Notes to the condensed
consolidated financial statements
For the year ended 31 December
2023
General information
Quilter plc (the "Company", the
"Parent Company"), a public limited company incorporated in England
and Wales and domiciled in the United Kingdom ("UK"), together with
its subsidiaries (collectively, the "Group") offers investment and
wealth management services, long-term savings and financial advice
primarily in the UK. Quilter plc is listed on the London and
Johannesburg Stock Exchanges.
The Company's registration number
is 06404270. The address of the registered office is Senator House,
85 Queen Victoria Street, London, EC4V 4AB.
1: Basis of preparation
The results in this preliminary
announcement have been taken from the Group's 2023 Annual report
which will be available on the Company's website on 22 March 2024.
These condensed consolidated financial statements of Quilter plc
for the year ended 31 December 2023 have been prepared in
accordance with UK-adopted International Accounting Standards and
with the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards.
These condensed consolidated
financial statements have been prepared on a historical cost basis,
except for the revaluation of certain financial instruments which
are held at fair value, and are presented in pounds sterling, which
is the currency of the primary economic environment in which the
Group operates.
Going concern
The Directors have considered the
resilience of the Group, its current financial position, the
principal risks facing the business and the effectiveness of any
mitigating strategies which are or could be applied.
This included an assessment of capital and
liquidity over a three-year planning period covering 2024 to 2026.
This assessment incorporated a number of stress tests covering a
broad range of scenarios, including economic and market shocks of
up to 40% falls in equity markets, mass lapse events, new business
growth scenarios and severe business interruption, equivalent to
1‑in‑50 and 1‑in‑200 year events. As part of the going concern
assessment, the Group took into consideration the current position
of the UK and global economy including the impact of inflation and
increases in the cost of living. The Group also considered how
climate-related risks and opportunities affect operations,
investment activities and advice and distribution activities and
their impact on specific projects and initiatives, estimates and
judgements. Based on the assessment, the
Directors believe that both the Group and Quilter plc, have
sufficient financial resources to continue in business for a period
of at least 12 months from the date of approval of these financial
statements and continue to adopt the going concern basis in
preparing the Group and Parent Company financial statements.
Further information is contained in the viability statement and
going concern section of the Annual Report.
Liquidity analysis of the statement of financial
position
The Group's statement of financial
position is in order of liquidity. For each asset and liability
line item, those amounts expected to be recovered or settled more
than 12 months after the reporting date are disclosed separately in
the notes to the consolidated financial statements.
Critical accounting estimates and
judgements
The preparation of financial
statements requires management to exercise judgement in applying
the Group's material accounting policies and make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements. The Board
Audit Committee reviews these areas of judgement and estimates, and
the appropriateness of material accounting policies adopted in the
preparation of these financial statements.
Critical accounting
judgements
The Group's critical accounting
judgements are those that management makes when applying its
material accounting policies and that have the greatest effect on
the profit after tax and net assets recognised in the Group's
financial statements.
Recognition of provisions following the sale of Quilter
International
Management exercised significant
judgement in determining the accounting treatment for a number of
provisions related to business activities to separate the business
from the Group in respect of the sale of Quilter International.
Significant judgement was required to assess whether the costs were
directly attributable and incremental to the sale and whether a
legal or constructive obligation existed in order to recognise the
provisions. See note 16 for further details.
Recognition of revenue from the advice
business
Given the Group's business model
for advice, management is required to exercise significant judgment
in assessing the capacity in which the Group is contracting for the
purposes of recognising revenue from the advice business under IFRS
15 (Revenue from Contracts with Customers). As a result of the
assessment, management has determined that revenue from the advice
business should be presented net of certain fees and commissions
payable to Appointed Representatives of Quilter
companies.
Critical accounting
estimates
The Group's critical accounting
estimates involve the most complex or subjective assessments and
assumptions, which have a significant risk of resulting in material
adjustment to the net carrying amounts of assets and liabilities
within the next financial year. Management uses its knowledge of
current facts and circumstances and applies estimation and
assumption setting techniques that are aligned with relevant
actuarial and accounting standards and guidance to make predictions
about future actions and events. Actual results may differ from
those estimates.
Provision for the cost of defined benefit pension
advice
An estimate is determined for
unsuitable pension advice related to schemes other than those
concluded as part of the skilled person review, using a methodology
which takes account of recent experience of redress payments
calculated by an independent expert and applying a proportion of
transfer value to determine redress payable as an indicative
provision. The calculations are based upon FCA guidelines and
modelling performed, and factors including redress as a percentage
of pension transfer value and opt-in assumptions. See note 16 for
further details.
Measurement of 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 and administration ("AuMA"), which are subject to a
large number of factors including global stock market movements,
related movements in foreign exchange rates and net client cash
flows, together with estimates of expenses and other charges. The
Business Plan, adjusted for known and estimated tax adjusting
items, is used to determine the extent to which deferred tax assets
are recognised. The Group assesses the recoverability of
shareholder assets based on estimated taxable profits over a
five-year horizon and assesses policyholder assets based on
estimated investment growth over the medium term. To the extent
that profit estimates extend beyond the normal three-year planning
cycle, average profits over the final two years of the plan are
used. Based on historic profitability, the Group has taken the
approach to assess the recoverability of deferred tax assets beyond
the three-year planning cycle for the first time in 2023. Future
profit projections show the majority of deferred tax assets being
utilised over the next three years. Management has reassessed the
sensitivity of the recoverability of deferred tax assets based on
the latest forecast cash flows.
Other principal estimates
The Group's assessment of goodwill
and intangible assets for impairment uses the latest cash flow
forecasts from the Group's three-year Business Plan. These
forecasts include estimates relating to equity market levels and
growth in AuMA in future periods, together with levels of new
business growth, net client cash flows, revenue margins, and future
expenses and discount rates (see note 9). These forecasts take
account of climate-‑related risks and other responsible business
considerations. Management does not consider that the use of these
estimates has a significant risk of causing a material adjustment
to the carrying amount of the assets within the next financial
year.
2: New standards, amendments to standards, and
interpretations adopted by the Group
IFRS 17 became effective on 1
January 2023. The Group has assessed all relevant contracts with
policyholders. Based on this assessment, it was determined that
there are no contracts that will be accounted for under IFRS
17.
The amendments to accounting
standards in the table below became applicable for the current
reporting year, with no material impact on the Group's consolidated
results, financial position or disclosures.
The Group has applied the narrow
scope amendment to IAS 12 Income Taxes in respect of the OECD
Pillar II international tax rules issued in the current period. In
doing so, the Group has applied the exception in IAS 12.4A and
accordingly will not recognise or disclose information about
deferred tax assets and liabilities related to Pillar II income
taxes.
Adopted by the Group
from
|
Amendments to standards
|
1 January 2023
|
Amendments to IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors - Definition
of Accounting Estimates
|
1 January 2023
|
Amendments to IAS 1 Presentation
of Financial Statements and IFRS Practice Statement 2 Making
Materiality Judgements - Disclosure of Accounting
Policies
|
1 January 2023
|
Amendments to IAS 12 Income Taxes
- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction
|
1 January 2023
|
Amendments to IAS 12 Income Taxes
- International Tax Reform - Pillar Two Model Rules
|
3: Significant changes in the year
Repayment and new issue of Fixed Rate Reset Subordinated
Notes
On 18 January 2023, the Company
issued £200,000,000 8.625% Fixed Rate Reset Subordinated Notes (due
18 April 2033) and received net cash proceeds of £199 million.
After deducting structuring costs and professional fees, the
retained cash proceeds were £197 million. The Notes are listed and
regulated under the terms of the London Stock Exchange. On 28
February 2023, the Company repaid the existing £200,000,000 4.478%
Fixed Rate Reset Subordinated Notes (due 28 February
2028).
4: Business combinations
4(a): Business
disposals
There have been no material
disposals of businesses during 2022 and 2023 and there were no
profit or loss impacts relating to past business disposals in
either year.
The Group made the final payment
of £4 million during 2023 in respect of the closure of the warranty
relating to the sale of the Single Strategy business. There were no
inflows or outflows of cash relating to discontinued operations
during 2022 or 2023.
4(b): Business
acquisitions
There have been no acquisitions of
businesses during 2022 and 2023. A final
amount of contingent consideration of £5 million was paid in 2022
in respect of acquisitions prior to 2022. No payments were required
in 2023.
Contingent consideration
represented the Group's best estimate of the amount payable in
relation to each acquisition discounted to net present value. The
basis used for each acquisition varied but included payments based
on a percentage of the level of assets under administration, funds
under management and levels of ongoing fee income at future
dates.
4(c): Assets held for sale
Assets classified as held for sale
in 2022 related to a leasehold interest in an office property which
was vacant and was subsequently sold in April 2023.
5: Alternative performance measures
5(a): Adjusted profit before tax and reconciliation to profit
after
tax
Basis of preparation of adjusted profit before
tax
Adjusted profit before tax is one
of the Group's alternative performance measures ("APMs") and
represents the Group's IFRS profit, adjusted for specific items
that management considers to be outside of the Group's normal
operations or one-off in nature, as detailed in note 5(b). Adjusted
profit before tax does not provide a complete picture of the
Group's financial performance, which is disclosed in the statement
of comprehensive income, but is instead intended to provide
additional comparability and understanding of the financial
results.
|
|
|
£m
|
|
Notes
|
Year ended
31
December
2023
|
Year
ended
31
December
2022
|
Affluent
|
|
124
|
105
|
High Net Worth
|
|
41
|
45
|
Head Office
|
|
2
|
(16)
|
Adjusted profit before tax
|
6(b)
|
167
|
134
|
Adjusting items:
|
|
|
|
Impact of acquisition and
disposal-related accounting
|
5(b)(i)
|
(39)
|
(42)
|
Business transformation
costs
|
5(b)(ii)
|
(28)
|
(30)
|
Finance costs
|
5(b)(iii)
|
(19)
|
(10)
|
Customer remediation
|
5(b)(iv)
|
(6)
|
12
|
Voluntary customer
repayments
|
5(b)(v)
|
-
|
(6)
|
Exchange rate movement
(ZAR/GBP)
|
5(b)(vi)
|
(2)
|
4
|
Policyholder tax
adjustments
|
5(b)(vii)
|
(62)
|
138
|
Other adjusting items
|
5(b)(viii)
|
1
|
(1)
|
Total adjusting items before tax
|
|
(155)
|
65
|
Profit before tax attributable to shareholder
returns
|
|
12
|
199
|
Tax attributable to policyholder
returns
|
7
|
76
|
(134)
|
Income tax
(expense)/credit
|
7
|
(46)
|
110
|
IFRS profit after tax
|
|
42
|
175
|
5(b): Adjusting items
In determining adjusted profit
before tax, the Group's IFRS profit before tax is adjusted for
specific items that management considers to be outside of the
Group's normal operations or one-off in nature. These are detailed
below.
5(b)(i): Impact of acquisition and disposal-related
accounting
The Group excludes any impairment of goodwill from
adjusted profit as well as the amortisation and impairment of
acquired intangible assets, any acquisition costs, finance costs
related to the discounting of contingent consideration and
incidental items relating to past disposals.
The effect of these adjustments to determine
adjusted profit are summarised below.
|
|
|
£m
|
|
|
Year ended
31
December
2023
|
Year
ended
31
December
2022
|
Amortisation of acquired
intangible assets
|
|
38
|
42
|
Impairment of acquired intangible
assets1
|
|
1
|
-
|
Total impact of acquisition and disposal-related
accounting
|
39
|
42
|
1The impairment of acquired intangible assets results from the
impairment of specific client books held within the Affluent
operating segment as the Group can no longer support the carrying
value.
5(b)(ii): Business transformation costs
In 2023, business transformation
costs totalled £28 million (2022: £30 million), the principal
components of which are described below:
Business Simplification costs - 2023: £25 million, 2022: £17
million
The Business Simplification
programme announced in November 2021, set the target of £45 million
of annualised run-rate cost savings by the end of 2024. This target
was achieved one year early. As announced at the half-year results
in 2023, the Group expects to achieve a further £50 million of
annualised run-rate savings by the end of 2025. Approximately £8
million of these additional savings have been achieved during 2023
on a run-rate basis.
As at 31 December 2023, the
Simplification programme delivered £53 million of annualised
run-rate savings. An incremental £30 million of annualised run-rate
savings were achieved during 2023 largely through the continued
rationalisation of the Group's technology and property estates
together with a reduction in support costs as we simplify the
Group's structures and organisation to support the two business
segments, Affluent and High Net Worth. During 2023, the Group spent
£25 million (2022: £17 million) on Simplification initiatives.
Further implementation costs to deliver the remaining annualised
run-rate savings are estimated to be £78 million.
Investment in business costs - 2023: £1 million, 2022: £4
million
Investment in business costs of £1
million were incurred in 2023 as the Group continues to enable and
support advisers and clients and improve productivity through
better utilisation of technology.
Business separation costs following the sale of Quilter
International - 2023: £2 million, 2022: £nil
The Group sold Quilter
International to Utmost Group in 2021 and entered into a
Transitional Service Agreement with the acquirer. The cost to the
Group of running the Transitional Service Agreement was £2 million
in 2023.
Optimisation programme costs - 2023: £nil, 2022: £6
million
The Optimisation programme
commenced in 2018 to provide closer business integration, create
central support, rationalise technology and reduce third-party
spend. The programme has now achieved its target of delivering
annualised run-rate cost savings of £65 million with total
implementation costs since inception of £87 million. This programme
concluded in 2022 and no costs were incurred in 2023.
Restructuring costs following the sale of Quilter Life
Assurance - 2023: £nil, 2022: £3 million
The Transitional Service Agreement
following the sale of Quilter Life Assurance in 2019 has now
concluded. No restructuring costs relating to this sale were
incurred in 2023.
5(b)(iii): Finance
costs
The nature of much of the Group's
operations means that, for management's decision-making and
internal performance management, the effects of interest costs on
external borrowings are removed when calculating adjusted
profit. For 2023, finance costs were £19
million (2022: £10 million).
5(b)(iv): Customer
remediation
Lighthouse pension transfer advice provision - 2023: £6
million cost, 2022: £12 million net income
The provision for the redress of
British Steel Pension Scheme cases and other defined benefit ("DB")
to defined contribution ("DC") pension transfer advice cases,
excluding the impact of payments made, has increased by £2 million
in the year, which has been recognised as an increase in expenses
(2022: £4 million credit). This increase reflects the impact of the
review for suitability of additional cases by an independent expert
as part of the Group-led past business review of DB to DC pension
transfer advice and the anticipated number of cases where customer
redress is required. During the year, £4 million of additional
legal, consulting, and other costs were incurred (2022: £4
million). These items have been excluded from adjusted profit on
the basis that the advice activities, to which the charge and
benefit relate, took place prior to the Group's acquisition of the
business. In 2022, insurance proceeds in relation to claims in
respect of legal liabilities arising in connection with
Lighthouse's DB to DC pension transfer advice cases were received,
contributing £12 million to the Group's profit before tax. Further
details of the provision are provided in note 16.
5(b)(v): Voluntary customer
repayments
In 2023, these costs were £nil
(2022: £6 million) and relate to a change in business policy during
H2 2022. The voluntary repayments represent amounts to be paid to
customers relating to revenue previously recognised in respect of
Final Plan Closure receipts.
5(b)(vi): Exchange rate movements
(ZAR/GBP)
In 2023, an expense of £2 million
was incurred (2022: £4 million income) due to foreign exchange
movements on cash held in South African Rand in preparation for
payments to shareholders. In 2022, these payments related to the
capital return and Final Dividend paid in May 2022. In 2023, these
payments related to the dividends paid in May and September 2023.
Cash was converted to South African Rand upon announcement of the
details of the capital return and dividend payments to provide an
economic hedge for the Group. The foreign exchange movements are
fully offset by an equal amount taken directly to retained
earnings.
5(b)(vii): Policyholder tax
adjustments
In 2023, the total amount of
policyholder tax adjustments to adjusted profit is £62 million
credit (2022: £138 million charge). Adjustments to policyholder tax
are made to remove distortions arising from market volatility that
can, in turn, lead to volatility in the policyholder tax
adjustments between periods. The recognition of the income received
from policyholders (which is included within the Group's income) to
fund the policyholder tax liability can vary in timing to the
recognition of the corresponding tax expense, creating volatility
in the Group's IFRS profit or loss before tax. Note 7 provides
further information on the impact of markets on the policyholder
tax adjustment. Adjustments are also made to remove policyholder
tax distortions from other non-operating adjusting
items.
5(b)(viii): Other adjusting
items
In 2023, income of £1 million was
received (2022: £1 million cost) in relation to the settlement
offer received for the indemnification asset that was impaired in
2022.
5(c): Reconciliation of IFRS income and expenses to "Total
net revenue" and "Operating expenses" within adjusted
profit
This reconciliation shows how each
line of the Group's IFRS income and expenses are allocated to the
Group's APMs: Net management fees, Other revenue, Investment
revenue, Total net revenue and Operating expenses which form the
Group's adjusted profit before tax. The total column in the table
below, down to "Profit before tax attributable to shareholder
returns", reconciles to each line of the consolidated statement of
comprehensive income. Allocations are determined by management and
aim to show the Group's sources of profit (net of relevant directly
attributable expenses). These allocations remain consistent from
period to period to ensure comparability, unless otherwise
stated.
|
|
|
|
|
|
|
|
£m
|
Year ended 31 December 2023
|
Net mgmt.
fees1
|
Other
revenue1
|
Investment
revenue1
|
Total net
revenue1
|
Operating
expenses1
|
Adjusted profit before
tax
|
Consol. of
funds2
|
Total
|
Income
|
|
|
|
|
|
|
|
|
Fee income and other income from
service activities
|
527
|
86
|
-
|
613
|
-
|
613
|
(71)
|
542
|
Investment
return3
|
48
|
3,285
|
68
|
3,401
|
-
|
3,401
|
674
|
4,075
|
Other income
|
-
|
-
|
-
|
-
|
9
|
9
|
-
|
9
|
Total income
|
575
|
3,371
|
68
|
4,014
|
9
|
4,023
|
603
|
4,626
|
Expenses
|
|
|
|
|
|
|
|
|
Change in investment contract
liabilities3
|
(25)
|
(3,282)
|
(6)
|
(3,313)
|
-
|
(3,313)
|
-
|
(3,313)
|
Fee and commission expenses, and
other acquisition costs
|
(46)
|
-
|
-
|
(46)
|
-
|
(46)
|
(3)
|
(49)
|
Change in third-party interests in
consolidated funds
|
-
|
-
|
-
|
-
|
-
|
-
|
(579)
|
(579)
|
Other operating and administrative
expenses
|
(13)
|
(5)
|
-
|
(18)
|
(536)
|
(554)
|
(21)
|
(575)
|
Finance costs
|
-
|
-
|
-
|
-
|
(22)
|
(22)
|
-
|
(22)
|
Total expenses
|
(84)
|
(3,287)
|
(6)
|
(3,377)
|
(558)
|
(3,935)
|
(603)
|
(4,538)
|
Tax expense attributable to
policyholder returns
|
(76)
|
-
|
-
|
(76)
|
-
|
(76)
|
-
|
(76)
|
Profit before tax attributable to shareholder
returns
|
415
|
84
|
62
|
561
|
(549)
|
12
|
-
|
12
|
Adjusting items:
|
|
|
|
|
|
|
|
|
Impact of acquisition and
disposal-related accounting
|
-
|
-
|
-
|
-
|
39
|
39
|
|
|
Business transformation
costs
|
-
|
-
|
-
|
-
|
28
|
28
|
|
|
Finance costs
|
-
|
-
|
-
|
-
|
19
|
19
|
|
|
Customer remediation
|
-
|
-
|
-
|
-
|
6
|
6
|
|
|
Exchange rate movements
(ZAR/GBP)
|
-
|
2
|
-
|
2
|
-
|
2
|
|
|
Policyholder tax
adjustments
|
62
|
-
|
-
|
62
|
-
|
62
|
|
|
Other adjusting items
|
-
|
-
|
-
|
-
|
(1)
|
(1)
|
|
|
Adjusting items
|
62
|
2
|
-
|
64
|
91
|
155
|
|
|
Adjusted profit before tax
|
477
|
86
|
62
|
625
|
(458)
|
167
|
|
|
1The APMs "Net
management fees", "Other revenue", "Investment revenue", "Total net
revenue" and "Operating expenses" are commented on within the
Financial review. In the financial statements for 2022, interest
income on shareholder cash and cash equivalents and interest income
on customer cash and cash equivalents was previously presented
within "Other revenue". For 2023, in order to provide additional
information to the users of the Group's financial reporting,
interest income on shareholder cash and cash equivalents has been
presented separately as Investment revenue and interest income on
customer cash and cash equivalents has been presented within Net
management fees. Disclosures for the prior year have been
re-presented to ensure comparability.
2Consolidation of funds shows the grossing up impact to the
Group's profit or loss as a result of the consolidation of funds
requirements. This grossing up is excluded from the Group's
adjusted profit.
3Reported within net management fees, investment return of £48
million represents £30 million interest income on investments held
for the benefit of policyholders and £18 million net interest
income on client money balances. Change in investment contract
liabilities of £25 million represents the amount of interest income
paid to policyholders. The net balance of £23 million of interest
income on customer balances was retained by the Group for 2023. The
£68 million investment return less £6 million change in investment
contract liabilities paid to customers on transactional cash
balances, as reported within investment revenue, represents £62
million of net interest income on shareholder cash and cash
equivalents.
|
|
|
|
|
|
|
|
£m
|
Year ended 31 December
2022
|
Net
mgmt. fees1
|
Other
revenue1
|
Investment revenue1
|
Total
net revenue1
|
Operating expenses1
|
Adjusted
profit before tax
|
Consol.
of funds2
|
Total
|
Income
|
|
|
|
|
|
|
|
|
Fee income and other income from
service activities
|
548
|
95
|
-
|
643
|
-
|
643
|
(62)
|
581
|
Investment
return3
|
12
|
(4,320)
|
16
|
(4,292)
|
-
|
(4,292)
|
(357)
|
(4,649)
|
Other income
|
-
|
5
|
-
|
5
|
21
|
26
|
2
|
28
|
Total income
|
560
|
(4,220)
|
16
|
(3,644)
|
21
|
(3,623)
|
(417)
|
(4,040)
|
Expenses
|
|
|
|
|
|
|
|
|
Change in investment contract
liabilities3
|
(5)
|
4,323
|
-
|
4,318
|
-
|
4,318
|
-
|
4,318
|
Fee and commission expenses, and
other acquisition costs
|
(46)
|
1
|
-
|
(45)
|
-
|
(45)
|
(9)
|
(54)
|
Change in third-party interests in
consolidated funds
|
-
|
-
|
-
|
-
|
-
|
-
|
438
|
438
|
Other operating and administrative
expenses
|
(15)
|
-
|
-
|
(15)
|
(557)
|
(572)
|
(12)
|
(584)
|
Finance costs
|
-
|
-
|
-
|
-
|
(13)
|
(13)
|
-
|
(13)
|
Total expenses
|
(66)
|
4,324
|
-
|
4,258
|
(570)
|
3,688
|
417
|
4,105
|
Tax credit attributable to
policyholder returns
|
134
|
-
|
-
|
134
|
-
|
134
|
-
|
134
|
Profit before tax attributable to shareholder
returns
|
628
|
104
|
16
|
748
|
(549)
|
199
|
-
|
199
|
Adjusting items:
|
|
|
|
|
|
|
|
|
Impact of acquisition and
disposal-related accounting
|
-
|
-
|
-
|
-
|
42
|
42
|
|
|
Business transformation
costs
|
-
|
-
|
-
|
-
|
30
|
30
|
|
|
Finance costs
|
-
|
-
|
-
|
-
|
10
|
10
|
|
|
Customer remediation
|
-
|
-
|
-
|
-
|
(12)
|
(12)
|
|
|
Voluntary customer
repayments
|
-
|
-
|
-
|
-
|
6
|
6
|
|
|
Exchange rate movements
(ZAR/GBP)
|
-
|
(4)
|
-
|
(4)
|
-
|
(4)
|
|
|
Policyholder tax
adjustments
|
(138)
|
-
|
-
|
(138)
|
-
|
(138)
|
|
|
Other adjusting items
|
-
|
-
|
-
|
-
|
1
|
1
|
|
|
Adjusting items
|
(138)
|
(4)
|
-
|
(142)
|
77
|
(65)
|
|
|
Adjusted profit before tax
|
490
|
100
|
16
|
606
|
(472)
|
134
|
|
|
1The APMs "Net management fees", "Other revenue", "Investment
revenue", "Total net revenue" and "Operating expenses" are
commented on within the Financial review. In the 2022 financial
statements, interest income on shareholder cash and cash
equivalents and interest income on customer cash and cash
equivalents was previously presented within "Other revenue". For
2023, to provide additional information to the users of the Group's
financial reporting, interest income on shareholder cash and cash
equivalents has been presented separately as Investment revenue and
interest income on customer cash and cash equivalents has been
presented within Net management fees. Disclosures for the prior
year have been re-presented to ensure comparability.
2Consolidation of funds shows the grossing up impact to the
Group's profit or loss as a result of the consolidation of funds
requirements. This grossing up is excluded from the Group's
adjusted profit.
3Reported within net management fees, investment return of £12
million represents £5 million interest income on investments held
for the benefit of policyholders and £7 million net interest income
on client money balances. Change in investment contract liabilities
of £5 million represents the amount of interest income paid to
policyholders. The net balance of £7 million of interest income on
customer balances was retained by the Group for 2022. The £16
million investment return, as reported within investment revenue,
relates to interest income on shareholder cash and cash
equivalents.
6: Segment information
6(a): Segment
presentation
The Group's operating segments
comprise High Net Worth and Affluent, which is consistent with the
manner in which the Group is structured and managed. For 2022 and
2023, these segments have been classified as continuing operations.
Head Office includes certain revenues and central costs that are
not allocated to the segments.
Adjusted profit before tax is an
APM reported to the Group's management and Board. Management and
the Board use additional performance indicators to assess the
performance of each of the segments, including net client cash
flows, assets under management and administration, total net
revenue and operating margin.
Consistent with internal
reporting, income and expenses that are not directly attributable
to a particular segment are allocated between segments where
appropriate. The Group accounts for inter-segment income and
transfers as if the transactions were with third parties at current
market prices.
The segment information in this
note reflects the adjusted and IFRS profit measures for each
operating segment as provided to management and the Board. Income
is analysed in further detail for each operating segment in note
6(b).
High Net Worth
This segment comprises Quilter
Cheviot and Quilter Cheviot Financial Planning.
Quilter Cheviot provides
discretionary investment management predominantly in the United
Kingdom with bespoke investment portfolios tailored to the
individual needs of high net worth clients, charities, companies
and institutions through a network of branches in London and the
regions. Investment management services are also provided by
operations in the Channel Islands and Ireland.
Quilter Cheviot Financial Planning
provides financial advice for protection, mortgages, savings,
investments and pensions predominantly to high net worth
clients.
Affluent
This segment is comprised of
Quilter Investment Platform, Quilter Investors and Quilter
Financial Planning.
Quilter Investment Platform is a
leading investment platform provider of advice-based wealth
management products and services in the UK, which serves a largely
Affluent client base through advised multi-channel
distribution.
Quilter Investors is a leading
provider of investment solutions in the UK multi-asset market. It
develops and manages investment solutions in the form of funds for
the Group and third-party clients. It has several fund ranges which
vary in breadth of underlying asset class.
Quilter Financial Planning is a
restricted and independent financial adviser network providing
mortgage and financial planning advice and financial solutions for
both individuals and businesses through a network of
intermediaries. It operates across all markets, from wealth
management and retirement planning advice through to dealing with
property wealth and personal and business protection
needs.
Head Office
In addition to the Group's two
operating segments, Head Office comprises the investment return on
centrally held assets, central support function expenses, central
core structural borrowings and certain tax balances.
6(b): Adjusted profit statement - segment information for the
year ended 31 December 2023
The table below presents the
Group's operations split by operating segment, reconciling IFRS
profit (or loss) to adjusted profit before tax. The Total column reconciles to the consolidated statement of
comprehensive income.
|
|
|
|
|
|
£m
|
|
|
Operating
segments
|
|
|
|
|
Notes
|
Affluent
|
High
Net
Worth
|
Head
Office
|
Consolidation
adjustments1
|
Total
|
Income
|
|
|
|
|
|
|
Premium-based fees
|
|
66
|
20
|
-
|
-
|
86
|
Fund-based fees
|
|
336
|
172
|
-
|
(71)
|
437
|
Fixed fees
|
|
1
|
-
|
-
|
-
|
1
|
Other fee and commission
income
|
|
18
|
-
|
-
|
-
|
18
|
Fee income and other income from
service activities
|
|
421
|
192
|
-
|
(71)
|
542
|
Investment
return2
|
|
3,361
|
19
|
28
|
667
|
4,075
|
Other income
|
|
88
|
1
|
-
|
(80)
|
9
|
Segment income
|
|
3,870
|
212
|
28
|
516
|
4,626
|
Expenses
|
|
|
|
|
|
|
Change in investment contract
liabilities2
|
|
(3,313)
|
-
|
-
|
-
|
(3,313)
|
Fee and commission expenses, and
other acquisition costs
|
|
(47)
|
-
|
-
|
(2)
|
(49)
|
Change in third-party interests in
consolidated funds
|
|
-
|
-
|
-
|
(579)
|
(579)
|
Other operating and administrative
expenses
|
|
(387)
|
(205)
|
(41)
|
58
|
(575)
|
Finance costs
|
|
(3)
|
-
|
(26)
|
7
|
(22)
|
Segment expenses
|
|
(3,750)
|
(205)
|
(67)
|
(516)
|
(4,538)
|
Profit/(loss) before tax
|
|
120
|
7
|
(39)
|
-
|
88
|
Tax expense attributable to
policyholder returns
|
|
(76)
|
-
|
-
|
-
|
(76)
|
Profit/(loss) before tax attributable to shareholder
returns
|
|
44
|
7
|
(39)
|
-
|
12
|
Adjusting items:
|
|
|
|
|
|
|
Impact of acquisition and
disposal-related accounting
|
5(b)(i)
|
7
|
32
|
-
|
-
|
39
|
Business transformation
costs
|
5(b)(ii)
|
5
|
3
|
20
|
-
|
28
|
Finance costs
|
5(b)(iii)
|
-
|
-
|
19
|
-
|
19
|
Customer remediation
|
5(b)(iv)
|
6
|
-
|
-
|
-
|
6
|
Exchange rate movements
(ZAR/GBP)
|
5(b)(vi)
|
-
|
-
|
2
|
-
|
2
|
Policyholder tax
adjustments
|
5(b)(vii)
|
62
|
-
|
-
|
-
|
62
|
Other adjusting items
|
5(b)(viii)
|
-
|
(1)
|
-
|
-
|
(1)
|
Adjusting items before
tax
|
|
80
|
34
|
41
|
-
|
155
|
Adjusted profit before tax
|
|
124
|
41
|
2
|
-
|
167
|
1Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of investment
funds.
2Investment return and change in investment contract
liabilities includes net £23 million of interest income on customer
cash and cash equivalents retained by the Group.
Investment return total also includes £62
million of interest income on shareholder cash and cash
equivalents.
6(c): Adjusted profit statement - segment information for the
year ended 31 December 2022
|
|
|
|
|
|
£m
|
|
|
Operating segments
|
|
|
|
|
Notes
|
Affluent
|
High
Net
Worth
|
Head
Office
|
Consolidation adjustments1
|
Total
|
Income
|
|
|
|
|
|
|
Premium-based fees
|
|
75
|
21
|
-
|
-
|
96
|
Fund-based fees
|
|
356
|
181
|
-
|
(62)
|
475
|
Fixed fees
|
|
2
|
-
|
-
|
-
|
2
|
Other fee and commission
income
|
|
8
|
-
|
-
|
-
|
8
|
Fee income and other income from
service activities
|
|
441
|
202
|
-
|
(62)
|
581
|
Investment
return2
|
|
(4,307)
|
9
|
8
|
(359)
|
(4,649)
|
Other income
|
|
112
|
3
|
5
|
(92)
|
28
|
Segment income
|
|
(3,754)
|
214
|
13
|
(513)
|
(4,040)
|
Expenses
|
|
|
|
|
|
|
Change in investment contract
liabilities2
|
|
4,318
|
-
|
-
|
-
|
4,318
|
Fee and commission expenses, and
other acquisition costs
|
|
(46)
|
-
|
-
|
(8)
|
(54)
|
Change in third-party interests in
consolidated funds
|
|
-
|
-
|
-
|
438
|
438
|
Other operating and administrative
expenses
|
|
(410)
|
(202)
|
(53)
|
81
|
(584)
|
Finance costs
|
|
(3)
|
-
|
(12)
|
2
|
(13)
|
Segment expenses
|
|
3,859
|
(202)
|
(65)
|
513
|
4,105
|
Profit/(loss) before tax
|
|
105
|
12
|
(52)
|
-
|
65
|
Tax credit attributable to
policyholder returns
|
|
134
|
-
|
-
|
-
|
134
|
Profit/(loss) before tax attributable to shareholder
returns
|
|
239
|
12
|
(52)
|
-
|
199
|
Adjusting items:
|
|
|
|
|
|
|
Impact of acquisition and
disposal-related accounting
|
5(b)(i)
|
10
|
32
|
-
|
-
|
42
|
Business transformation
costs
|
5(b)(ii)
|
-
|
-
|
30
|
-
|
30
|
Finance costs
|
5(b)(iii)
|
-
|
-
|
10
|
-
|
10
|
Customer remediation
|
5(b)(iv)
|
(12)
|
-
|
-
|
-
|
(12)
|
Voluntary customer
repayments
|
5(b)(v)
|
6
|
-
|
-
|
-
|
6
|
Exchange rate movements
(ZAR/GBP)
|
5(b)(vi)
|
-
|
-
|
(4)
|
-
|
(4)
|
Policyholder tax
adjustments
|
5(b)(vii)
|
(138)
|
-
|
-
|
-
|
(138)
|
Other adjusting items
|
5(b)(viii)
|
-
|
1
|
-
|
-
|
1
|
Adjusting items before
tax
|
|
(134)
|
33
|
36
|
-
|
(65)
|
Adjusted profit/(loss) before tax
|
|
105
|
45
|
(16)
|
-
|
134
|
1Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of investment
funds.
2Investment return and change in investment contract
liabilities includes net £7 million interest income on customer
cash and cash equivalents retained by the Group.
Investment return total also includes £16
million interest income on shareholder cash and cash
equivalents.
7: Tax
7(a): Tax charged/(credited)
|
|
|
£m
|
|
|
Year ended
31
December
2023
|
Year
ended
31
December
2022
|
Current tax
|
|
|
|
United Kingdom
|
|
2
|
12
|
Overseas tax
|
|
-
|
1
|
Total current tax charge
|
|
2
|
13
|
Deferred tax
|
|
|
|
Origination and reversal of
temporary differences
|
|
52
|
(120)
|
Effect on deferred tax of changes
in tax rates
|
|
(3)
|
(1)
|
Adjustments to deferred tax in
respect of prior years
|
|
(5)
|
(2)
|
Total deferred tax charge/(credit)
|
|
44
|
(123)
|
Total tax charged/(credited)
|
|
46
|
(110)
|
|
|
|
|
Attributable to policyholder
returns
|
|
76
|
(134)
|
Attributable to shareholder
returns
|
|
(30)
|
24
|
Total tax charged/(credited)
|
|
46
|
(110)
|
Policyholder tax
Certain products are subject to
tax on policyholders' investment returns. This "policyholder tax"
is an element of total tax expense. To make the tax expense more
meaningful, tax attributable to policyholder returns and tax
attributable to shareholder returns are shown separately in the
consolidated statement of comprehensive income.
The tax attributable to
policyholder returns is the amount payable in the year plus the
movement of amounts expected to be payable in future periods. The
remainder of the tax expense is attributed to shareholders
returns.
The Group's income tax charge was
£46 million in 2023, compared to an income tax credit of £110
million for 2022. The income tax charge/credit can vary
significantly year-on-year as a result of market volatility and the
impact this has on policyholder tax. The recognition of the income
received from policyholders to fund the policyholder tax liability
(which is included within the Group's income) can vary in timing to
the recognition of the corresponding policyholder tax expense,
creating volatility in the Group's IFRS profit before tax. An
adjustment is made to adjusted profit to remove these distortions,
as explained further in note 5(b)(vii).
Market movements during 2023
resulted in investment gains of £298 million on products subject to
policyholder tax. The gain is a component of the total "investment
return" gain of £4,075 million shown in the consolidated statement
of comprehensive income. The tax impact of the £298 million
investment return gain is the primary reason for the £76 million
tax charge attributable to policyholder returns in 2023 (2022: £134
million credit).
UK Corporation Tax rate
The main rate of Corporation Tax
increased from 1 April 2023 from 19% to 25%. The blended rate of
23.5% has been used in calculating current tax for 2023 and any
deferred tax assets and liabilities have been recognised at the new
rate of 25%.
First time recognition of deferred tax asset on tax
losses
Within the £44 million total
deferred tax charge the Group has recognised a £30 million
shareholder deferred tax credit in respect of previously
unrecognised losses.
Pillar II taxes
On 20 June 2023, the Finance (No.
2) Act 2023 was substantively enacted in the UK, introducing the
Pillar II minimum effective tax rate of 15%. The legislation
implements a Multinational Top-up Tax ("MTT") and a Domestic Top-up
Tax ("DTT"), effective for accounting periods starting on or after
31 December 2023. As these rules were not in effect during 2023,
there was no current tax impact for the year. The Group has applied
the exception under IAS 12.4A and accordingly will not recognise or
disclose information about deferred tax assets and liabilities
related to Pillar II income taxes.
The Group expects to exceed the
qualifying multinational group revenue threshold (€750m) in
accounting periods from 1 January 2024 and so expects to be within
the scope of these new rules.
The Group continues to assess the
full impact of the introduction of Pillar II taxes in the countries
in which it operates. In assessing the likely impact, the Group has
assessed the potential outcomes based on the latest tax authority
guidance in each of the relevant countries and historical financial
data for entities in the Group. The position in respect of these
rules in each of the Group's main territories is summarised
below.
UK
The UK rules are complex and there
remain areas of uncertainty in HMRC guidance, especially with
regards the tax treatment of the life business in Quilter Life
& Pensions Limited. Management has assessed the likely UK
impact based on current guidance and historical data. Although the
Group may expect the UK Pillar II ETR to be close to 15% in the
near term, there are scenarios where the rate may fall below the
minimum rate. The Group is therefore currently unable to estimate
any future DTT charge on its UK operations with any reasonable
level of certainty.
The scope of the MTT means that a
top-up tax charge may also arise in the UK on profits earned in
countries with lower tax rates in which the Group operates, subject
to a local qualifying domestic minimum tax. The Group's main non-UK
operations are in Jersey and Ireland. Ireland has enacted a
qualifying domestic minimum tax (see below), so no additional tax
charge is expected to arise in the UK on Irish operations. Jersey
is expected to introduce a qualifying domestic minimum tax in 2025.
The Group's effective tax rate in Jersey is expected to be around
10% and therefore a MTT liability in the range of 0-5% of Jersey
profits may arise in the UK during 2024. This is not expected to
have a material impact on the Group's tax charge or
credit.
Jersey, Guernsey and the Isle of Man
The three Crown Dependencies
issued a joint statement in May 2023 stating their intention to
introduce a domestic minimum tax in 2025. The Group does not
therefore expect to pay additional local tax in these countries
during 2024. The Group will continue to monitor the developments in
these countries. Until such time as a qualifying domestic minimum
tax is introduced, the Group expects to pay a MTT in the UK in
respect of any taxable profits arising in these countries (see
above).
Ireland
Ireland has introduced a
qualifying domestic minimum tax. This has been substantively
enacted, effective for accounting periods starting on or after 31
December 2023. The Group's effective tax rate in Ireland is
expected to be around 12.5% and therefore an additional minimum tax
charge in the range of 0-2.5% is expected to apply to any taxable
profits arising in Ireland in 2024. This is not expected to have a
material impact on the Group's tax charge.
Other
The Group does not expect there to
be any material Pillar II tax charge in any other countries in
which it is expected to have a presence during 2024.
7(b): Reconciliation of total income tax
expense/(credit)
The income tax credited or charged
to profit or loss differs from the amount that would apply if all
of the Group's profits from all the countries in which the Group
operates had been taxed at the UK standard Corporation Tax rate.
The difference in the effective rate is explained below:
|
|
|
£m
|
|
|
Year ended
31
December
2023
|
Year
ended
31
December
2022
|
Profit before tax
|
|
88
|
65
|
Tax at UK standard rate of 23.5%
(2022: 19%)
|
|
21
|
12
|
Untaxed and low taxed
income
|
|
(1)
|
(6)
|
Expenses not deductible for tax
purposes
|
|
2
|
1
|
Net movements on unrecognised
deferred tax assets1
|
|
(29)
|
(6)
|
Effect on deferred tax of changes
in tax rates
|
|
(3)
|
(1)
|
Adjustments to deferred tax in
respect of prior periods
|
|
(5)
|
(2)
|
Income tax attributable to
policyholder returns (net of tax relief)
|
|
61
|
(108)
|
Total tax charged/(credited) to profit or
loss
|
|
46
|
(110)
|
1Includes first time recognition of tax losses as explained in
note 7(a).
7(c): Reconciliation of IFRS income tax credit or expense to
income tax on adjusted profit
|
|
|
£m
|
|
Note
|
Year ended
31
December
2023
|
Year
ended
31
December
2022
|
Income tax expense/(credit)1
|
|
46
|
(110)
|
Tax on adjusting items
|
|
|
|
Impact of acquisition and
disposal-related accounting
|
|
9
|
8
|
Business transformation
costs
|
|
8
|
5
|
Finance costs
|
|
4
|
2
|
Exchange rate movements
(ZAR/GBP)
|
|
1
|
(1)
|
Tax adjusting items
|
|
|
|
Policyholder tax
adjustments
|
5(b)(vii)
|
(62)
|
138
|
Other shareholder tax
adjustments2
|
|
46
|
(19)
|
Tax on adjusting items
|
|
6
|
133
|
Less: tax attributable to
policyholder returns within adjusted profit3
|
|
(14)
|
(4)
|
Tax charged on total adjusted profit
|
|
38
|
19
|
1Includes both tax attributable to policyholder and
shareholder returns, in compliance with IFRS.
2Other shareholder tax adjustments comprise the reallocation
of adjustments from policyholder tax as explained in note 5(b)(vii)
and shareholder tax adjustments for one‑off items in line with the
Group's adjusted profit policy, including first time recognition of
shareholder deferred tax.
3Adjusted profit treats policyholder tax as a pre-tax expense
(this includes policyholder tax under IFRS and the policyholder tax
adjustments) and is therefore removed from the tax charge on
adjusted profit.
8: Earnings per share
The Group calculates earnings per
share ("EPS") on a number of different bases. IFRS requires the
calculation of basic and diluted EPS. Adjusted EPS reflects
earnings that are consistent with the Group's adjusted profit
measure and Headline earnings per share ("HEPS") is a requirement
of the Johannesburg Stock Exchange.
|
|
|
|
Pence
|
|
Framework
|
Notes
|
Year ended
31
December
2023
|
Year
ended
31
December
2022
|
Basic earnings per
share
|
IFRS
|
8(b)
|
3.1
|
12.2
|
Diluted basic earnings per
share
|
IFRS
|
8(b)
|
3.1
|
12.0
|
Adjusted basic earnings per
share
|
Group policy
|
8(b)
|
9.6
|
8.0
|
Adjusted diluted earnings per
share
|
Group policy
|
8(b)
|
9.4
|
7.9
|
Headline basic earnings per share
(net of tax)
|
JSE Listing
Requirements
|
8(c)
|
3.2
|
12.6
|
Headline diluted earnings per
share (net of tax)
|
JSE Listing
Requirements
|
8(c)
|
3.1
|
12.4
|
8(a): Weighted average number of
Ordinary Shares
The table below summarises the
calculation of the weighted average number of Ordinary Shares for
the purposes of calculating basic and diluted earnings per share
for each profit measure (IFRS, adjusted profit and Headline
earnings). Details of the impact on the number of shares from the
Quilter plc share buyback scheme are detailed in note
14.
|
|
|
Million
|
|
|
Year ended
31
December
2023
|
Year
ended
31
December
2022
|
Weighted average number of
Ordinary Shares
|
|
1,404
|
1,496
|
Own shares including those held in
consolidated funds and employee benefit trusts
|
|
(54)
|
(58)
|
Basic weighted average number of Ordinary
Shares
|
|
1,350
|
1,438
|
Adjustment for dilutive share
awards and options1
|
|
24
|
26
|
Diluted weighted average number of Ordinary
Shares
|
|
1,374
|
1,464
|
1The adjustment for dilutive share awards and options includes
dividend equivalent shares. Previously these shares were not
included in the figures presented in the 2022 financial statements.
Comparatives have been updated and there was no impact on the
earnings per share.
8(b): Basic and diluted EPS (IFRS
and adjusted profit)
|
|
|
£m
|
|
Notes
|
Year ended
31 December
2023
|
Year
ended
31
December 2022
|
Profit after tax
|
|
42
|
175
|
Total adjusting items before
tax
|
5(a)
|
155
|
(65)
|
Tax on adjusting items
|
7(c)
|
(6)
|
(133)
|
Less: Policyholder tax
adjustments
|
7(c)
|
(62)
|
138
|
Adjusted profit after tax
|
|
129
|
115
|
|
|
|
Pence
|
|
Post-tax
profit
measure
used
|
Year ended
31 December
2023
|
Year
ended
31
December 2022
|
Basic EPS
|
IFRS
profit
|
3.1
|
12.2
|
Diluted EPS
|
IFRS
profit
|
3.1
|
12.0
|
Adjusted basic EPS
|
Adjusted
profit
|
9.6
|
8.0
|
Adjusted diluted EPS
|
Adjusted
profit
|
9.4
|
7.9
|
8(c): Headline earnings per share
|
+
|
+
|
|
£m
|
|
Year ended
31 December
2023
|
Year
ended
31
December 2022
|
|
Gross
|
Net of tax
|
Gross1
|
Net of
tax1
|
Profit
|
|
42
|
|
175
|
Adjusted for:
|
|
|
|
|
- add back of impairment
loss on property, plant and equipment
|
-
|
-
|
7
|
6
|
- add back of impairment
loss on intangible assets
|
1
|
1
|
-
|
-
|
Headline earnings
|
|
43
|
|
181
|
Headline basic EPS (pence)
|
|
3.2
|
|
12.6
|
Headline diluted EPS (pence)
|
|
3.1
|
|
12.4
|
1Figures were re-presented to address an issue with the
signage of an adjusting item for 2022 and to clearly present the
tax effects of each adjusting item in the prior year in line with
the relevant guidance.
9: Goodwill and intangible assets
9(a): Analysis of goodwill and intangible
assets
The table below shows the
movements in cost and amortisation of goodwill and intangible
assets.
|
|
|
|
£m
|
|
Goodwill
|
Software development
costs
|
Other intangible
assets
|
Total
|
Gross amount
|
|
|
|
|
1 January 2022
|
306
|
30
|
425
|
761
|
31 December 2022
|
306
|
30
|
425
|
761
|
Disposals1
|
-
|
(21)
|
-
|
(21)
|
31 December 2023
|
306
|
9
|
425
|
740
|
|
|
|
|
|
Accumulated amortisation and impairment
losses
|
|
|
|
|
1 January 2022
|
-
|
(22)
|
(282)
|
(304)
|
Amortisation charge for the
year
|
-
|
(2)
|
(42)
|
(44)
|
31 December 2022
|
-
|
(24)
|
(324)
|
(348)
|
Amortisation charge for the
year
|
-
|
(2)
|
(38)
|
(40)
|
Disposals1
|
-
|
21
|
-
|
21
|
Impairment of other
intangibles
|
-
|
-
|
(1)
|
(1)
|
31 December 2023
|
-
|
(5)
|
(363)
|
(368)
|
|
|
|
|
|
Carrying amount
|
|
|
|
|
31 December 2022
|
306
|
6
|
101
|
413
|
31 December 2023
|
306
|
4
|
62
|
372
|
1Following the completion of a number of strategic projects,
the Group reviewed the fixed asset register. Assets related to
software development costs with a cost of £21 million and an
accumulated amortisation of £21 million (net book value: £nil) that
were no longer held by the Group or no longer in use have been
disposed during the year.
9(b): Analysis of other intangible assets
|
31
December
2023
|
31
December
2022
|
Average
estimated useful
life
|
Average
Period
remaining
|
|
£m
|
£m
|
|
|
Net carrying value
|
|
|
|
|
Distribution channels - Quilter
Financial Planning
|
2
|
4
|
8
years
|
1
year
|
Customer relationships
|
|
|
|
|
Quilter Cheviot
|
32
|
59
|
10
years
|
1
year
|
Quilter Financial
Planning
|
17
|
22
|
8
years
|
3
years
|
Quilter Cheviot Financial
Planning1
|
10
|
14
|
8
years
|
3
years
|
Other
|
1
|
2
|
7
years
|
< 1
year
|
Total other intangible assets
|
62
|
101
|
|
|
1Formerly known as Quilter Private Client Advisers.
9(c): Allocation of goodwill to cash-generating units
("CGUs") and impairment testing
Goodwill is monitored by
management at the level of the Group's two operating segments:
Affluent and High Net Worth. Both operating segments represent a
group of CGUs.
|
|
£m
|
|
31
December
2023
|
31
December
2022
|
Goodwill (net carrying amount)
|
|
|
Affluent
|
223
|
223
|
High Net Worth
|
83
|
83
|
Total goodwill
|
306
|
306
|
Impairment review
Goodwill in both the Affluent and
High Net Worth CGU groups is tested for impairment annually, or
earlier if an indicator of impairment exists, by comparing the
carrying value of the CGU group to which the goodwill relates to
the recoverable value of that CGU group, being the higher of that
CGU group's value-in-use or fair value less costs to sell. If
applicable, an impairment charge is recognised when the recoverable
amount is less than the carrying value. Goodwill impairment
indicators include sudden stock market falls, the absence of
positive Net Client Cash Flows ("NCCF"), significant falls in
profits and significant increases in the discount rate.
The goodwill balance has been
tested for impairment at 31 December 2023 and continues to
demonstrate a surplus of the recoverable amount over the carrying
value of the CGUs. As a result, no impairment is
required.
The following table shows the
percentage change required in each key assumption
before the carrying value would exceed the
recoverable amount, assuming all other variables remain the same.
This highlights that further adverse movements in the key
assumptions used in the CGU value-in-use calculation would be
required before an impairment would need to be
recognised.
|
Affluent
|
High Net
Worth
|
Reduction in forecast cash
flows
|
27%
|
61%
|
Percentage point increase in the
discount rate
|
9%
|
25%
|
Forecast cash flows are impacted
by movements in underlying assumptions, including equity market
levels, revenue margins and NCCF. The Group considers that forecast
cash flows are most sensitive to movements in equity markets
because they have a direct impact on the level of the Group's fee
income.
The principal sensitivity within
equity market level assumptions relates to the estimated growth in
equity market indices included in the three-year cash flow
forecasts. Management forecasts equity market growth for each
business using estimated asset-specific growth rates that are
supported by internal research, historical performance, Bank of
England forecasts and other external estimates.
The Group has considered and
assessed reasonably possible changes for other key assumptions and
has not identified any other instances that could cause the
carrying amount of CGUs to exceed its recoverable
amount.
Value-in-use methodology
The value-in-use calculations are
determined as the sum of net tangible assets and the expected cash
flows from existing and expected future new business derived from
the Business Plan. Future cash flow elements allow for the cost of
capital needed to support the business.
The cash flows that have been used
to determine the value in use of the groups of CGUs are based on
the most recent management approved three-year profit forecasts,
which are contained in the Group's Business Plan. These profit
forecasts incorporate anticipated equity market growth on the
Group's future cash flows and take into account climate-related
risks and opportunities affecting operations, investment activities
and advice and distribution activities and their impact on specific
projects and initiatives, estimates and judgements. These cash
flows change at different rates because of the different strategies
of the groups of CGUs. Post the three-year forecast period, the
growth rate used to determine the terminal value of the groups of
CGUs in the annual assessment was 2.0% (2022: 2.0%). Market share
and market growth information is also used to inform the expected
volumes of future new business.
Cost savings linked to future
restructuring activity are only included in the value-in-use
calculation in cases where an associated restructuring provision
has also been recognised. Consequently, for the purpose of the
value-in-use calculation, a number of planned cost savings and the
related implementation costs, primarily in relation to the Business
Simplification programme, have been removed from the future cash
flows.
The Group uses a single cost of
capital (post tax) of 10.0% (2022: 11.4%) to discount expected
future cash flows across its two groups of CGUs. The single cost of
capital is based on the Group's consideration of the level of risk
that each CGU represents. Capital is provided to the Group
predominantly by shareholders with a relatively small amount of
debt financing. The cost of capital is the weighted average of the
cost of equity (return required by shareholders) and the cost of
debt (return required by bondholders and owners of properties
leased by the Group). When assessing the systematic risk (i.e. the
beta value) within the calculation of the cost of equity, a
triangulation approach is used that combines beta values obtained
from historical data, a forward-looking view on the progression of
beta values and the external views of investors.
10: Financial investments
The table below analyses the
investments and securities that the Group invests in, either on its
own proprietary behalf (shareholder funds) or on behalf of third
parties (policyholder funds).
|
|
£m
|
|
31
December
2023
|
31
December
2022
|
Government and
government-guaranteed securities
|
202
|
225
|
Other debt securities, preference
shares and debentures
|
2,175
|
1,609
|
Equity securities
|
8,488
|
6,225
|
Pooled investments
|
39,462
|
35,557
|
Short-term funds and securities
treated as investments
|
1
|
1
|
Other
|
1
|
-
|
Total financial investments
|
50,329
|
43,617
|
|
|
|
Recoverable within 12
months
|
50,329
|
43,617
|
Total financial investments
|
50,329
|
43,617
|
The financial investments
recoverability profile is based on the intention with which the
financial assets are held. These assets
are held to cover the liabilities for linked investment contracts,
all of which can be withdrawn by policyholders on
demand.
11: Categories of financial instruments
The analysis of financial assets and liabilities
into their categories as defined in IFRS 9 Financial Instruments is
set out in the following tables. Assets and liabilities of a
non-financial nature, or financial assets and liabilities that are
specifically excluded from the scope of IFRS 9, are reflected in
the non-financial assets and liabilities category.
For information about the methods and assumptions
used in determining fair value, refer to note 12. The Group's
exposure to various risks associated with financial instruments is
discussed in note 18.
31 December 2023
|
|
|
|
|
|
|
|
|
|
|
£m
|
Measurement basis
|
Fair value
|
|
|
|
|
Mandatorily at
FVTPL
|
Designated at
FVTPL
|
Amortised
cost
|
Non-financial assets and
liabilities
|
Total
|
Assets
|
|
|
|
|
|
Loans and advances
|
-
|
-
|
38
|
-
|
38
|
Financial investments
|
50,329
|
-
|
-
|
-
|
50,329
|
Trade, other receivables and other
assets
|
-
|
-
|
404
|
43
|
447
|
Derivative assets
|
57
|
-
|
-
|
-
|
57
|
Cash and cash
equivalents
|
1,091
|
-
|
768
|
-
|
1,859
|
Total assets that include
financial instruments
|
51,477
|
-
|
1,210
|
43
|
52,730
|
Total other non-financial
assets
|
-
|
-
|
-
|
615
|
615
|
Total assets
|
51,477
|
-
|
1,210
|
658
|
53,345
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Investment contract
liabilities
|
-
|
43,396
|
-
|
-
|
43,396
|
Third-party interests in
consolidated funds
|
7,444
|
-
|
-
|
-
|
7,444
|
Borrowings and lease
liabilities
|
-
|
-
|
279
|
-
|
279
|
Trade, other payables and other
liabilities
|
1
|
-
|
484
|
85
|
570
|
Derivative liabilities
|
25
|
-
|
-
|
-
|
25
|
Total liabilities that include
financial instruments
|
7,470
|
43,396
|
763
|
85
|
51,714
|
Total other non-financial
liabilities
|
-
|
-
|
-
|
112
|
112
|
Total liabilities
|
7,470
|
43,396
|
763
|
197
|
51,826
|
31 December 2022
|
|
|
|
|
|
|
|
|
|
|
£m
|
Measurement basis
|
Fair
value
|
|
|
|
|
Mandatorily at FVTPL
|
Designated at FVTPL
|
Amortised cost (Restated)
|
Non-financial assets and liabilities (Restated)
|
Total
|
Assets
|
|
|
|
|
|
Loans and advances
|
-
|
-
|
34
|
-
|
34
|
Financial investments
|
43,617
|
-
|
-
|
-
|
43,617
|
Trade, other receivables and other
assets
|
-
|
-
|
261
|
42
|
303
|
Derivative assets
|
40
|
-
|
-
|
-
|
40
|
Cash and cash
equivalents
|
1,112
|
-
|
670
|
-
|
1,782
|
Total assets that include
financial instruments
|
44,769
|
-
|
965
|
42
|
45,776
|
Total other non-financial
assets1
|
-
|
-
|
-
|
641
|
641
|
Total assets
|
44,769
|
-
|
965
|
683
|
46,417
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Investment contract
liabilities
|
-
|
38,186
|
-
|
-
|
38,186
|
Third-party interests in
consolidated funds
|
5,843
|
-
|
-
|
-
|
5,843
|
Borrowings and lease
liabilities
|
-
|
-
|
290
|
-
|
290
|
Trade, other payables and other
liabilities2
|
-
|
-
|
351
|
85
|
436
|
Derivative liabilities
|
20
|
-
|
-
|
-
|
20
|
Total liabilities that include
financial instruments
|
5,863
|
38,186
|
641
|
85
|
44,775
|
Total other non-financial
liabilities
|
-
|
-
|
-
|
94
|
94
|
Total liabilities
|
5,863
|
38,186
|
641
|
179
|
44,869
|
1Investments in associates shown separately in the Group's
2022 financial statements have been included in Total other
non-financial assets.
2The disclosures for 2022 have been restated to reclassify £7
million of accruals from the amortised cost category to the
non-financial assets and liabilities category. The relevant
accruals which were presented in the amortised cost category in the
Group's 2022 financial statements arose in connection with the
Group's statutory and constructive obligations as opposed to
arising in connection with the Group's contractual
obligations.
12: Fair value
methodology
This section explains the
judgements and estimates made in determining the fair values of
financial instruments that are recognised and measured at fair
value in the financial statements. Classifying financial
instruments into the three levels of the fair value hierarchy (see
note 12(b)) provides an indication of the reliability of inputs
used in determining fair value.
12(a): Determination of fair
value
The fair value of financial
instruments that are actively traded in organised financial markets
is determined by reference to quoted market exit prices for assets
and offer prices for liabilities, at the close of business on the
reporting date, without any deduction for transaction
costs:
· for
units in unit trusts and shares in open-ended investment companies,
fair value is determined by reference to published quoted prices
representing exit values in an active market;
· for
equity and debt securities not actively traded in organised markets
and where the price cannot be retrieved, the fair value is
determined by reference to similar instruments for which market
observable prices exist;
· for
assets that have been suspended from trading on an active market,
the last published price is used. Many suspended assets are still
regularly priced. At the reporting date, all suspended assets are
assessed for impairment; and
· where
the assets are private equity investments or within consolidated
investment funds, the valuation is based on the latest available
set of audited financial statements, or if more recent is
available, reports from investment managers or professional
valuation experts on the value of the underlying assets of the
private equity investment or fund.
There have been no significant
changes in the valuation techniques applied when valuing financial
instruments. Where assets are valued by the Group, the general
principles applied to those instruments measured at fair value are
outlined below:
Financial investments
Financial investments include government and
government-guaranteed securities, listed and unlisted debt
securities, preference shares and debentures, listed and unlisted
equity securities, listed and unlisted pooled investments (see
below), short-term funds and securities treated as investments and
certain other securities.
Pooled investments represent the Group's holdings of
shares/units in open-ended investment companies, unit trusts,
mutual funds and similar investment vehicles. Pooled investments
are recognised at fair value. The fair values of pooled investments
are based on widely published prices that are regularly
updated.
Other financial investments that are measured at
fair value use observable market prices where available. In the
absence of observable market prices, these investments and
securities are fair valued using various approaches including
discounted cash flows, the application of an earnings before
interest, tax, depreciation and amortisation multiple or any other
relevant technique.
Derivatives
The fair value of derivatives is
determined with reference to the exchange-traded prices of the
specific instruments. The fair value of over-the-counter forward
foreign exchange contracts is determined by reference to the
relevant exchange rates.
Investment contract
liabilities
The fair value of the investment contract
liabilities is determined with reference to the underlying funds
that are held by the Group.
Third-party interests in
consolidated funds
Third-party interests in consolidated funds are
measured at the attributable net asset value of each fund.
12(b): Fair value hierarchy
Fair values are determined according to the
following hierarchy:
Description of
hierarchy
|
Types of instruments
classified in the respective levels
|
Level 1 -
quoted market prices: financial assets and liabilities with quoted
prices for identical instruments in active markets.
|
Listed equity securities, government securities and
other listed debt securities and similar instruments that are
actively traded, actively traded pooled investments, certain quoted
derivative assets and liabilities and investment contract
liabilities directly linked to other Level 1 financial assets.
|
Level 2 -
valuation techniques using observable inputs: financial assets and
liabilities with quoted prices for similar instruments in active
markets or quoted prices for identical or similar instruments in
inactive markets and financial assets and liabilities valued using
models where all significant inputs are observable.
|
Unlisted equity and debt securities where the
valuation is based on models involving no significant unobservable
data.
Over-the-counter derivatives, certain privately
placed debt instruments and third-party interests in consolidated
funds which meet the definition of Level 2 financial
instruments.
|
Level 3 -
valuation techniques using significant unobservable inputs:
financial assets and liabilities valued using valuation techniques
where one or more significant inputs are unobservable.
|
Unlisted equity and securities with significant
unobservable inputs, securities where the market is not considered
sufficiently active, 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. Certain financial assets and liabilities are
valued on the basis of valuation techniques that feature one or
more significant inputs that are unobservable and, for them, the
derivation of fair value is more judgemental. A financial asset or
liability in its entirety is classified as valued using significant
unobservable inputs if a significant proportion of that asset or
liability's carrying amount is driven by unobservable inputs.
In this context, 'unobservable' means that there is
little or no current market data available from which to determine
the price at which an arm's length transaction would be likely to
occur. It generally does not mean that there is no market data
available at all upon which to base a determination of fair value.
Furthermore, in some cases the majority of the fair value derived
from a valuation technique with significant unobservable data may
be attributable to observable inputs.
12(c): Transfer between fair value
hierarchies
The Group deems a transfer to have occurred between
Level 1 and Level 2 or Level 3 when an active, traded primary
market ceases to exist for that financial instrument. A transfer
between Level 2 and Level 3 occurs when the majority of the
significant inputs used to determine the fair value of the
instrument become unobservable. Transfers from Levels 3 or 2 to
Level 1 are also possible when assets become actively priced.
There were no transfers of financial investments
between Level 1 and Level 2 during 2023 (2022: £nil). There were no
transfers of financial investments from Level 2 to Level 1 during
the year (2022: £nil).
See note 12(e) for the reconciliation of Level 3
financial instruments.
12(d): Financial assets and
liabilities measured at fair value, classified according to the
fair value hierarchy
The majority of the Group's
financial assets are measured using quoted market prices for
identical instruments in active markets (Level 1) and there have
been no significant changes during the year.
The linked assets are held to
cover the liabilities for linked investment contracts. The
difference between linked assets and linked liabilities is
principally due to short-term timing differences between
policyholder premiums being received and invested in advance of
policies being issued, and tax liabilities within funds which are
reflected within the Group's tax liabilities.
Differences between assets and
liabilities within the respective levels of the fair value
hierarchy also arise due to the mix of underlying assets and
liabilities within consolidated funds. In addition, third-party
interests in consolidated funds are classified as Level
2.
The tables below analyse the
Group's financial assets and liabilities measured at fair value by
the fair value hierarchy described in note 12(b). All items are
recognised mandatorily at fair value through profit or loss, apart
from Investment contract liabilities which are designated at fair
value through profit or loss.
|
|
|
|
£m
|
31 December 2023
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Financial investments
|
41,691
|
8,605
|
33
|
50,329
|
Cash and cash
equivalents
|
1,091
|
-
|
-
|
1,091
|
Derivative assets
|
-
|
57
|
-
|
57
|
Total financial assets measured at fair value through profit
or loss
|
42,782
|
8,662
|
33
|
51,477
|
|
|
|
|
|
Third-party interests in
consolidated funds
|
-
|
7,444
|
-
|
7,444
|
Other liabilities
|
-
|
1
|
-
|
1
|
Derivative liabilities
|
-
|
25
|
-
|
25
|
Investment contract
liabilities
|
43,372
|
-
|
24
|
43,396
|
Total financial liabilities measured at fair value through
profit or loss
|
43,372
|
7,470
|
24
|
50,866
|
|
|
|
|
|
|
|
|
|
£m
|
31 December 2022
|
Level
1
|
Level
2
|
Level
3
|
Total
|
Financial investments
|
37,340
|
6,248
|
29
|
43,617
|
Cash and cash
equivalents
|
1,112
|
-
|
-
|
1,112
|
Derivative assets
|
-
|
40
|
-
|
40
|
Total financial assets measured at fair value through profit
or loss
|
38,452
|
6,288
|
29
|
44,769
|
|
|
|
|
|
Third-party interests in
consolidated funds
|
-
|
5,843
|
-
|
5,843
|
Derivative liabilities
|
-
|
20
|
-
|
20
|
Investment contract
liabilities
|
38,161
|
-
|
25
|
38,186
|
Total financial liabilities measured at fair value through
profit or loss
|
38,161
|
5,863
|
25
|
44,049
|
12(e): Level 3 fair value hierarchy
disclosure
The majority of the assets classified as Level 3 are
held within linked policyholder funds. Where this is the case, all
of the investment risk associated with these assets is borne by
policyholders and the value of these assets is exactly matched by a
corresponding liability due to policyholders. The Group bears no
risk from a change in the market value of these assets except to
the extent that it has an impact on management fees earned.
Level 3 assets also include
investments within consolidated funds. The Group bears no risk from
a change in the market value of these assets except to the extent
that it has an impact on management fees earned. Any changes in
market value are matched by a corresponding Level 2 liability
within third-party interests in
consolidated funds.
The table below reconciles the
opening balance of Level 3 financial assets to the closing balance
at each year end:
|
|
£m
|
|
31
December
2023
|
31
December
2022
|
At beginning of the
year
|
29
|
27
|
Fair value losses charged to
profit or loss1
|
(1)
|
(5)
|
Sales
|
(1)
|
(2)
|
Transfers in
|
27
|
125
|
Transfers out
|
(21)
|
(116)
|
Total Level 3 financial assets at the end of the
year
|
33
|
29
|
Unrealised fair value
gains/(losses) recognised in profit or loss relating to assets held
at the year end
|
2
|
(9)
|
1Included in Investment
return.
All of the assets that are
classified as Level 3 are suspended funds for 2022 and
2023.
Transfers into Level 3 assets in
the current year total £27 million (2022:
£125 million). This is mainly due to
suspended funds previously shown within Level 1. Suspended funds
are valued based on external valuation reports received from fund
managers. Transfers out of Level 3 assets in the current year
of £21 million (2022: £116 million) result
from a transfer to Level 1 assets relating to assets that are now
being actively repriced (that were previously stale) and where fund
suspensions have been lifted.
The table below reconciles the opening balance of
Level 3 financial liabilities to the closing balance at each year
end:
|
|
£m
|
|
31
December
2023
|
31
December
2022
|
At beginning of the
year
|
25
|
24
|
Fair value losses charged to
profit or loss1
|
-
|
(2)
|
Transfers in
|
20
|
119
|
Transfers out
|
(21)
|
(116)
|
Total Level 3 financial liabilities at the end of the
year
|
24
|
25
|
Unrealised fair value losses
recognised in profit or loss relating to liabilities at the year
end
|
-
|
(5)
|
1Included in Investment
return.
12(f): Effect of changes in significant unobservable
assumptions to reasonable alternatives
Details of the valuation
techniques applied to the different categories of financial
instruments can be found in note 12(a) above, including the
valuation techniques applied when significant unobservable
assumptions are used to value Level 3 assets.
For Level 3 assets and liabilities, no reasonable
alternative assumptions are applicable and the Group therefore
performs a sensitivity test of an aggregate 10% (2022: 10%), which is a reasonably possible change in
the value of the financial asset or liability. It
is therefore considered that the impact of this sensitivity will be
in the range of £3 million (2022: £3 million) to the reported fair
value of Level 3 assets, both favourable and
unfavourable.
12(g): Fair value hierarchy for
assets and liabilities not measured at fair value
Certain financial instruments of the Group are not
carried at fair value. The carrying values of these are considered
reasonable approximations of their respective fair values as they
are either short term in nature or are repriced to current market
rates at frequent intervals.
13: Cash and cash equivalents
13(a): Analysis of cash and cash
equivalents
|
|
|
£m
|
|
|
31
December
2023
|
31
December
2022
|
Cash at bank
|
|
444
|
406
|
Money market funds
|
|
1,091
|
1,112
|
Cash and cash equivalents in
consolidated funds
|
|
324
|
264
|
Total cash and cash equivalents per statement of cash
flows
|
|
1,859
|
1,782
|
The Group's management does not consider that the
cash and cash equivalents balance arising due to consolidation of
funds of £324 million (2022: £264 million) is available for use in
the Group's day-to-day operations. The remainder of the Group's
cash and cash equivalents balance of £1,535 million (2022: £1,518
million) is considered to be available for general use by the Group
for the purposes of the disclosures required under IAS 7 Statement
of Cash Flows. This balance includes policyholder cash as well as
cash and cash equivalents held by regulated subsidiaries to meet
their capital and liquidity requirements.
13(b): Analysis of net cash flows from operating
activities:
|
|
|
£m
|
|
Notes
|
Year ended
31
December
2023
|
Year
ended
31
December
2022
|
Cash flows from operating activities
|
|
|
|
Profit before tax
|
|
88
|
65
|
Adjustments for
|
|
|
|
Depreciation and impairment of
property, plant and equipment
|
|
12
|
22
|
Movement on contract
costs
|
|
(6)
|
(1)
|
Amortisation and impairment of
intangibles
|
|
41
|
44
|
Fair value and other movements in
financial assets
|
|
(3,200)
|
4,410
|
Fair value movements in investment
contract liabilities
|
15
|
2,528
|
(4,878)
|
Other changes in investment
contract liabilities
|
|
2,682
|
1,993
|
Other movements
|
|
47
|
32
|
|
|
2,104
|
1,622
|
Net changes in working capital
|
|
|
|
Increase in derivatives
position
|
|
(12)
|
(21)
|
Increase in loans and
advances
|
|
(4)
|
(5)
|
Decrease in provisions
|
16
|
(23)
|
(24)
|
Movement in other
assets/liabilities
|
|
(16)
|
61
|
|
|
(55)
|
11
|
Taxation paid
|
|
(26)
|
(22)
|
Net cash flows from operating activities
|
|
2,111
|
1,676
|
14: Ordinary Share capital
At 31 December 2023, the Company's
equity capital comprises 1,404,105,498 Ordinary Shares of 8 1/6
pence each with an aggregated nominal value of £114,668,616
(2022: 1,404,105,498 Ordinary Shares of 8 1/6
pence each with an aggregated nominal value of £114,668,616). All
Ordinary Shares have been called up and fully paid.
This note gives details of the
movements in Ordinary Share capital during the year 2023 and
2022.
|
|
|
£m
|
£m
|
|
|
Number of Ordinary
Shares
|
Nominal value of Ordinary
Shares
|
Ordinary Share
premium
|
At 1 January 2022
|
|
1,655,827,217
|
116
|
58
|
Shares cancelled through share
buyback programme
|
|
(17,704,132)
|
(1)
|
-
|
Share Consolidation (including
shares cancelled)
|
|
(234,017,587)
|
-
|
-
|
At 31 December 2022
|
|
1,404,105,498
|
115
|
58
|
At 31 December 2023
|
|
1,404,105,498
|
115
|
58
|
In 2020, the Company announced a share buyback
programme to purchase shares up to a maximum value of £375 million,
in order to return the net surplus proceeds to shareholders arising
from the sale of Quilter Life Assurance which had the impact of
reducing the share capital of the Company. The programme completed
in January 2022.
On 9 March 2022, the Company announced a capital
return of £328 million, equivalent to 20 pence per share, from the
net surplus proceeds arising from the sale of Quilter International
by way of a B Share Scheme. Following the return of capital, a
share consolidation was completed so that comparability between the
market price for Quilter plc's Ordinary Shares before and after the
implementation of the B Share Scheme was maintained.
In 2022, new Ordinary Shares were issued for
existing Ordinary Shares in a ratio of six new shares of 8 1/6
pence each for seven existing shares of 7 pence each resulting in a
reduction in the number of shares by 234,017,587.
All Ordinary Shares issued carry equal voting
rights. The holders of the Company's Ordinary Shares are entitled
to receive dividends as declared and are entitled to one vote per
share at shareholder meetings of the Company.
15: Investment contract
liabilities
The following table provides a
summary of the Group's investment contract liabilities:
|
|
£m
|
|
2023
|
2022
|
Carrying amount at 1 January
|
38,186
|
41,071
|
Fair value movements
|
2,528
|
(4,878)
|
Investment income
|
785
|
560
|
Movements arising from investment
return
|
3,313
|
(4,318)
|
Contributions received
|
5,358
|
4,408
|
Withdrawals and
surrenders
|
(3,212)
|
(2,759)
|
Claims and benefits
|
(245)
|
(219)
|
Other movements
|
(4)
|
3
|
Change in liability
|
5,210
|
(2,885)
|
Investment contract liabilities at end of the
year
|
43,396
|
38,186
|
For unit-linked investment
contracts, movements in asset values are offset by corresponding
changes in liabilities, limiting the net impact on
profit.
The benefits offered under the
unit-linked investment contracts are based on the risk appetite of
policyholders and the return on their selected investments and
collective fund investments, whose underlying investments include
equities, debt securities, property and derivatives. This
investment mix is unique to individual policyholders.
For unit-linked business, the unit
liabilities are determined as the value of units credited to
policyholders. Since these liabilities are determined on a
retrospective basis, no assumptions for future experience are
required. Assumptions for future experience are required for
unit-linked business in assessing whether the total of the contract
costs asset and contract liability is greater than the present
value of future profits expected to arise on the relevant blocks of
business (the "recoverability test"). If this is the case, then the
contract costs asset is restricted to the recoverable amount. For
linked contracts, the assumptions are on a best estimate
basis.
16: Provisions
|
|
|
|
|
£m
|
Year ended 31 December 2023
|
Compensation
provisions
|
Sale of subsidiaries
provision
|
Property
provisions
|
Clawback and other
provisions
|
Total
|
Balance at beginning of the
year
|
23
|
15
|
12
|
19
|
69
|
Charge to profit or
loss
|
17
|
-
|
-
|
6
|
23
|
Used during the year
|
(14)
|
(12)
|
(2)
|
(8)
|
(36)
|
Unused amounts reversed
|
(9)
|
-
|
-
|
(1)
|
(10)
|
Balance at 31 December 2023
|
17
|
3
|
10
|
16
|
46
|
|
|
|
|
|
|
|
|
|
|
|
£m
|
31 December 2022
|
Compensation
provisions
|
Sale of
subsidiaries provision
|
Property
provisions
|
Clawback
and other provisions
|
Total
|
Balance at beginning of the
year
|
41
|
22
|
9
|
21
|
93
|
Charge to profit or
loss
|
22
|
-
|
4
|
3
|
29
|
Used during the year
|
(28)
|
(7)
|
(1)
|
(2)
|
(38)
|
Unused amounts reversed
|
(12)
|
-
|
-
|
(4)
|
(16)
|
Reclassification within the
statement of financial position1
|
-
|
-
|
-
|
1
|
1
|
Balance at 31 December
2022
|
23
|
15
|
12
|
19
|
69
|
1Clawback and other provisions included the balancing premium
payable for the bulk annuity purchased for the Quilter Cheviot
Limited Retirement Benefits scheme which was reclassified during
the year to 31 December 2022 from accruals reflecting the
uncertainty of the amounts to be settled.
Compensation provisions
Compensation provisions total £17
million (2022: £23 million). The net reduction of £6 million during
the year consists of additional charges to profit or loss of £17
million, compensation payments made during the year of £14 million
and £9 million release of unused amounts during 2023 following
further review work completed during the year. Compensation
provisions are comprised of the following:
Lighthouse pension transfer advice
provision of £6 million (2022: £5 million)
Lighthouse pension transfer advice provided to British Steel
Pension Scheme members of £nil (2022: £4 million)
A total provision of £nil (2022:
£4 million) remains for the redress of British Steel Pension Scheme
cases. This is comprised of two parts:
(a)
Customer redress provision of £nil (2022: £3
million). During the year, payments of £1 million have been made to
customers. The redress provision has been recalculated for the
final suitability assessments and redress calculations performed by
the independent expert, and the remaining provision of £2 million
released to profit or loss.
(b)
Anticipated costs associated with redress
activity of £nil (2022: £1 million). This provision was recognised
in respect of the anticipated costs of legal and professional fees
related to the cases and redress process, which included the
expected costs to review advice. Legal and professional fees of £3
million have been paid during the year.
During the year to 31 December
2022, the skilled person completed their review of all British
Steel Pension Scheme cases within the scope of the skilled person's
review, reflecting the outcome of the review of the suitability of
the DB to DC pension transfer advice for each case, and all
remaining offers were made to customers who received unsuitable DB
to DC pension transfer advice which caused them to sustain a
loss.
Certain customers who were
included in the skilled person review have referred their case to
the Financial Ombudsman Service, relating to cases where: (i)
relevant DB to DC pension transfer advice was found to be suitable
by the skilled person; or (ii) where relevant DB to DC pension
transfer advice was found to be unsuitable by the skilled person,
but the customer disagreed with the way in which their redress
offer has been calculated by the skilled person. The Financial
Ombudsman Service has upheld some challenges and the redress
payments in relation to such cases are included within the amounts
stated above in this note. It is possible further challenges may be
upheld.
In November 2022, the FCA
published a policy statement containing the final rules for a
redress scheme for former members of the British Steel Pension
Scheme who received unsuitable advice (the "BSPS Redress Scheme").
The BSPS Redress Scheme covers those persons who received advice
between 26 May 2016 and 29 March 2018 to transfer out of the
British Steel Pension Scheme. The rules for the BSPS Redress Scheme
set out how advisers must determine whether they gave unsuitable
advice and whether they must pay redress. The Group may therefore
face further costs of redress as a result of the BSPS Redress
Scheme. The BSPS Redress Scheme does not cover individuals that
have accepted redress for the advice provided, referred the matter
to the Financial Ombudsman Service or received a final outcome
following a suitability assessment of their case conducted through
a skilled person review. Therefore, based on the rules of the BSPS
Redress Scheme, this process does not include Lighthouse cases that
have already been reviewed by the skilled person where the customer
received a final outcome.
Based on the rules for the BSPS
Redress Scheme, there were approximately 30 Lighthouse cases
relating to British Steel Pension Scheme members that fall within
the scope of the BSPS Redress Scheme. These customers were written
to during 2023, and where applicable sent a redress determination
letter, in line with the timeline prescribed within the BSPS
Redress Scheme. The redress payments in relation to such cases are
included within the amounts stated above in this note. At 31
December 2023, the review of cases is complete, and there are no
further redress amounts to be paid under the BSPS Redress
Scheme.
Lighthouse pension transfer advice provided to members of
other schemes of £6 million (2022: £1 million)
The skilled person review of
Lighthouse DB to DC pension transfer advice cases identified
unsuitable DB to DC pension transfer advice provided by Lighthouse
advisers for pension schemes other than the British Steel Pension
Scheme. The initial scope of the review concluded in 2022, with £3
million paid to customers and the remaining provision released to
profit or loss. The skilled person review concluded in December
2022.
The skilled person recommended a
review of a further sample of Lighthouse DB to DC pension transfer
advice cases not relating to the British Steel Pension Scheme. In
December 2022, the FCA confirmed to the Group that it agreed with
the skilled person's recommendation. The FCA also confirmed that,
given the cooperation of the Group in relation to the skilled
person review and established past business review methodology and
consistent with the recommendation made by the skilled person, this
further sample should be reviewed under a Group-managed past
business review process. The FCA also agreed with the skilled
person that the further sample should be selected on a risk-based
approach and set out to the Group the key risk factors to be used
in determining the sample. The review of this sample has identified
some additional cases where customer redress is required. Until the
review of the relevant sample has been completed, uncertainty
exists as to the number of cases where this will be required and
the value of total redress which may be payable. A provision for
redress relating to the review of this further sample of cases of
£1 million was established at 31 December 2022 and has been
increased by £4 million at 31 December 2023, based upon the
suitability review of cases to date, and the anticipated number of
cases required to be reviewed. Payments of £1 million have been
made to customers during 2023. Additionally, anticipated costs associated with the redress activity of £2
million (2022: £nil) have been included within the provision at 31
December 2023. Any further redress payable
is expected to be paid during 2024.
The Group estimates a reasonably
possible change of +/- £3 million from the £6 million balance,
based upon an increase or decrease of five percentage points in
redress as a percentage of transfer value.
Compensation provisions (other) of
£11 million (2022: £18 million)
Other compensation provisions of
£11 million include amounts relating to the cost of correcting
deficiencies in policy administration systems, including
restatements, any associated litigation costs and the related costs
to compensate previous or existing policyholders and customers.
This provision represents management's best estimate of expected
outcomes based upon previous experience, and a review of the
details of each case. Due to the nature of the provision, the
timing of the expected cash outflows is uncertain. The best
estimate of the timing of outflows is that the majority of the
balance is expected to be settled within 12 months.
A provision of £3 million,
included within the balance, has been recognised at 31 December
2023 (2022: £7 million) relating to potentially unsuitable DB to DC
pension transfer advice provided by adviser businesses other than
Lighthouse. Of this balance, £nil (2022: £2 million) has been
recognised for potentially unsuitable DB to DC pension transfer
advice provided to British Steel Pension Scheme members by Quilter
Financial Planning firms other than Lighthouse. This provision was
recognised following the receipt of a "Dear CEO" letter from the
FCA in 2021, and subsequent establishment of the BSPS Redress
Scheme in 2022. During 2023, all relevant British Steel Pension
Scheme cases have been reviewed for suitability by an independent
expert, and redress calculations performed where applicable. There
were no redress payments made related to the BSPS Redress Scheme
and the provision balance of £2 million at 31 December 2022 was
released to profit or loss during the year. The estimate of the
provision unrelated to the BSPS Redress Scheme has been updated for
the current status of the past business reviews and redress
estimated based upon the Group's experience of the Lighthouse
skilled person and past business reviews. Customer redress is
expected to be calculated and paid to relevant customers during
2024.
A provision of £4 million,
included within the balance at 31 December 2022, related to Final
Plan Closure ("FPC") receipts previously recognised as revenue
since 2013 for distributions the Group received from investments
for customers who had previously closed their accounts. FPC
receipts represent distributions, including tax gross ups where
relevant, and rebates received after a customer has left the
Quilter platform, which the terms and conditions of the pension and
insured bonds legally entitled the Group to retain. A review in
2022 led to a change in business policy, and Quilter made the
decision to voluntarily return these amounts to those impacted
customers backdated to inception, with an appropriate rate of
interest applied to each balance. A provision of £6 million was
initially recognised in 2022, and payments of £2 million were made
to customers during 2022. The remaining provision outstanding at 31
December 2022 of £4 million has been paid to customers during the
current year.
The Group estimates a reasonably
possible change of +/- £3 million from the £11 million balance,
based upon a review of the cases and the range of potential
outcomes for the customer redress payments.
Sale of subsidiaries provision
Sale of subsidiaries provisions
total £3 million at 31 December 2023 (2022: £15 million), and
include the following:
Provisions arising on the sale of
Quilter International of £2 million (2022: £11 million)
Quilter International was sold on
30 November 2021, resulting in provisions totalling £17 million
being established in respect of costs related to the disposal
including the costs of business separation and data migration
activities.
The costs
of business separation arise from the process required to separate
Quilter International's infrastructure, which is complex and covers
a wide range of areas including people, IT systems, data, contracts
and facilities. A programme team was established to ensure the
transition of these areas to the acquirer. These provisions were
based on external quotations and estimates, together with estimates
of the incremental time and resource costs required to achieve the
separation, which was expected to occur over a two-to-three-year
period from the date of the sale.
The most significant element of
the provision is the cost of migration of IT systems and data to
the acquirer. Calculation of the provision was based on
management's best estimate of the work required, the time it is
expected to take, the number and skills of the staff required and
their cost, and the cost of related external IT services to support
the work. In reaching these judgements and estimates, management
has made use of its past experience of previous IT migrations
following business disposals.
During the year, £9 million (2022:
£6 million) of the provision has been used. The Group estimates a provision sensitivity of +/-25% (£1
million), based upon a review of the range of time periods expected
to complete the work required. The remaining balance of £2 million
related to decommissioning works is forecast to be paid within one
year.
Sale of Single Strategy business
provision of £nil (2022: £4 million)
The provision in the prior year
related to sale-related future commitments made to the buyer (now
known as Jupiter Investment Management ("Jupiter")) of the Single
Strategy business, which was initially recognised in 2018, in
relation to the level of revenues for Jupiter in future years
arising from funds invested by customers of
Quilter.
In the year to 31 December 2023,
£4 million was agreed and settled relating to the 2022 measurement
year, which is the final measurement year according to the sale
agreement. This was the final amount payable under this arrangement
with Jupiter.
Property provisions
Property provisions total £10
million (2022: £12 million). Property provisions represent the
discounted value of expected future costs of reinstating leased
property to its original condition at the end of the lease term,
and any onerous commitments which may arise in cases where a leased
property is no longer fully used by the Group. The estimate is
based upon property location, size of property and an estimate of
the charge per square foot. Property provisions are used or
released when the reinstatement obligations have been fulfilled.
The associated asset for the property provisions relating to the
cost of reinstating property is included within Property, plant and
equipment.
Of the £10 million provision
outstanding, £3 million (2022: £3 million) is estimated to be
payable within one year. The majority of the balance relates to
leased properties which have a lease term maturity of more than
five years.
Clawback and other provisions
Clawback and other provisions
total £16 million (2022: £19 million) and include amounts for the
resolution of legal uncertainties and the settlement of other
claims raised by contracting parties and indemnity commission
provisions. Where material, provisions are discounted at discount
rates specific to the risks inherent in the liability. The timing
and final amounts of payments, particularly those in respect of
litigation claims and similar actions against the Group, are
uncertain and could result in adjustments to the amounts
recorded.
Included within the balance at 31
December 2023 is £12 million (2022: £14 million) of clawback
provisions in respect of potential refunds due to product providers
on indemnity commission within the Quilter Financial Planning
business. This provision, which is estimated and charged as a
reduction of revenue at the point of sale of each policy, is based
upon assumptions determined from historical experience of the
proportion of policyholders cancelling their policies, which
requires Quilter to refund a portion of commission previously
received. Reductions to the provision result from the payment of
cash to product providers as refunds or the recognition of revenue
where a portion is assessed as no longer payable. The provision has
been assessed at the reporting date and adjusted for the latest
cancellation information available. At 31 December 2023, an
associated balance of £8 million recoverable from brokers is
included within Trade, other receivables and other assets (2022: £8
million).
The Group estimates a reasonably
possible change of +/- £3 million, based upon the potential range
of outcomes for the proportion of cancelled policies within the
clawback provision, and a detailed review of the other
provisions.
Of the total £16 million provision
outstanding, £7 million is estimated to be payable within one year
(2022: £8 million).
17: Contingent liabilities
The Group, in the ordinary course of business,
enters into transactions that expose it to tax, legal, regulatory
and business risks. The Group recognises a provision when it has a
present obligation as a result of past events, it is probable that
a transfer of economic benefits will be required to settle the
obligation and a reliable estimate of the amount can be made (see
note 16). Possible obligations and known liabilities where no
reliable estimate can be made or it is considered improbable that
an outflow would result are reported as contingent liabilities.
The Group routinely monitors and assesses contingent
liabilities arising from matters such as business reviews,
litigation, warranties and indemnities relating to past
acquisitions and disposals.
Contingent liabilities - DB to DC pension transfer advice
redress
As set out in note 16, the
Lighthouse skilled person review concluded in December 2022. A
further sample of Lighthouse DB to DC pension transfer advice cases
not relating to the British Steel Pension Scheme is being reviewed
under a Group-managed past business review process. Until the
review has finalised, uncertainty exists as to the number of cases
where further review will be required and the value of total
redress that will be payable.
Customers have the legal right to
challenge the outcome of the skilled person review and the BSPS
Redress Scheme in respect of their case via a complaint to the
Financial Ombudsman Service. The skilled person was independent
from the Group and ran a robust process, which was overseen by the
FCA. The Financial Ombudsman Service may uphold further challenges,
which may lead to further redress payable by the Group.
At the conclusion of its
enforcement investigation, the FCA issued a Final Notice to
Lighthouse in May 2023. The FCA found that Lighthouse had provided
unsuitable DB to DC pension transfer advice but imposed no
financial penalty. The FCA acknowledged in its decision that
Lighthouse provided very high levels of co-operation in relation to
the FCA's investigation and that the Group, on its own initiative,
promptly paid redress to customers who received unsuitable DB to DC
pension transfer advice from Lighthouse and sustained losses as a
result of that advice.
It is possible that further material costs of
redress may be incurred in relation to past business reviews.
Further customer redress costs may also be incurred for other
potential unsuitable DB to DC pension transfer advice provided
across the Group.
Any further redress costs, and any differences
between the provision and the final payment to be made for any
unsuitable DB to DC pension transfer cases, will be recognised as
an expense or credit in profit or loss.
Tax
The Group is committed to conducting its tax affairs
in accordance with the tax legislation of the countries in which it
operates and this includes compliance with legislation related to
levies, sales taxes and payroll deductions.
The tax authorities in the countries in which the
Group operates routinely review historical transactions undertaken
and tax law interpretations made by the Group. All interpretations
made by the Group are made with reference to the specific facts and
circumstances of the transaction and the relevant legislation.
There are occasions where the Group's interpretation
of tax law may be challenged by the tax authorities. The
consolidated financial statements include provisions that reflect
the Group's assessment of liabilities which might reasonably be
expected to materialise as part of their review. The Group is
satisfied that adequate provisions have been made to allow for the
resolution of tax uncertainties and that the resources available to
fund such potential settlements are sufficient.
Due to the level of estimation required in
determining tax provisions, amounts eventually payable may differ
from the provision recognised.
Complaints, disputes and
regulations
The Group is committed to treating customers fairly
and remains focussed on delivering good outcomes for customers to
support them in meeting their lifetime goals. During the normal
course of business, from time to time, the Group receives
complaints and claims from customers including, but not limited to,
complaints to the Financial Ombudsman Service and legal proceedings
related thereto, enters into commercial disputes with service
providers and other parties, and is subject to discussions and
reviews with regulators. The costs, including legal costs, of these
issues as they arise can be significant and, where appropriate,
provisions have been established.
Subsequent to the year-end date, on
15 February 2024, the FCA wrote to around 20 advice firms,
including Quilter, requesting information regarding ongoing
servicing to assess what, if any, further regulatory work the FCA
may undertake in this area. The Group is commencing a review of
historical data and practices across the Group's network to
determine what, if any, further action may be required. This may
lead to remedial costs but it is too early to quantify. Until the
Group has further clarity of its position on this matter, there
remains uncertainty as to the potential financial and non-financial
implications that may arise.
Where the Group's regular adviser
oversight controls have determined that a customer may not have
received the servicing that they have paid for, or where the Group
has received complaints from customers regarding ongoing servicing,
this has been investigated, and, where appropriate, remediation has
been undertaken and recognised as a normal business as usual
expense.
18: Capital and financial risk
management
18(a): Capital
management
The Group manages its capital with a focus on
capital efficiency and effective risk management. The capital
management objectives are to maintain the Group's ability to
continue as a going concern while supporting the optimisation of
return relative to the risks. The Group ensures that it can meet
its expected capital and financing needs at all times having regard
to the Group's Business Plans, forecasts, strategic initiatives and
the regulatory requirements applicable to Group entities.
The Group's overall capital risk appetite is set
with reference to the requirements of the relevant stakeholders and
seeks to:
· maintain sufficient,
but not excessive, financial strength to support stakeholder
requirements;
· optimise debt to equity
structure to enhance shareholder returns; and
· retain financial
flexibility by maintaining liquidity including unutilised committed
credit lines.
The primary sources of capital used by the Group are
equity shareholders' funds of £1,519 million (2022: £1,548 million)
and subordinated debt which was issued at £200 million in January
2023. Alternative resources are utilised where appropriate. Risk
appetite has been defined for the level of capital, liquidity and
debt within the Group. The risk appetite includes long-term
targets, early warning thresholds and risk appetite limits. The
dividend policy sets out the target dividend level in relation to
profits.
The regulatory capital for the Group is assessed
under Solvency II requirements.
18(a)(i): Regulatory capital
(unaudited)
The Group is subject to Solvency II group
supervision by the Prudential Regulation Authority. The Group is
required to measure and monitor its capital resources under the
Solvency II regulatory regime.
The Group's UK life insurance undertaking is
included in the Group solvency calculation on a Solvency II basis.
Other regulated entities are included in the Group solvency
calculation according to the relevant sectoral rules. The Group's
Solvency II surplus is the amount by which the Group's capital on a
Solvency II basis (own funds) exceeds the Solvency II capital
requirement (solvency capital requirement or "SCR").
The Group's Solvency II surplus is £972 million at
31 December 2023 (2022: £820 million), representing a Solvency II
ratio of 271% (2022: 230%) calculated under the standard formula.
The Solvency II regulatory position at 31 December 2023 allows for
the impact of the recommended Final Dividend payment of £50 million
(2022: £45 million).
The Solvency II position as at 31 December 2023
(unaudited estimate) and 31 December 2022 is presented below:
|
|
£m
|
|
31 December
20231
|
31
December 20222
|
Own funds
|
1,540
|
1,451
|
Solvency capital
requirement
|
568
|
631
|
Solvency II surplus
|
972
|
820
|
Solvency II coverage ratio
|
271%
|
230%
|
1Filing of annual regulatory reporting forms due by 17 May
2024.
2As reported in the Group Solvency and Financial Condition
Report for the year ended 31 December 2022.
The Group's 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.
|
|
£m
|
Group own funds
|
31 December
2023
|
31
December 2022
|
Tier 11
|
1,336
|
1,249
|
Tier 22
|
204
|
202
|
Total Group Solvency II own funds
|
1,540
|
1,451
|
1All Tier 1 capital is unrestricted for tiering
purposes.
2Comprises a Solvency II compliant subordinated debt security
in the form of a Tier 2 bond, which was issued at £200 million in
January 2023.
The Group's UK life insurance
undertaking is also subject to Solvency II at entity level. Other
regulated entities in the Group are subject to the locally
applicable entity-level capital requirements in the countries in
which they operate. In addition, the Group's asset management and
advice businesses are subject to group supervision by the FCA under
the UK Investment Firms Prudential Regime ("IFPR").
During 2023, the capital
requirements for the Group and its regulated subsidiaries were
reported and monitored through regular Capital Management Forum
meetings. Throughout 2023, the Group has complied with the
regulatory requirements that apply at a consolidated level and
Quilter's insurance undertakings and investment firms have complied
with the regulatory capital requirements that apply at entity
level.
18(a)(ii): Loan
covenants
Under the terms of the revolving
credit facility agreement, the Group is required to comply with the
following financial covenant: the ratio of total net borrowings to
consolidated equity shareholders' funds shall not exceed
0.5.
|
|
|
£m
|
|
|
31 December
2023
|
31
December 2022
|
Total external borrowings of the
Company
|
|
198
|
200
|
Less: cash and cash equivalents of
the Company
|
|
(110)
|
(126)
|
Total net external borrowings of
the Company
|
|
88
|
74
|
Total shareholders' equity of the
Group
|
|
1,519
|
1,548
|
Tier 2 bond
|
|
198
|
200
|
Total Group equity (including Tier
2 bond)
|
|
1,717
|
1,748
|
Ratio of Company net external borrowings to Group
equity
|
|
0.051
|
0.042
|
The Group has complied with the
covenant since the facility was created in 2018.
18(a)(iii): Own Risk and Solvency
Assessment ("ORSA") and Internal Capital Adequacy and Risk
Assessment ("ICARA")
The Group ORSA process is an
ongoing cycle of risk and capital management processes which
provides an overall assessment of the current and future risk
profile of the Group and demonstrates the relationship between
business strategy, risk appetite, risk profile and solvency needs.
These assessments support strategic planning and risk-based
decision making.
The underlying ORSA processes
cover the Group and consider how risks and solvency needs may
evolve over the planning period. The ORSA includes stress and
scenario tests, which are performed to assess the financial and
operational resilience of the Group.
The Group ORSA report is produced
annually. This summarises the analysis, insights and conclusions
from the underlying risk and capital management processes in
respect of the Group. The ORSA report is submitted to the PRA as
part of the normal supervisory process and may be supplemented by
ad hoc assessments where there is a material change in the risk
profile of the Group outside the usual reporting cycle.
In addition to the Group ORSA
process, an entity-level ORSA process is performed for Quilter Life
& Pensions Limited.
The Group ICARA process is an
ongoing cycle of risk and capital management processes, similar to
the ORSA process. The Group ICARA process is performed for the
prudential consolidation of Quilter's investment and advice firms
under IFPR requirements. The ICARA process is also performed at an
entity level for Quilter's UK investment firms, which are Quilter
Investment Platform Limited, Quilter Investors Limited and Quilter
Cheviot Limited.
The Group ICARA report is produced
annually. This summarises the analysis, insights and conclusions
from the underlying risk and capital management processes in
respect of Quilter's IFPR prudential consolidation
group.
The conclusions of the ORSA and
ICARA processes are reviewed by management and the Board throughout
the year.
18(b): Credit risk
Overall exposure to credit
risk
Credit risk is the risk of adverse
movements in credit spreads (relative to the reference yield
curve), credit ratings or default rates leading to a deterioration
in the level or volatility of assets, liabilities or financial
instruments resulting in loss of earnings or reduced solvency. This
includes counterparty default risk, counterparty concentration risk
and spread risk.
The Group has established a Credit
Risk Framework that includes a Credit Risk Policy and Credit Risk
Appetite Statement. This framework applies to all activities where
the Group is exposed to credit risk, either directly or indirectly,
ensuring appropriate identification, measurement, management,
monitoring and reporting of the Group's credit risk
exposures.
The credit risk arising from all
exposures is mitigated by ensuring that the Group only enters into
relationships with appropriately robust counterparties, adhering to
the Group Credit Risk Policy. For each asset, consideration is
given as to:
· the credit rating of
the counterparty, which is used to derive the probability of
default;
· the loss given
default;
· the potential recovery
which may be made in the event of default;
· the extent of any
collateral that the Group has in respect of the exposures; and
· any second order risks
that may arise where the Group has collateral against the credit
risk exposure.
The credit risk exposures of the
Group are monitored regularly to ensure that counterparties remain
creditworthy, that there is appropriate diversification of
counterparties and that exposures are within approved limits. At
the end of 2023, the Group's material credit exposures were to
financial institutions (primarily through the investment of
shareholder funds), corporate entities (including external fund
managers) and individuals (primarily through fund management trade
settlement activities).
There is no direct exposure to
non-UK sovereign debt within the shareholder investments. The Group
has no significant concentrations of credit risk
exposure.
Other credit risks
The Group is exposed to financial adviser
counterparty risk through a number of loans that it makes to its
advisers and the payment of upfront commission on the sale of
certain types of business. The risk of default by financial
advisers is managed through monthly monitoring of loan and
commission debt balances.
The Group is also exposed to the risk of default by
fund management groups in respect of settlements and rebates of
fund management charges on collective investments held for the
benefit of policyholders. This risk is managed through the due
diligence process which is completed before entering into any
relationship with a fund group. Amounts due to and from fund groups
are monitored for prompt settlement and appropriate action is taken
where settlement is not timely.
Legal contracts are maintained where the Group
enters into credit transactions with a counterparty.
Impact of credit risk on fair value
Due to the limited exposure that the Group has to
credit risk, credit risk does not have a material impact on the
fair value movement of financial instruments for the year under
review. The fair value movements on these instruments are mainly
due to changes in market conditions.
Maximum exposure to credit
risk
The Group's maximum exposure to
credit risk does not differ from the carrying value disclosed in
the relevant notes to the consolidated financial
statements.
Loans and advances subject to
12-month expected credit losses are £38 million (2022: £34 million)
and other receivables subject to lifetime expected credit losses
are £297 million (2022: £204 million). Those balances represent the
pool of counterparties that do not require a rating. These
counterparties individually generate no material credit exposure
and this pool is highly diversified, monitored and subject to
limits.
Exposure arising from financial
instruments not recognised on the statement of financial position
is measured as the maximum amount that the Group would have to pay,
which may be significantly greater than the amount that would be
recognised as a liability. The Group does not have any significant
exposure arising from items not recognised on the statement of
financial position.
The table below represents the
Group's exposure to credit risk from cash and cash
equivalents.
|
|
|
|
|
|
|
£m
|
|
Credit rating relating to
cash and cash equivalents
|
31 December 2023
|
AAA
|
AA
|
A
|
B
|
<BBB
|
Not
rated1
|
Carrying
value
|
Cash at amortised cost, subject to
12-month ECL
|
-
|
63
|
381
|
-
|
-
|
324
|
768
|
Money market funds at
FVTPL
|
1,091
|
-
|
-
|
-
|
-
|
-
|
1,091
|
Total cash and cash equivalents
|
1,091
|
63
|
381
|
-
|
-
|
324
|
1,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
|
Credit
rating relating to cash and cash equivalents
|
|
31 December 2022
|
AAA
|
AA
|
A
|
B
|
<BBB
|
Not
rated1
|
Carrying
value
|
|
Cash at amortised cost, subject to
12-month ECL
|
-
|
13
|
388
|
5
|
-
|
264
|
670
|
|
Money market funds at
FVTPL
|
1,112
|
-
|
-
|
-
|
-
|
-
|
1,112
|
|
Total cash and cash equivalents
|
1,112
|
13
|
388
|
5
|
-
|
264
|
1,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
1Cash included in the consolidation of funds is not rated (see
note 13(a)).
Impairment allowance
Assets that are measured and
classified at amortised cost are monitored for any expected credit
losses on either a 12-month or lifetime ECL model. The majority of
such assets within the Group are measured on the lifetime ECL
model, with the exception of some specific loans that are on the
12-month ECL model.
Impairment allowance
|
£m
|
Balance at 1 January
2022
|
(1.2)
|
Change due to change in
counterparty balance
|
0.1
|
31 December 2022
|
(1.1)
|
Change due to change in
counterparty balance
|
(0.4)
|
Additional impairment in the
year
|
(1.5)
|
31 December 2023
|
(3.0)
|
18(c): Market risk
Market risk is the risk of an
adverse change in the level or volatility of market prices of
assets, liabilities or financial instruments resulting in loss of
earnings or reduced solvency. Market risk arises from changes in
equity, bond and property prices, interest rates and foreign
exchange rates. Market risks are linked to wider economic and
geopolitical conditions and may be driven by the crystallisation of
climate related financial risks. Market risk arises differently
across the Group's businesses depending on the types of financial
assets and liabilities held.
The Group has a market risk policy
which sets out the risk management framework, permitted and
prohibited market risk exposures, maximum limits on market risk
exposures, management information and stress testing requirements
which are used to monitor and manage market risk. The policy is
cascaded to the businesses across the Group, and Group-level governance and monitoring processes provide
oversight of the management of market risk by the individual
businesses.
The Group does not undertake any
principal trading for its own account. The Group's revenue is
however affected by the value of assets under management and
administration and consequently it has exposure to equity market
levels and economic conditions. Scenario testing is undertaken to
test the resilience of the business to severe but plausible events,
including assessment of the potential implications of
climate-related risks and opportunities, and to assist in the
identification of management actions.
18(c)(i): Equity risk
In accordance with the market risk
policy, the Group does not generally invest shareholder assets in
equity, or related collective investments, except where the
exposure arises due to:
· mismatches between unitised fund assets and liabilities.
These mismatches are permitted, subject to maximum limits, to avoid
excessive dealing costs; and
· seed
capital investments. Seed capital is invested within new unitised
or other funds within the Group at the time when these funds are
launched. The seed capital is then withdrawn from the funds as
policyholders and customers invest in the funds.
The above exposures are not
material to the Group.
The Group derives fees (e.g.
annual management charges) and incurs costs (e.g. outsourced
service provider) which are linked to the performance of the
underlying assets. Therefore, future earnings will be affected by
equity market performance.
Equity sensitivity
testing
A movement in equity would impact
the fee income that is based on the market value of the investments
held by or on behalf of customers. The sensitivity is applied as an
instantaneous shock to equity at the start of the year. The
sensitivity analysis is not limited to the
unit-linked business and therefore reflects the sensitivity of the
Group as a whole.
|
|
£m
|
Impact on profit after tax and net assets
|
31 December
2023
|
31
December 2022
|
Impact of 10% increase in
equity
|
26
|
30
|
Impact of 10% decrease in
equity
|
(26)
|
(30)
|
18(c)(ii):
Interest rate risk
Interest rate risk arises
primarily from bank balances held with financial
institutions.
A rise in interest rates would
also cause an immediate fall in the value of investments in fixed
income securities within clients' investment funds, resulting in a
fall in fund-based revenues.
Conversely, a reduction in
interest rates would cause a rise in the value of investments in
fixed income securities within clients' investment funds. It would
also reduce the interest rate earned on cash deposits and money
market funds.
Exposure of the financial
statements to interest rates are summarised below.
Interest rate sensitivity
testing
The impact of an increase and
decrease in market interest rates of 1% is tested (e.g. if the
current interest rate is 5%, the test allows for the effects of an
instantaneous change to 4% and 6% from the start of the year). The
test allows consistently for similar changes in investment returns
and movements in the market value of any fixed interest assets
backing the liabilities. The sensitivity of profit to changes in
interest rates is provided.
|
|
£m
|
Impact on profit after tax and net assets
|
31 December
2023
|
31
December 2022
(Restated)1
|
Impact of 1% increase in interest
rates
|
9
|
10
|
Impact of 1% decrease in interest
rates
|
(9)
|
(10)
|
1The disclosures for 2022 have been restated to include certain
non-trading entities that were previously excluded.
18(c)(iii): Currency translation
risk
Currency translation risk is the
risk that the fair value of future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange
rates. The Group's functional currency is pounds sterling, which
accounts for the majority of the Group's transactions. The Group
has minor exposure to Euros, through the Group's Irish subsidiary
and to the South African Rand, due to the listing on the
Johannesburg Stock Exchange and the payment of a proportion of
shareholder dividends in Rand. During 2023, the Group had limited
exposure to foreign exchange risk in respect of other currencies
due to its non-UK operations and foreign currency
transactions.
18(d): Liquidity risk
Liquidity risk is the risk that there are
insufficient assets or that assets cannot be realised in order to
settle financial obligations as they fall due or that market
conditions preclude the ability of the Group to trade in illiquid
assets in order to maintain its asset and liability matching
("ALM") profile. The Group manages liquidity on a daily basis
through:
· maintaining adequate
high-quality liquid assets and banking facilities, the level of
which is informed through appropriate liquidity stress testing;
· continuously monitoring
forecast and actual cash flows; and
· monitoring a number of
key risk indicators to help in the identification of a liquidity
stress.
Individual businesses maintain and manage their
local liquidity requirements according to their business needs
within the overall Group Liquidity Risk Framework that includes a
Group Liquidity Risk Policy and Group Liquidity Risk Appetite
Statement. The Group framework is applied consistently across all
businesses in the Group to identify, manage, measure, monitor and
report on all liquidity risks that have a material impact on
liquidity levels. This framework considers both short-term
liquidity and cash management considerations and longer-term
funding risk considerations.
Liquidity is monitored centrally by Group Treasury,
with management actions taken at a business level to ensure each
business has sufficient liquidity to cover its minimum liquidity
requirement, with an appropriate buffer set in line with the Group
Risk Appetite Statement.
Throughout the ongoing market volatility during
2023, Quilter plc and its subsidiaries have operated above their
individual liquidity targets and there were no material liquidity
stresses identified during the year. Daily liquidity monitoring
continues across the Group to enable timely identification of any
emerging issues.
The Group maintains contingency funding arrangements
to provide liquidity support to businesses in the event of
liquidity stresses. Contingency Funding Plans are in place for each
individual business in order to set out the approach and management
actions that would be taken should liquidity levels fall below
liquidity thresholds which have been set to reflect the liquidity
risk appetite of each business. The plans undergo an annual review
and testing cycle to ensure they are fit for purpose and can be
relied upon during a liquidity stress.
Information on the nature of the investments and
securities held is given in note 10.
The Group has a £125 million five-year Revolving
Credit Facility with a five-bank club that provides a form of
contingency liquidity for the Group. No drawdown on this facility
has been made since inception in February 2018. The Group entered
into a new five-year arrangement in January 2024 with the option to
extend the facility for a further two-year period, to January 2031,
and has continued to meet all the covenants attached to its
financing arrangements.
The financing arrangements are considered sufficient
to maintain the target liquidity levels of the Group and offer
coverage for appropriate stress scenarios identified within the
liquidity stress testing undertaken across the Group.
18(e): Insurance risk
18(e)(i): Overview
Insurance risk covers risks arising under products
provided by Quilter's life insurance firm, Quilter Life &
Pensions Limited. These products do not meet the IFRS definition of
insurance contracts.
Insurance risk covers risk of adverse experience of
withdrawal, overrun in expenses or higher than expected mortality
experience.
The sensitivity of the Group's earnings and capital
position to insurance risks is monitored through the Group's
capital management processes.
The Group manages its insurance risks through the
following mechanisms:
· Management of expense
levels relative to approved budgets.
· Analysis and monitoring
of experience relative to the assumptions used to determine
technical provisions.
Persistency
Persistency risk is the risk that the level of
surrenders or withdrawals on products offered by Quilter Life &
Pensions Limited occur at levels that are different to the levels
assumed in the determination of technical provisions. Persistency
statistics are monitored monthly and a detailed persistency
analysis at a product group level is carried out on an annual
basis. Management actions may be triggered if persistency
statistics indicate significant adverse movement or emerging trends
in experience.
Expenses
Expense risk is the risk that actual expenses and
expense inflation differ from the levels assumed in the
determination of technical provisions. Expense levels are monitored
on a quarterly basis against budgets and forecasts. Expense drivers
are used to allocate expenses to entities and products. Some
product structures include maintenance charges. These charges are
reviewed annually in light of changes in maintenance expense levels
and the market rate of inflation. This review may result in changes
in charge levels.
Mortality
Mortality risk is not material as the Group does not
provide material mortality insurance on its products.
18(e)(ii): Sensitivity
analysis
Sensitivity analysis has been performed by applying
the following parameters to the financial statements for 2022 and
2023. Interest rate and equity and property price sensitivities are
included within the Group market sensitivities above.
Expenses
The increase in expenses is assumed to apply to the
costs associated with the maintenance and acquisition of contracts
within the unit-linked business. It is assumed that these expenses
are increased by 10% from the start of the year, so is applied as
an expense shock rather than a gradual increase. The only
administrative expenses that are deferrable are sales bonuses but
as new business volumes are unchanged in this sensitivity, sales
bonuses and the associated deferrals have not been increased.
Administrative expenses have been allocated equally between life
and pensions.
An increase in expenses of 10% would have decreased
profit by £5 million after tax (2022: £6 million).
18(f): Operational risk
Operational risk is the risk of loss arising from
inadequate or failed internal processes, or from personnel and
systems, or from external events, resulting in an adverse impact to
earnings or reduced solvency. Operational risk includes all risks
resulting from operational activities, excluding the risks already
described above and excluding strategic risks.
Operational risk includes, but is not limited to,
the effects of failure of administration processes, IT and
Information Security maintenance and development processes, advice
processes (including oversight of ongoing servicing provided by
financial advisers), investment processes (including settlements
with fund managers, fund pricing and matching and dealing), people
and HR processes, product development and management processes,
legal risks (e.g. risk of inadequate legal contracts with third
parties), change delivery risks (including poorly managed responses
to regulatory change), physical and certain transitional financial
risks arising from climate change, risks relating to the
relationship with third-party suppliers and outsourcers, and the
consequences of financial crime and business interruption
events.
In accordance with Group policies, management has
primary responsibility for the identification, measurement,
assessment, management and monitoring of risks, and the escalation
and reporting on issues to Executive Management.
The Group's Executive Management has responsibility
for implementing the Group Operational Risk Framework and for the
development and implementation of action plans designed to manage
risk levels within acceptable tolerances and to resolve issues
identified.
18(g): Contractual maturity analysis
Investment contract policyholders have the option to
terminate or transfer their contracts at any time and to receive
the surrender or transfer value of their policies, and these
liabilities are therefore classified as having a maturity of less
than three months. Although these liabilities are payable on
demand, the Group does not expect that all liabilities will be
settled within a short time period.
19: Related party
transactions
In the normal course of business, the Group enters
into transactions with related parties. Loans to related parties
are conducted on an arm's length basis and are not material to the
Group's results. There were no transactions with related parties
during the current year or the prior year which had a material
effect on the results or financial position of the Group.
Full details of transactions with related parties,
including key management personnel compensation is included within
note 39 of the financial statements within the Group's 2023 Annual
report. The Group's interest in subsidiaries and related
undertakings are set out in Appendix A of the financial statements
within the Group's 2023 Annual report.
20: Events after the reporting
date
Final
Dividend
On 6 March 2024, the Group
announced a proposed Final Dividend for 2023 of 3.7 pence per
Ordinary Share amounting to £50 million in total. Subject to
approval by shareholders at the Annual General Meeting, the
dividend will be paid on 28 May 2024.
Borrowings
In January 2024, the Company
entered into a £125 million five-year revolving credit facility
with an option for the Company to extend for a further two years
until January 2031. This new facility replaces the existing £125
million revolving credit facility entered into in February 2018.
The facility remains undrawn and is being held for contingent
funding purposes across the Group.