 Leases in January 2016. IFRS 16 sets out the principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor'). IFRS 16 replaces the previous leases
standard, IAS 17 Leases, and related Interpretations.
For lessees, IFRS 16 will result in almost all leases being recognised in the statement of financial position as IFRS 16 eliminates the
classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting
model. Applying that model, a lessee is required to recognise:
(a) assets (the right to use the leased item) and liabilities (to pay lease rentals); and
(b) depreciation of lease assets separately from interest on lease liabilities in the income statement.
The only exceptions to these requirements are for leased arrangements that are short term in nature (less than 12 months) or low value leased items.
Accounting for lessors will not change significantly, as IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17.
Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases
differently.
The most significant effect of the new requirements in IFRS 16 is a potential increase in the recognition of lease assets and financial liabilities
on the statement of financial position. The Group is currently assessing the impact of IFRS 16 and has identified those lease arrangements for
which the right to use assets and financial liabilities are required to be recognised, i.e. those that are neither short term nor low value. The
Group is in the process of quantifying the right to use assets and financial liabilities. The new requirements are not likely to have a material
impact on the Group.
Effective date
IFRS 16 will be effective for accounting periods beginning on or after 1 January 2019. The Group intends to apply the simplified transition
approach and will not restate comparative amounts for the year prior to first adoption.
- IFRS 17 Insurance contracts
The IASB issued IFRS 17 Insurance Contracts in May 2017. IFRS 17 replaces its interim predecessor, IFRS 4 Insurance Contracts, and is a
comprehensive standard which provides a single accounting model for all insurance contracts. IFRS 17 replaces a wide range of different
accounting practices previously permitted, improving transparency and enabling investors and regulators to understand and compare the
financial position and performance of an insurer, irrespective of where they are based geographically.
The measurement model
The use of current estimates at each reporting date and an explicit risk adjustment to measure obligations created by insurance contracts,
provides up to date information about cash flows and associated risk and timing. 'Day one' profits are deferred and recognised in the income
statement through the release of the contractual service margin ('CSM'), which has the effect of recognising revenue as services are provided
and the insurer is released from risk. This is consistent with the treatment in IFRS 15.
Presentation and disclosure
Insurers' financial statements will look different under IFRS 17. Insurers will be required to provide information about sources of profit or losses
from insurance service, comprising insurance revenue and insurance service expenses (underwriting activity), as well as insurance finance
income or expense (investing activity). New performance metrics and KPIs will be required to explain business results to the investment
community. Disclosure requirements focus on amounts recognised in the financial statements, significant judgements and changes in those
judgements, as well as information about the nature and extent of risks that arise from insurance contracts.
Effective date
IFRS 17 has an effective date of 1 January 2021, with early adoption available. The standard is yet to be endorsed by the EU. Management is
currently assessing the impact of this standard on the Group, prior to establishing a multi-functional project team involving Finance, Actuarial,
Risk and IT to assess operational impacts.
- Other
The IASB issued IFRIC 23 Uncertainty over Income Tax Treatments in June 2017. This Interpretation sets out how to determine taxable profit
(tax loss), tax bases, unused tax losses, unused tax credits and tax rates (collectively referred to as 'accounting tax position') where there is
uncertainty over treatment. The Group is currently evaluating the impact of the adoption of this interpretation. IFRIC 23 is effective for the
Group for the year commencing 1 January 2019.
Although there are other new standards, interpretations and amendments to existing standards that have been published, they are not expected to
have a significant impact on the condensed consolidated interim financial statements of the Group.
4: Significant accounting policies
Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's
Historical Financial Information, within the listing prospectus, as at and for the year ended 31 December 2017.
The changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending
31 December 2018.
Changes in significant accounting policies
4(a): Merger accounting and the merger reserve
A pooling of interests method or merger accounting is used by the Group for common control combinations, which are transactions between entities
that are ultimately controlled by the same party or parties. This method treats the merged entities as if they had been combined throughout the
current and comparative accounting periods. Merger accounting principles for these combinations result in the recognition of a merger reserve in
the consolidated statement of financial position, being the difference between the nominal value of any new shares issued by the parent company
for the acquisition of the shares of the subsidiary and the subsidiary's Net Asset Value ('NAV'). Such transactions attract merger relief under
section 612 of the Companies Act 2006. For further information see note 19.
4(b): New IFRSs
As outlined in note 2 above, the Group has adopted IFRS 9 Financial instruments (July 2014) and IFRS 15 Revenue from Contracts with Customers
from 1 January 2018. The adoption of IFRS 15 has not resulted in any material impact on the Group's existing practises and accounting policies,
except for the incorporation of new terminology introduced by the standard. The adoption of IFRS 9 during the six month period has resulted in
changes to accounting policies and a small adjustment to opening retained earnings for moving to a forward looking impairment model, based on ECLs.
4(b)(i): IFRS 9 Financial Instruments
Financial instruments (other than derivatives)
Financial instruments cover a wide range of financial assets, including financial investments, trade receivables and cash and cash equivalents and
financial liabilities, including investment contract liabilities, trade payables, and borrowings.
Financial assets and financial liabilities are recognised in the Group's statement of financial position when the Group becomes party to the
contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to receive cash flows have expired
or been forfeited by the Group. A financial liability is derecognised when, and only when the liability is extinguished.
Classification and measurement of financial assets and financial liabilities
Initial measurement
A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially
measured at fair value plus, for an item not at fair value through the profit or loss ('FVTPL'), transaction costs that are directly attributable to its
acquisition.
Subsequent measurement
Under IFRS 9, for the purpose of subsequent measurement, a financial asset is classified, on initial recognition, as measured at: amortised cost;
FVOCI-debt instrument; FVOCI-equity investment; or FVTPL. The classification of financial assets depends on (i) the purpose for which they were
acquired, (ii) the business model in which a financial asset is managed, and (iii) its contractual cash flow characteristics. This classification
determines the subsequent measurement basis. The following accounting policies apply to the subsequent measurement of financial assets.
Measurement basis Accounting policies
Financial assets at FVTPL These financial assets are subsequently measured at fair value. Net gains and losses, including interest and
dividend income, are recognised in profit or loss.
Amortised cost These financial assets are subsequently measured at amortised cost using the effective interest rate method.
The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and
impairment are recognised in profit or loss. Any gain or loss on de-recognition is recognised in profit or loss.
Debt investments at These financial assets are subsequently measured at fair value. Interest income calculated using the effective
FVOCI interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net
gains and losses are recognised in OCI. On de-recognition, gains and losses accumulated in OCI are reclassified
to profit or loss.
Equity investments at These financial assets are subsequently measured at fair value. Dividends are recognised as income in profit or
FVOCI loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and
losses are recognised in OCI and are never reclassified to profit or loss.
Business model assessment
The Group assesses the objective of a business model in which an asset is held at a portfolio level because this best represents the way the
business is managed and information is reported to management. The assessment considers the stated portfolio policies and objectives. It is
important to determine whether management's strategy in holding the financial asset is to earn contractual interest revenue, for example to match
the duration of financial assets to the duration of liabilities that are funding those assets or to realise cash flows through the sale of the assets. The
frequency, volume and timing of sales in prior periods may be reviewed, along with the reasons for such sales and expectations about future sales
activity. This helps management determine whether financial assets should be measured at fair value.
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model for
managing financial assets. Reclassifications are expected to occur infrequently.
Amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated at FVTPL:
- the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
- the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest ('SPPI') on the
principal amount outstanding on specified dates.
For the purposes of this assessment, principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as
consideration of the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time
and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.
Financial assets at FVOCI
A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated at FVTPL:
- the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial
assets; and
- the contractual terms of the financial asset give rise to cash flows that are SPPI on the principal amount outstanding on specified dates.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in fair
value in OCI. This election is made on an investment-by-investment basis.
Financial assets at FVTPL
All other financial assets that are not measured at amortised cost or FVOCI are classified as measured at FVTPL. This includes all derivative
financial assets. In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to
be measured at amortised cost or at FVOCI, at FVTPL, if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Financial assets that are held for trading or whose performance is evaluated on a fair value basis are measured at FVTPL because this best reflects
the way they are managed and they do not satisfy the qualifying conditions for the other two business models.
The Group's interests in pooled investment funds, equity securities and debt securities are designated at FVTPL, as they are part of groups of
financial assets which are managed and whose performance is evaluated on a fair value basis. These investments are recognised at fair value
initially and subsequently, with changes in fair value recognised in investment return in the consolidated income statement.
The fair value of quoted financial investments, which represents the vast majority of the Group's investments, are based on the value within the bid-
offer spread that is most representative of fair value. If the market for a financial investment is not active, the Group establishes fair value by using
valuation techniques such as recent arm's length transactions, reference to similar listed investments, discounted cash flow or option pricing models.
The Group recognises purchases and sales of financial investments on trade date, which is the date that the Group commits to purchase or sell the
assets. The costs associated with investment transactions are included within expenses in the statement of comprehensive income.
Loans and advances
Loans with fixed maturities, including policyholder loans, are recognised when cash is advanced to borrowers or policyholders. Policyholder loans
are interest free and are designated at FVTPL since they are taken from the policyholder's account and thereby linked to underlying investments
held at FVTPL. Other loans and advances are carried at amortised cost using the effective interest rate method. These assets are subject to the
impairment requirements outlined below.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits that are readily convertible to a known amount of cash. Cash and cash
equivalents held within consolidated unit trust funds are classified as FVTPL. All other cash and cash equivalents are classified as at amortised
cost which means they are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method and are
subject to the impairment requirements outlined below.
Financial liabilities and equity
Management also determines the classification of financial liabilities at initial recognition. The Group classifies its financial liabilities, as measured
at either amortised cost or FVTPL.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. At inception,
investment contract liabilities for unit linked business are designated as financial liabilities and measured at FVTPL. For unit-linked contracts, the
fair value liability is equal to the total value of units allocated to the policyholders, based on the bid price of the underlying assets in the fund. The
FVTPL classification reflects the fact that the matching investment portfolio, that mirrors the unit-linked liabilities, is managed, and its performance
evaluated, on a fair value basis. Other financial liabilities are measured at amortised cost using the effective interest method.
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Trade payables and receivables
Due to the short term nature of trade payables and receivables, their carrying amount is considered to be the same as their fair value.
Investments in subsidiaries
Parent Company investments in subsidiary undertakings are initially stated at cost. Subsequently, investments in subsidiary undertakings are stated
at cost less provision for impairment. An investment in a subsidiary is deemed to be impaired when its carrying amount is greater than its estimated
recoverable amount, and there is evidence to suggest that the impairment occurred subsequent to the initial recognition of the asset in the financial
statements. All impairments are recognised in the income statement as they occur.
Impairment of financial assets
IFRS 9 introduces an expected loss accounting model for credit losses that differs significantly from the incurred loss model under IAS 39 and
results in earlier recognition of credit losses. For further details of our credit risk management practices, refer to the credit risk section of our 2017
Historical Financial Information, within the listing prospectus.
The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to
investments in equity instruments. Financial assets at amortised cost include trade receivables, cash and cash equivalents and corporate debt
securities.
Under IFRS 9, credit loss allowances are measured on each reporting date according to a three stage ECL impairment model.
Performing financial assets
Stage 1
From initial recognition of a financial asset to the date on which an asset has experienced a significant increase in credit risk relative to its initial
recognition, a stage 1 loss allowance is recognised equal to the credit losses expected to result from its default occurring over the earlier of the next
12 months or its maturity date ('12-month ECL').
Stage 2
Following a significant increase in credit risk relative to the initial recognition of the financial asset, a stage 2 loss allowance is recognised equal to
the credit losses expected from all possible default events over the remaining lifetime of the asset ('Lifetime ECL').
The assessment of whether there has been a significant increase in credit risk requires considerable judgment, based on the lifetime probability of
default ('PD'). Stage 1 and 2 allowances are held against performing loans; the main difference between stage 1 and stage 2 allowances is the time
horizon. Stage 1 allowances are estimated using the PD with a maximum period of 12 months, while stage 2 allowances are estimated using the
PD over the remaining lifetime of the asset.
Impaired financial assets
Stage 3
When a financial asset is considered to be credit-impaired, the allowance for credit losses ('ACL') continues to represent lifetime expected credit
losses, however, interest income is calculated based on the amortised cost of the asset, net of the loss allowance, rather than its gross carrying
amount.
Application of the new impairment model
The Group applies IFRS 9's new ECL model to two main types of financial assets that are measured at amortised cost or FVOCI:
- Trade receivables and contract assets, to which the simplified approach prescribed by IFRS 9 is applied. This approach requires the
recognition of a Lifetime ECL allowance on day one.
- Loans at amortised cost, to which the general three stage model (described above) is applied, whereby a 12 month ECL is recognised
initially and the balance is monitored for significant increases in credit risk which triggers the recognition of a Lifetime ECL allowance.
ECLs are a probability-weighted estimate of credit losses. ECLs for financial assets that are not credit-impaired at the reporting date are measured
as the present value of all cash shortfalls (i.e. the difference between the cash flows due in accordance with the contract and the cash flows that the
Group expects to receive). ECLs for financial assets that are credit-impaired at the reporting date are measured as the difference between the
gross carrying amount and the present value of estimated future cash flows. ECLs are discounted at the effective interest rate of the financial
asset. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
The measurement of ECLs considers information about past events and current conditions, as well as supportable information about future events
and economic conditions. The Group has revised its impairment methodology for estimating the ACL, taking into account forward-looking
information in determining the appropriate level of allowance. In addition it has identified indicators and set up procedures for monitoring for
significant increases in credit risk.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost and any debt financial assets carried at FVOCI are
credit-impaired. A financial asset is credit impaired when one or more events that have a detrimental impact on the estimated future cash flows of
the financial asset have occurred. Evidence that a financial asset is credit-impaired includes events such as significant financial difficulty of the
borrower or issuer, a breach of contract such as a default or past due event or the restructuring of a loan or advance by the Group on terms that the
Group would not otherwise consider.
Presentation of impairment
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. For debt securities at
FVOCI, the loss allowance is recognised in OCI, instead of reducing the carrying amount of the asset.
Write-offs
Loans and debt securities are written off (either partially or in full) when there is no realistic prospect of the amount being recovered. This is
generally the case when the Group concludes that the borrower does not have assets or sources of income that could generate sufficient cash
flows to repay the amounts subject to the write-off.
Hedge accounting
The Group does not currently apply hedge accounting and has elected to defer the application of hedge accounting requirements in IFRS 9 and will
assess them once the IASB has completed its project. It will disclose information on the impact of adoption in the first set of financial statements, in
which it has applied the IFRS 9 hedging requirements.
IFRS 9 Transition
Assessments have been carried out on the basis of the facts and circumstances that existed at the date of initial application to determine the
business model within which a financial asset is held and to establish the designation and revocation of previous designations of certain financial
assets and financial liabilities as measured at FVTPL.
Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except that, in accordance with the
transitional provisions in IFRS 9 (7.2.15), comparative information for prior periods has not been restated. Accordingly, all comparative period
information is presented in accordance with the Group's previous accounting policies, as described in the 2017 Historical Financial Information
report. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in
retained earnings as at 1 January 2018.
Classification and measurement on adoption
For the Quilter Group, there is no financial impact on adopting IFRS 9 for changes in the measurement basis for financial assets and liabilities and
consequently no adjustment to opening retained earnings at 1 January 2018. There has however been a change to classification terminology,
outlined below for the Group's main financial instruments:
IFRS 9 IAS 39
Financial instrument Classifications and Classifications Measurement
measurement models model
- Cash and cash equivalents Amortised Cost Loans and receivables Amortised Cost
- Trade receivables
- Loans and advances (not unit-linked)
- Debt instruments (unit-linked)(1) FVTPL (mandatory) FVTPL FVTPL
- Equity instruments (unit-linked) (designated)
- Loans and advances (unit-linked)
(1) Quilter's unit-linked business, where a portfolio of financial assets and liabilities is managed and its performance evaluated on a fair value basis in accordance with its
risk management strategy, is required to be held at FVTPL (not elected) under IFRS 9. This is due to the business model being neither (i) held to collect contractual cash
flows nor (ii) held both to collect contractual cash flows and to sell financial assets.
IFRS 9 introduces a third classification and measurement model, fair value through other comprehensive income ('FVOCI'), which was not
applicable to the Group on transition.
Impairment on adoption
For assets in the scope of the IFRS 9 impairment model, impairment losses are generally expected to increase. The Group has determined that the
application of IFRS 9's impairment requirements at 1 January 2018 results in a small additional impairment allowance as follows:
GBPm
Opening retained earnings IAS 39 872.0
Increase in provision for trade receivables (0.1)
Increase in provision for loans (0.1)
Total adjustment to retained earnings for adoption of IFRS 9 (0.2)
Opening retained earnings IFRS 9 871.8
4(b)(ii): IFRS 15 Revenue from Contracts with Customers
As indicated in note 2 above, the Group has adopted IFRS 15 Revenue from Contracts with Customers as issued by the IASB in May 2014 using
the cumulative effect method. Accordingly, the information presented for 2017 has not been restated, i.e. it is presented, as previously reported,
under IAS 18 Revenue.
Under IFRS 15, revenue is recognised when a customer obtains control of goods or services. Determining the timing of the transfer of control, at a
point in time or over time, requires judgement. IFRS 15 establishes a comprehensive framework for determining whether, how much and when
revenue is recognised.
The Group performed an assessment to determine the impact of the new standard on the Group's statement of financial position and performance.
It considered the five-step analysis prescribed by the standard, taking into account the different types of contracts it has with its customers, the
corresponding types of services provided to customers and when these service obligations are satisfied. In addition, the Group considered the types
of fee income generated across all products from the contracts with its customers and when the fee income is recognised - see the table below for
further information. The assessment concluded that new requirements would not result in the Group having to change the nature or timing of
satisfaction of performance obligations and significant payment terms. Consequently, the cumulative impact of adoption was nil and as a result no
adjustment to the Group's opening retained earnings as at 1 January 2018 has been recognised.
Fee and commission income represents the fair value of services provided, net of value-added tax and consists predominantly of fees charged to
clients in respect of investment contracts, fund management activities and the provision of financial advice. This includes income in respect of plan
and policy administration, investment management services, surrenders and other contract-related services in relation to the Group's unit linked
business. The fees may be for fixed amounts or vary with the amounts being managed, and will generally be charged as an adjustment to the
client's balance.
Fee and commission income is recognised as revenue as investment management and other services are provided to policyholders. Typically these
services are deemed to be provided evenly over the lifetime of a contract, except where service obligations are fully delivered at the inception of the
relevant contract. Where fees such as initiation and advice fees are received at the beginning of the contract for services not yet provided, either
immediately at inception or over an initial period, the income is deferred and recognised as a contract liability on the statement of financial position
and released to the income statement as services are provided over the lifetime of the contract.
Performance-based incentive fees are charged for managing certain investment funds in the Group's asset management business. These fees are
based on the fund's performance at fixed dates relative to a benchmark. Revenue is recognised only when the performance of the fund for the
period is known and has crystallised, usually bi-annually.
The table below summarises the types of fee and commission income generated by the Group.
Type of fee Description Nature of change in
accounting policy
Premium based This relates to initial fees taken on receipt of clients' investments and recognised on receipt over
fees the life of the contract.
Fund based Periodic fee income based on the market valuation of the investment contracts and recognised
fees over time in line with the provision of investment management services.
Fixed fees Periodic fee income fixed in value according to underlying contract terms, and transactional dealing IFRS 15 did not have
fees. These are recognised on provision of the transaction. a significant impact on
the Group's
Surrender fees Fee income relates to client charges received on the surrender of an investment contract or accounting policies.
insurance contract, which is based on the value of the policy and recognised on surrender of the
policy.
Other fee and Fees in respect of advice provided to clients. Typically, fee income is paid by providers of the
commission financial products at the point of sale to the client. This is when the advice has been provided to
income the client and the financial adviser's performance obligation has been fully delivered. Accordingly,
fee income is recognised at the inception of the financial product sold.
The introduction of IFRS 15 did not result in changes to the Group's significant accounting policies, except to update them for new terminology
introduced by the new standard for contract costs (previously known as deferred acquisition costs for non-insurance contracts), contract assets
(previously known as accrued income from contracts with customers), and contract liabilities (previously known as deferred fee income from
contracts with customers).
Notes to the Condensed Consolidated interim Financial Statement for the 6 month period 30 June 2018
5: Acquisitions, discontinued operations and disposal groups held for sale
This note provides details of the acquisitions and disposals of subsidiaries the Group has made during the period, together with details of
businesses held for sale during that same period.
5(a) Business acquisitions completed during the period
Business acquisitions completed during period ended 30 June 2018
Acquisition of Skandia UK Limited from Old Mutual plc
On 31 January 2018, the Group acquired the Skandia UK Limited group of entities from Old Mutual plc which comprises seven Old Mutual plc group
entities with a net asset value ('NAV') of GBP591 million. The transfer was financed by the issue of a share and with the balance represented by a
merger reserve. No debt was taken on as a result of this transaction. The most significant asset within these entities is a GBP566 million receivable
which corresponds to an equivalent payable within the Group's statement of financial position. The net effect of this transaction for the Group is to
replace a payable due to Old Mutual plc with equity. For further information see note 19.
Quilter Private Client Advisers ('QPCA') (formerly Old Mutual Wealth Private Client Advisers)
During the first half of 2018, the Group completed the acquisition of six adviser businesses as part of the expansion of the QPCA business. The
total cash consideration paid was an initial GBP2 million with additional potential deferred consideration of GBP5.5 million which is expected to be paid in
full (discounted to net present value for this and all other listed acquisitions below), dependent upon meeting certain performance targets, generally
relating to funds under management.
Goodwill of GBP3 million and other intangible assets of GBP3 million were recognised as a result of the transaction. The deferred consideration was
capitalised in the calculation of goodwill recognised.
Business acquisitions completed during year ended 31 December 2017
Caerus Capital Group Limited ('Caerus')
On 1 June 2017, the Group, completed the acquisition of 100% of the share capital of Caerus, a UK based adviser network that operates in a
similar manner to Intrinsic (another Group business within the Advice and Wealth Management segment) and which has approximately GBP4 billion of
funds under advice and 300 advisers.
The total consideration of GBP24 million includes GBP15 million cash consideration and up to GBP3 million that has been deferred for two years and up to GBP6
million that has been deferred for three years. The deferred consideration has been included as part of the cost of the acquisition as there is no
continuing employment condition applying to the sellers of the business. The deferred consideration payable is dependent on turnover targets post
acquisition and is potentially reduced by the amount of any relevant claims arising from in-force business existing prior to the payment dates.
The purchase price has been allocated based on the fair value of assets acquired and liabilities assumed at the date of acquisition determined in
accordance to IFRS 3 Business Combinations.
The carrying value of assets and liabilities in Caerus's consolidated statement of financial position on acquisition date approximates the fair value of
these items determined by the Group. In addition, the Group recognised identified intangible assets of GBP10 million relating to customer distribution
channels. The value of the intangible assets was determined by applying cash flows to standard industry valuations models. Goodwill of GBP10 million
was recognised on the acquisition which is attributable to the delivery of cost and revenue synergies that cannot be linked to identifiable intangible
assets.
Transaction costs incurred of GBP1 million relating to the acquisition have been recognised within other expenses in the consolidated income
statement, but not included within adjusted profit.
Quilter Private Client Advisers ('QPCA')
During 2017, the Group completed the acquisition of eight adviser businesses as part of the expansion of its QPCA business that was launched in
October 2015. The aim is to develop an Quilter plc branded, employed adviser business focused upon servicing upper affluent and high net worth
clients, offering a centrally-defined restricted advice proposition focused upon Group's investment solutions and platform.
The purchase price has been allocated based on the fair value of assets acquired and liabilities assumed at the date of acquisition determined in
accordance to IFRS 3 Business Combinations.
The aggregate estimated consideration payable is GBP20 million, of which GBP10 million was cash consideration and up to GBP10 million in relation to
deferred payments. The amount of deferred consideration is dependent upon meeting certain performance targets, generally relating to the value of
funds under management and levels of on-going fee income. The deferred consideration has been included as part of the cost of the acquisition.
Total other intangible assets of GBP9 million in respect of customer relationships have been recognised as a result of the acquisitions, together with
goodwill of GBP7 million, GBP2 million of which has been transferred from intangibles to goodwill following a review of the purchase price allocations in
2018 (see note 12a).
Transaction costs incurred of GBP1 million relating to the acquisitions have been recognised within other operating expenses in the consolidated
income statement, but not included within adjusted profit.
Attivo Investment Management Limited ('AIM')
On 29 March 2017, the Group completed the acquisition of 100% of the share capital of AIM, a UK based investment management business
offering a comprehensive investment management service.
The fair value of the total estimated consideration was GBP9 million, of which GBP5 million was cash consideration and GBP4 million was deferred for two
years. The deferred consideration is included within the cost of the acquisition because it is dependent on levels of assets under management being
maintained, with no requirement for continuing employment applied to the sellers of the business.
The book value of total assets and total net assets of the acquired business were both less than GBP1 million.
The purchase price has been based on the fair value of assets acquired and liabilities assumed at the date of acquisition determined in accordance
to IFRS 3 Business Combinations.
The carrying value of assets and liabilities in AIM's statement of financial position on acquisition date approximates the fair value of these items
determined by the Group. Other intangible assets of GBP8 million, relating to customer relationships, were recognised as a result of the acquisition. No
goodwill was recognised on this transaction.
Transaction costs incurred of GBP0.5 million relating to the acquisition have been recognised within other operating expenses in the consolidated
income statement, but not included within adjusted profit.
Commsale 2000 Limited ('Commsale')
On 29 September 2017, the Group acquired Commsale from Old Mutual plc. Commsale is a UK based service company that runs the lease for the
head office building and is responsible for the payment of rent, rates and service charges relating to the building and recharging the costs to all
tenants through a service charge.
This represents a business combination involving entities or businesses under common control because the combining businesses are ultimately
controlled by the same party or parties before and after the business combination.
The total consideration was GBP0.29 million. The fair value of the identifiable assets at the date of acquisition was GBP0.45 million, with a gain on
purchase of GBP0.16 million being recognised, representing assets not valued within the agreed consideration.
Global Edge Technology Ltd ('GET')
On 30 November 2017, the Group acquired 100% of the issued share capital of GET from Old Mutual plc. GET is a service company incorporated
in South Africa, with a branch in the UK that provides IT support for the Quilter group's Platform business services.
This represents a business combination involving entities or businesses under common control because the combining businesses are ultimately
controlled by the same party or parties before and after the business combination.
The total consideration was GBP0.8 million. The fair value of the identifiable assets at the date of acquisition was GBP4.1 million, with a gain on purchase
GBP3.3 million being recognised. We determined that the excess of book value over consideration paid was attributable to potential future integration
costs which, if incurred, would be expensed in future periods. As potential future integrating activities do not qualify to be recognised as a liability in
the application of the acquisition method of accounting, no such liability was recognised, and we recorded the excess as a bargain purchase gain.
5(b) Disposal of subsidiaries, associated undertakings and strategic investments
Period ended 30 June 2018
In December 2017, the Group announced that it had entered into an agreement to sell its Single Strategy asset management business ('Single
Strategy business') to a special purpose vehicle ultimately owned by funds managed by TA Associates and certain members of the Single Strategy
management team (together 'the Acquirer'). On 29 June 2018, the Group completed the sale for a total consideration of GBP583 million, comprising
cash consideration of GBP540 million on completion, with an additional GBP7 million anticipated to be payable thereafter, paid primarily in 2019 to 2021 as
surplus capital associated with the separation from the Group is released in the business. The deferred consideration is not subject to performance
conditions. The remaining proceeds of GBP36 million were received in cash as a pre-completion dividend on 15 June 2018. Economic ownership of
the Single Strategy business has passed to the Acquirer effective from 1 January 2018 with all profits and performance fees generated up until 31
December 2017 for the account of Quilter plc. The results of the Single Strategy business continued to be included as part of the Group up until the
date of sale on the 29 June 2018. The Group recognised a post tax profit on disposal of GBP290 million.
Year ended 31 December 2017
In August 2016, the Group announced that it has agreed to sell Old Mutual Wealth Italy S.p.A. to Ergo Previdenza S.p.A. ('Ergo'), a member of the
Flavia insurance group. The sale completed on 9 January 2017. The consideration for the transaction was GBP221 million (EUR278 million) in cash, plus
interest to completion recognising a profit on disposal of GBP80 million.
5(c) Discontinued operations
For the period ended 30 June 2017, and year ended 31 December 2017, the Group's Discontinued Operations included the Single Strategy
Business (previously part of Old Mutual Global Investors) and Old Mutual Wealth Italy S.p.A (up to the date its sale completed on 9 January 2017).
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Single Strategy Old Mutual Wealth Old Mutual Wealth
business Italy S.p.A. Italy S.p.A.
Consideration received(1) 546 221 221
Less: transaction costs (20) (4) (4)
Net proceeds from sale 526 217 217
Carrying value of net assets disposed of (241) (137) (137)
Profit on sale of operations before tax 285 80 80
Tax on disposals 5 - -
Profit on sale of operations after tax 290 80 80
(1) Consideration received in respect of the Single Strategy business includes cash received together with the deferred consideration (discounted), and excludes any pre-
completion dividend.
5(d) Discontinued income statement
The table below sets out the trading results of the Group's discontinued operations and also any profit on the sale of discontinued operations during
the period.
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Note 2018 2017 2017
Revenue
Fee income and other income from service activities 8 136 134 389
Investment return - 3 7
Other income 2 1 3
Total revenue 138 138 399
Expenses
Fee and commission expenses, and other acquisition costs (31) (28) (62)
Other operating and administrative expenses (81) (72) (185)
Total expenses (112) (100) (247)
Profit on the disposal of subsidiaries 5(c) 285 80 80
Profit before tax from discontinued operations 311 118 232
Tax (expense) attributable to shareholders' funds (1) (7) (29)
Profit for the period after tax from discontinued operations 310 111 203
Attributable to:
Equity holders of Quilter plc 310 111 203
Earnings per ordinary share on profit attributable to ordinary shareholders of Quilter plc
Basic - from discontinued operations (pence) 16.9 6.1 11.1
Diluted - from discontinued operations (pence) 16.9 6.1 11.1
5(e) Statement of comprehensive income from discontinued operations
GBPm GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Profit for the period 310 111 203
Other comprehensive income from discontinued operations:
Items that may be reclassified subsequently to income statement
Exchange gains on translation of foreign operations - 1 4
Other comprehensive income/(expenses) for the period - (2) 3
Total other comprehensive income from discontinued operations, net of tax - (1) 7
Total comprehensive income for the period from discontinued operations 310 110 210
5(f): Net cash flows from discontinued operations
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Total net cash flows used in operating activities (63) (55) (22)
Total net cash from investing activities 131 135 137
Total net cash used in financing activities (45) - -
Net increase in cash and cash equivalents 23 80 115
5(g) Assets and liabilities held for sale
Assets and liabilities of operations classified as held for sale at 31 December 2017 relate to the Single Strategy business. The operation has been
classified as held for sale from December 2017 and on 29 June 2018, the Group completed the sale. See note 5(b) above. The assets and
liabilities held for sale are disclosed in the table below.
GBPm
At At At
30 June 30 June 31 December
Note 2018 2017 2017
Assets classified as held for sale
Goodwill and intangible assets 12(b) - - 82
Deferred acquisition costs - - 4
Deferred tax assets - - 9
Trade, other receivables and other assets - - 204
Cash and cash equivalents 18 - - 147
Assets of operations classified as held for sale - - 446
Liabilities directly associated with assets classified as held for sale
Current tax payable - - 33
Trade, other payables and other liabilities - - 186
Liabilities of operations classified as held for sale - - 219
Net assets of operations classified as held for sale - - 227
6: Segmental information
6(a) Segmental presentation
There have been no changes to the presentation of segment information for the period in these financial statements. The businesses have been
segmented based on our agreed segmentation post separation from Old Mutual plc.
The Group's operating segments comprise Advice and Wealth Management and Wealth Platforms. Head Office revenues and expenses are also
included within continuing business and this segmentation is consistent with how the Group is managed. For all reporting periods, these
businesses have been classified as continuing operations in the IFRS income statement and as core operations in determining the adjusted profit.
Head Office includes certain revenues and central costs that are not allocated to the segments.
For the periods ended 30 June 2018, 30 June 2017 and 31 December 2017, the Group has classified the European operations and the Single
Strategy business as discontinued because they have either been sold or held for sale. Further detail is included in note 5(c).
The Group's segmental results are analysed and reported on a basis with the way that management and the Board of directors of Quilter plc assess
performance of the underlying businesses and allocate resources. Information is presented to the Board on a consolidated basis in pounds sterling (the
presentation currency) and in the functional currency of each business.
Adjusted profit is one of the key measures reported to the Group's management and Board of directors for their consideration in the allocation of
resources to, and the review of, the performance of the segments. As appropriate to the business line, the Board reviews additional measures to
assess the performance of each of the segments. These typically also include sales, net client cash flows, assets under management and
administration, and revenue and operating margins.
Consistent with internal reporting, assets, liabilities, revenues and expenses that are not directly attributable to a particular segment are allocated
between segments where appropriate and where there is a reasonable basis for doing so. The Group accounts for inter-segment revenues and
transfers as if the transactions were with third parties at current market prices.
The revenues generated in each reported segment are provided in the analysis of profits and losses in note 6(b). The segmental information in this
note reflects the adjusted and IFRS measures of profit or loss and the assets and liabilities for each operating segment as provided to management and
the Board of directors. There are no differences between the measurement of the assets and liabilities reflected in the primary statements and that
reported for the segments.
The Group is primarily engaged in the following business activities from which it generates revenue: investment contracts, asset management and
financial advice (fee income and other income from service activities), and life assurance (premium income). Other revenue includes gains and
losses on investment securities.
The principal lines of business from which each operating segment derives its revenues are as follows:
Advice and Wealth Management
This segment comprises Quilter Investors (formerly Old Mutual Global Investors), Quilter Cheviot Limited and Quilter Financial Planning, including
Quilter Private Client Advisers ('QPCA').
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 Quilter plc and third party clients. It has several fund ranges which vary in breadth of underlying asset class. The business has
primarily been accumulation focused, with recent development of decumulation solutions.
Quilter Cheviot Limited provides discretionary investment management in the United Kingdom with bespoke investment portfolios tailored to the
individual needs of affluent and high-net worth customers, charities, companies and institutions through a network of branches in London and the
regions. Investment management services are also provided by branches in Jersey, Channel Islands and the Republic of Ireland.
Quilter Financial Planning is a restricted and independent financial adviser network (including QPCA) providing mortgage and financial planning
advice and financial solutions for both individuals and businesses through a network of intermediaries. They operate across all markets, from wealth
management and retirement planning advice through to dealing with property wealth and personal and business protection needs.
Wealth Platforms
This segment comprises Quilter Wealth Solutions ('QWS') and Quilter Life Assurance ('QLA'), and Quilter International cross-border businesses.
QWS and QLA provides advice based predominantly unit linked wealth management products and services in the UK, which serves a largely
affluent customer base through advised multi-channel distribution. The QLA business is predominantly a closed book, made up of legacy products.
Protection and institutional pension products are also part of the business.
Quilter International is a cross-border business, focusing on high net worth and affluent local customers and expatriates in Asia, the Middle East,
Europe and Latin America.
In addition to the two operating segments, Head Office comprises the investment return on centrally held assets, central function expenses, such as
Group treasury and finance functions, along with central core structural borrowings and certain tax balances in the segmental statement of financial
position.
6(b)(i): Adjusted profit statement - segmental information for the 6 month period ended 30 June 2018
GBPm
Adjusted profit - Continuing operations Reconciliation to IFRS
Operating segments
Advice and Adjusting IFRS
Wealth Wealth Head Adjusted Consolidation items Income
Notes Management Platforms Office profit Adjustments(1) (Note 7(a)) Statement
Revenue
Gross earned premiums - 75 - 75 - - 75
Premiums ceded to reinsurers - (44) - (44) - - (44)
Net earned premiums - 31 - 31 - - 31
Fee income and other income from service activities 8 272 256 - 528 (5) - 523
Investment return 4 207 1 212 81 - 293
Other income - 63 3 66 (56) - 10
Segmental revenue 276 557 4 837 20 - 857
Expenses
Claims and benefits paid - (45) - (45) - - (45)
Reinsurance recoveries - 29 - 29 - - 29
Net insurance claims and benefits incurred - (16) - (16) - - (16)
Change in reinsurance assets and liabilities - 20 - 20 - - 20
Change in insurance contract liabilities - (23) - (23) - - (23)
Change in investment contract liabilities - (192) - (192) - - (192)
Fee and commission expenses,
and other acquisition costs (82) (86) - (168) (62) - (230)
Change in third-party interest in
consolidated funds - - - - 3 - 3
Other operating and administrative expenses (145) (180) (24) (349) 39 (82) (392)
Finance costs 9 (2) - - (2) - (8) (10)
Segmental expenses (229) (477) (24) (730) (20) (90) (840)
Adjusted profit/(loss) before all tax 47 80 (20) 107 - (90) 17
Tax attributable to policyholders' funds - 3 - 3 - 15 18
Adjusted profit/(loss) before tax attributable to
shareholders' funds 47 83 (20) 110 - (75) 35
Reconciliation to IFRS:
Adjusted for non-operating items: 7(a)
Goodwill impairment and impact of acquisition
accounting (28) - - (28)
Business transformation costs (10) (27) - (37)
Managed Separation costs - - (17) (17)
Finance costs - - (8) (8)
Policyholder tax adjustments - 15 - 15
Reallocation of central costs(2) - (2) 2 -
Adjusting items before tax (38) (14) (23) (75)
IFRS profit before tax attributable to shareholders'
funds 9 69 (43) 35
(1) Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
(2) Reallocation of central costs reverses management reallocations included within adjusted profit to reconcile back to IFRS profit.
6(b)(ii): Adjusted profit statement - segmental information for the 6 month period ended 30 June 2017
GBPm
Adjusted profit - Continuing operations Reconciliation to IFRS
Operating segments
Advice and Adjusting IFRS
Wealth Wealth Head Adjusted Consolidation items Income
Notes Management Platforms Office profit Adjustments(1) (Note 7(a)) Statement
Revenue
Gross earned premiums - 73 - 73 - - 73
Premiums ceded to reinsurers - (43) - (43) - - (43)
Net earned premiums - 30 - 30 - - 30
Fee income and other income from service activities 8 185 262 - 447 (10) - 437
Investment return 1 2,306 - 2,307 374 - 2,681
Other income - 46 - 46 (41) - 5
Segmental revenue 186 2,644 - 2,830 323 - 3,153
Expenses
Claims and benefits paid - (38) - (38) - - (38)
Reinsurance recoveries - 25 - 25 - - 25
Net insurance claims and benefits incurred - (13) - (13) - - (13)
Change in reinsurance assets and liabilities - 26 - 26 - - 26
Change in insurance contract liabilities - (22) - (22) - - (22)
Change in investment contract liabilities - (2,264) - (2,264) - - (2,264)
Fee and commission expenses,
and other acquisition costs (26) (101) - (127) (27) - (154)
Change in third-party interest in
consolidated funds - - - - (325) - (325)
Other operating and administrative expenses (128) (167) (11) (306) 29 (99) (376)
Finance costs 9 - - - - - (20) (20)
Segmental expenses (154) (2,541) (11) (2,706) (323) (119) (3,148)
Adjusted profit/(loss) before all tax 32 103 (11) 124 - (119) 5
Tax attributable to policyholders' funds - (29) - (29) - - (29)
Adjusted profit/(loss) before tax attributable to
shareholders' funds 32 74 (11) 95 - (119) (24)
Reconciliation to IFRS:
Adjusted for non-operating items: 7(a)
Goodwill impairment and impact of acquisition
accounting (28) - - (28)
Business transformation costs - (59) - (59)
Managed Separation costs - - (12) (12)
Finance costs - - (20) (20)
Adjusting items before tax (28) (59) (32) (119)
IFRS profit/(loss) before tax attributable to
shareholders' funds 4 15 (43) (24)
(1) Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
6(b)(iii): Adjusted profit statement - segmental information for the year ended 31 December 2017
GBPm
Adjusted profit - Continuing operations Reconciliation to IFRS
Operating segments
Advice and Adjusting IFRS
Wealth Wealth Head Adjusted Consolidation items Income
Notes Management Platforms Office profit Adjustments(1) (Note 7(a)) Statement
Revenue
Gross earned premiums - 148 - 148 - - 148
Premiums ceded to reinsurers - (88) - (88) - - (88)
Net earned premiums - 60 - 60 - - 60
Fee income and other income from service activities 8 382 526 - 908 (13) - 895
Net investment income 3 4,412 1 4,416 779 - 5,195
Other income 2 83 3 88 (75) - 13
Segmental revenue 387 5,081 4 5,472 691 - 6,163
Expenses
Claims and benefits paid - (76) - (76) - - (76)
Reinsurance recoveries - 54 - 54 - - 54
Net insurance claims and benefits incurred - (22) - (22) - - (22)
Change in reinsurance assets and liabilities - 85 - 85 - - 85
Change in insurance contract liabilities - (78) - (78) - - (78)
Change in investment contract liabilities - (4,308) - (4,308) - - (4,308)
Fee and commission expenses,
and other acquisition costs (52) (198) - (250) (70) - (320)
Change in third-party interest in
consolidated funds - - - - (673) - (673)
Other operating and administrative expenses (253) (336) (35) (624) 52 (244) (816)
Finance costs 9 - - - - - (39) (39)
Segmental expenses (305) (4,857) (35) (5,197) (691) (283) (6,171)
Profit on disposal of subsidiaries, associated
undertakings and strategic investments - - - - - 3 3
Adjusted profit/(loss) before all tax 82 224 (31) 275 - (280) (5)
Tax attributable to policyholders' funds - (66) - (66) - 17 (49)
Adjusted profit/(loss) before tax attributable to
shareholders' funds 82 158 (31) 209 - (263) (54)
Reconciliation to IFRS:
Adjusted for non-operating items: 7(a)
Goodwill impairment and impact of acquisition
accounting (53) - (1) (54)
Net profit on business disposals and acquisitions - - 3 3
Business transformation costs - (89) - (89)
Managed Separation costs - - (32) (32)
Finance costs - - (39) (39)
Policyholder tax adjustments - 17 - 17
Voluntary customer remediation provision - (69) - (69)
Adjusting items before tax (53) (141) (69) (263)
IFRS profit/(loss) before tax attributable to
shareholders' funds 29 17 (100) (54)
(1) Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
6(c)(i): Statement of financial position - segmental information at 30 June 2018
GBPm
Advice & Total
Wealth Wealth Head Consolidation Continuing Discontinued
Notes Management Platforms Office Adjustments(1) Operations Operations Total
Assets
Goodwill and intangible assets 12 401 165 - - 566 - 566
Property, plant and equipment 10 7 - - 17 - 17
Investments in associated undertakings - - 1 - 1 - 1
Deferred acquisition costs - 12 - - 12 - 12
Contract costs - 575 - - 575 - 575
Contract assets 45 - - - 45 - 45
Loans and advances 13 22 190 7 - 219 - 219
Financial investments 14 5 57,735 2 6,827 64,569 - 64,569
Reinsurers' share of policyholder liabilities 17 - 2,666 - - 2,666 - 2,666
Deferred tax assets 6 13 - - 19 - 19
Current tax receivable - 3 - - 3 - 3
Trade, other receivables and other assets 370 328 4 735 1,437 - 1,437
Derivative assets - - - 33 33 - 33
Cash and cash equivalents 18 365 1,138 618 1,254 3,375 - 3,375
Inter-segment funding - assets - 12 - (12) - - -
Total assets 1,224 62,844 632 8,837 73,537 - 73,537
Liabilities
Long-term business insurance policyholder liabilities 21 - 513 - - 513 - 513
Investment contract liabilities 21 - 60,140 - - 60,140 - 60,140
Third-party interests in consolidated funds - - - 8,105 8,105 - 8,105
Provisions and accruals 22 18 85 12 - 115 - 115
Deferred tax liabilities 42 122 - - 164 - 164
Current tax payable 6 17 (11) - 12 - 12
Borrowings 23 - - 197 - 197 - 197
Trade, other payables and other liabilities 522 694 31 690 1,937 - 1,937
Contract liabilities 1 234 - - 235 - 235
Derivative liabilities - 1 - 58 59 - 59
Inter-segment funding - liabilities - - 12 (12) - - -
Total liabilities 589 61,806 241 8,841 71,477 - 71,477
Total equity 2,060
Total equity and liabilities 73,537
(1) Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
6(c)(ii): Statement of financial position - segmental information at 30 June 2017
GBPm
Advice & Total
Wealth Wealth Head Consolidation Continuing Discontinued
Notes Management Platforms Office Adjustments(1) Operations Operations(2) Total
Assets
Goodwill and intangible assets 12 432 162 - - 594 84 678
Property, plant and equipment 10 11 - - 21 - 21
Investments in associated undertakings - - 1 - 1 - 1
Deferred acquisition costs - 636 - - 636 - 636
Loans and advances 13 13 186 1 - 200 - 200
Financial investments 14 2 52,392 1 6,098 58,493 - 58,493
Reinsurers' share of policyholder liabilities 17 - 3,085 - - 3,085 - 3,085
Deferred tax assets 5 - - - 5 6 11
Current tax receivable - 24 - - 24 - 24
Trade, other receivables and other assets 276 294 111 217 898 165 1,063
Derivative assets - 2 - 82 84 - 84
Cash and cash equivalents 18 300 929 63 785 2,077 94 2,171
Inter-segment funding - assets 4 27 1 (32) - - -
Total assets 1,042 57,748 178 7,150 66,118 349 66,467
Liabilities
Long-term business insurance policyholder liabilities 21 - 436 - - 436 - 436
Investment contract liabilities 21 - 55,303 - - 55,303 - 55,303
Third-party interests in consolidated funds - - - 6,479 6,479 - 6,479
Provisions and accruals 22 9 24 1 - 34 - 34
Deferred tax liabilities 43 135 - - 178 - 178
Current tax payable/(receivable) 16 23 (16) - 23 12 35
Borrowings 23 - - 838 - 838 - 838
Trade, other payables and other liabilities 351 599 27 279 1,256 160 1,416
Deferred revenue - 254 - - 254 - 254
Derivative liabilities - - - 424 424 - 424
Inter-segment funding - liabilities 2 - 30 (32) - - -
Total liabilities 421 56,774 880 7,150 65,225 172 65,397
Total equity 1,070
Total equity and liabilities 66,467
(1) Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
(2) Discontinued operations includes the balances of the Group's Single Strategy business.
6(c)(iii): Statement of financial position - segmental information at 31 December 2017
GBPm
Advice & Total
Wealth Wealth Head Consolidation Continuing Discontinued
Notes Management Platforms Office Adjustments(1) Operations Operations(2) Total
Assets
Goodwill and intangible assets 12 412 162 - - 574 - 574
Property, plant and equipment 9 9 - - 18 - 18
Investments in associated undertakings(3) - - 1 - 1 - 1
Deferred acquisition costs - 611 - - 611 - 611
Loans and advances 13 18 180 1 - 199 - 199
Financial investments(3) 14 2 56,562 1 7,685 64,250 - 64,250
Reinsurers' share of policyholder liabilities 17 - 2,908 - - 2,908 - 2,908
Deferred tax assets 6 15 1 - 22 - 22
Trade, other receivables and other assets 208 210 19 60 497 - 497
Derivative assets - 1 - 86 87 - 87
Cash and cash equivalents 18 303 1,061 83 913 2,360 - 2,360
Assets of operations classified as held for sale 5(g) - - - - - 446 446
Inter-segment funding - assets 4 12 - (16) - - -
Total assets 962 61,731 106 8,728 71,527 446 71,973
Liabilities
Long-term business insurance policyholder liabilities 21 - 489 - - 489 - 489
Investment contract liabilities 21 - 59,139 - - 59,139 - 59,139
Third-party interests in consolidated funds - - - 7,905 7,905 - 7,905
Provisions and accruals 22 10 89 5 - 104 - 104
Deferred tax liabilities 40 150 - - 190 - 190
Current tax payable 21 40 (23) - 38 - 38
Borrowings 23 - - 782 - 782 - 782
Trade, other payables and other liabilities 275 607 43 406 1,331 - 1,331
Deferred revenue 1 243 - - 244 - 244
Derivative liabilities - - - 433 433 - 433
Liabilities of operations classified as held for sale 5(g) - - - - - 219 219
Inter-segment funding - liabilities - - 16 (16) - - -
Total liabilities 347 60,757 823 8,728 70,655 219 70,874
Total equity 1,099
Total equity and liabilities 71,973
(1) Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
(2) Discontinued operations includes the balances of the Group's Single Strategy business.
(3) As at 31 December 2017, GBP2 million has been reclassified from investments in associated undertakings to financial investments to conform with current year presentation.
December 2017 comparatives for the segmental statement of financial position have been represented due to the reallocation of a UK holding company
from Wealth Platforms to Head Office. This change was made to ensure that all material intercompany loan balances are reported (and eliminate)
within Head Office.
6(d)(i): Geographic segmental information
In presenting geographic segmental information, revenue is based on the geographic location of our businesses. The Group has defined two
geographic areas: UK and International.
GBPm
UK International
Advice and Total
For the 6 month period ended 30 Wealth Wealth Head Wealth Consolidation continuing Discontinued Total
June 2018 Notes Management Platforms Office Platforms adjustments operations operations Group
Revenue
Gross earned premiums - 74 - 1 - 75 - 75
Premiums ceded to reinsurers - (43) - (1) - (44) - (44)
Net earned premiums - 31 - - - 31 - 31
Premium based fees 43 8 - 38 - 89 - 89
Fund based fees(1) 230 122 - 50 - 402 136 538
Retrocessions received, intragroup - 9 - 3 (12) - - -
Fixed fees - 2 - 14 - 16 - 16
Surrender charges - 1 - 9 - 10 - 10
Other fee and commission income - - - - 6 6 - 6
Fee income and other income
from service activities 8 273 142 - 114 (6) 523 136 659
Investment return 4 209 1 (2) 81 293 - 293
Other income - 80 3 4 (77) 10 2 12
Total revenue 277 462 4 116 (2) 857 138 995
(1) Income from fiduciary activities is included within fund based fees.
GBPm
UK International
Advice and Total
For the 6 month period ended Wealth Wealth Head Wealth Consolidation continuing Discontinued Total
30 June 2017 Notes Management Platforms Office Platforms adjustments operations operations Group
Revenue
Gross earned premiums - 73 - 1 (1) 73 - 73
Premiums ceded to reinsurers - (42) - (1) - (43) - (43)
Net earned premiums - 31 - - (1) 30 - 30
Premium based fees 35 16 - 35 - 86 - 86
Fund based fees(1) 149 118 - 55 - 322 134 456
Retrocessions received, intragroup - 10 - 3 (13) - - -
Fixed fees - 2 - 13 - 15 - 15
Surrender charges - - - 10 - 10 - 10
Other fee and commission income - - - - 4 4 - 4
Fee income and other income
from service activities 8 184 146 - 116 (9) 437 134 571
Investment return 1 1,759 - 548 373 2,681 3 2,684
Other income - 59 - 3 (57) 5 1 6
Total revenue 185 1,995 - 667 306 3,153 138 3,291
(1) Income from fiduciary activities is included within fund based fees.
GBPm
UK International
Advice and Total
For the year ended Wealth Wealth Head Wealth Consolidation continuing Discontinued Total
31 December 2017 Notes Management Platforms Office Platforms adjustments operations operations Group
Revenue
Gross earned premiums - 147 - 1 - 148 - 148
Premiums ceded to reinsurers - (87) - (1) - (88) - (88)
Net earned premiums - 60 - - - 60 - 60
Premium based fees 76 29 - 74 - 179 - 179
Fund based fees(1) 306 241 - 107 - 654 389 1,043
Retrocessions received, intragroup - 17 - 6 (23) - - -
Fixed fees - 5 - 26 - 31 - 31
Surrender charges - 1 - 20 - 21 - 21
Other fee and commission income - - - - 10 10 - 10
Fee income and other income
from service activities 8 382 293 - 233 (13) 895 389 1,284
Investment return 3 3,366 1 1,046 779 5,195 7 5,202
Other income 2 81 3 2 (75) 13 3 16
Total revenue 387 3,800 4 1,281 691 6,163 399 6,562
(1) Income from fiduciary activities is included within fund based fees.
7: Other key performance information
7(a): Adjusted profit adjusting items
Summary of adjusting items for determination of adjusted profit
In determining the adjusted profit for core operations, certain adjustments are made to profit before tax to reflect the underlying long-term
performance of the Group. The following table shows an analysis of those adjustments before and after tax.
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
Expense/(income)
Goodwill impairment and impact of acquisition accounting 7(b) 28 28 54
Net (profit)/loss on disposals and acquisitions 7(c) - - (3)
Business transformation costs 7(d) 37 59 89
Managed Separation costs 7(e) 17 12 32
Finance costs 7(f) 8 20 39
Policyholder tax adjustments 7(g) (15) - (17)
Voluntary customer remediation provision 7(h) - - 69
Total adjusting items before tax 75 119 263
Tax on adjusting items 10(c) (21) (22) (39)
Less: policyholder tax adjustments 15 - 17
Total adjusting items after tax 69 97 241
7(b) Goodwill impairment and impact of acquisition accounting
When applying acquisition accounting, contract costs and contract liabilities existing at the point of acquisition are not recognised under IFRS.
These are reversed on acquisition in the statement of financial position and replaced by goodwill and other intangible assets. In determining
adjusted profit, the Group recognises contract costs and contract liabilities in relation to policies sold by acquired businesses pre-acquisition. The
Group excludes the impairment of goodwill, the amortisation and impairment of acquired other intangible assets as well as the movements in certain
acquisition date provisions. Costs incurred on completed acquisitions are also excluded from adjusted profit, including any finance costs related to
discounted deferred consideration.
The effect of these adjustments to determine adjusted profit are summarised below:
For the 6 month period ended 30 June 2018
GBPm
Advice and
Wealth Wealth
Management Platforms Head office Total Group
Amortisation of other acquired intangible assets 21 - - 21
Acquisition costs 6 - - 6
Unwinding of discount on deferred consideration 1 - - 1
Total goodwill impairment and impact of acquisition accounting 28 - - 28
For the 6 month period ended 30 June 2017
GBPm
Advice and
Wealth Wealth
Management Platforms Head office Total Group
Amortisation of other acquired intangible assets 18 - - 18
Acquisition costs 10 - - 10
Total goodwill impairment and impact of acquisition accounting 28 - - 28
For the year ended 31 December 2017
GBPm
Advice and
Wealth Wealth
Management Platforms Head office Total Group
Amortisation of other acquired intangible assets 39 - - 39
Change in acquisition date provisions - - 1 1
Acquisition costs 13 - - 13
Unwinding of discount on deferred consideration 1 - - 1
Total goodwill impairment and impact of acquisition accounting 53 - 1 54
7(c) Net profit/loss on business disposals and acquisitions
As part of the Group's Managed Separation from Old Mutual plc, on 29 September 2017 the Group acquired Commsale 2000 Limited ('Commsale')
from Old Mutual plc. The total consideration was for GBP0.29 million. The NAV at the date of acquisition was GBP0.45 million, with a gain on purchase of
GBP0.16 million being recognised, representing assets not valued within the agreed consideration.
On 30 November 2017, the Company acquired 100% of the whole of the issued share capital of Global Edge Technologies (Pty) Ltd ('GET'), a
company incorporated in South Africa, from OM Group (UK) Limited (part of the Old Mutual plc group) for GBP0.8 million. Along with recording the
book values of the assets acquired and liabilities assumed of GBP4 million, the Company recognised a bargain purchase gain of GBP3.3 million.
We determined that the excess of book value over consideration paid was attributable to potential future integration costs which, if incurred, would
be expensed in future periods. As potential future integrating activities do not qualify to be recorded as a liability in the application of the acquisition
method of accounting, none was recorded, and we recorded the excess as a bargain purchase gain.
7(d) Business transformation costs
Within business transformation costs are three items: costs associated with the UK Platform Transformation Progamme, build out costs incurred
within Quilter Investors as a result of the sale of our Single Strategy business and, in the prior period, certain one-off charges relating to the
transformation of our business as we separated from Old Mutual plc. Each item is described in detail below.
UK Platform Transformation Programme - 30 June 2018: GBP27 million, 30 June 2017: GBP59 million, 31 December 2017: GBP74 million
In 2013, the Group embarked on a significant programme to develop new platform capabilities and to outsource UK business administration. This
involved replacing many aspects of the existing UK platform, and on completion certain elements of service provision would be migrated to
International Financial Data Services ('IFDS') under a long-term outsourcing agreement. The cost of developing the new technology did not meet
the criteria for capitalisation and were expensed. These costs and the costs of decommissioning existing technology and migrating of services to
IFDS are excluded from adjusted profit. Only costs that are directly attributable to the programme have been excluded from adjusted profit as
management is of the view that this long-term investment in operational capability is a non-operating adjusting item. The contracts with International
Financial Data Services related to the UK Platform Transformation came to an end by mutual agreement effective as of 2 May 2017. For the period
ended 30 June 2018, these costs total GBPnil million (30 June 2017: GBP53 million, 31 December 2017: GBP53 million).
The Group conducted a comprehensive review of the options available to the UK Platform business and entered into a new contract with FNZ,
having concluded that FNZ's scale, market-proven and functionally-rich offering was the most suitable to meet the current and anticipated needs of
the business.
In partnership with FNZ, the Group expects to deliver all the existing functionality of the platform with increased levels of straight-through processing
and enhanced functionality by late 2018 / early 2019, with migration of the in-force book to follow shortly thereafter. For the period ended 30 June
2018, these costs totalled GBP27 million (30 June 2017: GBP6 million, 31 December 2017: GBP21 million).
Quilter Investors' build out costs - 30 June 2018: GBP10 million, 30 June 2017: GBPnil, 31 December 2017: GBPnil
In March 2016, Old Mutual plc announced its Managed Separation strategy that sought to unlock and create significant long-term value for
shareholders. As part of this strategy, Quilter's Multi-Asset (now renamed as Quilter Investors) and Single Strategy teams were to develop as
separate distinct businesses, and the Single Strategy business was sold to its management and TA Associates on 29 June 2018. As result, the
Group has incurred GBP10 million of one-off costs in the period ended 30 June 2018.
One-off transformational costs as a result of our separation from Old Mutual plc - 30 June 2018: GBPnil, 30 June 2017: GBPnil, 31 December 2017: GBP15 million
The Group historically had a number of arrangements with the wider Old Mutual plc group's South African businesses. As a consequence of
Managed Separation these arrangements were severed and, as a result, deferred acquisition cost balances totalling GBP10 million were written off
(included within fee and commission expenses in the income statement), together with a loss incurred of GBP5 million on the cancellation of
reinsurance arrangements (included within other costs within the income statement) in the year ended 31 December 2017. These charges are
regarded as one-off and related to the transformation of the business to a standalone group.
7(e) Managed Separation costs
One-off costs related to the implementation of Managed Separation recognised in the IFRS income statement have been excluded from adjusted
profit on the basis that they are not representative of the operating activity of the Group. These costs relate to preparing the Group to operate as a
standalone business and the execution of various transactions required to implement our Managed Separation strategy. They are not expected to
persist in the long term as they relate to a fundamental restructuring of the Group, which is not operational in nature, rather than more routine
restructuring activity which would be seen as part of the usual course of business. The treatment and the disclosure of these costs as an adjusting
item are also intended to make these costs more visible to the readers of the financial statements in the context of publicly disclosed estimates
previously given in relation to these items. For the period ended 30 June 2018, these costs totalled GBP17 million (30 June 2017: GBP12 million, 31
December 2017: GBP32 million).
7(f) 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 borrowings are removed when calculating adjusted profit. For the period ended 30 June 2018, the finance costs totalled GBP8 million
(30 June 2017: GBP20 million, 31 December 2017: GBP39 million) - see note 9.
7(g) Policyholder tax adjustments
Adjustments to policyholder tax are made to remove distortions arising from market volatility that can, in turn, lead to volatility in the policyholder tax
charge between periods. In addition, adjustments are made to remove distortions to policyholder tax arising from the utilisation of tax allowances
from elsewhere in the Quilter group (e.g. capital losses) which are regarded economically as impacting shareholder tax, and from distortions arising
from other non-operating adjusting items. For the period ended 30 June 2018, this adjustment to adjusted profit totalled GBP15 million (30 June 2017:
GBPnil, 31 December 2017: GBP17 million).
7(h) Voluntary Customer Remediation Provision
As detailed in Note 22 Provisions and Accruals, as part of its on-going work to promote fair customer outcomes, the Group has conducted product
reviews consistent with the recommendations from the Financial Conduct Authority's ('FCA') thematic feedback and the FCA's guidance 'FG16/8
Fair treatment of long-standing customers in the life insurance sector'. Following these reviews, the Group has decided to commence voluntary
remediation to customers in certain products, resulting in an additional provision raised during the 2017 year of GBP69 million.
The provision has been recognised in the IFRS income statement but has been excluded from adjusted profit on the basis that it is not
representative of the operating performance of the business for the year ended 31 December 2017.
8: Fee income and other income from service activities
This note analyses the fees and commission earned by the Group from negotiating, or participating in the negotiation of a transaction for third-parties,
transaction and performance fees earned and movements in deferred origination fees.
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Fee income and other income from service activities
Premium based fees(1) 89 86 179
Fund based fees(1,2) 402 322 654
Fixed fees 16 15 31
Surrender charges 10 10 21
Other fee and commission income 6 4 10
Fee income and other income from service activities
- continuing operations 523 437 895
Fee income and other income from service activities
- discontinued operations 136 134 389
Total fee income and other income from service activities 659 571 1,284
(1) Year ended December 2017 has been restated to aid comparability.
(2) Income from fiduciary activities is included within fund based fees.
9: Finance costs
This note analyses the interest costs on our borrowings and similar charges. Finance costs comprise:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Term loans and other external debt 2 - -
Subordinated debt securities 3 - -
Loans from Old Mutual plc 3 20 39
Interest payable on borrowed funds 8 20 39
Other 2 - -
Total finance costs - continuing operations 10 20 39
Finance costs represent the cost of interest and finance charges on the Group's borrowings from a number of relationship banks and Old Mutual
plc. More details regarding borrowed funds, including the interest rates payable, are shown in note 23. These costs are excluded from adjusted
profit within the 'Finance costs' adjusting item.
In addition, within other finance costs above is the impact of unwinding the discount rate on deferred consideration payable as a result of various
acquisitions. These costs are excluded from adjusted profit within the 'Goodwill impairment and impact of acquisition accounting' adjusting item.
10: Tax
This note analyses the income tax expense recognised in profit or loss for the period and the various factors that have contributed to the
composition of the charge.
10(a) Tax charged to the income statement
The total tax charge for the period comprises:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Current tax
United Kingdom 12 21 43
International 2 2 3
Adjustments to current tax in respect of prior periods - 1 1
Total current tax 14 24 47
Deferred tax
Origination and reversal of temporary differences (25) - 2
Effect on deferred tax of changes in tax rates - (2) (1)
Adjustments to deferred tax in respect of prior periods (4) - (7)
Total deferred tax (29) (2) (6)
Total tax (credited)/charged to income statement - continuing operations (15) 22 41
Total tax charged to income statement - discontinued operations 1 7 29
Total tax (credited)/charged to income statement (14) 29 70
Policyholder tax
Certain products are subject to tax on policyholders' investment returns. This 'policyholder tax' is an element of tax expense. To make the tax
expense more meaningful, tax attributable to policyholder returns and tax attributable to shareholder profits is shown separately in the income
statement.
The tax attributable to policyholder returns is the amount payable in the year plus the movement of amounts expected to be payable in future years.
The remainder of the tax expense is attributed to shareholders as tax attributable to shareholder profits.
10(b) Reconciliation of total income tax expense
The income tax charged to profit or loss differs from the amount that would apply if all of the Group's profits from the different tax jurisdictions had
been taxed at the UK standard corporation tax rate. The difference in the effective rate is explained below:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Profit/(Loss) before tax 17 5 (5)
Tax at UK standard rate of 19% (2017: 19.25%) 3 1 (1)
Different tax rate or basis on overseas operations (3) (4) (3)
Untaxed and low taxed income (2) (1) (2)
Disallowable expenses 4 4 8
Net movement on deferred tax assets not recognised (6) - (21)
Effect on deferred tax of changes in tax rates - (2) (1)
Income tax attributable to policyholder returns (11) 24 61
Total tax (credited)/charged to income statement - continuing operations (15) 22 41
Total tax charged to income statement - discontinued operations 1 7 29
Total tax (credited)/charged to income statement (14) 29 70
10(c) Reconciliation of income tax expense in the IFRS income statement to income tax on adjusted profit.
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Income tax (credit)/expense on continuing operations (15) 22 41
Tax on adjusting items
Impairment of goodwill and impact of acquisition accounting 3 5 8
Policyholder tax adjustments 15 - 17
Other shareholder tax (8) - (26)
Business transformation costs 7 11 14
Managed Separation costs 2 2 4
Finance costs 2 4 8
Voluntary customer remediation provision - - 14
Total tax on adjusting items 21 22 39
Tax attributable to policyholders returns 3 (29) (66)
Tax charged on adjusted profit - continuing operations 9 15 14
Tax charged on adjusted profit - discontinued operations 5 7 29
Tax charged on adjusted profit 14 22 43
11: Earnings and earnings per share
The Group calculates earnings per share ('EPS') on a number of different bases as appropriate to prevailing International and UK practices and
guidance. IFRS requires the calculation of basic and diluted EPS. Adjusted EPS reflects earnings per share that is consistent with the Group's
alternative profit measure. The Group's EPS on these different bases are summarised below.
Disclosure of basic and diluted EPS is required by IAS 33 Earnings per Share. On 6 June 2018, the Board approved a reorganisation of the
Company's share capital to enable the implementation of the Managed Separation before the initial public offering on 25 June 2018 and,
consequently, both basic and diluted EPS for historical periods was not representative of the Group's current structure. In accordance with IAS 33,
share transactions that change the number of shares in issue but do not result in any corresponding change to an entity's resources, such as share
splits, bonus issues to existing shareholders and share consolidations are adjusted for in the EPS denominator as if these transactions had
occurred at the start of the earliest period for which EPS is presented. Accordingly, the weighted average number of ordinary shares in issue at 30
June 2017 and 31 December 2017 have been retrospectively restated to take account of the new share structure at listing. As a result, the Group's
EPS has fallen relative to the position shown in the 31 December 2017 Historical Financial Information, within the listing prospectus, because the
number of shares has increased on listing.
For further information on share capital refer to note 19: Share capital.
Pence
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Source of guidance Notes 2018 2017 2017
Basic earnings per share IFRS 11(a) 18.7 5.1 8.6
Diluted basic earnings per share IFRS 11(b) 18.7 5.1 8.6
Adjusted basic earnings per share Group policy 11(c) 5.5 4.4 10.7
Adjusted diluted earnings per share Group policy 11(c) 5.5 4.4 10.7
Headline earning per share (net of tax) JSE Listing Requirements 11(d) 2.8 0.8 4.0
Diluted headline earning per share (net of tax) JSE Listing Requirements 11(d) 2.8 0.8 4.0
11(a) Basic earnings per share (IFRS)
Basic EPS is calculated by dividing the profit for the financial period attributable to ordinary equity shareholders of the parent by the weighted
average number of ordinary shares in issue during the year. The weighted average number of shares excludes Quilter plc shares (treasury shares)
held within Employee Benefit Trusts ('EBTs') to satisfy the Group's obligations under employee share awards. Treasury shares are deducted for the
purpose of calculating both basic and diluted EPS.
(i) The profit attributable to ordinary shareholders is:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Profit/(Loss) for the financial period attributable to shareholders of the Company from
continuing operations 32 (17) (46)
Profit for the financial period attributable to shareholders of the Company from
discontinued operations 310 111 203
Profit for the for the financial period for the calculation of earnings per share 342 94 157
The table below summarises the calculation of the weighted average number of ordinary shares for the purposes of calculating basic earnings per share:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Weighted average number of ordinary shares in issue (millions) 1,902 1,902 1,902
Treasury shares including those held in EBTs (millions) (72) (72) (72)
Adjusted weighted average number of ordinary shares used to
calculate basic earnings per share (millions) 1,830 1,830 1,830
Basic earnings per ordinary share (pence) 18.7 5.1 8.6
11(b) Diluted earnings per share (IFRS)
Diluted EPS recognises the dilutive impact of shares and options awarded to employees under share-based payment arrangements (potential
ordinary shares), to the extent they have value, in the calculation of the weighted average number of shares, as if the relevant shares were in issue
for the full year. The table below summarises the calculation of weighted average number of shares for the purpose of deriving diluted EPS:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
Profit attributable to ordinary equity holders (GBPm) 342 94 157
Diluted profit attributable to ordinary equity holders (GBPm) 342 94 157
Adjusted weighted average number of ordinary shares (millions) 11(a) 1,830 1,830 1,830
Adjustments for share options held by EBTs and similar trusts (millions) - - -
Weighted average number of ordinary shares used to calculate
diluted earnings per share (millions) 1,830 1,830 1,830
Diluted earnings per ordinary share (pence) 18.7 5.1 8.6
There is no dilutive impact of potential shares on EPS for the period ended 30 June 2018 because the new share based-payment arrangements,
settled in Quilter plc shares, have only been in place since listing (25 June 2018).
11(c) Adjusted earnings per share
The following table presents a reconciliation of profit for the financial period to adjusted profit after tax attributable to ordinary equity holders and
summarises the calculation of adjusted earnings per share:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
Profit for the financial period attributable to shareholders of the Company 342 94 157
Adjusting items 7 75 119 263
Income tax expense on adjusting items 10(c) (21) (22) (39)
Less: Policyholder tax adjustments 10(c) 15 - 17
Less: Profit after tax from discontinued operations 5(d) (310) (111) (203)
Adjusted profit after tax attributable to ordinary shareholders (GBPm) 101 80 195
Adjusted weighted average number of ordinary shares used to
calculate adjusted basic earnings per share (millions) 11(a) 1,830 1,830 1,830
Adjusted basic earnings per share (pence) 5.5 4.4 10.7
Adjusted weighted average number of ordinary shares used to
calculate diluted adjusted earnings per share (millions) 11(b) 1,830 1,830 1,830
Adjusted diluted earnings per share (pence) 5.5 4.4 10.7
11(d) Headline earnings per share
The Group is required to calculate headline earnings per share ('HEPS') in accordance with the JSE Limited ('JSE') Listing Requirements,
determined by reference to the South African Institute of Chartered Accountants' circular 02/2015 'Headline Earnings'. The table below sets out a
reconciliation of basic EPS and HEPS in accordance with that circular. Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used
measure of earnings in South Africa.
The table below reconciles the profit for the financial period attributable to equity holders of the parent to headline earnings and summarises the
calculation of basic HEPS:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Gross Net of tax Gross Net of tax Gross Net of tax
Profit for the period attributable to shareholders of the
Company 342 94 157
Adjusting items:
(Profit) on disposals of subsidiaries (285) (290) (80) (80) (83) (83)
Headline earnings (285) 52 (80) 14 (83) 74
Diluted headline earnings 52 14 74
Weighted average number of ordinary shares
(millions) 1,830 1,830 1,830
Diluted weighted average number of ordinary shares
(millions) 1,830 1,830 1,830
Headline earnings per share (pence) 2.8 0.8 4.0
Adjusted headline earnings per share (pence) 2.8 0.8 4.0
12: Goodwill and intangible assets
12(a): Analysis of goodwill and intangible assets
The table below shows the movements in cost, amortisation and impairment of goodwill and intangible assets.
GBPm
Software Other
development intangible
Goodwill costs(4) assets(4) Total
Gross amount
At 1 January 2017 373 94 350 817
Acquisitions through business combinations(1) 15 - 27 42
Other movements - 5 (4) 1
At 30 June 2017 388 99 373 860
Acquisitions through business combinations - - 3 3
Transfer to non-current assets held for sale(2) (82) (2) (3) (87)
Other movements - - (2) (2)
At 31 December 2017 306 97 371 774
Acquisitions through business combinations 3 - 5 8
Transfer to non-current assets held for sale (1) - - (1)
Other movements(3) 5 2 - 7
At 30 June 2018 313 99 376 788
Amortisation and impairment losses
At 1 January 2017 - (90) (73) (163)
Amortisation charge for the period - (1) (19) (20)
Other movements - (3) 4 1
At 30 June 2017 - (94) (88) (182)
Amortisation charge for the period - (1) (20) (21)
Transfer to non-current assets held for sale - 2 3 5
Other movements - 1 (3) (2)
At 31 December 2017 - (92) (108) (200)
Amortisation charge for the period - (2) (21) (23)
Other movements - - 1 1
At 30 June 2018 - (94) (128) (222)
Carrying amount
At 30 June 2017 388 5 285 678
At 31 December 2017 306 5 263 574
At 30 June 2018 313 5 248 566
(1) Goodwill acquired through business combinations for the year ended 31 December 2017 of GBP15 million relates to the acquisition of Caerus Capital Group Limited (GBP10
million) and various acquisitions by the QPCA business (GBP5 million). Refer to note 5(a) for further information.
(2) Goodwill transferred to non-current assets held for sale relates to the Single Strategy asset management business (see note 5(g)).
(3) Goodwill has increased by GBP5m in 2018 due to a review of the purchase price allocation ('PPA') calculation at 31 December 2017 year end relating to the QPCA
acquisitions resulting in a reclassification from other intangibles to goodwill.
(4)In year ended 31 December 2017, GBP6 million has been reclassified from software development costs to other intangibles assets to conform with current year presentation.
The net carrying amount of intangible assets at 30 June 2018 principally comprises:
- GBP182 million (FY 2017: GBP197 million) relating to distribution channels in the Quilter Cheviot business (to be amortised over a further 7 years).
- GBP22 million (FY 2017: GBP25 million) relating to mutual fund and asset management relationship assets in the Intrinsic business (to be amortised
over a further 4 years).
- GBP5 million (FY 2017: GBP6 million) relating to the Quilter Cheviot brand (to be amortised over a further 2 years).
- GBP3 million (FY 2017: GBP3 million) relating to the acquisition of AAM Advisory Pte Ltd (to be amortised over a further 8 years).
- GBP10 million (FY 2017: GBP8 million) relating to customer distribution channels of Caerus Capital Group Limited (to be amortised over a further 7
years).
- GBP18 million (2017: GBP16 million) relating to customer relationships of the QPCA business (to be amortised over 6-8 years).
- GBP8 million (2017: GBP8 million) relating to customer relationships of Attivo Investment Management Limited (to be amortised over 6 years).
12(b): Allocation of goodwill to cash generating units ('CGUs') and impairment testing
Goodwill is allocated to the Group's CGUs, which are contained within the following operating segments as follows:
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
Goodwill (net carrying amount)
Advice and Wealth Management 151 148 148
Wealth Platforms 162 158 158
Discontinued Operations - 82 -
Goodwill (as per the Statement of Financial Position) 313 388 306
Goodwill held for sale - - 82
Total goodwill 313 388 388
Goodwill is tested for impairment by comparing the carrying value of the CGU to which the goodwill relates, to the recoverable value of that CGU. In
accordance with the requirements of IAS 36 'Impairment of Assets', goodwill is tested annually for impairment for each CGU, by comparing the
carrying amount of each CGU to its recoverable amount, being the higher of that CGU's value-in-use or fair value less costs to sell. An impairment
charge is recognised when the recoverable amount is less than the carrying value.
The cash flows attributable to the value of new business are determined with reference to latest approved three-year business plans. The three-
year business plan takes into account the management strategy for the underlying businesses, the capital available for deployment, the underlying
macro-economic factors which impact the business and the region in which it operates as well as socio-economic factors. Projections beyond the
plan period are extrapolated using an inflation based growth assumption.
The value-in-use calculations for life assurance operations are determined as the sum of net tangible assets, the expected future profits arising from
the in-force business (after allowing for the cost of capital needed to support the business) and the expected profits from future new business. In
determining the expected future profits, the same set of best estimate assumptions for persistency, expense, mortality and morbidity are used as
per the Solvency II calculation. Market share and market growth information are also used to inform the expected volumes of future new business.
The cash flows that have been used to determine the value in use of the cash generating units are based on the three year business plans. These
cash flows grow at different rates because of the different strategies of the cash generating units. In cases where the cash generating units have
made significant acquisitions in the recent past, the profits are forecast to grow faster than the more mature businesses. Post the three year growth
forecast, the growth rate used to determine the terminal value of the cash generating units approximates the long-term growth rate of the countries
in which they operate.
The Group's CGUs generate revenues through their life assurance, asset management, long-term savings and advisory businesses. Goodwill is
allocated to the Group's CGUs, which are contained within its distinct operating segments. On disposals of businesses, goodwill is allocated to them
based on the relative value-in-use of the business from calculations used within the impairment reviews.
During the period, the group updated its assessment of goodwill allocated to the life assurance, asset management, long-term savings and advisory
businesses for impairment. The recoverable amounts of goodwill allocated to the CGUs are determined from value-in-use calculations. There was
no indication of impairment of goodwill allocated to the CGUs during the period.
13: Loans and advances
This note analyses the loans and advances the Group has made. The carrying amounts of loans and advances were as follows:
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
Loans to policyholders 190 185 181
Loans to brokers and other loans to clients 23 15 19
Other loans 7 - -
Gross loans and advances 220 200 200
Provision for impairments (1) - (1)
Total net loans and advances 219 200 199
The carrying amount of loans approximates to their fair value which is measured as the principal amounts receivable under the loan agreements.
Policyholder loans are taken from an individual policyholder's transaction account and loaned to the specific policyholder and are therefore
considered risk free. Policyholder loans are interest free.
All loans, except broker loans which have a set repayment schedule, are repayable on demand. All broker loans and other loans to clients earn
interest at a rate of between annual LIBOR plus 0.5% and 10%.
The provision for impairments is a specific impairment relating to a financial adviser that is not expected to be recovered.
14: Financial investments
The table below analyses the investments and securities that the Group invests in, either for its own proprietary behalf (shareholder funds)
or on behalf of third parties (policyholder funds).
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
Government and government-guaranteed securities 1,562 1,595 2,427
Other debt securities, preference shares and debentures 2,524 1,435 2,401
Equity securities(1) 13,944 9,558 12,556
Pooled investments 46,520 45,900 46,455
Short-term funds and securities treated as investments 19 5 15
Other - - 396
Total financial investments 64,569 58,493 64,250
Less: financial investments classified as held for sale - - -
Total financial investments net of held for sale 64,569 58,493 64,250
To be recovered within 12 months 64,403 58,295 64,074
To be recovered after 12 months 166 198 176
64,569 58,493 64,250
(1) As at 31 December 2017, GBP2 million has been represented from investments in associated undertakings to financial investments to aid comparability between periods.
The financial investments contractual maturity profile is based on the intention with which the financial assets are held. These assets, together with
the reinsurers' share of investment contract liabilities, are held to cover the liabilities for linked investment contracts (net of reinsurance).
14(a) Debt instruments and similar securities
All debt instruments and similar securities are neither past due nor impaired and are analysed in the table below. These debt instruments and similar
securities are classified according to their local credit rating (Standard & Poor's or an equivalent), by investment grade.
14(b) Equity securities
Equity securities are held to cover the liabilities for linked investment contracts. The majority of the listed securities are traded on the London Stock Exchange.
The Group's holdings of unlisted equity securities arise principally from private equity investments.
15: Categories of financial instruments
The analysis of financial assets and liabilities into their categories as defined in IFRS 9 Financial Instruments is set out in the following tables.
Assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IFRS 9, are reflected
in the non-financial assets and liabilities category. The Group has taken advantage of the exemption in paragraph 7.2.15 of IFRS 9 from restating
prior periods in respect of IFRS 9's classification and measurement (including impairment) requirements.
All gains and losses on measuring the financial assets and liabilities at each reporting date are included in the determination of profit or loss for the period.
For information about the methods and assumptions used in determining fair value please refer to note 16.
At 30 June 2018
GBPm
Measurement basis Fair value(1)
Non-financial
Mandatorily Designated at Amortised assets and
at FVTPL FVTPL cost liabilities Total
Assets
Investments in associated undertakings and
joint ventures(2) - - - 1 1
Reinsurers' share of policyholder liabilities 2,263 - - 403 2,666
Loans and advances 190 - 29 - 219
Financial investments 64,399 170 - - 64,569
Trade, other receivables and other assets - - 1,437 - 1,437
Derivative financial instruments 33 - - - 33
Cash and cash equivalents - - 3,375 - 3,375
Total assets that include financial instruments 66,885 170 4,841 404 72,300
Total other non-financial assets - - - 1,237 1,237
Total assets 66,885 170 4,841 1,641 73,537
Liabilities
Long-term business insurance policyholder liabilities - - - 513 513
Investment contract liabilities 60,140 - - - 60,140
Third-party interest in consolidation of funds 8,105 - - - 8,105
Borrowings - - 197 - 197
Trade, other payables and other liabilities - - 1,937 - 1,937
Derivative financial instruments 59 - - - 59
Total liabilities that include financial instruments 68,304 - 2,134 513 70,951
Total other non-financial liabilities - - - 526 526
Total liabilities 68,304 - 2,134 1,039 71,477
(1) The Group adopted IFRS 9 Financial Instruments for the first time in 2018. IFRS 9 introduces new classification and measurement categories. The Fair Value Through
Profit or Loss (FVTPL) category includes financial assets that are managed (and their performance evaluated) on a fair value basis, including those previously described
as 'held for trading'. The majority of the Group's financial assets and liabilities continue to be measured at FVTPL after the implementation. The Group has taken
advantage of the exemption in paragraph 7.2.15 of IFRS 9 from restating prior periods in respect of IFRS 9's classification and measurement (including impairment)
requirements. For further information on IFRS 9 refer to note 4.
(2) Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted.
At 30 June 2017
GBPm
Measurement basis Fair value(1) Amortised cost
Designated at Financial
fair value liabilities Non-financial
Held for through the Loans and amortised assets and
trading profit or loss receivables cost liabilities Total
Assets
Investments in associated undertakings and
joint ventures(2) - - - - 1 1
Reinsurers' share of policyholder liabilities - 2,759 - - 326 3,085
Loans and advances - 184 16 - - 200
Financial investments - 58,493 - - - 58,493
Trade, other receivables and other assets - - 299 - 764 1,063
Derivative financial instruments 84 - - - - 84
Cash and cash equivalents - - 2,171 - - 2,171
Total assets that include financial instruments 84 61,436 2,486 - 1,091 65,097
Total other non-financial assets - - - - 1,370 1,370
Total assets 84 61,436 2,486 - 2,461 66,467
Liabilities
Long-term business insurance policyholder liabilities - - - - 436 436
Investment contract liabilities - 55,303 - - - 55,303
Third-party interest in consolidation of funds - 6,479 - - - 6,479
Borrowings - - - 838 - 838
Trade, other payables and other liabilities - - - 360 1,056 1,416
Derivative financial instruments 424 - - - - 424
Total liabilities that include financial instruments 424 61,782 - 1,198 1,492 64,896
Total other non-financial liabilities - - - - 501 501
Total liabilities 424 61,782 - 1,198 1,993 65,397
(1) The Group adopted IFRS 9 Financial Instruments for the first time in 2018. The Group has taken advantage of the exemption in paragraph 7.2.15 of IFRS 9 from
restating prior periods in respect of IFRS 9's classification and measurement (including impairment) requirements. For further information on IFRS 9 refer to note 4.
(2) Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted.
At 31 December 2017
GBPm
Measurement basis Fair value(1) Amortised cost
Designated at Financial
fair value liabilities Non-financial
Held for through the Loans and amortised assets and
trading profit or loss receivables cost liabilities Total
Assets
Investments in associated undertakings and
joint ventures(2)(3) - - - - 1 1
Reinsurers' share of policyholder liabilities - 2,525 - - 383 2,908
Loans and advances - 180 19 - - 199
Financial investments - 64,250 - - - 64,250
Trade, other receivables and other assets - - 154 - 343 497
Derivative financial instruments 87 - - - - 87
Cash and cash equivalents - - 2,360 - - 2,360
Total assets that include financial instruments 87 66,955 2,533 - 727 70,302
Total other non-financial assets - - - - 1,225 1,225
Total assets net of held for sale 87 66,955 2,533 - 1,952 71,527
Total assets classified as held for sale - - 147 - 299 446
Total assets 87 66,955 2,680 - 2,251 71,973
Liabilities
Long-term business insurance policyholder liabilities - - - - 489 489
Investment contract liabilities - 59,139 - - - 59,139
Third-party interest in consolidation of funds - 7,905 - - - 7,905
Borrowings - - - 782 - 782
Trade, other payables and other liabilities - - - 505 826 1,331
Derivative financial instruments 433 - - - - 433
Total liabilities that include financial instruments 433 67,044 - 1,287 1,315 70,079
Total other non-financial liabilities - - - - 576 576
Total liabilities net of held for sale 433 67,044 - 1,287 1,891 70,655
Total liabilities classified as held for sale - - - - 219 219
Total liabilities 433 67,044 - 1,287 2,110 70,874
(1) The Group adopted IFRS 9 Financial Instruments for the first time in 2018. The Group has taken advantage of the exemption in paragraph 7.2.15 of IFRS 9 from
restating prior periods in respect of IFRS 9's classification and measurement (including impairment) requirements. For further information on IFRS 9 refer to note 4.
(2) Investments in associated undertakings and joint ventures classified as non-financial assets and liabilities are equity accounted.
(3) As at 31 December 2017, GBP2 million has been reclassified from investments in associated undertakings to financial investments to conform with current year presentation.
16: 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 below, prescribed under accounting standards,
provides an indication about the reliability of inputs used in determining fair value.
16(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.
- Where the assets are private company shares the valuation is based on the latest available set of audited financial statements where available,
or if more recent, a statement of valuation provided by the private company's management.
There have been no significant changes in the valuation techniques applied when valuing financial instruments. The general principles applied to
those instruments measured at fair value are outlined below:
Reinsurers' share of policyholder liabilities
Reinsurers' share of policyholder liabilities are measured on a basis that is consistent with the measurement of the provisions held in respect of the
related insurance contracts. Reinsurance contracts which cover financial risk are measured at fair value of the underlying assets.
Loans and advances
Loans and advances include loans to policyholders, loans to brokers, and other secured and unsecured loans. Loans and advances to
policyholders of investment linked contracts are measured at fair value. All other loans are stated at their amortised cost.
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 are measured at observable market prices where available. In the absence of
observable market prices, these investments and securities are fair valued utilising various approaches including discounted cash flows, the
application of an EBITDA multiple or any other relevant technique.
Derivatives
The fair value of derivatives is determined with reference to the exchange traded prices of the specific instruments. In situations where the
derivatives are traded over the counter the fair value of the instruments is determined by the utilisation of option pricing models.
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 interest in consolidation of funds
Third-party interests in consolidation of funds are measured at the attributable net asset value of each fund.
Borrowed funds
Borrowed funds are stated at amortised cost.
16(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 Listed equity securities, government securities and other listed debt
quoted 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, reinsurers' share of investment contract liabilities and
investment contract liabilities directly linked to other Level 1 financial
assets.
Level 2 - valuation techniques using observable inputs: financial Unlisted equity and debt securities where the valuation is based on
assets and liabilities with quoted prices for similar instruments in active models involving no significant unobservable data.
markets or quoted prices for identical or similar instruments in inactive OTC derivatives, certain privately placed debt instruments and third-
markets and financial assets and liabilities valued using models where party interests in consolidated funds.
all significant inputs are observable.
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 securities where the market is not considered sufficiently active,
one or more significant inputs are unobservable. including 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. However, 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 for 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. Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to
uncertainty about the overall fair value of the asset or liability being measured.
16(c) Transfer between fair value hierarchies
The Group deems a transfer to have occurred between Level 1 and Level 2 or Level 3 when an active, traded primary market ceases to exist for
that financial instrument. A transfer between Level 2 and Level 3 occurs when the majority of the significant inputs used to determine fair value of
the instrument become unobservable.
16(d) Financial assets and liabilities measured at fair value, classified according to fair value hierarchy
The tables below present a summary of the Group's financial assets and liabilities that are measured at fair value in the consolidated statement of
financial position according to their IFRS 9 classification, as set out in changes to accounting policies in note 4. The Group has initially applied IFRS
9 at January 2018. Under the transition methods selected, comparative information is not restated.
The Group has not disclosed the fair value for financial instruments such as short term trade receivables and payables because their carrying
values are a reasonable approximation of fair value.
The majority of the Group's financial assets are measured using quoted market prices for identical instruments in active markets (Level 1) and there
has been no significant change since the 2017 Historical Financial Information, within the listing prospectus.
The assets, together with the reinsurers' share of investment contract liabilities, are held to cover the liabilities for linked investment contracts (net of
reinsurance). The difference between linked assets and linked liabilities is principally due to short term timing differences between policyholder
premiums being received and invested in advance of policies being issued, and tax liabilities within funds which are reflected within the Group's tax
liabilities.
At 30 June 2018 At 30 June 2017 At 31 December 2017
GBPm % GBPm % GBPm %
Financial assets measured at fair value
Level 1 56,816 84.7% 54,182 88.1% 57,945 86.4%
Level 2 9,128 13.6% 6,695 10.9% 7,928 11.8%
Level 3(1) 1,111 1.7% 643 1.0% 1,169 1.8%
Total 67,055 100.0% 61,520 100.0% 67,042 100.0%
Financial liabilities measured at fair value
Level 1 58,566 85.8% 54,107 87.0% 57,399 85.1%
Level 2 8,629 12.6% 7,458 12.0% 8,911 13.2%
Level 3 1,109 1.6% 641 1.0% 1,167 1.7%
Total 68,304 100.0% 62,206 100.0% 67,477 100.0%
(1) As at 31 December 2017, GBP2 million has been reclassified from investments in associated undertakings to level 3 financial assets to conform with current
year presentation.
GBPm
At 30 June 2018 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Mandatorily (fair value through profit or loss) 56,646 9,128 1,111 66,885
Reinsurers' share of policyholder liabilities 2,263 - - 2,263
Loans and advances 190 - - 190
Financial investments 54,193 9,095 1,111 64,399
Derivative financial instruments - assets - 33 - 33
Designated (fair value through profit or loss) 170 - - 170
Financial investments 170 - - 170
Total assets measured at fair value 56,816 9,128 1,111 67,055
Financial liabilities measured at fair value
Mandatorily (fair value through profit or loss) 58,566 8,629 1,109 68,304
Investment contract liabilities 58,566 465 1,109 60,140
Third-party interests in consolidated funds - 8,105 - 8,105
Derivative financial instruments - liabilities - 59 - 59
Total liabilities measured at fair value 58,566 8,629 1,109 68,304
GBPm
At 30 June 2017 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Held-for-trading (fair value through profit or loss) 2 82 - 84
Derivative assets 2 82 - 84
Designated (fair value through profit or loss) 54,180 6,613 643 61,436
Reinsurers' share of policyholder liabilities 2,759 - - 2,759
Loans and advances 184 - - 184
Financial investments 51,237 6,613 643 58,493
Total assets measured at fair value 54,182 6,695 643 61,520
Financial liabilities measured at fair value
Held-for-trading (fair value through profit or loss) - 424 - 424
Derivative financial instruments - liabilities - 424 - 424
Designated (fair value through profit or loss) 54,107 7,034 641 61,782
Investment contract liabilities 54,107 555 641 55,303
Third-party interests in consolidated funds - 6,479 - 6,479
Total liabilities measured at fair value 54,107 7,458 641 62,206
GBPm
At 31 December 2017 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Held-for-trading (fair value through profit or loss) - 87 - 87
Derivative financial instruments - assets - 87 - 87
Designated (fair value through profit or loss) 57,945 7,841 1,169 66,955
Reinsurers' share of policyholder liabilities 2,525 - - 2,525
Loans and advances 180 - - 180
Financial investments(1) 55,240 7,841 1,169 64,250
Total assets measured at fair value 57,945 7,928 1,169 67,042
Financial liabilities measured at fair value
Held-for-trading (fair value through profit or loss) - 433 - 433
Derivative financial instruments - liabilities - 433 - 433
Designated (fair value through profit or loss) 57,399 8,478 1,167 67,044
Investment contract liabilities 57,399 573 1,167 59,139
Third-party interests in consolidated funds - 7,905 - 7,905
Total liabilities measured at fair value 57,399 8,911 1,167 67,477
(1) As at 31 December 2017, GBP2 million has been reclassified from investments in associated undertakings to level 3 financial investments to conform with current
year presentation.
16(e) Level 3 fair value hierarchy disclosure
All of the assets that are classified as Level 3 are held within linked policyholder funds. This means that all of the investment risk associated with
these assets is borne by policyholders and that 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.
The table below reconciles the opening balances of Level 3 financial assets to closing balances at the end of the period:
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
At beginning of the year 1,169 581 581
Total net fair value gains recognised in:
- profit or loss 20 - (23)
Purchases - 2 618
Sales (2) (3) (23)
Transfers in 57 187 167
Transfers out (133) (126) (152)
Foreign exchange and other - 2 1
Total level 3 financial assets 1,111 643 1,169
Amounts shown as sales arise principally from the sale of private company shares and unlisted pooled investments and from distributions received
in respect of holdings in property funds.
Transfers into Level 3 assets for the current period comprise GBP57 million (30 June 2017: GBP187 million, 31 December 2017: GBP167 million) of private
company shares that were previously shown within Level 2 and for which price updates have not been received for more than six months. Transfers
out of Level 3 assets in the current period comprise GBP133 million (30 June 2017: GBP126 million, 31 December 2017: GBP152 million) of private company
shares that were not previously being repriced and that have been transferred into Level 2 as they are now actively priced.
At At At
30 June 30 June 31 December
2018 2017 2017
Pooled investments 87 274 186
Unlisted and stale price pooled investments 86 272 185
Suspended funds 1 2 1
Private equity investments 1,024 360 983
Other - 9 -
1,111 643 1,169
16(f) Effect of changes in significant unobservable assumptions to reasonable possible alternatives
Favourable and unfavourable changes are determined on the basis of changes in the value of the financial asset or liability as a result of varying the
levels of the unobservable parameters using statistical techniques. When parameters are not amenable to statistical analysis, quantification of
uncertainty is judgemental.
When the fair value of a financial asset or liability is affected by more than one unobservable assumption, the figures shown reflect the most
favourable or most unfavourable change from varying the assumptions individually.
The valuations of the private equity investments are performed on an asset-by-asset basis using a valuation methodology appropriate to the specific
investment and in line with industry guidelines. Private equity investments are valued at the value disclosed in the latest available set of audited
financial statements or if more recent information is available from investment managers or professional valuation experts at the value of the
underlying assets of the private equity investment.
Details of the valuation techniques applied to the different categories of financial instruments can be found in note 16(a) above.
Management believe that in aggregate, 10% (31 December 2017: 10%) change in the value of the financial asset or liability represents a
reasonable possible alternative judgement in the context of the current macro-economic environment in which the Group operates. It is therefore
considered that the impact of alternative assumptions will be in the range of GBP111 million, both favourable and unfavourable (31 December 2017:
GBP117 million). As described in note 16(e) above, changes in the value of level 3 assets are exactly matched by corresponding changes in the value
of liabilities due to policyholders and therefore have no impact on the Group's profit or loss or net asset value.
16(g): Fair value hierarchy for assets and liabilities not measured at fair value
All of the Group's financial instruments are carried at fair value except for certain amounts included within 'Trade, other receivables, and other
assets' and 'Trade, other payables, and other liabilities'. 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. These instruments would be
classified as Level 3 in terms of the fair value hierarchy.
17: Reinsurers' share of policyholder liabilities
This note details the reinsurance recoverables on insurance and investment contract liabilities.
17(a) Carrying amounts
The reinsurance assets as at 30 June 2018 comprised:
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
Reinsurers' share of policyholder liabilities
Reinsurers' share of long-term business insurance policyholder liabilities
Life assurance policyholder liabilities 395 316 375
Outstanding claims 8 10 8
403 326 383
Reinsurers' share of investment contract liabilities
Reinsurers' share of unit-linked investment contracts 2,263 2,759 2,525
Total reinsurers' share of policyholder liabilities 2,666 3,085 2,908
Of the total GBP2,666 million, (30 June 2017: GBP3,085 million, 31 December 2017: GBP2,908 million) is expected to be recovered in less than one year
after the statement of financial position date.
The reinsurers' share of policyholder liabilities of GBP2,263 million (30 June 2017: GBP2,759 million, 31 December 2017: GBP2,525 million) relating to
investment contracts is where the direct management of assets is ceded to a third party through a reinsurance arrangement. Due to the nature of
the arrangement, there is no transfer of insurance risk.
17(b) Assumptions
The assumptions, including discount rates, used for reinsurance of policyholder liabilities follow those used for the equivalent gross policyholder
liabilities. Reinsurance assets are valued net of an allowance for their recoverability.
For unit-linked business, the unit liabilities are determined as the value of units credited to policyholders. Since these liabilities are determined on a
retrospective basis no assumptions for future experience are required. Assumptions for future experience are required for unit-linked business in
assessing whether the total of the contract assets and contract liabilities is greater than the present value of future profits expected to arise on the
relevant blocks of business (the 'recoverability test'). If this is the case, then the contract assets are restricted to the recoverable amount. For linked
contracts, the assumptions are on a best estimate basis.
17(c) Movements
Movements in the amounts outstanding in respect of reinsurers' share of unit-linked investment contracts and policyholder liabilities, other than
outstanding claims, are set out below:
GBPm
At At At
30 June 30 June 31 December
Unit-linked investment contracts 2018 2017 2017
Carrying amount at 1 January 2,525 2,560 2,560
Net premium income (266) (6) (365)
Fair value movements 4 205 330
(262) 199 (35)
Total reinsurers' share of unit-linked investment contract liabilities 2,263 2,759 2,525
GBPm
At At At
30 June 30 June 31 December
Life assurance policyholder liabilities 2018 2017 2017
Carrying amount at 1 January 375 290 290
Impact of new business 6 41 55
Impact of experience effects 12 9 23
Impact of assumption changes 2 (24) 7
20 26 85
Total reinsurers' share of life assurance policyholder liabilities 395 316 375
The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of reinsurance assets with
corresponding movements in gross insurance contract liabilities.
18: Cash and cash equivalents
Cash and cash equivalents as at 30 June 2018 comprised:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Cash and cash equivalents for the Group, including cash held for sale 2,120 1,386 1,595
Cash and cash equivalents in Consolidated Funds 1,255 785 912
Total cash and cash equivalents per consolidated statement of cash flows 3,375 2,171 2,507
Less: cash and cash equivalents included in assets held for sale - - (147)
Total cash and cash equivalents per consolidated statement of financial
position 3,375 2,171 2,360
Except for cash and cash equivalents subject to consolidation of funds of GBP1,255 million (30 June 2017: GBP785 million, 31 December 2017: GBP912
million), management do not consider that there are any material amounts of cash and cash equivalents which are not available for use in the
Group's day-to-day operations.
19: Share capital
Share capital
Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash, other financial assets or issue a
variable number of own equity instruments. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a
deduction from the proceeds, net of tax. The Parent Company's equity capital currently comprises 1,902,251,098 ordinary shares of 7p each with
an aggregated nominal value of GBP133,157,577 (2017: 130,000,257 ordinary shares of 100p each with an aggregated nominal value of
GBP130,000,257).
This note gives details of the Company's ordinary share capital and shows the movements during the period.
GBPm GBPm
Number of shares Nominal value Share premium
At 1 January 2017 130,000,256 130 -
Issue of share capital(1) 200,000,000 200 -
At 30 June 2017 330,000,256 330 -
At 1 July 2017 330,000,256 330 -
Reduction of share capital(2) (200,000,000) (200) -
Issue of share capital(3) 1 - 58
At 31 December 2017 130,000,257 130 58
At 1 January 2018 130,000,257 130 58
Issue of share capital(4) 1 - -
130,000,258 130 58
Sub-division of ordinary shares of 100p each to 1p each(5) 12,870,025,542 - -
13,000,025,800 130 58
Bonus shares issued to ordinary shareholders of 1p each(6) 315,731,886 3 -
13,315,757,686 133 58
Conversion of ordinary shares of 1p each to 7p each(7) (11,413,506,588) - -
At 30 June 2018 1,902,251,098 133 58
(1) On 3 May 2017, the Company allotted and issued 200 million GBP1 ordinary shares, for a consideration of GBP200 million, to its now former parent Old Mutual plc.
(2) On 27 November 2017, the Company carried out a share capital reduction, which cancelled the 200 million GBP1 ordinary shares.
(3) On 21 December 2017, Old Mutual plc contributed GBP58 million to the Company in exchange for the issue of 1 share.
(4) On 31 January 2018, the Company allotted and issued 1 ordinary share of GBP1.
On 6 June 2018, the Board approved a reorganisation of its share capital to enable the implementation of the Managed Separation and to ensure
that existing shareholders of Old Mutual plc received one Ordinary Share for every three ordinary shares they hold in Old Mutual plc, as described
in the prospectus document. The Share Capital Reorganisation consisted of the following steps:
(5) (a) Each of the Company's existing 130,000,258 ordinary shares of GBP1.00 each was sub-divided into 100 ordinary shares of GBP0.01 each, following
which the Company's share capital consisted of 13,000,025,800 ordinary shares of GBP0.01 each, with an aggregate nominal value of GBP130,000,258;
(6) (b) The Company allotted 315,731,886 bonus ordinary shares of GBP0.01 each to the existing shareholders of the Company (with any fractional
entitlements arising to be aggregated and allotted to Old Mutual plc), following which the Company's share capital consisted of 13,315,757,686
ordinary shares of GBP0.01 each, with an aggregate nominal value of GBP133,157,577; and
(7) (c) The Company's 13,315,757,686 ordinary shares of GBP0.01 each were consolidated into Ordinary Shares of GBP0.07 each (with any fractional
entitlements arising to be aggregated and allotted to Old Mutual plc), following which the Company's share capital consists of 1,902,251,098
Ordinary Shares of GBP0.07 each, with an aggregate nominal value of GBP133,157,577.
Merger reserve
On 31 January 2018, the Group acquired the Skandia UK Limited group of entities from its then parent company Old Mutual plc. This comprised of
seven Old Mutual plc group entities with a net asset value of GBP591 million. The transfer was financed by the issue of one share and with the
balance giving rise to a merger reserve of GBP591 million in the consolidated statement of financial position, being the difference between the nominal
value of the share issued by the parent company for the acquisition of the shares of the subsidiaries and the subsidiary's net asset value. No debt
was taken on as a result of this transaction. The most significant asset within these entities is a GBP566 million receivable which corresponds to an
equivalent payable within the Group's consolidated statement of financial position. The net effect of this transaction for the Group is to replace a
payable due to Old Mutual plc with equity.
This transaction attracted merger relief under section 612 of the Companies Act 2006.
20: Share-based payments
During the period ended 30 June 2018 and the year ended 31 December 2017, the Group participated in a number of Old Mutual plc and Quilter plc
share-based payment arrangements. This note describes the nature of the plans and how the share options and awards are valued.
20(a) Measurements and assumptions
The Group had the following share-based payment arrangements for the period ended 25 June 2018 and the year ended 31 December 2017:
Contractual
Description of award life Vesting conditions
Typical
Restricted Conditional Dividend Service Performance
Scheme shares Shares Options Other entitlement Years (years) (measure)
Old Mutual plc Share Reward Plan
- Restricted Shares X - - - X 1 - 3 years - -
Old Mutual plc Performance Share Plan Not less Target growth in
- Restricted Shares - - X - - 10 years than EPS and ROE
3 years
Old Mutual plc 2008 Sharesave Plan(1) - - X X - 3.5 - 5.5 3&5 -
Old Mutual Wealth Joint Ownership Plan
- Jointly Owned/Restricted Shares X - - X X 3 3 -
Old Mutual Wealth Phantom Share Reward Plan Typically
- Conditional Shares - X - - - 3 years 3 -
(1) Scheme is linked to a savings plan
20(b) Arrangements in place from 25 June 2018 onwards
The shares schemes listed in note 20(a) above were all awards over Old Mutual plc shares. The majority of these schemes were subject to early
exercise, apart from the Joint Share Ownership Plan and the Phantom Share Reward Plan which were transferred to awards over Quilter shares as
explained below. The Group also created three new share-based payment arrangements which came into force on 25 June 2018: the Quilter plc
Share Incentive Plan, the Quilter plc Share Reward Plan, and the Quilter plc Performance Share Plan.
Contractual
Description of award life Vesting conditions
Typical
Restricted Conditional Dividend Service Performance
Scheme shares shares Options Other Entitlement Years (years) (measure)
Old Mutual Wealth Share Ownership Plan
- Jointly Owned/Restricted Shares(1) X - - X X 3 years 3 -
Old Mutual Wealth Phantom Share Reward
Plan 2017 Typically
- Conditional Shares(2) - X - - - 3 years 3 -
Quilter plc Share Incentive Plan Not less
- Restricted Shares X - - - - than 3 years 2 -
Quilter plc Share Reward Plan Typically
- Conditional Shares - X - - - 3 years 3 -
Quilter plc Performance Share Plan Target growth in
- Share Options(3) - - X - - Up to 10 years 3 EPS and Relative
TSR
Quilter plc Performance Share Plan Not less Conduct, Risk &
- Conditional Shares(3) - X - - - than 3 years 3 Compliance
Underpins
(1) The Joint Share Ownership Plan ('JSOP') was implemented for certain key employees of Quilter in 2013, with the final grant of awards in 2016. It provided participants
with an interest in the capital growth of the company by granting joint ownership of shares in Old Mutual Wealth Management Limited (now Quilter plc) with an employee
benefit trust ('EBT'), whereby the trust owned the principal value of the shares and the participants owned any growth in value during the vesting period. Upon the
demerger and listing of Quilter plc, the trust exercised a call option to acquire the participants' interest in the shares based on the growth in value of the Company
between grant and listing, in return for consideration shares in Quilter plc. The consideration shares for any awards that remain unvested are restricted until the normal
vesting date, and attract dividends during that time.
(2) Awards granted under the Phantom Share Reward Plan prior to the demerger of Quilter plc were made over notional ordinary shares in Old Mutual plc that were settled
in cash on the vesting date. Upon the demerger and listing of Quilter plc, all unvested notional share awards were converted to conditional awards over ordinary shares
in Quilter plc, which will be settled in Quilter plc shares on the normal vesting dates.
(3) Options granted under the Performance Share Plan are subject to a performance period commencing 1 January 2018, but with a grant date of 25 June 2018. In
accordance with IFRS 2 Share-base Payment the cost of this award is recognised from the start of the performance period until the date upon which the options are
expected to vest.
20(c) Reconciliation of movements in options
The movement in the options outstanding under these arrangements during the period is detailed below:
Six months ended Year ended
30 June 2018 31 December 2017
Weighted Weighted
average average
Options over shares Number of exercise Number of exercise
(London Stock Exchange) options price options price
Outstanding at beginning of the period 7,622,956 GBP1.60 10,250,582 GBP1.60
Granted during the period 2,824,136 GBP0.00 - -
Forfeited during the period (2,083,686) GBP1.60 (794,653) GBP1.62
Exercised during the period (5,533,303) GBP1.60 (1,819,897) GBP1.61
Expired during the period (5,967) - (39,892) -
Other transfers during the period - - 26,816 -
Outstanding at end of the period 2,824,136 GBP1.45 7,622,956 GBP1.60
Exercisable at end of the period - GBP0.00 151,809 GBP1.61
The amount outstanding at the end of the period for 2018 and 2017 includes an amount for employees who have transferred into/out of Quilter plc
from/to other Old Mutual divisions.
The following table summarises information about options outstanding at 30 June 2018 and 31 December 2017:
Weighted remaining Weighted average
Outstanding contractual life exercise
Year Range of exercise price options Years price
At 30 June 2018 GBP0.00 to GBP0.00 2,824,136 2.7 GBP0.00
At 31 December 2017 GBP1.28 to GBP1.87 7,622,956 1.1 GBP1.94
20(d) Measurements and assumptions
In determining the fair value of equity-settled share-based awards and the related charge to the income statement, the Group makes assumptions
about future events and market conditions. Specifically, management makes estimates of the likely number of shares that will vest and the fair
value of each award granted which is valued and 'locked in' at the grant date.
The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The
estimate of fair value of share options granted is measured using a Black-Scholes option pricing model.
Where share options are granted under a service and non-market based performance condition, such conditions are not taken into account in the
grant date fair value measurement of the share options granted. There are no market conditions associated with the share option grants.
20(e) Forfeitable/Restricted share grants
The following summarises the fair value of restricted shares granted by the Group during the period:
Weighted
Number average fair
Instruments granted and purchased during the period granted value
Quilter plc Share Incentive Plan - Restricted Shares 2018 4,860,240 GBP1.53
Old Mutual plc Share Reward Plan - Restricted shares 2017 1,890,693 GBP2.18
The share price at measurement date was used to determine the fair value of the restricted shares. Expected dividends were not incorporated into
the measurement of fair value where the holder of the restricted share is entitled to dividends throughout the vesting period.
20(f) Financial impact
The total expense recognised for the period arising from equity compensation plans was as follows:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Expense arising from equity settled share and share option plans - continuing operations 9 4 9
Expense arising from equity settled share and share option plans - discontinued operations 1 - 1
Total expense arising from equity settled and share option plans 10 4 10
20(g) Employee Benefit Trust ('EBT')
On 22 December 2017 an EBT which was set up for the benefit of the Group employees, and specifically for the purposes of the JSOP, was
transferred to the Group from Old Mutual plc. As a result of this transfer, on consolidation the Group's equity was reduced by an amount of GBP99
million, representing the value of Company shares held within the trust, which are recognised as treasury shares and deducted from equity.
The EBT held 72 million Quilter plc shares at the point of Quilter plc listing on, 25 June 2018. Following the listing of Quilter plc, the shares in the
trust will be used to support not only the JSOP, but also other share schemes.
21: Insurance and investment contract liabilities
The following is a summary of the Group's insurance and investment contract provisions and related reinsurance assets as at 30 June 2018.
GBPm
At 30 June 2018 At 30 June 2017 At 31 December 2017
Gross Reinsurance Net Gross Reinsurance Net Gross Reinsurance Net
Life assurance policyholder liabilities
Long-term business insurance
policyholder liabilities
Life assurance policyholder liabilities 503 (395) 108 424 (316) 108 480 (375) 105
Outstanding claims 10 (8) 2 12 (10) 2 9 (8) 1
513 (403) 110 436 (326) 110 489 (383) 106
Investment contract liabilities
Unit-linked investment contracts 60,140 (2,263) 57,877 55,303 (2,759) 52,544 59,139 (2,525) 56,614
Total life assurance policyholder
liabilities 60,653 (2,666) 57,987 55,739 (3,085) 52,654 59,628 (2,908) 56,720
21(a) Insurance contract liabilities (gross of reinsurance)
Movements in the amounts outstanding in respect of life assurance policyholder liabilities, other than outstanding claims, are set out below:
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
Carrying amount at 1 January 480 402 402
Impact of new business 2 34 42
Impact of experience effects 19 13 30
Impact of assumption changes 2 (25) 7
Other movements - - (1)
23 22 78
Total insurance contract life assurance policyholder liabilities 503 424 480
21(b) Unit-linked investment contract liabilities (gross of reinsurance)
Movements in the amounts outstanding in respect of unit-linked and other investment contracts are set out below:
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
Carrying amount at 1 January 59,139 51,265 51,265
Fair value movements (205) 2,111 3,958
Investment income 401 357 681
Movements arising from investment return 196 2,468 4,639
Contributions received 4,047 4,683 9,717
Maturities (100) (119) (220)
Withdrawals and surrenders (2,894) (2,792) (5,682)
Claims and benefits (116) (107) (217)
Reclassification from provisions 3 - -
Other movements (129) (125) (408)
Change in liability 1,007 4,008 7,829
Currency translation (gain)/loss (6) 30 45
Total unit-linked investment contract policyholder liabilities 60,140 55,303 59,139
For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit.
The benefits offered under the unit-linked investment contracts are based on the risk appetite of policyholders and the return on their selected
investments and collective fund investments, whose underlying investments include equities, debt securities, property and derivatives. This
investment mix is unique to individual policyholders.
The maturity value of these financial liabilities is determined by the fair value of the linked assets at maturity date. There will be no difference
between the carrying amount and the maturity amount at maturity date.
None of the reinsurers share of policyholder liabilities relating to investment contract liabilities were past due as at 30 June 2018 (30 June 2017:
GBPnil, 31 December 2017: GBPnil).
22: Provisions and accruals
GBPm
Compensation Sale of Single
Six months ended 30 June 2018 provisions Strategy business Other Total
Balance at beginning of the period 82 - 22 104
Charge to income statement 4 19 1 24
Utilised during the period (4) (2) (2) (8)
Unused amounts reversed (1) - (1) (2)
Reclassification within Statement of Financial Position (3) - - (3)
Balance at 30 June 2018 78 17 20 115
GBPm
Compensation Sale of Single
Six months ended 30 June 2017 provisions Strategy business Other Total
Balance at beginning of the period 13 - 16 29
Charge to income statement (1) - 5 4
Utilised during the year - - 2 2
Disposals (1) - - (1)
Balance at 30 June 2017 11 - 23 34
GBPm
Compensation Sale of Single
Year ended 31 December 2017 provisions Strategy business Other Total
Balance at beginning of the year 13 - 16 29
Charge to income statement - Voluntary remediation 69 - - 69
Charge to income statement - Other 7 - 6 13
Utilised during the year (5) - (5) (10)
Foreign exchange and other movements (2) - 5 3
Balance at 31 December 2017 82 - 22 104
Compensation provisions
Compensation provisions totalled GBP78 million (31 December 2017: GBP82 million).
Voluntary client remediation provision
As part of its ongoing work to promote fair customer outcomes, the Group has conducted product reviews consistent with the recommendations
from the FCA's thematic feedback and the FCA's guidance 'FG16/8 Fair treatment of long-standing customers in the life insurance sector'.
Following these reviews, the Group has decided to commence voluntary remediation to customers in certain legacy products, resulting in an
additional provision raised during the 2017 year of GBP69 million, including GBP7 million of programme cost and GBP13 million of estimated interest. During
the period ended 30 June 2018, GBP1 million was utilised (31 December 2017: GBPnil) and GBP3 million was reclassified as a liability to long-term business
insurance policyholder liabilities within the statement of financial position.
The voluntary remediation relates to early encashment charges and contribution servicing charges made on pension products and following the re-
introduction of annual reviews, compensation payable to a subset of Protection plan holders.
The voluntary remediation comprises retrospective refunds and compensation, going back to 1 January 2009, and prospective 5% caps on early
encashment charges.
The Group intends to substantially complete the review and remediation in 2019.
Estimates and assumptions
Key estimates and assumptions in relation to the provision are:
- Protection policy sustainability period assumption of 4 years; and
- The programme costs of carrying out the remediation activity and interest on remediation payments.
If past reviews had been carried out, policies would be expected to have funds sufficient to provide up to four years' cover from the current
statement of position date, on the basis that future premium increases are not applied. This assumption has been used to determine the cost of
reconstructing the impacted Protection policies to their expected values.
The programme costs of conducting the remediation activity are highly variable and are subject to a number of uncertainties. In calculating the best
estimate of these costs, consideration has been given to such matters as the identification of impacted customers, access to and the quality of
customer files, likelihood of the customer contesting the offer, the complexity of the calculations, the level of quality assurance and checking, the
ease of contacting and communicating with customers and the level of customer interactions.
Sensitivities relating to the assumptions and uncertainties are provided in the table below:
Assumption Change in assumption Consequential change in provision
Protection policy sustainability period Protection policy sustainability period -GBP1.6m
assumption reduced to 3 years
Protection policy sustainability period Protection policy sustainability period +GBP1.9m
assumption reduced to 5 years
Programme cost per case of conducting the review Estimate based on bottom of range +/- GBP1.4m
No provision has been recognised for any potential enforced redress and associated penalties that may be levied by the FCA, as explained in note
24 Contingent liabilities.
Compensation provision (other)
The compensation provision also includes amounts relating to regulatory uncertainty and multiple causal events; on-going resolution of claims as a
result of mis-selling guarantee contacts; and to the provision for claw-back of prescribed claims. This provision is held to allow for the possible
future payment of claims that have been previously reversed. Due to the nature of the provision, the timing of the expected cash outflows is
uncertain. Estimates are reviewed annually and adjusted as appropriate for new circumstances.
Sale of Single Strategy business
A restructuring provision was recognised as a result of the sale of the Single Strategy business to enable the remaining Quilter Investors business
to function as a standalone operation going forward. The provision includes those costs directly related to replacing and restoring the operational
capability that previously underpinned and supported both parts of the asset management business. Key parts of this capability had either been
disposed of or disrupted as a consequence of the sale. The provision was established for GBP10 million, of which GBP2 million has been utilised. The
carried forward provision at 30 June 2018 is GBP8 million. Further provisions may be established as the project progresses.
Additional provisions totalling GBP9 million have been made as a consequence of the sale of the Single Strategy business. These have been made in
relation to various sale related future commitments, the outcome of which is uncertain at the time of the sale and the most significant of which is in
relation to the guarantee of revenues in future years.
Other provisions
Other provisions also include long-term staff benefits and amounts for the resolution of legal uncertainties and the settlement of other claims raised
by contracting parties. Where material, provisions and accruals are discounted at discount rates specific to the risks inherent in the liability. The
timing and final amounts of payments in respect of some of the provisions, particularly those in respect of litigation claims and similar actions
against the Group, are uncertain and could result in adjustments to the amounts recorded.
Of the total provisions recorded above, GBP20 million, (2017: GBP22 million) is estimated to be payable after one year.
23: Borrowings
The following table analyses the Group's borrowed funds, repayable on demand and categorised in terms of IFRS 9 Financial Instruments as
"Financial liabilities amortised cost". All amounts outstanding at 30 June 2018 are payable to a number of relationship banks. All amounts
outstanding at 31 December 2017 were payable either to the Group's previous ultimate Parent Company, Old Mutual plc, or to other related entities
within the Old Mutual plc group.
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
Subordinated debt
Fixed rate loan at 5.50%(1) - 566 566
Fixed rate loan at 4.48%(2) 197 - -
Other borrowed funds
Fixed rate loan note at 10%(3) - 53 -
Floating rate loan at 6 month LIBOR + 0.25%(4) - 92 93
Floating rate loan at 3 month LIBOR + 0.10%(5) - 84 80
Fixed rate loan at 3.125%(6) - 43 43
197 838 782
(1) Commenced on 25 February 2015 and was used to finance the acquisition of the Quilter Cheviot group.
(2) Commenced on 28 February 2018 and used for general corporate purposes.
(3) Commenced during 2015 and was used to finance the acquisition of the Quilter Cheviot group.
(4) Commenced during 2014 and was used to finance the acquisition of Intrinsic Financial Services Limited.
(5) Commenced in 2011 and was used to finance other historical corporate activity.
(6) Commenced on 21 June 2016 was used to finance one of the Group's employee benefit trusts.
On 23 February 2018, the Group entered into, and fully drew down on 28 February 2018, the New Term Loan, a GBP300 million senior unsecured term
loan with a number of relationship banks with an annual coupon of 45 basis points above LIBOR, to be updated every three months. The New Term
Loan was repaid in full using proceeds from the sale of the Single Strategy Business following the completion of the transaction in June 2018.
On 28 February 2018, the Group entered into a GBP125 million revolving credit facility, which remains undrawn, and issued a GBP200 million
subordinated debt security. This was issued in the form of a 10-year Tier 2 bond with a one-time issuer call option after five years to J.P. Morgan
Securities plc, paying a semi-annual coupon of 4.478% p.a. The debt security is listed on the London Stock Exchange and has a Fitch instrument
rating of BBB-. On 13 April 2018, the debt security was sold by J.P. Morgan Securities plc to traditional debt capital market investors. Including the
impact of amortisation of set-up costs, the issuance of this security will increase financing costs by approximately GBP10 million on an annual basis.
As part of a series of internal transactions, GBP566 million of intercompany indebtedness to other companies within the Old Mutual plc group was
equitised, with the effect of the intercompany indebtedness being cancelled and replaced with equity in the form of share capital and a merger
reserve. The overall indebtedness also reduced by GBP16 million from ordinary course transactions.
The remaining GBP200 million intercompany indebtedness was repaid in full from the new facilities referred to above and from existing cash resources
on 28 February 2018. On the same date, the GBP70 million revolving credit facility with Old Mutual plc was cancelled.
Amounts borrowed as at 31 December 2017 were borrowed from Old Mutual plc and were unsecured and were repayable on demand. The
carrying amount approximates to fair value which is valued as the principal amount repayable.
24: Contingent liabilities
The Group, in the ordinary course of business, enters into transactions that expose it to tax, legal 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 22). Possible obligations and known liabilities where no reliable estimate
can be made or it is considered improbable that an outflow would result are reported as contingent liabilities in accordance with IAS 37: 'Provisions,
Contingent Liabilities and Contingent Assets'.
Tax
The Revenue authorities in the principal jurisdictions in which the Group operates routinely review historical transactions undertaken and tax law
interpretations made by the Group. The Group is committed to conducting its tax affairs in accordance with the tax legislation of the jurisdictions in
which they operate. All interpretations made by management 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 Revenue authorities. The 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 Board is
satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the resources required to fund such
potential settlements are sufficient.
Due to the level of estimation required in determining tax provisions amounts eventually payable may differ from the provision recognised.
Contingent liabilities - acquisitions and disposals
The Group routinely monitors and reassesses contingent liabilities arising from matters such as litigation, warranties and indemnities relating to past
acquisitions and disposals. These are not expected to result in any material provisions.
UK Financial Conduct Authority Investigation - Old Mutual Wealth Life Assurance Limited ('OMWLA')
On 2 March 2016 the UK Financial Conduct Authority ('FCA') commenced an investigation of a number of firms, including OMWLA, a Quilter plc
Group subsidiary, in relation to potential breaches of the FCA's standards pertaining to matters covered by its Thematic Review, an industry-wide
review into the treatment of long-standing customers invested in closed-book products sold by the life insurance sector (TR 16/2). The FCA has not
concluded its investigation of OMWLA, and as a result it is not possible to assess the outcome of the investigation and, by extension, the extent of
any financial consequences for the Group.
25: Capital and financial risk management
The principal risks and uncertainties of the Group and the management of these risks have not materially changed since the year ended 31
December 2017.
Details of the principal risks and uncertainties can be found in the published prospectus within the 2017 Historical Financial Information, within the
listing prospectus; Capital and Risk Management information in Note 42 of the Historic Financial Information and the estimation techniques and
uncertainties in the specific disclosures to which they relate.
26: Related party transactions
In the normal course of business, the Group enters into transactions with related parties that relate to insurance and investment management
business. These 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 six months ended 30 June 2018 which had a material effect on the results or financial position of the Group except for the repayment of
intercompany indebtedness to other companies with the Old Mutual plc group which has been disclosed in note 23: Borrowings. Except for these
intra-group loan repayments, the nature of the related party transactions of the Group has not changed from those described in the 2017 Historical
Financial Information included in the listing prospectus dated 20 April 2018.
27: Events after reporting date
Special interim dividend
Subsequent to 30 June 2018, the Board has declared a special interim dividend of 12 pence per ordinary share in connection with the sale of the
Single Strategy business. This amounts to GBP221 million in total, and will be accounted for as an appropriation of retained earnings in the year ending
31 December 2018.
The special interim dividend will be paid on 21 September 2018 to shareholders on the UK and South African share registers as at 24 August 2018.
JSE Sponsor: J.P. Morgan Equities South Africa (Pty) Ltd
Date: 08/08/2018 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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