Annual Report 2019
For the
generations
of today and
tomorrow
Contents
Strategic Report
An overview of our journey to date, the
trends impacting our markets, our business
model and strategy, our approach to being
a responsible business, accompanied by
relevant financial performance information,
and our principal risks. This Strategic Report
was approved by the Board on 11 March 2020.
Glyn Jones, Chairman
Governance
An introduction to our Board of Directors,
executive management team, and our
approach to corporate governance
and remuneration.
Financial statements
Detailed financial information
provided within our financial
statements and notes.
Quilter at a glance
Chairman’s statement
Chief Executive Officer’s statement
Responsible business
Market growth drivers
Business model
Progress against our strategic objectives
Key performance indicators
Financial review
Risk review
– Principal risks and uncertainties
Viability statement
Board of Directors
Executive Committee membership
Board and Board Committee
composition and meeting attendance
Chairman’s introduction
on corporate governance
Leadership and oversight
Governance in action
Board Corporate Governance
and Nominations Committee report
Board Audit Committee report
Board Risk Committee report
Board Technology and Operations
Committee report
Remuneration report
Remuneration at a glance
Annual Report on Remuneration
Our approach to governance
Directors’ Report
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Primary financial statements
Notes to the financial statements
Appendices
Parent Company financial statements
Other information
Our shareholder information
and glossary of terms.
Shareholder information
Alternative Performance Measures
Glossary
02
04
06
10
16
17
18
20
22
30
32
35
38
40
41
42
43
46
48
52
58
61
64
66
73
86
88
94
95
104
110
192
198
210
212
215
Financial highlights
Quilter delivered solid results for 2019, in a challenging environment for flows. Assets under
management and administration benefited from the rebound in equity markets during the year
and adjusted profit before tax increased, with stable revenues supported by continued cost
discipline across the business.
Assets under management
and administration (AuMA)1 *
£110.4bn
2019
2018
Adjusted diluted earnings
per share2, 3 *
£11.3p
2019
2018
Net client cash flow (NCCF)
(excluding Quilter Life Assurance) *
£0.3bn
Adjusted profit before tax2
£235m
£110.4bn
2019
£0.3bn
£97.7bn
2018
£4.7bn
2019
2018
IFRS (loss)/profit after tax
(from continuing operations) 1
£(21)m
Recommended final dividend
per share
£3.5p
11.3p
£(21)m
13.5p
2019
2018
£66m
2019
2018
£235m
£233m
3.5p
3.3p
1 Continuing operations, excluding Quilter Life Assurance.
2 Continuing operations and Quilter Life Assurance.
3 2018 adjusted diluted earnings per share includes 1.2p
from Single Strategy.
Alternative Performance
Measures (“APMs”)
We assess our financial
performance using a variety
of measures including APMs,
as explained further on
page 212. These measures are
indicated with an asterix: *
Quilter Annual Report 2019
01
Strategic Report
Quilter at a glance
Quilter is a leading UK and cross-border full-service wealth manager, providing
advice-led investment solutions and investment platforms to over 900,000
customers. We are listed on the London and Johannesburg stock exchanges.
Assets under management and administration*
£110.4bn
Total net fee revenue1
£808m
Quilter Investors
Quilter Cheviot
Quilter Wealth
Solutions
Quilter
International
Quilter Investors
Quilter Cheviot
Quilter Financial
Planning
Quilter Wealth
Solutions
Quilter
International
Our business
Quilter is a modern, multi-channel wealth
management company. Advice is core to
our business model and we believe in
transparency and customer choice. We
service customers either through our
restricted financial planners (“RFPs”) or
third-party independent financial advisers
(“IFAs”) by providing financial planning,
investment solutions and platform services.
Quilter operates in one of the largest wealth
markets in the world – and one that is growing.
With scale and leading positions in our chosen
capabilities, we give RFPs and IFAs and their
clients choice and flexibility in how they access
our solutions and services.
Our purpose
To help create prosperity for the generations
of today and tomorrow.
Our positioning
To be the best place for trusted financial
advice in the UK
• Customer choice at the heart of everything
we do
• Open, transparent and fair
• Competitive products, quality and pricing
at every part of the value chain
• Focussed on delivering ‘great’ customer
solutions
• Modern business model designed for
today’s regulatory world
Our investment case
A unique combination of capabilities, scale
and market position
• Full-service wealth manager providing
choice and delivering good customer
outcomes
• Leading positions across one of the largest
wealth markets with strong structural
growth drivers
We believe:
• In the value of trusted face-to-face advice
• That better choice doesn’t mean more choice
• That investment solutions should be simply
• Multi-channel proposition and investment
performance driving integrated flows, and
long-term customer and adviser relationships
• Attractive top-line growth with opportunity
Target customer segment
packaged
for operating leverage
affluent adults in UK
c.5m
£1.7trn
liquid assets
• That award-winning service and measurable
outcomes for our customers should always
offer good value
• Strong balance sheet with low gearing
and good cash generation driving
shareholder returns
• That a company’s purpose goes beyond
making a profit and should focus also on
being a responsible business as well as a
responsible investor
Our journey to date
We are on a multi-year journey to deliver Quilter as a modern, UK-focussed wealth manager.
Since 2012, we have adapted our business model from being a UK and European life assurer
to where we are today. 2018 was a year of initiation as a Listed company, with 2019 a year of
strategic reshaping and transition. In 2020, we look to consolidate growth and execute on
our strengthened business position.
Managed
Separation
completed
Sale of Single
Strategy asset
management
business to
TA Associates
Special
dividend
Acquisition
of Charles
Derby Group
Quilter Investors
buildout and
product refresh
UK Platform Transformation
Programme: Migration
testing and delivery phase
2017
2018
Old Mutual plc
Managed
Separation
announced
2019
2020
Listed as
Quilter plc on
LSE and JSE
Closure of FCA
investigation into
Life Assurance
book
Optimisation
phase 1
Acquisition
of Lighthouse
Group plc
Sold Quilter
Life Assurance
02
Quilter Annual Report 2019
Strategic Report
Quilter at a glance
Our Group companies operate within two main segments
Assets under management*
Advice and Wealth Management
The segment comprises:
Quilter Investors
Quilter Cheviot
£45.8bn
Restricted financial planners
1,799
Second-largest adviser base in the UK
Investment managers
167
Assets under administration*
Quilter Wealth
Solutions
Quilter
International
£77.7bn
Investment Platforms market position
2nd
UK’s second-largest adviser-focussed Platform
Independent financial advisers
4,000+
Active relationships across the UK
Quilter Financial Planning
Quilter has the second-largest advice
business in the UK. Through our Network
advice business, restricted financial planners
operate as ‘appointed representatives’ of
Quilter whereas in our National advice
business, the advisers are either employees
or registered individuals of Quilter, with each
delivering face-to-face financial advice tailored
to meet customers’ specific needs. We stand
behind their advice and provide them with
a panel of selected Quilter and third-party
products which offers choice to their clients.
Quilter Private Client Advisers is our rapidly
growing high net worth advice business.
Wholly owned with all advisers employed
by Quilter, it is closely aligned with Quilter
Cheviot, specialising in providing financial
advice to affluent clients across the UK.
Wealth Platforms
The segment comprises:
Quilter Wealth Solutions
Quilter Wealth Solutions is the UK’s second-
largest adviser-focussed investment platform
provider. The platform is available to both
Quilter Financial Planning and third-party
independent advisers.
Quilter International
Quilter International is a leading investment
platform provider of cross-border investment
funds and wrappers aimed at affluent and
high net worth UK residents seeking investment
solutions outside of the UK, as well as
expatriates and international investors in
selected offshore markets.
Quilter Cheviot
Quilter Cheviot is a leading private client
wealth manager providing discretionary and
advisory wealth management services to
private investors and corporate pension
funds, trusts and charities.
Quilter Investors
Quilter Investors is a leading provider of
multi-asset investment solutions, offering
a broad range of solutions for its customers’
accumulation and decumulation needs.
Discontinued operations
Quilter Life Assurance
Quilter Life Assurance was the book of legacy
UK life insurance (including the institutional life
business) sold to ReAssure on 31 December
2019 for £425 million or 120% of pro forma
2018 own funds. £375 million of the net surplus
proceeds from the sale is anticipated to be
returned to shareholders via a share buyback.
All businesses within the Group will be subject to rebranding to align with the Quilter name. For the purposes of the Annual Report, all businesses
have been referenced by their new name – please see Glossary on page 215 for further details.
Notes:
All figures as at 31 December 2019, unless otherwise stated. Segmental numbers are before eliminations and Head Office, which are detailed in the Financial Review
starting on page 22.
* See page 212 for alternative performance measure definitions.
1 For further information on Total net fee revenue, see the Financial Review on page 24 and 25.
Quilter Annual Report 2019
03
Managed
Sale of Single
Special
Separation
Strategy asset
dividend
completed
management
Acquisition
of Charles
Quilter Investors
UK Platform Transformation
buildout and
Programme: Migration
Derby Group
product refresh
testing and delivery phase
business to
TA Associates
2017
2018
Old Mutual plc
Managed
Separation
announced
2019
2020
Listed as
Quilter plc on
LSE and JSE
Closure of FCA
Optimisation
Acquisition
Sold Quilter
investigation into
phase 1
of Lighthouse
Life Assurance
Life Assurance
book
Group plc
GovernanceFinancial statementsOther information
Strategic Report
Chairman’s statement
2019 has been another busy year for Quilter. Our people are focussed
not only on achieving good outcomes for our customers but on building
an organisation that delivers for all our stakeholders.
Introduction
2019 was another eventful year for Quilter and
a strong one, in terms of total returns, for our
shareholders. As our Chief Executive, Paul
Feeney, discusses later, we have continued to
reshape the business inorganically through
acquisitions and disposals as well as
organically through driving internal change
and efficiency improvements. I am pleased
with the progress we made in 2019 but there
is still more to do to realise Quilter’s potential,
deliver increasing value for our shareholders
and to surpass the expectations of our
broader stakeholders. We look forward to
rising to this challenge in 2020 and beyond.
Despite an uncertain UK political backdrop, we
have delivered a good financial performance
with an increase in adjusted profit before tax
of 1% to £235 million (2018: £233 million) and
IFRS loss before tax attributable to equity
holders of £(53) million versus a profit £41
million in 2018. As we signalled at the
beginning of 2019, we expected a challenging
year for net client cash flows and flows have
been disappointing for us and our industry.
Platform industry statistics indicate that 2019
was the lowest year for net flows since 2013.
A key factor affecting our net flows has been
the impact of a loss of a particular cohort of
investment managers in Quilter Cheviot and
lower gross flows onto our UK Platform ahead
of adviser and customer migrations in respect
of our platform transformation programme;
once this has been completed in summer
2020, we expect the new platform to provide
a positive catalyst to boost flows.
One of the more notable events of 2019 was
the sale of our heritage life business, Quilter
Life Assurance, to ReAssure for £425 million
(and interest income of £21m) which, we
believe, was an excellent outcome for
customers and shareholders alike.
Following shareholder consultation, the Board
announced its intention to return this capital to
shareholders via a share buyback programme.
This will be conducted concurrently on the
London and Johannesburg stock exchanges.
The buyback is dependent on regulatory
approval and the renewal of share repurchase
authorities at the Group’s 2020 Annual
General Meeting (“AGM”), and will be subject
to periodic Board review to ensure that this
remains the most effective and timely method
of returning capital to shareholders. Given
the size of the capital return relative to the
current trading liquidity in Quilter shares, we
currently expect the buyback programme to
complete by the time of our 2021 Annual
General Meeting.
Shareholder returns and dividend
Quilter delivered a total shareholder return
of 42% in calendar year 2019. While this was
aided by a low starting point due to the market
sell-off in late 2018, I am particularly pleased
that our performance was ahead of our
principal UK peers (median return 25%) and
the FTSE-250 (29%) over the 12 month period
to 31 December 2019.
The Board is pleased to recommend a final
dividend of 3.5 pence for the 2019 financial
year which, together with the interim dividend
of 1.7 pence paid in September, would take the
proposed full year dividend to 5.2 pence.
The dividend will be paid, subject to shareholder
approval at our 2020 Annual General Meeting
on 18 May 2020, to shareholders on the
register on 3 April 2020. Our 2019 dividend
represented a pay-out ratio of 46%, close to
the midpoint of the targeted 40% to 60% range
we set out in our prospectus at Listing and is
at a level appropriate for a company relatively
early in its quoted life. Following the sale of
Quilter Life Assurance, we expect the dividend
pay-out level for the 2020 calendar year to be
towards the upper end of our target range.
Board
Having established a Board with sufficient
breadth, depth and industry experience
to lead Quilter into the public markets,
and with the right mix of skills to provide
counterbalance to support, challenge and
guide our executive team, the Board was little
changed during 2019. The only change to the
Board was welcoming Mark Satchel back
following his appointment as Chief Financial
Officer in March 2019 after the departure
of Tim Tookey.
Since the year-end, Cathy Turner and Suresh
Kana have both advised the Board that they will
not be standing for re-election at the 2020 AGM.
Suresh’s insight into South African corporate
governance practices has been very valuable
during our formative period as a dual-listed
company. However, he has decided that such
input is now less important given that our
governance processes are more established
and, given the time commitment of serving on
a UK public company Board from South Africa.
It is now an appropriate moment to stand down.
Proposed full year dividend
5.2 pence per share
In addition to c.£375 million capital return
2018: 3.3 pence per share final dividend
plus 12.0 pence per share special interim dividend
Glyn Jones
Chairman
04
Quilter Annual Report 2019
Strategic Report
Chairman’s statement
Cathy has recently taken up an appointment
as a Board member and Chair of the
Remuneration Committee at a FTSE-100
company and can no longer commit the
required time to her duties on the Quilter
Board. Cathy has made a significant
contribution to the establishment by Quilter
of remuneration policies and structures
appropriate for an independent, public
company and we wish her every success in her
future endeavours. Ruth Markland, our Senior
Independent Director, who has served as a
member of our Board Remuneration
Committee since she joined the Board in
June 2018, has agreed to succeed Cathy as
Chair of our Board Remuneration Committee.
An external search agency has been
appointed to help us identify successors for
both Suresh and Cathy.
To ensure the Board is working effectively,
we appointed Professor Rob Goffee, an
experienced expert in such work, to
undertake a Board effectiveness review
during 2019. The conclusions of this review
are summarised on pages 50 to 51.
Governance and regulation
We advised shareholders in our 2018 Annual
Report that we would be conducting an
external audit tender during 2019. Given the
longevity of KPMG’s tenure as our existing
auditors, they did not participate in the audit
tender process. The Quilter Board, on the
recommendation of the Audit Tender Sub
Committee, chaired by Rosie Harris, appointed
PwC as our external auditors from 1 January
2020. A resolution for the appointment of PwC
as auditors will be submitted for shareholder
approval at our 2020 AGM. Further detail
about the tender process can be found in
the Governance report on page 57.
Two resolutions at our 2019 AGM attracted
a meaningful level of votes against from
shareholders:
• The resolution to authorise political
donations saw 25% votes against but,
nevertheless, passed; and
• The resolution to authorise Directors to
allot shares was not passed, with 50.5% of
shares voting against.
Notably, there was a significant difference in
voting between the South African and UK
share registers on these two resolutions. On
the UK register, the resolutions seeking the
authority to allot shares and the authority to
make political donations had 97% and 99%
support respectively. On the South African
register, those resolutions had only 18% and
61% support. In respect of such resolutions,
similar voting patterns are seen at other dual
UK/South Africa listed companies with the
position exacerbated by the significant
proportion of South African shareholders on
our share register. As at end December 2019,
the Quilter share register was split 60%:40%
between the Johannesburg Stock Exchange
and London Stock Exchange respectively.
In line with the guidelines in the 2018 UK
Corporate Governance Code, we sought to
fully understand the views of South African
shareholders on both of these resolutions.
Further detail on this shareholder
engagement can be found on page 47.
The 2019 AGM also provided approval for
the Company to undertake an Odd-Lot Offer
(“OLO”). The OLO was launched alongside the
announcement of our full year 2019 results.
The OLO will allow those of our shareholders
with fewer than 100 shares who wish to
dispose of their shares to do so in a simple,
cost-effective manner.
Throughout the year we have implemented
the Senior Managers and Certification Regime
(“SMCR”) into our UK businesses not already
subject to it. Further regulatory deliverables
are due in 2020 alongside a focus on
embedding the principles of SMCR into our
business culture and practices.
Conclusion
2019 has been another busy year for Quilter.
Our people are focussed not only on achieving
good outcomes for our customers but on
building an organisation that delivers for
shareholders and also embraces a wider
corporate and social responsibility through
making a difference for the generations of
today and tomorrow. On behalf of the Board,
I would like to thank our management team
and all of our employees for their effort, focus
and commitment to achieving our goals.
Thank you also to our shareholders for your
continued support.
Glyn Jones
Chairman
Building Quilter to deliver long-term
success for all our stakeholders
Section 172 statement
In undertaking its duties in 2019, the
Board continued to be mindful of the
need to appropriately balance the
interests and expectations of the Group’s
key stakeholders. Throughout this
report, we describe how stakeholders
have been considered as Quilter strives
to achieve its purpose of helping create
prosperity for the generations of today
and tomorrow.
Further insight into our engagement with
stakeholders can be found on pages 44 to 47.
For our Section 172 statement, see page 44.
Quilter Annual Report 2019
05
GovernanceFinancial statementsOther information Strategic Report
Chief Executive Officer’s statement
Last year I noted Quilter had come to market not as the finished article
but as a work in progress. In 2019, we made significant strides towards
achieving our goals.
Execution
We have a clear vision about what we want
Quilter to be; a modern, advice-led, wealth
management company built on the principles
of fairness, transparency and choice with each
of these supported by great service. Our core
UK customer propositions are free of exit
charges or surrender penalties. Delivering
good customer outcomes through the
provision of trusted advice is central to
everything we do. The combination of our
own restricted financial planners together
with the c.4,000 independent adviser firms
who use Quilter’s UK Platform on a regular
basis provides us with two strong channels
to drive business growth.
Our ambitions are considerable and the
growth opportunity across our markets
remains compelling, so during 2019 we have
been moving at pace to transform Quilter by:
• a relentless focus on optimisation and the
development and implementation of our
new UK Platform;
• reshaping our business through both
acquisitions and disposals;
• investing in our revenue generation
capability through growth in restricted
financial planners and adding investment
managers to replace the departures we saw
in 2018; and
• maintaining the capital discipline we
demonstrated with 2018’s special dividend
through a commitment to return the £375
million net surplus sale proceeds from the
disposal of Quilter Life Assurance through
on-market share repurchases.
Remaining key milestones include the
migration of customers from our existing
platform onto our new UK Platform, the first
stage of which was completed in early 2020.
We also need to complete the first phase of
our optimisation plans by the end of 2021.
As we look ahead, we believe that the secular
growth characteristics of our markets remain
strong, and each of our businesses is well
positioned strategically in each of the markets
in which they operate. Our objective is to
deliver on our potential by making Quilter
more than the sum of its parts and delivering
excellent outcomes for all our stakeholders.
Financial performance
We have delivered a solid profit performance
in 2019 in a market that has had to contend
with extreme political and economic
uncertainty due to Brexit in the UK, and trade
and geopolitical concerns more broadly
across the globe. Business conditions in 2019
were the opposite of those experienced in the
previous year. In 2018, Quilter benefited from
good new business flows but a challenging
environment which was exacerbated by the
market sell off late in that year. By contrast,
in 2019 the net flow environment has been
more challenging due to the aforementioned
geopolitical uncertainty coupled with certain
Quilter-specific issues, discussed below.
However, the market rebound early in 2019
was stronger than we expected at the end of
2018, which, coupled with the high level of
retention of our assets under management
and administration, meant we closed the year
with record AuMA of £110.4 billion.
Against this backdrop, I am pleased with our
adjusted profit before tax (excluding Quilter
Life Assurance) for the year of £182 million
(2018: £176 million), up 3% on last year, or
£235 million (2018: £233 million), up 1%,
including Quilter Life Assurance. This reflected
stable revenue margins coupled with a 4%
increase in average AuMA and was supported
by strong cost discipline and our optimisation
activities. Expenses increased modestly as a
result of investment in the business through
our distribution acquisitions and the
normalisation of the charge for the FSCS levy.
Excluding the impact from acquisitions,
underlying costs (including Quilter Life
Assurance) were broadly unchanged on 2018,
in line with the guidance provided at the
beginning of the year. On an IFRS basis, our
continuing business made a loss after tax of
£21 million (2018: profit after tax of £66
million). The difference between our IFRS and
adjusted profit is predominantly due to the
amortisation of (non-cash) intangibles related
to acquisitions, the costs of our Platform
Transformation Programme (which will fall
away in 2021) and the restructuring costs
associated with our optimisation plans, which
will continue to be incurred in 2020 and 2021.
Transformation
A key initiative in 2019 was broadening the
reach of our advice business. We acquired
Charles Derby Group in February 2019 which,
in one step, gave us UK-wide scale in our
recently formed national advice business.
The subsequent addition of 390 financial
advisers through the acquisition of Lighthouse
Group plc in June 2019 added critical mass to
the national advice business as well as
broadened our network business. We will
enhance the Lighthouse restricted
proposition through access to Quilter
Investors solutions which have been
specifically designed to meet the needs of
Irrespective of short-
term market sentiment,
we remain very
optimistic on the long-
term secular opportunity
across our markets and
we are strategically
well positioned to
benefit from this.
Paul Feeney
Chief Executive Officer
06
Quilter Annual Report 2019
Strategic Report
Chief Executive Officer’s statement
customers of advice businesses. In line with
the trend in previous acquisitions, over time,
we expect a number of the 250 Lighthouse
independent financial advisers to convert
to a restricted proposition based upon the
ability of our propositions to meet their
customers’ needs.
The integration of both the above acquisitions
are progressing in line with expectations and
should contribute to flows during 2020. While
these acquisitions were strategically important,
we also experienced good levels of organic
growth in RFPs across our wider business.
We added a net 41 RFPs across the firm
representing organic growth of 3% and have
a strong pipeline of new joiners expected for
2020 which is partly due to the scaling up of
our investment in our Financial Adviser School.
Given the focus on broadening of our business,
we were delighted that Quilter was named as
the top-ranked financial adviser firm in 2019
by FTAdviser which provides external
validation of our commitment to providing
high-quality advice.
The sale of Quilter Life Assurance was in line
with our strategic objectives. Once the FCA
thematic review into fair treatment of
long-standing customers closed with a
favourable outcome in late 2018, we decided
to undertake a strategic review of the business
which concluded that a sale was in the best
interests of customers, shareholders and
employees. The sale of Quilter Life Assurance
to ReAssure helps simplify and focus our
business and removes a drag from our growth
trajectory. We were delighted with the sale
price achieved of £425 million (and interest
income of £21 million), representing 120%
Our strategic priorities
We have a strong track record in terms
of transformational change and delivering
against our promises. We are well placed
to grow sustainably, providing we simplify
and unify our business. Our strategic
priorities over the next few years are:
of pro forma own funds, which set a new
benchmark for pricing of closed life book
transactions in the UK. Our Board is highly
focussed on capital discipline and we intend to
return the full net surplus sale proceeds (after
disposal costs) of £375 million to shareholders.
Life Assurance, this will be off a lower base
than we originally expected when we
announced our targets in March 2019. We
target an operating margin of 27% for 2020
and 29% for 2021.
In terms of our operational transformation
through optimisation, we continue to make
excellent progress. In late 2018 and 2019
our focus was on initiatives with near-term
benefits such as supplier contract
renegotiation and reduction, driving savings
in property and facility costs, and reducing
dependence on higher cost contracting staff.
We are now focussed on delivering the
longer-term sustainable cost savings which
will allow us to deliver the planned operating
margin improvements in 2020 and 2021. This
will be achieved through technology enabled
transformation, such as implementing a single
payroll system, a firm-wide general ledger and
enhancing the straight through processing
capabilities within our advice business. We
have started the consolidation of the support
functions which is designed to create centres
of excellence across the business by removing
duplication and ensuring tasks are only
performed once. This has already contributed
to our lower costs in activities such as finance
and marketing.
Our optimisation plans have contributed
to keeping our operating margin stable
year-on-year, despite the impact of our Advice
acquisitions which have a lower operating
margin than the rest of the Group. We remain
committed to delivering the targeted
improvement in our operating margin in 2020
and in 2021. As a result of the sale of Quilter
Turning to our UK Platform Transformation
Programme, this has been a priority over the
course of 2019. We spent the year with the
system in soft launch phase which was used
to verify core system functionality, processes
and controls in a live environment. This
provided valuable insight as we worked
through to the core code delivery in the
summer and the delivery of the master
version of the code in early November 2019.
Alongside our rigorous testing approach,
we undertook two dry runs and three
dress rehearsals as part of our migration
readiness plans before our initial migration
in February 2020.
This initial migration of c.8% of the total
platform assets under administration
represented the funds associated with
around 60 adviser firms and 25,000
customers. In the period immediately after
migration, operational activity has been in
line with expectations and initial feedback
from advisers using the new system has been
positive. We will incorporate lessons learnt
from this process into our plans and ensure
the new platform is operating well and at
scale, ahead of undertaking our final migration
by the end of summer, with scheduling of this
timed to reduce potential disruption to our
customers and advisers.
1 Delivering on
customer outcomes
Ensure we deliver good
customer outcomes, strong
investment returns and
quality customer service.
3 Wealth Platforms growth
Deliver our UK Platform
Transformation Programme
which will bring benefits
including greater capability
and functionality.
2 Advice and Wealth
Management growth
Grow our advice business by
adding financial advisers and
investment managers, supporting
them to improve their
productivity. We will also enhance
the investment solutions offered
by the Quilter Investors team.
4 Optimisation
We will grow our business by
enhancing centres of excellence
and driving efficiency while
reducing unnecessary cost
and complexity.
For detail on performance towards
our strategic objectives, see pages
18 to 19.
Quilter Annual Report 2019
07
GovernanceFinancial statementsOther information Strategic Report
Chief Executive Officer’s statement continued
Ensuring that assets are transferred from our
existing platform onto the new platform on a
high-quality, low-risk basis is mission-critical.
The total costs of the project are expected to
be around £185 million, in line with the revised
estimates we set out in August 2019. Of this
sum, £136 million had been spent by
end-December 2019.
Separately, we executed well on the
programme to build out Quilter Investors’
capability as a standalone business
independent of the transitional support
provided by Merian Global Investors (formerly
Old Mutual Global Investors). This project was
completed more than six months ahead of
schedule and within budget.
Operational performance
Delivering good customer outcomes through
a trusted advice relationship is core to the
Quilter business model. Both our restricted
and third-party independent advisers drive
client flows to our platform – the centre of
our business which provides the investment
‘wrappers’, where needed, to meet clients’
needs. Our investment solutions provide the
intellectual capital to deliver the financial
outcomes that our clients seek. Excellent
service delivery underpins the customer
and adviser experience. Confidence in our
proposition is demonstrated through both
the continued attraction of our solutions to
independent financial advisers and the
resilience of our integrated net flows.
Gross client cash flows (excluding Quilter Life
Assurance) into the business were lower at
£12.3 billion (2018: £14.2 billion) and as already
noted, 2019 was challenging in terms of NCCF.
2019 NCCF (excluding Quilter Life Assurance)
of £0.3 billion was down from £4.7 billion in
2018. As well as general market uncertainty
caused by Brexit and broader geopolitical and
macro-economic concerns, the 2019 result
includes two Quilter-specific issues:
First, despite higher gross sales in 2019 from
Quilter Cheviot, the departure of a group of
Investment Managers who resigned in
mid-2018 had an impact on outflows in the
business once their non-compete restrictions
expired in the second quarter 2019. We
recorded outflow requests totalling £1.3 billion
from clients looking to follow these Investment
Managers and, as previously announced,
we also experienced the transfer of a
quasi-institutional £0.2 billion mandate from
Quilter Cheviot late in the second quarter.
Secondly, partly due to market uncertainty,
we have experienced a lower level of new
gross flows onto our UK Platform from both
our and third-party financial advisers ahead
of our planned platform migration this year.
This has led to lower levels of flow into Quilter
Investors, with the combination of these
factors leading to lower net flows.
Quilter International’s NCCF was up 67%
on the prior year, albeit off a low base. The
current business flows are consistent with
repositioning the business to have deeper
roots in fewer markets, and to ensure the
product range and client offering across our
international markets are consistent with
Quilter’s risk appetite in all markets where
we operate.
We are pleased that overall levels of client
retention across the business were broadly
unchanged, outside of the isolated impact
from the Quilter Cheviot departures.
AuMA, excluding Quilter Life Assurance,
increased 13% to £110.4 billion from £97.7 billion
at 31 December 2018. The market recovery
began late in the first quarter and overall
market levels oscillated around the higher
levels for most of the year, with the FTSE-100
up 12% during the year. This led to average
AuMA, excluding Quilter Life Assurance, of
£105.7 billion, the principal driver of
management fee revenue, modestly higher
than the 2018 average level of £101.9 billion.
Investment performance
Our solutions have continued to deliver
good investment performance for our clients.
Performance at Quilter Cheviot, our
discretionary fund management business,
continued to outperform relevant ARC
benchmarks, with strong returns from our
stock selection. We recorded first or second
quartile performance over one, three and
five years, and top quartile over 10 years
across all categories.
The medium and longer-term performance
of Quilter Investors’ multi-asset funds has also
remained strong, although the shorter-term
performance of the biggest range, Cirilium
Active, has been more mixed reflecting some
tactical positioning over the prior year end
and the start of 2019 that did not perform in
the short-term to our medium and long-term
expectations. This underperformance
partially recovered in a strong finish to the
year. Our Cirilium passive range has continued
As part of Quilter's Principal
Partnership with England Rugby,
we support the “Quilter Kids
First” programme
“The sport of rugby shares many
of the attributes that we strive for
as a business: teamwork, a can-do
attitude and the desire to make
a difference for oneself and the
people you care about.”
08
Quilter Annual Report 2019
Strategic Report
Chief Executive Officer’s statement
to perform strongly. The second largest range,
our Managed Portfolio Service, continued to
deliver good performance.
ensuring fairness in all our dealings with
customers, with all of this underpinned by
high quality service levels.
We have both simplified and broadened the
Quilter Investors product range through fund
consolidation and new product launches
during 2019. These new products, including
our new multi-asset income suite and the
Cirilium blend proposition, have been
launched in response to the specific needs
of our customers based upon direct research
we conducted through our advice business.
These products have lower revenue margins
than our current stock of business and,
equally, have a lower cost to manufacture.
We are pleased with the early response from
clients and advisers to these new products
and look forward to them contributing to the
Group’s net flows in the years to come.
Brand
Ensuring Quilter brand consistency and
strengthening the ties that bind our people
to deliver our purpose is a core focus for
the management team. Feedback from the
gradual transition to a single Quilter brand
across our business from both staff and
advisers has been overwhelmingly positive.
The move to the Quilter brand allows our
network of advisers to enhance their
relationship with their clients by
demonstrating the backing of a strong
FTSE-250 listed business and, for staff, it
reinforces their importance to the broader
Quilter business.
Culture and values
Creating a responsible business which builds
positive stakeholder relationships is very
important to me. In particular I want Quilter
to be a place where our people can fulfil
their potential and thrive. During 2019 we
continued our colleague wellbeing initiative,
Thrive, which supports our people’s
emotional, mental, physical, financial and
social wellbeing. Colleagues are engaged in
the community via the Quilter Foundation
which is our registered charity. It supports
young people by enhancing financial
capability, improving employment prospects
and supporting good mental health. As we
complete our transition to a unified brand I am
delighted that our employee engagement
scores remain strong and we will continue to
strengthen our culture and the ties that bind
us across the organisation.
Our vision for Quilter is to be a modern,
advice led, Wealth Manager delivering good
customer outcomes. Our foundations are
built on three simple principles; delivering
customer choice, being transparent and
Choice is about delivering quality assured
choice rather than unlimited choice to
customers and being agnostic as to active
versus passive solutions and in terms of how
customers wish to approach us – whether it is
via their own independent adviser or through
one of our own restricted financial planners.
Transparency means no hidden charges and
no lock-ins so that customers only pay Quilter
for what they use and are free to go elsewhere
if they choose.
Fairness is about always doing the right thing
for our customers. In this regard, we are aware
of current market commentary surrounding
British Steel pension transfer advice. Prior to
our acquisition in June last year, Lighthouse
advised around 300 British Steel pension
scheme members to undertake a defined
benefit transfer. Of this sum, approximately
80 were undertaken prior to June 2017 after
which the transfer values of the pension
scheme were fundamentally enhanced. Since
the year-end we have been notified of around
30 complaints relating to advice provided by
Lighthouse, all of which related to the pre-June
2017 period. We are in the process of
reviewing those complaints and have written
directly to the customers involved. Whilst
Lighthouse has professional indemnity
insurance cover in place, we have taken a
provision of £12 million on a gross basis to
cover potential costs and this has been
reflected as an adjustment to the acquisition
balance sheet of Lighthouse. We have initiated
a review of all cases advised by Lighthouse,
prior to its acquisition by Quilter in June 2019,
to assess the standard of advice given to
British Steel pension scheme members, and
have actively engaged with the regulator. While
this situation is obviously disappointing, our
priority is to do the right thing for our customers.
Outlook
Quilter’s performance during the early part of
2020 was broadly in line with our expectations.
Markets were initially resilient, we were seeing
a more confident tone from clients and their
advisers and the overall NCCF flow trends for
the UK business were consistent with the
trends seen in late 2019. Net flows onto the
UK Platform continued at a similar level and
the outflows at Quilter Cheviot continued to
decline leading to a modest NCCF inflow in
that business. NCCF for Quilter International
was at a similar run-rate to the first quarter
of 2019.
The sharp Coronavirus-induced market
correction in late February has created a level
of uncertainty as to the outlook for the
remainder of 2020. As we all try to understand
the potential impact of this on people,
economies and markets, my focus is two-fold;
firstly, making sure our people are safe and
secondly, a customer focus. We have
contingency plans in place for home-working
across the organisation and we are following
Public Health England guidelines, as they
develop. In times of turbulence like this, we
want our advisers and investment managers
to be right there to support and guide our
clients, so they are not left to deal with this
level of uncertainty alone. At this stage, it is too
early to ascertain the impact of this situation
on investor sentiment, NCCF and revenues.
Our optimisation programme will deliver
the cost savings that are embedded in our
operating margin targets for 2020/2021.
However, as we have previously indicated,
those targets were based on an expectation
of broadly stable markets from the base level
at time they were set, coupled with a modest
aggregate NCCF contribution over the period.
If markets were to remain at recent post-
correction levels for an extended period, or to
decline further, then delivering our operating
margin target for 2020 will be a challenge. We
remain committed to our targets but recognise
that attainability will be subject to market
levels, investor activity and management
actions over the remainder of the year.
Irrespective of short-term market sentiment,
we remain optimistic on the long-term secular
opportunity across our markets and we are
strategically well positioned to benefit from
this. Completing the first migration onto our
new UK Platform in early February was a
major milestone for the Group. We are now
focussed on delivering the second and final
migration to a high-quality outcome in the
summer. The new Platform will strengthen
the cohesion between our different business
capabilities and be a catalyst for faster growth.
Paul Feeney
Chief Executive Officer
Quilter Annual Report 2019
09
GovernanceFinancial statementsOther information Strategic Report
Responsible business
Quilter is here for a reason – to help create prosperity for the generations of
today and tomorrow. We’re committed to operating our business responsibly,
for the long term, for the benefit of all our stakeholders.
We help customers to be financially secure
and achieve their financial goals and we also
help colleagues, business partners and
communities to thrive and prosper through
our long-term positive relationships. And for
shareholders we strive to deliver sustainable
returns over the long term. We call this
Shared Prosperity.
Our Shared Prosperity Plan sets out our
approach to responsible business. This is
informed and shaped by what matters most
to our stakeholders, and what we believe has
the greatest impact on our ability to create
long-term financial and non-financial value.
We engage regularly with our stakeholders to
understand their priorities and expectations
as social norms and socio-economic trends
evolve over time.
Our Shared Prosperity Plan focuses on three
core themes where we aim to have a positive
impact: financial wellbeing; inclusive growth;
and responsible investment. These are
underpinned by our culture, values and
unwavering commitment to responsible
business conduct.
Our Shared Prosperity Plan
Financial wellbeing
By enabling people to enhance their financial
knowledge and confidence we can help
customers, colleagues and communities to
be more financially resilient and achieve
long-term financial security.
Our commitments:
• Improve access to financial advice and
guidance.
Responsible investment
The investment industry can positively
influence environmental, social and
governance issues that impact investment
returns upon which savers rely for their
future financial security. At the same time,
we also need to continually reduce our own
environmental impact.
Our commitments:
• Embed responsible investment principles
• Promote financial wellbeing for all
across our business.
colleagues.
• Exercise active stewardship of our
• Empower young people to manage their
customers’ assets.
money well for life.
• Reduce the environmental intensity of
our activities.
Inclusive growth
Financial security is vital to our overall
wellbeing. By supporting people into sustained
employment, helping people thrive in work
and promoting long-term savings we enable
customers, colleagues and communities to
have a more secure financial future.
Our commitments:
• Empower customers to be more engaged
in their financial future.
• Create an inclusive culture that embraces
diversity.
• Enable colleagues and communities to
thrive in work.
Non-financial information statement
This section of the Annual Report (pages
10 to 15) provides information as
required by regulation in relation to:
environmental matters, our employees,
social matters, human rights, and
anti-corruption and bribery. In addition,
other related information can be found
as follows: business model – page 17;
principal risks and how they are managed
– pages 32 to 33; and key performance
indicators – pages 20 and 21. More
detailed disclosures about Quilter’s
non-financial performance can be found
in the separate Responsible Business
Report 2019.
Our Shared Prosperity
Plan focusses on three
core themes: financial
wellbeing, inclusive
growth and responsible
investment. Through the
Plan we strive to deliver
benefit for all our
stakeholders, including
customers, colleagues,
communities and
shareholders.
Jane Goodland
Corporate Affairs Director
10
Quilter Annual Report 2019
Strategic Report
Responsible business
2019 Progress
Improving access to financial advice
We continue to make financial advice more
accessible by growing the number of
restricted financial planners we employ and
work with, reaching 1,799 at the end of 2019,
up from 1,621 the previous year. Through the
Quilter Financial Adviser School we brought
74 new financial advisers into the industry in
2019, bringing the total to 175 since the School
launched in 2017.
Quilter was named number one in the 2019
FTAdviser Top 100 Financial Advisers ranking
which judges firms on aspects important to
customers such as adviser qualifications,
amount of experience, staff retention,
business growth, investment outcomes and
scale. The achievement is recognition not only
of the growth of Quilter Financial Planning
over the past year, but also our continued
commitment to providing high-quality
face-to-face advice.
Financial and mental wellbeing
‘Thrive’ is our colleague wellbeing initiative
which supports our people with their mental,
physical, social and financial wellbeing. Our
121 Thrive Ambassadors champion the
programme internally and Quilter’s CEO, Paul
Feeney, has taken a leading role in tackling the
stigma around mental health in the City.
We understand how financial concerns can
affect our colleagues’ mental health. As an
employer we play a vital role in our colleagues’
financial lives. In 2019 we commenced our
financial wellbeing programme which
promotes a range of information, benefits
and guidance to support colleagues in
having a more secure financial future.
Vulnerable customers
During 2019 we retained our strong focus
on vulnerable customers. In addition to our
comprehensive internal programmes to
ensure customer-facing colleagues are
well-equipped to support vulnerable
customers, we continued to chair the industry
working group of TISA to raise standards
across the industry. This has involved working
with charities to release a series of help-
sheets to support financial firms understand
the difficulties that different vulnerabilities
may create and the development of an online
self-assessment tool which will be available
free of charge to financial services firms.
Responsible investment
We have made a commitment to embed
responsible investment principles across our
business and have signed the UN-backed
Principles for Responsible Investment. By
investing responsibly, we can actively take
account of the environmental, social and
governance (“ESG”) issues that may impact
long-term investment returns.
Attention on this area increased considerably
during 2019 with a wave of new regulatory
change focused on embedding ESG factors
into EU financial services regulation. In line
with our Shared Prosperity Plan commitment
we are in the process of embedding
responsible investment principles across
our business.
Quilter colleagues
As at 31 December 2019
Total split by gender
% (number)
53% (2,550)
47% (2,286)
Total number of colleagues1
2018: 52% (2,258) 48% (2,085)
4,836
2018: 4,343
Quilter plc Board split by gender
% (number)
64% (7)
36% (4)
2018: 64% (7) 36% (4)
Executive Committee split by gender2
% (number)
75% (9)
25% (3)
2018: 79% (11) 21% (3)
Senior management split by gender3
% (number)
68% (75)
32% (36)
2018: 66% (70) 34% (36)
Male
Female
During 2019 we expanded our voting and
engagement activity within our investment
management businesses, and our fund
research team incorporated ESG
considerations into its research process.
Recently we added ESG fund ratings onto our
UK Platform but we have more to do to fully
embed responsible investment across our
business. For example, we will embed ESG
preferences within the suitability assessment
element of our financial advice process and
enhance ESG disclosure.
1 Additional employee data is provided in
note 9(c)(iii) on page 144 which shows the
average position during the year.
2 Executive Committee as at 31 December
2019. Note, as per page 40, changes were
made to the composition of the
Committee after year-end.
3 Senior management defined as Executive
Committee and their direct reports,
excluding administrative staff.
Quilter Annual Report 2019
11
GovernanceFinancial statementsOther information
Strategic Report
Responsible business continued
Inclusion and diversity
We built on our existing inclusion activity in
2019, encompassing a greater focus on LGBT
with our support for the launch of LGBTGreat
– a collaborative organisation working to
develop all aspects of LGBT equality and
inclusion within the investment industry.
On gender equality we continue to focus on
our target, as set out in our pledge to the HM
Treasury Women in Finance Charter, to reach
at least 35% women in our senior leadership
community by the end of 2020. As at the end
of 2019 this group was 32% female, which is
down from 34% as at the end of 2018 but up
from 2017 which was 29%. Whilst it is
disappointing that we have not made more
progress in this regard, we remain committed
to meeting our target by focusing on gender
equality, talent development, recruitment and
succession plans.
Fewer women in senior leadership and
investment management roles are two main
drivers behind our gender pay gap figures,
which remain largely unchanged since we
reported last year. We acknowledge that there
will likely be a considerable time-lag between
the interventions we are making now to tackle
gender diversity in our colleague population
and the gender pay gap figures.
Proportion of men and women by pay quartile
The bars below show the proportion of men and
women in each pay quartile from the first (highest
pay) to the fourth (lowest pay).
55
First quartile
%
2018: 72 | 28
Second quartile
%
2018: 52 | 48
Third quartile
%
41
39
2018: 42 | 58
Fourth quartile
%
2018: 41 | 59
Male
Female
72
28
45
59
61
Environmental performance
During the year we made good progress
on managing our environmental impact,
considerably reducing our environmental
intensity from 0.83 in 2018 to 0.60 in 2019,
which is a measure of our greenhouse gas
emissions per employee during the year, as
shown in the table overleaf. We achieved this
by reducing our energy consumption and by
increasing the proportion of energy we use
from renewable sources. We aim to continue
this trend in future by switching to renewable
energy tariffs where practical, and extending
our environmental management system,
which is aligned to international standard
ISO 14001, beyond our Southampton office to
other sites. We are also seeking environmental
benefits from the consolidation of our London
offices into a single site at Senator House,
which has been refurbished to a BREEAM
‘Very Good’ standard. We look forward to
further environmental benefits which we
aim to achieve by working with our newly
appointed Group-wide facilities management
contractor, selected in part on their strong
environmental credentials.
We have joined over 7,000 companies that
support the CDP (Carbon Disclosure Project),
a globally recognised initiative for companies
to measure, manage, disclose and reduce
their environmental impacts. In 2019 we
reported for the first time under CDP and
achieved a B- rating.
Gender pay gap
As at 5 April of each year
Mean
Median
2019
2018
2019
2018
Hourly pay gap
35% 35% 32% 29%
Bonus gap
72% 70% 34% 39%
Women receiving
bonuses
Men receiving
bonuses
86% 85% 86% 86%
85% 85% 85% 85%
12
Quilter Annual Report 2019
Quilter’s stakeholders
Customers
Shareholders
Quilter
Regulators
Colleagues
Communities
Strategic Report
Responsible business
As a provider of financial advice and
long-term investment solutions, the most
material climate-related risks for Quilter are
likely to be felt within the investment
portfolios we manage on behalf of our clients.
As a responsible investor we engage with
third-party fund managers and companies
on their management of environment issues,
particularly climate change. Going forward we
will also enhance our work to assess climate-
related risks within investment portfolios.
We note the work of the Financial Stability
Board Task Force on Climate-related Financial
Disclosure (“TCFD”) to promote consistent
climate-related financial risk disclosures by
companies, for use by a range of stakeholders
including investors. Ultimately, this will
support more efficient allocation of capital
and contribute to a more orderly transition to
a low-carbon economy. As we evolve our
approach to responsible business and
responsible investment specifically, we will
increasingly seek to align our disclosures with
TCFD, covering the core elements of
recommended climate-related financial
disclosures including governance, strategy,
risk management, metrics and targets.
Operating responsibly
Over and above the commitments set out
in our Shared Prosperity Plan, we have an
unwavering commitment to operate our daily
business ethically, lawfully and with integrity
at all times. We summarise our approach
here and more detail can be found in the
Responsible Business Report.
Responsible business governance
Our approach to responsible business helps
us to manage a number of our principal risks
and uncertainties, particularly those which
relate to brand, reputation, people, culture or
conduct risk. For more information about our
principal risks and uncertainties, see pages
32 to 33.
The Board oversees Quilter’s approach to
responsible business through the Board
Corporate Governance and Nominations
Committee which is chaired by Quilter’s
Chairman.
The Committee regularly considers different
aspects of the responsible business agenda
as shown on page 49. Within executive
management, Quilter CEO Paul Feeney has
overall accountability for ensuring we do
business in the right way. He is supported by
the Responsible Business Forum which is a
management group that provides oversight,
direction and challenge with respect to
Quilter’s responsible business approach.
The Forum, which is chaired by the Group
Corporate Affairs Director, meets quarterly
and comprises members from each operating
business and key corporate functions.
In addition to these oversight and
management groups, our responsible
business governance framework comprises
numerous policies, codes and standards as
referenced overleaf.
Supporting the UN Sustainable
Development Goals
All Member States of the United
Nations adopted the 2030 Agenda for
Sustainable Development and
Sustainable Development Goals (SDGs)
in 2015. Together these aim to end
poverty, improve health and education,
reduce inequality, and spur economic
growth, whilst tackling climate change
and protecting the natural
environment. We have assessed the
goals and believe our Shared Prosperity
Plan can have the greatest contribution
to the following six SDGs:
• SDG 3 Good Health and Wellbeing
• SDG 4 Quality Education
• SDG 5 Gender Equality
• SDG 8 Decent Work and Economic
Growth
• SDG 13 Climate Action
• SDG 17 Partnerships for the Goals
Our Responsible Business Report
provides further detail about how we
are aligned to these goals.
Greenhouse gas emissions 20191
Scope 1
Scope 2
TCO2e
2019
TCO2e
2018
TCO2e
2017
664
636
556
2,216 3,037 3,289
Scope 2 – market-based
1,378 1,976 3,079
Total – Scopes 1 and 2
2,880 3,672 3,845
Tonnes of CO2e/average
number of colleagues
0.60
0.83
0.91
1 Our emissions are calculated and reported in accordance
with the GHG Protocol Corporate Standard. Please refer
to the Glossary on page 215 for definitions of the GHG
emissions categories shown in the above table.
Quilter Annual Report 2019
13
GovernanceFinancial statementsOther information Strategic Report
Responsible business continued
Code of Conduct and speak up
We are committed to maintaining the highest
standards of integrity, legal compliance and
ethics at all times. Our Code of Conduct sets
out the duties and expectations of all
colleagues and includes acting with integrity
and respect, treating customers fairly,
managing conflicts of interest, good market
conduct, information, data and
communications, use of Company assets,
prevention of financial crime and working with
regulators and governments. Colleagues are
required to undertake annual mandatory
training to ensure they fully understand the
requirements of the Code of Conduct. This
also includes training on whistleblowing,
human rights, diversity and inclusion and
financial crime (which includes anti-corruption
and anti-bribery). During 2019, 96% of
colleagues completed this training.
In line with our whistleblowing policy,
colleagues are required to report knowledge
or suspicion of malpractice or actions that
endanger Quilter Group’s employees or
assets. Concerns can be reported to line
managers, Risk and Compliance or via the
independent confidential ethics hotline which
is available year round and provides the
option to report anonymously.
All reports are treated seriously and confidentially,
are fully investigated and escalated to senior
management and George Reid, independent
Non-executive Director and designated Group
Whistleblowing Champion. The whistleblowing
policy provides employees who raise concerns
in good faith with protection from detriment
to their future employment opportunities.
Colleague relations
Our ability to attract, develop and retain the
best talent is critical to our business. We strive
for an engaged colleague community and
collegiate culture. Cathy Turner is the
designated Non-executive Director with
responsibility for ensuring the Board
understands the views of colleagues so that
their interests can be considered when taking
material decisions. At least annually, Cathy
meets with Quilter’s employee forums, which
are designed to be a consultative body to
represent colleagues. Throughout the year
the Non-executive Directors also held a series
of Board breakfast discussions with leaders
across the business to better understand the
culture of the organisation and identify areas
for further focus.
We proactively seek feedback from colleagues
via our culture survey which we moved from
a quarterly to a weekly cycle to provide more
meaningful real-time engagement. The
engagement score for 2019 was 7.2 compared
to 7.7 out of 10 for 2018. This reduction was
not unexpected given the transformation
across the business during the year, however
we strive to ensure colleagues are well
supported and engaged through these
periods of organisational change.
Our internal communications processes
and plans ensure that colleagues are fully
informed on a range of topics affecting them
including Company strategy and commercial
priorities, financial performance and
Company results, corporate activity such as
acquisitions and disposals, relevant external
social, financial and economic factors
impacting our business, our responsible
business activities, and matters directly
impacting individuals, such as recognition
and reward, benefits, mental and physical
wellbeing initiatives. We have an active
learning and development programme and
a mentoring programme, which by the end of
2019 included 150 mentoring relationships.
Human rights
We recognise our responsibility to respect
the rights and freedoms of those that not only
work for Quilter but also those in our supply
chain. Our human resource and supplier
policies and processes prohibit all forms of
modern slavery, forced labour, compulsory
labour and child labour. They also promote
equal opportunity and prohibit any form of
discrimination or unfair treatment on the
grounds of protected characteristics, or
because of any other personal factor. We
respect the right of employees to associate
for the purposes of collective bargaining and
colleagues are free to join a union of their
choice. We are also committed to fair pay and
as such Quilter is an accredited Living Wage
employer. As a minimum we pay colleagues,
contractors and on-site suppliers the UK’s
Real Living Wage, which is based on the cost
of living and calculated annually by the Living
Wage Foundation, currently £9.30 an hour
across the UK and £10.74 an hour in London.
Working with suppliers
Our Third-Party Risk Management Policy
sets out requirements with respect to our
procurement, outsourcing and supplier
management activities. Our Supplier Code
of Conduct applies to all suppliers and their
sub-contractors that provide goods and
services to Quilter. It sets out the minimum
Financial education
“Pupils enjoying a financial
education workshop delivered by
charity partner, MyBnk.”
14
Quilter Annual Report 2019
Strategic Report
Responsible business
routinely teach financial education. To address
the gap we have partnered with leading
financial education charity MyBnk and chair a
collaborative industry initiative called KickStart
Money to deliver high-energy and innovative
money workshops for young people in our
communities. So far we have enabled 19,379
young people to benefit from these lessons
since 2016. We have had the programme
independently assessed, showing tangible
results, and we have lobbied for financial
education to be included on the National
Primary Curriculum.
Routes into sustained employment
In 2019 the Foundation forged three new
strategic partnerships with School of Hard
Knocks in London, Street League in
Birmingham and Safe New Futures in
Southampton. All three charities use
innovative ways to support disadvantaged
young people to overcome barriers between
them and sustained employment, education
or training. Over the coming years, with our
partners, we will reach hundreds of young
people in Southampton, London and
Birmingham, helping them have a more
secure financial future.
Jane Goodland
Corporate Affairs Director
standards we expect our suppliers to
adhere to when doing business with Quilter
in addition to the contractual terms agreed.
The Code covers legal compliance, ethical
standards, conflicts of interest, anti-bribery
and corruption, brands, trade marks,
intellectual property, information and data
protection, labour standards, living wage,
discrimination, health and safety, and
environmental management.
Data privacy and IT security
Customers and colleagues trust us with their
personal data which can include sensitive and
financial information. We take seriously our
responsibility to control and protect this data
and use it only for the purposes for which it
was collected. We also recognise the legal
requirements that relate to our data
protection duties and in particular to
satisfying data subjects’ rights.
Data privacy and cyber security are overseen
by the Board Technology and Operations
Committee and the collection and use of
personal data is governed by a Privacy Policy
and overseen by a Group Data Protection
Officer (“GDPO”) with the support of a formal
committee, the Quilter Privacy Forum. We
recognise that cyber risks are constantly
evolving and it is therefore not possible to
reduce the risk of breaches to zero. Where
breaches do occur, we believe the resulting
impacts can be reduced through effective
incident response plans which we have
developed and tested. More detail
about our approach to data privacy and
security can be found in our Responsible
Business Report 2019.
Financial crime, bribery and corruption
As a financial services company we recognise
the potential risk of being a target for financial
crime, including money laundering, terrorist
financing, tax evasion and fraud. We also
acknowledge the potential risk of bribery and
corruption which could result in financial loss,
regulatory fines and/or censure and damage
to reputation. We have zero tolerance for
financial crime, bribery or corruption and
have a robust control environment in place
including policies and training on Anti-Money
Laundering and Counter Terrorist Financing,
Anti-bribery and Corruption, and Fraud
Prevention.
Tax strategy
As a responsible business, we are committed
to full compliance with our tax obligations,
paying the right amount of tax at the right
time. We have no tolerance for tax evasion
and we do not promote tax avoidance or
aggressive tax planning arrangements to
our customers or to other parties. More
information about our tax strategy can be
found in the Responsible Business section
of quilter.com.
The Quilter Foundation
The Quilter Foundation is Quilter’s charity.
Launched in 2018, its mission, anchored to
Quilter’s purpose, is to help young people
thrive and prosper. The Foundation works in
partnership with a small number of strategic
charity partners to deliver life changing impact
in our communities. The Foundation’s partners
are focused on improving young people’s life
chances by enhancing financial capability,
improving employment prospects, and
supporting good mental health and wellbeing.
The Foundation is registered with the Charities
Commission and governed by a Trustee Board
with two independent trustees, Philippa Foster
Back, CBE and Professor Richard Breen, who
sit alongside five Quilter executives.
Young Carers campaign
In 2019 we continued our Young Carers
campaign, recognising that these young
people are often disadvantaged when it
comes to education, mental health and
wellbeing as a result of their caring roles.
Through our principal partner, Carers Trust,
we are working to improve support services
and recognition for young people caring,
unpaid, for a family member or friend who
is ill, frail, disabled or has mental health or
addiction problems. Support is provided via
small grants, community-based support
services and respite opportunities. The Mix is
the digital support partner for the campaign,
through which young carers can access
free, confidential online support from peers
and experts.
Financial education
We know that our money habits take shape
in childhood, and so financial education at an
early age can help equip young people with
the skills, habits and knowledge to manage
their money well for life. Yet our schools do not
Quilter Annual Report 2019
15
GovernanceFinancial statementsOther information Strategic Report
Market growth drivers
Our chosen markets are experiencing secular growth in the demand for wealth management
services, while at the same time facing constrained supply of financial advisers, fee pressure,
onerous regulation and ever-increasing complexity from fiscal change.
Market drivers of demand
Quilter’s response
Savings responsibility shifting to the individual
The ongoing shift in responsibility to individuals for ensuring sufficient long-term
savings and retirement provision increasingly means customers need to make their
own financial plans.
We have built a business which aims to make Quilter the
best place to go for trusted financial advice in the UK.
Pension reform driving increased need for retirement solutions
UK pension freedom increases the flexibility for individuals to manage their
long-term savings. To support this, wealth managers need to be ready to advise
on and manage customers’ funds beyond the savings phase well into the
retirement phase.
With customer choice at the heart of everything we do,
we seek to support clients through their savings and
investment life-cycle with an open, transparent and fair
business model.
Demographics: ageing population and inter-generational wealth transfer
Demographic changes and the savings gap create an increasing demand for wealth
solutions. A shift from opaque, traditional life saving products to more modern,
transparent solutions held via platforms bolsters this growth.
Our money management offers risk-based investment
solutions, agnostic to active and passive management,
designed to deliver good customer outcomes.
Complexity driving increased need for advice alongside digital solutions
UK pension freedom has resulted in increased choice, and accordingly, complexity,
for individuals to plan for their future. While self-directed and robo-advice will be
an important constituent of the wealth management sector, we continue to
anticipate a significant opportunity for adviser-led investment solutions.
With the second largest adviser force in the UK, we
strongly believe in the value of trusted face-to-face advice,
and we continue to research how this can be best assisted
through digital channels.
Market forces on supply
Quilter’s response
Withdrawal of financial advisers in the face of regulation and market changes
Evolution of the advice regulatory landscape triggered a reduction in the number
of financial advisers and subsequent growth has been muted despite a growing
need, causing demand for investment advice to exceed supply.
We believe the driver of Quilter’s growth over time will
be through the provision of trusted advice, and we
will continue to invest in its evolution and in the breadth
of our offering.
Evolving value chains and increasing regulatory costs placing pressure
on smaller firms
RDR, MiFID II, the FSCS levy, and Professional Indemnity Insurance alike have
resulted in greater compliance, costs and administrative burdens on financial
advisers and their firms, making smaller firms less economically viable.
Our business model, where firms become restricted and
benefit from our support and buying power to provide
high-quality, cost-effective solutions for their clients,
alleviates this burden.
Shift away from traditional insurance-based investment products
Investment platforms offer a wider choice of investments tailored to individual
needs, and are combined with easy-to-access digital services at competitive
fee prices.
Increased focus on industry professionalism, transparency and
customer outcomes
Segments of the wealth industry have been increasingly scrutinised by the FCA
including life insurance products, platforms and advice quality. This has led to
increased challenges particularly for small and mid-sized advice firms given the
uncertainty created and the requirement to achieve higher levels of qualification
and securing comprehensive Professional Indemnity Insurance.
We are nearing the completion of our re-platforming
project, with the final migration planned to complete by
the end of summer 2020. The new UK Platform will be
market-leading in its IT resilience and its experience for
advisers and customers, and will allow us to continue to
innovate to meet changing needs while providing
operational leverage.
We are building a modern business model designed
for today’s regulatory world and adaptable to potential
future change.
16
Quilter Annual Report 2019
Strategic Report
Business model
Our full-service model enables us to support the changing
needs of our customers throughout their lives.
A typical Quilter customer looking to manage
their wealth needs three things: ‘a financial
plan’, a means of holding their assets safely in
the right tax efficient wrapper (‘Platform’) and
an investment strategy aligned with their risk
appetite and investment horizon – ‘solutions’.
We earn revenues from the assets under our
management or administration as a result of
providing advice-led investment solutions and
our platform to customers across the UK and
in select international markets.
Quilter has an integrated multi-channel access
model, with two core strategies – the first
whereby customers can come to us through
our advisers or secondly through the open
market channel with their own independent
adviser. When we support a customer to
manage their wealth in more than one area,
and therefore earn more than one revenue
stream, we refer to it as an ‘integrated flow’.
The unbundled, open nature of our model,
offering flexibility to use one, two or all three
components, is a key competitive advantage,
provides customers and their advisers with
choice at every stage and imposes external
market discipline on our propositions.
For Quilter, our model provides greater
market breadth, customer and adviser choice,
supporting long-term customer relationships.
Our scale and leading market positions in
each of our business segments enables us
to benefit from strong structural growth
dynamics and capture an increasing share
of the market.
Quilter’s multi-channel advice-led model
An open, transparent, full-service model serving customers across the wealth spectrum.
Customer segment
Financial advice
Platform and wrappers
Investment solutions
High Net Worth
Affluent
Mass Affluent
Open market, independent financial advisers
Quilter Private
Client Advisers
Quilter
Financial Planning
Quilter
Financial Advisers
Platforms and wrappers
(e.g. ISAs, pensions, collective investment accounts)
Discretionary
Fund Management
Managed
Portfolios
Multi-Asset
Funds
Quilter Annual Report 2019
17
GovernanceFinancial statementsOther information
Strategic Report
Progress against our strategic objectives
Our strategy will enable us to:
• become the leading provider of insightful, trusted financial advice;
• offer easy and simple access to manage investments on one platform in an appropriate wrapper;
• provide outcome-based, risk-adjusted investment solutions, focused on meeting the real needs of our customers; and
• deliver top line growth and operating leverage
1. Delivering on customer outcomes
Strategic objective
2019 performance
Focus for 2020
• Continue to provide high-quality products
which meet the needs of our customers,
at competitive prices, at every part of the
value chain
• Continue to drive investment performance
and deliver good outcomes for customers
• Maintain good customer service with low
levels of customer complaints
• Continue to uphold principle of treating
customers fairly, including maintaining
robust processes around complaints and
their appropriate resolution
Focus on ensuring good customer outcomes
and risk-adjusted investment returns while
delivering quality service to customers.
Developing appropriate investment
propositions and solutions is key to the
delivery of this objective.
KPIs
• NCCF/opening AuMA
• Integrated net flows
Other performance indicators
• Asset retention
• Investment performance
• Levels of upheld complaints
• Gross flows were lower year-on-year due
to challenging market conditions weighing
on investment sentiment
• Integrated net flows were impacted by
cautious investment sentiment leading to
a decrease in gross sales from Quilter
Financial Planning
• Quilter Cheviot continued to perform well
for clients, delivering out-performance
relative to their relevant benchmarks over
one, three, five and ten-year periods
• Quilter Investors mid- and long-term
performance remained strong although
short-term performance in the largest range,
Cirilium Active, was mixed in early 2019
• Asset retention at 88%, excluding QLA,
reflected our strong product and
proposition offering, and high customer
service standards
• Complaints remained low and levels of
upheld complaints were in line with the
industry average
Awards
• Winner – FTAdviser Top 100 Financial Adviser
2. Advice and Wealth Management growth
Strategic objective
2019 performance
Focus for 2020
Advice
• Grow by adding advisers through
recruitment and acquisitions, and support
individual adviser productivity
• 3% organic growth in restricted financial
planners, with an additional 8% increase
through acquisition of Lighthouse plc and
seven smaller PCA firms
• Support the Financial Adviser School intake
• Adviser productivity impacted by lower
gross flows, affected by market environment
and newly acquired advisers transitioning to
Quilter’s proposition
• Integration of acquired adviser firms into
Quilter Financial Planning progressing well
• Quilter Investors’ technology and employee
infrastructure build-out completed
• Launched new products and refreshed
product suite within Quilter Investors
• Net 12 investment managers joined Quilter
Cheviot, with team now at 167
• Gross sales in Quilter Cheviot remain
resilient despite market conditions
and graduates
• Develop our National advice business
Investment management
• Build out Quilter Investors and use adviser
feedback to provide building blocks for
market-leading solutions
• Add investment managers to support
Quilter Cheviot’s business growth
KPIs
• Integrated net flows
• Number of restricted financial planners
• Number of investment managers
Other performance indicators
• Adviser productivity
18
Quilter Annual Report 2019
• Advice businesses well positioned to
support customers as market sentiment
improves and subsequently drive NCCF
• Continue integration of acquired adviser
firms and offer broader Quilter proposition
to larger customer base
• Deliver national, own-brand advice
business model
• Build on momentum achieved with Quilter
Investors’ new product launch and refresh
• Capitalise on Quilter Cheviot’s larger
investment management team and build
momentum from new fund launches
• Continue to align Quilter Private Client
Advisers and Quilter Cheviot proposition
Strategic Report
Progress against our strategy
3. Wealth Platforms growth
Strategic objective
2019 performance
Focus for 2020
Wealth Solutions
• Safely deliver our UK Platform
Transformation Programme with high-
quality support for customers and advisers
throughout the migration process. Once
implemented, realise the benefits of the
more modern platform and its enhanced
proposition for advisers.
International
• Maintain focus of geographic footprint and
• Soft-launched the new UK Platform to
selected clients, received the final code
from FNZ and completed testing
• First of two migration phases achieved
successfully in February 2020
• Total programme costs revised from
£160 million to £185 million due to timeline
extension, dual running costs and additional
activities to reduce migration risk – project
remains in line with revised budget
• Stabilisation of flows within Quilter
ensure high quality and value of new business.
International
• Safely migrate advisers and customers
in second phase of UK Platform
Transformation Programme and
decommission outgoing system
• Leverage improved functionality from new
UK Platform to grow market share with
independent advisers
• Develop deeper roots within Quilter
International’s markets, including UK
onshore customers
• Continue to develop Quilter Cheviot’s
proposition within Quilter International’s
markets
• Quilter Life Assurance (see “discontinued
business”) sold to ReAssure for £425 million
(and interest income of £21 million) or 120%
pro forma 31 December 2018 own funds
UK Platform Transformation Programme delivery timeline (from soft launch)
Final system
code delivery
Functional
testing & migration
planning
Migration
rehearsals &
adviser readiness
preparations
Phased
migration
Summer 2019
Autumn 2019
Early 2020
KPIs
• Integrated net flows
Other performance indicators
• Control of costs to deliver PTP
• NCCF from RFPs onto UK Platform
• NCCF from IFAs onto UK Platform
• NCCF into International
4. Optimisation
Strategic objective
2019 performance
Focus for 2020
Drive operational leverage through building
enhanced scale and delivering efficiency in
operational processes. Target a 2 percentage
point improvement in 2020 operating margin
and a further 2 percentage point
improvement in 2021.
• Mobilised efficiency initiatives including
delayering and streamlining the business
• Delivered £14 million savings in the year
when compared to 2018, with full-year
run-rate of £24 million
• Continue strict cost management
• Seek opportunities for further operational
efficiency
• Implement new systems allowing for further
future operational leverage
• £18 million costs incurred in the year to
• Reduce stranded costs associated with the
KPIs
• Operating margin
• Adjusted profit before tax
Other performance indicators
• Control of costs to deliver the Programme
• Employee engagement scores
• Internal surveys monitoring cost awareness
and positive cultural change
deliver the programme, totalling £25 million
since Optimisation began
sale of Quilter Life Assurance
• Complete re-brand of business to Quilter to
unify the business and provide a strong
foundation from which to grow market share
• Support employee engagement through
transition period
• Develop plans for Optimisation phase 2
Quilter Annual Report 2019
19
GovernanceFinancial statementsOther information
Strategic Report
Key performance indicators
Quilter has identified the key performance indicators it believes are useful in assessing
the Group’s performance against its strategic priorities. They encompass both financial
and non-financial measures, as set out below.
NCCF/opening assets under
management and
administration (“AuMA”)*1
Integrated net flows*1
Operating margin*2
Adjusted profit before tax*2
Total shareholder return
IFRS (loss)/profit before tax*
Restricted financial
Investment managers
(“TSR”)
planners (“RFPs”)
(“IMs”)
Definition
Total net flows as a percentage
of opening AuMA (excluding
Quilter Life Assurance). This
measure evaluates the level of
flows during the period in relation
to the asset base, discretely from
market movements.
Definition
Total NCCF (excluding Quilter Life
Assurance) that has flowed
through two or more businesses
within Quilter. It is a lead indicator
of revenue generation driven by
an integrated business model.
Performance
NCCF as a percentage of opening
AuMA of 0% reflected challenging
market conditions, with Brexit
and broader geopolitical and
macro-economic concerns
weighing on investor sentiment.
The medium-term target of 5%
still remains.
Performance
In a year of challenging markets
as investors remained cautious
due to Brexit and other geopolitical
concerns, integrated net flows
were £2.6 billion. While sentiment
led to a lower level of gross sales
from Quilter Financial Planning,
what flow was available continued
to touch more than one business
within the Group, demonstrating
the robustness and relevance of
the integrated model.
Definition
Represents adjusted profit
before tax divided by total fee
revenue, including life tax
contributions and adviser fees.
Operating margin excludes
financing costs. This is an
efficiency measure that reflects
the percentage of net revenues
that become adjusted profit.
Definition
Represents the underlying
operating profit of the Group.
It therefore adjusts IFRS profits
for key adjusting items such as
goodwill impairment and
amortisation of intangibles,
business transformation costs,
financing costs on external
borrowings, and policyholder tax
adjustments, excluding non-core
operations, as detailed in Note 7
in the financial statements.
Performance
The operating margin in 2019
declined to 29% reflecting the
drag on revenue from Advice
acquisitions while they
transitioned to the Quilter
proposition.
Performance
Adjusted profit before tax was
£235 million, up 1% from 2018,
driven by increased revenue
in the Advice and Wealth
Management segment, and
strengthened cost discipline.
NCCF/opening assets under
management and administration
(“AuMA”)*1
Integrated net flows*1
Operating margin*2
Adjusted profit before tax*2
Total shareholder return
IFRS (loss)/profit before tax*1
Restricted financial planners
Investment managers
0%
0%
2019
2018
2017
2016
£2.6bn
29%
£235m
5%
6%
2019
2018
2017
2016
£2.6bn
£2.2bn
9%
£4.7bn
£5.2bn
2019
2018
2017
2016
29%
30%
29%
32%
2019
2018
2017
2016
£235m
£233m
£209m
£208m
* See page 212 for alternative
performance measures
1 Excluding Quilter Life Assurance
2 Including Quilter Life Assurance
20
Quilter Annual Report 2019
Definition
Definition
Definition
Definition
The difference between the
IFRS profit before tax attributable
Number of advisers licensed to
Number of individuals who
opening and closing share price1
to equity holders from continuing
advise clients across Pension,
provide investment management
over the period, plus any
operations, prepared in
dividends paid during that period.
accordance with IFRS.
Investment and Protection
solutions, but only permitted
to recommend products and
services to clients of Quilter
Cheviot in line with individual
circumstances and investment
1 Performance shown for QLT as traded
on the London Stock Exchange.
For remuneration purposes,
solutions from providers on
objectives.
IFRS profit before tax is adjusted
the Quilter Financial Planning
to exclude amortisation of
Restricted Panel.
intangible assets, policyholder tax
adjustments and other one-off
items (refer to Note 5(b)) and page
75 of the Remuneration Report.
Performance
Performance
Performance
Performance
Despite share price weakness
IFRS profit before tax attributable
We achieved good growth of
Growth in investment managers
across the industry sector in
to equity holders from continuing
11% in RFPs in 2019, 3% of which
was a key focus for 2019 as we
2019 as the effect of Brexit and
operations decreased primarily
was organic. The majority of the
have been enlarging the Quilter
other geopolitical issues weighed
due to a change in policyholder
organic growth was achieved in
Cheviot investment team
on sentiment of Wealth
tax which can vary significantly
the first half of the year, while in
following a small number of
Management stocks generally,
year-on-year as a result of market
the second half, focus turned to
resignations from a particular
Quilter experienced strong
share price performance
volatility. IFRS profit before tax
the integration of large adviser
cohort of IMs in mid-2018.
excluding amortisation,
acquisitions – Lighthouse plc
We are pleased with the calibre
following the announcement of
policyholder tax adjustments and
and Charles Derby Group.
of new investment managers
who have joined the already
successful Quilter Cheviot team.
Optimisation Phase 1 in March
one-off items is £10 million higher
2019 and after the UK election in
than 2018 primarily due to lower
December. With a total dividend
financing costs and managed
for 2019 of 5.2 pence per share,
separation costs, offset by
increased Optimisation costs.
TSR for the year was 42%,
outperforming peers.
(“TSR”)
42%
£141m
(“RFPs”)*
1,799
(“IMs”)
167
Strategic Report
Key performance indicators
NCCF/opening assets under
Integrated net flows*1
Operating margin*2
Adjusted profit before tax*2
Total shareholder return
(“TSR”)
IFRS (loss)/profit before tax*
Restricted financial
planners (“RFPs”)
Investment managers
(“IMs”)
management and
administration (“AuMA”)*1
This KPI is linked to Remuneration.
See Remuneration report on page 64
for more information.
Definition
Definition
Definition
Definition
Total net flows as a percentage
Total NCCF (excluding Quilter Life
Represents adjusted profit
Represents the underlying
of opening AuMA (excluding
Quilter Life Assurance). This
Assurance) that has flowed
before tax divided by total fee
operating profit of the Group.
through two or more businesses
revenue, including life tax
It therefore adjusts IFRS profits
measure evaluates the level of
within Quilter. It is a lead indicator
contributions and adviser fees.
for key adjusting items such as
flows during the period in relation
of revenue generation driven by
Operating margin excludes
to the asset base, discretely from
an integrated business model.
financing costs. This is an
goodwill impairment and
amortisation of intangibles,
market movements.
efficiency measure that reflects
business transformation costs,
the percentage of net revenues
financing costs on external
that become adjusted profit.
borrowings, and policyholder tax
adjustments, excluding non-core
operations, as detailed in Note 7
in the financial statements.
Performance
Performance
Performance
Performance
NCCF as a percentage of opening
In a year of challenging markets
The operating margin in 2019
Adjusted profit before tax was
AuMA of 0% reflected challenging
as investors remained cautious
declined to 29% reflecting the
£235 million, up 1% from 2018,
market conditions, with Brexit
due to Brexit and other geopolitical
drag on revenue from Advice
driven by increased revenue
and broader geopolitical and
concerns, integrated net flows
acquisitions while they
macro-economic concerns
were £2.6 billion. While sentiment
transitioned to the Quilter
weighing on investor sentiment.
led to a lower level of gross sales
proposition.
The medium-term target of 5%
from Quilter Financial Planning,
in the Advice and Wealth
Management segment, and
strengthened cost discipline.
still remains.
what flow was available continued
to touch more than one business
within the Group, demonstrating
the robustness and relevance of
the integrated model.
NCCF/opening assets under
management and administration
(“AuMA”)*1
0%
£2.6bn
29%
£235m
Definition
The difference between the
opening and closing share price1
over the period, plus any
dividends paid during that period.
Definition
IFRS profit before tax attributable
to equity holders from continuing
operations, prepared in
accordance with IFRS.
1 Performance shown for QLT as traded
on the London Stock Exchange.
For remuneration purposes,
IFRS profit before tax is adjusted
to exclude amortisation of
intangible assets, policyholder tax
adjustments and other one-off
items (refer to Note 5(b)) and page
75 of the Remuneration Report.
Performance
Despite share price weakness
across the industry sector in
2019 as the effect of Brexit and
other geopolitical issues weighed
on sentiment of Wealth
Management stocks generally,
Quilter experienced strong
share price performance
following the announcement of
Optimisation Phase 1 in March
2019 and after the UK election in
December. With a total dividend
for 2019 of 5.2 pence per share,
TSR for the year was 42%,
outperforming peers.
Performance
IFRS profit before tax attributable
to equity holders from continuing
operations decreased primarily
due to a change in policyholder
tax which can vary significantly
year-on-year as a result of market
volatility. IFRS profit before tax
excluding amortisation,
policyholder tax adjustments and
one-off items is £10 million higher
than 2018 primarily due to lower
financing costs and managed
separation costs, offset by
increased Optimisation costs.
Definition
Number of advisers licensed to
advise clients across Pension,
Investment and Protection
solutions, but only permitted
to recommend products and
solutions from providers on
the Quilter Financial Planning
Restricted Panel.
Definition
Number of individuals who
provide investment management
services to clients of Quilter
Cheviot in line with individual
circumstances and investment
objectives.
Performance
We achieved good growth of
11% in RFPs in 2019, 3% of which
was organic. The majority of the
organic growth was achieved in
the first half of the year, while in
the second half, focus turned to
the integration of large adviser
acquisitions – Lighthouse plc
and Charles Derby Group.
Performance
Growth in investment managers
was a key focus for 2019 as we
have been enlarging the Quilter
Cheviot investment team
following a small number of
resignations from a particular
cohort of IMs in mid-2018.
We are pleased with the calibre
of new investment managers
who have joined the already
successful Quilter Cheviot team.
Integrated net flows*1
Operating margin*2
Adjusted profit before tax*2
Total shareholder return
(“TSR”)
IFRS (loss)/profit before tax*1
Restricted financial planners
(“RFPs”)*
Investment managers
(“IMs”)
42%
(11)%
2019
2018
2017
2016
N/A
N/A
£141m
1,799
167
42%
£(53)m
2019
2019
2018
2018
£41m
£141m
£131m
2019
2018
2017
2016
1,799
1,621
1,561
1,423
2019
2018
2017
2016
167
155
164
158
IFRS profit before tax
(excluding amortisation,
policyholder tax adjustments
and one-off items)
IFRS (loss)/profit before tax
Quilter Annual Report 2019
21
GovernanceFinancial statementsOther information Strategic Report
Financial review
Review of financial performance
Overview
In this financial review, unless indicated otherwise, all results are
presented including QLA in both the current year and prior year
comparative. Unless indicated otherwise, the prior year comparative
will exclude the results of the Single Strategy business that was
disposed on 29 June 2018.
The Group delivered solid results for 2019, in a challenging environment
for flows. Platform industry statistics indicate that 2019 was the lowest
year for net flows since 2013 due to broader UK political and economic
uncertainty. NCCF for the Group was £0.3 billion, excluding the Quilter
Life Assurance business, which was sold to ReAssure in December 2019.
AuMA, excluding the Quilter Life Assurance business, increased by 13%
to close at £110.4 billion, benefiting from the rebound in equity markets
during the year, with the FTSE-100 index up 12% for the year. Adjusted
profit before tax (including QLA) increased by 1% to £235 million, with
stable revenue, supported by continued cost discipline across the
business. The Group’s IFRS loss after tax from continuing operations
(excluding QLA) was £21 million, compared to a profit after tax of £66
million in 2018, primarily due to the change in policyholder tax, which
can vary significantly year-on-year as a result of market volatility.
Alternative Performance Measures (“APMs”)
We assess our financial performance using a variety of measures
including APMs, as explained further on pages 212 to 214. In the
headings presented, these measures are indicated with an asterix: *.
Key financial highlights
Year ended 31 December 2019
Continuing operations
(excluding QLA)
Advice &
Wealth
Management
Wealth
Platforms Eliminations
Total
Group
Gross sales (£bn)*
Gross outflows (£bn)*
NCCF (£bn)*
Integrated net flows (£bn)*
AuMA (£bn)*
NCCF/opening AuMA (%)*
Asset retention (%)*
7.5
(7.8)
(0.3)
1.6
45.8
(1%)
81%
8.0
(6.6)
1.4
1.0
77.7
2%
90%
(3.2)
2.4
(0.8)
–
(13.1)
n/a
n/a
12.3
(12.0)
0.3
2.6
110.4
–
88%
Year ended 31 December 2018
Continuing operations
(excluding QLA)
Advice &
Wealth
Management
Wealth
Platforms Eliminations
Total
Group
Gross sales (£bn)*
Gross outflows (£bn)*
NCCF (£bn)*
Integrated net flows (£bn)*
AuMA (£bn)*
NCCF/opening AuMA (%)*
Asset retention (%)*
8.0
(4.5)
3.5
3.6
40.7
8%
89%
9.5
(6.1)
3.4
1.1
67.7
5%
91%
(3.3)
1.1
(2.2)
–
(10.7)
n/a
n/a
14.2
(9.5)
4.7
4.7
97.7
5%
91%
The Group delivered strong
adjusted profit growth from
continuing operations
despite a challenging
environment for flows.
Mark Satchel
Chief Financial Officer
22
Quilter Annual Report 2019
Strategic Report
Financial review
Net client cash flow (“NCCF”)*
NCCF, excluding Quilter Life Assurance, was a net inflow of £0.3 billion
(2018: £4.7 billion). After a good first quarter, the Group experienced
net outflows in the second and third quarters of the year, which
modestly reversed in the final quarter. Gross sales were lower due to
challenging market conditions, with Brexit and broader geopolitical and
macro-economic concerns weighing on investor sentiment. The Group
also experienced higher gross outflows during the year, primarily as a
result of the Investment Manager (“IM”) departures from Quilter
Cheviot, who resigned during 2018.
Net inflows into Quilter Investors were £0.5 billion, down 82% from 2018
(£2.8 billion) reflecting lower new business volumes from Quilter Financial
Planning, Quilter’s own platform (Quilter Wealth Solutions) and third-party
platforms. As reported during the year, new business flows from Quilter
Financial Planning and independent financial advisers were particularly
impacted by investor uncertainty over Brexit in the UK and the macro
environment more generally. This had a knock-on impact for Quilter
Investors, where net flows from the restricted channel were £1.2 billion
(2018: £2.4 billion), of which £0.3 billion (2018: £1.1 billion) were from
third-party platforms and £0.9 billion (2018: £1.3 billion) from our own
platform, Quilter Wealth Solutions. Flows from the Wealth Platforms
segment to Quilter Investors were net outflows of £0.1 billion in 2019
(2018: net inflow £0.8 billion). Third-party net outflows into Quilter
Investors were £0.6 billion in 2019 (2018: outflow £0.4 billion).
Quilter Cheviot experienced NCCF outflows of £0.8 billion (2018: inflow
of £0.7 billion), which included £1.3 billion of outflows linked to the
departures of the IMs who resigned in mid-2018 and the loss of a
£0.2 billion quasi-institutional mandate.
Quilter Wealth Solutions recorded net inflows of £0.9 billion, down 71%
on prior year (2018: £3.1 billion). Gross sales of £6.0 billion (2018: £7.7
billion) decreased by £1.7 billion, primarily as a result of lower levels of
defined benefit scheme (“DB”) to defined contribution scheme (“DC”)
pension transfers, which were down 50% to £0.8 billion (2018: £1.6
billion) and lower levels of market activity more generally, particularly
from independent financial advisers. NCCF from Quilter Wealth
Solutions was further impacted by the impending migration of client
assets to our new technology platform.
Quilter International’s NCCF increased by 67% to £0.5 billion (2018: £0.3
billion), supported by a small number of investments from Hong Kong
and Latin America in the fourth quarter, which totalled £0.3 billion.
Flows from continuing operations
2019
2018
% Change
Total integrated net flows*
Direct net flows
Eliminations
Total Quilter plc NCCF from continuing
operations
2.6
(1.5)
(0.8)
0.3
4.7
2.2
(2.2)
(45%)
–
64%
4.7
(94%)
Integrated net flows (excluding Quilter Life Assurance) were £2.6 billion,
down 45% from 2018 (£4.7 billion), as cautious investment sentiment
led to a decrease in gross sales from Quilter Financial Planning.
Similarly, Quilter Wealth Solutions experienced a decline in net flows
primarily due to weaker flows across the industry due to a combination
of Brexit, defined benefit transfer headwinds and lower pension limits
having an impact. The restricted channel of Quilter Financial Planning
accounted for £1.2 billion (2018: £2.4 billion) of Quilter Investors’ net
flows and £1.0 billion (2018: £1.1 billion) of Quilter Wealth Solutions’
net flows.
Total Restricted Financial Planner (“RFP”) headcount of 1,799 at
31 December 2019 included an additional 137 RFPs following the
acquisition of Lighthouse Group plc. Excluding RFPs added through the
Lighthouse Group plc acquisition, net RFP growth of 41 represents an
annualised growth rate of 3%. We continue to generate good levels of
new RFP appointments within existing businesses and through the
recruitment of newly appointed representative firms, driven in part by
the appointment of new recruitment leadership to drive our organic
recruitment capability. The Quilter Financial Adviser School continues to
be popular with firms and is on schedule to add around 100 graduates
into Quilter Financial Planning firms in 2020. New RFP appointments
have been partially offset by the natural attrition of advisers, with
turnover levels within our appointed representative firms remaining
stable throughout the year. Productivity* for Quilter Financial Planning
was £1.0 million per RFP for the year (2018: £1.7 million), reflecting the
challenging market conditions in 2019. Our strategic focus of building
NCCF and AuMA from continuing operations (£bn)
Asset retention (excluding QLA)
12.4
0.3
97.7
110.4
31 Dec
2018
NCCF
Market
performance
31 Dec
2019
88%
Net organic RFP growth
3%
A further 8% of growth was achieved through
inorganic acquisitions
Quilter Annual Report 2019
23
GovernanceFinancial statementsOther information
Strategic Report
Financial review continued
scale within the National model will help drive overall productivity levels
in 2020 and beyond, boosted by the integration of Lighthouse Group plc
and the acquisition of Prescient in December 2019.
The Group’s overall operating margin has remained broadly stable
at 29% (2018: 30%). Realised optimisation benefits have offset the
impact of the Quilter Financial Planning acquisitions, which initially
provide a drag on operating margin.
Asset retention* (excluding Quilter Life Assurance) has declined
marginally to 88% (2018: 91%), as a result of the outflows in Quilter Cheviot
from the departing IMs. Adjusting for these outflows, asset retention is
90%, in line with prior year and previous medium-term experience.
Financial performance from continuing operations and Quilter Life
Assurance
Assets under Management/Administration (“AuMA”)*
AuMA was £110.4 billion at 31 December 2019, up 13% from 31 December
2018 (£97.7 billion, excluding Quilter Life Assurance), driven by positive
market performance of £12.4 billion and net inflows of £0.3 billion.
2019 (£m)
Net management fee*
Other revenue*
Total net fee revenue*
Advice &
Wealth
Management
Wealth
Platforms Head Office
296
111
407
353
45
398
–
3
3
Total
Group
649
159
808
Quilter Investors’ AuM was £20.8 billion, up 18% since the start of the
year (2018: £17.7 billion). The Cirilium fund range AuM increased by 23%
to £11.1 billion at 31 December 2019 (2018: £9.0 billion), with £0.8 billion
of net inflows and £1.3 billion of market movement. The WealthSelect
fund range increased by 22% to £6.7 billion of AuM at the end of
December 2019 (2018: £5.5 billion). Quilter Cheviot AuM of £24.2 billion
increased by 9% in the year, primarily as a result of positive market
movements. Quilter Wealth Solutions’ AuA increased by 16% to £57.2
billion, which is primarily comprised of £27.8 billion within pension
propositions (of which £4.4 billion has been generated from the
restricted channel and £23.4 billion from third party advisers) and
£16.5 billion of ISA products. Quilter International AuA was £20.5 billion,
up 12% (2018: £18.3 billion) predominantly due to favourable markets
over the year and modest client inflows.
Adjusted profit before tax*
Adjusted profit before tax reflects the Board’s view of the underlying
performance of the Group and is used for management decision
making and internal performance management. Adjusted profit before
tax is a non-GAAP measure which adjusts IFRS profit for specific items,
as detailed in note 7 in the consolidated financial statements on page
137 of this report, and is the profit measure presented in the Group’s
segmental reporting.
Adjusted profit before tax for 2019 (including QLA) was £235 million,
1% higher than the prior year (2018: £233 million, excluding the Single
Strategy business; 2018: £259 million including the Single Strategy
business). Adjusted profit for the Advice and Wealth Management
segment grew by 1% (excluding the Single Strategy business) and the
Wealth Platforms segment grew by 2% during the year. Excluding QLA,
adjusted profit for the Wealth Platforms segment grew by 7%.
Total net fee revenue of £808 million increased by 3% (2018: £788
million) over the year. Net management fees of £649 million were
broadly stable on those of the prior year (2018: £647 million) as the
growth in revenues from higher average AuMA in Quilter Investors
and Quilter Wealth Solutions was offset by a decreasing revenue
contribution from Quilter Life Assurance given the run-off nature of
that business. Other revenue of £159 million grew by 13% (2018: £141
million), where the growth in Quilter Financial Planning contributed to
the increase.
Expenses for the Group increased from £555 million to £573 million,
mainly due to the impact of the Quilter Financial Planning acquisitions
made in the year. Excluding acquisitions, expenses remained stable
year on year.
24
Quilter Annual Report 2019
647
141
788
(555)
233
(6)
227
30%
57
Expenses*
(304)
(233)
(36)
(573)
Adjusted profit before
tax*
Tax
Adjusted profit after tax
103
165
(33)
Operating margin (%)*
Revenue margin (bps)*
25%
67
41%
42
235
(25)
210
29%
57
Financial performance from continuing operations and Quilter Life
Assurance
Advice &
Wealth
Management1
Wealth
Platforms Head Office
Total
Group1
2018 (£m)
Net management fee*
Other revenue*
Total net fee revenue*
Expenses*
Adjusted profit before tax1*
Tax
Adjusted profit after tax
276
97
373
(271)
102
371
43
414
(252)
162
–
1
1
(32)
(31)
Operating margin (%)*
Revenue margin (bps)*
27%
65
39%
45
1 Total adjusted profit before tax including the Single Strategy Asset Management business
for 2018 is £259 million. Refer to reconciliation on page 26.
Total net fee revenue*
The Group’s total net fee revenue increased by 3% to £808 million
(2018: £788 million) due to higher average AuMA across all businesses,
primarily as a result of the rebound in equity markets in 2019 and
increased advice fees as a result of the Quilter Financial Planning
acquisitions in both 2018 and 2019.
Total net fee revenue for the Advice and Wealth Management segment
grew by 9% during the year, to £407 million (2018: £373 million). Quilter
Investors average AuM increased by 10% to £19.6 billion, with £17
million of additional net management fee revenue compared to the
prior year. This included non-recurring net revenue for Quilter Investors
resulting from the release of revenue provisions that were no longer
required and which relate to the separation of the business from the
Single Strategy business that was sold in 2018 (c. £8 million). Quilter
Cheviot average AuM was flat year-on-year, as market growth offset the
impact of the assets lost as a consequence of the IM departures. Total
net fee revenue within Quilter Cheviot was 2% higher in 2019 at £178
million (2018: £175 million). Other revenue increased by £14 million to
£111 million, principally due to the increase in advice fees in Quilter
Financial Planning as a result of the acquisitions in 2019, and as well as
the full year revenue contribution from acquisitions made in 2018.
Strategic Report
Financial review
Total net fee revenue for the Wealth Platforms segment (including QLA)
was £398 million, which was down 4% (2018: £414 million) primarily due
to a reduction in Quilter Life Assurance and Quilter International’s
revenue. Quilter Wealth Solutions’ net fee revenue increased by £7
million (4%) to £177 million due to higher average AuA of 6% over the
course of the year. Quilter International’s net fee revenue was £10
million lower than the prior year due to the continued movement of the
book towards products that attract lower revenue. As expected,
revenues from Quilter Life Assurance continued to decrease given the
run-off nature of the book, and totalled £96 million (2018: £109 million).
The Group’s revenue margin* from continuing business of 55 bps
remained consistent with the prior year (2018: 55 bps).
The revenue margin for Advice and Wealth Management of 67 bps
was 2 bps higher compared to the prior year. This increase was due to
a 4 bps increase in the revenue margin for Quilter Investors to 63 bps,
primarily due to the provision releases (c. 2 bps) and income received
from the Compass fund range previously managed by Merian. Quilter
Cheviot’s revenue margin remained in line with prior year at 72 bps.
The revenue margin for Wealth Platforms (excluding Quilter Life
Assurance) decreased by 2 bps to 38 bps, as new business written
for Quilter Wealth Solutions and Quilter International is generally in
products or in revenue tiering structures that have a slightly lower
margin than the average for the current book of business.
Expenses*
Expenses increased by £18 million to £573 million (2018: £555 million)
in the year. The acquisitions made by Quilter Financial Planning in 2019,
and a full year run-rate for those made in 2018, increased expenses by
£24 million, and the continued build out of the Quilter Investors
business increased costs by a further £4 million year-on-year. The
Quilter Investors business is now fully independent following the
separation from the Single Strategy business, with a stable cost base.
Expenses also increased as a result of the London office move, which
added an additional £3 million as previously guided. The impact of
these cost increases and those arising from inflation were more than
mitigated by the continued cost disciplines across the business and
savings achieved through optimisation. Overall expenses were broadly
flat on 2018, excluding the impact of the acquisitions.
Expense split (£m)1
Front office and operations
IT and development
Support functions
Other
Expenses*
2019
339
130
83
21
573
2018
319
123
96
17
555
1 For the 2018 comparatives, some costs have been reallocated between categories to align
with current-year presentation.
Front office and operations expenses increased by 6% to £339 million
(2018: £319 million), primarily due to the impact of the Quilter Financial
Planning acquisitions made during the year.
IT and development expenses increased by 6% to £130 million (2018:
£123 million), mainly due to increased IT run costs to facilitate the
growth in the business and general inflation, partly offset by a reduction
in development costs due to less regulatory change requirements in
2019 compared to 2018.
Support function expenses relate to back office expenses, which have
decreased by 14% to £83 million (2018: £96 million). Savings have been
made across various functions as part of optimisation and are
expanded on further below.
Other costs include Professional Indemnity Insurance, and charges for
regulation and licencing fees. FSCS levies increased by £3 million this
year due to an increase in levies for asset managers across the industry
and a normalised full year charge for Quilter Financial Planning
following the nine month charge in 2018 as the FCA changed the timing
of making charges to regulated entities within the industry.
Taxation
The effective tax rate (“ETR”) on adjusted profit was 10.7% (2018: 4.5%).
The Group’s ETR is lower than the UK corporation tax rate of 19%
principally due to profits from Quilter International being taxed at lower
rates than the UK and the utilisation of brought forward capital losses.
The Group’s ETR is dependent upon a number of factors including the
level of Quilter International profits, the utilisation of capital losses,
which can be volatile, as well as the UK corporation tax rate. A further
reduction in the corporation tax rate to 17% from 1 April 2020 was
enacted in 2016.
The Group’s IFRS income tax expense on continuing business was £66
million for the year ended 31 December 2019, compared to a credit of
£86 million for the prior year. This income tax expense or credit can
vary significantly year-on-year as a result of market volatility and the
impact market movements have on policyholder tax. The recognition
of the income received from policyholders (which is included within the
Group’s IFRS revenue) to fund the policyholder tax liability can vary in
timing to the recognition of the corresponding policyholder tax
expense, creating volatility to the Group’s IFRS profit or loss before tax
attributable to equity holders. An adjustment is made to adjusted profit
to remove these distortions, as explained further on page 26 and in
note 7(a) of the consolidated financial statements.
Earnings Per Share (“EPS”)
Basic EPS was 8.0 pence, compared to 26.6 pence in 2018. Basic EPS
is based on the Group’s IFRS profit (including both continuing and
discontinued operations), with the decrease within discontinued
operations due principally to the profit on sale of the Single Strategy
business in 2018. During the year, the number of shares in issue
remained at 1,902 million. The average number of shares in issue used
for basic EPS was 1,835 million (2018: 1,832 million), after the deduction
of shares held in Employee Benefit Trusts (“EBTs”) of 67 million
(2018: 70 million) which are held in respect of staff share schemes.
Adjusted diluted EPS* (based on the Group’s adjusted profit after tax)
was 11.3 pence (2018: 13.5 pence), of which 8.6 pence relates to the
continuing business before the reallocation of QLA costs. Refer to page
147 and note 11 of the consolidated financial statements. The average
number of shares in issue used for adjusted diluted EPS was 1,863
million (2018: 1,839 million), following inclusion of the dilutive effect of
shares and options awarded to employees under share-based
payment arrangements of 28 million (2018: 7 million). The dilutive effect
of share awards has increased year-on-year due to more share options
being awarded to employees during 2019. Further details are included
in note 11 of the consolidated financial statements.
Quilter Annual Report 2019
25
GovernanceFinancial statementsOther information Strategic Report
Financial review continued
Optimisation
As announced in March 2019, we have commenced a phased,
multi-year optimisation programme, targeting a 4 percentage point
uplift in the Group’s operating margin on an on-going business by 2021.
Phase 1 is aiming to unify and simplify the Group through a number of
efficiency initiatives that will deliver improvements in operational
performance.
Throughout 2019 delivery and benefits were ahead of plan, with £14
million of savings realised during the period when compared to 2018.
Together with the initiatives delivered in 2018, this amounts to a
run-rate annualised benefit to the Group of approximately £24 million.
Implementation costs remain in line with previous guidance.
A number of quick win tactical efficiencies have been delivered, which
included targeted staff restructuring, third-party contract renegotiation
and termination, and property and facilities savings. Some more
complex initiatives, such as the insourcing of technology capabilities as
well as the simplification of Group support functions, have also been
delivered. All the planned programmes that will transform our business
through technology enablement, such as the consolidation and
modernisation of our general ledgers and other associated finance, HR
and procurement modules, have been initiated. The use of robotics to
automate manual operational processes in our International business,
as well as streamlining and automating some of the processes used in
our advice business, are also underway.
Reconciliation of adjusted profit before tax* to IFRS profit
Adjusted profit before tax for the group, including QLA, was £235
million (2018: £233 million), which includes £182 million for the group
excluding QLA (2018: £176 million), and £53 million (2018: £57 million)
for QLA.
For adjusted profit before tax on a continuing basis, IFRS accounting
standards require £26 million of costs (2018: £28 million), previously
reported as part of the QLA business, to be reallocated from
discontinued to continuing operations, as these costs do not transfer to
Reconciliation of adjusted profit before tax to profit after tax
For the year ended 31 December 2019
For the year ended 31 December 2018
£m
Advice and Wealth Management
Wealth Platforms
Head Office
Adjusted profit before tax before
reallocation*
Reallocation of QLA costs1
Adjusted profit before tax*
Adjusting for the following:
Goodwill impairment and impact of
acquisition accounting
Profit on business disposals
Business transformation costs
Managed Separation costs
Finance costs
Policyholder tax adjustments
Voluntary customer remediation provision
Total adjusting items before tax
(Loss)/profit before tax attributable to
equity profits
Tax attributable to policyholder returns
Income tax (expense)/credit
(Loss)/profit after tax
Discontinued
operations:
Quilter Life
Assurance
–
53
–
Continuing
Operations
103
112
(33)
182
(26)
156
(54)
–
(77)
(6)
(10)
(62)
–
(209)
(53)
98
(66)
(21)
53
26
79
–
103
–
–
–
(12)
10
101
180
76
(89)
167
Total
103
165
(33)
235
–
235
(54)
103
(77)
(6)
(10)
(74)
10
Discontinued
operations:
Quilter Life
Assurance
–
57
–
Subtotal of
Continuing
Operations
and Quilter
Life Assurance
102
162
(31)
Discontinued
operations:
Single
Strategy
business
26
–
–
Continuing
Operations
102
105
(31)
176
(28)
148
(50)
–
(84)
(24)
(13)
64
–
57
28
85
–
–
–
–
–
37
–
37
122
(97)
83
108
233
–
233
(50)
–
(84)
(24)
(13)
101
–
(70)
163
(158)
169
174
26
–
26
–
290
–
–
–
–
–
290
316
–
(2)
314
(108)
(107)
127
174
(155)
146
41
(61)
86
66
Total
128
162
(31)
259
–
259
(50)
290
(84)
(24)
(13)
101
–
220
479
(158)
167
488
1 Adjusted profit from continuing operations includes £26 million of costs (2018: £28 million) previously reported as part of the QLA business to be reallocated from discontinued to continuing
operations, as these costs do not transfer to ReAssure on disposal at 31 December 2019. Of the £26 million of costs reallocated, £14 million will recur in 2020 to provide services to ReAssure
under the Transitional Services Arrangement, with corresponding income to cover these costs. Management actions are being taken to manage the remaining costs, which are expected to
continually decline over the next two years.
26
Quilter Annual Report 2019
Strategic Report
Financial review
ReAssure on disposal at 31 December 2019. Of the £26 million of costs
reallocated, £14 million will be incurred in 2020 to provide services to
ReAssure under the Transitional Services Arrangement, with
corresponding income to cover these costs. Management actions are
being taken to manage the remaining costs, which are expected to
continually decline over the next two years. Due to the sale of the QLA
business, we expect to incur additional one-off business transformation
costs of up to £10 million over the next two years, as we restructure
certain parts of our business and decommission IT infrastructure
previously associated with QLA.
The Group’s IFRS loss after tax from continuing operations was £21
million, compared to a profit after tax of £66 million in 2018, primarily
due to the change in policyholder tax, which can vary significantly year
on year as a result of market volatility. The table on the opposite page
reconciles the Group’s adjusted profit to the IFRS results in 2019
and 2018.
Adjusted profit before tax reflects the profit from the Group’s core
operations, and is calculated by making certain adjustments to IFRS
profit to reflect the Directors’ view of the Group’s underlying
performance. Details of these adjustments are provided in note 7
of the consolidated financial statements.
Business transformation costs of £77 million in 2019 (2018: £84 million)
include £57 million (2018: £58 million) incurred on the UK Platform
Transformation Programme and £18 million of costs (2018: £7 million)
in relation to the optimisation programme. In 2019, a credit of £1 million
(2018 cost: £19 million) has been recognised in relation to the
separation of Quilter Investors as a result of the sale of the Single
Strategy business and restructuring costs of £3 million (2018: nil) as
a result of the sale of QLA.
Managed Separation costs were £6 million (2018: £24 million), reflecting
costs associated with our successful separation from Old Mutual plc
and Listing in June 2018. In 2019, this cost was primarily incurred on the
rebranding activities within the business, with a further £4 million
expected to be incurred in 2020 for the final rebranding activity.
Finance costs were £10 million (2018: £13 million). The prior year
includes the cost of interest and finance charges on the Group’s
borrowings from Old Mutual plc. As previously reported, these were
converted into equity or repaid in February 2018.
Policyholder tax adjustments of £74 million expense for 2019 (2018:
credit of £101 million) relate to the removal of distortions arising from
market volatility that can, in turn, lead to volatility in the policyholder tax
charge between periods. The recognition of the income received from
policyholders (which is included within the Group’s IFRS revenue) to
fund the policyholder tax liability can vary in timing to the recognition of
the corresponding tax expense, creating volatility to the Group’s IFRS
(loss)/profit before tax attributable to equity holders.
Cash generation*
Cash generation measures the proportion of adjusted profit that is
recognised in the form of cash generated from operations.
Cash generated from operations is calculated by removing non-cash
generative items from adjusted profit, such as deferrals required under
IFRS to spread fee income and acquisition costs over the lives of the
underlying contracts with customers. It is stated after deducting an
allowance for net cash required to support the capital requirements
generated by new business offset by a release of capital from the
in-force book.
The Group, including Quilter Life Assurance, achieved a cash generation
rate of 94% of adjusted profit over 2019 (2018: 88%). The cash generation
rate for the Group excluding Quilter Life Assurance and before the
reallocation of Quilter Life Assurance costs is 85% (2018: 81%).
Review of financial position
Capital and liquidity
Solvency II
The Group’s pro forma Solvency II surplus is £769 million at 31 December
2019 (31 December 2018: £1,059 million), representing a Solvency II
ratio of 180% (31 December 2018: 190%). The Solvency II information
for the year to 31 December 2019 contained in this results disclosure
has not been audited.
The pro forma Solvency II position is stated after allowing for the impact
of the recommended final dividend payment of £65 million (2018: £61
million), the proposed distribution to shareholders of the net surplus
proceeds from the QLA sale of £375 million and the Odd-lot Offer to
shareholders of c.£30 million.
The Solvency II position for regulatory purposes is also presented
below. Under Solvency II rules, the impact of future distribution of
share buybacks and Odd-lot Offer to shareholders is not taken into
account as at 31 December 2019, thereby increasing the Group’s
Solvency II surplus to £1,168 million and the Solvency II ratio to 221%.
Group regulatory capital (£m)
Own funds
Solvency capital requirement (“SCR”)
Solvency II surplus
Solvency II coverage ratio
Proforma at
31 December
20191
At
31 December
20191,2
At
31 December
20183
1,727
958
769
180%
2,132
964
1,168
221%
2,237
1,178
1,059
190%
1 Based on preliminary estimates.
2 Formal filing due to the PRA by 19 May 2020.
3 As represented within the Quilter plc Group Solvency and Financial Condition report for the
year ended 31 December 2018.
The 10 percentage point decrease in the Group Solvency II ratio on
a pro forma basis from the 2018 position is primarily due to corporate
activity in the year, with the main contributors being the acquisitions of
Charles Derby Group, Lighthouse Group plc and Prescient during 2019.
The goodwill and intangible assets arising in respect of these
acquisitions are not recognised within Solvency II own funds, thereby
reducing the Solvency II ratio.
The Board believes that the Group Solvency II surplus includes sufficient
free cash and capital to complete all committed strategic investments
(including the UK Platform Transformation Programme). The impact
of this prudent policy is that Quilter expects to continue to maintain
a solvency position in excess of its internal target in the near term.
Quilter Annual Report 2019
27
GovernanceFinancial statementsOther information Strategic Report
Financial review continued
Composition of qualifying Solvency II capital
The Group own funds include the Quilter plc issued subordinated debt
security which qualifies as capital under Solvency II. The composition of
own funds by tier is presented in the table below.
Group own funds (£m)
Tier 11
Tier 22
Total Group Solvency II own
funds
Pro forma at
31 December
2019
At
31 December
2019
At
31 December
2018
1,520
207
1,925
207
2,036
201
1,727
2,132
2,237
1 All Tier 1 capital is unrestricted for tiering purposes.
2 Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond,
which was issued at £200 million in February 2018.
£m
Opening cash at holding companies at 1 January
Short-term loan and Tier 2 bond proceeds
Loans repaid to Old Mutual plc
2019
416
–
–
Quilter Life Assurance business sale – cash proceeds
446
Single Strategy business sale – cash proceeds
Short-term loan repayment
Costs of disposal and external financing fees
Dividends
Net capital movements
Managed Separation and head office costs
Interest costs
Net operational movements
2018
36
500
(200)
–
576
(300)
(19)
(221)
336
(54)
(6)
(60)
167
(65)
2
104
416
–
–
(7)
(92)
347
(49)
(9)
(58)
307
(200)
3
110
815
On a pro forma basis:
• the Group SCR is covered by Tier 1 capital, which represents 159%
of the Group SCR of £958 million;
• Tier 1 capital represents 88% of Group Solvency II own funds; and
• Tier 2 capital represents 12% of Group Solvency II own funds and 27%
of the Group surplus.
Cash remittances from subsidiaries
Net capital contributions and investments
Other
Internal capital and strategic investments
Closing cash at holding companies at end of period
Dividend
The Board has recommended a final dividend of 3.5 pence per
share at a total cost of £65 million. Subject to shareholder approval,
the recommended final dividend will be paid on 18 May 2020 to
shareholders on the UK and South African share registers on 3 April
2020. For shareholders on our South African share register a dividend
of 72.78519 South African cents per share will be paid on 18 May 2020,
using an exchange rate of 20.79577. This will bring the dividend for the
full year to 5.2 pence per share (2018: 3.3 pence per share).
Holding company cash
The holding company cash statement includes cash flows generated
by the three holding companies within the business: Quilter plc, Old
Mutual Wealth Holdings Limited and Old Mutual Wealth UK Holding
Limited. The cash flows associated with these companies will differ
markedly from those disclosed in the statutory statement of cash flows,
which comprises flows from the entire Quilter plc Group including
policyholder movements.
The holding company cash statement illustrates cash received from
the key trading entities within the business together with other cash
receipts, and cash paid out in respect of corporate costs and capital
servicing (including interest and dividends). Other capital movements,
including those in respect of acquisitions and disposals together with
funding for ongoing business requirements, are also included. It is an
unaudited non-GAAP analysis and aims to give a more illustrative view
of business cash flows as they relate to the Group’s holding companies
compared to the IFRS consolidated statement of cash flows which is
prepared in accordance with IAS 7 (statement of cash flows) and
includes commingling of policyholder related flows.
Net capital movements
Net capital movements in the period include the cash proceeds of
£446 million resulting from the sale of the Quilter Life Assurance
business to ReAssure on 31 December 2019. There was also a further
£7 million of outflows in connection with disposal costs as a
consequence of the sale. Also included are the two dividend payments
made to shareholders of £61 million on 20 May 2019 and £31 million on
17 September 2019.
Net operational movements
Net operational movements were £58 million for the year, which
comprises corporate and transformation costs, including the Managed
Separation and optimisation programmes totalling £49 million. Interest
paid of £9 million relates to coupon payments on the Tier 2 bond and
non-utilisation fees for the revolving credit facility.
Internal capital and strategic investments
The net inflow in the year of £110 million is principally due to £307
million of cash remittances from the trading businesses, partially offset
by £200 million of capital contributions, made to support business unit
operational activities, the Platform Transformation Programme and
funding for the strategic acquisitions of Charles Derby Group,
Lighthouse Group plc and acquisitions by Private Client Advisers
within Quilter Financial Planning.
Balance sheet
The Group balance sheet at 31 December 2019 has total equity of
£2,071 million (2018: £2,005 million).
Financial investments have increased from £49,533 million for
continuing operations at 31 December 2018 to £59,345 million at
31 December 2019, predominantly due to positive market performance.
The corresponding increase is reflected in Investment contract
liabilities (an increase from £45,211 million for continuing operations
at 31 December 2018 to £52,455 million at 31 December 2019), and
Third-party interests in consolidated funds (an increase from £5,116
million at 31 December 2018 to £7,675 million at 31 December 2019).
Cash and cash equivalents of £2,473 million have increased by £592
million from £1,881 million at 31 December 2018 for continuing
operations. This increase includes £446 million of the cash proceeds
received on the sale of Quilter Life Assurance, of which £375 million is
planned to be returned to shareholders. Included within this balance
are cash investments due to policyholders, and cash to support the
capital and funding requirements of the business.
28
Quilter Annual Report 2019
Strategic Report
Financial review
Balance sheet
Summary balance sheet (£m)
Assets
Financial investments
Reinsurers’ share of policyholder liabilities
Contract costs/deferred acquisition costs
Cash and cash equivalents
Goodwill and intangible assets
Trade, other receivables and other assets
Other assets
Total assets
Equity
Liabilities
Investment contract liabilities
Third-party interests in consolidated funds
Contract liabilities/deferred revenue
Borrowings – sub-ordinated debt
Lease liabilities
Trade, other payables and other liabilities
Other liabilities
Total liabilities
Total equity and liabilities
At 31 December 2019
At 31 December 2018
Total
Continuing
Operations
Quilter Life
Assurance
59,345
–
455
2,473
592
424
449
49,533
–
498
1,881
520
500
349
9,686
2,162
64
514
30
30
23
Total
59,219
2,162
562
2,395
550
530
372
63,738
53,281
12,509
65,790
2,071
1,593
412
2,005
52,455
7,675
191
198
137
836
175
61,667
63,738
45,211
5,116
195
197
–
841
128
51,688
53,281
11,239
–
31
–
–
158
669
12,097
12,509
56,450
5,116
226
197
–
999
797
63,785
65,790
Goodwill and intangible assets have increased by £72 million to
£592 million at 31 December 2019. The balance increased by
£117 million during the year due to the acquisitions made by Quilter
Financial Planning, which was offset by the amortisation of the
intangible assets of £45 million charged during the year.
Trade, other receivables and other assets have decreased by
£76 million to £424 million mainly due to a reduction in unsettled trades
across the business and lower management fees as Quilter Investors
no longer acts as authorised corporate director (“ACD”) for certain
Merian funds.
Other assets of £449 million, which principally reflects property, plant
and equipment and loans and advances, increased by £100 million
during the year. The implementation of IFRS 16 resulted in an increase
in other assets, where a right of use asset has been created in respect
of property leases, which have totalled £124 million. Included within this
balance are Practice Buy Out (“PBO”) loans of £19 million, a £6 million
increase during the year.
The lease liability of £137 million has arisen due to the implementation
of IFRS 16, which represents the Group’s obligation to pay lease rentals
on certain property, plant and equipment.
Trade, other payables and other liabilities have reduced by £5 million
to £836 million as at 31 December 2019, primarily due to a reduction
in outstanding trade payables as Quilter Investors no longer acts as
ACD for Merian funds.
Other liabilities have increased from £128 million to £175 million
primarily due to an increase in deferred tax liabilities.
Contingent liability/Post balance sheet event
Prior to the Group’s acquisition of Lighthouse in June 2019, Lighthouse
provided pension transfer advice to around 300 British Steel pension
scheme members between 2016 and 2018. The Group was advised
after the reporting date of a number of complaints on the advice given
by Lighthouse. The Group has initiated a review of all cases advised by
Lighthouse, prior to its acquisition by Quilter in June 2019, to assess the
standard of advice given to British Steel pension scheme members.
For the cases where a complaint has been received on the advice
given by Lighthouse, the likelihood of redress is probable, and an
estimate of the amount of redress payable has been made of £9
million. For the remaining cases, it is possible that further costs of
redress may be incurred following the outcome of the reviews. Of the
pension transfers Lighthouse advised on between 2016 and 2018,
approximately 80 cases were undertaken prior to mid-2017 after which
the British Steel pension scheme was restructured and transfer values
were enhanced considerably.
An additional provision for £3 million has been established in respect
of the cost of legal and professional fees related to the complaints and
redress process, which includes the anticipated costs to review advice
provided of a similar nature in relation to cases that management
believe may have similar characteristics.
As the advice was provided before the Group’s acquisition of Lighthouse,
any further redress costs will be recognised as a pre-acquisition liability
within the fair value of the net assets acquired, with a corresponding
increase in goodwill. Any adjustments to the acquisition balance sheet
must be finalised within 12 months after the acquisition, in June 2020.
Quilter Annual Report 2019
29
GovernanceFinancial statementsOther information Strategic Report
Risk review
Quilter has a robust financial resources position and
actively manages its risk exposures across the risk universe
using a comprehensive and embedded risk framework.
Overview
Quilter has an ambitious strategy to grow its advice-led wealth
solutions, while also driving operational leverage through scale and
efficiency. Safely delivering this strategy is dependent on a strong risk
culture and risk framework to allow risks to be identified, assessed and
managed appropriately so as not to impact on our commitments to
our customers, our shareholders and other stakeholders.
Our business has become simpler during 2019. The successful sale of
Quilter Life Assurance significantly reduces the financial and regulatory
complexities associated with delivering life assurance business, and
great strides have been made to move towards transitioning the UK
Platform business onto FNZ’s market-leading technology platform. The
Group is focused on its core vision of becoming the leading UK wealth
manager. However, while complexity is reducing, the acquisitive growth
in our advice business and a number of other key strategic initiatives
continue to expose the Group to a diverse and evolving set of internal
and external risks.
I was delighted to be asked to become Chief Risk Officer and took up
the role from 1 May 2019. I was immediately struck by the enthusiasm
and professionalism of the function and the high quality of its outputs.
Quilter is a relatively young company and has made great strides in
developing an appropriate risk framework. The next stage in the
maturing of our risk management environment is to focus on the
effectiveness and efficiency of the function and of the risk processes
that are operated across the Group. Accordingly, we have developed
a risk transformation plan to take the function to the next level.
As part of this work, the risk leadership team has been restructured
and strengthened, we have invested in deepening our capabilities in
key risk topics to enable greater subject matter expert challenge and
intervention, and we have developed more incisive risk analysis and
reporting. A key development during 2019 has been the creation of
three specialist teams; in IT and change risk, compliance monitoring and
financial crime prevention. These teams will allow the development of
deep expertise that can be applied across the Group with greater
effectiveness and efficiency. The teams are in place, already delivering
to a high standard and are key in the delivery of our 2020 Risk Plan as
approved by the Quilter Board Risk Committee.
In 2020 we will continue our transformation, with an increasing focus
on technology enablement to support our delivery, simplifying and
optimising the risk processes that are used Group-wide and we will be
considering enhancements to our risk framework to ensure it remains
aligned to Quilter’s business model.
Risk profile
We continue to operate in a challenging political and economic
environment where uncertainty has become the norm. The UK General
Election of 12 December 2019 has provided more clarity on the UK’s
future status, although uncertainty persists until agreements on future
trading relationships are concluded. While Quilter’s UK-focused
business model has protected the Group from many of the cross-
border challenges faced by others in the sector, that UK focus means
the firm is strongly exposed to any detriment to future UK economic
performance and consequential impacts such as loss of investor
confidence. Quilter International has experienced challenging business
performance following its geographic repositioning, although 2019
NCCF performance is encouraging. The backdrop of uncertainty and
associated volatile markets presented a challenge to meeting Group
NCCF aspirations in 2019.
Internally, our strategic objective to grow while improving operating
leverage means that across the business there are many ongoing
change initiatives. These include: the ongoing delivery of the Platform
Transformation Programme, which achieved the first migrations of
advisers and clients in February 2020; the Optimisation programme
which successfully delivered above-plan savings in 2019; and ongoing
work to increase Quilter’s technology and information security
capabilities. While many of these projects will reduce risk in the
longer-term through streamlining processes and reducing manual
intervention, there are delivery risks which could impact the timescales,
costs and expected benefits of these programmes, and could prove a
distraction from the ongoing delivery of strong business performance
and customer outcomes in the meantime. These multiple concurrent
programmes also have the potential to stretch key people across the
organisation and so talent retention risk remains a focus.
2019 has seen real progress
in the Risk function’s
capabilities, impact and
influence. Risk-informed
decision-making is evident
at all levels, across all
Group activities.
Matt Burton
Chief Risk Officer
30
Quilter Annual Report 2019
Strategic Report
Risk review
Quilter’s advice-led full-service model often supports customers
through the value chain, while other customers may participate
in a single service offering from one part of our business. The nature of
this model requires Quilter to manage conflicts of interest effectively,
and where advice or portfolio management is provided, ensuring that
suitability is assured. Adviser firm acquisition has been a feature of
Quilter Financial Planning’s recent growth, including the June 2019
acquisition of Lighthouse Group. Effective integration of these
acquisitions, including relating to adviser conduct, advice quality
and IT estate management will continue to be key to managing the
risk profile of the Group, and in yielding the anticipated scale benefits.
As the Group becomes more focused and drives increased integrated
flows, the importance of strong investment performance in Quilter’s
core propositions is critical, and the Group has invested in the Quilter
Investors build programme to support this important customer outcome.
During February 2020, worldwide concerns intensified that the
coronavirus outbreak may escalate into a global pandemic and further
impact global supply chains, global growth and employee health and
availability. The Group could be adversely impacted by falls in equity
market levels, adverse investor sentiment affecting NCCF and
increased operational risks should staff availability be significantly
affected. The Group has mobilised a crisis response to identify and
implement mitigating actions to limit possible impacts.
Our customers, advisers, shareholders and other stakeholders expect
us to manage our risks effectively and for the Group to be resilient in all
market conditions. Stress and scenario analysis is key in helping the
Group to define management responses to extreme stresses and to
ensure that we have sufficient financial strength to withstand severe
unexpected events. The Group actively manages its risk exposures
against appetite across the risk universe, overseen by a range of
management and governance committees such that proactive steps
can be taken to manage exposures and ensure that the Group can
continue to operate safely.
Emerging risks
Quilter is a long-term business
and as such we monitor risks
which are less certain in terms
of timescales and impact. The
emerging risk profile is subject
to regular review by management
committees and the Board Risk
Committee. The identification of
these risks contributes to our
stress and scenario testing which
feeds into our strategic planning
process and informs our capital
deployment decisions. The
following are the emerging risks
considered to be the most
significant.
Near-term risk
Medium-term risk
Longer-term risk
Cyber threat developments
Evolving sophisticated cyber criminality
presents a persistent threat of attack,
capable of compromising the continuity
of operations, or the security and integrity
of information.
Pandemic
The recent emergence of Coronavirus,
and any further deterioration of the
situation, presents near-term risk to
Quilter’s internal operational continuity
and supply chain, and has potential to
adversely impact financial markets, global
growth, and consequently Quilter’s future
NCCF, AuMA, and earnings.
UK pension reform
Forthcoming changes to UK pension
regulations, potentially affecting the
pension transfer advice market and UK
pension tax relief, may impact future
flows and earnings.
Economic downturn
Global trade disputes and political
uncertainties present a material global
economic downturn risk which could
negatively impact financial markets and
investor confidence, and consequently
Quilter’s future NCCF, AuMA, and earnings.
Regulatory change
Changes in regulation resulting from
shifting expectations of our regulators,
or specifically the UK’s withdrawal from
the EU, could have a material impact
on Quilter’s business model.
ESG requirements
The increasing emergence of new
environmental, social and governance
(ESG) requirements from our regulators,
requires Quilter to consider
enhancements relating to ESG
factors in all of its operations.
Disruptive competition
Technology developments are likely
to present opportunities for competitors
and new entrants, which could
negatively impact Quilter’s market share.
Generational shifts
New generations are being seen to
behave differently to those of the past
and present. Any failure to connect with
future generations presents franchise
risk for financial services firms.
Climate change
A transition to a low-carbon economy
is increasingly considered to be critical
to mitigating the impacts of climate
change, representing material risks
for financial services firms.
Quilter Annual Report 2019
31
GovernanceFinancial statementsOther information
Strategic Report
Risk review continued
Principal risks and uncertainties
The Directors have carried out a robust assessment of the emerging and principal risks facing the Group, and the presentation of these has been
reviewed, taking account of the recent FRC guidance on the strategic report. Our principal risks and uncertainties are described below, with our
emerging risks presented on the previous page. The articulation of the principal risks and uncertainties is consistent with the Group’s Enterprise
Risk Management (“ERM”) framework categorisation and with the ‘Top Risk’ reporting that is provided quarterly to the Board Risk Committee and
the Board. The Board requires management to put in place actions to mitigate these risks and controls to maintain risk exposures within acceptable
levels defined by Quilter’s risk appetite. Regular monitoring and reporting of risks enables continuous review and challenge of risks and actions.
Principal risks and uncertainties
Strategic and business risks
Strategic risk
Quilter’s strategy is to be the leading UK wealth manager with an advice-led
proposition. Should this strategy not yield the anticipated benefits, as a result of
inaccurate understanding of target market and customer behaviours, or as a result
of failure to manage its new brand effectively, there may be material adverse effect
on the Group’s business, its financial condition and its reputation.
Investment performance risk
Strong investment performance within Quilter Investors’ fund management
proposition and within Quilter Cheviot’s discretionary fund management proposition
are key to enable Quilter to meet customer expectations and to grow its customer
base, and funds under management. During 2019, weaker short-term performance of
Quilter Investors’ core fund range has been noted with a range of management actions
underway to support stronger performance. Longer term underperformance of core
investment management propositions could have a material effect on Quilter’s
business, financial performance and reputation.
Conflicts of interest risk
Quilter’s business model exposes it to potential and actual conflicts of interest,
including those which result from Quilter’s full-service distribution model. Any failure to
effectively manage conflicts of interest between its businesses and between Quilter
and third parties could result in regulatory sanction and resulting reputational damage
and consequential impacts to the Group’s business, financial condition and reputation.
Advice and suitability risk
Quilter’s financial advice and portfolio management services are subject to
fundamental regulatory conduct requirements to assure suitability of advisory
recommendations and discretionary portfolio management. Failure to operate
effective arrangements to support the delivery of suitable advice and portfolio
management, including within recently acquired advice businesses, could expose
Quilter to risks associated with customer detriment, regulatory censure and
remediation programmes, and consequential impacts to the Group’s business,
financial condition and reputation.
Financial risks
Market risk
Quilter’s principal revenue streams are asset-value related and as such the Group is
exposed to the condition of global economic markets, and the UK markets in particular.
Continued political uncertainty in the UK as a result of the UK’s decision to leave the
European Union continues to result in market volatility. Volatility in debt, equity and
currency markets may adversely impact customer investment portfolios which in turn
impacts Quilter’s ability to generate fee-based revenue. Challenging market conditions
also impact investor and adviser confidence and have the potential to challenge
Quilter’s ability to attract new NCCF from investors.
Key mitigants
• Strategic and business planning process
• Business performance monitoring
• Robust strategic initiative management
• Brand management and brand monitoring
arrangements
• Investment strategy
• Investment performance management
• Investment risk monitoring
• Investment risk standards compliance arrangements
• Conflicts of interest register and monitoring
• Conflicts identification and management training
• Conflicts of interest policy compliance arrangements
• Advice and portfolio management standards
• Suitability monitoring and oversight arrangements
• Extensive training arrangements for investment
advisers and portfolio managers
• Integration of advice firm acquisitions
• Stress and scenario analysis
• Strength of balance sheet
• Financial risk policies, standards and limits
32
Quilter Annual Report 2019
Strategic Report
Risk review
Principal risks and uncertainties
Operational risks
Third-party risk
Quilter procures certain services from third parties, and this will increase as the
Platform Transformation Programme concludes and results in significant business
process and technology outsourcing to FNZ. If Quilter does not effectively oversee
its third-party providers, they do not perform as anticipated, or Quilter experiences
technological or other problems with a third party, it may not realise productivity
improvements or cost efficiencies and may experience operational difficulties,
increased costs and loss of business, customer detriment and damage to its reputation.
Information technology risk
Quilter’s business is highly dependent on its technology infrastructure and applications
to perform necessary business functions, including to support the provision of services
to customers. Some of the infrastructure and applications are legacy in nature and
require replacement over the coming years, while multiple acquisitions have extended
and complicated the technology estate. Failure to manage technology risk could have
a material adverse impact on Quilter’s business, its resilience capabilities, financial
condition, operations and its reputation.
Information security risk
Quilter’s business, by its nature, requires it to store, retrieve, evaluate and utilise
customer and company data and information, some of which is highly sensitive. Quilter
is subject to the risk of IT security breaches from parties with criminal or malicious
intent. Should Quilter’s intrusion detection and anti-penetration software not
anticipate, prevent or mitigate a network failure or disruption, it may have a material
adverse effect on Quilter’s customers, business, financial condition, operations,
and reputation.
Key mitigants
• In 2019 a Chief Procurement Officer was appointed
to develop Quilter’s approach to third-party
management
• The Group’s Third Party Risk Management
Framework is in place and is subject to ongoing
enhancement
• Third Party Risk Management Policy and standards
compliance arrangements
• A Group Technology Strategy is in place to deliver
technology enhancements over a 2-3 year time
horizon
• Active systems monitoring and resilience plans
• IT policy suite and standards compliance
arrangements
• Cyber threat defences and monitoring
• Data governance arrangements, including those
relating to General Data Protection Regulation
(GDPR) compliance
• Information security policy and standards
compliance arrangements
People risk
Quilter relies on its talent to deliver its service to customers and to implement the
broad range of strategic change initiatives that are currently ongoing. Failure to retain
key staff or to attract suitable talent may impact the delivery of Quilter’s strategy and
may have an adverse impact on Quilter’s business, its financial and operational
performance and its delivery of service to customers.
• Performance evaluation arrangements and
related performance and risk adjusted
remuneration arrangements
• Regular employee engagement surveys
• Quilter’s staff wellbeing initiative, ‘Thrive’
Legal and regulatory risks
Regulatory risk
Quilter is subject to regulation in the UK by the Prudential Regulation Authority and
the Financial Conduct Authority; and by a range of regulators internationally.
Additionally, the firm is subject to the privacy regulations enforced by Information
Commissioner’s Office and international equivalents. Quilter faces risks associated with
compliance with these regulations and to changes in regulations or regulatory focus or
interpretation in the markets in which Quilter operates. Failure to manage regulatory
compliance effectively could result in regulatory censure, including the possibility of
fines or prohibitions which could impact business performance and reputation.
Financial crime risk
Quilter is subject to a range of financial crime laws and regulations in each jurisdiction
in which it operates. This includes those relating to money laundering, terrorist
financing, sanctions, bribery and corruption and insider dealing. Relevant regulatory
and law enforcement agencies have the ability to impose significant censures for
failures including the possibility of fines or prohibitions which could impact reputation
and business performance.
Legal risk
Quilter is exposed to legal disputes relating to its provision of services to customers and
its contracts with its staff members and third parties; as well as risks relating to adverse
changes to laws in the jurisdictions in which it operates. Failure to adequately manage
legal risk could result in unmitigated legal costs or penalties, impacting the Group’s
business, financial condition and reputation.
• Compliance advice and monitoring programme
• Regulatory horizon scanning
• Training and staff awareness programmes
• Compliance policy and standards compliance
• Mandatory staff training
• Range of specific controls including due diligence
and sanctions screening
• Financial crime policy and standards compliance
arrangements
• Internal legal risk management arrangements
• Access to external counsel advice
• Liability insurance arrangements
Quilter Annual Report 2019
33
GovernanceFinancial statementsOther information Strategic Report
Risk review continued
Our Enterprise Risk Management framework
Our Enterprise Risk Management (“ERM”) framework encompasses a
number of elements, including: governance arrangements; end-to-end
processes to facilitate the identification, assessment, measurement
monitoring and management of risk; and the incorporation of culture
and behaviour in reward mechanisms. The ERM framework drives
consistency across Quilter’s businesses and aims to align strategy,
capital, processes, people, technology and knowledge in order to
evaluate and manage business opportunities, uncertainties and
threats in a structured and disciplined manner.
In this way Quilter seeks to ensure that risk and capital implications are
considered when making strategic and operational decisions, and to
ensure that Quilter’s risk profile is understood and managed on a
continuous basis within the approved risk appetite. An important
element to risk management is a good management culture of risk-
informed decision-making. Quilter links risk management to employee
performance and development, as well as to its remuneration and
reward schemes. An open and transparent working environment which
encourages all employees to embrace risk management is critical to the
achievement of the Group’s strategic priorities.
Quilter is regulated by the PRA under Solvency II and by the FCA under
Capital Requirement Directive regulations, and is also subject to
insurance prudential requirements in a small number of other
jurisdictions. To meet these regulations, we operate a consistent
approach to risk management across Quilter. As such, we have
integrated the Own Risk and Solvency Assessment (“ORSA”) and
Internal Capital Adequacy Assessment Process (“ICAAP”) into our
risk management framework. Quilter’s ORSA and ICAAP are
comprehensive risk processes which set out how risks are managed
and how risks might change over time as we execute our strategy and
respond to developing situations. We analyse the capital required to
protect the sustainability of the Group and how those capital
requirements might develop over our planning period.
The assessments include a range of stress and scenario testing
covering a broad range of scenarios, including market shocks, new
business growth scenarios and operational risk events. These tests are
in addition to the regulatory solvency capital requirements, which allow
for severe and extreme scenarios and stresses (1 in 200-year risk
events). Critical to our process is preparing management action plans
should adverse events occur. This provides assurance that we are both
well capitalised and prepared to take necessary action in order to
maintain our resilience during adverse conditions.
The sale of Quilter Life Assurance in December 2019 has removed
some complexities associated with the provision of UK life insurance
business. Nevertheless, the nature of Old Mutual Wealth Life and
Pensions Limited business means that Quilter retains group prudential
oversight by the PRA.
Risk appetite
Our risk appetite is the amount of risk we are willing to take in pursuit
of our strategic priorities and is defined by the Board. Culturally, it sets
the tone regarding our attitude towards risk-taking. Risk appetite also
plays a central role in informing decision-making across the Group,
protecting and enhancing the return on capital invested. This risk
appetite approach is applied consistently across the Group.
To support the strategic decision-making process we apply risk
preferences which provide guidelines for striking the appropriate
balance of risk and reward when setting our business strategy.
34
Quilter Annual Report 2019
rformance and ca pit a l m a
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Strategic Risk Appetite Principles
A set of Strategic Risk Appetite Principles has been set by the Board.
These principles provide the top-of-the-house guidance on our
attitude toward key areas of risk for the Group and support the ongoing
management and oversight of risk. The Group’s position against these
principles is measured on a regular basis.
Customer
The Group will ensure fair
customer outcomes
Capital
The Group will hold or have
access to sufficient capital to
maintain own capital needs
Liquidity
The Group will ensure that it has
sufficient liquidity to meet its
financial and funding obligations
Control environment
The Group will at all times operate
a robust control environment
Policies supporting the system of internal control
The Group Governance Manual (“GGM”) and policies form an integral
part of our governance and risk management framework, ensuring an
appropriate system of internal control, including financial, operational
and compliance areas. Together they form the basis of clear delegated
authorities and accountabilities, ensuring there is appropriate Board
oversight and control of important decisions, and efficient and effective
management of day-to-day business. The GGM and policies are
approved and adopted by the Board. On an annual basis, a policy
attestation process is undertaken, setting out policy compliance across
Quilter and is provided to the Board.
Risk culture
The most important element to risk management is a good culture of
risk-informed decision-making. We believe that a good risk culture enables
effective management of risk. We link risk management to performance
and development, as well as to the Group’s remuneration and reward
schemes. An open and transparent working environment which
encourages our people to embrace risk management, and speak up
where needed, is critical to the achievement of our strategic priorities.
Matt Burton
Chief Risk Officer
Strategic Report
Viability statement
In accordance with provision 31 of the UK Corporate Governance Code 2018, the Directors have assessed the prospects of the Group
for a period longer than the 12 months required by the going concern statement.
Quilter’s Risk Appetite Framework supports the delivery of Quilter’s strategy and business plan with risk preferences and appetite playing
a central role in informing decision-making across the Company.
Every year, the Board considers a three-year strategic plan and also an ORSA for the Group, as required by our UK regulators. The plan
makes certain key assumptions in respect of the competitive markets and political environments in which the Group operates, economic
assumptions and the impact of key strategic initiatives including the delivery and implementation of the new platform. The one-year
planning period has greater certainty and is used to set detailed budgets across the Group. Although three years is regarded as an
appropriate period for the assessment of the Group’s viability, the Directors also regularly consider other strategic matters that may affect
the longer-term prospects of the Group.
The Board’s assessment included reviews of capital, liquidity, and of principal risks over the three-year planning period. Appropriate aspects
of the strategic plan are stress-tested under the ORSA and ICAAP reviews to understand and help set capital and other requirements. The
stress tests considered include a broad range of scenarios, including economic and market shocks, mass lapse events, new business
growth scenarios and severe business interruption. In all severe but plausible adverse tests, sufficient capital and liquidity were available,
demonstrating the Group’s resilience to adverse conditions.
Reverse stress tests, which are performed to identify events which would make the current plan unviable, have also been performed. The
results of these tests indicate that the Group can reasonably expect to have sufficient capital and liquidity to be able to meet its liabilities
over the planning period. The Board regularly monitors performance against a range of predefined key performance indicators and early
warning thresholds, which will identify if developments fall outside the Group’s risk appetite or expectations, allowing management action
to be taken.
The Strategic Report, on pages 1 to 35, sets out the Group’s financial performance, business environment, outlook and financial management
strategies. In addition, details on the Group’s principal risks and risk management framework are set out on pages 32 to 33.
Conclusion on viability
Considering the Group’s current capital and trading position, its principal risks, and remaining three-year period of the strategic plan, the
Board has a reasonable expectation that the Company and the Group can continue in operation and meet their liabilities as they fall due for
the period to 31 December 2022.
Going concern
The Directors have considered the resilience of the Group, taking into account its current financial position, the principal risks facing the
business and the effectiveness of the mitigating strategies which are or will be applied. As a result, the Directors believe that the Group is
well placed to manage its business risks in the context of the current economic outlook and have sufficient financial resources to continue in
business for a period of at least 12 months from the date of approval of these consolidated financial statements, and continue to adopt the
going concern basis in preparing the consolidated financial statements.
Quilter Annual Report 2019
35
GovernanceFinancial statementsOther information Governance
Governance
An introduction to our Board of Directors,
Executive Committee, and our approach to
corporate governance and remuneration.
Board of Directors
Executive Committee membership
Board and Board Committee composition
and meeting attendance
Chairman’s introduction on corporate
governance
Leadership and oversight
Governance in action
Board Corporate Governance
and Nominations Committee report
Board Audit Committee report
Board Risk Committee report
Board Technology and Operations
Committee report
Remuneration report
Remuneration at a glance
Annual Report on Remuneration
Our approach to governance
Directors’ Report
38
40
41
42
43
46
48
52
58
61
64
66
73
86
88
36
Quilter Annual Report 2019
Quilter Annual Report 2019
37
Governance
Board of Directors
1
5
9
2
6
10
3
7
11
4
8
12
Chairman and Executive Directors
1. Glyn Jones
Chairman
Appointed November 2016
3. Mark Satchel
Chief Financial Officer
Appointed March 2019
Skills and experience: Glyn Jones’ extensive experience of chairing Boards, including those
of Aspen Insurance Holdings, Aldermore Group, Hermes Fund Managers, BT Pension Scheme
Management and Towry, a financial planning and wealth advice business, provides him with
the skills needed to build and lead an effective and cohesive board at Quilter. His significant
experience in UK and international financial services, gained during his tenures as CEO of
Gartmore Investment Management and Coutts Group, and whilst running Standard
Chartered’s international private banking business in Hong Kong, provides him with the
necessary knowledge to lead discussions on key business matters including strategy,
performance and risk. Glyn is a Fellow of the Institute of Chartered Accountants in England
and Wales.
Skills and experience: Mark Satchel brings deep finance, corporate action and business
experience to the Board. He joined Old Mutual in the UK in January 2000 and held numerous
leadership positions within the finance function and businesses there, during which time he
played key roles in the acquisitions of Intrinsic (now Quilter Financial Planning) and Quilter
Cheviot. This experience has been invaluable in ensuring that Quilter effectively executes its
strategy, for example allowing him to lead the successful disposal of Quilter Life Assurance.
Mark previously served as Chief Financial Officer of the business from 2010 to August 2017
and as Corporate Finance Director for the 17-month period to March 2019. Mark is qualified
as a Chartered Accountant in South Africa, and worked for KPMG in both South Africa and
Canada prior to moving to the UK.
Other appointments: Glyn chaired Aspen Insurance Holdings, a New York Listed
international speciality insurance business from 2007 until February 2019.
Other appointments: Mark is a Trustee of The Old Grey Europe Charitable Trust.
2. Paul Feeney
Chief Executive Officer
Appointed August 2012
Skills and experience: Paul Feeney is an experienced, entrepreneurial leader, having held
various senior business roles in large international financial services businesses, including as
CEO of NatWest Private Bank, and NatWest Investments USA, Group Managing Director and
Head of Distribution for Gartmore Investment Management, and Global Head of Distribution
at BNY Mellon Asset Management International. During his career, Paul has developed a deep
understanding of the challenges, risks and opportunities faced by the industry, thereby
enabling him to create and develop the vision and strategy of the Group. Paul’s strong
commercial acumen and dynamic leadership style allow him to effectively oversee the
execution of our strategy.
Board and Committee membership key
Committee Chair
Board Audit Committee
Board Corporate Governance and Nominations Committee
Board Technology and Operations Committee
Other appointments: Paul is a member of the FCA Practitioner Panel and was a Non-executive
Trustee of Sense International until February 2019.
Board Remuneration Committee
Board Risk Committee
Major subsidiary board membership (refer to page 81
for more information)
Designated Non-executive Director for communicating the
voice of our employees to the Board (refer to page 47
for more information)
Former Director who served for part of the year
Tim Tookey, Chief Financial Officer
Tim stepped down from the Board on 13 March 2019 and left Quilter
at the end of April 2019.
38
Quilter Annual Report 2019
Governance
Board of Directors
Independent Non-executive Directors
4. Rosie Harris
Appointed April 2017
9. Paul Matthews
Appointed August 2018
Skills and experience: Rosie Harris has extensive knowledge and experience of risk
management within the insurance and wealth management industries, having served as
Chief Risk Officer for UK Life at Aviva, Group Risk Director at Old Mutual plc and Chief Risk
Officer (Insurance) and Managing Director for General Insurance at Lloyds Banking Group plc.
This experience has been invaluable to the Board and management as Quilter has developed
and embedded its risk management framework. Rosie also provides the Board and
management with valuable insights into managing and mitigating the risks that are inherent
in running a successful wealth management business. Rosie is a member of the Institute of
Chartered Accountants in England and Wales.
Skills and experience: Paul Matthews is an experienced FTSE-100 plc board Director who
has over four decades’ worth of knowledge of the savings and pensions industry. His career
at Standard Life, spanning nearly 30 years, where his roles included Group Executive Director,
Chief Executive Officer UK & Europe and Chairman of Standard Life Wealth, enables him to
identify and support management to understand the opportunities and risks facing Quilter,
particularly its distribution businesses. This insight enables him to effectively assess and
challenge the executive’s strategy proposals, execution and risk management.
Other appointments: Paul is currently an Executive Mentor at Merryck & Co.
Other appointments: Rosie is a Non-executive Director of Tokio Marine Kiln’s Insurance
and Syndicates businesses and Chairs its Risk Committee.
10. George Reid
Appointed February 2017
5. Suresh Kana
Appointed August 2018
Skills and experience: Dr Suresh Kana is a highly experienced South African businessman
who has spent over three decades working in various roles at PwC, most recently as Chief
Executive Officer and territory Senior Partner of PwC Africa. He has a wealth of corporate
governance and South African business experience has allowed him to provide the Board and
Board Corporate Governance and Nominations Committee with a valuable perspective on
both of these key matters and to support Quilter’s understanding of our shareholder base.
Other appointments: Suresh is Chairman of Murray & Robert Holdings Limited and an
independent Non-executive Director of JSE Limited. He is Deputy Chair of the Integrated
Reporting Committee of South Africa and a trustee of the International Financial Reporting
Standards Foundation. He is also a Member of the Illovo Sugar Limited Advisory Panel and
Chairman of South Africa’s King Committee on Corporate Governance.
6. Moira Kilcoyne
Appointed December 2016
Skills and experience: Moira Kilcoyne brings over 25 years’ of technology and cyber security
leadership, having spent much of her career working in senior technology roles at Morgan
Stanley and Merrill Lynch, latterly overseeing global change management and transformative
IT implementation as Co-Chief Information Officer for Global Technology and Data at Morgan
Stanley. This experience, together with her strong understanding of business operations,
business resilience, data management and third party supplier management, equips her with
the skills and knowledge needed to oversee and challenge the design and delivery of technology
and operations strategy, including the delivery of Quilter’s new investment platform.
Other appointments: Moira is a Director of Citrix Systems Inc where she is also a member of
its Audit Committee. She is also a Director of Arch Capital Group Limited and a Trustee of the
board of Manhattan College.
7. Jon Little
Appointed May 2017
Skills and experience: George Reid has extensive financial experience having spent over
20 years in the accounting profession. This knowledge, gained during lengthy tenures at PwC,
and, latterly, Ernst & Young LLP as managing partner and Head of Financial Services for
Scotland and UK regions, provides George with a deep understanding of accounting and audit
matters, and the control environment inherent to wealth management businesses. Such
experience allows him to critically assess key accounting and financial considerations
including those associated with our recent acquisition of Lighthouse Group and the disposal
of Quilter Life Assurance.
George is a Fellow of the Institute of Chartered Accountants in England and Wales.
Other appointments: George is Chairman of the Children’s Hospice Association Scotland.
11. Cathy Turner
Appointed December 2016
Skills and experience: Cathy Turner’s broad experience of HR and remuneration matters
gained whilst serving as Group HR Director at Barclays plc, and as Remuneration Committee
Chair at Aldermore Bank plc and Spectris plc, enables her to effectively scrutinise and
challenge remuneration policy proposals and execution, and effectively oversee the running
of the Board Remuneration Committee. Her extensive advisory and leadership experience
supports her in engaging with the workforce and effectively communicating their views to
the Board, as part of her role as Quilter’s designated employee Non-executive Director.
Other appointments: Cathy serves as a Non-executive Director and Chair of the
Remuneration Committees of both Aldermore Group plc and Spectris plc. She is also a
partner at the senior advisory organisation, Manchester Square Partners.
Company Secretary
12. Patrick Gonsalves
Appointed January 2017
Skills and experience: Jon Little has over 30 years’ experience in the investment
management business internationally. His experience at Fidelity, JP Morgan Investment
Management, BNY Mellon, and as founding Partner of Northill Capital, allows him to critically
assess the performance and strategy of our investment management businesses, and
challenge management accordingly. Jon is an experienced director and chair having chaired
The Dreyfus Corporation in New York and Insight Investment Management, as well as having
served on the Board of Jupiter Management plc and various asset management boards,
including Northill Capital.
Patrick Gonsalves is an experienced Company Secretary with broad experience across the
financial services industry gained with Lloyds Bank, NatWest Bank and, up until December
2016, as Deputy Secretary of Barclays plc.
Patrick was appointed Company Secretary of Old Mutual Wealth Management Limited in
January 2017 and is a Fellow of the Institute of Chartered Secretaries and Administrators.
Patrick has extensive experience of providing advice and support to listed company boards
in periods of significant change which is very relevant to his role at Quilter.
Other appointments: Jon is Chairman of the Oxford Brookes Endowment Investment
Committee.
8. Ruth Markland
Senior Independent Non-executive Director
Appointed June 2018
Skills and experience: Ruth Markland has a wealth of FTSE-100 board experience, having
spent 12 years on the board of Standard Chartered plc and over 10 years on the board of Sage
Group plc. In both companies, Ruth served as Senior Independent Director and Chair of the
Remuneration Committee. This has provided her with a strong understanding of corporate
governance and boardroom dynamics enabling her to act as a helpful sounding board for the
Chair and other board members. Ruth has agreed to succeed Cathy Turner as Chair of the
Board Remuneration Committee with effect from the end of the 2020 Annual General Meeting.
Ruth headed the commercial practice of Freshfields Bruckhaus Deringer in London for a number
of years and then became the Managing Partner of the Asia business, based in Hong Kong.
Other appointments: Ruth is a member of the Supervisory Board of Arcadis NV and an
independent Non-executive for Deloitte LLP.
Quilter Annual Report 2019
39
Strategic ReportFinancial statementsOther information
Governance
Executive Committee
membership
1
5
2
6
3
7
4
The Board has delegated the day-to-day running of Quilter to Paul Feeney, as Chief Executive Officer. Paul exercises these powers through the
Quilter Executive Committee, the membership of which comprises the Chief Executive Officers of some of Quilter’s businesses and key function
heads. The Executive Committee meets regularly to ensure the effective implementation of the business strategy, our customer strategy, the
financial performance of the business against our business plan and the culture and risk management of our business.
Executive Directors
1. Paul Feeney
Chief Executive Officer
2. Mark Satchel
Chief Financial Officer
For full biographies, see Board of Directors page 38.
Executive management
3. Matt Burton
Chief Risk Officer
Matt was appointed as Chief Risk Officer in May 2019. Matt joined the business as Chief
Internal Auditor in April 2016, prior to which he was a partner in PwC’s Financial Services
Practice with responsibility for leading Internal Audit services to the Insurance and Investment
Management sector. Matt has over 25 years of experience across financial services having
held senior roles in Credit Suisse, where he was Chief Auditor for EMEA, and Deutsche Bank.
Matt is a member of the Institute of Chartered Accountants in England and Wales.
6. Andy McGlone
Chief Executive Officer, Quilter Cheviot
Andy has over 25 years’ experience in investment management having worked at Quilter
Cheviot for his entire career, beginning at Quilter Goodison in 1994 as a Trainee Investment
Manager. He worked his way up through the private client department before becoming
joint head of the newly merged Quilter and Cheviot London front offices in late 2013. Prior
to becoming Chief Executive Officer, Andy served as Managing Director of Quilter Cheviot.
Andy is a Chartered Fellow of the Chartered Institute for Securities and Investments.
4. Karin Cook
Chief Operating Officer
Karin was appointed to Quilter plc in January 2019 as the Chief Operating Officer and is a key
sponsor of Quilter’s Optimisation programme, driving efficiency across all areas of the Group.
Karin has 30 years’ experience in financial services, with her most recent experience at Lloyds
Banking Group covering customer operations, payments, technology, security, property and
procurement. She has previously worked at HSBC, Morgan Stanley and Goldman Sachs in
senior operations, technology and finance roles.
5. Steven Levin
Chief Executive Officer, UK Platform
Steven has extensive experience in developing and distributing financial products, as well as
in asset management and investments. Steven has been in his current role since October 2015
and has been instrumental in leading the implementation of the new investment platform.
Prior roles include Global Head of Distribution and Managing Director of Skandia International
(now Quilter International). He also served as Product & Proposition Director for Old Mutual
in South Africa and globally for Old Mutual plc. Steven is a qualified Actuary and a Chartered
Financial Analyst.
7. Andy Thompson
Chief Executive Officer, Quilter Financial Planning
Andy, who was appointed Chief Executive Officer of Quilter Financial Planning in December
2016, has over 30 years’ experience in financial advice and distribution. Having been a
financial adviser, Andy began his own successful advice business in 2003, which was
subsequently acquired by Quilter Financial Planning in 2012, at which point Andy also joined
the business. Since becoming CEO, Andy has continued to strengthen and grow Quilter’s
distribution business and led many acquisitions, most recently those of Lighthouse Group
and Charles Derby Group.
40
Quilter Annual Report 2019
Governance
Board and Board Committee composition
and meeting attendance
Governance
The Quilter Board has established Board Committees which are
entirely composed of independent Non-executive Directors, and the
members’ attendance at each meeting of the Board and Board
Committees is set out in the tables below. As you will see from their
biographies, which are set out on pages 38 and 39, the Committee
Chairs and other Committee members have recent and relevant skills,
experience and expertise. The composition of the Board and the
Board Committees meets the requirements of the 2018 UK Corporate
Governance Code.
In the year following listing on 25 June 2018, each Board Committee
has performed a review of their activity to confirm that they have
discharged their responsibilities as set out in their terms of reference.
The Committees have further reviewed and revised their terms of
reference in line with best practice and the 2018 Corporate Governance
Code. The Committees’ terms of reference can be found on quilter.
com/corporategovernance.
Board and Board Committee meetings
The table below shows the Board and Board Committee meetings held during 2019:
Scheduled
Board
meetings
Ad hoc Board
meetings1
Board Corporate
Governance and
Nominations
Board Audit
Board Risk
Board
Technology and
Operations
Board
Remuneration
Chairman and Executive Directors
Glyn Jones
Paul Feeney
Mark Satchel (appointed 13 March 2019)
Tim Tookey (stepped down 13 March 2019)
Independent Non-executive Directors
Rosie Harris
Suresh Kana
Moira Kilcoyne
Jon Little
Ruth Markland
Paul Matthews
George Reid
Cathy Turner
9/9
9/9
7/7
2/2
9/9
9/9
9/9
9/9
9/9
8/9
9/9
9/9
9/9
8/9
8/8
1/1
8/8
6/6
6/6
6/7
6/6
6/7
8/8
5/6
5/5
5/5
5/5
4/5
13/13
12/13
13/13
13/13
8/8
8/8
8/8
8/8
11/11
11/11
11/11
7/7
5/7
7/7
7/7
1 Includes additional meetings of the full Board and meetings of ad hoc committees of the Board. These meetings related to a number of corporate transactions to effect the re-shaping and
growth of the business and the distribution of the net surplus proceeds of the sale of Quilter Life Assurance. By their nature, these meetings were often arranged at relatively short notice.
Where exceptionally, due to other commitments, a Director has been unable to attend a meeting, they have separately submitted their comments
and input on the matters under discussion to the Chair of the Board or the relevant Board Committee. In addition to the meetings reported above,
sufficient time was provided, periodically, for the Chairman to meet privately with the Senior Independent Director and the Non-executive
Directors to discuss any matters arising.
Board skills
Capital management
Financial reporting
Risk management
and internal controls
Remuneration
Corporate finance
Strategy
IT/Digital
Wealth distribution
Investment management
Governance
Non-executive Director
Chair or Committee Chair
Senior experience
in a major FTSE
Geographical experience
South Africa
United States of America
United Kingdom
Global
Board gender diversity
Male
Female
0
2
4
6
0
2
4
6
8
10
12
0
2
4
6
8
Quilter Annual Report 2019
41
Strategic ReportFinancial statementsOther information Governance
Chairman’s introduction
on corporate governance
Dear Shareholder,
Having successfully overseen the Managed Separation and listing of
Quilter plc in 2018, the most critical role for the Quilter Board in 2019
has been overseeing the effective delivery of the Quilter strategy in a
safe and well controlled manner. I have set out over the coming pages
some of the Board’s activities in discharging that role as well as how the
Board has strived to ensure that Quilter will be successful in the long
term by building and maintaining successful relationships with a wide
range of stakeholders.
The Quilter Board has reflected on the requirements of the new 2018
UK Corporate Governance Code (the Code) and the wider societal
responsibilities for companies that the Code has sought to reinforce.
While there is no room for complacency, we believe that the culture and
direction that the Board has set for the Quilter Group align well to the
updated set of principles set out in the new Code. In order to ensure
that Quilter complies fully with the new Code there have been some
areas where we have revised our approach to governance. During the
year Cathy Turner agreed to ensure that the voice of our employees is
heard in the Boardroom. The Board also asked management to revise
or enhance reporting to the Board in areas such as the Group’s culture,
and the quality of our relationships with customers and suppliers.
This allows the Board to monitor that we have strong and mutually
beneficial relationships with our customers, regulators, suppliers
and employees.
Quilter is still a relatively young listed Company and 2019 was a
challenging year given the political and economic uncertainties that
reduced business and investor confidence, particularly Brexit. It is
therefore all the more pleasing that Quilter has made significant
progress in delivering on our strategic objectives while managing
current business challenges in a way that contributes to, rather than
detracts from, the long-term sustainability of our business.
The four strategic priorities of our business remain unchanged:
1. delivering on customer outcomes;
2. Advice and Wealth Management growth;
3. Wealth Platforms growth; and
4. optimisation.
I have set out over the page the role of the Quilter Board and how
your Board has overseen the effective delivery of the above strategic
priorities in 2019, whilst giving appropriate consideration to the
interests of our stakeholders and the long-term consequences of
our decisions.
Looking ahead
We have confidence in our corporate governance framework and the
ability of your Board to guide the business through the successful
delivery of the Group’s strategy. To be successful, your Board must
remain resolutely focused on ensuring that the executive management
team deliver on our strategic priorities; complete the safe and
successful delivery of our Platform Transformation Programme and
stay focused on delivering for our customers, our shareholders, our
employees and our other stakeholders. As we do this, you can have
confidence that Quilter will continue to deliver sustainable growth,
in a safe and controlled manner for the benefit of all of its stakeholders,
into the future.
Glyn Jones
Chairman
11 March 2020
Board Activity
Strategy and delivery of strategy 45%
Business performance oversight 25%
Risk management and
governance
Committee reports
20%
10%
Glyn Jones
Chairman
For detail on Board attendance,
see page 41.
42
Quilter Annual Report 2019
Governance
Leadership and oversight
The role of your Board and our corporate governance framework
The Board Effectiveness Review, independently facilitated by Professor
Goffee in 2019, provided confirmation that Quilter is led by an effective
and entrepreneurial Board. I am grateful to Ruth Markland, our Senior
Independent Director, for overseeing a rigorous and constructive
Board Effectiveness Review and Ruth provides further details on the
process and the outcome of the review on pages 50 and 51.
During the year, the Quilter Board has re-confirmed the Company’s
purpose, values and strategy and satisfied itself that these and its
culture are aligned. The Board has reviewed and refreshed our Board
Charter to ensure it remains aligned to the new UK Corporate
Governance Code 2018. The Charter, as you would expect, requires all
Directors to act with integrity, lead by example and promote the culture
that we seek to embed across the Quilter Group. The Board, working
collaboratively with the Board Committees and the subsidiary company
boards that we have established across our main trading businesses,
ensure that a framework of prudent and effective controls are in place
to ensure that the full range of risks inherent in the running of our
businesses are assessed and managed. The Board satisfies itself
through the business planning process and the regular reports from
executive management that Quilter has the necessary resources to
meet its objectives. The Board regularly assesses management’s
progress in delivering against the Business Plan, Operating Plan and
achievement of its strategic priorities while continuing to ensure that
we are building a sustainable business that is mindful of the role it plays
in our wider society and the impacts of its actions on all stakeholders.
The Board has put in place appropriate mechanisms to ensure there
is effective engagement with its shareholders and other stakeholders
and examples of how this is working in practice are provided below.
Additionally, the Quilter Board, relevant Board Committees and our
subsidiary boards ensure that our HR policies and practices serve to
support and are aligned to our values and the delivery of long-term
sustainable success. This has been especially important during a
period of significant change for our colleagues.
The work of your Board in 2019
The work of the Board has been strongly influenced by the Group’s four
strategic priorities as described on page 45. Additionally, the Board has
received the following regular reports in 2019:
Report
Purpose
Chief Executive Officer’s report
Chief Financial Officer’s report
Chief Risk Officer’s report
Chief Operating Officer’s report
Customer reports
Investment performance reports
People reports
Updates on the Platform
Transformation Programme
Reports from the Chairs of our
Board Committees
Providing the Chief Executive Officer’s
perspective on the performance of the
business and progress against the
Operating Plan approved by the Board.
Tracking delivery of the Group’s financial
performance against the Business Plan
and prior year performance and other
key performance indicators. Key insights
on the Group’s capital and liquidity
position are also provided alongside
Investor Relations updates.
Providing a second line view on the
key risks in our business and the
effectiveness of management’s efforts
to mitigate those risks. The Chief Risk
Officer, the Chairman and other
executives regularly brief the Board
on key communications with the
Group’s regulators.
Briefing the Board on updates on the
developments in our Technology and
Operations areas and the Optimisation
of our business.
Providing valuable insights into how
the Quilter Brand is perceived, the
quality of the outcomes achieved
for our customers and identifying
opportunities to drive improvements
that will create value for our customers.
Ensuring the Board have clear line of
sight to how well Quilter Investors and
Quilter Cheviot have delivered strong
investment returns, in line with our
customers’ views on risk tolerance.
Ensuring that the culture and values
of the Group are well aligned to the
achievement of its purpose and strategy
and that we have engaged and
committed people.
Assessing the progress on delivering
this critical programme which will
benefit our customers and the advisers
who utilise our investment platform.
Ensuring that the wider Board are fully
briefed on the detailed work conducted
by the Board Committees.
Quilter Annual Report 2019
43
Strategic ReportFinancial statementsOther information Governance
Leadership and oversight continued
Building Quilter to deliver long-term success
for all our stakeholders
Section 172 (1) statement
The Companies Act 2006 (the Act) and the UK Corporate Governance Code 2018 require the annual report to provide information that enables
our stakeholders to assess how the Directors of Quilter have performed their duties under section 172 of the Act. The Act provides that Quilter
Directors must act in a way that he or she considers in good faith, would be most likely to promote the success of Quilter for the benefit of
shareholders as a whole. In doing so, Quilter Directors must have regard, amongst other things, to the factors set out below:
Stakeholders
Factors considered
Shareholders
Colleagues
The likely consequences of any decision in the long term
The Board has approved the purpose and strategy of Quilter which are described in our Strategic Report on pages 2 to 35. The Board believes that
delivery of that strategy, in line with our overriding purpose, will achieve long-term, sustainable success for all of our stakeholders (see below). All of
the Board’s decisions are therefore guided by the delivery of the Group’s purpose and strategy. On the following page we describe how the delivery
of the strategic priorities has been overseen by the Board.
The interests of Quilter’s colleagues
The Board receives regular reports from the Human Resources Director on the culture and engagement of our people. Those reports are
supported by detailed analysis of employee surveys conducted across the Group. It has been particularly important to monitor these issues closely
during a period of significant change when we have made additional demands on our colleagues. On page 45 we describe how the Board
considered the interests of colleagues in the delivery of our strategic priorities in 2019 and on page 47 Cathy Turner, the Non-executive Director
appointed to communicate the voice of our employees to the Board, reports on how she has communicated the thoughts and concerns of our
people to the Board. The Board Corporate Governance and Nominations Committee has overseen the development of the Group’s talent agenda
and the training and development of those identified as having the potential to be a future leader of our business.
Communities
The impact of Quilter’s operations on the community and the environment
The Board Corporate Governance and Nominations Committee oversees the Group’s responsible business activities and has endorsed the Shared
Prosperity Plan that is described on pages 10 to 15. The Directors have been briefed on the fast moving developments in this area. The Board
Corporate Governance and Nominations Committee is guiding the Group’s response to the various environmental, societal and governance
initiatives and the Board Risk Committee is monitoring progress on how these emerging risks are being managed.
Shareholders
Customers and
regulators
The need to foster the Company’s business relationships
The Board has been briefed on the progress made in implementing the Group’s procurement strategy. The Group is aiming to build mutually
beneficial, long-term relationships with a smaller supplier base. The Board believes this to be a more sustainable approach. Further information on
this issue is provided in the Responsible Business section on pages 10 to 15. There is further work to do in this area to ensure that a more holistic
approach is taken to managing our suppliers.
The need to act fairly between the members of the Company
Quilter is listed on both the London and Johannesburg Stock Exchanges and the expectations of shareholders holding Quilter shares on those two
exchanges on certain governance issues can vary materially. On page 47 we describe how we have engaged with our South African shareholders to
fully understand their wishes in relation to certain authorities that are considered routine in a UK context but are viewed with a different lens by
some of our South African shareholders.
The desirability of the Company maintaining a reputation for high standards of business conduct
The Board receives regular reports on the outcomes achieved for customers of Quilter and the external perception of the Quilter brand. Over the
page, we have set out how the Board has considered the interests of our customers when reviewing the delivery of our strategic priorities and in
considering some material transactions conducted during the year. The Chairman, Chief Executive Officer and the Chief Risk Officer report
regularly to the Board on the strength of the Group’s relationships with its main regulators and the work performed to ensure that the Group
meets their expectations.
Our key stakeholders
The Board has identified five key stakeholder groups whose interests
and needs the Board must regularly consider. When taking decisions,
the Board applies its judgement in how best to balance the sometimes
competing interests of these stakeholders to deliver long-term,
sustainable success for Quilter from which all stakeholders benefit.
The Group has taken steps to embed a deeper understanding of section
172 of the Act at a Quilter plc level and across our management
committees and subsidiaries. Presentations have been made by the
Quilter Corporate Secretariat team to the business to explain the
importance of the considerations referred to in section 172 (1) as part
of good decision making, to ensure that proposals coming to the Board
contain appropriate information on the potential impact of business
decisions on all of Quilter’s stakeholders and other relevant matters.
Examples of best practice have been provided and rolled out to the
business, with further explanation and guidance on directors’ duties
to ensure that section 172 (1) considerations remain at the heart of the
Group’s decision making at all levels. The governance in action case
studies provide insight into how Quilter has done this and the outputs
of these decisions.
44
Quilter Annual Report 2019
Customers
Shareholders
Quilter
Regulators
Colleagues
Communities
Governance
Leadership and oversight
Ensuring the delivery of our strategic priorities
1 Delivering on customer outcomes
Our strategy can only be successfully delivered in the long
term if Quilter delivers good customer outcomes and
strong investment returns while providing a high-quality
service to our customers. To achieve this the Board has:
• Supported and guided management in enhancing the
reporting on how well our businesses have delivered for
our customers. This enhanced reporting is enabling
management to be more forensic in identifying how we
can not only meet our customers’ expectations and our
regulatory obligations but also exceed expectations and
delight our customers.
• Received regular reports on the continuing re-branding
of our business to Quilter and to gain valuable insights
into how we are perceived by our customers and those
we would like to do business with.
• Monitored the communications with our customers on
fees and charges as required by the Markets in Financial
Instruments Directive (MiFID) II and encouraged
management to ensure that we are consistently clear
and transparent with our customers.
• Challenged management to improve the investment
processes and short-term investment performance of
certain active investment funds of Quilter Investors.
2 Advice and Wealth Management growth
To fulfil the potential of our strategy we must grow our
Advice and Wealth Management businesses. To that end
the Board has:
• Considered a range of growth opportunities across our
advice business, Quilter Financial Planning, and agreed
a small number of acquisition opportunities. Further
details on how the Board has approached these
transactions are set out on page 46.
• Worked collaboratively with the Quilter Financial Planning
Board to ensure that a robust process was followed for
these acquisitions.
• Monitored the recruitment of Restricted Financial
Planners for Quilter Financial Planning against the targets
set and how well Quilter Financial Planning is driving
greater adviser efficiency and leveraging the Financial
Adviser School.
• Monitored the recruitment of Investment Managers for
Quilter Cheviot to replace those that departed in 2018
and to ensure that our business model adjusts to build
customer loyalty to the Quilter brand.
• Overseen the completion of the build-out of Quilter
Investors.
3 Wealth Platforms growth
The Board Technology and Operations Committee
has dedicated significant time to the oversight of the
programme to deliver the new investment platform. The
Board has also received regular reports from the Chair of
that Committee and from management on the status of
the programme, on corrective actions when necessary
and on the implications of the programme for our
employees. The first phased adviser migration was
successfully completed in February 2020 and has provided
valuable insights into how our new investment platform
will operate at scale and the additional functionality it
provides for advisers.
In addition to monitoring the delivery of the Platform
Transformation Programme the Board reviewed early
executive plans to launch sales and marketing initiatives to
improve asset growth based on the enhanced proposition
and platform.
4 Optimisation
Our Chief Executive Officer, Paul Feeney, has made it clear
that Quilter is not the finished article and our Optimisation
programme is designed to realise synergies across our
business and to deliver on its potential. Your Board has
therefore:
• Considered regular updates from our Chief Operating
Officer on the key programmes that underpin our
Optimisation agenda.
• Discussed updates from our Chief Financial Officer on
the timely delivery of the financial benefits of
Optimisation.
• Received reports from our Human Resource Director on
the engagement of our employees, the extent to which
we are bringing our staff with us as part of the
Optimisation journey and the alignment of the Quilter
culture to our strategy. This was supported by a report
from Cathy Turner who attends our employee forums
and was nominated by the Board to ensure the voice of
our employees is heard by the Board.
• Received a report from our Chief Procurement Officer on
the strength of Quilter’s relationships with suppliers. We
were assured that we pay our suppliers on time although
there is more we can do in this area. Our aim is to build
deeper, mutually beneficial, long-term relationships with
a smaller supplier base.
Quilter Annual Report 2019
45
Strategic ReportFinancial statementsOther information Governance
Governance in action
Acquisitions by Quilter Financial Planning
Developing and enhancing our Advice business was identified as
key to driving the growth of the Quilter business and delivery of the
strategy. Late in 2018 management presented proposals for growing
the advice business and driving adviser productivity that were
endorsed by the Quilter Board. A key part of that strategy required
Quilter Financial Planning to acquire and integrate a number of
medium-sized acquisitions in addition to the smaller in-fill acquisitions
already being conducted.
Working in collaboration with the Quilter Financial Planning Board, the
Quilter Board approved two material acquisitions and set the financial
and other criteria that those acquisitions would have to meet to
ensure that good financial discipline is maintained and that any
transaction would deliver for all stakeholders.
Charles Derby Group is a business that Quilter has had a long-
standing relationship with as part of its network of advisers. The
Board reviewed the business case for the acquisition and satisfied
itself that it was well constructed, that risks and opportunities
associated with the acquisition were fully understood, that detailed
integration plans were in place and that a carefully considered
strategy had been agreed for the business post acquisition. The
business now forms part of the newly established National business
of Quilter Financial Planning.
Having identified Lighthouse Group plc as being complementary to
that of Quilter Financial Planning, the Board set clear parameters for
the price it was prepared to pay and considered the results of the due
diligence conducted by the business, with the input of third-party
experts, and the risks associated with the acquisition, including taking
account of the additional sensitivities given that Lighthouse was a
publicly listed company. The Board also considered how the
acquisition would benefit the customers of Lighthouse who would
gain access to the products and services of the wider Quilter Group
and the impact on Lighthouse employees of becoming part of the
Quilter Group.
In November 2019, having carefully considered the ability of the
business to integrate a further acquisition, the Board authorised the
acquisition of Prescient Financial Intelligence Limited to form part of
Quilter Private Client Advisers. The acquisition completed late in
December 2019.
The Quilter Board will be conducting post acquisition reviews of both
Charles Derby Group and Lighthouse in 2020 to ensure that the
benefits identified in the initial business cases have been delivered.
Sale of Quilter Life Assurance
Following a strategic review at the end of 2018, the Board concluded
in the first half of 2019 that the possibility of a sale of Quilter Life
Assurance, our ‘Heritage’ closed life business, should be explored.
The Board fully considered how such a sale could release value for
shareholders and impact the customers and employees of the
Heritage business. Our second line of defence highlighted the risks
associated with a potential sale including the management stretch
that pursuing such a transaction could create and the need to
address the stranded costs resulting from such a sale.
The Board approved the sales process that would be followed
by management, agreed the expected valuation range for the
business and appointed an ad hoc Board Committee to provide close
oversight of the transaction. The sales process was well handled by
management and the Board Committee endorsed the shortlist of
potential acquirers. The Board Committee reviewed the bids received
from potential acquirers and approved those bidders who should
proceed to the second round bidding process.
At the completion of the bidding process the Board approved the
recommendation to sell the business to ReAssure Limited having:
a) considered carefully whether the price being offered represented
good value for Quilter shareholders, based on the independent
financial advice received;
b) assessed the buyer’s reputation for customer servicing and
support. The Board received a report identifying the buyer’s strong
track record of high customer satisfaction and low levels of
customer complaints and its strong focus on customer outcomes;
c) confirmed that a sale to ReAssure would be an attractive outcome
for employees. Employees would be joining a growing, market-
leading business offering long-term employment and enhanced
career prospects; and
d) agreed that a material proportion of the net proceeds of the sale
should be distributed to shareholders and that shareholders should
be consulted on the method to be adopted for that distribution.
The sale of Quilter Life Assurance to ReAssure completed on
31 December 2019 and the Board has announced its intention to
commence a share buyback programme to purchase shares with a
value of up to £375 million subject to remaining within certain pre-set
parameters. The share buyback programme will be subject to staged
regulatory and Board approval.
46
Quilter Annual Report 2019
Governance
Governance in action
Engaging with our shareholders
Two resolutions at our 2019 AGM attracted more than 20% of votes
against from shareholders. Notably, there was a significant difference
in voting between the South African and UK share registers on these
two resolutions as set out below. Similar voting patterns are seen at
other dual UK/South African listed companies with the position for
Quilter exacerbated by the larger proportion of South African
shareholders on our share register.
In line with the UK Corporate Governance Code 2018, we have
sought to fully understand the views and concerns of South African
shareholders on both of these resolutions through a series of
meetings undertaken early in July 2019 and February 2020. The
steps we have taken to address these matters are set out below.
1) Political donations
What happened? The precautionary resolution to authorise political
donations and expenditure only received 75% support. On the UK
register, this resolution had 99% support. On the South African share
register, this resolution had only 61% support.
How the Board has addressed this matter. From the discussions
with shareholders, it is clear that in the current South African governance
context, any linkage between business and politics is a concern.
Quilter has no intention of making political donations or incurring
political expenditure but, in line with other listed UK companies, has
sought such authority as a precaution to avoid any inadvertent
breaches of UK company law, which is widely drafted. We believe our
South African shareholders now have a better understanding of the
purpose behind this resolution and we have set out in the Notice of
our Annual General Meeting examples of the types of situations that
could lead to accidental breaches of the legislation in this area which
is the primary reason for seeking this authority.
2) Authority to allot shares
What happened? The resolution to authorise Directors to allot
shares was not passed, with only 49.5% of shares voted in favour.
Listening to Quilter’s people
I was very pleased to be invited to attend the UK Employee Forum
in September 2019 on behalf of the Quilter Board. All of the Quilter
businesses were represented at the Forum and there was a lively
discussion.
Having announced the sale of Quilter Life Assurance to ReAssure in
August 2019 the meeting was well timed and I was very pleased to be
able to report to the Board that the communication of such a material
change for many of our colleagues had been very sensitively handled
in collaboration with ReAssure. The key issues discussed at the Forum
and reported on to the Board included:
• Recognition – positive praise for the Quilter Awards scheme but
also a recognition that, in a period of significant change, managers
need to provide even more encouragement and support for
their teams;
• Culture – Quilter is considered to have an open, listening culture
with mistakes seen as an opportunity to learn. The regular
On the UK share register, the resolution seeking the authority to
allot shares had 97% support. On the South African register, that
resolution had only 18% support.
How the Board has addressed this matter. The Board understands
that, given historical experience, there is reluctance amongst South
African shareholders to delegate authority to company directors to
issue shares. The authority to allot shares is a standard enabling
resolution for UK listed companies and the authority sought by Quilter
at the 2019 AGM was in line with UK Investment Association guidelines
and UK market practice. While our capital position is currently strong
and we have no plans to raise equity, we were concerned that not
having such an authority could, at some point, disadvantage Quilter
relative to our UK peers. Having discussed this extensively with
shareholders it became clear that the majority of South African
shareholders would support the granting of this authority but at
a much lower level than is normal for UK listed companies while
a minority would not be comfortable granting such an authority at
any level. Given these residual concerns and the Group’s current
very strong capital position, the Board has decided not to seek an
authority to allot shares at the 2020 Annual General Meeting.
Shareholder engagement
The Chairman has met regularly with shareholders on a range of
topics, including briefing them on Quilter’s approach to corporate
governance and hearing their views. This has included discussions
on how shareholders would wish to engage with the Chairs of the
Quilter Board Committees as recommended by the 2018 Corporate
Governance Code. These discussions are coordinated with and
supplemental to the regular meetings held by the Chief Executive
Officer and Chief Financial Officer with shareholders.
engagement surveys are seen as a positive enabler of an open
culture but it is important that managers demonstrate that the
feedback provided is acted upon;
• Communication – the language that we use to communicate
with our people must be simple and direct to be accessible to all
of our people;
• One Quilter – our colleagues value feeling part of a wider
organisation with a common purpose but need help to understand
better the role that each part of the Group plays in delivering for our
customers; and
• Technology – we do not always provide our people with the right
tools and technology to perform at their best and one of the aims
of our Optimisation programme is to address this.
Cathy Turner
Non-executive Director
Quilter Annual Report 2019
47
Strategic ReportFinancial statementsOther information Governance
Board Corporate Governance
and Nominations Committee report
Dear Shareholder,
The Quilter Board Corporate Governance and Nominations Committee
has three key responsibilities:
A nominations role, as set out in the UK Corporate Governance Code
2018, which focuses on the processes for establishing and maintaining
a Board that is “fit for purpose” for a public company; ensuring orderly
succession planning for Board and senior manager positions;
overseeing the development of a diverse pipeline for succession; and
promoting the long-term sustainable success of the Company in the
interests of all its stakeholders;
A governance role, to establish and maintain a robust corporate
governance framework, including standards and practices, both for
the Company and its main subsidiaries; and
An oversight role, for the development and delivery of the Quilter
responsible business agenda.
The Committee has discharged these functions by:
Nominations
• Evaluating succession planning with a particular focus on the
succession planning for senior executive roles. This included an
evaluation of the strengths of senior managers, any areas of
development and the plans being put in place to address these. The
succession planning involved identifying suitable emergency and
long-term succession candidates from the executives currently in the
business who would be ready to take on an enhanced role, if needed,
and whether any training and further development is required.
• Agreeing emergency succession plans for each of the key non-
executive positions on the Board, including the Chairman of the
Board and the relevant Committee Chairs. Although we are able to
identify strong emergency successors, it is still likely that some
external recruitment would be required for permanent successors,
given that the Board is not of a size to carry a pool of succession
candidates for a wide range of Board roles.
Governance
• Reviewing the material votes against the two resolutions at the
2019 AGM relating to the allotment of shares and political donations,
which I comment on in further detail on page 47, and agreeing the
approach to engaging with our shareholders.
• Reviewing the Board Charter, which sets out the roles and
responsibilities of all those on the Board and the exemplar
behaviours expected, in order to ensure that it is aligned to the
2018 UK Corporate Governance Code. You can find a copy of
our Board Charter on the Quilter website at
quilter.com/corporategovernance.
• Continuing to develop and approve the Quilter Group Governance
Manual that sets out the Quilter corporate governance framework,
as appropriate for a standalone listed company. A fuller description of
the Group Governance Manual can be found on the Quilter website at
quilter.com/corporategovernance.
• Continuing to develop and approve the Subsidiary Governance
Manual that sets out the minimum standards required of the Quilter
subsidiary boards and overseeing the recruitment of independent
Non-executive Directors to those Boards. Those appointments were
effected using selection processes that were aligned to those used
for appointments to the Quilter Board.
• Assessing the Quilter corporate governance framework to confirm
that Quilter has been compliant with the 2018 UK Corporate
Governance Code during 2019.
• Considering any potential conflicts of interest that have arisen during
the year and agreeing the process by which those potential conflicts
have been managed and mitigated.
• Considering the results of the Board and Board Committee
effectiveness review, facilitated by Professor Rob Goffee. A summary
of the process and results of the review are set out in more detail on
pages 50 and 51.
• Keeping under review the action plan to ensure that Quilter complies
with the 2018 UK Corporate Governance Code. This work ensured
that Quilter would be ready to fulfil the new reporting requirements
relating to Section 172 Companies Act 2006 on directors’ duties as
set out in more detail on pages 44 to 47.
• Considering the implications for Board and Board Committee
composition of Cathy Turner and Suresh Kana deciding not to stand
Committee activity
Board evaluation
Succession planning
Corporate governance
Responsible business
10%
40%
30%
20%
Glyn Jones
Chairman
For detail on Committee attendance,
see page 41.
48
Quilter Annual Report 2019
Governance
Board Corporate Governance
and Nominations Committee report
for re-election at the 2020 AGM. Egon Zehnder have been appointed
to help us identify their successors. Egon Zehnder provide some
advice and support to the Group on executive selection.
• The Committee has approved formal principles governing the
approval of new external appointments that a Director wishes to
adopt. In accordance with those principles, the Committee has
approved one significant appointment during the year for a Non-
executive Director, having carefully considered the implications for
time commitment, reputational risk and potential conflicts of interest.
Responsible business
• Carefully considering the rapid developments in environmental, social
and governance issues for Quilter both as an investee company and
as an investment manager.
• Endorsing Quilter’s approach to responsible business and approving
the responsible business strategy that is primarily delivered by the
“Shared Prosperity Plan”.
• Reviewing and approving the disclosures on responsible business on
pages 10 to 15 in this Annual Report and the separate Responsible
Business Report 2019 which is available at quilter.com.
Glyn Jones
Chairman
11 March 2020
Inclusion and diversity
We believe that diversity brings benefits for our customers, our
business and our colleagues. The Quilter Board has set a target of
having a minimum of 33% female board representation which is in
line with the Hampton-Alexander Review recommendations. I am
pleased that the current Quilter Board meets and exceeds that
target, with a gender split of 36% female and 64% male, as at
31 December 2019, and in particular that four of our five Board
Committees are chaired by women and our Senior Independent
Director role is also held by a woman. The Board Corporate
Governance and Nominations Committee will continue to seek a
diverse range of candidates in the recruitment of Directors to the
Quilter plc Board and its subsidiary boards.
The Committee acknowledges that there is more to do to increase
the number of women in senior leadership roles below Board level
and has encouraged management to develop strategies for
deepening the pipeline of diverse talent. We believe that all
colleagues should have the opportunity to reach their full potential
regardless of their age, gender, ethnicity, disability, religion, sexual
orientation, educational, social or cultural background.
We have published our Inclusion and Diversity Statement on our
website at quilter.com/careers/inclusion-and-diversity. Further
details of Quilter’s gender split can be found on page 11.
Board gender diversity
Target female representation
33%
36%
Actual female representation
Quilter Annual Report 2019
49
Strategic ReportFinancial statementsOther information Governance
Board Corporate Governance and Nominations Committee report continued
Board effectiveness review
Results and actions
Professor Goffee presented his report to the Quilter Board in May 2019,
which facilitated an open and constructive debate by the Board. The
key themes emerging from Professor Goffee’s report and the Board’s
debate were used to develop an action plan, which was reviewed and
considered by the Board at its meeting in June 2019.
Each Board Committee followed a similar process in dealing with
Professor Goffee’s report. As Senior Independent Director, I discussed
the feedback on our Chairman from the report with the other
Non-executive Directors and I met with the Chairman to brief him on
the results. The Chairman, in turn, met with each of the Non-executive
Directors to provide them with their individual feedback.
We identified some areas of focus for the future which formed the basis
of the action plan. The actions agreed have been fully supported by the
Board and are in my view being properly followed through.
Background and approach
As the Chairman explained in our 2018 Annual Report, as a newly
formed Board, we felt it was appropriate to commission a detailed,
independent and externally facilitated Board effectiveness review to
ensure that our Board is as effective as it can be. The effectiveness
review was conducted in line with the requirements of the UK Corporate
Governance Code 2018. At the time of publishing the 2018 Annual
Report, the Board was in the process of undertaking an evaluation
covering the 15-month period from 1 January 2018 and I am pleased
to be able to report on the process we undertook, the outputs from
the review and our approach in 2020.
Process
At the Chairman’s request, I led the review as Senior Independent
Director. Following a transparent selection process overseen by the
Board Corporate Governance and Nominations Committee, Quilter
appointed Professor Rob Goffee, Emeritus Professor of Organisational
Behaviour at London Business School, to facilitate the review
independently. Professor Goffee has no other connection to the Group
or any individual Director. The Board Corporate Governance and
Nominations Committee agreed the scope of the review and the
participants, with a view to examining the performance of the Board,
its Committees, individual Directors and the Chairman. The review
was carried out by means of a written questionnaire and individual
interviews with Professor Goffee. As part of the review, Professor
Goffee also interviewed certain key executives, such as the Company
Secretary, who routinely interact with the Board.
In addition to analysing the effectiveness of the core processes of the
Board and its Committees, Professor Goffee’s review also stimulated
debates on the depth of the Board’s engagement with the business
and whether the Board was allocating its time appropriately.
Ruth Markland
Senior Independent
Director
50
Quilter Annual Report 2019
Governance
Board Corporate Governance
and Nominations Committee report
Board effectiveness summary action plan
Focus areas
Actions taken
Challenge management to continue to
strengthen management capability
Continue to develop as a Board
Ensuring the Board spends its time on
forward-looking strategic issues
The Board Corporate Governance and Nominations Committee, supported by regular updates
from the Chief Executive Officer, the Human Resources Director, and the Directors of Talent and
Culture, has scrutinised the talent pipeline and reviewed management’s plans for the Executive
Committee members and their direct reports, on an emergency basis and in a 1-3 year time
period. In so doing, the Committee has challenged the executive to ensure there is appropriate
development, succession planning and diversity, including gender diversity, in its work.
In order to understand better the strength of future talent in the Group, the Board has also held
several breakfast meetings to meet up-and-coming talent from across the Group.
As a relatively new Board, the Board identified that there would be benefit from holding more
private sessions either with the Chairman and the Non-executive Directors alone or with the
Chief Executive Officer to enable them to exchange views and debate issues in more detail
together. At the same time, these sessions have enabled the Chairs of the Board Committees
to give more in-depth briefings where appropriate, for example on succession planning and
remuneration topics. This helps to ensure the whole Board is more directly engaged with the
work of all Board Committees.
These sessions are also used to provide scrutiny and feedback to management on the quality of
papers and to ensure that appropriate time is given to forward-looking strategic direction at meetings.
The Board recognised that, as Quilter matures, it wants to spend more of its time focusing on
strategically important issues, such as how it can exceed the expectations of our stakeholders.
Amongst other initiatives, this includes:
• challenging the executive to enhance the people and culture reporting, to enable the Board to
have appropriate insight into these important matters;
• enabling appropriate visibility and challenge around IT, operations and risk management
processes. As a result, the Board IT Committee’s remit has been formally widened to include
operations as described on page 61; and
• embedding our new corporate governance framework. As described on page 43, the
corporate governance framework is underpinned by close collaboration between the Quilter
Board and its subsidiaries. The Quilter Board will continue to work closely with the subsidiary
company board Chairs, their boards and board committees, to ensure that their crucial roles are
well understood and that they have the right tools and information to perform their roles well.
Committee evaluation
The effectiveness of each Board Committee was reviewed in 2019
as part of the Board effectiveness review. The results of the evaluation
confirmed that all the Committees are performing effectively overall.
Nevertheless, each Committee gave consideration to some proposals
for ensuring that they maintain and continue to enhance their
effectiveness as the business evolves and formulated an action plan to
ensure that this is achieved. The agreed actions include the holding of
private sessions without management present as an opportunity for
Committee members to reflect on the quality of the materials provided
to each Committee and to agree the key areas where the Committee
should focus its attention. The delivery of the action plans will be
overseen by the Chairs of the Committees and the Company Secretary
and regular updates will be provided to each Committee in 2020.
Looking ahead to the 2020 Board effectiveness review
We are currently embedding the agreed actions from the 2019
review and monitoring their effective implementation. The
Committee has recommended to the Board that the 2020 review
will be internally run and led by me, as Senior Independent
Director, with support from the Company Secretary. The 2020
review will be conducted by way of a written questionnaire and
engagement with Directors and key management, building on
the work done in relation to the 2019 review. I look forward to
updating shareholders in our 2020 Annual Report.
The benefits of conducting board effectiveness reviews are not
restricted to the senior company board in a Group. The
Committee has therefore encouraged the Quilter subsidiary
company boards to conduct appropriate reviews of their own
effectiveness and the Committee will be overseeing the outputs
of those reviews in 2020.
Quilter Annual Report 2019
51
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Governance
Board Audit Committee report
Dear Shareholder,
As Chair of the Board Audit Committee, I am pleased to present this
report of the Committee’s activities during 2019. The Committee has
continued to focus clearly on its key responsibilities of assisting the
Board in monitoring the Group’s internal control environment and
providing robust governance over the Group’s financial reporting.
A key component of this is to challenge the judgements made by
management and the estimates and assumptions on which they are
based, whilst ensuring appropriate disclosures. Ensuring that these
essential roles are conducted to a high standard is as much in the
best interests of our customers, employees, regulators and the
wider community in which we operate as it is to our shareholders.
Transparency and confidence in the financial performance and
financial position of Quilter is important to all of our stakeholders.
The Financial Reporting Council (“FRC”) Corporate Reporting Review
team wrote to us in November 2019 to inform us that they had carried
out a review of our 2018 Annual Report and Accounts and to request
further information on how we had satisfied certain reporting
requirements in respect of a small number of our 2018 year end
disclosures, including our Alternative Performance Measures (“APMs”).
I am pleased to confirm that our response enabled the FRC to close
its enquiries efficiently. As a result of the FRC’s comments, we have
enhanced the relevant disclosures in our 2019 Annual Report and
Accounts. The FRC asked us to make clear the inherent limitations of
their review, which are set out in the Financial Reporting section of this
report on page 54.
An important role for the Committee during the year was applying
challenge to the accounting judgements and estimates made in respect
of the acquisitions of Charles Derby Group and Lighthouse Group plc and
the sale of Quilter Life Assurance, which were key elements in delivering
the Group’s strategic priorities and reshaping its business. We have
also spent time monitoring the optimisation of the Finance function.
In 2019 we put the external audit contract for the Group out to
tender and, following a detailed and comprehensive process which
was closely overseen by the Audit Tender Sub-Committee, the Board
will be recommending the appointment of PwC as statutory auditor
for approval by shareholders at the 2020 AGM. The Audit Tender
Sub-Committee was appointed by the Board Audit Committee to
oversee the audit tender, with Rosie Harris as its Chair. This decision
was taken in light of my historical relationship with one of the audit
firms participating in the audit tender. I would like to extend my thanks
to the KPMG lead audit partner and the wider audit team for the
challenge and insight they have provided to the Group during their
tenure as our external auditor. Further details on the external audit
tender and transition process are set out on pages 56 and 57.
There is further information on how the Committee has discharged its
role in the coming pages. Our report to you is structured in four parts:
• governance;
• report on activities for the year;
• internal audit; and
• external audit, including the audit tender.
George Reid
Chair of the Board Audit Committee
Committee activity
Integrity of the financial
statements
Internal controls
Internal and external auditors
Regulatory compliance
and reporting
Governance
20%
15%
40%
20%
5%
George Reid
Chair of the Board
Audit Committee
For detail on Committee attendance,
see page 41.
52
Quilter Annual Report 2019
Governance
Board Audit Committee report
Governance
The Chair of the Committee and other Committee members have
recent and relevant financial experience, and the Committee as a
whole has competence relevant to the business sectors that Quilter
operates within. The Committee holds regular private sessions with the
leadership of both the internal and external auditors. The Chair of the
Committee also meets separately and regularly with the Chief Financial
Officer, Chief Internal Auditor and the KPMG lead audit partner.
Other Non-executive Directors have attended certain meetings of
the Committee throughout the year, in the interests of assisting with
their own responsibilities and learning about the work of the Board
Audit Committee.
The Committee has continued to work collaboratively and effectively
with other Board Committees, particularly the Board Risk Committee
and the Board Technology and Operations Committee, on matters
such as the oversight of the Platform Transformation Programme and
the approval of the internal audit plan. The Committee also relies on,
and is supported by, the detailed work conducted by the Audit
Committees and Governance, Audit and Risk Committees (“GARCs”)
of Quilter’s significant subsidiaries.
Report on activities for the year
The Committee agreed its forward agenda of business for 2019 at the
start of the year. That rolling agenda comprises recurring business,
cyclical business and other business. As recurring business the
Committee reviews and discusses:
Report
Financial reports
Internal audit reports
External audit reports
Reports on non-audit
services
Purpose
Briefing the Committee on significant financial
reporting matters and accounting policies,
significant accounting judgements and estimates
that will impact the financial statements, and the
status of the internal controls over financial reporting.
Providing the third line view on the control
environment and the responsiveness of
management in resolving audit findings, as well as
presenting regular updates and refreshes of the
internal audit plan.
Tracking the progress of the work of the external
auditors and presenting KPMG’s engagement
letters, annual audit plans and representation
letters for approval.
Ensuring the Committee has clear line of sight to
details of non-audit services requested of the
external auditors in accordance with the non-audit
services policy.
Reports from the Chairs
of the subsidiary Audit
Committees and GARCs
Ensuring that the Committee is fully briefed on the
detailed work conducted by the Audit Committees
and GARCs of Quilter’s significant subsidiaries.
Cyclical items reviewed by the Committee include:
Report
CASS reports
Whistleblowing reports
Actuarial reports
Purpose
Assessing compliance with the Financial Conduct
Authority CASS rules across the Group.
Providing assurance around the integrity of the
Group’s whistleblowing arrangements and details of
how any whistleblowing incidents have been resolved.
Enabling the Committee to review and challenge the
Solvency II and other prudential reporting for Quilter.
Quilter Annual Report 2019
53
Strategic ReportFinancial statementsOther information Governance
Board Audit Committee report continued
Details of work conducted in 2019
Financial reporting
The Group’s accounts are prepared in accordance with International
Financial Reporting Standards. Certain Alternative Performance
Measures (“APMs”) are used to add insight for Quilter’s shareholders
on the performance of the business, aligned with how the business
is managed. The use of APMs has been an area of close attention for
the Committee, as discussed later in this section.
The Committee has reviewed the Accounting Policies and confirmed
that they are appropriate to be used for the 2019 Quilter financial
statements. Detailed discussions have been held at Board Audit
Committee meetings on the adoption of IFRS 16 Leases as well as
the preparations for IFRS 17 Insurance Contracts and its impact on
the Group.
The Committee has also reviewed the basis of accounting, the
appropriateness of adopting the going concern basis of preparation
of the Group’s financial statements, and the Group’s viability statement.
In doing so, the Committee considered:
• the Group’s three-year business plan which includes consideration
of the economic, regulatory, competitive and risk environment; and
• the latest Group own risk and solvency statement, and internal capital
adequacy assessment process, which cover current and future risk
profile and solvency positions based on a series of core assumptions,
stress tests and scenario analysis.
The form of the viability statement and period covered by the
statement were considered by the Committee. The Committee was
satisfied with the content of the viability statement and supported the
time period of the statement which aligns with the three-year internal
financial planning cycle.
The Committee reviewed and challenged the Interim Results for 2019
and the Annual Report and Accounts for 2019. The Committee’s
reviews were supported by analysis and discussion provided by the
finance and actuarial teams, reports from the second line on the
solvency position and the reports of the external auditors. Having
considered these inputs and the Committee’s own independent
judgements, the Committee recommended to the Board the approval
of each of these sets of financial statements.
As noted above, certain clarifications have been made to the Group’s
2019 disclosures in response to feedback from the FRC following their
review of the 2018 Annual Report and Accounts. The FRC requested
that it be noted that their letter provides no assurance that the 2018
Annual Report and Accounts are correct in all material respects, and
that the FRC’s role is not to verify the information provided but to
consider compliance with reporting requirements. The FRC noted that
their review was based on the 2018 Annual Report and Accounts and
did not benefit from detailed knowledge of the Group’s business or
an understanding of the underlying transactions entered into.
Accounting judgements and estimates
The Board Audit Committee has continued to receive good support from the Quilter finance team which has enabled it to consider in advance of the
end of each reporting period the approach that it would wish to take on the key areas of judgement and estimates that impact the financial results.
Key judgements and estimates deliberated by the Committee during review of the 2019 Annual Report and Accounts included the treatment of:
Area of focus
Sale of Quilter Life Assurance
Acquisition accounting
Goodwill and intangibles
Provisions and contingent liabilities,
including voluntary customer redress
Deferred tax assets
Valuation of level 3 financial investments
Issue/role of the Committee
The Committee reviewed and challenged the accounting for, and disclosure of, the sale of
Quilter Life Assurance including considering the key judgements and estimates of provisions,
presentation of ongoing costs and the treatment of costs associated with the sale.
The Committee considered and challenged the treatment and financial impacts of the
acquisitions carried out during the year in the Quilter Financial Planning business, including
Lighthouse Group plc and Charles Derby Group.
Goodwill and intangibles were reviewed in detail to ensure that the amounts recorded in the
Group’s balance sheet are well supported and based on thorough analysis and testing of the
models and assumptions utilised. The Committee considered the sensitivity of the goodwill
calculation to various different assumptions, including stress scenarios.
The assessment and approval of provisions were regularly considered by the Committee, as
work progressed, ensuring compliance with International Accounting Standard 37. This work
involved a number of judgements which were carefully tested.
The Committee has reviewed the approach to the recognition of deferred tax assets, challenging
management’s assumptions and considering compliance with International Accounting
Standard 12 on income taxes.
The level 3 financial assets disclosed in Quilter’s financial statements chiefly relate to
policyholder funds where there is a matching investment contract liability. These assets can be
difficult to value and the Committee has taken an appropriately sceptical approach in reviewing
such valuations, whilst encouraging management’s efforts to enhance procedures to minimise
the valuation risks.
54
Quilter Annual Report 2019
Governance
Board Audit Committee report
In addition, the key performance indicators to be included in the
Operating and Financial Review were approved by the Committee
and the Committee is content that they have been appropriately
disclosed. Many of the above key areas of judgement and estimates for
the Committee are also commented on by KPMG in their Audit Report
on pages 95 to 103. The Committee has carefully reviewed the contents
of KPMG’s opinion and considers that KPMG’s views on these areas are
aligned with those of the Committee.
Fair, balanced and understandable
There has been a comprehensive review process to support the
Board in reaching its conclusion that the 2019 Annual Report is fair,
balanced and understandable and whether it provides the necessary
information for shareholders to assess the Group’s position,
performance, business model and strategy.
As part of the process to review and challenge the 2019 financial
statements, the Committee considered the processes and controls
in place to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the financial statements.
The Chair of the Committee has reported to the Board on this area.
Alternative performance measures
The Committee is cognisant that APMs are an area of particular focus
in terms of the understanding of the Group’s financial statements by
shareholders and other stakeholders and enhancements have been
made to these disclosures for 2019. Careful consideration has been
given to these disclosures and the Committee is satisfied that they
provide clear definitions and explanations of the APMs, as well as a
reconciliation of the APMs to the nearest IFRS measure which has
been cross-referenced to Quilter’s KPIs. See pages 212 to 214.
The process which enabled the Committee to reach this conclusion
included:
• the production of the 2019 Annual Report and Accounts,
managed closely by the Chief Financial Officer, with overall
governance and co-ordination provided by a cross-functional
team of senior management;
• cross-functional support to drafting the 2019 Annual Report and
Accounts which included input from Finance, Risk, Investor Relations,
Corporate Secretariat, HR and wider business leaders;
• a robust review process of inputs into the 2019 Annual Report and
Accounts by all contributors, to ensure disclosures were balanced,
accurate and verified, with further comprehensive reviews by
senior management;
• a review by the Company Secretary of all Board and Board
Committee minutes to ensure all material matters considered at
Board level meetings have been disclosed in the 2019 Annual Report
and Accounts;
• a specific management paper detailing the 2019 year-end assessment
of fair, balanced and understandable;
• a formal review by the Board Audit Committee of the draft 2019
Annual Report and Accounts in advance of final sign-off; and
• a final review by the Quilter Board of Directors.
CASS compliance
Monitoring compliance with the CASS rules, and the programmes
of work under way in each of the regulated businesses to maintain
appropriate CASS controls, is crucial to protecting the interests of
Quilter’s customers. The Committee performs this role by reviewing
CASS Reports produced by the external auditors and by management.
This has included overseeing the performance of third party suppliers
who manage the CASS arrangements in certain parts of the business
and monitoring the progress to deliver the CASS functionality required
as part of the Platform Transformation Programme.
Regulatory reporting
During the year, the Committee reviewed, challenged and
recommended to the Board for approval the Solvency II reporting for
the Quilter businesses for the 2018 year-end and, in doing so, were
supported by detailed reports on the disclosures from management,
the second line Actuarial function and the external auditors. The
Committee also scrutinised and approved the methodology and
assumptions to be applied to the 2019 year-end Solvency II reporting
and reviewed the 2019 year-end consolidated Capital Requirements
Directive IV disclosures for the Group ahead of their publication on
Quilter’s website.
Whistleblowing
Quilter is committed to ensuring a transparent and open culture that
encourages employees to speak up. To support this, it is important
that the Group’s whistleblowing arrangements are not only effective
in practice but are seen by staff and all other stakeholders as being fair,
rigorous and effective in resolving concerns. During the year, the
Committee has reviewed the whistleblowing processes in place across
the Group, assessing their effectiveness and benchmarking the level
of whistleblowing against global data from the provider of the Group’s
confidential whistleblowing reporting line. The Chair of the Board Audit
Committee is the Whistleblowing Champion for Quilter.
Having carefully reviewed and considered all relevant information, the
Committee is satisfied that, taken as a whole, the 2019 Annual Report
and Accounts are fair, balanced and understandable and has
confirmed that to the Quilter Board. This process was also undertaken
in respect of the Group’s 2019 Interim Results to ensure that, taken as
a whole, based on the information supplied to it and challenged by
the Committee, they were fair, balanced and understandable, and the
Committee advised the Board to that effect.
Controls over financial reporting
The 2018 Annual Report and Accounts reported that good progress
was being made to enhance the efficiency and overall effectiveness
of the internal financial controls and governance framework that
underpins the Group’s financial reporting. Management has reported
on the state of the financial control environment throughout the year
and the Committee is content with the level of progress that has been
made towards delivering the enhancements required. The Committee
has also received regular updates on the optimisation of the Finance
function. This involves implementing a new General Ledger which will
also further strengthen the Group’s control environment and improve
the use of data across the business.
Quilter Annual Report 2019
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Board Audit Committee report continued
Internal audit
Quilter’s shareholders and customers can take comfort that the
Group’s internal audit function is mature, appropriately focused and is
functioning efficiently and effectively. During the year, the Committee
approved the appointment of a new Chief Internal Auditor, Nick
Sacre-Hardy, following the appointment of the previous incumbent
as Chief Risk Officer. The appointment was concluded following a
comprehensive selection process which was overseen by the Chair
of the Committee.
In November 2019, the Committee approved a risk-based internal audit
plan for 2020 focused on the most critical areas for the Quilter business
and supporting the delivery of good customer outcomes. The internal
audit plan was formulated to complement the second line’s plan for
2020 and was reviewed in conjunction with the Board Risk Committee.
The Chief Internal Auditor has confirmed that he has the necessary
resources to deliver the 2020 internal audit plan, including having
access to third party specialist support when required.
Consistent with industry best practice and relevant standards it is
Quilter’s intention to commission an external quality assessment
(“EQA”) of the internal audit function in 2020. The last full EQA was
conducted in 2017 and, accordingly, the proposed timeline is in line
with typical financial services best practice of obtaining a full EQA every
three years. It is anticipated that the EQA will take place during the
second quarter of 2020. The review will include stakeholder interviews
and industry benchmarking as well as an assessment of the internal
audit function’s processes, audit files and reporting.
The Chief Internal Auditor attends all meetings of the Committee
and has reported in detail on the work conducted by Internal Audit
including key statistical analysis on the results of their work, the pace
at which management is addressing any issues raised and the extent
to which management have self-identified the issues being raised by
internal audit. This is an important indicator of the maturity of the
Group’s control framework and this measure is tracked closely.
The Committee has regular meetings with the Chief Internal Auditor
without management present, in accordance with best practice.
External audit
It is crucial that Quilter benefits from a robust, high quality external
audit conducted by an independent and professional audit firm. To this
end, the Committee has received regular and detailed reports from the
external auditors throughout the period, covering all aspects of their
work. The Committee has also assessed management’s response to
KPMG’s internal control findings. In advance of each Board Audit
Committee meeting, the Chair of the Committee meets separately
with KPMG’s lead audit partner, Jon Mills, to ensure the discussions
at Committee meetings are appropriately focused, challenging the
conclusions reached by management as well as the audit work
performed thereon. Jon Mills has been the audit partner for Quilter plc
and its predecessor group, Old Mutual Wealth, since the year ended
31 December 2016. Therefore, 2019 is his fourth year in this role.
56
Quilter Annual Report 2019
In addition to receiving KPMG’s regular confirmations of their
independence, the Committee has received quarterly reports from
management on the level of audit and non-audit fees paid to KPMG.
The 2018 Annual Report and Accounts explained that the level of
non-audit fees paid to KPMG in 2018 was above the Group’s policy
guidance of 25% of the audit and audit-related fee as a result of the
work KPMG conducted in relation to the Listing of Quilter plc.
As anticipated, there was a substantial reduction in the level of
non-audit fees paid to KPMG in 2019 (see table below), which were
well below the policy guidance.
Auditors’ remuneration
Audit fees
Audit-related assurance services
Non-audit fees
Total Group auditors’ remuneration
– continuing operations
Total Group auditors’ remuneration
– discontinued operations
Total Group auditors’ remuneration
2019
£m
3.7
1.1
–
4.8
0.2
5.0
2018
£m
3.2
1.2
2.3
6.7
0.2
6.9
KPMG partners and staff have attended all of the meetings of the
Committee in 2019 withdrawing only when their attendance would
be inappropriate, such as when the audit tender was discussed.
KPMG have contributed strongly to discussions on Quilter’s financial
statements, the financial reporting processes and key accounting and
reporting judgements. In October 2019 a survey was conducted by the
Company Secretary of management’s assessment of KPMG across
a range of criteria including; independence, objectivity, industry
knowledge, efficiency and, crucially, audit quality. The results of that
survey, which showed an improving trend on the prior year, and the
Committee’s own assessment concluded that KPMG are delivering an
effective audit. Some improvement areas were highlighted through this
review, including a need for enhanced articulation of the scope and
expectations of the audit and increased proactivity in respect of the
audit review process.
It was announced in 2019 that Quilter would be conducting an external
audit tender and that KPMG, who have audited the financial statements
of Quilter plc since 2008, would not be part of the tender process due
to the length of their tenure as the Group’s statutory auditor. This
process was overseen by the Audit Tender Sub-Committee, chaired by
Rosie Harris, and concluded in a recommendation to the Board that
PricewaterhouseCoopers LLP (“PwC”) be appointed as the Group’s
statutory auditor for the 2020 financial year. This recommendation was
endorsed by the Board and the appointment of PwC is included in the
2020 Notice of AGM for approval by shareholders. Further detail on the
tender process is provided on the next page. The Company has
complied with the Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender Processes and
Audit Committee Responsibilities) Order 2014 for the financial year
ended 31 December 2019.
The Board Audit Committee is closely monitoring the statutory auditor
transition process and the preparations for PwC’s first audit to ensure
their effectiveness. The key elements of PwC’s transition plan include:
confirming their independence; shadowing KPMG on the 2019
year-end process; and planning for the 2020 year-end audit, with a
particular focus on the Platform Transformation Programme which
is expected to complete during the year.
Governance
Board Audit Committee report
External audit tender
The audit tender process was conducted in line with the FRC’s
guidelines ‘Audit Tenders – Notes on Best Practice’ issued in February
2017 and we engaged with some of our largest shareholders prior to
initiating the tender to seek their views on the process.
A number of audit firms were engaged to consider their participation
in the audit tender. Due to KPMG’s tenure as statutory auditor to
Quilter (which includes the years during which Quilter was audited by
KPMG as part of the Old Mutual group), the Board and Board Audit
Committee concluded that KPMG should not be part of the tender
process. Deloitte were unable to participate due to their engagement
on the Platform Transformation Programme. We also engaged with
firms outside the ‘Big 4’ auditors, however, of those that expressed a
willingness to participate, there were limitations in terms of their
actuarial and geographic expertise which could have hindered their
ability to deliver a quality audit for Quilter. As a result, it was concluded
that two firms, EY and PwC, were sufficiently capable, willing and
independent to participate in the tender.
Under the 2018 UK Corporate Governance Code, committee chairs
should seek engagement with shareholders on significant matters
related to their areas of responsibility. We wrote to our top 20
shareholders to inform them of the tender process, timeline and
governance arrangements and invited them to engage with the
Chair of the Board Audit Committee as part of the tender process.
In coming to a decision, the Audit Tender Sub-Committee considered
a variety of key factors which included: the bidding firms’ ability to
deliver a high quality audit; their proposed approaches to the
transition process; their ability to effectively service all segments of
our business, including Quilter International in the Isle of Man; and
cultural fit. To inform these discussions, we sought the views of a wide
range of key stakeholders representing each of our businesses,
including the business CFOs, functional specialists and the Chairs of
the subsidiary Audit Committees and GARCs.
Rosie Harris
Chair of the Audit Tender Sub-Committee
External audit tender process timeline
02/19
The Board Audit Committee reviewed management’s proposed approach to the tender, the Request for Proposal (“RFP”) and the Scorecard
to be used for evaluating the bidding firms. The RFP was prepared in line with FRC guidelines and guidance from the ‘Big 4’ firms. The
Scorecard was developed and weighted around a number of identified critical success factors which included: audit quality (40%);
competence, experience and industry knowledge (25%); supplier capability and cultural fit (25%); and fees (10%).
04/19 The RFP was issued to the participating firms and they were granted access to documentation and information to build their understanding
of the business. Formal onsite meetings commenced between each firm and key Quilter personnel, including the business CFOs, functional
specialists and the Chairs of the subsidiary Audit Committees and GARCs. Both firms were supplied with the same documentation and
information and had equal opportunity to meet the same Quilter personnel to ensure a transparent and fair process.
05/19
06/19
The Board Audit Committee established the Audit Tender Sub-Committee, comprising independent Non-executive Directors, Rosie Harris,
Suresh Kana, Ruth Markland and George Reid, to review the pitches from the two candidate firms and to make a recommendation to the
Board on the preferred firm to be appointed as statutory auditor. Rosie Harris was appointed to Chair the Audit Tender Sub-Committee due
to the fact that George Reid and Suresh Kana have historical professional linkages with EY and PwC, respectively. Both firms submitted written
proposals in the response to the RFP.
The candidate firms presented their pitches to the Audit Tender Sub-Committee and key members of management were invited to share their
views on each firm gained throughout the tender process. Prior to the proposed audit fees being shared, the Audit Tender Sub-Committee
reviewed and scored the firms on the other critical success factors within the Scorecard, therefore the decision was based on quality rather
than the proposed fee. Following consideration of the firms’ presentations and the feedback from management, the Audit Tender Sub-
Committee reported to the Quilter Board that it was content that either of the two firms could deliver a high quality audit for Quilter and were
minded to recommend PwC as the preferred candidate. It was agreed that a final recommendation would be made following publication of
the results of the FRC’s 2018/19 Audit Quality Review.
07/19
PwC presented to the Audit Tender Sub-Committee to provide assurance regarding the findings of the FRC’s 2018/19 Audit Quality Review.
The Audit Tender Sub-Committee was satisfied that the proposed PwC Lead Audit Partner for Quilter and the wider PwC financial services
practice continued to have a strong track record of delivering quality audits and agreed that there was no reason to revise its preliminary
recommendation.
08/19
On the recommendation of the Audit Tender Sub-Committee, the Quilter Board resolved to appoint PwC as the Group’s statutory auditors
for the reporting period commencing on 1 January 2020.
Quilter Annual Report 2019
57
Strategic ReportFinancial statementsOther information Governance
Board Risk Committee report
Dear Shareholder,
I am pleased to provide an update on the work of the Board Risk
Committee in 2019.
The Committee’s purpose is to challenge management on the delivery
of our strategic ambition, whilst operating within our agreed risk
appetite. We examine the risks facing our business and provide
guidance, support and challenge to management to identify, manage
and mitigate these risks, whilst continuing to keep customers at the
centre of what we do and how we do it. The Committee reviews and
recommends to the Board the Group’s risk appetite and culture and
examines the risks associated with strategic projects. I am pleased
with the progress management have made in embedding a risk culture
in line with the Group’s risk appetite – it is strongly established and
supported by an appropriate risk framework.
2019 has been a year of change for Quilter both externally and
internally. External market conditions have been challenging, with
investment flows at historically low levels for the industry, and investor
confidence impacted by the headwinds of change in the global political
and macroeconomic environment. In the UK we saw economic and
political stability challenged by the protracted nature of Brexit. The
Committee ensured management remained vigilant to the largely
second order risks posed by Brexit to Quilter. We monitored the
emerging risks resulting from further legislative and regulatory
change and considered how these events could impact the delivery
of Quilter’s strategy and how best we could respond to them to
manage the impact for Quilter, our people and our customers.
As a business, we continued to mature and the Committee spent time
reviewing our changing risk profile as Quilter acquired new advice
businesses and sold our life assurance business. We are clear about
the risks associated with these changes, and the internal execution
risks the business must manage as we continue to evolve.
The Committee remained focused on the oversight of the Group’s top
risks and received a series of presentations from the business leaders
around the Group. These focused on the anticipated impact of the
Company’s top risks for our stakeholders, including our customers
and our people. Our meetings were informed by reports from
the Group Chief Executive Officer, Paul Feeney, and our risk and
compliance teams. We spent time examining the Group’s capital and
liquidity, reviewing the Group’s solvency and capital assessment and
the nature and impact of stress events and scenario analysis.
One significant change during the year was the appointment of a new
Chief Risk Officer, Matt Burton, previously Chief Internal Auditor, who
succeeded Iain Wright. I would like to thank Iain for his unstinting efforts
in developing a risk function appropriate for a listed company. Building
on these foundations, Matt has led the evolution of the risk function so
that we have appropriately experienced risk resource and expertise
aligned to our top risks. You can read more about the Group’s approach
to risk management on pages 30 to 34.
Looking ahead
The Committee has approved a calendar of business for 2020 to enable
it to meet its responsibilities and I review meeting agendas with the
Chief Risk Officer to ensure that any matters requiring our attention are
captured. We will continue to focus on identification and mitigation of
new and emerging risks, and changes that impact our businesses and
the Group. As our business matures, we remain vigilant to the risks in
the external environment and the extent of change within Quilter. We
will continue to scrutinise the performance of the business and the risk
function and work with the other Board Committees to ensure that we
keep Quilter safe. In 2020 we will benchmark the risk function against
industry standards and I look forward to sharing my thoughts on how
we are doing next year.
Rosie Harris
Chair of the Board Risk Committee
Committee activity
Top risks
ORSA/ICAAP/capital and
liquidity oversight
Business change
Regulatory change/update
45%
20%
20%
15%
Rosie Harris
Chair of the
Board Risk Committee
For detail on Committee attendance,
see page 41.
58
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Governance
Board Risk Committee report
During 2019, the CEO and CRO reports provided a comprehensive view
of the key risks and uncertainties being faced by the Group and allowed
the Committee to review and challenge how those risks are managed,
including those relating to net client cash flows and investment
performance, the delivery of change, liquidity and capital, operational
risk, conduct risk and regulatory compliance. These included the
following quarterly reports:
Report
Purpose
Chief Executive
Officer’s report
Providing the Chief Executive Officer’s perspective on the
Group’s top actual and emerging risks. As a result of this
we have asked management to provide further updates
on specific topics as set out below.
Chief Financial
Officer’s report
This provides an up to date overview of the Company’s
capital and liquidity positions against our risk appetite.
Chief Risk Officer’s
report
Providing the Chief Risk Officer’s perspective on
Quilter’s risk profile. This report includes the following
key components:
• The Quilter top risks report and business unit
snapshots. These reports provide a summary of
Quilter’s top risks including an analysis of status, cause,
mitigating action, and trend analysis. One impact of this
report is that it allows the Committee to commission
further deep dives from management on areas of focus,
such as people risk and third party management risk.
• An Emerging Risk Report identifying risks to Quilter as a
business from the external environment including an
assessment of likelihood and timescale. As a result of
this report, the Committee have asked management to
update them on issues like Brexit and impacts for our
customers of the MiFID II regulations. The Committee
further received bi-annual legal risk reports.
• A Regulatory Relationship report providing analysis and
commentary on the interactions with our regulators
globally and a Regulatory Change update which provides
horizon scanning and risk rating of likely change and an
impact assessment for Quilter. The Committee has
monitored closely how management have introduced
the new requirements of SMCR including the progress
on training for impacted colleagues and the
documentation of these requirements.
• A Compliance Monitoring report which provides an
update on progress on the business compliance
monitoring programme. Items of discussion have
included how we manage conflicts of interest within
our business, and we have challenged management
to consider this important issue more holistically.
• Conduct Risk Report – a report providing a snapshot into
our conduct risk and the impacts for our customers.
One impact of this report was for us to ask management
to review pricing for our customers.
• An update on the risk and compliance plans. The
Committee endorsed management’s decision to refocus
some of their resource on our top risks.
Our Strategic Priorities
The Committee spent time challenging management to safely deliver
the Group’s strategic initiatives with and on behalf of the Board.
1 Delivering on customer outcomes
consistently within the Quilter Group.
• Overseeing the work to embed the risk framework
• Remaining focused on the impact for our customers
of both internal and external activity and supported
management to provide greater insight into customer
reporting, including approving a revised customer
strategic risk appetite principle.
• Quilter Investors provided an update on the oversight
and successful separation from Merian under the
transitional services agreement and an update on the
approach to investment oversight.
2 Advice and Wealth Management growth
• Deep dives from Quilter’s key businesses on their current
and emerging risks. Given the acquisitions during the
year, we spent time ensuring management were
appropriately focused on managing and mitigating
advice risk.
• Working collaboratively with the Board Technology and
Operations Committee to ensure our new investment
platform is delivered safely.
3 Wealth Platform growth
4 Optimisation
• Hearing the Chief Operating Officer’s assessments
regarding the opportunities and challenges for
management to optimise the business and the Group
and how we are managing the execution risk of this
change. Given the changes within Quilter we asked for
updates on the oversight of change and change risk.
We challenged management to identify what was change
risk and what was execution risk and how this could be
managed and mitigated successfully.
Quilter Annual Report 2019
59
Strategic ReportFinancial statementsOther information Working in collaboration
• As part of the Board Effectiveness Review, the Board confirmed
that the Board Risk Committee would retain oversight of
operational risk and change. The Committee, which benefits
from some commonality of membership with both the Board
Audit Committee and the Board Technology and Operations
Committee, leveraged this shared membership to review and
challenge management on technology and operational change.
This included the work described on page 63 to support the
implementation of the new investment platform. Operational
risk arising from technology and oversight of Quilter’s most
strategically important technology suppliers, who are
concentrated in operations and technology, was also performed
by the Board Technology and Operations Committee.
Governance
Board Risk Committee report continued
Details of other work conducted in 2019 to support the delivery
of our strategy
Reviewing the own risk and solvency assessment (ORSA) and
internal capital adequacy assessment process (ICAAP) for the
Board, including the input from the Business Boards
• Review of the component parts of the ORSA and ICAAP – including
capital allocation, stress and scenario setting and testing. The
Committee relies upon the testing and challenge provided by the
regulated business boards to support this work. The Committee
further reviewed the interim ORSA and ICAAP prepared following
the sale of Quilter’s Life Assurance business.
• Input by the risk and internal audit functions to challenge the
approach taken by management.
• Reviewing the capital and funding plans for the Group and the
Group’s liquidity risk appetite and risk assessment.
• Review and challenge of the use of models and the associated risks,
.
noting that there is more work to do on this in 2020.
Managing regulatory and political change
• Identification and focus on top risks facing the Group and how the
Committee tested management’s views and plans to mitigate risks.
• Risk mitigation in planning for the risk of a disorderly Brexit including
a detailed impact assessment of operational risk for Quilter.
• Monitoring the political risk of a change in government.
• Regulatory change risk including:
– close monitoring of the introduction of the senior managers
certification regime for certain of our entities;
– updates from the Group’s Data Protection Officer on the impact
of new GDPR legislation and how this impacts how we manage
customer data;
– horizon scanning for identifying emerging risks and managing
future change, including environmental, social and governance risk
and climate change risk which you can read more about in our
Responsible Business report on pages 10 to 15. These areas
have been subject to detailed oversight by the Board Corporate
Governance and Nominations Committee; and
– a twice-yearly report on financial crime from the Group Money
Laundering Reporting Officer.
Keeping our business safe for all our stakeholders
• Making recommendations to the Board Remuneration Committee
and the Board in respect of risk adjustment for remuneration.
• Receiving regular reports from the chairs of the subsidiary Risk
Committees and GARCs.
• Examining the people top risk through discussion on stretch and
working through change. We asked management to review this more
forensically and keep focused on targeted solutions.
60
Quilter Annual Report 2019
Governance
Board Technology and Operations
Committee report
You can read more about the Committee, including a summary
of the Committee membership and how our skills and experience
support the Board in delivering long-term sustainable value on pages
38 to 41. Our key areas of focus are set out on the following pages and
the actions we have taken to address the findings from our Committee
evaluation can be found on page 51. You can also read our expanded
Terms of Reference at quilter.com/corporategovernance.
Looking ahead
The Committee’s priority is to ensure that management deliver the new
investment platform safely for our advisers and customers. In addition,
there are further technology and operations initiatives that support the
delivery of our strategy in our other businesses that we remain alert to
and scrutinise on a regular basis in order to manage down our costs
and mitigate our risks.
We will also continue to challenge management to ensure that our
businesses are operating in a controlled and safe way and to bring
technology and operational expertise to our business proposition,
enabling us to leverage technology to differentiate our business.
Moira Kilcoyne
Chair of the Board Technology and Operations Committee
Dear Shareholder,
I am pleased to present my second report as Chair of this Board
Committee. 2019 has been a further year of progress for Quilter’s
technology and operations. The Committee has remained focused
on providing effective oversight and challenge to management on
the delivery of our new investment platform. As the new investment
platform remains a core strategic objective for the Group, the case
study on page 63 provides insight into how we have overseen this
programme, including how we have worked with the Board, the Board
Audit Committee and the Board Risk Committee to ensure that this
critical programme is delivered safely and well for our customers,
our employees and our other external stakeholders.
Our technology strategy and a sound technology base will provide the
tools to accelerate the delivery of our business strategy for the benefit
of all our stakeholders. To this end, the Committee approved a new
technology strategy for Quilter that sets clear delivery focus for the
next few years. We are mindful and focused on ensuring that our
businesses continue to be resilient and that our technology is secure.
Investing in good technology and holding customer data securely
underpins our business and enables us to maintain the trust of our
advisers and customers. We continue to invest to keep our customers’
information safe. We remain alert to the risks posed by the external
environment and focused on risk mitigation so that we continue to
deserve your trust.
During the year, the Board agreed to expand the Committee’s remit to
explicitly include operations. This revised scope is one of the actions we
took as a result of the Board Effectiveness Review and provides joint
oversight and collaboration between technology and operations.
It demonstrates the Board’s desire to support management to deliver
our optimisation programme to make Quilter fit for the future. Led by
our Chief Operating Officer, Karin Cook, operations and technology
work in collaboration and we continue to support management in the
delivery of the strategy to support our continuing business growth.
We continue to work closely with the Board Risk Committee on issues
such as vendor risk and change programmes, where matters are of
mutual interest.
Committee activity
Platform Transformation
Programme and other change
programmes
Business deep dives
IT security and business
resilience
Technology and operations
strategy
65%
15%
10%
10%
Moira Kilcoyne
Chair of the
Board Technology and
Operations Committee
For detail on Committee attendance,
see page 41.
Quilter Annual Report 2019
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Strategic ReportFinancial statementsOther information Governance
Board Technology and Operations Committee report continued
Areas of focus for the Committee in 2019
During the year the Committee received the following routine reports
at its quarterly meetings:
Report
Purpose
Chief Information
Officer’s report
Chief Information
Security Officer’s report
Risk and control report
Providing the Chief Information Officer’s perspective
on the performance of technology and progress on
delivery of the technology strategy.
Providing the Chief Information Security Officer’s
perspective on the quality of the delivery of the
information security strategy including the control
of our data and Quilter’s approach to operational
resilience.
Reporting on the risk and control performance of
the business.
During the year, the Committee has further spent time on:
Implementation of the technology strategy
• Receiving reports from each business regarding technology and
how this is supporting the delivery of the business strategy,
including how it supports an enhanced client offering, products
and market position.
• By understanding and overseeing how technology is supporting
Quilter’s increasingly integrated business model and how the
businesses are leveraging the strength of the centres of excellence
created in technology and operations.
• Providing support to the Board Risk Committee by receiving deep
dives on change programmes in technology and operations. The
Committee has focused its time on how these changes are managed,
what lessons can be learnt and applied pan-Quilter and how these
changes will impact our customers and advisers.
• Review of each operational area and potential areas of automation
and optimisation.
• Received reports on management’s investment in control activity,
including IT security, to enhance our customers’ data security.
Cyber, security and operational resilience
• We have received a number of updates on Quilter’s operational
resilience and are mindful of the regulators’ focus on this important
issue. We have challenged management to do this in a prudent and
sensible way to manage our risk profile.
• We have reviewed the development of the Chief Information Officer
and Chief Information Security Officer’s functions, with a particular
focus on strengthening them, so that by resourcing these functions
appropriately we can ensure that we better protect Quilter and
our clients.
• Monitoring progress made by management on addressing the
security and data threats our business face. We have encouraged the
use of consistent metrics and reporting to show trends and identify
where lessons can be learnt and applied across Quilter.
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Governance
Governance in action
The introduction of our new investment platform
2019 has been an important year for the introduction of our new
investment platform. The Board agreed that delivery of our new
investment platform is the most critical strategic priority for the
Group and the Committee has been focused on providing guidance,
oversight and challenge to management as they work through this
complex and challenging project. The new platform enables us to
offer our clients and advisers more extensive services, a wider
product offering and enhanced capability.
Close collaboration between management and the Board
As the Chairman has explained in his report on the work of the Board,
the Board remain closely in touch with progress, with regular updates
being shared directly with the Board by senior management and the
risk function. The Committee has worked in collaboration with the
Board Risk Committee, Board Audit Committee and directors of the
Quilter Wealth Solutions UK Platform business to ensure that there is
appropriate challenge and scrutiny of management. We have been
fortunate to be joined by other members of the Board for certain
meetings who bring their experience and expertise to our
discussions. We remain committed to being transparent with
customers and the market and have ensured that we share any
significant milestones with the market when they occur. As part of
our work to ensure that there is readiness for the new platform, all
members of the Committee have individually been to visit our
Southampton office where the majority of the people who are directly
supporting our customers are based. We have spent time with the
people in our Client Services team, our finance and risk teams and our
technology teams, and heard first-hand from those on the front line.
Through updates from HR we have monitored the journey for our
employees whose roles will change as a result of the introduction of
the new platform and the approach and progress of the training
programme so that they are ready to support our advisers and
customers. We have carefully scrutinised the impacts for advisers
and customers and examined the communications programme
that will be rolled out to them.
A business partnership model
The introduction of the new platform is being delivered in partnership
with FNZ and with support from Deloitte to ensure that the outcome
for Quilter, advisers and customers is excellent. As well as receiving
reports from our joint Quilter/FNZ Steering Committee, senior
leaders from FNZ have been invited to attend part of our meetings
to share directly with the Committee their expertise and assessment
of the project. We have also challenged management to ensure that
Quilter and FNZ are ready to do business using the new platform.
There is direct engagement with the FNZ UK Board and management
routinely meet with our regulators to keep them well informed
about progress.
Lessons learnt from other Platform experiences
We know that our new platform is being rolled out at a time when
IT failures often hit the headlines and we have been rigorous in
challenging management to learn the lessons from other platform
projects and apply the lessons learnt to Quilter. Our Board has been
committed to delivering a quality migration experience for our
advisers and customers. The soft launch in 2019 and the phased
adviser migration which occurred in February 2020 have both
enabled valuable lessons to be learnt which have informed the roll
out of our new platform.
Extensive model of testing and dress rehearsals
The team have undertaken and continue to undertake extensive
testing and dress rehearsals to ensure that the new investment
platform is fit for purpose. This includes checking that our customer
data is migrated successfully and that the new platform can link to
external third parties to enable product functionality, financial and
risk controls. Our IT team have been asked to provide regular updates
on how Quilter’s existing systems will work with the new platform and
we remain focused on ensuring our current IT environment is stable.
At all times, we have listened to and challenged management to act
within risk appetite and to work collaboratively with risk and our
internal and external auditors.
Quilter Annual Report 2019
63
Strategic ReportFinancial statementsOther information Governance
Remuneration report
Annual statement from the Chair of the
Board Remuneration Committee
Dear Shareholder,
As Chair of the Board Remuneration Committee (the “Committee”),
I am pleased to present on behalf of the Board the remuneration report
in respect of the year ended 31 December 2019. This statement and the
accompanying report aims to ensure high levels of disclosure regarding
pay policy and transparency of remuneration decision-making.
Our current Remuneration Policy (“Policy”) was approved by
shareholders at the 2019 Annual General Meeting (“AGM”). We were
pleased to receive strong support from shareholders for the Policy
with 97% in favour, and I would like to take this opportunity to thank
you for the support received at that time. For information only,
we have included a summary of the Policy on pages 68 to 72.
We have made two amendments to the application of the Policy for
2020 and beyond, which I set out below, alongside the performance
outcomes in respect of the 2019 financial year and how we intend to
continue operating our Policy in 2020.
Key performance highlights
• IFRS profit (pre-tax, excluding amortisation, policyholder tax
adjustments and other one-off items) was £141 million for 2019,
compared to £131 million in 2018. For remuneration purposes, the
profit was £128 million for 2019, compared to £120 million in 2018.
• NCCF of £0.3 billion (excluding Quilter Life Assurance) was
disappointing. Despite this, gross flows were reasonably resilient
across the business.
• AuMA (excluding Quilter Life Assurance) increased by 13% during the
year to close at £110.4 billion, which reflects the in-year rebound in
equity markets.
• Expenses closely managed with the Optimisation programme,
delivering significant benefits.
• Good progress with strategic priorities, including the acquisitions of
Charles Derby Group and Lighthouse plc, the sale of the Quilter Life
Assurance business to ReAssure and the completion of the build of
Quilter Investors earlier than planned.
• Good progress on the UK Platform Transformation Programme
(“PTP”), which is in its final stage of delivery. We extended the timeline
and budget to ensure quality of delivery and the safe and secure
migration of advisers.
• Continued to develop an effective risk management culture, with
risk fully embedded in decision-making and the management of the
business. Strong solvency and liquidity position and operating within
risk appetite. Our technology and information security capabilities
are enhanced.
• Development of Customer Strategic Risk Appetite Principles aligned
to the Conduct Risk Framework, to provide greater insights and
customer focus, including governance, products and proposition,
customer experience, suitability and servicing.
Overall, and with specific reference to key remuneration drivers, 2019
has been a year of good performance relative to key annual financial
and non-financial targets.
Remuneration outcomes
• This robust business performance, combined with the Company’s
strategic progress and performance of the Executive Directors
against personal objectives, resulted in a short-term incentive (“STI”)
award of 79% of maximum for the Chief Executive Officer, and 83%
of maximum for the Chief Financial Officer. 50% of the awards will be
deferred into an award of conditional shares under the Quilter Share
Reward Plan (“SRP”), and will vest annually in equal tranches over
three years.
• These outcomes reflect a balanced view of performance, with the
Committee recognising that profit achievement and certain areas
of strategic progress were strong, whilst NCCF was disappointing.
• Reward outcomes are aligned with overall Company performance.
After adjusting for acquisition costs, no discretion was exercised to
override performance or variable pay outcomes.
Changes to the management team
In 2018, we announced that Tim Tookey would be stepping down as
Quilter’s Chief Financial Officer. Tim stood down from the Board on
13 March 2019, with Mark Satchel succeeding him with immediate
effect. Mark’s remuneration package as Chief Financial Officer is
included in this report. His pension allowance has been set at 10%
of base salary, in line with our Policy, to align pension provision and
benefits across all UK employees of the Group. Tim Tookey’s
remuneration outcomes for 2019 are also included in this report.
Committee activity
Group remuneration policy
Specific remuneration
arrangements
Remuneration schemes,
including all-employee schemes
Governance
10%
35%
30%
25%
Cathy Turner
Chair of the Board
Remuneration
Committee
For detail on Committee attendance,
see page 41.
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Governance
Remuneration report
Considerations for the year ahead
Looking forward, we continue to monitor executive remuneration
developments within the industry and the regulatory landscape,
and ensure that remuneration supports the alignment of executive
and shareholder interests and is consistent with the prudent risk
management of the business.
The Committee considered the overall remuneration arrangements
for the Executive Directors for 2020 in accordance with the Policy.
Key points are as follows:
• there will be no increase to the Executive Directors’ salaries at the
1 April 2020 review date;
Consideration of shareholders’ views
The Committee actively engages with shareholders and investor
bodies, and welcomes the opportunity to discuss their views on
relevant remuneration issues.
Prior to, and at, the 2019 AGM, shareholders provided feedback and
approval for the Director’s Remuneration Policy and Remuneration
Report. The Committee considered all feedback received from
shareholders and has reflected this where appropriate in the 2019
Report. The Committee welcomes engagement in advance of the
2020 AGM.
• the structure, performance metrics and maximum award level of the
STI awards in respect of 2020 will remain unchanged. STI for on-target
performance is set at 50% of maximum;
• the structure, performance metrics and maximum award
opportunity of the long-term incentive (“LTI”) grants in 2020, including
the maximum level of awards, will also be unchanged. However, the
Adjusted Earnings Per Share (“EPS”) growth rate required for full
vesting of the relevant element of the LTI award will be increased to
15% per annum, compared to 11% for awards granted in 2019, to
recognise an increase to the business’s long-term earnings growth
targets following the sale of Quilter Life Assurance; and
• there will be no increase in fees for the Board Chairman for 2020
and there will also be no increase to Non-executive Directors’ fees
for 2020.
Inclusion, diversity and the Gender Pay Gap
A key priority for the Company is to continue our commitment to an
inclusive culture and the equality and diversity of our workforce. Our
culture is central to our success. For 2019 we have reported a median
gender pay gap of 32% and a median bonus gap of 34%. The results
reflect the under-representation of women in senior roles, which we
recognise is a systemic issue facing the wealth management industry
and will require ongoing, multi-year efforts to resolve. We remain fully
committed to that cause through our membership of the Diversity
Project, as a signatory of the HM Treasury Women in Finance Charter
and the initiatives and targets we have to increase the number of
females across our senior management population. Further details
regarding our gender pay gap figures can be found on page 12 of the
Responsible Business Report.
Corporate Governance Code and shareholder guidelines
When establishing the Directors’ Remuneration Policy in 2018, the
Committee considered the remuneration changes detailed in the UK
Corporate Governance Code (“the Code”) and shareholder guidelines
on remuneration. The Policy already contains key elements featured
in the Code, including:
• a two-year post-vesting holding period, in addition to the three-year
vesting period, applies to the LTI;
• malus and clawback provisions apply to STI and LTI plans, including
a range of potential ‘trigger events’; and
• alignment of pension arrangements to the wider workforce, with
pension provisions for Executive Director appointments set at 10%
of base salary. Existing Executive Directors’ pension allowances were
reduced to 10% of salary effective from 1 April 2018.
In 2019, the Committee also developed a post-cessation shareholding
policy. Executive Directors will be required to hold shares for at least
two years following cessation of employment at the lower of the
minimum shareholding requirement (300% of base salary) or the value
of shares held at the point of departure (if the Executive Director is still
in the shareholding accumulation period following appointment).
Further details are provided in the Policy overview on page 72.
We are also harmonising benefits across the UK workforce and a minor
change to the Executive Directors’ core benefits provision is detailed in
the Policy and will take effect from 1 April 2020.
In accordance with the new regulations, the ratio of Chief Executive
Officer total pay to the lower quartile, median and upper quartile of
UK employees has been included in the Remuneration Report for
the first time.
Employee voice in the Boardroom
I am delighted to confirm the progress made on conveying the voice
of our employees to the Board during the year, which I assumed
responsibility for as the designated Non-executive Director. Details on
the progress made during the year can be found in the Corporate
Governance and Nominations Committee report on page 48. In 2020,
we aim to develop this process further by defining measurement
metrics and increasing the frequency of communications of the
employee voice to the Board.
Finally, I’d like to thank shareholders for their support and engagement
over the past few years. This will be my final report and statement
before standing down from the Board at the 2020 AGM. It has been an
honour to Chair the Committee and serve on the Board over the past
3.5 years, particularly through the Company’s demerger from Old
Mutual plc and Listing in 2018. I will be handing over my responsibilities
as Chair of the Committee to Ruth Markland. Ruth is the Company’s
Senior Independent Director and has been a member of the
Committee since August 2018. She brings extensive experience to the
role, having previously served as both the Senior Independent Director
and Chair of the Remuneration Committee at Standard Chartered plc
and Sage Group plc. I wish Ruth and the Company all the very best.
Cathy Turner
Chair of the Board Remuneration Committee
Quilter Annual Report 2019
65
Strategic ReportFinancial statementsOther information
Governance
Remuneration at a glance
The following pages detail the remuneration paid to our Executive Directors
and our Policy. These two pages summarise the key elements.
Components of remuneration
Salary
Benefits
Pension
Fixed pay
Short-term
incentive (“STI”)
Long-term
incentive (“LTI”)
Total
remuneration
Variable pay
How much our Executive Directors earned in 2019
Single total figure of remuneration – Executive Directors
The following chart sets out the aggregate emoluments earned by the Directors, pro-rated for qualifying services, in the year ended 31 December 2019.
Paul Feeney
749
Mark Satchel
401
601
62
Tim Tookey
159
200
1,065
82
£1,896
£1,064
£359
0
£’000s
500
1,000
1,500
2,000
2,500
Link between remuneration and business strategy
Short-term incentive
Performance indicators
Metrics in executive remuneration
2019 achievement
Profit
IFRS profit before tax1
Non-financial
Risk management
Customer outcomes
Strategic personal
performance2
60%
of 2019 STI awards
10%
of 2019 STI awards
10%
of 2019 STI awards
20%
of 2019 STI awards
86%
of max
70-75%
of max
60%
of max
70-90%
of max
Long-term incentive
Performance indicators
Metrics in executive remuneration
2019 achievement
EPS growth
EPS compound annual
growth rate (“CAGR”)
70%
of 2019 PSP awards
Shareholder value
Total shareholder return
(relative)
30%
of 2019 PSP awards
Results in 2022
Results in 2022
1 IFRS profit before tax (excluding amortisation, policyholder tax adjustments and one-off items).
2 Includes, but not limited to, key measures of performance such as NCCF.
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Governance
Remuneration at a glance
Shareholding
Paul Feeney
Mark Satchel (appointed 13 March 2019)
Tim Tookey (stepped down 13 March 2019)
Ownership as
% 2019 base salary1
292%
275%
305%
Minimum
Shareholding
required
(after 5 years)2
300%
300%
300%
1 Includes personal holdings and the estimated net value of unvested share awards which are not subject to performance conditions as at 31 December 2019.
2 Executive Directors have five years from the Company’s Listing date, or date of appointment, to meet the shareholding requirement.
Summary of the key elements of our Directors' Remuneration Policy
The table below provides a high-level summary of the key remuneration elements under our Policy, which was approved at our 2019 AGM.
The key elements of the Policy are set out in pages 68 to 72.
Base Salary
2020
2021
2022
2023
2024
Implementation for 2020
• Normally reviewed annually with effect from 1 April.
– Paul Feeney – £675,000
– Mark Satchel – £450,000
Short-Term Incentive
Total incentive award in respect of Company and individual performance.
1/3
1/3
1/3
Long-Term Incentive
Key performance measures and weighting:
• IFRS profit before tax (excluding amortisation, policyholder tax
adjustments and one-off items) (60%)
• Customer/Risk measures (20%)
• Personal objectives (20%)
Paul Feeney
• Maximum opportunity 200% of salary
Mark Satchel
• Maximum opportunity 200% of salary
Cash element of incentive outcome (50% of the whole award) is paid
in Q1 following the end of the performance year.
Deferred element of incentive outcome (50% of the whole award)
is granted in shares and vests in three equal tranches in Q1 2021,
Q1 2022 and Q1 2023 subject to the plan rules.
Awards subject to three-year performance period ending 31 Dec 2021.
Key performance measures and weightings:
• EPS CAGR (70%)
• Total shareholder return (“TSR”) ranking relative to FTSE 250 excluding
investment trusts (30%)
Paul Feeney
• Maximum opportunity 200% of salary
Mark Satchel
• Maximum opportunity 200% of salary
Award vests in Q1 following end of the performance period and subject
to further two-year holding period.
Key
Performance period
Vesting period
Additional hold period
Quilter Annual Report 2019
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Strategic ReportFinancial statementsOther information Governance
Directors’ Remuneration Policy (summary)
Remuneration Policy for Executive Directors
The following table summarises the key components of Executive Director remuneration arrangements, which form part of the Policy. The Policy
originally came into effect when the business Listed in 2018 and was supported by shareholders in a vote at the 2019 AGM, details of which are
provided on page 85 of this report. The full Policy document is contained in the 2018 Annual Report, which is available on the Company website.
Remuneration element
Base salary
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Proposed changes for 2020
No change in approach.
Essential to attract and retain Executive Directors with the calibre, personal skills and attributes to
develop, lead and deliver the Group’s strategy.
Base salaries are paid in 12 equal monthly instalments during the year and normally are reviewed
annually with increases effective 1 April. In reviewing base salaries the Committee takes into account
a number of factors, including:
• Group and individual performance;
• the skills, experience and level of responsibilities of the Executive Director and his/her market value;
• the scope, nature and size of the role;
• levels of increase across the wider employee population; and
• affordability, economic factors, external market data, business and personal performance.
The Committee considers the direct and indirect impacts of any base salary increases on total
remuneration.
There are no prescribed maximum salary levels, but any salary increases will normally be in line with
percentage increases across the wider employee population.
In specific circumstances, the Committee may award increases above this level, for example:
• where the base salary for a new recruit or promoted Executive Director has been set to allow the
individual to progress into the role over time;
• to reflect a material increase in the size or scope of an individual’s role or responsibilities;
• where a change is deemed necessary to reflect changes in the regulatory environment; and
• where the size, value or complexity of the Group warrants a higher salary positioning.
Individual and Company performance will be taken into account in determining any salary increases.
68
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Governance
Directors’ Remuneration Policy
Remuneration element
Benefits
Purpose and link to strategy
Operation
Benefits are provided to Executive Directors to attract and retain the best talent for the business
and to ensure that the total package is competitive in the market.
The Committee’s policy is to provide Executive Directors with a market competitive level of benefits
taking into consideration benefits offered to other senior employees in the UK.
Benefits currently provided to Executive Directors include:
• private medical insurance;
• life assurance;
• income protection; and
• personal accident insurance.
The approach for benefit provisions for Executive Directors is to be consistent and operated in line
with the rest of the UK organisation. As such, from April 2020 personal accident insurance will cease
to be provided as a core benefit. Specific benefit provisions are subject to regular review in line with
market practice and may be subject to change from time to time.
In line with other Quilter employees, Executive Directors can access discounted Company products
and are eligible to participate in the Company’s voluntary benefits which they fund themselves,
sometimes through salary sacrifice. Executive Directors are eligible for other benefits that are
introduced for the wider workforce on broadly similar terms.
They are eligible to participate in the UK all-employee share plans on the same terms as other
employees, including the Company’s Share Incentive Plan and Sharesave Plan.
Where the Committee considers it appropriate, other benefits may be provided on recruitment
or relocation for a defined period.
Any reasonable business-related expenses (including tax thereon if determined to be a taxable
benefit) can be reimbursed.
In line with other UK employees, there is no maximum monetary level for benefits as this is
dependent on the individual’s circumstances, market practice and the cost to the Company.
Maximum opportunity
Performance metrics
There are no performance conditions.
Proposed changes for 2020
From April 2020, personal accident insurance will cease to be a core benefit funded by the Company.
Remuneration element
Pension
Purpose and link to strategy
Operation
To provide a market-competitive contribution towards retirement benefits that helps to attract and
retain the best talent for the business.
Executive Directors are eligible to receive employer contributions to the Company’s pension plan
(which is a defined contribution plan) or a cash allowance in lieu of pension benefits, or a combination.
Contributions and/or a cash alternative are paid monthly.
Maximum opportunity
10% of base salary per annum.
Performance metrics
There are no performance conditions.
This is the same as the pension provision for the wider workforce.
Proposed changes for 2020
No change in approach.
Quilter Annual Report 2019
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Directors’ Remuneration Policy continued
Remuneration element
Short-Term Incentives (“STI”)
Purpose and link to strategy
The STI plan is designed to align remuneration with performance against financial and strategic
business plan targets and personal pre-determined goals, within the Group’s risk appetite and taking
into consideration the Company’s culture and values, on an annual basis.
A portion of any award is deferred and delivered in shares to aid retention, encourage long-term
shareholding, discourage excessive risk-taking and align the executive and shareholder interests.
Performance targets and weightings are reviewed and set annually by the Committee taking into
account business plans and the Company’s risk appetite.
STI awards are funded from the overall Group bonus pool, which is approved each year by the
Committee.
STI pay-out for on-target performance is set at 50% of maximum.
Overall pool funding is also subject to risk adjustment after the Committee’s consideration of
a comprehensive report from the Chief Risk Officer and recommendations from the Board Risk
Committee in relation to the nature and incidence of risk events and an overall assessment of risk
management relative to the Board’s risk appetite.
50% of any STI awarded to an Executive Director is normally deferred in the form of Conditional
Awards under the SRP, which vest annually in equal annual instalments over a three-year period
subject to the rules of the SRP.
Dividend equivalents may accrue on deferred awards during the deferral period and are paid in the
form of shares or, exceptionally, cash to the Executive Directors upon vesting.
Malus and clawback provisions apply to both cash and deferred portions of the STI awards as
described in further detail in ‘Risk adjustments, malus and clawback’ on page 78.
The maximum STI opportunity for Executive Directors is set at 200% of base salary for stretch
performance.
The STI plan uses a balanced scorecard of Group and individual performance measures, which
are aligned with the key strategic priorities of the Group and designed to deliver sustainable
shareholder value.
Performance is measured based on a mix of financial, strategic and personal targets. The splits
between the performance measures and relative weighting of the targets are reviewed by the
Committee at the start of each year and set out in the Annual Report on Remuneration. The majority
of any annual bonus is subject to challenging financial measures, with at least 50% of the scorecard
reflecting financial performance.
When determining the outcome of the performance measures, the Committee will seek the advice of
the Chief Risk Officer and the Board Risk Committee to ensure all relevant risk factors are identified
and the bonus pool and/or individual awards adjusted accordingly.
Specific measures, targets and weightings will be set by the Committee annually and disclosed on
a retrospective basis.
Operation
Maximum opportunity
Performance metrics
Proposed changes for 2020
No change in approach.
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Governance
Directors’ Remuneration Policy
Remuneration element
Long-Term Incentives (“LTI”)
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Proposed changes for 2020
No change in approach.
To incentivise and reward Executive Directors for achieving superior long-term business performance
that creates shareholder value and maximises sustainable shareholder returns.
LTI awards are made under the Quilter plc Performance Share Plan (“PSP”). Awards are normally
granted annually as nil cost options, which are subject to performance conditions. Awards normally vest
after three years, subject to the achievement of performance conditions and continued employment.
Financial performance targets are set annually by the Committee prior to the beginning of the
relevant performance period to provide alignment with the Company’s strategic priority of delivering
sustainable returns to shareholders over the long term. The targets may be subject to review and
possible amendment for future plan cycles.
Vested awards:
• are subject to a post-vesting holding period of two years during which the net-of-tax number of
shares may not normally be exercised or sold; and
• must be exercised within ten years of the grant date.
Dividend equivalents accrue during the vesting period and are released on the vesting date, or date
of exercise of the vested option. These will normally be delivered in the form of shares on an assumed
reinvested basis.
LTI awards are subject to malus and clawback provisions as described in further detail in ‘Risk
adjustments, malus and clawback’ on page 78.
The maximum annual value of a PSP award for any Executive Director is an award over Company
shares with a face value of 200% of base salary at the date of grant.
If the Committee deems that there are exceptional circumstances, such as the recruitment of a key
individual or a significant strategic initiative, the maximum PSP award may be increased up to 400%
of the Executive’s base salary.
Performance measures are selected by the Committee for the relevant plan cycle prior to the
beginning of the relevant performance period. Measures are designed to align with the Group’s
strategic priority of delivering sustainable returns to shareholders over the long term.
Performance measures currently include an adjusted EPS CAGR (pre-dividend excluding
amortisation and goodwill) and TSR Ranking relative to the FTSE-250 excluding investment trusts.
The Committee may introduce or re-weight performance measures so that they are directly aligned
with the Company’s strategic objectives for the performance period.
For each performance metric, a threshold and stretch level of performance is set. At threshold,
25% of the relevant element vests rising on a straight-line basis to 100% for attainment of levels of
performance between threshold and maximum targets.
When determining the outcome of the performance measures, the Committee will seek the advice
of the Chief Risk Officer and the Board Risk Committee to ensure all relevant risk factors are identified
and the award outcomes adjusted accordingly. The Committee also has discretion to reduce award
outcomes to nil if required, via a risk management assessment based on a report of risk exposures;
or to reflect financial underperformance not adequately reflected in the financial measures.
Quilter Annual Report 2019
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Directors’ Remuneration Policy continued
Remuneration element
Shareholding requirement, including post-cessation
Purpose and link to strategy
To align Executive Directors’ interests with those of shareholders.
Operation
The Group operates a mandatory shareholding policy under which Executive Directors are required
to build up and maintain a shareholding in the Company with a value at least equal to 300% of base
salary. Executive Directors are expected to meet the requirement within five years of Admission or,
for newly appointed Executive Directors, within five years of appointment if later.
At least 50% of any shares vesting under Quilter share plans (on a net-of-tax basis) are expected to be
retained until the shareholding requirements are met.
In accordance with changes to the Code, the Committee has developed a post-cessation
shareholding policy taking into account emerging market practice and shareholder guidelines.
Executive Directors will be required to hold shares for at least two years following cessation of their
appointment at the lower of the minimum shareholding requirement of 300% of base salary or the
value of shares held at the point of departure (if the Executive Director is still in the five-year
accumulation period).
Any shares purchased by an Executive Director from the open market (i.e. separate to shares
originally awarded under a Company share plan) will be excluded from the post-cessation holding
requirement. However, only 25% of the value of such purchased shares will count towards the
minimum shareholding requirement during employment. This will apply to shares purchased after
the date the post-cessation policy came into effect, in January 2020.
For any good leaver, unvested share awards that may be permitted to be retained shall vest on their
original vesting date(s) and remain subject to post-vesting holding periods post-termination.
The Committee has discretion to make adjustments to the shareholding and post-cessation
shareholding requirement in exceptional circumstances.
Proposed changes for 2020
The implementation of the post-cessation shareholding policy. No further change in approach.
72
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Governance
Annual Report on Remuneration
Audited
Content within an ‘Audited’ tab indicates that all the information
is audited.
Application of the Policy in 2020
Content within a shaded box indicates that the information
is planned for implementation in 2020.
The Annual Report sets out how the Policy of the Company has been applied in 2019 and how the Committee intends to apply the Policy going
forward. An advisory shareholder resolution to approve this report will be proposed at the AGM.
The table below sets out the single figure of remuneration for full financial year 2019 together with 2018 comparator figures.
Audited
Executive Director
2019
Paul Feeney
Mark Satchel – appointed to
the Board 13 March 20191
Tim Tookey – stepped down
from the Board 13 March 20191
2018
Paul Feeney
Mark Satchel – stepped down
from the Board 19 April 20181
Tim Tookey
Base salary
£’000
Benefits
£’000
Pension2
£’000
STI3
£’000
LTI4
£’000
Other5
£’000
Total
£’000
675.0
360.5
121.0
618.8
121.8
600.0
5.4
3.4
1.7
5.2
1.2
6.8
67.5
1,065.0
36.0
36.3
600.8
200.0
81.6
61.5
–
1.8
1.4
–
1,896.3
1,063.7
359.0
84.4
1,250.0
788.8
31.7
2,778.9
12.2
180.0
233.8
1,130.0
–
–
14.1
–
383.1
1,916.8
1 Mark Satchel’s and Tim Tookey’s remuneration is pro-rated for the periods served as a Director in 2018 and 2019 respectively.
2 Pension includes contributions made under the Group defined contribution pension scheme plus, where applicable, amounts received as a pension allowance.
3 The total STI awarded to Mark Satchel for the full year was £750,000. Further details of the STI awarded, including amounts received in cash and deferred under the SRP, can be found on
pages 75 to 78.
4 LTI includes awards vested for qualifying services during the year under the Joint Share Ownership Plan (see page 79), and remuneration attributable to share price appreciation which
is valued at £2,721 for Paul Feeney and £2,051 for Mark Satchel as at 31 December 2019.
5 Other includes dividends on Joint Share Ownership Plan and, in 2018, Old Mutual plc Sharesave Plan early exercise bonus for Paul Feeney and, in 2018, a grandfathered cash benefit
allowance for Mark Satchel which ceased on 1 April 2018.
Components of the single figure
Audited
Name
Paul Feeney
Mark Satchel – appointed to the Board 13 March 2019
Tim Tookey – stepped down from the Board 13 March 2019
Annual base salary
as at 1 April 2019
£’000
Total base salary
paid in 2019 for
qualifying services
£’000
Total base salary
effective 1 April 2020
£’000
675.0
450.0
–
675.0
360.5
121.0
675.0
450.0
–
Quilter Annual Report 2019
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Annual Report on Remuneration continued
Benefits
Benefits include life assurance, private medical cover, income protection and personal accident insurance.
Audited
Name
2019
Paul Feeney
Mark Satchel – appointed to the Board 13 March 2019
Tim Tookey – stepped down from the Board 13 March 2019
2018
Paul Feeney
Mark Satchel – stepped down from the Board 19 April 2018
Tim Tookey
Life assurance
£’000
Medical
£’000
Income
protection
£’000
Personal
accident
insurance
£’000
2.3
1.4
0.9
2.6
0.5
4.3
1.3
1.1
0.2
0.9
0.4
1.0
1.6
0.8
0.6
1.5
0.2
1.3
0.2
0.1
–
0.2
0.1
0.2
Benefits for 2020
In order for the benefits for Executive Directors to be consistent with all other employees, personal accident insurance will cease to be a core
benefit from April 2020.
Pension
Pension includes contributions made under the Group defined contribution pension scheme and/or amounts received as cash in lieu of pension
contributions due to the impact of HMRC limits. The pension provisions of Executive Director appointments are aligned to the pension
arrangements of the wider workforce, set at 10% of base salary. Existing Executive Directors’ pension allowances were reduced to 10% of salary,
effective from 1 April 2018.
Audited
Name
2019
Paul Feeney
Mark Satchel – appointed to the Board 13 March 2019
Tim Tookey – stepped down from the Board 13 March 2019
2018
Paul Feeney
Mark Satchel – stepped down from the Board 19 April 2018
Tim Tookey
Pension for 2020
No changes to the approach.
Cash in lieu of
pension contribution
£’000
Contribution to
pension scheme
£’000
Total contribution
£’000
67.5
28.0
36.3
84.4
9.2
180.0
–
8.0
–
–
3.0
–
67.5
36.0
36.3
84.4
12.2
180.0
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Quilter Annual Report 2019
Governance
Annual Report on Remuneration
2019 Short-Term Incentive (“STI”) Awards
This reflects the total STI awards to be paid in 2020 based on performance for the year ended 31 December 2019. The value includes both the cash
element and the portion deferred into shares (50% of the award).
For the purpose of determining the 2019 STI outcome, the Committee assessed the performance of the business and the individuals by reference
to a balanced scorecard of Financial (60%), Customer/Risk (20%) and Strategic Personal performance objectives (20%) in line with the Directors’
Remuneration Policy.
Group financial achievement
Audited
Group financial performance measures
IFRS profit before tax (excluding
amortisation, policyholder tax adjustments
and one-off items)
Weighting as %
of total STI
opportunity
Threshold
(25% of max)
Target
(50% of max)
Maximum
(100%)
Outcome
STI as %
of max
60%
£90m
£112m
£134m
£128m
86%
IFRS profit reconciliation
In determining the outcome of the Group financial metric shown above, the Committee considered the impact of key programme and acquisition
costs on IFRS profit and approved a discretionary downward adjustment to IFRS profit for STI purposes to ensure it reflected a fair and reasonable
outcome for the overall performance achieved. The adjustments are detailed in the schedule below, which provides a reconciliation between
reported profit, the STI target and STI outcome.
Audited
2019 profit reconciliation
Adjusted profit before tax (before financing costs)
Debt financing costs
Adjusted profit before tax (after financing costs)
UK Platform Transformation Programme (“PTP”)1
Optimisation
One-off Managed Separation costs1
Quilter Life Assurance restructure
Unplanned acquisition costs2
Reported profit
£235m
(£10m)
£225m
(£57m)
(£18m)
(£6m)
(£3m)
–
STI target
£230m
(£10m)
£220m
(£67m)
(£29m)
(£12m)
–
–
STI outcome
£235m
(£10m)
£225m
(£67m)
(£18m)
(£12m)
(£3m)
£3m
IFRS profit before tax (excluding amortisation, policyholder tax
adjustments and one-off items)
£141m
£112m
£128m
1 The PTP and one-off Managed Separation costs relate to the rebrand of certain entities alongside the PTP programme. Although actual costs for these items were below the plan
expectation for the year, some of this underspend relates to the extended timeline of PTP delivery communicated to the market during 2019 and those costs are still expected to be
incurred at a later date. As such, the Committee approved an adjustment to these amounts to remove the benefit of below-plan spend in the outcome.
2 These costs relate to the acquisition of Lighthouse plc that were not anticipated in the original plan target. As such, the Committee approved an adjustment to neutralise the impact of
these costs on the outcome.
Quilter Annual Report 2019
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Annual Report on Remuneration continued
Group risk and customer performance achievement
Key Group non-financial objectives represented a maximum of 20% of the total STI opportunity. The risk measure assesses the effectiveness
of risk management at an overall corporate level for each of the Executive Directors. For the Customer element of the scorecard, performance
was assessed against key risk and performance indicators covering customer strategy and governance, product and proposition, customer
experience, advice, suitability and customer on-boarding and post-advice servicing as measured by the Company’s Customer Strategic Risk
Appetite Principles (“SRAP”), as well as a qualitative assessment of broader customer focus. Performance commentary is given in the table below.
Audited
Customer and Risk
Performance measures
Executive
Director
Weighting as %
of total
STI opportunity Key achievements in the year
Outcome as
% of max
70%
Paul Feeney
10%
• Strong risk culture promoted within the business and evidenced in
strategic decisions.
• Effective risk management framework, processes and governance forums.
• Active management of the most significant risks with adequate capital held.
• Strategic Risk Appetite Principles (“SRAP”) operated within the thresholds
throughout 2019.
Mark Satchel
10%
• Senior Managers and Certification Regime (“SMCR”) introduced.
• Clear risk consideration in key decisions and risk assessments within the
75%
business planning process.
• Significant progress in financial risk management and developing
underlying KPIs.
• Strong contribution to risk governance forums, including as Chair of the
Capital Management Forum.
• SRAPs operated within the thresholds throughout 2019.
• Strong regulatory relationships; delivered all commitments to the PRA
and FCA.
Tim Tookey
10%
• Prudent management of our first set of Financial Statements and annual
65%
Risk Management
Framework
Effectiveness
Risk Management
Framework
Effectiveness
Risk Management
Framework
Effectiveness
results as a Listed company.
• Thorough handover to successor, before stepping down from the Board
on 13 March 2019.
10%
• Implementation of customer metrics aligned to the Conduct Risk
Framework with focus on delivering good customer outcomes.
60%
• Medium and long-term investment performance of Quilter Cheviot’s
discretionary funds continued to outperform relevant ARC benchmarks,
with first or second quartile performance over 3 and 5 years, and top
quartile over 10 years.
• Medium and long-term investment performance of Quilter Investor’s
multi-asset funds have remained strong, albeit short-term performance
has been mixed. New blend and income solutions launched to meet
customer needs.
• Operational best practice, technology and customer service capability
improvements are being implemented in the advice business.
Customer
Outcomes
Paul Feeney,
Mark Satchel
& Tim Tookey
76
Quilter Annual Report 2019
Governance
Annual Report on Remuneration
Strategic personal performance – achievement
Personal objectives represented a maximum of 20% of total STI opportunity. A performance commentary is given in the table below.
Audited
Executive
Director
Paul
Feeney
Weighting as %
of total STI
opportunity Overview
20%
Objectives for 2019 were
focused on the strategic
development to maximise
future growth potential,
whilst achieving strong core
business performance
and creating value for
shareholders.
Outcome as
% of max
70%
Key achievements in the year
• PTP prudently managed and poised for delivery in 2020.
• NCCF is an important lead indicator and the Committee determined
that performance was weaker than expected.
• Optimisation programme with over £20 million in run rate benefit
delivered.
• Significant activity in acquisitions and disposals.
• Raised awareness on the importance of mental wellbeing; Quilter
‘Thrive’ programme sponsor and a leading figure within the wealth
management industry on mental health.
Mark
Satchel
20%
Objectives were to transition
into the Chief Financial Officer
role, deliver strong
cost management across
the business and support
our Optimisation goals,
as well as lead the tender
for audit services.
• Smooth transition into the Chief Financial Officer role in March 2019,
engaging effectively with all stakeholders and delivering a strong first
set of financial results.
• Instilled strong cost discipline, helping to achieve Optimisation benefits
90%
ahead of initial targets.
• Led strategically important activity, including significant acquisitions in
the advice business and the strategic review and subsequent sale of
Quilter Life Assurance.
• Led a successful audit tender process.
Tim
Tookey
20%
Focus in the first few months
of 2019 was to deliver our first
annual results as a listed
company, whilst ensuring
a smooth handover
of Chief Financial Officer
responsibilities.
• Reported our first public annual results to market, ensuring the
50%
Company was set up to meet its commitments as a Listed company.
• Facilitated a seamless handover of the Chief Financial Officer role.
Quilter Annual Report 2019
77
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Annual Report on Remuneration continued
Risk consideration
As part of the review, the Committee considered whether the overall STI outcomes were appropriate in the context of overall Group performance,
business performance and individual strategic/personal objectives, and whether any exceptional risk events occurred which, in the Committee’s
opinion, may have materially affected the STI outcome. The Committee also considered an annual risk report and the recommendations of the
Chief Risk Officer and Board Risk Committee in respect of the incidence and materiality of any risk issues arising during the year and an overall
assessment of risk management relative to the Board’s risk appetite and risk culture across the business. The Committee decided that no
discretionary risk-based adjustment was required at either an overall pool or individual level.
Deferral policy
In line with our Policy, 50% of the Executive Directors’ 2019 STI awards will be deferred into a conditional award of Ordinary Shares under the SRP
and will vest in equal annual instalments over a three-year period, subject to continued employment and malus and clawback provisions in
accordance with the rules of the SRP.
Audited
Executive Director
Paul Feeney
Mark Satchel
Tim Tookey
Total
£’000
% of salary
1,065.0
600.8
200.0
158%
167%
165%
Deferred bonus1
% of salary
79%
83%
83%
£’000
532.5
300.4
100.0
To be paid in cash
% of salary
79%
83%
83%
£’000
532.5
300.4
100.0
1 A grant of shares equal in value to the deferred bonus will be awarded to each of the Executive Directors. The awards are expected to be granted in late March 2020 on a date determined
by the Company, with the number of shares awarded based on the preceding day’s closing share price.
Short-Term Incentive (“STI”) for 2020
In line with our Policy for 2019, both Executive Directors are eligible to receive up to 200% of base salary. Performance will be based on
a combination of Group financial performance targets as well as strategic (including customer and risk measures) and personal measures.
The percentage weightings will be the same as in 2019. Actual targets have not been disclosed due to commercial sensitivity. Group financial
targets will be disclosed in the 2020 Annual Report.
2019 Long-Term Incentive (“LTI”) Awards
LTI awards vested during the year under the legacy Joint Share Ownership Plan (“JSOP”).
Audited
Paul Feeney
Mark Satchel
Tim Tookey
Quilter Shares
54,415
41,025
–
2016 JSOP1
£’000
81.6
61.5
–
1 A tax charge on these awards was triggered on the Managed Separation and Listing of the Company and sufficient shares to satisfy that liability were released at that point, as described
under Legacy Arrangements below. The remaining shares were subject to continued vesting under the rules of the JSOP and vested to participants on 22 July 2019; the amount shown
above represents the closing value on that date. 50% of the vested shares are subject to a 12-month holding period from the date of vesting.
Legacy arrangements
As disclosed in our 2018 Remuneration Report, the JSOP was implemented for certain key employees of Quilter in 2013, with the final grant of
awards in 2016. The plan was designed to reward participants for the achievement of strategic objectives, value creation and other profitability
metrics over a three-year period. It provided participants with an interest in the capital growth of the Company by granting joint ownership of
shares in Old Mutual Wealth Management Limited (now Quilter plc) with an employee benefit trust (“EBT”), whereby the trust owned the principal
value of the shares and the participants owned any growth in value during the vesting period. On the Managed Separation and Listing of Quilter
plc, the trust exercised a call option to acquire the participants’ interest in the shares based on the growth in value of the Company between grant
and Listing, in return for consideration shares in the Company. Some of the shares under the plan vested at this point, some in December 2018
and the remainder of the shares vested in July 2019 subject to the rules of the JSOP. The JSOP has now fully vested.
78
Quilter Annual Report 2019
Governance
Annual Report on Remuneration
Long-Term Incentive (“LTI”) Awards granted in 2019
Executive Directors are eligible to participate in the Performance Share Plan (“PSP”), which is a LTI plan. The awards granted in 2019 are subject to
the following performance conditions:
Audited
Performance condition
Adjusted EPS CAGR (2018-21)2
Relative TSR3
1 Straight line interpolation between points.
2 Pre-dividend excluding amortisation and goodwill.
3 Ranking relative to the constituents of the FTSE 250 excluding Investment Trusts.
Weighting
70%
30%
Threshold1
(25% vesting)
Maximum1
(100% vesting)
5%
11%
Median
Upper quartile
At the end of the three-year performance period, the Committee will critically assess whether the formulaic vesting outcome produced by the
criteria is justified. To do this, the Committee will look at a number of factors, including whether the result is reflective of underlying performance
and has been achieved within the Company’s agreed risk appetite. If such considerations mean that the formulaic outcome of the vesting schedule
is not felt to be justified, then the Committee can exercise downward discretion.
The Committee also wishes to note that it intends to consider the impact of the following events on the 2018, 2019 and 2020 (noted below) LTI
awards at the respective vesting dates and may consider any adjustments to ensure that performance can be appropriately assessed on a fair
and consistent basis under the performance conditions:
• the sale of the Quilter Life Assurance business, which completed on 31 December 2019;
• the distribution of proceeds from the sale of the Quilter Life Assurance business to shareholders; and
• the impact of effective tax rate movements on earnings per share growth.
The Committee will seek independent advice to reach decisions regarding any adjustments to the outcome of vesting. Any adjustment approved
by the Committee will be fully disclosed and explained in the relevant Remuneration Report.
Vested LTI awards (excluding sales to settle tax on vesting) are subject to a further holding period of two years, such that the minimum period
between the date of grant and release is five years.
The following PSP awards were granted in respect of the 2019 performance year:
Audited
Executive Director Form of award
Date of award
Basis of award
(% of salary)
Share price at
the date of grant
Nil cost
options awarded
Face value
of award1
% vesting at
threshold
Performance
period
Paul Feeney
Mark Satchel
Nil-cost
options
Nil-cost
options
25/03/2019
200%
141.58p
953,524
£1,350,000
25%
2019–2021
25/03/2019
200%
141.58p
635,683
£900,000
25%
2019–2021
1 The face value of the award figure is calculated by multiplying the number of shares awarded by the share price of 141.58 pence.
Quilter Annual Report 2019
79
Strategic ReportFinancial statementsOther information Governance
Annual Report on Remuneration continued
Performance Share Plan (“PSP”) 2020
The Committee intends to grant Executive awards over nil cost options with a face value of 200% of base salary. There is no change proposed to
the metrics or their respective weightings. However, the stretch performance requirement in respect of Adjusted EPS CAGR has been increased
to reflect the change in long-term earnings growth targets of the Company following the sale of Quilter Life Assurance. Threshold performance
will remain at a CAGR rate of 5% but the maximum performance target will increase from 11% to 15%. There is no change to the threshold and
maximum outcome performance targets for the TSR component.
For 2020, the following performance conditions will be used:
Performance condition
Adjusted EPS CAGR (2019-22)2
Relative TSR3
1 Straight line interpolation between points.
2 Pre-dividend excluding amortisation and goodwill.
3 Ranking relative to the FTSE 250 excluding Investment Trusts.
Weighting
70%
30%
Threshold1
(25% vesting)
Maximum1
(100% vesting)
5%
15%
Median
Upper quartile
All-employee share plans
In 2019, the Company initiated a Save As You Earn (“SAYE”) scheme. The scheme invited all employees, including Executive Directors, to save up to £500
on a monthly basis for either a three- or five-year term. At the end of the savings period, employees have the option to purchase Company shares
at a discounted option price, which was set at the beginning of the scheme. The scheme commenced on 1 July 2019 with an option price of 125p.
Paul Feeney entered into a five-year savings contract at a monthly savings amount of £500, providing an option at maturity over 24,000 Quilter
shares. Mark Satchel entered into a three-year savings contract at a monthly savings amount of £500, providing an option at maturity over 14,400
Quilter shares.
The Company also operates a UK tax-advantaged all-employee Share Incentive Plan (“SIP”). The SIP was used in 2018 to make an award of free
shares to the value of £2,000 to all UK employees (including Executive Directors) shortly following Admission.
Non-executive Director total remuneration
The total remuneration for the Non-executive Directors is set out in the table below. Non-executive Directors are not entitled to any benefits,
pension or pension equivalents, or awards under any of the equity plans. For 2019, the regular fees were paid at the following rate:
Annual fees (Quilter plc Board)
Chairman
Basic annual fee
Additional fees:
Senior Independent Director
Chairs of Board Audit, Risk, Remuneration and Technology and Operations Committee
Members of the above Committees
Members of the Board Corporate Governance and Nominations Committee
Fees (Subsidiary Boards):
Chairman of Subsidiary Boards1
Board Member of Quilter Financial Planning (“QFP”), Quilter Investors (“QI”), Quilter Cheviot (“QC”)
Board Member of Quilter International (“International”)
Members of the Subsidiary Board Committees2
Current fee
£375,000
£65,000
£20,000
£25,000
£10,500
£5,500
£80,000
£45,000
£35,000
£5,000
1 Chairman of the Quilter Wealth Solutions (“QWS”) and Quilter Life Assurance (“QLA”) and Chairman of Quilter Investors – reduced from £100,000 for the first year to £80,000 from 2019 onwards.
2 Governance, Audit and Risk Committee (“GARC”).
80
Quilter Annual Report 2019
Governance
Annual Report on Remuneration
Audited
Non-executive
Director
Board & Committee
membership
Subsidiary Board
& Committee membership
Glyn Jones
Chairman, Chair CGN, R
Rosie Harris
INED, Chair Ri, BTOC, A QC Board and GARC member
Moira Kilcoyne
INED, Chair BTOC, Ri
Jon Little2
INED, R
QI Chairman
George Reid
INED, Chair A, BTOC, Ri Chair QWS and QLA Board,
GARC member
Ruth Markland3 SID, CGN, A, R
International Board member
Cathy Turner
INED, Chair R, CGN
QI Board member
Suresh Kana
INED, A, CGN
Paul Matthews3
INED, Ri
QFP Board and GARC member
Fees for
2019
£’000
Subsidiary
Board fees
£’000
Total for
2019
£’000
Fees for
20181
£’000
Subsidiary
Board fees
£’000
Total for
2018
£’000
375.0
111.0
100.5
75.5
111.8
111.5
95.5
81.0
75.5
–
50.0
–
82.4
85.0
35.0
45.0
–
45.4
375.0
161.0
100.5
157.9
196.8
146.5
140.5
81.0
120.9
399
132.8
122.3
85.2
132.8
57.6
117.3
32.2
30.0
–
50.0
–
101.1
97.8
–
39.5
–
17.9
399.0
182.8
122.3
186.3
230.6
57.6
156.8
32.2
47.9
Committee Key:
INED = Independent Non-executive Director
A = Board Audit
R = Board Remuneration
Ri = Board Risk
SID = Senior Independent Non-executive Director
BTOC = Board Technology and Operations Committee
CGN = Board Corporate Governance and Nominations
1 To recognise the additional workload associated with preparation for Listing in 2018, the Non-executive Directors received an additional fee in the lead up to the Managed Separation and
Listing of Quilter plc. This additional fee was £100,000 per annum for the Chairman, £50,000 per annum for the Committee Chairs and £25,000 per annum for the other Non-executive
Directors. The additional fee ceased at Admission.
2 Jon Little was also a Board member of Old Mutual Global Investors (UK) Limited during 2018 and resigned 9 February 2018. Annual fees payable were the same as per the Quilter Investors
Subsidiary Board member fees disclosed in the table above.
3 Ruth Markland was appointed as a Board member of Quilter International on 1 January 2019 and Paul Matthews was appointed as a GARC member of Quilter Financial Planning on
1 December 2019.
TSR performance graphic over the period since Admission
£
125
115
105
95
85
75
The graph on the left shows the Company’s TSR performance versus
the FTSE 250 excluding Investment Trusts over the period ending
31 December 2019. The FTSE 250 has been chosen as the Company
is a member of that index.
Jun 18
Aug 18
Dec 18 Mar 19
Jun 19
Aug 19
Dec 19
Quilter
FTSE 250 excluding Investment Trusts
Group Chief Executive Officer pay
As the Company listed during 2018, there is no disclosure of remuneration relating to prior years.
Financial year
2019
2018
Name
Paul Feeney
Paul Feeney
Total remuneration
£’000
Annual bonus as
% of maximum
1,896.3
2,778.9
79%
93%
Quilter Annual Report 2019
81
Strategic ReportFinancial statementsOther information
Governance
Annual Report on Remuneration continued
Percentage change in Chief Executive Officer remuneration compared to the average employee
The table below sets out the percentage change in salary and STI between the Chief Executive Officer and average employee from 2018 to 2019.
The annual change in salary is based on the salary of UK employees as at 31 December 2018 and 31 December 2019, and the annual change in
STI excludes employees that are not eligible for bonus. As Executive Directors benefits have been aligned to other UK employees, the analysis of
movement between the Chief Executive Officer and average employee benefits was not considered practical or meaningful and therefore not
included in the below comparison. Further detail of Executive Directors’ benefits can be found on page 74 of this Remuneration Report.
Remuneration element
Salary
STI
Chief Executive
Officer
Average
employee
0%
(15%)
1%
(4%)
Chief Executive Officer pay ratio
In accordance with the new regulatory requirements published by the Government in 2018, the table below sets out the ratio between the Chief
Executive Officer’s total remuneration and the median, 25th and 75th percentile of the total remuneration of full-time equivalent UK employees.
Total remuneration
Year
2019
Salary
Year
2019
Method
75th percentile
Median
25th percentile
75th percentile
Median
25th percentile
Option B
27:1
39:1
62:1
69,114
48,486
30,478
Pay ratio
All employees £
Method
75th percentile
Median
25th percentile
75th percentile
Median
25th percentile
Option B
14:1
18:1
28:1
48,667
37,001
24,333
Pay ratio
All employees £
Total remuneration includes salary, benefits, pension, short-term incentives and any value vested from long-term incentives during the year.
From the three options disclosed in the regulations, the method adopted to calculate the pay ratio for this report is Option B, which is based
on the Gender Pay Gap reporting methodology in identifying the employees at median, 25th and 75th percentiles, as at 31 December 2019, for
comparison between those and the Chief Executive. As some 2019 STI amounts are subject to change until after the publication of this report, the
total remuneration may not be exact. However, any STI changes are expected to be minimal and it is unlikely the pay ratios will change significantly
once the STI amounts are determined. Our Chief Executive Officer has a higher proportion of variable pay in total remuneration, which is the main
factor driving the difference in the ratios between salary and total remuneration.
We recognise that the most precise method, and therefore often referred to as the preferred method, out of the three options disclosed in the
regulations is Option A, which calculates the single figure for each UK employee and determines the employees at 25th, median and 75th
percentiles from this data set. We intend to adapt our methodology in order to report under Option A in future years.
82
Quilter Annual Report 2019
Governance
Annual Report on Remuneration
Gender Pay Gap
The Company reported a median gender pay gap of 32% and a median bonus gap of 34% for 2019. The results reflect the under-representation of
women in senior roles, which we recognise is a systemic issue facing the wealth management industry and will require ongoing, multi-year efforts
to resolve. Further details regarding our gender pay gap figures can be found on page 12 of the Responsible Business Report.
Relative importance of spend on pay
The following table sets out the profit, dividends and overall spend on pay in the year ending 31 December 2019:
Adjusted profit before tax1 (£m)
Dividends2 (£m)
Including the special dividend
Excluding the special dividend
Employee remuneration costs3 (£m)
2019
235
96
96
316
2018
233
282
61
311
% Change
1%
(66%)
57%
2%
1 Excludes adjusted profit from the Single Strategy business of £26 million in 2018, including Single Strategy, 2018 adjusted profit would be £259 million.
2 In 2018, the Company paid a special dividend of 12.0 pence per share from the proceeds of the sale of the Single Strategy business, equivalent to a £221 million return of capital to
shareholders, and a final dividend of 3.3 pence. For the 2019 financial year, the Company paid an interim dividend of 1.7 pence and recommend a final dividend of 3.5 pence.
3 Employee remuneration costs represent the underlying employee cost for the Group, excluding the impact of one-off items.
Executive Directors’ shareholding and interests in Quilter Share Schemes
The table below shows the Executive Directors’ interests in Group share schemes which will vest in future years subject to performance and/or
continued service at 31 December 2019 together with any additional interests in shares held beneficially by the Executive Directors outside of
Group share schemes. The share price at 31 December 2019 was £1.6105.
During the period 31 December 2019 to 11 March 2020 there was one transaction by Paul Feeney, which was the sale of 45,045 shares at £1.60612
each in order to fulfil a personal financial commitment forming part of a divorce settlement and in compliance with a court order. The proceeds
were transferred in full to his former spouse. This related to the end of a holding period in respect of his 2015 (2) JSOP award. There were no other
exercises or other dealings in the Company’s share awards by the Directors.
Audited
Scheme interests at 31 December 2019
Legally owned
(shares)
Subject to SIP
(shares)
Subject to SAYE
(options)
Deferred
STI and other
awards not
subject to
performance
conditions1
(shares)
Subject to
performance
conditions under
the LTIP
(shares)
Paul Feeney
Mark Satchel – appointed 13 March 2019
Tim Tookey – stepped down 13 March 2019
580,544
377,576
65,500
1,478
1,478
1,428
24,000
14,400
1,209,839
2,035,445
734,775
995,922
–
2,020,111
–
1 Includes the legacy award granted to Mark Satchel in 2017 in lieu of an LTI grant that year in recognition of the Company intending to list in 2018, and a one-off LTI award granted to Tim
Tookey linked to the preparation of the business and the execution of listing in 2018.
Quilter Annual Report 2019
83
Strategic ReportFinancial statementsOther information Governance
Annual Report on Remuneration continued
Directors’ personal holding and beneficial share interests
In line with the Remuneration Policy, each Executive Director is required to acquire and maintain a shareholding equivalent to 300% of base salary
(including shares beneficially held by the individual or his/her spouse, the net of tax value of unvested share interests within Company share plans
which are not subject to performance conditions and 25% of the value of beneficially held shares purchased by the individual or his/her spouse
since the post-cessation shareholding policy came into effect).
As of 31 December 2019, neither of the current Executive Directors had satisfied the minimum shareholding requirement but they have five years
from the date of Admission, or appointment, if later, to achieve the minimum. As Tim Tookey stood down from the Board in Q1 2019, less than one
year from Admission, he is no longer subject to the shareholding policy. He also stood down prior to the Company finalising its post-cessation
shareholding policy. Nevertheless, Tim has a material number of unvested share awards that are subject to continued vesting post-cessation over
the period 2020-22, a significant portion of which are subject to a further two-year post-vesting holding period.
Audited
Name
Paul Feeney
Mark Satchel – appointed 13 March 2019
Tim Tookey – stepped down 13 March 2019
Value1
£’000
1,970.0
1,237.6
1,832.1
Multiple of
base salary
292%
275%
305%
1 Includes the estimated net value of unvested share awards which are not subject to performance conditions. The calculation is based on the share price on 31 December 2019, being
£1.61050 per share, except for Tim Tookey where his shares are valued on the day he stood down as an Executive Director, 13 March 2019, when the share price was £1.39000.
Shareholding guidelines – Executive and Non-executive Directors
As of 31 December 2018 and 31 December 2019, the Executive and Non-executive Directors held the following legal and beneficial interests
in Ordinary Shares:
Audited
Name
Paul Feeney
Mark Satchel
Glyn Jones
Cathy Turner
Rosie Harris
Moira Kilcoyne
Jon Little
George Reid
Ruth Markland
Suresh Kana
Paul Matthews
Tim Tookey1
31 December 2019
31 December 2018
580,544
377,576
800,000
68,965
17,241
34,482
20,689
20,689
20,689
–
30,000
65,500
618,356
309,086
800,000
68,965
17,241
34,482
20,689
20,689
20,689
–
30,000
65,500
1 Tim Tookey’s 2019 shareholding is as at the date he stood down as an Executive Director, 13 March 2019.
During the period 31 December 2019 to 11 March 2020, Paul Feeney’s legal and beneficial interest in Ordinary Shares reduced from 580,544 to
535,499 following the sale of 45,045 shares to comply with the terms of his divorce settlement as detailed on page 83. There were no other
changes to the interests in shares held by the Directors as set out in the table above.
84
Quilter Annual Report 2019
Governance
Annual Report on Remuneration
Payments within the year to past Directors
Tim Tookey, who stepped down from the Board in March 2019 on a ‘good leaver’ arrangement, was eligible for a pro-rated STI award in relation
to the proportion of 2019 that he worked (until mid-March 2019 when preliminary results were announced). The STI outcome as detailed above
was determined based on the standard metrics for Executive Directors, and will be paid, subject to the Deferral policy, in March 2020. As a good
leaver on termination, Tim’s outstanding deferred share awards will be retained, subject to pro-rating for time served in the case of his long-term
incentive award. This award and Tim’s outstanding deferred STI awards will continue to vest on their normal vesting timetable. Post-vesting,
the long-term incentive award shares are subject to an additional two-year holding period. This represents a substantial level of ongoing
post-cessation shareholding. There were no other payments made to past Directors during the year.
External directorships
The table below sets out external directorships held by the Executive Directors.
Name
External directorships held
Executive Directors
Paul Feeney
Mark Satchel
Tim Tookey
None
None
Non-executive Director, Nationwide Building Society
Fees received and
retained
–
–
£25,841
1 Represents the proportion of fees due to Tim Tookey while he was an Executive Director, from the beginning of the year until 13 March 2019.
External advisers
Since 1 November 2018, Aon has been the Committee’s independent remuneration adviser. Aon has provided advice covering annual
remuneration report and policy disclosures, market practice and incentive design during 2019 and going forward may provide other services to
Quilter plc such as remuneration benchmarking data and insurance broking if required. These additional services do not provide a conflict with
the advice received by the Committee, which is provided by Aon’s specialist Executive Remuneration practice. This practice is not involved in the
marketing of other Aon services and is obliged to abide by the Remuneration Consultant’s Code of Conduct. Apart from the above, Aon has no
other connection with the Company.
The Committee is satisfied that the advice received from Aon is objective and independent, and the firm is a member of the Remuneration
Consultants Group, whose voluntary code of conduct is designed to ensure objective and independent advice is given to committees.
The total fees paid in respect of remuneration advice during 2019 are as follows:
Firm
Aon
Key areas of advice received
Annual remuneration report and policy disclosure, market practice, incentive design
Total fees 2019
£69,547
Statement of shareholder voting
During the Company’s first AGM in May 2019, a resolution of the following was made and the votes from shareholders were as follows:
• in respect of the resolution to approve the Directors’ Remuneration Report, the percentage of votes cast for was 97%, and 3% against;
• in respect of the resolution to approve the Directors’ Remuneration Policy, the percentage of votes cast for was 97%, and 3% against; and
• the Company did not receive a significant percentage of votes against either resolution.
Quilter Annual Report 2019
85
Strategic ReportFinancial statementsOther information Governance
Our approach to governance
UK Corporate Governance Code 2018 (the “Code”)
Quilter is subject to the Code and complied with all of its
provisions during the year. Details of our corporate
governance framework are available on our website at
quilter.com/corporategovernance. The Code is publicly
available at www.frc.org.uk.
Disclosure Guidance and Transparency Rules (“DTRs”)
By virtue of the information included in this Governance
section of the Annual Report and our Directors’ Report on
pages 88 to 91 we comply with the corporate governance
requirements of the FCA’s DTRs. Certain additional information
that is required to be disclosed pursuant to DTR 7.2.6 can be
found in the Directors’ Report on pages 88 to 91.
Johannesburg Stock Exchange (the “JSE”)
Quilter has a secondary listing on the Johannesburg Stock
Exchange and is permitted by the JSE Listings Requirements
to follow the corporate governance practices of its primary
Listing market. Quilter is, however, mindful of the provisions
of the King IV Governance principles and the expectations
of our South African shareholders.
1. Board leadership and Company purpose
The Chairman’s introduction on corporate governance on pages 42
to 47 sets out how the Board has met its leadership and oversight
responsibilities under the Code during the year, including its role in
promoting the success of the Company, monitoring culture across the
business and understanding the views of our shareholders and other
stakeholders. The actions taken in response to more than 20% of votes
being cast against two of the resolutions proposed at our 2019 AGM
and details of our approach to workforce engagement and the types of
issues that were raised by employees and reported to the Board during
the year are set out on page 47.
Responsibility for monitoring the Group’s whistleblowing arrangements
which provide a means for our workforce to raise concerns in confidence
or anonymously, has been delegated to the Board Audit Committee.
Details of how this responsibility has been discharged during the year
can be found in the Board Audit Committee Chair’s report on page 55.
Further information on the Group’s whistleblowing arrangements can
be found in the Responsible Business report on page 14.
In accordance with the Companies Act 2006 and the Company’s
Articles of Association, the Board may authorise conflicts of interest.
Directors are required to declare any potential or actual conflicts of
interest that could interfere with their ability to act in the best interests
of Quilter. The Company Secretary maintains a conflicts register which
is reviewed by the Board and the Board Corporate Governance and
Nominations Committee. In accordance with the Code, the Board
Corporate Governance and Nominations Committee is required to
pre-approve, on behalf of the Board, any new external appointments
that a Director wishes to adopt. Further information on the approval
of new external appointments for Directors can be found in the Board
Corporate Governance and Nominations Committee Report on
page 49.
86
Quilter Annual Report 2019
2. Division of responsibilities
The Board is made up of a majority of independent Non-executive
Directors and comprises the Chairman, who was independent on
appointment, two Executive Directors and eight independent
Non-executive Directors, including the Senior Independent Director.
The independence of each Non-executive Director is assessed on
an annual basis against the criteria set out in the Code.
It is a principle of UK company law that Executive and Non-executive
Directors all have the same duties and are subject to the same
constraints. However, in line with the requirements of the Code, there
is a clear division of responsibilities at the head of Quilter between
the running of the Board and executive responsibility for managing
Quilter’s business. Our Chairman is responsible for the leadership of
the Board and managing the business of the Board through setting its
agenda and taking full account of the issues and concerns of Board
members. Our Chief Executive Officer is responsible for the day-to-day
management of our business and the leadership of the Quilter
Executive Committee. Further information on the Quilter Executive
Committee can be found on page 40.
The accountabilities, competencies and expectations required of each
role on the Board, including those required by the Code, have been
documented in our Board Charter. This includes the responsibilities of
the Directors as a whole, including their responsibilities under section
172(1) of the Companies Act 2006, and the role profiles of the Chairman,
the Senior Independent Director, Committee Chairs, Non-executive
Directors and Executive Directors. Performance against these
expectations was assessed in the 2019 Board Effectiveness Review,
detailed on pages 50 and 51 of the Board Corporate Governance and
Nominations Committee Chair’s report, and it was confirmed that all
Directors were discharging their roles effectively. The time commitment
expected of the Non-executive Directors is set out in the Board Charter
and their letters of appointment. The Board Corporate Governance
and Nominations Committee reviews the Board Charter annually to
ensure it remains relevant and up to date. The Board Charter is
published on our website at quilter.com/corporategovernance
to ensure complete transparency of the standards we set for ourselves.
The Chairman is responsible, as set out in the Board Charter, for
ensuring that the Board receives accurate, timely and high quality
supporting information. This covers the Company’s performance to
enable the Board to take sound decisions, monitor effectively and
provide advice to promote the success of the Company. Working in
collaboration with the Chairman, the Company Secretary is responsible
for ensuring good governance and consults with Directors to ensure
that good information flows exist and that the Board receives the
information it requires to be effective.
The Board is the decision-making body for all matters of such
importance as to be of significance to Quilter as a whole because of
their strategic, financial or reputational implications or consequences.
A summary of the matters that are reserved for the Board’s decision,
which includes Board appointments, Quilter’s strategy, financial
statements, capital expenditure and any major acquisitions, mergers
or disposals, and the appointment and removal of the Company
Secretary, can be found at quilter.com/corporategovernance.
3. Composition, succession and evaluation
The Board Corporate Governance and Nominations Committee
is responsible for overseeing the composition of the Board and its
Committees and ensuring that it is an appropriate size and that
there is an appropriate balance of diversity in skills, experience,
independence and knowledge. It is also responsible for reviewing
and making recommendations to the Board on succession planning
Governance
Our approach to Governance
for the Board and key leadership positions within Quilter. Details of
the composition of the Board Corporate Governance and Nominations
Committee can be found on page 41 and information on how it has
discharged its duties during the year and the 2019 Board Effectiveness
Review, including the resulting action plan, can be found in the Board
Corporate Governance and Nominations Committee Chair’s report
on pages 48 to 51.
The Chairman and all the Non-executive Directors have served on
the Board for less than four years. All the Directors are subject to
annual re-election by shareholders and the specific reasons why
each Director’s contribution is, and continues to be, important to
the Company’s long-term sustainable success are set out in their
biographies on pages 38 and 39.
4. Audit, risk and internal control
Risk management and internal control
The Directors are responsible for ensuring that management maintains
an effective system of risk management and internal control and for
assessing its effectiveness. Such a system is designed to identify,
evaluate and manage, rather than eliminate, the risk of failure to achieve
business objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss.
Quilter is committed to operating within a strong system of internal
control that enables business to be transacted and risk taken without
exposing itself to unacceptable potential losses or reputational
damage. The Quilter Group Governance Manual sets out the Group’s
approach to internal governance and establishes the mechanisms
and processes by which management implements the strategy set
by the Board to direct the organisation, through setting the tone
and expectations from the top, delegating its authority and
assessing compliance.
Quilter’s principles of internal control (covering financial, operational
and compliance areas) are to maintain:
• clearly defined delegated authorities;
• clearly defined lines of responsibility;
• robust recording and reporting of transactions to support the
financial statements;
• financial reporting controls procedures and systems which are
regularly reviewed;
• protection of assets; and
• financial crime prevention and detection.
The Enterprise Risk Management Framework is overseen by the
Board Risk Committeee and aims to align strategy, capital, processes,
people, technology and knowledge in order to evaluate and manage
business opportunities and threats in a structured, disciplined manner.
The Group’s principal risks and uncertainties are set out on pages 32
and 33.
The Board Audit Committee regularly reviews the system of internal
control on behalf of the Board and receives regular reports from
management, Internal Audit and the Finance function covering, in
particular, financial controls, compliance and other operational
controls. Throughout the year ended 31 December 2019 and to date,
the Group has operated a system of internal control that provides
reasonable assurance of effective operations covering all controls,
including financial and operational controls and compliance with laws
and regulations. Processes are in place for identifying, evaluating and
managing the principal risks facing the Group in accordance with the
‘Guidance on Risk Management, Internal Control and Related Financial
and Business Reporting’ published by the Financial Reporting Council.
Internal control over financial reporting
Management is also responsible for establishing and maintaining
adequate internal control over financial reporting. This is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external reporting purposes in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the European Union and
issued by the International Accounting Standards Board (“IASB”).
Internal control over financial reporting includes policies and
procedures that pertain to the maintenance of records that, in
reasonable detail:
• accurately and fairly reflect transactions and dispositions of assets;
• provide reasonable assurances that transactions are recorded as
necessary to permit the preparation of financial statements in
accordance with IFRS and that receipts and expenditures are being
made only in accordance with authorisations of management and
the respective Directors; and
• provide reasonable assurance regarding prevention or timely
detection of unauthorised acquisition, use or disposition of assets
that could have a material effect on the financial statements.
Assurance that these controls are adequate and operating effectively
is obtained through monthly control self assessments and regular
independent assurance activity undertaken by first line management
and Internal Audit, respectively. Conclusions are reported to the
Board Audit Committee which examines these and provides further
challenge. Finally, the Board scrutinises and approves results
announcements and the Annual Report and ensures that appropriate
disclosures have been made. This governance process ensures that
both management and the Board are given sufficient opportunity to
debate and challenge the Group’s financial statements and other
significant disclosures before they are made public.
Management have assessed the internal controls over financial
reporting as of 31 December 2019 and concluded that, based on their
assessment, they were effective. The Board Audit Committee has
reviewed this assessment as part of its review of the internal controls
over financial reporting. The Chair of the Board Audit Committee
reports on the review of controls over financial reporting and how
the Board Audit Committee has monitored the independence and
effectiveness of the internal and external auditors on pages 52 to 56.
The composition of the Board Audit Committee and the Board Risk
Committee is set out on page 41.
5. Remuneration
The Board has delegated responsibility to the Board Remuneration
Committee for the consideration and approval of the remuneration
arrangements for the Chairman, Executive Directors and other senior
executives. Fees paid to the Non-executive Directors are considered
regularly by the Board as a whole, with Non-executive Directors not
participating. The Board Remuneration Committee is also responsible
for setting and recommending to the Board for approval, the
over-arching objectives, principles and parameters of remuneration
policy across the Group, ensuring that Quilter is adopting a coherent
approach to remuneration in respect of all employees. Information
on the activities of the Board Remuneration Committee in 2019
can be found in the Remuneration Report on pages 64 to 85.
The composition of the Board Remuneration Committee is set out
on page 41.
Quilter Annual Report 2019
87
Strategic ReportFinancial statementsOther information Governance
Directors’ Report
The Directors present their report for the
financial year ended 31 December 2019.
Cautionary statement
This Annual Report has been prepared for, and only for, the members
of the Company, as a body, and no other persons. The Company, its
Directors, employees, agents or advisers do not accept or assume
responsibility to any other person to whom this document is shown or
into whose hands it may come and any such responsibility or liability is
expressly disclaimed. By their nature, the statements concerning the
risks and uncertainties facing the Group in this Annual Report involve
uncertainty since future events and circumstances can cause results
and developments to differ materially from those anticipated. The
forward-looking statements reflect knowledge and information
available at the date of preparation of this Annual Report and the
Company undertakes no obligation to update these forward-looking
statements. Nothing in this Annual Report should be construed as
a profit forecast.
Corporate governance statement
The information that fulfils the requirements of the corporate
governance statement for the purposes of the FCA’s Disclosure
Guidance and Transparency Rules (“DTRs”) can be found in the
Governance Section of the Annual Report on pages 38 to 87 (all of
which forms part of this Directors’ Report) and in this Directors’ Report.
Profit and dividends
Statutory profit after tax for 2019 was £146 million (2018: £488 million).
Subject to shareholder approval, the Directors have recommended
a final dividend for the financial year ended 31 December 2019 of
3.5 pence per Ordinary Share which will be paid out of distributable
reserves. Further information regarding the dividend, including key
dates, can be found at quilter.com/dividends. On 5 August 2019 the
Board declared an interim dividend of 1.7 pence per Ordinary Share.
The interim dividend was paid on 20 September 2019 to shareholders
on the UK and South African share registers on 30 August 2019.
Shares are held in the Quilter employee benefit trust (“EBT”) and the
Equiniti Share Plans Trust (“ESPT”) in connection with the operation of
the Company’s share plans. Dividend waivers are in place for those
shares that have not been allocated to employees.
Directors
The names of the current Directors of the Company, along with their
biographical details, are set out on pages 38 and 39 and are
incorporated into this report by reference. Changes to Directors during
the year are set out below:
Information included in the Strategic Report
The Company’s Strategic Report is on pages 2 to 35 and includes the
following information that would otherwise be required to be disclosed
in this Directors’ Report:
Name
Role
Effective date of
appointment/resignation
Tim Tookey
Chief Financial Officer
Resigned 13 March 2019
Mark Satchel
Chief Financial Officer
Appointed 13 March 2019
Subject matter
Important events since the financial year end
Likely future developments in the business
Engagement with employees
Page reference
29
9
14 and 47
Engagement with suppliers, customers and others
15 and 44 to 46
Disclosures concerning greenhouse gas emissions
13
Information to be disclosed under Listing Rule 9.8.4R
Subject matter
Details of long-term incentive schemes
Shareholder waivers of dividends
Shareholder waivers of future dividends
Page reference
83
88
88
Financial instruments
The information relating to financial instruments that fulfils the
reporting requirements of Schedule 7 of The Large and Medium sized
Companies and Group (Accounts and Reports) Regulations 2008 can
be found on page 153.
Registered office change
In September 2020, Quilter’s registered office will be moving to Senator
House, 85 Queen Victoria Street, London EC4V 4AB.
Branch and representative offices
During 2019, the Group has operated branches or representative
offices in Hong Kong, Ireland, Jersey, Singapore and the United
Arab Emirates.
Details of the Directors’ interests in the share capital of the Company
are set out in the Annual Report on Remuneration on page 84.
The powers given to the Directors are contained in the Company’s
Articles of Association and are subject to relevant legislation and, in
certain circumstances, including in relation to the issuing or buying
back by the Company of its shares, subject to authority being given
to the Directors by shareholders in general meeting. The Articles of
Association also govern the appointment and replacement of Directors.
The Board has the power to appoint additional Directors or to fill a
casual vacancy amongst Directors. Any such Director only holds office
until the next Annual General Meeting (“AGM”) and may offer himself/
herself for election. The UK Corporate Governance Code recommends
that all directors should be subject to annual re-election and all
Directors, with the exception of Cathy Turner and Suresh Kana, will
stand for re-election at the 2020 AGM.
Articles of Association
The Articles of Association may be amended in accordance with the
provisions of the Companies Act 2006 by way of a special resolution
of the Company’s shareholders. The Company adopted a new Article
during the year to enable the Company to carry out an Odd-lot Offer.
The information below sets out the provisions in the Articles of
Association in force as at the date of this report.
Share capital and control
The Company has Ordinary Shares in issue, representing 100% of
the total issued share capital as at 31 December 2019 and as at 3 March
2020 (the latest practicable date for inclusion in this report). There was
no movement in the Company’s share capital during the year (see note
24 on page 164). The rights attaching to the shares are set out in the
Articles of Association and are summarised below.
88
Quilter Annual Report 2019
Governance
Directors’ Report
Voting rights of members
On a show of hands, every member or authorised corporate
representative present has one vote and every proxy present has one
vote except if the proxy has been duly appointed by more than one
member and has been instructed by (or exercises his discretion given
by) one or more of those members to vote for the resolution and has
been instructed by (or exercises his discretion given by) one or more
other of those members to vote against it, in which case a proxy has
one vote for and one vote against the resolution. On a poll, every
member present in person or by proxy has one vote for every share of
which he is a holder. In the case of joint holders, the vote of the person
whose name stands first in the register of members and who tenders
a vote is accepted to the exclusion of any votes tendered by any other
joint holders.
Unless the Board decides otherwise, a member shall not be entitled to
vote, either in person or by proxy, at any general meeting of the Company
in respect of any share held by him unless all calls and other sums
presently payable by him in respect of that share have been paid.
Transfers
Save as described below, the Ordinary Shares are freely transferable.
A member may transfer all or any of his shares in any manner which
is permitted by any applicable statutory provision and is from time to
time approved by the Board. The Company shall maintain a record of
uncertificated shares in accordance with the relevant statutory provisions.
A member may transfer all or any of his certificated shares by an
instrument of transfer in any usual form, or in such other form as the
Board may approve. The instrument of transfer shall be signed by or on
behalf of the transferor and, except in the case of a fully paid share, by
or on behalf of the transferee. The Board may, in its absolute discretion,
refuse to register any instrument of transfer of any certificated share
which is not fully paid up (but not so as to prevent dealings in listed
shares from taking place on an open and proper basis) or on which
the Company has a lien. The Board may also refuse to register any
instrument of transfer of a certificated share unless it is left at the
registered office, or such other place as the Board may decide, for
registration, accompanied by the certificate for the shares to be
transferred and such other evidence (if any) as the Board may
reasonably require to prove title of the intending transferor or his right
to transfer shares; and it is in respect of only one class of shares. If the
Board refuses to register a transfer of a certificated share it shall, as
soon as practicable and in any event within two months after the date
on which the instrument was lodged, give to the transferee notice of
the refusal together with its reasons for refusal. The Board must
provide the transferee with such further information about the reasons
for the refusal as the transferee may reasonably request. Unless
otherwise agreed by the Board in any particular case, the maximum
number of persons who may be entered on the register as joint holders
of a share is four.
Variation of rights
If at any time the share capital is divided into different classes of shares,
the rights attached to any class (unless otherwise provided by the
terms of issue) may, whether or not the Company is being wound up,
be varied with the consent in writing of the holders of three-fourths in
nominal value of the issued shares of that class or with the sanction of
a special resolution of the holders of the shares of that class.
Exercisability of rights under an employee share scheme
An EBT operates in connection with certain of the Group’s employee
share plans (“Plans”). The trustees of the EBT may exercise all rights
attaching to the shares in accordance with their fiduciary duties other
than as specifically restricted in the relevant Plan governing documents.
The trustee of the EBT has informed the Company that their normal
policy is to abstain from voting in respect of the Quilter shares held in
trust. The trustee of the Quilter Share Incentive Plan (“SIP”) will vote in
respect of the allocated shares but the trustee will not otherwise vote
in respect of the unallocated shares held in the SIP Trust.
Purchase of own shares
At the AGM held on 16 May 2019, shareholders passed resolutions
to authorise the Company to purchase a maximum of 190,225,109
Ordinary Shares, representing 10% of the Company’s issued Ordinary
Share capital. As at 3 March 2020, the latest practicable date for
inclusion in this Report, no shares have been purchased under these
authorities. In accordance with institutional guidelines, the Directors
are seeking renewal of these authorities at the 2020 AGM.
In accordance with the resolutions passed by shareholders at the
AGM on 16 May 2019, the Directors are launching an Odd-lot Offer on
11 March 2020. The Odd-lot Offer will enable the Company to purchase,
at a 5% premium to the market price, the Ordinary Shares held by
those shareholders who hold fewer than 100 Ordinary Shares in the
Company, and who do not choose to retain their shareholding. For
more information on the Odd-lot Offer please refer to quilter.com/olo.
Following the completion of the sale of Quilter Life Assurance to
Reassure Group plc, the Directors will be commencing a share buyback
programme to purchase shares with a value of up to £375 million
subject to remaining within certain pre-set parameters. The share
buyback programme will be subject to staged regulatory and
Board approval.
Significant agreements (change of control)
All the Company’s Plans contain provisions relating to a change of
control. In the event of a change of control, outstanding awards and
options may be lapsed and replaced with equivalent awards over
shares in the new company, subject to the Board Remuneration
Committee’s discretion. Alternatively, outstanding awards and options
may vest and become exercisable on a change of control subject,
where appropriate, to the assessment of performance at that time
and pro-rating of awards.
Short term incentive (“STI”) awards may continue to be paid in respect
of the full financial year pre and post change of control, or a pro-rated
STI award may be paid in respect of the portion of the year that has
elapsed at the point of change of control. Exceptionally, the Board
Remuneration Committee may exercise its discretion to waive pro-rating.
Directors’ indemnities
Qualifying third party indemnity provisions (as defined by section 234
of the Companies Act 2006) were in force during the course of the
financial year ended 31 December 2019 for the benefit of the then
Directors and, at the date of this report, are in force for the benefit of
the Directors in relation to certain losses and liabilities which they may
incur (or have incurred) in connection with their duties, powers and
office. In addition, the Company maintains Directors’ and Officers’
Liability Insurance which gives appropriate cover for legal action
brought against its Directors.
Quilter Annual Report 2019
89
Strategic ReportFinancial statementsOther information Governance
Directors’ Report continued
Major shareholders
Major shareholders do not have different voting rights from those
of other shareholders. As at 31 December 2019, the Company had
been notified, in accordance with Rule 5 of the FCA’s DTRs, of the
following holdings of voting rights in its Ordinary Share capital:
Name of shareholder
Allan Gray Unit Trust
Management (RF)
Proprietary Limited
Coronation Asset
Management (Pty) Ltd
Equiniti Trust
(Jersey) Limited2
Norges Bank
Prudential Portfolio
Managers (South Africa)
(PTY) Ltd
Public Investment
Corporation of the Republic
of South Africa
Number of
voting rights
attaching to
Quilter shares
% interest in
voting rights
attaching to
Quilter shares1
Nature of
holding
notified
68,880,114
3.62
Direct
247,622,893
13.02
Direct
63,153,255
75,840,737
3.32
3.99
Direct
Direct
91,942,798
4.83
Indirect
180,012,608
9.46
Direct
1 The percentage of voting rights detailed above was calculated at the time of the relevant
disclosures made in accordance with Rule 5 of the FCA’s DTRs.
2 These shares are held by Equiniti Trust (Jersey) Limited in its capacity as trustee of the
Quilter Employee Benefit Trust.
As at 3 March 2020, the latest practicable date for inclusion in this
report, the following voting rights had been notified, in accordance with
Rule 5 of the FCA’s DTRs:
Number of
voting rights
attaching to
Quilter shares
% interest in
voting rights
attaching to
Quilter shares1
Nature of
holding
notified
68,880,114
58,206,888
3.62
3.06
Direct
Indirect
268,624,985
14.12
Direct
Norges Bank
75,228,940
63,153,255
3.32
3.95
Direct
Direct and
indirect
91,942,798
4.83
Indirect
Name of shareholder
Allan Gray Unit Trust
Management (RF)
Proprietary Limited
Bank of America
Corporation
Coronation Asset
Management (Pty) Ltd
Equiniti Trust
(Jersey) Limited2
Prudential Portfolio
Managers (South Africa)
(PTY) Ltd
Public Investment
Corporation of the Republic
of South Africa
York Capital Management
Global Advisors, LLC
1 The percentage of voting rights detailed above was calculated at the time of the relevant
disclosures made in accordance with Rule 5 of the FCA’s DTRs.
2 These shares are held by Equiniti Trust (Jersey) Limited in its capacity as trustee of the
Quilter Employee Benefit Trust.
Information provided to the Company by major shareholders pursuant
to the FCA’s DTRs is published via a Regulatory Information Service and
is available at quilter.com/investor-relations.
90
Quilter Annual Report 2019
Political donations
Quilter does not make monetary donations or gifts in kind to political
parties, elected officials or election candidates. Accordingly, no such
political donations were made in 2019. However, the Directors are
seeking to renew the Company’s and its subsidiaries’ authority to make
political donations not exceeding £50,000 in aggregate at the 2020
AGM. This is for the purposes of ensuring that neither the Company nor
its subsidiaries inadvertently breach Part 14 of the Companies Act 2006
by virtue of the relevant definitions being widely drafted. Further
information is available in the 2020 Notice of AGM.
Employment of disabled persons
Providing an environment where employees are safe and there is
equality of opportunity is a key element in enabling our people to
succeed and deliver the business strategy. Using our diversity and
our relationships to learn from one another enables us to create one
business that provides better opportunities for our people and better
outcomes for our customers. We are committed to creating an inclusive
culture which embraces diversity. We therefore promote equal
opportunities and ensure that no applicant or colleague is subject to
less favourable treatment on the grounds of gender, marital status,
nationality, ethnicity, age, sexual orientation, responsibilities for
dependents, or physical or mental disability. We are committed to
continuing the employment of, and for arranging training for,
employees who have become disabled while employed by Quilter.
We select candidates for interview based on their skills, qualifications,
experience and potential.
Directors’ responsibility statements
The Directors are responsible for preparing the Annual Report and the
Parent Company and consolidated financial statements in accordance
with applicable law and regulations.
The Directors consider that the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s and
the Group’s position and performance, business model and strategy.
Each of the Directors in office as at the date of this report, whose
names are listed on pages 38 and 39, confirms that, to the best of his or
her knowledge:
a) the consolidated financial statements, which have been prepared
in accordance with International Financial Reporting Standards as
endorsed by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company
and the Group; and
b) the Strategic Report and Directors’ Report include a fair review of the
development and performance of the business and the position of
the Company and the Group, together with a description of the
principal risks and uncertainties that they face.
180,012,608
75,455,999
9.46
3.97
Direct
Indirect
For further information on the comprehensive process followed by the
Board in order to reach these conclusions please refer to the Board
Audit Committee report on pages 52 to 56.
Governance
Directors’ Report
Disclosure of information to Auditor
Each person who is a Director of the Company as at the date of
approval of this report confirms that:
a) so far as the Director is aware, there is no relevant audit information
of which the Company’s Auditor is unaware; and
b) the Director has taken all the steps that he or she ought to have
taken as a Director in order to make him/herself aware of any
relevant audit information and to establish that the Company’s
Auditor is aware of that information.
Auditors
Following a rigorous audit tender process carried out in 2019,
the Directors are recommending the appointment of
PricewaterhouseCoopers LLP as the Company’s statutory auditor at
the 2020 AGM. For more information on the audit tender process,
please refer to the Board Audit Committee report on pages 52 to 57.
AGM
The 2020 AGM of Quilter plc will be held in the Presentation Suite,
Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ on
Thursday 14 May 2020 at 11:00am (UK time). Details of the business
to be transacted at the 2020 AGM are included in the Quilter plc 2020
Notice of AGM which can be found at quilter.com/agm. We will
continue to review the arrangements for holding the AGM in the light
of the developing situation as the meeting date approaches. We will
provide up to date information for shareholders on our AGM Hub at
quilter.com/agm.
On behalf of the Board
Patrick Gonsalves
Company Secretary
11 March 2020
Quilter Annual Report 2019
91
Strategic ReportFinancial statementsOther information Financial
statements
Financial statements
Detailed financial information
provided within our financial
statements and notes.
Statement of Directors’ responsibilities
Independent auditor’s report to the
members of Quilter plc
Primary financial statements
Notes to the financial statements
Appendices
Parent company financial statements
94
95
104
110
192
198
92
Quilter Annual Report 2019
Quilter Annual Report 2019
93
Financial statements
Statement of Directors’ responsibilities
in respect of the Annual Report and Accounts and the financial statements
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole; and
• the strategic report includes a fair review of the development and
performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Group’s position and performance,
business model and strategy.
Signed on behalf of the Board.
Paul Feeney
Chief Executive Officer
Mark Satchel
Chief Financial Officer
11 March 2020
The Directors are responsible for preparing the Annual Report and the
Group and parent Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under that law
they are required to prepare the Group consolidated financial
statements in accordance with International Financial Reporting
Standards as adopted by the European Union (“IFRSs as adopted by
the EU”) and applicable law and have elected to prepare the parent
Company financial statements on the same basis.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and parent Company and of their
profit or loss for that period. In preparing each of the Group and parent
Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and
reliable;
• state whether they have been prepared in accordance with IFRSs as
adopted by the EU;
• assess the Group and parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern;
and
• use the going concern basis of accounting unless they either intend
to liquidate the Group or the parent Company or to cease operations,
or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the parent Company’s transactions
and disclose with reasonable accuracy at any time the financial position
of the parent Company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They are responsible
for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Group and to prevent and detect fraud
and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
94
Quilter Annual Report 2019
Financial statements
Independent
auditor’s report
to the members of Quilter plc
1. Our opinion is unmodified
We have audited the financial statements of Quilter
plc (“the Company”) for the year ended 31
December 2019 which comprise the consolidated
income statement, consolidated statement of
comprehensive income, reconciliation of adjusted
profit to profit after tax, consolidated statement of
changes in equity, consolidated statement of
financial position and consolidated statement of
cash flows, Company statements of financial
position, cash flows and changes in equity, and the
related notes, including the accounting policies in
note 4.
In our opinion:
— the financial statements give a true and fair
view of the state of the Group’s and of the
parent Company’s affairs as at 31December
2019 and of the Group’s profit for the year
then ended;
— the Group financial statements have been
properly prepared in accordance with
InternationalFinancialReporting Standards as
adopted by the European Union (IFRSs as
adopted by theEU);
— the parent Companyfinancial statements have
been properly prepared in accordance with
IFRSs as adopted by the EU and as applied in
accordance with the provisions of the
Companies Act 2006; and
— the financial statements have been prepared in
accordance with the requirements of the
CompaniesAct 2006 and, as regards the Group
financial statements, Article 4 of the IAS
Regulation.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (“ISAs
(UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit
evidence we have obtained is a sufficient and
appropriate basis for our opinion. Our audit opinion
is consistent with our report to the audit
committee.
We were first appointed as auditor by the Directors in
advance of our first audit for the year ended 31
December 2018 prior to the Company becoming a
public interest entity. The period of total uninterrupted
engagement is for the two financial years ended 31
December 2019 as a public-interest entity and 12years
in total. We have fulfilled our ethical responsibilities
under, and we remain independent of the Group in
accordance with, UK ethical requirements including the
FRC Ethical Standard as applied to listed public interest
entities. No non-audit services prohibited by that
standard were provided.
Overview
Materiality:
Group financial
statements asa
whole
Coverage
£13.9m (2018:£11.0m)
4% (2018: 4%) ofnormalised
profit beforetax attributableto
equityholders
95% (2018:90%) of Group
Profit beforetax
Key audit matters
vs 2018
New:Accounting
for QLA disposal
Recurring risks
Valuation of goodwill
Parent Company risk:
Valuation of
investments in Group
subsidiaries
(cid:379)(cid:377)
(cid:379)(cid:377)
Quilter Annual Report 2019
95
Strategic ReportGovernanceOther information Financial statements
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. We summarise below the key audit matters, in arriving at our audit opinion above,
together with our key audit procedures to address those matters and our findings from those procedures in order that the
Company’s members as a body may better understand the process by which we arrived at our audit opinion. These matters
were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit
of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and
we do not provide a separate opinion on these matters.
96
Quilter Annual Report 2019
Financial statements
Independent auditor’s report
Accounting for
Quilter Life
Assurance(“QLA”)
disposal
Refer to page 52
(Audit Committee
Report), page 113
(accountingpolicy)
and page 129
(financial
disclosures).
The risk
Accounting for QLA disposal comprises the
following risk areas:
Subjective judgement in thepresentation
of costs associated with continuing and
discontinued operations:
When operations are discontinued,
accounting standards require consideration of
the allocation of expenses between
continuing and discontinued. Only those
costs that cease to be incurred by Quilter
Group, following the completion of the sale
of QLA, can be included in the results of
discontinued operations. Due to some of the
costs arising across the Group, significant
judgement is required by the Directors in
identifying the costs in relation to
discontinued operations.
Subjective estimation involvedin
determining gain on disposal:
The book value of the net assets of QLA as at
the date of disposal is a significant input into
the calculation of the gain on disposal in
particular the value of long term insurance
policyholder liabilities disposed of. The
valuation of long term insurance policyholder
liabilities was determined by Quilter’s
actuaries and represents an area of
subjective estimation requiring the selection
of appropriate assumptions on maintenance
expenses, persistency, mortality, and
discount rates.
Judgement involved in determininggain
on disposal
In addition, certain expenses were incurred
during the disposal of QLA. Significant
judgement was required to determine
whether those expenses met thedefinition
of transaction costs in accordance with
accounting standards and appropriately
included when calculating the gain on
disposal.
Further, for certain transaction costs
associated with the disposal of QLA,
significant judgement was required to
determine whether these transaction costs
met the criteria to recognise a restructuring
provision.
Our response
Our procedures included:
Proceduresin relation to presentation of costs
associated with continuing and discontinued
operations:
- Assessing principles: We assessed the Director’s
rationale on cost allocation betweendiscontinued
and continuing operations against the criteria set
out in accounting standards.
-
Test of details: For costs associated with
discontinued operations,we assessed the nature
of the cost by reviewing the underlying
supporting documentation.
Procedures in relation to gainon disposal:
- Our sector experience: With regards to the long
term insurance policyholder liabilities, we
considered the Group's approach of setting
assumptions and assessed whether it is consistent
with the industry practice and the Group's
documented approvalprocess.
- Benchmarking: With regards to the long term
insurance policyholder liabilities, we utilised our
own actuarial specialists to assist us in assessing
and challenging certain assumptions used in the
actuarial models and the process for setting and
updating these assumptions. This included
assessing the data used in the Group's analysis to
set assumptions in the context of our own
industry knowledge, external data and our views
of experience to date.
- Assessing principles: We critically assessed and
challenged management with regards expenses
included as transaction costs against criteria in the
accountingstandards.
- Assessing principles: We assessed the
restructuring provisions and challenged the directors’
assessment as to whether these expected costs
meet the recognition criteria per the accounting
standards.
-
Test of details: We tested a sample ofexpenses,
representing 90% of the transaction costs to
assess the appropriate classification of transaction
costs associated with the disposal of QLA by
reference to supportingdocumentation.
Our findings
We found the Group’s judgement in allocating expenses
between continued and discontinuing operations to be
balanced.
We found the estimate in valuation of long term
insurance policyholder liabilities tobebalanced.
In determining whether expenses met the definition of
transaction costs, we found the Group’s judgement was
balanced.
In determining the requirement for the recognition of
restructuring provisions we found the Group’s
judgement gave too much weight to the argument
favouring the recognition of a provision and we have
recorded an audit difference.
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Strategic ReportGovernanceOther information Financial statements
Valuation of goodwill
Forecast-based valuation
Our procedures included:
The risk
Our response
(£350 million; 2018: £314m)
Refer to page 52 (AuditCommittee
Report), page 113 (accounting
policy) and page 149 (financial
disclosures).
Goodwill is significant and the
determination of the recoverableamount
of each reportable segment is complex
and involves a high level of judgement.
The significant estimates arise over the
discount rate, growth rate and cash flow
forecasts which are key inputs in the
valuation of goodwill.
The effect of these matters is that, as
part of our risk assessment, we
determined that the value in use that is
used in the consideration of the valuation
of goodwill has a high degree of
estimation uncertainty, with a potential
range of reasonable outcomes greater
than our materiality for the financial
statements as a whole, and possibly
many times that amount. The financial
statements note 13 disclose the
sensitivity estimated by the Group.
— Our sector experience and benchmarking
assumptions: We challenged thecash flow
forecasts, including the consistency of
forecasts applied across the Group.
We utilised our own corporate finance
specialists to assist us in challenging the key
assumptions and methodologies applied by
the Group in the determination of discount
rates, with reference to our ownindependent
expectations, which were based on our
industry knowledge and experience.
We assessed the recoverable value against
the market capitalisation of the Group.
— Comparing valuations and historical
assumptions: We compared forecasts to
approved business plans and also previous
forecasts to actual results to assess the
performance of the business and the
accuracy of forecasting. We also considered
the appropriateness of the scenariosused in
the context of our wider business
understanding;
— Sensitivity analysis: We performed
sensitivityanalyses on the key assumptions
in the Advice and Wealth Management and
Wealth Platforms cash generatingunits;and
— Assessing transparency: We assessed that
the adequacy of the disclosures in relation to
goodwill appropriately reflect the associated
risks and the disclosures in relation to the
sensitivity of the goodwill balance tochanges
in key assumptions.
Our findings
We found the resulting estimate of the
recoverable amount of goodwill was
balanced (2018: balanced) with
proportionate (2018: proportionate)
disclosures of the related assumptions and
sensitivities.
98
Quilter Annual Report 2019
Financial statements
Independent auditor’s report
Parent Company risk:
Parent Company risk:
Low risk, high value
Low risk, high value
Our procedures included:
Our procedures included:
The risk
The risk
Our response
Our response
Valuation of investmentsin
Group subsidiaries
Valuation of investmentsin
Group subsidiaries
(£2,235million;2018: £2,663m)
(£2,235million;2018: £2,663m)
Page 113 (accounting policy)and
Page 113 (accounting policy)and
page 203 (financialdisclosures).
page 203 (financialdisclosures).
The carrying amount of the Parent
The carrying amount of the Parent
Company’s investments insubsidiaries
Company’s investments insubsidiaries
represents 67% (2018:79%) of the
represents 67% (2018:79%) of the
Parent Company’s total assets.
Parent Company’s total assets.
Significant estimates arise over the
Significant estimates arise over the
discount rate, growth rate and cash flow
discount rate, growth rate and cash flow
forecasts which are key inputs in the
forecasts which are key inputs in the
valuation of investments in subsidiaries.
valuation of investments in subsidiaries.
Further, the materiality of the
Further, the materiality of the
investments in the contextof the Parent
investments in the contextof the Parent
Company financial statements is
Company financial statements is
significant.
significant.
— Tests of detail: We compared the carrying
— Tests of detail: We compared the carrying
amount of the total investment balance for
amount of the total investment balance for
all investments (2018: 97%) with the
all investments (2018: 97%) with the
relevantsubsidiaries’ draft balance sheets to
relevantsubsidiaries’ draft balance sheets to
identify whether their net assets, being an
identify whether their net assets, being an
approximationof their minimum recoverable
approximationof their minimum recoverable
amount, were in excess of their carrying
amount, were in excess of their carrying
amount.
amount.
— For all investments (2018: 97%), we
— For all investments (2018: 97%), we
assessed the recoverable value of thetotal
assessed the recoverable value of thetotal
investment balance using cash flow
investment balance using cash flow
forecasts and assessed the recoverable
forecasts and assessed the recoverable
value of investments against the carrying
value of investments against the carrying
amount of the total investmentbalance.
amount of the total investmentbalance.
— Procedures performed over cash flow
— Procedures performed over cash flow
forecasts and the related assumptionsare
forecasts and the related assumptionsare
described in the section on valuation of
described in the section on valuation of
goodwill above; and
goodwill above; and
— Assessing subsidiary audits: As Group
— Assessing subsidiary audits: As Group
auditors, we assessed the work performed
auditors, we assessed the work performed
by the subsidiary audit teams on that
by the subsidiary audit teams on that
sample of those subsidiaries and considered
sample of those subsidiaries and considered
the results of that work, on those
the results of that work, on those
subsidiaries’profits and net assets.
subsidiaries’profits and net assets.
Our finding
Our finding
We found the valuation of investments in Group
We found the valuation of investments in Group
subsidiaries to be balanced (2018:balanced).
subsidiaries to be balanced (2018:balanced).
Following the sale of QLA on 31 December 2019, the Group no longer holds long term insurance policyholder liabilities and
Following the sale of QLA on 31 December 2019, the Group no longer holds long term insurance policyholder liabilities and
customer remediation provisions on its consolidated statement of financial position at the year end. We therefore removed the
customer remediation provisions on its consolidated statement of financial position at the year end. We therefore removed the
“Valuation of long term insurance policyholder liabilities” and “Valuation of the voluntary customer remediation provision” as key
“Valuation of long term insurance policyholder liabilities” and “Valuation of the voluntary customer remediation provision” as key
audit matters from the current year report.
audit matters from the current year report.
We continue to perform procedures over Level 3 investments and securities. However, following a revised assessment of the
We continue to perform procedures over Level 3 investments and securities. However, following a revised assessment of the
valuation uncertainty included within this balance, we have not assessed this as one of the significant risks in our current year audit
valuation uncertainty included within this balance, we have not assessed this as one of the significant risks in our current year audit
and, therefore, it is not separately identified in our report this year.
and, therefore, it is not separately identified in our report this year.
We also previously reported a key audit matter in respect of the impact of uncertainties due to the UK exiting the European Union.
We also previously reported a key audit matter in respect of the impact of uncertainties due to the UK exiting the European Union.
As a result of developments since the prior year report, including the Group’s own preparation, the relative significance of this
As a result of developments since the prior year report, including the Group’s own preparation, the relative significance of this
matter on our audit work has reduced. Accordingly, we no longer consider this a key audit matter.
matter on our audit work has reduced. Accordingly, we no longer consider this a key audit matter.
Quilter Annual Report 2019
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Strategic ReportGovernanceOther information Financial statements
3. Our application of materialityand an overview of the
scope of our audit
Materiality for the Group financial statements as a wholewas set
at £13.9 million, determined with reference to a benchmark of
Group profit before tax attributable to equity holders. We set the
benchmark to include both continuing operations and QLA given
that QLA was part of the Group before the disposal on 31
December 2019. The benchmark was also normalised by £163
million to exclude tax attributable to policyholder returns, profit
on the disposal of QLA, business transformation costs,
managed separation costs and impact of acquisition accounting
as disclosed in note 7. Our materiality represents 4% (2018:
4%) of the normalised profit beforetax.
Materiality for the parent company financial statements as a
whole was set at £6 million (2018: £9 million), determined with
reference to a benchmark of total assets.
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding £0.69
million, in addition to other identified misstatements that
warranted reporting on qualitativegrounds.
Of the Group’s 7 (2018: 9) reporting components, we subjected
6 (2018: 8) to full scope audits for Group purposes and 1 (2018:
1) to an audit of specific account balances.
The components within the scope of our work accounted for the
percentages illustrated opposite.
The remaining 4% of total Group revenue, 5% of Group profit
before tax and 1% of total Group assets is represented by non-
reporting components, none of which individually represented
more than 5% of any of total Group revenue or Group profit
before tax. For these residual components, we performed
analysis at an aggregated Group level to re-examine our
assessment that there were no significant risks of material
misstatement within these.
The Group team instructed component auditors as to the
significant areas to be covered, including the relevant risks
detailed above and the information to be reported back. The
Group team approved the components’ materiality, which
ranged from £3 million to £10 million, having regard to the mix of
size and risk profile of the Group across the components. The
work on 6 of the 7 components (2018: 8 of the 9 components)
was performed by component auditors and the rest, including
the audit of the parent company, was performed by the Group
team. The Group team performed procedures on the items
excluded from normalised Group profit before tax.
In addition, we applied materiality of £556 million to the
classification of unit-linked assets and liabilities and reinsured
balances in the consolidated statement of financial position,
consolidated income statement and related notes, determined
with reference to a benchmark of total assets, of which it
represents 0.75%. This materiality was applied solely for our
work on matters for which a misstatement is likely only to lead
to a reclassification between line items, in accordance with FRC
Practice Note 20 The audit of Insurers in the United Kingdom.
We agreed to report to the Audit Committee any
corrected or uncorrected classification misstatementsin
unit-linked assets and liabilities exceeding £27.8 million
for the related accounts.
100
Quilter Annual Report 2019
Normalised profit before tax
£335m (2018: £279m)
Group Materiality
£13.9m (2018:£11m)
£13.9m
Whole financial
statements materiality
(2018: £11m)
£10m (2018: £9m)
Range of materiality at 7
components (£3m-£10m)
(2018: £2m to £9m)
Normalised profit before tax
Group materiality
£0.69m
Misstatements reported to the
audit committee (2018:
£0.55m)
Group revenue
Group profit before tax
4
96%
(2018:96%)
96
5
95%
(2018:90%)
95
Group total assets
Group profit before exceptional
items and tax
1
99%
(2018:99%)
99
6
94%
(2018:100%)
94
Full scope for group audit purposes 2019
Residual components
4. We have nothing to report on going concern
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
Company or the Group or to cease their operations, and as
they have concluded that the Company’s and the Group’s
financial position means that this is realistic. They have also
concluded that there are no material uncertainties that could
have cast significant doubt over their ability to continue as a
going concern for at least a year from the date of approval
of the financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of
the Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to
that in this audit report. However, as we cannot predict all
future events or conditions and as subsequent events may
result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the
absence of reference to a material uncertainty in this
auditor's report is not a guarantee that the Group and the
Company will continue in operation.
In our evaluation of the Directors’ conclusions, we
considered the inherent risks to the Group’s and
Company’s business model, and analysed how those risks
might affect the Group’s and Company’s financial
resources or ability to continue operations over the going
concern period. We evaluated those risks and concluded
that they were not significant to require us to perform
additional audit procedures.
Based on this work, we are required to report toyou if:
— we have anything material to add or draw attention to in
relation to the Directors’ statement in Note 1 to the
financial statements on the use of the going concern
basis of accounting with no material uncertainties that
may cast significant doubt over the Group and
Company’s use of that basis for a period of at least
twelve months from the date of approval of the
financial statements;or
— the related statement under the Listing Rules set out
on page 88 is materially inconsistent with our audit
knowledge.
We have nothing to report in these respects, and we did
not identify going concern as a key audit matter.
Financial statements
Independent auditor’s report
5. We have nothing to report on the other informationin
the Annual Report
The Directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated
below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have
not identified material misstatements in the other
information.
Strategic report and Directors’ report
Based solely on our work on the other information:
— we have not identified material misstatements in the
strategic report and the Directors’ report;
— in our opinion the informationgiven in those reports for
the financial year is consistent with the financial
statements; and
— in our opinion those reports have beenpreparedin
accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:
— the Directors’ confirmation within the Group’s viability
statement on page 35 that they have carried out a
robust assessment of the principal risks facing the
Group, including those that would threaten its business
model, future performance, solvency and liquidity;
— the PrincipalRisks disclosuresdescribingthese risks
and explaining how they are being managed and
mitigated;and
— the Directors’ explanation in the Group’s viability
statement of how they have assessed the prospects of
the Group, over what period they have done so and why
they considered that period to be appropriate, and their
statement as to whether they have a reasonable
expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the
disclosures drawing attention to any necessary
qualifications or assumptions.
Under the Listing Rules we are required to review the
Group’s viability statement. We have nothing to report in
this respect.
Our work is limited to assessing these matters in the
context of only the knowledge acquired during our financial
statements audit. As we cannot predict all future events or
conditions and as subsequent events may result in
outcomes that are inconsistent with judgments that were
reasonable at the time they were made, the absence of
anything to report on these statements is not a guarantee
as to the Group’s and Company’s longer-termviability.
Quilter Annual Report 2019
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Strategic ReportGovernanceOther information Financial statements
Corporate governance disclosures
7. Respective responsibilities
We are required to reportto you if:
Directors’ responsibilities
— we have identifiedmaterial inconsistencies betweenthe
knowledge we acquired during our financial statements
audit and the Directors’ statement that they consider
that the annual report and financial statements taken as
a whole is fair, balanced and understandable and
provides the information necessary for shareholders to
assess the Group’s position and performance,business
model and strategy;or
— the section of the annual report describing the work of
the Audit Committee does not appropriately address
matters communicated by us to the Audit
Committee.
We are required to report to you if the Corporate
Governance Statement does not properly disclose a
departure from the eleven provisions of the UK
Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters on
which we are required to report by exception
Under the Companies Act 2006, we are required to report
to you if, in our opinion:
— adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have
not been received from branches not visited by us;or
— the parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are
not in agreement with the accounting records and
returns; or
— certain disclosures of Directors’ remuneration specified
by law are not made;or
— we have not received all the informationand
explanations we require for ouraudit.
We have nothing to report in these respects.
As explained more fully in their statement set out on page
94, the Directors are responsible for: the preparation of the
financial statements including being satisfied that they give
a true and fair view; such internal control as they determine
is necessary to enable the preparation of financial
statements that are free from material misstatement,
whether due to fraud or error; assessing the Group and
parent Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and using the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or other
irregularities (see below), or error, and to issue our opinion
in an auditor’s report. Reasonable assurance is a high level
of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can
arise from fraud, other irregularities or error and are
considered material if, individually or in aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our general commercial and
sector experience, and through discussion with the
Directors and other management (as required by auditing
standards), and from inspection of the Group’s regulatory
and legal correspondence and discussed with the
Directors and other management the policies and
procedures regarding compliance with laws and
regulations. We communicated identified laws and
regulations throughout our team and remained alert to
any indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the
financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that
directly affect the financial statements including financial
reporting legislation (including related companies
legislation), distributable profits legislation, pension
legislation and taxation legislation and we assessed the
extent of compliance with these laws and regulations as
part of our procedures on the related financial statement
items.
102
Quilter Annual Report 2019
Financial statements
Independent auditor’s report
Secondly the Group is subject to many other laws and
regulations where the consequences of non- compliance
could have a material effect on amounts or disclosures in
the financial statements,for instance through the imposition
of fines or litigation or the loss of the Group’s licence to
operate. We identified the following areas as those most
likely to have such an effect: health and safety, anti-bribery,
employment law, regulatory capital and liquidity, conduct
including suitability of advice and certain aspects of
company legislation recognising the financial and regulated
nature of the Group’s activities and its legal form. Auditing
standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry
of the directors and other management and inspection of
regulatory and legal correspondence, if any. Through these
procedures, we became aware of actual or suspected non-
compliance and considered the effect as part of our
procedures on the related financial statement items. The
identified actual or suspected non-compliance was not
sufficiently significant to our audit to result in our response
being identified as a key audit matter.
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some
material misstatements in the financial statements, even
though we have properly planned and performed our audit
in accordance with auditing standards. For example, the
further removed non-compliance with laws and regulations
(irregularities) is from the events and transactions reflected
in the financial statements, the less likely the inherently
limited procedures required by auditing standards would
identify it. In addition, as with any audit, there remained a
higher risk of non-detection of irregularities, as these may
involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls.We
are not responsible for preventing non-compliance and
cannot be expected to detect non-compliance with all laws
and regulations.
8. The purpose of our auditwork and to whom weowe
our responsibilities
This report is made solely to the Company’s members, as
a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and the terms of our engagement by
the company. Our audit work has been undertaken so that
we might state to the Company’s members those matters
we are required to state to them in an auditor’s report, and
the further matters we are required to state to them in
accordance with the terms agreed with the company, and
for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone
other than the Companyand the Company’smembers, as a
body, for our audit work, for this report, or for the opinions
we have formed.
Jonathan Mills
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 CanadaSquare
London
E14 5GL
11 March 2020
Quilter Annual Report 2019
103
Strategic ReportGovernanceOther information Financial statements
Consolidated income statement
For the year ended 31 December 2019
Revenue
Fee income and other income from service activities
Investment return
Other income
Total revenue
Expenses
Insurance contract claims and changes in liabilities
Change in investment contract liabilities
Fee and commission expenses, and other acquisition costs
Change in third party interest in consolidated funds
Other operating and administrative expenses
Finance costs1
Total expenses
Profit/(loss) before tax from continuing operations
Tax (expense)/credit attributable to policyholder returns
(Loss)/profit before tax attributable to equity holders from continuing operations
Income tax (expense)/credit
Less: tax expense/(credit) attributable to policyholder returns
Tax credit attributable to equity holders
(Loss)/profit after tax from continuing operations
Profit after tax from discontinued operations
Profit after tax
Attributable to:
Equity holders of Quilter plc
Earnings per ordinary share on profit attributable to ordinary shareholders of Quilter plc
Basic
From continuing operations (pence)
From discontinued operations (pence)
Basic earnings per ordinary share (pence)
Diluted
From continuing operations (pence)
From discontinued operations (pence)
Diluted earnings per ordinary share (pence)
Year ended
31 December
2019
£m
Year ended
31 December
2018
£m
936
6,866
22
7,824
(1)
(5,810)
(294)
(917)
(740)
(17)
(7,779)
45
(98)
(53)
(66)
98
32
(21)
167
146
954
(2,712)
35
(1,723)
(1)
2,499
(398)
369
(750)
(16)
1,703
(20)
61
41
86
(61)
25
66
422
488
146
488
(1.1)
9.1
8.0
(1.1)
8.9
7.8
3.5
23.1
26.6
3.5
23.0
26.5
Notes
8(a)
8(b)
26(c)
9(a)
9(b)
9(e)
10(a)
10(a)
5(c)
11(b)
5(c)
11(b)
11(b)
5(c)
11(b)
1The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of
initially applying IFRS 16 is recognised in retained earnings at the time of initial application.
The attached notes on pages 110 to 197 form an integral part of these consolidated financial statements.
104
Quilter Annual Report 2019
Financial statements
Consolidated statement of comprehensive income
For the year ended 31 December 2019
Profit after tax
Exchange losses on translation of foreign operations
Items that may be reclassified subsequently to income statement
Measurement movements on defined benefit plans
Tax on amounts related to defined benefit pension plans
Items that will not be reclassified subsequently to income statement
Total other comprehensive expense, net of tax
Total comprehensive income
Attributable to:
Continuing operations
Discontinued operations
Equity holders of Quilter plc
Notes
32
5(d)
Year ended
31 December
2019
£m
146
(1)
Year ended
31 December
2018
£m
488
–
(1)
(7)
1
(6)
(7)
139
(28)
167
139
–
–
–
–
–
488
66
422
488
The attached notes on pages 110 to 197 form an integral part of these consolidated financial statements.
Quilter Annual Report 2019
105
Strategic ReportGovernanceOther information Financial statements
Reconciliation of adjusted profit to profit after tax
For the year ended 31 December 2019
Advice and Wealth Management
Wealth Platforms
Head Office
Adjusted profit before tax before reallocation
Reallocation of QLA costs2
Adjusted profit before tax
Adjusted for the following:
Goodwill impairment and impact of acquisition accounting
Profit on business disposals
Business transformation costs
Managed Separation costs
Finance costs
Policyholder tax adjustments
Voluntary customer remediation provision
Total adjusting items before tax
Notes
6(b)
7(a)(i)
5(b)
7(a)(ii)
7(a)(iii)
7(a)(iv)
7(a)(v)
7(a)(vi)
(Loss)/profit before tax attributable to equity holders
Tax attributable to policyholder returns
Income tax (expense)/credit
10(a)
10(a),(b)
(Loss)/profit after tax
Adjusted earnings per share
Year ended 31 December 2019
Year ended 31 December 2018
Continuing
operations
£m
103
112
(33)
Discontinued
operations¹
£m
–
53
–
182
(26)
156
(54)
–
(77)
(6)
(10)
(62)
–
(209)
(53)
98
(66)
(21)
53
26
79
–
103
–
–
–
(12)
10
101
180
76
(89)
167
Total
£m
103
165
(33)
235
–
235
(54)
103
(77)
(6)
(10)
(74)
10
(108)
127
174
(155)
146
Continuing
operations
£m
102
105
(31)
Discontinued
operations¹
£m
26
57
–
176
(28)
148
(50)
–
(84)
(24)
(13)
64
–
(107)
41
(61)
86
66
83
28
111
–
290
–
–
–
37
–
327
438
(97)
81
422
Total
£m
128
162
(31)
259
–
259
(50)
290
(84)
(24)
(13)
101
–
220
479
(158)
167
488
Adjusted profit before tax before reallocation
Shareholder tax on adjusted profit before reallocation
Adjusted profit after tax before reallocation
Basic weighted average number of ordinary shares (millions)
Adjusted basic earnings per share (pence)
Diluted weighted average number of ordinary
shares (millions)
Adjusted diluted earnings per share (pence)
Year ended 31 December 2019
Year ended 31 December 2018
Continuing
operations
£m
182
(22)
Discontinued
operations
£m
53
(3)
160
8.7
50
2.7
8.6
2.7
Notes
10(c)
11(b)
11(a)
11(b)
11(a)
11(b)
Total
£m
235
(25)
210
1,835
11.4
1,863
11.3
Continuing
operations
£m
176
(13)
Discontinued
operations
£m
83
2
163
8.9
85
4.6
8.9
4.6
Total
£m
259
(11)
248
1,832
13.5
1,839
13.5
1Discontinued operations includes the results of the Quilter Life Assurance (“QLA”) business. In 2018, it also includes the Single Strategy business up to the date of its disposal in June 2018.
For further details of the Group’s segmentation, see note 6.
2Adjusted profit from continuing operations includes £26 million of costs (2018: £28 million) previously reported as part of the QLA business which has been reclassified from discontinued
to continuing operations as these costs do not transfer to ReAssure on disposal at 31 December 2019. See note 5(c) for further information.
Basis of preparation of adjusted profit
Adjusted profit is one of the Group’s Alternative Performance Measures and reflects the Directors’ view of the underlying performance of the
Group. It is used for management decision-making and internal performance management and is the profit measure presented in the Group’s
segmental reporting. Adjusted profit is a non-GAAP measure which adjusts the IFRS profit for specified items as detailed in note 7(a).
Adjusted profit excludes significant costs or income that are non-operating or one-off in nature, which includes but is not limited to: the impact of acquisition
accounting and any impairment of goodwill, any profit or loss on business acquisitions and disposals, costs related to business transformation, and finance
costs on external borrowings. Adjusted profit also treats policyholder tax (adjusted to remove the impact of non-operating tax items) as a pre-tax charge (to
offset against the related income collected from policyholders). Full details of the Group’s adjusting items are described in note 7(a).
Adjusted earnings applied in the calculation of adjusted earnings per share is calculated based on adjusted profit after tax. The calculation of the
adjusted weighted average number of shares includes own shares held in policyholders’ funds.
The Board Audit Committee regularly reviews the use of adjusted profit to confirm that it remains an appropriate basis on which to analyse the
operating performance of the business. The Group seeks to minimise such changes in order to maintain consistency over time. The Committee
assesses refinements to the policy on a case-by-case basis.
The attached notes on pages 110 to 197 form an integral part of these consolidated financial statements.
106
Quilter Annual Report 2019
Financial statements
Consolidated statement of changes in equity
For the year ended 31 December 2019
31 December 2019
Shareholders’ equity at beginning of the year
Adjustment on initial application of IFRS 16 (net of tax)1
Notes
Balance at 1 January 2019
Profit for the year
Other comprehensive expense
Total comprehensive income
Dividends
Release of merger reserve
Movement in own shares
Equity share–based payment transactions2
12
24(b)
25(e)
Total transactions with the owners of the Company
Balance at 31 December 2019
31 December 2018
Balance at 1 January 2018
Profit for the year
Total comprehensive income
Dividends
Acquisition of entities due to Managed
Separation restructure
Issue of share capital
Movement in own shares
Equity share–based payment transactions2
Change in participation in subsidiaries
Aggregate tax effects of items recognised
directly in equity
Notes
12
24(b)
24(a)
25(e)
Total transactions with the owners of the Company
Share
capital
£m
133
–
Share
premium
£m
58
–
Merger
reserve
£m
588
–
Share-based
payments
reserve
£m
34
–
Other
reserves
£m
1
–
Retained
earnings
£m
1,191
(5)
133
–
–
–
–
–
–
–
–
133
58
–
–
–
–
–
–
–
–
58
588
–
–
–
–
(439)
–
–
(439)
149
34
–
–
–
–
–
–
11
11
45
1
–
–
–
–
–
–
–
–
1
1,186
146
(7)
139
(92)
439
(2)
15
360
1,685
Share
capital
£m
130
–
–
–
Share
premium
£m
58
–
–
–
Merger
reserve
£m
–
–
–
–
Share-based
payments
reserve
£m
38
–
–
–
Other
reserves
£m
1
–
–
–
Retained
earnings
£m
872
488
488
(221)
–
3
–
–
–
–
3
–
–
–
–
–
–
–
591
(3)
–
–
–
–
588
588
–
–
–
7
(12)
1
(4)
34
–
–
–
–
–
–
–
1
–
–
5
35
12
–
(169)
1,191
Total
share-
holders’
equity
£m
2,005
(5)
2,000
146
(7)
139
(92)
–
(2)
26
(68)
2,071
Total
share-
holders’
equity
£m
1,099
488
488
(221)
591
–
5
42
–
1
418
2,005
Balance at 31 December 2018
133
58
1The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect
of initially applying IFRS 16 is recognised in retained earnings at the time of initial application.
2Equity–settled share–based payment transactions of £26 million (December 2018: £42 million) consists of IFRS 2 costs of £26 million (December 2018: £27 million). In the year ended
31 December 2019, £15 million has transferred from share-based payments reserve to retained earnings representing share–based payment schemes that have fully vested (December 2018:
£35 million). The year ended 31 December 2018 also included a transfer of £15 million previously recognised within liabilities to the share-based payment reserve, including cash awards that
were converted to equity–settled awards.
The attached notes on pages 110 to 197 form an integral part of these consolidated financial statements.
Quilter Annual Report 2019
107
Strategic ReportGovernanceOther information Financial statements
Consolidated statement of financial position
At 31 December 2019
Assets
Goodwill and intangible assets
Property, plant and equipment2
Investments in associated undertakings
Deferred acquisition costs
Contract costs
Loans and advances
Financial investments
Reinsurers’ share of policyholder liabilities
Deferred tax assets
Current tax receivable
Trade, other receivables and other assets3
Derivative assets
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Ordinary Share capital
Ordinary Share premium reserve
Merger reserve
Share-based payments reserve
Other reserves
Retained earnings
Total equity
Liabilities
Insurance contract liabilities
Investment contract liabilities
Third-party interests in consolidated funds
Provisions
Deferred tax liabilities
Current tax payable
Borrowings and lease liabilities2
Trade, other payables and other liabilities
Contract liabilities and deferred revenue
Derivative liabilities
Total liabilities
Total equity and liabilities
Notes
13
14
22
22
15
16
26
28(a)
28(c)
21
17
23(a)
24(a)
24(a)
24(b)
26
26
27
28(b)
28(c)
29
30
31
17
At
31 December
20191
£m
At
31 December
2018
£m
592
143
1
–
455
217
59,345
–
43
13
424
32
2,473
63,738
133
58
149
45
1
1,685
2,071
–
52,455
7,675
64
88
6
335
836
191
17
550
17
2
11
551
222
59,219
2,162
38
47
530
46
2,395
65,790
133
58
588
34
1
1,191
2,005
602
56,450
5,116
94
59
5
197
999
226
37
61,667
63,738
63,785
65,790
1The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect
of initially applying IFRS 16 is recognised in retained earnings at the time of initial application.
2Following the adoption of IFRS 16, the Group has presented right-of-use assets within Property, plant and equipment and lease liabilities within Borrowings and lease liabilities.
3The Group’s contract assets are now included within Trade, other receivables and other assets, having previously been shown separately on the statement of financial position.
Approved by the Board on 11 March 2020.
Paul Feeney
Chief Executive Officer
Mark Satchel
Chief Financial Officer
The attached notes on pages 110 to 197 form an integral part of these consolidated financial statements.
108
Quilter Annual Report 2019
Financial statements
Consolidated statement of cash flows
For the year ended 31 December 2019
The cash flows presented in this statement cover all the Group’s activities (continuing and discontinued operations and cash that is held for sale)
and includes flows from both policyholder and shareholder activities. All cash and cash equivalents are available for use by the Group except for
cash and cash equivalents in consolidated funds.
Cash flows from operating activities
Profit/(loss) before tax from continuing operations
Profit before tax from discontinued operations
Non-cash movements in profit before tax
Net changes in working capital2
Taxation paid
Total net cash (used in)/from operating activities
Cash flows from investing activities
Net disposals/(acquisitions) of financial investments
Acquisition of property, plant and equipment
Acquisition of intangible assets
Acquisition of interests in subsidiaries2,3
Net proceeds from the disposal of interests in subsidiaries
Total net cash from/(used in) investing activities
Cash flows from financing activities
Dividends paid to ordinary equity holders of the Company
Finance costs on external borrowings
Payment of interest on lease liabilities
Payment of principal lease liabilities
Proceeds from issue of subordinated and other debt
Subordinated and other debt repaid
Total net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of the year
Year ended
31 December
20191
£m
Year ended
31 December
2018
£m
45
256
(2,268)
(39)
(37)
(2,043)
2,260
(8)
(5)
(87)
78
2,238
(92)
(10)
(3)
(13)
–
–
(118)
77
2,395
1
2,473
(20)
341
584
(662)
(92)
151
(366)
(7)
(4)
13
350
(14)
(221)
(8)
–
–
497
(516)
(248)
(111)
2,507
(1)
2,395
Notes
5(c)
23(b)
23(c)
23(a)
1The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect
of initially applying IFRS 16 is recognised in retained earnings at the time of initial application.
2There has been a £7 million reallocation between net changes in working capital and acquisitions of interests in subsidiaries in respect of the comparative figures to conform with the current
year presentation of contingent consideration payments (see note 5(a)).
3The acquisition of interests in subsidiaries balance also includes £21 million paid in the year in respect of contingent consideration payments relating to historical acquisitions.
The attached notes on pages 110 to 197 form an integral part of these consolidated financial statements.
Quilter Annual Report 2019
109
Strategic ReportGovernanceOther information Financial statements
Basis of preparation and significant accounting policies
For the year ended 31 December 2019
General information
Quilter plc (the “Company”), a public limited company incorporated and domiciled in the United Kingdom (“UK”), together with its subsidiaries
(collectively, the “Group”) offers investment and wealth management services, long-term savings and financial advice through its subsidiaries and
associates primarily in the UK with a presence in a number of cross-border markets.
The address of the registered office is Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ.
The Company was, until 25 June 2018, a wholly owned subsidiary of Old Mutual plc, a FTSE-100 listed group. The Company formed part of the Old
Mutual Wealth division of Old Mutual plc, for which it acted as a holding company and delivered strategic and governance oversight. On 25 June
2018, Quilter plc was listed on the London and the Johannesburg Stock Exchanges and is no longer part of the Old Mutual plc Group.
1: Basis of preparation
The consolidated financial statements of Quilter plc for the year ended 31 December 2019 have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as endorsed by the European Union (“EU”), and those parts of the Companies Act 2006 applicable to those
reporting under IFRS.
These consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments,
and are presented in pounds sterling, which is the currency of the primary economic environment in which the Group operates.
The separate financial statements of the Company are on pages 188 to 196. The Company financial statements are prepared in accordance with
the Group’s accounting policies, other than for investments in subsidiaries, which are stated at cost less impairments in accordance with IAS 27
Separate Financial Statements.
Going concern
The Directors have considered the resilience of the Group, taking into account its current financial position, the principal risks facing the business
and the effectiveness of the mitigating strategies which are or will be applied. As a result, the Directors believe that the Group is well placed to
manage its business risks in the context of the current economic outlook and have sufficient financial resources to continue in business for a
period of at least 12 months from the date of approval of these consolidated financial statements, and continue to adopt the going concern basis
in preparing the consolidated financial statements.
Basis of consolidation
The Group’s consolidated financial statements incorporate the assets, liabilities and the results of the Company and its subsidiaries. Subsidiaries
are those entities, including investment funds, controlled by the Group. More information on how the Group assesses whether it has control over
an entity is provided in accounting policy 4(a). Subsidiaries are consolidated from the date the Group obtains control and are excluded from
consolidation from the date the Group loses control.
Where necessary, adjustments are made to financial statements of subsidiaries to bring the accounting policies used in line with Group policies.
All intercompany transactions, balances and unrealised surpluses and deficits on transactions between Group companies are eliminated on
consolidation.
During the current year, the Group has disposed of the Quilter Life Assurance (“QLA”) business. Details of the disposal, together with all acquisitions
and disposals in the periods, are included within note 5. QLA, and the related profit on disposal, are presented within the Group’s consolidated
income statement as a discontinued operation for the current and prior year.
Liquidity analysis of the statement of financial position
The Group’s statement of financial position is in order of liquidity as is permitted by IAS 1 Presentation of Financial Statements. For each asset and
liability line item, those amounts expected to be recovered or settled after more than twelve months after the reporting date are disclosed
separately in the notes to the consolidated financial statements.
Critical accounting estimates and judgements
The preparation of financial statements requires management to exercise judgement in applying the Group’s significant accounting policies and
make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. The Group Audit
Committee reviews these areas of judgement and estimates and the appropriateness of significant accounting policies adopted in the preparation
of these financial statements.
The Group’s critical accounting judgements are detailed below and are those that management makes when applying its significant accounting
policies and that have the most effect on the amounts recognised in the Group’s financial statements.
110
Quilter Annual Report 2019
Financial statements
Basis of preparation and significant
accounting policies
1: Basis of preparation continued
Critical accounting estimates and judgements continued
Area
Critical accounting judgements
Consolidation of
investment funds
The Group’s interest in investment funds can fluctuate according to the Group’s participation in them as clients’ underlying
investment choices change. The Group exercises judgement in assessing its level of power, exposure to variable returns and
its ability to use such power to affect those returns relative to the power of other investors in those funds, when evaluating
the need to consolidate those funds. In particular, management uses its judgement when assessing rights held by other
parties including substantive removal (“kick-out” rights).
Related notes
4(a)
Recognition of provisions
and contingent liabilities
in respect of Lighthouse
complaints
Complaints were received after the reporting date in relation to advice provided by Lighthouse before its acquisition by the
Group. Judgement is required to determine whether a provision can be reasonably estimated in relation to the complaints
and whether redress is probable, and therefore whether a provision can be recognised. Judgement is also required to
determine the treatment for advice where no complaint has been received and there is no present obligation, and these
cases have been treated as a contingent liability.
5(a), 27,
34, 39
Discontinued
operations
Apportionment of
Goodwill to business
disposals
Recognition of
provisions following
the disposal of QLA
Management judgement was applied in the classification of the QLA business (disposed in December 2019) as a discontinued
operation. Management concluded that QLA represented a separate major line of business, being the Group’s closed book
of legacy business and as such, met the discontinued operations criteria, restating prior year comparatives accordingly.
Judgement has also been applied in the reallocation of specific on-going costs to the Group’s continuing operations that will
remain in the business after the disposal of QLA.
Judgement was applied in the allocation of goodwill in relation to the QLA business, impacting the profit on disposal of that
business. The allocation was based on QLA’s fair value relative to the other businesses within the Wealth Platforms cash
generating unit (“CGU”).
The Group has exercised significant judgement in determining the accounting treatment for a number of provisions
in respect of the disposal of QLA. The disposal of QLA has led to a series of business activities related to the sale of the
business resulting in costs to separate the business from the Group, including its separation from a significant number of
shared IT systems. Provisions have been established where costs are either contractual within the disposal agreement or
represent a constructive liability in respect of ancillary work to separate the businesses. 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 certain provisions.
Uncertain tax
position
Due to the complexity of tax law, the tax treatment of specific transactions may be uncertain. In assessing uncertain
tax positions, the Group considers the likelihood that the tax authority may take a different view to that reached by
management. In that regard, the Group has exercised judgement in assessing the accounting tax position in relation
to transactions undertaken as part of the demerger from Old Mutual plc in 2018.
5(c)
13(c)
27
28
The Group’s critical accounting estimates are shown below and involve the most complex or subjective assessments and assumptions, which
have a significant risk of resulting in material adjustment to the carrying amounts of assets and liabilities 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 guidance to make predictions about future actions and events. Actual results may differ from those estimates.
Area
Critical accounting estimates
Consolidation of
investment funds
Provision for cost of
Lighthouse complaints
Goodwill and
intangible assets
Where the Group consolidates investment funds, estimation is required in some circumstances when sourcing the
up-to-date financial information, aligned to the Group’s reporting date. In instances where financial information is
unavailable for the Group’s reporting dates, the Group sources the most recently available financial information for those
funds, as the best reliable estimate.
An estimation of the provision required for the complaints received was determined based upon a sample of cases which
was deemed representative of the broader population to form a reasonable estimate. The estimation per case is based
upon FCA guidelines and modelling performed, based upon factors including pension transfer value, discount rate, and
retail price indexation. The sample was then extrapolated to the entire population of complaint cases.
The valuation of goodwill and intangible assets that are recognised as the result of a business combination involves
the use of valuation models. During the current year, these assets have arisen on the acquisition of the Charles Derby Group,
Lighthouse Group and various smaller adviser businesses. In relation to goodwill impairment, the determination of a CGU’s
recoverable value is based on the discounted value of the expected future profits of each business. Significant estimates
include forecast cash flows, new business growth and discount rates. Estimation was also used in the valuation of goodwill
attributable to the disposal of the QLA business.
Valuation of
investments
Where quoted market prices are not available, valuation techniques are used to measure financial investments.
When valuation techniques use significant unobservable inputs they are subject to estimation uncertainty and are
categorised as level 3 in the fair value hierarchy. Matching liabilities are similarly categorised as level 3.
Insurance contracts
measurement and the
impact upon profit on
disposal of QLA
Measurement
of deferred tax
Measurement of insurance contracts involves significant use of assumptions including mortality, morbidity, persistency,
expense valuation and interest rates. This measurement impacted upon the closing net asset value of QLA, and therefore
the profit recognised by the Group on the disposal of QLA.
The estimation of future taxable profits is performed as part of the annual business planning process, and is based
on estimated levels of assets under management, which are subject to a large number of factors including worldwide stock
market movements, related movements in foreign exchange rates and net client cash flow, together with estimates of
expenses and other charges. The business plan, adjusted for known and estimated tax sensitivities, is used to determine the
extent to which deferred tax assets are recognised. In general the Group assesses recoverability based on estimated taxable
profits over a 3 year planning horizon. Where credible longer term profit forecasts are available (e.g. for the life insurance
companies) the specific entity may assess recoverability over a longer period, subject to a higher level of sensitivity testing.
Related notes
4(a)
27
13
19
5(b)
26
28
Quilter Annual Report 2019
111
Strategic ReportGovernanceOther information Financial statements
Basis of preparation and significant accounting policies continued
For the year ended 31 December 2019
1: Basis of preparation continued
Critical accounting estimates and judgements continued
During the year, the Group reassessed its critical accounting estimates and judgements and no longer considers the judgements and estimates
relating to the classification and measurement of insurance contracts to be critical to the Group, following the sale of the QLA business (see note
5(b) for further details of the sale). In addition, the estimates and judgements involved in the recognition and measurement of the voluntary
customer remediation provision is no longer relevant to the Group as the provision was part of the QLA net assets sold.
2: New standards, amendments to standards, and interpretations adopted by the Group
The Group adopted IFRS 16 Leases for the first time in 2019. The Group has applied the simplified transition approach and has not restated
comparative amounts for the period prior to initial adoption. The impact of adopting this new standard is outlined in note 4(s).
The Group has also adopted IFRIC 23 Uncertainty over Income Tax Treatments during the year ended 31 December 2019. This interpretation sets out
how to determine taxable profits/losses, tax bases, unused tax losses, unused tax credits and tax rates (collectively referred to as the “accounting
tax position”) where there is uncertainty over treatment. In applying IFRIC 23, the Group has made judgements on whether tax authorities will
accept the Group’s tax filing position and estimated the likely impact on the Group’s tax assets and liabilities. The adoption of this interpretation
during 2019 has had no material impact on the Group’s consolidated financial statements other than a reduction in unrecognised deferred tax
assets (see note 28).
Other standards:
In addition to IFRS 16 and IFRIC 23, the following amendments to the accounting standards, issued by the International Accounting Standards
Board (“IASB”) and endorsed by the EU, have been adopted by the Group from 1 January 2019 with no material impact on the Group’s consolidated
results, financial position or disclosures:
• Amendments to IFRS 9 Financial Instruments – Prepayment features with negative compensation.
• Amendments to IAS 28 Investments in Associates – Long-term interests in associates and joint ventures.
• Amendments to IAS 19 Employee Benefits – Plan amendments, curtailments or settlements.
• Annual improvements to IFRSs 2015-2017 Cycle – Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes
and IAS 23 Borrowing Costs.
3: Future standards, amendments to standards, and interpretations not early-adopted in these financial statements
Certain new standards, interpretations and amendments to existing standards have been published by the IASB that are mandatory for the
Group’s annual accounting periods beginning on or after 1 January 2020. The Group has not early adopted these standards, interpretations and
amendments, nor does the Group expect these to have a material impact on the Group’s consolidated financial statements.
• IFRS 17 Insurance contracts
The IASB issued IFRS 17 Insurance Contracts in May 2017. When IFRS 17 is endorsed by the EU, it will replace its interim predecessor, IFRS 4
Insurance Contracts. IFRS 17 is a comprehensive standard which provides a single accounting model for all insurance contracts. IFRS 17 will
replace a wide range of different accounting practices previously permitted, improving transparency and enabling investors and regulators to
understand and compare the financial position and performance of an insurer, irrespective of where they are based geographically.
The Group completed the sale of QLA to ReAssure on 31 December 2019. Following the sale, the impact of IFRS 17 is significantly reduced
for the Group with only a small number of insurance contracts remaining in the Quilter International business.
The measurement model
The use of current estimates at each reporting date and an explicit risk adjustment to measure obligations created by insurance contracts,
provides up to date information about cash flows and associated risk and timing. “Day one” profits are deferred and recognised in the income
statement through the release of the contractual service margin (“CSM”), which has the effect of recognising revenue as services are provided.
This principle is consistent with the treatment in IFRS 15.
Presentation and disclosure
Insurers’ financial statements will be differently presented under IFRS 17. Insurers will be required to provide information about sources of profit
or losses from insurance and investment related services, comprising insurance revenue and insurance service expenses (underwriting activity),
as well as finance income or expense (investing activity). New performance metrics and KPIs will be required to explain business results to the
investment community. Disclosure requirements focus on amounts recognised in the financial statements, significant judgements and changes
in those judgements, as well as information about the nature and extent of risks that arise from insurance contracts.
Effective date
The IASB published an exposure draft Amendments to IFRS 17 in June 2019 proposing that the effective date of IFRS 17 be deferred by one year,
such that it would apply to entities with annual reporting periods beginning on or after 1 January 2022. The standard is yet to be endorsed by the EU.
112
Quilter Annual Report 2019
Financial statements
Basis of preparation and significant
accounting policies
4: Significant accounting policies
The Group’s significant accounting policies are described below. Any changes to the Group’s significant accounting policies as a result of changes
in accounting standards during the year are detailed in note 4(s).
4(a): Group accounting
Subsidiaries
Subsidiary undertakings are those entities (investees) controlled by the Group. The Group controls an investee if, and only if, the Group has all of
the following three elements of control:
• power over the investee;
• exposure or rights to variable returns from its involvement with the investee; and
• the ability to affect those returns through its power over the investee.
For operating entities this usually arises with a shareholding in the entity of 50% or more. The Group also consolidates certain of its interests in
open-ended investment companies (“OEICs”), unit trusts, mutual funds and similar investment vehicles (collectively “investment funds”). Where,
as is often the case with investment funds, voting or similar rights are not the dominant factor in deciding who controls the investee, other factors
are considered in the control assessment. These are described in more detail below.
The Group continually assesses any changes to facts and circumstances to determine, in the context of the three elements of control listed above,
whether it still controls investees and is required to consolidate them.
Investment funds
The Group invests in a wide range of investment funds such as OEICs and unit trusts generally in respect of its unit-linked investment contracts
where investments are made to match clients’ investment choices. For some of these funds it also acts as fund manager. These funds invest
predominantly in equities, bonds, cash and cash equivalents. The Group holds interests in these investment funds mainly through the receipt of
fund management fees, in the case where the Group acts as fund manager, which provide a variable return based on the value of the funds under
management and other criteria, and in the case of third-party funds where fund performance has an impact on fund-based fees within unit-linked
investment contracts and other similar client investment products. Where the Group acts as fund manager it may also hold investments in the
underlying funds, through acquiring units or shares. Where these investments are held in unit-linked funds, the Group has a secondary exposure
to variable returns through the management fees that it deducts from unit-linked policyholders’ account balances. The Group’s percentage
ownership can fluctuate from day to day according to the Group’s participation in them as clients’ underlying investment choices change.
When assessing control of investment funds, the Group considers the purpose and design of the fund, scope of its decision-making authority,
including its ability to direct relevant activities and to govern the operations of a fund so as to obtain variable returns from that fund and its ability
to use its power to affect these returns, both from the perspective of an investor and an asset manager. In addition, the Group assesses rights held
by other parties including substantive removal (“kick-out” rights) that may affect the Group’s ability to direct relevant activities.
On consolidation, the interests of parties other than the Group are classified as a liability in the Group’s statement of financial position and are
described as “Third-party interests in consolidated funds”. Such interests are not recorded as non-controlling interests (“NCIs”) as they meet the
liability classification requirement set out in IAS 32 Financial Instruments: Presentation. These liabilities are regarded as current, as they are repayable
on demand, although it is not expected that they will be settled in a short time period.
Business combinations
The Group is required to use the acquisition method of accounting for business combinations. Business combinations are accounted for at the
date that control is achieved (the acquisition date). The cost of a business combination is measured as the aggregate of the fair values (at the date
of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations
are recognised at their fair value at the acquisition date.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group
reports provisional amounts. Where provisional amounts are reported these are adjusted during the measurement period which extends up to
a maximum of 12 months from the acquisition date. Additional assets or liabilities may also be recognised during this period, to reflect any new
information obtained about the facts and circumstances that existed as of the date of acquisition date that, if known, would have affected the
amounts recognised as on that date.
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4: Significant accounting policies continued
4(a): Group accounting continued
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets of the acquired
entity at the date of acquisition. Acquisition related costs are expensed as incurred.
Upon disposal, the Group derecognises a subsidiary or disposal group on the date on which control passes. The consolidated income statement
includes the results of a subsidiary or disposal group up to the date of disposal. The difference between the proceeds from the disposal of a
subsidiary undertaking and its carrying amount as at the date of disposal, including the cumulative amount of any related exchange differences
that are recognised in the foreign currency translation reserve equity, is recognised in the consolidated income statement as the gain or loss on
disposal of the subsidiary undertaking.
Common control combinations
Merger accounting is used by the Group for common control combinations, which are transactions between entities that are ultimately controlled
by the same party or parties. This method treats the merged entities as if they had been combined throughout the current and comparative
accounting periods. Merger accounting principles for these combinations result in the recognition of a merger reserve in the consolidated
statement of financial position, being the difference between the nominal value of any new shares issued by the parent company for the acquisition
of the shares of the subsidiary and the subsidiary’s Net Asset Value (“NAV”). Such transactions attract merger relief under section 612 of the
Companies Act 2006.
4(b): Fair value measurement
The Group uses fair value to measure the majority of its assets and liabilities. Fair value is a market based measure and is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For a financial
instrument, the best evidence of fair value at initial recognition is normally the transaction price, which represents the fair value of the consideration
given or received.
Where observable market prices in an active market, such as bid or offer (ask) prices are unavailable, fair value is measured using valuation
techniques based on the assumptions that market participants would use when pricing the asset or liability. If an asset or a liability measured at fair
value has a bid or an offer price, the price within the bid-offer spread that is most representative of fair value is used as the basis of the fair value
measurement.
The quality of the fair value measurement for financial instruments is disclosed by way of the fair value hierarchy, whereby Level 1 represents a
quoted market price for identical financial assets and liabilities, Level 2 financial assets and liabilities are valued using inputs other than quoted
prices in active markets included in Level 1, either directly or indirectly and Level 3 whereby financial assets and liabilities are valued using valuation
techniques where one or more significant inputs are unobservable.
Classifying financial instruments into the three levels outlined above provides an indication about the reliability of inputs used in determining fair
value. More information is provided in note 19.
4(c): Product classification
The Group’s life assurance contracts included in the Wealth Platforms segment are categorised as either insurance contracts or investment
contracts, in accordance with the classification criteria set out in the paragraphs below.
Insurance contracts
The Group’s insurance contracts include traditional life and health insurance contracts including for the latter stand-alone critical illness and
long-term care policies (all within the disposed QLA business), as well as the unbundled insurance component of unit-linked contracts (described in
more detail below in the “hybrid insurance and investment contracts – unbundling” section). Life assurance contracts are categorised as insurance
contracts at the inception of the contract only if the contract transfers significant insurance risk. Insurance risk is significant if, and only if, an
insured event could cause the Group to make significant additional payments in any scenario, excluding scenarios that lack commercial substance.
Such contracts remain insurance contracts until all rights and obligations are extinguished or expire. It is possible to reclassify contracts as
insurance contracts after inception if insurance risk becomes significant.
IFRS accounting for insurance contracts in UK companies was “grandfathered” at the date of transition to IFRS and determined in accordance with
the Statement of Recommended Practice on Accounting for Insurance Business (issued by the Association of British Insurers and subsequently
withdrawn from 1 January 2015), which adjusted solvency I balances to remove certain regulatory reserves and margins in assumptions.
Investment contracts
Investment contracts do not meet the definition of an insurance contract as they do not transfer significant insurance risk from the policyholder
to the insurer. Unit-linked investment contracts are separated into two components being an investment management services component and
a financial liability. The financial liability component is mandatorily at fair value through profit or loss (“FVTPL”) as it is managed on a fair value basis,
and its value is directly linked to the market value of the underlying portfolio of assets. The Group does not directly benefit economically from
returns from the assets held to match policyholder liabilities, apart from secondary exposure to future annual management fees that the Group
expects to receive over the life of the policy.
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4(c): Product classification continued
“Hybrid” insurance and investment contracts – unbundling
Generally, life and pensions contracts allow for a single classification at product class level. For those contracts containing both an insurance
component and an investment component, the Group has elected to unbundle these contracts and account for each component separately.
This approach has been applied to a number of the Group’s unit-linked assurance business contract types where a significant component of
insurance risk exists.
4(d): Fee income and other income from service activities
Fee income and other income from service activities represent the fair value of services provided, net of value-added tax. Within Quilter, all
businesses act as a principal with the only exception to this being in Quilter Investors where the management of certain funds is outsourced to
external fund managers.
Premium based fees
This relates to non-refundable fees taken on receipt of clients’ investments and recognised on receipt over the life of the contract, in line with the
performance obligation associated with the contract in respect of the administration of the underlying client records and client benefits. Where
fees are received, either at inception or over an initial period for services not yet provided, the income is deferred and recognised as contract
liabilities on the statement of financial position and released to the income statement as services are provided over the lifetime of the contract
(see note 31 for further information).
In addition this also includes fees in respect of advice provided to clients, when the advice has been provided to the client and the financial
adviser’s performance obligation has been fully delivered. Accordingly, fee income is recognised at the inception of the financial product sold.
Fund based fees
This is periodic fee income based on the market valuation of the Group’s investment contracts. It is calculated and recognised on a daily basis
in line with the provision of investment management services.
Fixed fees
This is periodic fee income which is fixed in value according to underlying contract terms and relates to the provision of services and transactional
dealing fees. It is recognised on provision of the transaction or service.
Surrender fees
Surrender fee income relates to client charges received on the surrender of an investment contract or insurance contract, which is based on the
value of the policy and recognised on surrender of the policy.
Other fee and commission income
This includes charges taken from unit-linked funds to meet future policyholder tax liabilities. Depending on the nature of the tax liability, the
charges are either recognised at the point a transaction occurs on the unit-linked fund, or annually. This also includes fee and commission income
within consolidated funds’ income statements.
4(e): Investment return
Investment return comprises two elements (a) investment income and (b) realised and unrealised gains and losses on investments held at FVTPL.
Investment income
Investment income includes dividends on equity securities which are recorded as revenue on the ex-dividend date and interest income which is
recognised using the effective interest rate method which allocates interest and other finance costs at a constant rate over the expected life of the
financial instrument.
Realised and unrealised gains and losses
A gain or loss on a financial investment is only realised on disposal or transfer and represents the difference between the proceeds received, net
of transaction costs, and its original cost (or amortised cost). Unrealised gains or losses, arising on investments which have not been disposed or
transferred, represent the difference between carrying value at the year end and the carrying value at the previous year end or purchase value
(if this occurs during the year), less the reversal of previously recognised unrealised gains or losses in respect of disposals made during the year.
Gains and losses resulting from changes in both market value and foreign exchange on investments classified at FVTPL are recognised in the
consolidated income statement in the period in which they occur.
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4(f): Premiums
Premiums receivable under insurance contracts are shown in the income statement gross of commission and exclude sales-based taxes and
levies. For regular (and recurring) premium contracts, receivables are recognised when payments are due. Premiums in respect of other insurance
contracts are recognised in the income statement when receivable, apart from premiums received in respect of unit-linked insurance contracts
(see below). Where policies lapse due to non-receipt of premiums, then all the related premium income accrued but not received from the date
they are deemed to have lapsed is offset against premiums.
Premiums received in respect of unit-linked insurance contracts are recognised when the corresponding liability to the policyholder is established.
For single premium business, this is the date from which the policy is effective.
4(g): Deferred acquisition costs and contract costs
Investment contracts
Incremental costs, including fee and commission expenses, that are directly attributable to securing either unit-linked investment contracts or
other asset management services are deferred and recognised as contract costs. Contract costs are linked to the contractual right to benefit from
providing investment management services; they are therefore amortised through the income statement consistent with the transfer to the
customer of the services to which the contract relates.
Insurance contracts
Incremental costs directly attributable to securing an insurance contract, such as initial commission and the costs of obtaining and processing
such business are deferred and a deferred acquisition cost (“DAC”) asset recognised, to the extent that they are expected to be recovered out of
future margins.
Insurance DAC is amortised as an expense on a straight line basis, adjusted for expected persistency, over the expected life of the contract, as the
services are provided (equal service provision assumed) but subject to a restriction whereby it is no longer than the period in which such costs are
expected to be recoverable out of future margins.
At the end of each reporting period, contract costs and DAC are reviewed for recoverability, by category of business, against future margins from
the related contracts. They are impaired in the income statement when they are no longer considered to be recoverable.
4(h): Investment contract liabilities
The majority of the Group’s investment contracts are unit-linked contracts. At inception, investment contract liabilities for unit-linked business are
classified as financial liabilities and measured at FVTPL. For these contracts, the fair value liability is equal to the total value of units allocated to the
policyholders, based on the bid price of the underlying assets in the fund. The FVTPL classification reflects the fact that the matching investment
portfolio, that backs the unit-linked liabilities, is managed, and its performance evaluated, on a fair value basis.
Contributions received on investment contracts are treated as policyholder deposits and credited directly to investment contract liabilities on the
statement of financial position, as opposed to being reported as revenue in the consolidated income statement. This practice is known as deposit
accounting. Withdrawals paid out to policyholders on investment contracts are treated as a reduction to policyholder deposits, reducing the
investment contract liabilities on the statement of financial position, as opposed to being recognised as expenses in the consolidated income
statement.
4(i): Insurance contract liabilities
Following the disposal of the Group’s QLA business (see note 5(b) for further details), insurance contract liabilities within the Group are £nil at year
ended 31 December 2019.
Claims
Insurance business claims reflect the cost of all claims arising during the year and include payments for maturities, annuities, surrender, death
and disability claims, as well as claims handling costs, incurred in connection with the negotiation and settlement of claims. They are recognised
as expenses in the income statement. Maturity and annuity claims are recorded as they fall due for payment. Death and disability claims and
surrenders are accounted for when notified. Reinsurance recoveries, in respect of these claims, are accounted for in the same period as the
related claim.
Insurance contract liabilities
The Group calculates its long-term insurance contract liabilities, based on local regulatory requirements and actuarial principles consistent with
those applied in the local market. Liabilities are calculated using the gross premium valuation method, which is based on the amount of contractual
premiums receivable and includes explicit assumptions for interest and discount rates, as well as for mortality, morbidity, persistency and future
expenses. These assumptions are based on market data, internal experience data and also external data where either no internal experience data
exists or where internal data is too sparse to give credible estimates of the true expectation of experience. Anticipated future trends have been
allowed for in deriving mortality and morbidity assumptions. The liability for contractual benefits that are expected to be paid in the future is
determined as the discounted value of the excess of future expected outgoings over future expected income. Future expected outgoings include
claim costs, direct expenses and commissions. Future expected income includes premiums payable by policyholders. For anticipated future
claims that have been incurred but not yet paid, the Group establishes a provision for outstanding claims.
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4(i): Insurance contract liabilities continued
The method used to determine these liabilities makes allowance for the level of risk and uncertainty inherent in the business by the use of margins
for caution within the assumptions used to project future income and outgoings. The portion of premiums received that relates to unexpired risks
as at the reporting period end is reported within the long-term insurance liabilities. The change in insurance contract liabilities, comprising the full
movement in the corresponding liabilities during the period, is recognised in the income statement.
Liability adequacy test
At each reporting date, the Group assesses whether the recognised insurance contract liabilities are adequate in light of current estimates of
future cash flows. This liability adequacy test is performed by comparing the carrying value of the insurance contract liabilities and the discounted
projections of future cash flows. If the carrying value is less than the future expected cash flows, the deficiency is initially recognised by writing
down the DAC asset. The recoverability of the DAC asset is tested against present value of in-force (“PVIF”) business, determined on a best estimate
basis, with any deficit written off the DAC asset immediately. Any required write down in excess of the value of the DAC asset is recognised in the
income statement with a corresponding additional provision in the statement of financial position.
4(j): Reinsurance
Insurance contracts
The Group cedes reinsurance in the normal course of business for the purpose of limiting its claims costs. Ceded reinsurance contracts include
arrangements where regular risk premiums are paid by the Group to the reinsurer and an agreed share of claims are paid by the reinsurer to the
Group. These arrangements are in respect of underlying policies that are classified as insurance contracts. Accordingly, contracts with reinsurers
are assessed to establish whether they contain significant insurance risk to justify such a classification. Only rights under contracts that give rise
to a transfer of significant insurance risk are accounted for as reinsurers’ share of policyholder liabilities.
Reinsurance premiums for ceded reinsurance are recognised as an expense on a basis that is consistent with the recognition basis for the
premiums on the related insurance contracts. Reinsurance recoveries are recognised in the income statement in the same period as the related
claim.
Reinsurance recoveries due from reinsurers and reinsurance premiums due to reinsurers under reinsurance contracts that are contractually due
at the reporting date are separately recognised in other receivables and other payables respectively unless a right of offset exists, in which case
the net amount is reported on the consolidated statement of financial position. Assets, liabilities, income and expenses arising from ceded
reinsurance contracts are presented separately from the related assets, liabilities, income and expenses from the underlying insurance contracts
because the reinsurance arrangements do not relieve the Group from its direct obligations to its policyholders.
The value of the benefits that the Group is entitled to under the ceded reinsurance arrangements are reported as “reinsurers’ share of
policyholder liabilities” in the statement of financial position. This is calculated as the difference between the insurance contract liability assuming
no reinsurance arrangement exists (the gross basis) and the liability with explicit allowance for all cash flows relating to the reinsurance
arrangement (the net basis). Insurance contract liabilities are calculated quarterly on the gross and net bases taking into account all relevant
experience effects. The reinsurers’ share of insurance provisions is updated consistently with these calculations. Any resulting movement in the
reinsurers’ share of insurance provisions is recognised in the income statement.
Reinsurance assets are assessed for impairment at each reporting date. A reinsurance asset is impaired if there is objective evidence, as a result
of an event that occurred after its initial recognition, that the Group may not recover all amounts due to it under the terms of the contract and that
the event has an impact that can be measured reliably in respect of amounts expected to be received from the reinsurer. The reinsurers’ share of
policyholder liabilities is updated for any impairment. Any resulting movement in the reinsurers’ share of policyholder liabilities is recognised in the
income statement.
Investment contracts
Investments held on behalf of policyholders recognised by the Group that are fully managed by a third-party reinsurer are shown on the
statement of financial position within reinsurers’ share of investment contract liabilities, with the corresponding liability to the policyholder
included within liabilities for linked investment contracts.
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4: Significant accounting policies continued
4(k): Financial instruments (other than derivatives)
Financial instruments cover a wide range of financial assets, including financial investments, trade receivables and cash and cash equivalents and
certain financial liabilities, including investment contract liabilities, trade payables, and borrowings. Derivatives, which are also financial instruments,
are covered by accounting policy 4(m). Financial assets and financial liabilities are recognised in the Group’s statement of financial position when
the Group becomes party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights
to receive cash flows have expired or been forfeited by the Group. A financial liability is derecognised when the liability is extinguished.
The Group assesses the objective of a business model in which an asset is held at a portfolio level because this best represents the way the
business is managed and information is reported to management. The assessment considers the stated portfolio policies and objectives. The
Group determines its strategy in holding the financial asset, particularly considering whether the Group earns contractual interest revenue, for
example to match the duration of financial assets to the duration of liabilities that are funding those assets or to realise cash flows through the sale
of the assets. The frequency, volume and timing of sales in prior periods may be reviewed, along with the reasons for such sales and expectations
about future sales activity. These factors enable management to determine which financial assets should be measured at FVTPL.
Initial measurement
A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially
measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition.
Subsequent measurement
The classification of financial assets depends on (i) the purpose for which they were acquired, (ii) the business model in which a financial asset is
managed, and (iii) its contractual cash flow characteristics. The standard has four categories, of which two are applicable within the Group: FVTPL
and amortised cost. This classification determines the subsequent measurement basis. The following accounting policies apply to the subsequent
measurement of financial assets.
Measurement basis
Accounting policies
Financial assets at FVTPL
These financial assets are subsequently measured at fair value. Net gains and losses, including interest and dividend income,
are recognised in profit or loss.
Amortised cost
These financial assets are subsequently measured at amortised cost using the effective interest rate method. The amortised
cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in
profit or loss. Any gain or loss on de-recognition is recognised in profit or loss.
Amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and unless designated as FVTPL on initial recognition
applying the Fair Value Option (see below):
• the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount
outstanding on specified dates.
For the purposes of this assessment, principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as
consideration of the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time
and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.
Financial investments
All other financial assets that are not measured at amortised cost are classified and measured at FVTPL. This includes any derivative financial
assets (the majority of which are as a result of the consolidated of funds, as described in note 4(a)). In addition, on initial recognition, the Group may
irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost, at FVTPL, if doing so eliminates
or significantly reduces an accounting mismatch that would otherwise arise (the Fair Value Option).
The Group’s interests in pooled investment funds, equity securities and debt securities are mandatorily at FVTPL, as they are part of groups of
financial assets which are managed and whose performance is evaluated on a fair value basis. These investments are recognised at fair value
initially and subsequently, with changes in fair value recognised in investment return in the consolidated income statement.
The Group recognises purchases and sales of financial investments on trade date, which is the date that the Group commits to purchase or sell the
assets. The costs associated with investment transactions are included within expenses in the consolidated income statement.
Loans and advances
Loans with fixed maturities, including policyholder loans, are recognised when cash is advanced to borrowers or policyholders. Policyholder loans
are interest free and are mandatorily at FVTPL since they are taken from the policyholder’s unit-linked account and thereby matched to underlying
unit-linked liabilities held at FVTPL, which are unaffected by the transaction. Other loans and advances are carried at amortised cost using the
effective interest rate method. These assets are subject to the impairment requirements outlined below.
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Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits, money market collective investment funds and other short-term deposits with
an original maturity of three months or less.
Cash and cash equivalents held within money market collective investment funds are classified as FVTPL. All other cash and cash equivalents are
classified as amortised cost which means they are initially recognised at fair value and subsequently carried at amortised cost using the effective
interest method and are subject to the impairment requirements outlined below. The carrying amount of cash and cash equivalents, other than
money market collective investment funds which are measured at fair value, approximates to their fair value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. At inception,
investment contract liabilities for unit-linked business are designated as financial liabilities and measured at FVTPL. Other financial liabilities,
including the Group’s borrowings and trade payables, are measured at amortised cost using the effective interest method.
Trade payables and receivables
Trade payables and receivables are classified at amortised cost. Due to their short-term nature, their carrying amount is considered to be the same
as their fair value.
Investments in subsidiaries
Parent Company investments in subsidiary undertakings are initially stated at cost. Subsequently, investments in subsidiary undertakings are
stated at cost less any provision for impairment. An investment in a subsidiary is deemed to be impaired when its carrying amount is greater than
its estimated recoverable amount, and there is evidence to suggest that the impairment occurred subsequent to the initial recognition of the asset
in the financial statements. All impairments are recognised in the Parent Company income statement as they occur.
Impairment of financial assets
The expected loss accounting model for credit losses applies to financial assets measured at amortised cost, but not to financial assets at FVTPL.
Financial assets at amortised cost include trade receivables, cash and cash equivalents (excluding money market collective investment funds
which are measured at fair value) and loans and advances.
Credit loss allowances are measured on each reporting date according to a three stage expected credit loss (“ECL”) impairment model:
Performing financial assets:
Stage 1
From initial recognition of a financial asset to the date on which an asset has experienced a significant increase in credit risk relative to its initial
recognition, a stage 1 loss allowance is recognised equal to the credit losses expected to result from its default occurring over the earlier of the
next 12 months or its maturity date (“12-month ECL”).
Stage 2
Following a significant increase in credit risk relative to the initial recognition of the financial asset, a stage 2 loss allowance is recognised equal to
the credit losses expected from all possible default events over the remaining lifetime of the asset (“Lifetime ECL”).
The assessment of whether there has been a significant increase in credit risk requires considerable judgement, based on the lifetime probability
of default (“PD”). Stage 1 and 2 allowances are held against performing loans; the main difference between stage 1 and stage 2 allowances is the
time horizon. Stage 1 allowances are estimated using the PD with a maximum period of 12 months, while stage 2 allowances are estimated using
the PD over the remaining lifetime of the asset.
Impaired financial assets:
Stage 3
When a financial asset is considered to be credit-impaired, the allowance for credit losses (“ACL”) continues to represent lifetime expected credit
losses. However, interest income is calculated based on the amortised cost of the asset, net of the loss allowance, rather than its gross carrying
amount.
Application of the impairment model
The Group applies the ECL model to two main types of financial assets that are measured at amortised cost:
• Trade receivables to which the simplified approach prescribed by IFRS 9 is applied. This approach requires the recognition of a Lifetime ECL
allowance on day one and thereafter.
• Loans at amortised cost, to which the general three stage model (described above) is applied, whereby a 12 month ECL is recognised initially
and the balance is monitored for significant increases in credit risk which triggers the recognition of a Lifetime ECL allowance.
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4(k): Financial instruments (other than derivatives) continued
ECLs are a probability-weighted estimate of credit losses. ECLs for financial assets that are not credit-impaired at the reporting date are measured
as the present value of all cash shortfalls (i.e. the difference between the cash flows due in accordance with the contract and the cash flows that the
Group expects to receive). ECLs for financial assets that are credit-impaired at the reporting date are measured as the difference between the
gross carrying amount and the present value of estimated future cash flows. ECLs are discounted at the effective interest rate of the financial
asset. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
The measurement of ECLs considers information about past events and current conditions, as well as supportable information about future
events and economic conditions. The Group has implemented its impairment methodology for estimating the ACL, taking into account forward-
looking information in determining the appropriate level of allowance. In addition it has identified indicators and set up procedures for monitoring
for significant increases in credit risk.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is credit-
impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes events such as significant financial difficulty of the borrower or issuer, a breach of
contract such as a default or past due event or the restructuring of a loan or advance by the Group on terms that the Group would not otherwise
consider. The assumption that the credit risk for balances over 30 days significantly increases has been rebutted on the basis that some balances
will exceed 30 days in the normal course of the settlement cycle, and therefore, there is no increase in the credit risk.
Presentation of impairment
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
Write-offs
Loans and debt securities are written off (either partially or in full) when there is no realistic prospect of the amount being recovered. This is
generally the case when the Group concludes that the borrower does not have assets or sources of income that could generate sufficient cash
flows to repay the amounts subject to the write-off.
4(l): Contract assets
Contract assets are classified as non-financial. Due to their short-term nature, their carrying amount is considered to be the same as their fair
value.
The expected loss accounting model for credit losses applies to contract assets. The Group applies the ECL model to contract assets, which are
measured at amortised cost. The simplified approach prescribed by IFRS 9 is applied to contract assets. This approach requires the recognition
of a Lifetime ECL allowance on day one and thereafter.
4(m): Derivatives
The Group uses derivative financial instruments to manage well-defined foreign exchange risks arising out of the normal course of business in its
International operations and uses forward foreign exchange contracts to reduce the currency risk on certain US Dollar, Euro and Swedish Krona
denominated future revenues and accounts receivables balances. Management determines the classification of derivatives at initial recognition
and classifies derivatives as mandatorily at FVTPL. All derivatives are carried as assets when their fair value is positive and as liabilities when their
fair value is negative.
The only other derivatives recognised in the Group’s statement of financial position are as a result of the consolidation of funds (described in note 4(a)).
4(n): Employee benefits
Pension obligations
The Group operates two types of pension plans which have been established for eligible employees of the Group:
• Defined contribution schemes where the Group makes contributions to members’ pension plans but has no further payment obligations once
the contributions have been paid.
• Defined benefit plans which provide pension payments upon retirement to members as defined by the plan rules. The Group has funded these
liabilities by ring-fencing assets in trustee-administered funds.
Defined contribution pension obligation
Under a defined contribution plan, the Group’s legal or constructive obligation is limited to the amount it agrees to contribute to a pension fund
and there is no obligation to pay further contributions if the fund does not hold sufficient assets to pay benefits. Contributions in respect of defined
contribution schemes for current service are expensed in the income statement as staff costs and other employee-related costs when incurred.
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4(n): Employee benefits continued
Defined benefit pension obligation
A defined benefit pension plan typically defines the amount of pension benefit that an employee will receive on retirement. For these plans, the
Group’s defined benefit obligation is calculated by independent actuaries using the projected unit credit method, which measures the pension
obligation as the present value of estimated future cash outflows. The discount rate used is determined based on the yields for investment grade
corporate bonds that have maturity dates approximating to the terms of the Group’s obligations. Plan assets are measured at their fair value at the
reporting date. The net surplus or deficit of the defined benefit plan is recognised as an asset or liability in the statement of financial position and
represents the present value of the defined benefit obligation at the end of the reporting period less the fair value of the plan assets.
An asset is recognised only where there is an unconditional right to future benefits.
The current and past service cost curtailments and settlements are charged to other expenses in the income statement.
Remeasurements, which comprise gains and losses as a result of experience adjustments and changes in actuarial assumptions, the actual return
on plan assets (excluding interest) and the effect of the asset ceiling, are recognised immediately in other comprehensive income in the period in
which they occur. Remeasurements are not reclassified to the income statement in subsequent periods. Administration costs (other than the
costs of managing plan assets) are recognised in the income statement when the service is provided.
When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by employees,
or the gain or loss on curtailment, is recognised immediately in the income statement when the plan amendment or curtailment occurs.
Employee share-based payments
The Group operates a number of share incentive plans for its employees. These generally involve an award of shares or options in the Group
(equity-settled share-based payments), but may also take the form of a cash award based on the share price of the Group (cash-settled share-
based payments).
The Group’s incentive plans have conditions attached before the employee becomes entitled to the award. These can be performance and/or
service conditions (vesting conditions) or conditions that are often wholly within the control of the employee, for example where the employee has
to provide funding during the vesting period, which is then used to exercise share options (non-vesting condition).
Performance conditions may be market based or non-market based. Market performance conditions are those related to an entity’s equity,
such as achieving a specified share price or target based on a comparison of the entity’s share price with an index of share prices. Non-market
performance conditions are those related to an entity’s profit or revenue targets, an example of which would be Earnings per Share (“EPS”). Market
based performance conditions and non-vesting conditions are taken into account when estimating the fair value of the share or option awards at
the measurement date. The fair value of the share awards or options is not adjusted to take into account non-market performance features. These
are taken into consideration by adjusting the number of equity instruments in the share-based payment measurement and this adjustment is
made each period until the equity instruments vest.
The fair value of share-based payment awards granted is recognised as an expense in the income statement over the vesting period which accords
with the period for which related services are provided by the employee. A corresponding increase in equity is recognised for equity settled plans
and a corresponding financial liability for cash settled plans.
For equity-settled plans, the fair value is determined at grant date and not subsequently re-measured. For cash settled plans, the fair value is
re-measured at each reporting date and the date of settlement, with any changes in fair value recognised in the profit or loss for the period and the
liability adjusted accordingly.
At each period end the Group reassesses the number of equity instruments expected to vest and recognises any difference between the revised
and original estimate in the income statement with a corresponding adjustment to the share-based payments reserve in equity.
At the time the equity instruments vest, the amount recognised in the share-based payments reserve in respect of those equity instruments is
transferred to retained earnings.
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Strategic ReportGovernanceOther information Financial statements
Basis of preparation and significant accounting policies continued
For the year ended 31 December 2019
4: Significant accounting policies continued
4(o): Tax
Current tax
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date
and any adjustment to income tax payable in respect of previous years. Current tax is charged or credited to the income statement, except when
it relates to items recognised directly in equity or in other comprehensive income.
Deferred tax
Deferred taxes are calculated according to the statement of financial position method, based on temporary differences between the tax base of
assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is calculated at the tax rates that are expected
to apply in the period when the liability is settled or the asset is realised.
Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences can be utilised.
Deferred tax is charged or credited to the income statement, except when it relates to items recognised directly in equity or in other
comprehensive income. In certain circumstances, as permitted by accounting guidance, deferred tax balances are not recognised. In particular,
where the liability relates to the initial recognition of goodwill, or transactions that are not a business combination and at the time of their
occurrence affect neither accounting nor taxable profit. Note 28(b) includes further detail of circumstances in which the Group does not recognise
temporary differences.
Policyholder tax
Certain products are subject to tax on the policyholder investment returns. This ‘policyholder tax’ is an element of the Group’s total tax expense.
To make the tax expense more meaningful, tax attributable to policyholder returns and tax attributable to equity holders’ profits is shown
separately.
The tax attributable to policyholder returns is the amount payable in the year plus the movement of amounts expected to be payable in future
years. The remainder of the tax expense is attributed to shareholders as tax attributable to equity holders’ profits.
4(p): Goodwill and intangible assets
The recognition of goodwill arises on the acquisition of a business and represents the premium paid over the fair value of the Group’s share of
the identifiable assets and liabilities acquired at the date of acquisition. Intangible assets include intangible assets initially recognised as part of
a business combination, purchased assets and internally generated assets, such as software development costs related to amounts recognised
for in-house systems development.
Goodwill and goodwill impairment
Goodwill arising on the Group’s investments in subsidiaries is shown as a separate asset, while that on associates, where it arises, is included within
the carrying value of those investments. Goodwill is recognised as an asset at cost at the date when control is achieved (the acquisition date) and is
subsequently measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to annual impairment reviews.
Goodwill is allocated to one or more cash-generating units (“CGUs”) expected to benefit from the synergies of the combination, where the CGU
represents the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets
or group of assets. Goodwill is reviewed for impairment at least once annually, as a matter of course even if there is no indication of impairment,
and whenever an event or change in circumstances occurs which indicates a potential impairment. For impairment testing, the carrying value of
goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment loss
is recognised immediately in profit or loss and is not subsequently reversed.
On disposal of an operation within a group of CGUs to which goodwill has been allocated, the goodwill associated with that operation is included
in the carrying amount of the operation when determining the gain or loss on disposal. It is measured based on the relative values of the operation
disposed of and the portion of the CGU retained.
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Financial statements
Basis of preparation and significant
accounting policies
4: Significant accounting policies continued
4(p): Goodwill and intangible assets continued
Intangible assets acquired as part of a business combination
Intangible assets acquired as part of a business combination are recognised where they are separately identifiable and can be measured reliably.
Acquired intangible assets consist primarily of contractual relationships such as customer relationships and distribution channels. Such items are
capitalised at their fair value, represented by the estimated net present value of the future cash flows from the relevant relationships acquired at
the date of acquisition. Brands and similar items acquired as part of a business combination are capitalised at their fair value based on a ‘relief from
royalty’ valuation methodology.
Subsequent to initial recognition, acquired intangible assets are measured at cost less amortisation and any recognised impairment losses.
Amortisation is recognised at rates calculated to write off the cost or valuation less estimated residual value, using a straight-line method over their
estimated useful lives as set out below:
• Distribution channels
• Customer relationships
• Brands
8 years
10 years
5 years
The economic lives are determined by considering relevant factors such as usage of the asset, product life cycles, potential obsolescence,
competitive position and stability of the industry. The amortisation period is re-evaluated at the end of each financial year end.
Internally developed software
There are a number of factors taken into account when considering whether internally developed software meets the recognition criteria in IAS 38
Intangible Assets. Where, for example, a third-party provider retains ownership of the software, this will not meet the control criterion in the standard
(i.e. the power to obtain benefits from the asset) and the costs will be expensed as incurred.
Where it is capitalised, internally developed software is held at cost less accumulated amortisation and impairment losses. Such software is
recognised in the statement of financial position if, and only if, it is probable that the relevant future economic benefits attributable to the software
will flow to the Group and its cost can be measured reliably.
Costs incurred in the research phase are expensed, whereas costs incurred in the development phase are capitalised, subject to meeting specific
criteria, as set out in the relevant accounting guidance, the main one being that future economic benefits can be identified as a result of the
development expenditure. Amortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of the relevant software,
which range between three and five years, depending on the nature and use of the software.
Subsequent expenditure
Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset
to which it relates. All other expenditure is expensed as incurred.
Impairment testing for intangible assets
For intangible assets with finite lives, impairment charges are recognised where evidence of impairment is observed. Indicators of impairment
can be based on external factors, such as significant adverse changes to the asset as part of the overall business environment and internal factors,
such as worse than expected performance reflected in the Group’s three-year Business Plan. If an indication of impairment exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is calculated as the
higher of fair value less costs to sell and value in use. If the recoverable amount of an intangible asset is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense in the income
statement immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation
decrease. Where an intangible asset is not yet available for use it is subject to an annual impairment test by comparing the carrying value with the
recoverable amount. The recoverable amount is estimated by considering the ability of the asset to generate sufficient future economic benefits
to recover the carrying value.
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Strategic ReportGovernanceOther information Financial statements
Basis of preparation and significant accounting policies continued
For the year ended 31 December 2019
4: Significant accounting policies continued
4(q): Assets and liabilities held for sale and discontinued operations
Assets (and disposal groups) are classified as held for sale if their carrying amount is expected to be recovered through a sales transaction rather
than through continuing use. This condition is regarded as having been met only when the sale is highly probable and the asset (or disposal group)
is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for
recognition as a completed sale within one year of the date of classification. Assets and liabilities held for sale are presented separately in the
consolidated statement of financial position.
Assets and liabilities (and disposal groups) classified as held for sale are measured at the lower of their carrying amount and their fair value less
costs to sell. No depreciation or amortisation is charged on a non-current asset while classified as held for sale or while part of a disposal group
once it has been classified as held for sale.
The Group classifies areas of the business as discontinued operations where they have been disposed of, or are classified as held for sale at the
year end, which either represent a separate major line of business or geographical area, or are part of a plan to dispose of one, or are subsidiaries
acquired exclusively with a view to resale.
When an asset (or disposal group) ceases to be classified as held for sale, the individual assets and liabilities cease to be shown separately in the
statement of financial position at the end of the year in which the classification changes. Comparatives are not restated. If the line of business was
previously presented as a discontinued operation and subsequently ceases to be classified as held for sale, profit and loss and cash flows of the
comparative period are restated to show that line of business as a continuing operation.
Further information can be found in note 5.
4(r): Provisions and contingent liabilities
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more probable than not
that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.
Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date. Where the
effect of the time value of money is material, provisions are discounted and represent the present value of the expected expenditure. Provisions
are not recognised for future operating costs or losses.
The Group recognises specific provisions where they arise for the situations outlined below:
• Client compensation and related costs, when the Group has decided to compensate clients in the context of providing fair customer outcomes.
• Onerous contracts, when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting the
obligations under the contract.
• Corporate restructuring, only if the Group has approved a detailed formal plan and raised a valid expectation among those parties directly
affected, that the plan will be carried out either by having commenced implementation or by publicly announcing the plan’s main features. Such
provisions include the direct expenditure arising from the restructuring, such as employee termination payments but not those costs associated
with the ongoing activities of the Group.
• Legal uncertainties and the settlement of other claims.
Contingent liabilities are possible obligations of the Group of which the timing and amount are subject to significant uncertainty. Contingent
liabilities are not recognised in the consolidated statement of financial position, unless they are assumed by the Group as part of a business
combination. They are however disclosed, unless they are considered to be remote. If a contingent liability becomes probable and the amount
can be reliably measured it is no longer treated as contingent and recognised as a liability.
Contingent assets which are possible benefits to the Group are only disclosed if it is probable that the Group will receive the benefit. If such a benefit
becomes virtually certain, it is no longer considered contingent and is recognised on the consolidated statement of financial position as an asset.
4(s): Changes in accounting policies
IFRS 16 Leases
As outlined in note 2 above, the Group has adopted IFRS 16 Leases from 1 January 2019.
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in exchange for consideration. To assess where a contract conveys the right to
control the use of an identified asset, the Group assesses whether:
• the contract involves the use of an identified asset which may be specified explicitly or implicitly, and should be physically distinct or represent
substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;
• the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
• the Group has the right to direct the use of the asset.
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Basis of preparation and significant
accounting policies
4: Significant accounting policies continued
4(s): Changes in accounting policies continued
On transition to IFRS 16, the Group elected to apply the following practical expedients:
• apply a single discount rate to a portfolio of leases with similar characteristics;
• not recognise right-of-use assets and lease liabilities for contracts with a term of 12 months or less, or leases for low value items;
• use hindsight when determining the lease term if the contract contains options to extend or terminate the lease; and
• not reassess contracts originally deemed to not be a lease contract under IAS 17 Leases and IFRIC 4 Determining whether an arrangement
contains a lease.
For lessee contracts, the right-of-use asset is initially measured at cost, which comprises the initial amount of lease liability, adjusted for any
lease payments made at or before the commencement date, and any initial direct costs incurred. Adjustments are also made, where appropriate,
for dilapidation requirements and lease incentives received such as rent free periods. The lease liability is initially measured at the present value
of the lease payments that are unpaid at the commencement date, discounted using the asset specific incremental borrowing rates.
Subsequent to lease commencement, the Group measures the right-of-use asset using a cost model, whereby the asset is held at cost less
accumulated depreciation and any accumulated impairment. Depreciation is charged to the income statement on a straight line basis to write
down the cost of the right-of-use asset to its residual value over its estimated useful life which is dependent on the length of the lease. In addition,
the carrying amount of the right-of-use asset may be adjusted for certain remeasurements of the lease liability. The lease liability is subsequently
measured at amortised cost using the effective interest method and also reflects any lease modifications or reassessments.
The Group presents its right-of-use assets within “Property, plant and equipment” and lease liabilities within “Borrowings and lease liabilities”
in the statement of financial position. The Group does not have any right-of-use assets that would meet the definition of investment property.
In the period prior to the adoption of IFRS 16, leases were accounted for under IAS 17 and classified as operating leases. Payments associated
with operating leases were recognised in the income statement on a straight line basis over the term of the lease and not disclosed in the Group’s
statement of financial position.
Impacts on transition
On transition, the Group recognised right-of-use assets and lease liabilities, recognising the difference in retained earnings, with no impact to the
income statement. Also on transition, rent free period equalisation and dilapidation provisions are included in the right-of-use assets and lease
liabilities. Prior to IFRS 16, these provisions were recorded as separate items on the statement of financial position and so, on transition to IFRS 16,
these provisions have been removed. The impact on transition is summarised below:
Right-of-use assets presented in Property, plant and equipment
Lease liabilities presented in Borrowings and lease liabilities
Rent free equalisation and dilapidation provision adjustment
Deferred tax adjustment
Adjustment to opening retained earnings
£m
74
(88)
8
1
(5)
When measuring the lease liabilities, the Group discounted the lease payments using the asset specific incremental borrowing rates at 1 January
2019 which ranged from 1.6% to 3.7%, with a weighted average of 2.9%. The Group’s operating lease commitments where the Group is the lessee at
31 December 2018 were valued at £98 million under IAS 17. Upon adoption of IFRS 16 on 1 January 2019, this was recalculated to £88 million using
the asset specific incremental borrowing rates above. The simplified transition approach creates deferred tax implications, so as the corporation
tax deduction is spread over the length of the remaining leases, the deferred tax is unwound over the same period.
Impacts for the period
In subsequent periods, the Group recognises depreciation charges on right-of-use assets and finance interest charges on lease liabilities in the
income statement and, over the term of lease contracts, there is expected to be a broadly neutral impact to the income statement as the aggregate
depreciation charges and finance interest charges replace office lease rental payments.
Details of the right-of-use assets and the finance charges on lease liabilities can be found in notes 14 and 29.
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Notes to the consolidated financial statements
For the year ended 31 December 2019
5: Acquisitions, disposals and discontinued operations
This note provides details of the Group’s acquisitions and disposals of subsidiaries during the financial periods covered by these financial
statements.
5(a): Business acquisitions
Business acquisitions completed during the year ended 31 December 2019
Charles Derby Group Limited acquisition:
On 14 February 2019, the Group acquired the Charles Derby Group (“CDG”) of companies (recently rebranded “Quilter Financial Advisers”).
CDG is a financial planning business based in the UK. The acquisition complements the growth of Quilter Private Client Advisers which serves
upper affluent and high net worth customers. CDG has over 200 restricted advisers (as at 31 December 2018), and represents the next stage
of Quilter’s ambition to broaden out its national advice business.
Prior to acquisition, the Group had previously invested £2 million for a 10% stake in CDG. At December 2018, the business was valued at
£34 million, resulting in a fair value gain of £1 million being recognised, representing the increase in the value on the 10% share in the business.
Immediately prior to acquisition, CDG undertook a share issue to other shareholders, which diluted the Group’s stake to 6%, with a fair value of
£2 million. The resulting fair value loss of £1 million (reducing the carrying value from £3 million to £2 million) has been recognised by the Group
in ‘other operating and administrative expenses’ in the consolidated income statement in 2019. On acquisition, the Group acquired the remaining
share capital and associated voting rights.
The table below sets out the consolidated assets and liabilities acquired:
Assets
Intangible assets
Loans and advances
Cash and cash equivalents
Trade, other receivables and other assets
Total assets
Liabilities
Deferred tax liabilities
Trade, other payables and other liabilities
Total liabilities
Total net (liabilities)/assets acquired
Total consideration
Goodwill recognised
Acquiree’s
carrying
amount
£m
1
1
1
2
5
–
(9)
(9)
(4)
Fair
value
£m
15
1
1
2
19
(2)
(9)
(11)
8
31
23
After an initial cash payment of £15 million at acquisition, a further payment of £5 million was made on 1 April 2019. Further contingent payments
based on a percentage of the level of assets under administration at 2020 and 2022 are expected to be made. Management’s best estimate of the
net present value of these payments total £9 million. These amounts exclude the £2 million value of the 6% stake already held.
The purchase price has been allocated based on the fair value of assets acquired and liabilities at the date of acquisition determined in accordance
to IFRS 3 Business Combinations. The allocation required significant use of assumptions regarding cash flows, profit margin and discount, attrition
and growth rates.
Based on the purchase price of £31 million and the fair value of net liabilities acquired of £5 million (excluding acquired intangible assets
of £1 million), the value of goodwill and intangible assets is £36 million. Intangible assets representing the value of customer advice contracts
have been valued at £15 million, less an associated deferred tax liability of £(2) million, with an estimated useful life of 8 years over which the
intangible assets and the associated tax provision will be amortised on a straight line basis. The balance of £23 million is recognised as goodwill
in the statement of financial position.
The goodwill recognised is not expected to be deductible for tax purposes, and represents:
• net client cash flow, and fee earning productivity of the acquired advisers;
• quality and experience of the existing executive team;
• creation of scale and increased service range to the National channel proposition; and
• ability to generate growth in Restricted Financial Planners and client numbers.
The carrying value of tangible assets and liabilities in CDG’s consolidated statement of financial position on acquisition date approximates the
fair value of these items determined by the Group.
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Financial statements
Notes to the consolidated
financial statements
5: Acquisitions, disposals and discontinued operations continued
5(a): Business acquisitions continued
As part of the acquisition of CDG, a Long Term Incentive Plan scheme was set up with a maximum value up to £10 million worth of Quilter plc
shares. Vesting of awards is up to 50% after three years (31 December 2021), 25% after 4 years, and 25% after 5 years.
The fair value at grant date was £1.39 per share, with an estimated fair value of £7 million. The cost of the awards is expected to be £2 million per
annum across years 1 – 3 and £1 million in year 4.
Transaction costs of £1 million relating to the acquisition have been recognised within other operating and administrative expenses in the Group’s
consolidated income statement. These costs are not included within adjusted profit.
No contingent liabilities have been acquired.
The post-acquisition results from the business, excluding integration costs of £2 million, have been consolidated since the date of acquisition,
contributing £6 million of revenue (£ 3 million, net of cost of sales) and a loss of £6 million to the Group’s consolidated profit after tax.
Lighthouse Group plc acquisition:
On 3 April 2019, the Group made a cash offer to acquire the entire share capital (and associated voting rights) of Lighthouse Group plc
(“Lighthouse”), and the acquisition completed on 12 June 2019. This acquisition helps to position Quilter as the best place for trusted financial
advice in the UK, bringing together Quilter’s strengths in its new platform with Lighthouse’s strength in its customer relationships and
partnerships, covering more than 6 million affluent and mass affluent customers in the UK.
There were 139,864,270 shares in issue for which the offer was 33 pence per share, valuing the business at £46 million.
The Group held 3.99% of the issued share capital of Lighthouse prior to acquisition. This holding was valued at £2 million, based on the 33 pence
per share offer.
The purchase price has been allocated based on a provisional estimate of the fair value of assets acquired and liabilities assumed at the date of
acquisition determined in accordance to IFRS 3 Business Combinations. The provisional allocation required significant use of assumptions regarding
cash flows, profit margin and discount, attrition and growth rates. It is possible that the preliminary estimates may change as the purchase price
allocations are finalised. The accounting must be finalised within 12 months of the acquisition date.
Based on the purchase price of £46 million and fair value of net tangible liabilities acquired of £8 million (excluding acquired intangible assets of
£5 million), the value of goodwill and intangible assets is £54 million. Intangible assets representing the value of customer advice contracts have
been valued at £21 million (£24 million gross, less an associated deferred tax liability of £(3) million), with an estimated useful life of 8 years over
which the intangible and associated tax provision will be amortised on a straight line basis. The balance of £33 million is recognised as goodwill
in the Group’s statement of financial position.
The goodwill recognised is not expected to be deductible for tax purposes, and represents:
• synergies arising from the alignment of the advisers into a restricted model;
• generation of additional net client cash flows into the integrated solutions offered through the wider Quilter Group; and
• cost saving synergies arising through de-listing the business and integrating with Quilter Financial Planning.
Transaction costs of £2 million relating to the acquisition have been recognised within other operating expenses in the Group’s consolidated
income statement, but not included within adjusted profit.
No contingent liabilities have been recognised in the fair value statement of financial position.
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127
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
5: Acquisitions, disposals and discontinued operations continued
5(a): Business acquisitions continued
The table below sets out the consolidated assets and liabilities acquired:
Assets
Intangible assets
Property, plant and equipment
Investments and securities
Cash and cash equivalents
Trade, other receivables and other assets
Total assets
Liabilities
Deferred tax liabilities
Trade, other payables and other liabilities
Provision in respect of British Steel pension scheme members complaints
Total liabilities
Total net (liabilities)/assets acquired
Total consideration
Goodwill recognised
Acquiree’s
carrying
amount
£m
5
2
1
7
7
22
–
(13)
(12)
(25)
(3)
Fair
value
£m
24
2
1
7
7
41
(3)
(13)
(12)
(28)
13
46
33
The post-acquisition results from the business, excluding integration costs of £3 million, have been consolidated since the date of acquisition,
contributing £9 million of revenue and a profit of £1 million to the Group’s consolidated profit after tax.
As disclosed in notes 27, 34 and 39, the Group was advised after the reporting date of a number of complaints received in respect of pension
transfer advice provided to certain Lighthouse clients between 2016 and 2018, prior to the Group’s acquisition of Lighthouse in June 2019. As the
advice was provided before the Group’s acquisition of Lighthouse, any redress costs will be recognised as a pre-acquisition liability within the fair
value of the net assets acquired, with a corresponding increase in goodwill. A provision of £12 million has been calculated for the potential redress
of the complaints received to date together with related legal and professional costs, which is reflected in the acquisition balance sheet above,
along with the corresponding increase in goodwill. Any additional liability in respect of any other cases remains uncertain, as explained further
in note 34. If further information is received by June 2020, the 12-month point post-acquisition, further adjustments will be made to the acquisition
balance sheet as appropriate.
Acquisition of adviser businesses by Quilter Financial Planning (“QFP”)
During the year, the Group continued the expansion of the Quilter Private Client Advisers (“QPCA”) business, with the acquisition of a further seven
adviser businesses, including the acquisition of Prescient Financial Intelligence Limited on 20 December 2019. The purchase price has been allocated
based on the fair value of assets acquired and liabilities assumed at the date of acquisition determined in accordance to IFRS 3 Business Combinations.
The aggregate estimated consideration payable was £22 million, of which £14 million was cash consideration and up to £8 million in contingent
consideration. The amount of contingent consideration, which is expected to be paid in full (discounted to net present value), is dependent upon
meeting certain performance targets, generally relating to the value of funds under management and levels of on-going fee income. Tangible net
assets of £1 million were acquired in these purchases. Total intangible assets of £9 million (£10 million gross, less an associated deferred tax liability
of £(1) million) in respect of customer relationships and goodwill of £12 million have been recognised as a result of the acquisitions.
Transaction costs of £1 million relating to these acquisitions have been recognised within other operating expenses in the Group’s consolidated
income statement, but not included within adjusted profit.
Impact of acquisitions on Group revenue and profit
If all of the above acquisitions had occurred on 1 January 2019, management estimates that the Group’s consolidated revenues would have been
£10 million higher at £7,774 million, and consolidated profit after tax for the year would have been £5 million lower at £141 million.
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Financial statements
Notes to the consolidated
financial statements
5: Acquisitions, disposals and discontinued operations continued
5(a): Business acquisitions continued
Business acquisitions completed during year ended 31 December 2018
Acquisition of Skandia UK Limited from Old Mutual plc
The Group acquired the Skandia UK Limited group of entities from Old Mutual plc on 31 January 2018, comprising seven Old Mutual plc group
entities with a net asset value (“NAV”) of £591 million. The transfer was effected by the issue of a share and with the balance represented by a
merger reserve. No debt was taken on as a result of this transaction. The most significant asset within these entities was a £566 million receivable
which had a corresponding equivalent payable within the Group’s statement of financial position. The net effect of this transaction for the Group
was to replace a payable due to Old Mutual plc with equity.
Acquisition of adviser businesses by Quilter Financial Planning (“QFP”)
During 2018 the Group completed the acquisition of fourteen adviser businesses as part of the expansion of the QPCA business. The total cash
consideration paid was an initial £5 million with additional potential contingent consideration of £6 million which is expected to be paid in full
(discounted to net present value for this and all other acquisitions listed below), dependent upon meeting certain performance targets generally
relating to funds under management. Goodwill of £5 million, other intangible assets of £7 million and a deferred tax liability of £1 million were
recognised as a result of the transaction. The contingent consideration was capitalised in the calculation of goodwill recognised.
Contingent consideration arising from business combinations
The table below details the movements in the contingent consideration balance (see note 30) during the current and prior year arising from the
business acquisitions detailed above and in earlier years.
Opening balance at 1 January
Acquisitions during the year
Payments
Financing interest charge
Other movements
Closing balance at 31 December
31 December 2019
£m
37
22
(21)
3
(2)
39
31 December 2018
£m
35
7
(7)
2
–
37
Contingent consideration represents management’s best estimate of the amount payable in relation to each acquisition discounted to net present
value. The basis of each acquisition varies but includes payments based upon a percentage of the level of assets under administration, funds
under management and levels of on-going fee income at future dates. Management estimate a provision sensitivity of +/- 5% (£2 million).
5(b): Business disposals
Year ended 31 December 2019
On 31 December 2019, the Group completed the sale of the Quilter Life Assurance (“QLA”) business (consisting two of the Group’s subsidiary
undertakings: Old Mutual Wealth Life Assurance Limited and Old Mutual Wealth Pensions Trustee Limited) to ReAssure Group for total
consideration of £446 million. The Group has recognised a profit on the disposal of QLA of £103 million. Provisions established in respect of this
disposal are shown in note 27.
Year ended 31 December 2018
On 29 June 2018, the Group completed the sale of its Single Strategy Asset Management business (“Single Strategy business”) for a total
consideration of £583 million, comprising cash consideration of £540 million on completion, with an additional £7 million payable before 2022 as
surplus capital associated with the separation from the Group is released in the business, to a special purpose vehicle ultimately owned by funds
managed by TA Associates and certain members of the Single Strategy management team (together “the Acquirer”). The contingent consideration
was not subject to performance conditions. The remaining proceeds of £36 million were received in cash as a pre-completion dividend on 15 June
2018. Economic ownership of the Single Strategy business passed to the Acquirer effective from 1 January 2018 with all profits and performance
fees generated up until 31 December 2017 for the account of Quilter plc. The results of the Single Strategy business continued to be included as
part of the Group up until the date of sale on the 29 June 2018. The Group recognised a post tax profit on disposal of the Single Strategy business
of £292 million.
Quilter Annual Report 2019
129
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
5: Acquisitions, disposals and discontinued operations continued
5(b): Business disposals continued
Profit on sale of operations
Consideration received1
Less: transaction and separation costs2
Plus: release of accrued expenses in relation to OMW Italy S.p.A disposal
Net proceeds from sale
Carrying value of net assets disposed
Goodwill allocated and disposed
Profit on sale of operations before tax
Tax on disposals
Profit on sale of operations after tax
Year ended
31 December 2019
Year ended
31 December 2018
Quilter Life Assurance
£m
446
(19)
–
427
(294)
(30)
103
–
103
Single Strategy business and
Old Mutual Wealth Italy adjustment
£m
546
(20)
2
528
(155)
(83)
290
4
294
1Consideration received in 2018 in respect of the Single Strategy business comprises £540 million of cash received together with the discounted contingent consideration of £6 million, and
excludes the £36 million pre-completion dividend received in June 2018.
2Of the £19 million transaction and separation costs relating to the sale of the QLA business in year ended 31 December 2019, £7 million has been expensed, with £12 million of accruals and
provisions remaining at 31 December 2019.
Carrying value of net assets disposed
Year ended
31 December
2019
Year ended
31 December
2018
Quilter Life Assurance
£m
Single Strategy business
£m
Assets
Deferred acquisition costs
Contract costs
Financial investments
Reinsurers’ share of policyholder liabilities
Deferred tax assets
Current tax receivable
Trade, other receivables and other assets
Cash and cash equivalents
Total assets
Liabilities
Long-term business insurance policyholder liabilities
Investment contract liabilities
Provisions
Deferred tax liabilities
Current tax payable
Trade, other payables and other liabilities
Contract liabilities
Total liabilities
Carrying value of net assets disposed
130
Quilter Annual Report 2019
8
39
8,646
1,341
–
14
45
361
10,454
736
9,183
12
70
7
129
23
10,160
294
–
5
–
–
5
–
74
170
254
–
–
3
–
3
93
–
99
155
Financial statements
Notes to the consolidated
financial statements
5: Acquisitions, disposals and discontinued operations continued
5(c): Discontinued operations – income statement
During 2019, the Group’s discontinued operations consisted solely of the QLA business up to its disposal date of 31 December 2019 and the
associated profit on sale of that business. For 2018, in addition to QLA’s profit after tax, the Group’s discontinued operations also included the
profit after tax of the Single Strategy business up to the date of disposal on 29 June 2018 and the related profit on sale of that business.
Revenue
Gross earned premiums
Premiums ceded to reinsurers
Net earned premiums
Fee income and other income from service activities1
Investment return1,2
Other income
Total revenue
Expenses
Claims and benefits paid
Reinsurance recoveries
Net insurance claims and benefits incurred
Change in reinsurance assets and liabilities
Change in insurance contract liabilities
Change in investment contract liabilities2
Fee and commission expenses, and other acquisition costs
Other operating and administrative expenses
Finance costs
Total expenses
Profit on sale of operations before tax
Profit before tax from discontinued operations
Tax (expense)/credit attributable to policyholder returns
Profit before tax from discontinued operations attributable to equity holders
Income tax (expense)/credit
Less: tax expense/(credit) attributable to policyholder returns
Tax expense attributable to equity holders
Profit after tax from discontinued operations
Attributable to:
Equity holders of Quilter plc
Earnings per ordinary share on profit attributable to ordinary shareholders of Quilter plc
Basic – from discontinued operations (pence)
Diluted – from discontinued operations (pence)
Year ended
31 December
2019
£m
Year ended
31 December
2018
£m
145
(86)
59
164
1,386
–
1,609
(98)
72
(26)
121
(134)
(1,364)
(45)
(8)
–
(1,456)
103
256
(76)
180
(89)
76
(13)
167
167
9.1
8.9
147
(87)
60
206
(770)
2
(502)
(86)
60
(26)
103
(109)
772
(84)
(102)
(1)
553
290
341
97
438
81
(97)
(16)
422
422
23.1
23.0
Note
8(a)
8(b)
26(c)
9(a)
9(b)
9(e)
5(b)
10(a)
10(a)
11(b)
11(b)
1In the year ended 31 December 2018, the Group has reclassified £36 million from Fee income and other income from service activities to Investment return to conform with current
year presentation.
2In the year ended 31 December 2018, the Group has reclassified £35 million from Investment return to Change in investment contract liabilities to conform with current year presentation.
Operating and administration expenses shown within discontinued operations for the current and prior year have been amended in order to
reallocate costs historically charged to QLA from Group service entities (31 December 2019: £26 million and 31 December 2018: £28 million) back
to the Group’s continuing operations. This principally reflects those costs previously recharged from Group central support functions to QLA that
the Group will continue to incur after the disposal of QLA but will no longer be recharged to that business subsequent to its disposal. For more
information on these costs and related revenues in 2020 (as part of the Transitional Service Arrangement (“TSA”) with ReAssure (“The Acquirer”,
in respect of QLA)) see the Financial Review.
Quilter Annual Report 2019
131
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
5: Acquisitions, disposals and discontinued operations continued
5(d): Discontinued operations – Statement of comprehensive income
Profit after tax
Total comprehensive income for the year from discontinued operations
5(e): Discontinued operations – Net cash flows
Total net cash used in operating activities
Total net cash from investing activities
Total net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Year ended
31 December
2019
£m
167
167
Year ended
31 December
2018
£m
422
422
Year ended
31 December
2019
£m
(3,789)
3,765
(130)
(154)
Year ended
31 December
2018
£m
(2,437)
2,529
(46)
46
6: Segmental information
6(a): Segmental presentation
The Group’s operating segments comprise Advice and Wealth Management and Wealth Platforms, which is consistent with the way in which the
Group is structured and managed. For all reporting periods, these segments have been classified as continuing operations in the income
statement. Head Office includes certain revenues and central costs that are not allocated to the segments.
Adjusted profit is an Alternative Performance Measure (“APM”) reported to the Group’s management and Board. Management and the Board use
additional APMs to assess the performance of each of the segments, including net client cash flows, assets under management and
administration, revenue and operating margin.
Consistent with internal reporting, assets, liabilities, revenues and expenses that are not directly attributable to a particular segment are allocated
between segments where appropriate. The Group accounts for inter-segment revenues and transfers as if the transactions were with third parties
at current market prices. Intra-group recharges in respect of operating and administration expenses within businesses disclosed as discontinued
operations are not adjusted for potential future changes to the level of those costs resulting from the disposal of those businesses.
The segmental information in this note reflects the adjusted and IFRS profit measures and the assets and liabilities for each operating segment
as provided to management and the Board. Revenues are further segmented into the geographic location of our businesses in note 8.
Continuing operations:
Advice and Wealth Management
This segment comprises Quilter Investors, Quilter Cheviot and Quilter Financial Planning.
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 Cheviot provides discretionary investment management predominantly in the United Kingdom with bespoke investment portfolios
tailored to the individual needs of affluent and high-net worth customers, charities, companies and institutions through a network of branches
in London and the regions. Investment management services are also provided by operations in the Channel Islands and the Republic of Ireland.
Quilter Financial Planning is a restricted and independent financial adviser network, including Quilter Private Client Advisers (“QPCA”), CDG and
Lighthouse, 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.
Wealth Platforms
This segment comprises Quilter Wealth Solutions (“QWS”) and Quilter International.
Quilter Wealth Solutions is a leading investment platform provider of advice-based wealth management products and services in the UK,
which serves a largely affluent customer base through advised multi-channel distribution.
Quilter International is a cross-border business, focusing on high net worth and affluent local customers and expatriates in the UK, in Asia,
the Middle East, Europe and Latin America.
132
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
6: Segmental information continued
6(a): Segmental presentation continued
Head office
In addition to the 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 in the segmental statement of financial position.
Discontinued operations:
The disposal of Quilter Life Assurance (“QLA”) on 31 December 2019, previously part of the Wealth Platforms operating segment, has resulted in its
classification as a discontinued operation. For the year ended 31 December 2018, the Single Strategy Asset Management business (disposed of on
29 June 2018) is also included as a discontinued operation. The results of these two businesses, along with the profits on disposal, have been
presented as discontinued operations. See note 5(b) and note 5(c) for further information.
6(b)(i): Adjusted profit statement – segmental information for the year ended 31 December 2019
This reconciliation presents the Group’s operating segments’ IFRS income statements and reconcile to pre-tax adjusted profit and to the Group’s
consolidated income statement, including the ‘Profit/(loss) before tax attributable to equity holders’ (for continuing operations only).
Operating segments
Advice and
Wealth
Management
£m
Wealth
Platforms
£m
Head
Office
£m
Reallocation
of QLA costs1
£m
Consolidation
adjustments2
£m
Consolidated
income
statement
£m
–
3
6
9
–
–
–
–
(68)
(10)
(78)
(69)
–
Continuing operations
Revenue
Fee income and other income from service activities
Investment return
Other income
Segmental revenue
Expenses
Insurance contract claims and changes in liabilities
Change in investment contract liabilities
Fee and commission expenses, and other acquisition costs
Change in third-party interest in consolidated funds
Other operating and administrative expenses
Finance costs
Notes
8(a)
8(b)
26(c)
9(a)
9(b)
9(e)
486
10
1
497
–
–
(73)
–
(368)
(4)
438
5,823
160
6,421
(1)
(5,810)
(110)
–
(409)
(3)
Segmental expenses
(445)
(6,333)
Profit/(loss) before tax from continuing operations
Tax attributable to policyholder returns
Profit/(loss) before tax attributable to equity holders
from continuing operations
Adjusted for non-operating items:
Goodwill impairment and impact of acquisition accounting
Business transformation costs
Managed Separation costs
Finance costs
Policyholder tax adjustments
7(a)(i)
7(a)(ii)
7(a)(iii)
7(a)(iv)
7(a)(v)
Adjusting items before tax
Adjusted profit/(loss) before tax – continuing operations
Adjusted profit before tax – discontinued operations
Total adjusted profit/(loss) before tax
52
–
52
52
(1)
–
–
–
51
103
–
103
88
(98)
(10)
(69)
1
58
1
–
62
122
112
53
165
1
20
5
10
–
36
(33)
–
(33)
–
–
–
–
–
–
–
–
(26)
–
(26)
(26)
–
(26)
–
–
–
–
–
–
(26)
26
–
12
1,030
(145)
897
–
–
(111)
(917)
131
–
(897)
–
–
–
–
–
–
–
–
–
–
–
–
936
6,866
22
7,824
(1)
(5,810)
(294)
(917)
(740)
(17)
(7,779)
45
(98)
(53)
54
77
6
10
62
209
156
79
235
1Reallocation of QLA costs includes £26 million of costs previously reported as part of the QLA business which has been reallocated from discontinued to continuing operations as these costs
do not transfer to ReAssure on disposal at 31 December 2019. See note 5(c) for further information.
2Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
Quilter Annual Report 2019
133
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
6: Segmental information continued
6(b)(ii): Adjusted profit statement – segmental information for the year ended 31 December 2018
Notes
8(a)
8(b)
26(c)
9(a)
9(b)
9(e)
7(a)(i)
7(a)(ii)
7(a)(iii)
7(a)(iv)
7(a)(v)
Continuing operations
Revenue
Fee income and other income from service activities
Investment return
Other income
Segmental revenue
Expenses
Insurance contract claims and changes in liabilities
Change in investment contract liabilities
Fee and commission expenses, and other acquisition costs
Change in third-party interest in consolidated funds
Other operating and administrative expenses
Finance costs
Segmental expenses
Profit/(loss) before tax from continuing operations
Tax attributable to policyholder returns
Profit/(loss) before tax attributable to equity holders
from continuing operations
Adjusted for non-operating items:
Goodwill impairment and impact of acquisition accounting
Business transformation costs
Managed Separation costs
Finance costs
Policyholder tax adjustments
Reallocation of central costs3
Adjusting items before tax
Adjusted profit/(loss) before tax – continuing operations
Adjusted profit before tax – discontinued operations
Total adjusted profit/(loss) before tax
Operating segments
Advice and
Wealth
Management
£m
Wealth
Platforms
£m
Head
Office
£m
Reallocation
of QLA costs1
£m
Consolidation
adjustments2
£m
Consolidated
income
statement
£m
547
9
2
558
–
–
(163)
–
(358)
(3)
(524)
34
–
34
49
19
–
–
–
–
68
102
26
128
402
(2,478)
101
(1,975)
(1)
2,499
(117)
–
(360)
–
2,021
46
61
–
3
6
9
–
–
–
–
(68)
(13)
(81)
(72)
–
107
(72)
1
58
1
–
(64)
2
(2)
–
7
23
13
–
(2)
41
–
–
–
–
–
–
–
–
(28)
–
(28)
(28)
–
(28)
–
–
–
–
–
–
–
105
(31)
(28)
57
162
–
(31)
28
–
5
(246)
(74)
(315)
–
–
(118)
369
64
–
315
–
–
–
–
–
–
–
–
–
–
–
–
–
954
(2,712)
35
(1,723)
(1)
2,499
(398)
369
(750)
(16)
1,703
(20)
61
41
50
84
24
13
(64)
–
107
148
111
259
1Reallocation of QLA costs includes £28 million of costs previously reported as part of the QLA business which has been reallocated from discontinued to continuing operations as these costs
do not transfer to ReAssure on disposal at 31 December 2019. See note 5(c) for further information.
2Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
3Reallocation of central costs reverses management reallocations included within adjusted profit to reconcile back to IFRS profit.
134
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
6: Segmental information continued
6(c)(i): Statement of financial position – segmental information at 31 December 2019
Assets
Goodwill and intangible assets
Property, plant and equipment
Investments in associated undertakings
Contract costs
Loans and advances
Financial investments
Deferred tax assets
Current tax receivable
Trade, other receivables and other assets
Derivative assets
Cash and cash equivalents
Inter-segment funding – assets
Total assets
Liabilities
Investment contract liabilities
Third-party interests in consolidated funds
Provisions
Deferred tax liabilities
Current tax payable/(receivable)2
Borrowings and lease liabilities3
Trade, other payables and other liabilities
Contract liabilities and deferred revenue
Derivative liabilities
Inter-segment funding – liabilities
Total liabilities
Total equity
Total equity and liabilities
Advice &
Wealth
Management
£m
Notes
Wealth
Platforms
£m
Head Office
£m
Discontinued
Operations
£m
Consolidation
Adjustments1
£m
Total
£m
13
14
22
15
16
28(a)
28(c)
21
17
23(a)
26
27
28(b)
28(c)
29
30
31
17
458
30
–
–
31
1
11
–
207
–
383
–
134
111
–
455
180
52,249
22
–
177
–
725
12
1,121
54,065
–
–
28
38
1
26
322
1
–
–
416
52,455
–
26
50
(7)
108
477
190
–
–
53,299
–
2
1
–
6
–
10
13
3
–
838
–
873
–
–
10
–
12
201
37
–
–
12
272
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,095
–
–
37
32
527
(12)
7,679
–
7,675
–
–
–
–
–
–
17
(12)
7,680
592
143
1
455
217
59,345
43
13
424
32
2,473
–
63,738
52,455
7,675
64
88
6
335
836
191
17
–
61,667
2,071
63,738
1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
2Current tax payable/(receivable) includes Group relief payable and receivable that net to £nil on a consolidated basis but may appear as a receivable within individual segments.
3The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect
of initially applying IFRS 16 is recognised in retained earnings at the time of initial application.
Quilter Annual Report 2019
135
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
6: Segmental information continued
6(c)(ii): Statement of financial position – segmental information at 31 December 2018
Assets
Goodwill and intangible assets
Property, plant and equipment
Investments in associated undertakings
Deferred acquisition costs
Contract costs
Loans and advances
Financial investments
Reinsurers’ share of policyholder liabilities
Deferred tax assets
Current tax receivable
Trade, other receivables and other assets2
Derivative assets
Cash and cash equivalents
Inter-segment funding – assets
Total assets
Liabilities
Insurance contract liabilities
Investment contract liabilities
Third-party interests in consolidated funds
Provisions
Deferred tax liabilities
Current tax payable/(receivable)3
Borrowings
Trade, other payables and other liabilities
Contract liabilities and deferred revenue
Derivative liabilities
Inter-segment funding – liabilities
Total liabilities
Total equity
Total equity and liabilities
Advice &
Wealth
Management
£m
Notes
Wealth
Platforms
£m
Head
Office
£m
Discontinued
Operations
£m
Consolidation
Adjustments1
£m
Total
£m
13
14
22
22
15
16
26
28(a)
28(c)
21
17
23(a)
26
26
27
28(b)
28(c)
29
30
31
17
386
10
–
–
–
27
3
–
7
–
241
–
358
–
1,032
–
–
–
26
40
9
–
340
1
–
–
416
164
7
–
–
498
188
44,950
–
22
23
151
–
599
12
46,614
–
45,211
–
20
–
5
–
425
194
1
–
45,856
–
–
2
–
–
7
2
–
9
1
8
–
440
–
469
–
–
–
9
–
(18)
197
20
–
–
12
220
–
–
–
11
53
–
9,686
2,162
–
23
30
–
514
–
12,479
602
11,239
–
39
19
9
–
158
31
–
–
12,097
–
–
–
–
–
–
4,578
–
–
–
100
46
484
(12)
5,196
–
–
5,116
–
–
–
–
56
–
36
(12)
5,196
550
17
2
11
551
222
59,219
2,162
38
47
530
46
2,395
–
65,790
602
56,450
5,116
94
59
5
197
999
226
37
–
63,785
2,005
65,790
1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.
2The Group’s contract assets are now included within Trade, other receivables and other assets, having previously been shown separately on the statement of financial position.
3Current tax payable/(receivable) includes Group relief payable and receivable that net to £nil on a consolidated basis but may appear as a receivable within individual segments.
136
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
7: Alternative performance measures (“APMs”)
7(a): Adjusted profit and adjusting items
In determining adjusted profit before tax, certain adjustments are made to IFRS profit before tax to reflect the underlying performance of the
Group. These are detailed below.
7(a)(i): Goodwill impairment and impact of acquisition accounting
The recognition of goodwill and other acquired intangibles is created on the acquisition of a business and represents the premium paid over
the fair value of the Group’s share of the identifiable assets and liabilities acquired at the date of acquisition (as recognised under IFRS 3 Business
Combinations). The Group excludes any impairment of goodwill from adjusted profit as well as the amortisation and impairment of acquired
other intangible assets, any acquisition costs and finance costs related to the discounting of contingent consideration.
The effect of these adjustments to determine adjusted profit are summarised below. All adjustments are in respect of continuing operations.
Amortisation of other acquired intangible assets
Acquisition costs1
Impairment of other intangible assets
Unwinding of discount on contingent consideration
Total goodwill impairment and impact of acquisition accounting
1Acquisition costs include items such as transaction costs or deferred incentives arising on the acquisition of businesses.
Note
13(a)
Year ended
31 December
2019
£m
45
6
–
3
Year ended
31 December
2018
£m
41
5
1
3
54
50
7(a)(ii): Business transformation costs
Business transformation costs include four items: costs associated with the UK Platform Transformation Programme, build out costs incurred within
Quilter Investors as a result of the sale of the Single Strategy business, restructuring costs incurred as a result of the sale of Quilter Life Assurance,
and the Optimisation Programme costs. All items are within the Group’s continuing operations and are described in detail below. For the year
ended 31 December 2019, these costs totalled £77 million (31 December 2018: £84 million) in aggregate.
UK Platform Transformation Programme – 31 December 2019: £57 million, 31 December 2018: £58 million
The Group embarked on a significant programme to develop new platform capabilities and to outsource UK business administration. This involved
replacing many aspects of the existing UK Platform, and on completion certain elements of service provision will be migrated to FNZ under a long-term
outsourcing agreement. The costs of developing the new technology do not meet the criteria for capitalisation and have therefore been expensed.
These direct costs and the costs of decommissioning existing technology and migrating of services to FNZ are excluded from adjusted profit.
In partnership with FNZ, the Group expects to deliver all the existing functionality of the platform with increased levels of straight-through
processing and enhanced functionality for new business and to migrate the in-force (UK Platform) business during 2020.
Quilter Investors’ build out costs – 31 December 2019: £(1) million, 31 December 2018: £19 million
In March 2016, the Group’s former parent company, Old Mutual plc, announced its Managed Separation strategy that sought to unlock and create
significant long-term value for Old Mutual plc shareholders. As part of this strategy, Quilter’s Multi-Asset (now renamed as Quilter Investors) and
Single Strategy teams were to develop as separate distinct businesses, and the Single Strategy business was sold to its management and TA
Associates on 29 June 2018. As a result, the Group incurred £24 million of one-off costs in the year ended 31 December 2018, £5 million of which
were included in profit on disposal within discontinued operations and £19 million is an adjusting item within continuing business. During 2019,
the build has been substantially completed resulting in the release of £1 million of the provision established to complete the build.
Optimisation Programme costs – 31 December 2019: £18 million, 31 December 2018: £7 million
The Group initiated a phased, multi-year Optimisation Programme in March 2019 targeting a 4 percentage point uplift in the Group’s operating
margin by 2021. Phase 1 is aiming to unify and simplify the Group through a number of efficiency initiatives that will deliver improvements in
operational performance.
A number of quick win tactical efficiencies have been delivered, which included targeted staff restructuring, third-party contract renegotiation
and termination, and property and facilities savings. Some more complex initiatives, such as the insourcing of certain technology capabilities as well
as the simplification of certain Group support functions, have also been delivered. All the planned programmes that will transform our business
through technology enablement, such as the consolidation and modernisation of our general ledgers and other associated finance, HR and
procurement modules, have been initiated. The use of robotics to automate manual operational processes in our International business as well
as streamlining and automating some of the processes used in our advice business, are also under-way.
Quilter Annual Report 2019
137
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
7: Alternative performance measures (“APMs”) continued
7(a): Adjusted profit and adjusting items continued
Restructuring costs following disposal of Quilter Life Assurance – 31 December 2019: £3 million, 31 December 2018: £nil
As a result of the disposal of QLA on the 31 December 2019, the Group has recognised £3 million as an adjusting item principally in respect of
redundancy costs incurred during the year. The Group expects to incur further restructuring costs during the following two years, including the
cost of decommissioning IT systems as the TSA runs off and the remaining business is restructured following the disposal.
7(a)(iii): Managed Separation costs
One-off costs related to the Managed Separation from Old Mutual plc, recognised in the IFRS income statement, have been excluded from
adjusted profit on the basis that they are not representative of the operating activity of the Group. These costs relate to preparing the Group to
operate as a standalone business and the execution of various transactions required to implement its Managed Separation strategy. For the
year ended 31 December 2019 these costs were £6 million (31 December 2018: £24 million). In 2019 these costs primarily relate to post-listing
rebranding. These costs are not expected to persist in the long term as they relate to a fundamental restructuring of the Group.
7(a)(iv): Finance costs
The nature of much of the Group’s operations means that, for management’s decision-making and internal performance management, the effects
of interest costs on external borrowings are removed when calculating adjusted profit. For the year ended 31 December 2019 finance costs were
£10 million (31 December 2018: £13 million).
7(a)(v): Policyholder tax adjustments
For the year ended 31 December 2019 the total of policyholder tax adjustments to adjusted profit is £74 million (31 December 2018: £(101) million)
relating to both continuing and discontinued operations, as shown in note 7(c). Adjustments to policyholder tax are made to remove distortions
arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income
received from policyholders (which is included within the Group’s revenue) to fund the policyholder tax liability can vary in timing to the recognition
of the corresponding tax expense, creating volatility to the Group’s IFRS (loss)/profit before tax attributable to equity holders. For a further
explanation of the impact of markets on the policyholder tax charge see note 10(a). Adjustments are also made to remove policyholder tax
distortions from other non-operating adjusting items.
7(a)(vi): Voluntary customer remediation
Within QLA, the voluntary customer remediation provision was established in 2017 following product reviews consistent with recommendations
from the Financial Conduct Authority’s (“FCA”) thematic review and the FCA’s guidance FG16/8 Fair treatment of long-standing customers in the life
assurance sector. During 2019 the components of the remaining provision have been reviewed and £10 million of the provision released (as detailed
in note 27), wholly relating to discontinued operations and hence the remaining provision is not included in the Group’s statement of financial
position as at 31 December 2019.
7(b): IFRS profit before tax (excluding amortisation, policyholder tax adjustments and other one-off items)
For remuneration purposes, the Group uses IFRS profit before tax adjusted to exclude agreed non-operating, one-off items as shown below.
For further details please refer to the remuneration report (page 64) and KPIs (page 21).
(Loss)/profit before tax attributable to equity holders – continuing operations
Profit before tax attributable to equity holders – discontinued operations
Adjusted for the following:
Profit on business disposals
Goodwill impairment and impact of acquisition accounting
Policyholder tax adjustments
Voluntary customer remediation provision
Quilter Investors’ build out costs
2018 Single Strategy business profit before tax
Notes
5(c)
5(b)
7(a)(i)
7(a)(v)
7(a)(vi)
7(a)(ii)
IFRS profit before tax (excluding amortisation, policyholder tax adjustments and other one-off items)
Year ended
31 December
2019
£m
(53)
180
Year ended
31 December
20181
£m
41
438
(103)
54
74
(10)
(1)
–
141
(290)
50
(101)
–
19
(26)
131
1The 2018 comparative has been restated from £112 million to £131 million to include the adjustment for the Quilter Investors’ build out costs of £19 million (as shown in the table above).
138
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
7: Alternative performance measures (“APMs”) continued
7(c): Reconciliation of IFRS revenue and expenses to adjusted profit total fee revenue and expenses
This reconciliation shows how each line of the Group’s consolidated IFRS income statement is allocated to the Group’s APMs: Net management fee,
Total net fee revenue and Expenses as part of the Group’s adjusted profit. Allocations are determined by management and aim to show the sources
of profit (net of relevant directly attributable expenses). These allocations remain consistent from period to period to ensure comparability.
Year ended 31 December 2019
Revenue
Net earned premiums
Fee income and other income
from service activities
Investment return
Other income
Total revenue
Expenses
Insurance contract claims and changes
in liabilities
Change in investment contract liabilities
Fee and commission expenses, and other
acquisition costs
Change in third party interest in
consolidated funds
Other operating and administrative expenses
Finance costs
Total expenses
Tax (expense)/credit attributable to policyholder
returns
Total before adjusting items
Adjusting items:
Goodwill impairment and impact
of acquisition accounting
Business transformation costs
Managed Separation costs
Finance costs
Policyholder tax adjustments
Voluntary customer remediation provision
Adjusting items
Adjusted profit before tax – continuing
operations and QLA
Net mgmt
fees1
£m
Other
revenue2
£m
Total net fee
revenue3
£m
Expenses
£m
Adjusted
profit incl.
QLA
£m
Consol.
of funds4
£m
Deduct QLA
(incl. interco
elims)5
£m
IFRS income
statement6
£m
–
871
–
–
871
59
59
203
7,384
1
7,647
1,074
7,384
1
8,518
–
–
(40)
(7,339)
(40)
(7,339)
(108)
(103)
(211)
–
(14)
–
–
(2)
(4)
–
(16)
(4)
(122)
(7,488)
(7,610)
(174)
575
–
159
(174)
734
–
–
–
–
74
–
74
–
–
–
–
–
–
–
–
–
–
–
74
–
74
–
–
–
–
–
–
–
–
–
(697)
(13)
(710)
–
(710)
54
77
6
10
–
(10)
137
649
159
808
(573)
59
–
(59)
–
1,074
7,384
1
8,518
17
1,031
21
1,069
(155)
(1,549)
–
(1,763)
936
6,866
22
7,824
(40)
(7,339)
–
–
39
1,529
(1)
(5,810)
(211)
(117)
34
(294)
–
(713)
(17)
(917)
(35)
–
–
8
–
(917)
(740)
(17)
(8,320)
(1,069)
1,610
(7,779)
–
–
76
(77)
(98)
(53)
(174)
24
54
77
6
10
74
(10)
211
235
Quilter Annual Report 2019
139
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
7: Alternative performance measures (“APMs”) continued
7(c): Reconciliation of IFRS revenue and expenses to adjusted profit total fee revenue and expenses continued
Year ended 31 December 2018
Revenue
Net earned premiums
Fee income and other income from
service activities8
Investment return8,9
Other income
Total revenue
Expenses
Insurance contract claims and changes
in liabilities
Change in investment contract liabilities9
Fee and commission expenses, and other
acquisition costs
Change in third party interest in
consolidated funds
Other operating and administrative expenses
Finance costs
Total expenses
Tax credit/(expense)attributable to policyholder
returns
Total before adjusting items
Adjusting items:
Goodwill impairment and impact
of acquisition accounting
Business transformation costs
Managed Separation costs
Finance costs
Policyholder tax adjustments
Adjusting items
Net mgmt
fees1
£m
Other
revenue2
£m
Total net fee
revenue3
£m
Expenses
£m
Adjusted
profit incl.
QLA
£m
Consol. of
funds4
£m
Deduct QLA
(incl. interco
elims)5
£m
IFRS
income
statement6
£m
–
801
10
–
811
60
60
195
(3,245)
6
(2,984)
996
(3,235)
6
(2,173)
–
–
(33)
3,271
(33)
3,271
(199)
(112)
(311)
–
(22)
–
–
–
(1)
–
(22)
(1)
(221)
3,125
2,904
158
748
–
–
–
–
(101)
(101)
–
141
–
–
–
–
–
–
158
889
–
–
–
–
(101)
(101)
–
–
–
–
–
–
–
–
–
(710)
(16)
(726)
–
(726)
50
84
24
13
–
171
996
(3,235)
6
(2,173)
(33)
3,271
60
–
(60)
(56)
769
–
653
–
954
(2,712)
35
(1,723)
14
(246)
29
(203)
–
–
32
(772)
(1)
2,499
39
–
22
1
(398)
369
(750)
(16)
(678)
1,703
(97)
(122)
61
41
(311)
(126)
369
(40)
–
203
–
–
–
(732)
(17)
2,178
158
163
50
84
24
13
(101)
70
Adjusted profit before tax – continuing
operations and QLA7
647
141
788
(555)
233
1Net Management Fees are commented on within the Financial Review and explained in the Alternative Performance Measures on page 212.
2Other revenue is commented on within the Financial Review and explained in the Alternative Performance Measures on page 212.
3Total net fee revenue is commented on within the Financial Review and explained in the Alternative Performance Measures on page 212.
4Consol of funds shows the grossing up impact to the Group’s consolidated income statement as a result of the consolidation of funds, as described in note 4(a). This grossing up is excluded
from the Group’s adjusted profit.
5The results of QLA are deducted in order to reconcile to the Group’s consolidated income statement. QLA is presented as a discontinued operation. This includes intercompany eliminations
that are required when the Group’s results are split between continuing and discontinued operations.
6The IFRS income statement column in the table above, down to Total before adjusting items, reconciles to each line of the Group’s consolidated income statement down to (Loss)/profit
before tax attributable to equity holders.
7 Adjusted profit before tax – continuing operations and QLA of £233 million for year ended 31 December 2018 represents the Group’s total adjusted profit before tax of £259 million
(see “Reconciliation of adjusted profit to profit after tax” statement), less £26 million of adjusted profit before tax attributable to the Single Strategy business.
8In the year ended 31 December 2018, the Group has reclassified £36 million from Fee income and other income from service activities to Investment return to conform with current year presentation.
9In the year ended 31 December 2018, the Group has reclassified £35 million from Investment return to Change in investment contract liabilities to conform with current year presentation.
140
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
8: Details of revenue
This note gives further detail on the items appearing in the revenue section of the consolidated income statement.
8(a): Geographic segmental information
This analyses the Group’s total revenue, split by geographic location of our businesses (UK and International) and further analyses the Group’s fee
income and other income from service activities, based on the type of fees earned. The Group also earns an immaterial amount of revenue
through operations based in the Republic of Ireland and the Channel Islands.
Year ended 31 December 2019
Gross earned premiums
Premiums ceded to reinsurers
Net earned premiums
Premium based fees
Fund based fees1
Retrocessions received, intragroup
Fixed fees
Surrender charges
Other fee and commission income
Fee income and other income from service activities
Investment return
Other income
Total revenue
UK
International
UK
Advice and
Wealth
Management
£m
–
–
Wealth
Platforms
£m
–
–
Head
Office
£m
–
–
Wealth
Platforms
£m
1
(1)
Consolidation
adjustments
£m
–
–
Total
continuing
operations
£m
1
(1)
Discontinued
operations
£m
145
(86)
–
103
383
–
–
–
–
486
10
1
497
–
–
175
2
3
–
39
219
3,825
161
4,205
–
–
–
–
–
–
–
–
3
6
9
–
72
101
2
28
16
–
219
–
–
–
(4)
–
–
16
12
1,998
(1)
2,216
1,030
(145)
897
–
175
659
–
31
16
55
936
6,866
22
7,824
UK
International
59
11
65
10
2
1
75
164
1,386
–
1,609
UK
Year ended 31 December 2018
Gross earned premiums
Premiums ceded to reinsurers
Net earned premiums
Premium based fees
Fund based fees1
Retrocessions received, intragroup
Fixed fees
Surrender charges
Other fee and commission income
Fee income and other income from service activities2
Investment return2,3
Other income
Total revenue
Advice and
Wealth
Management
£m
–
–
Wealth
Platforms
£m
–
–
Head
Office
£m
–
–
Wealth
Platforms
£m
1
(1)
Consolidation
adjustments
£m
–
–
Total
continuing
operations
£m
1
(1)
Discontinued
operations
£m
147
(87)
–
87
460
–
–
–
–
547
9
2
558
–
–
169
4
2
–
–
175
(1,562)
98
(1,289)
–
–
–
–
–
–
–
–
3
6
9
–
77
102
4
28
16
–
227
(916)
3
(686)
–
–
–
(8)
–
–
13
5
–
164
731
–
30
16
13
954
(246)
(74)
(315)
(2,712)
35
(1,723)
60
15
210
14
2
1
(36)
206
(770)
2
(502)
1Income from fiduciary activities is included within fund based fees.
2In the year ended 31 December 2018, within discontinued operations, the Group has reclassified £36 million from Fee income and other income from service activities to Investment return to
conform with current year presentation.
3In the year ended 31 December 2018, within discontinued operations, the Group has reclassified £35 million from Investment return to Change in investment contract liabilities to conform
with current year presentation.
Consolidation adjustments include £(4) million (2018: £(7) million) retrocessions eliminations relating to intragroup income and £(166) million
(2018: £(103) million) other income eliminations relating to business services intragroup recharges. All other consolidation adjustments relate
to consolidation of funds.
Quilter Annual Report 2019
141
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
8: Details of revenue continued
8(b): Investment return
This note analyses the investment return from the Group’s investing activities.
Investments and securities
Cash and cash equivalents1
Total interest and similar income
Dividend income
Foreign currency gains and losses
Total gains on financial instruments at fair value through profit and loss
Mandatorily at fair value through profit and loss
Designated at fair value through profit and loss
Net investment income – continuing operations
Net investment income – discontinued operations2,3
Total net investment income
Year ended
31 December
2019
£m
54
23
Year ended
31 December
2018
£m
53
19
77
116
(1)
6,674
6,674
–
6,866
1,386
8,252
72
99
1
(2,884)
(2,883)
(1)
(2,712)
(770)
(3,482)
1Included within cash and cash equivalents is £2 million of interest arising from assets held at amortised cost (2018: £2 million). The remainder is from assets at FVTPL.
2In the year ended 31 December 2018, the Group has reclassified £36 million from Fee income and other income from service activities to Investment return to conform with current
year presentation.
3In the year ended 31 December 2018, the Group has reclassified £35 million from Investment return to Change in investment contract liabilities to conform with current year presentation.
9: Details of expenses
This note provides further details in respect of the items appearing in the expenses section of the consolidated income statement.
9(a): Fee and commission expenses, and other acquisition costs
This note analyses the fee and commission expenses and other acquisition costs.
Fee and commission expense
Acquisition commission costs – investment contracts
Renewal commission – investment contracts
Retrocessions paid
Changes in contract costs
Fee and commission expenses, and other acquisition costs – continuing operations
Fee and commission expenses, and other acquisition costs – discontinued operations
Total fee and commission expenses, and other acquisition costs
Note
22
Year ended
31 December
2019
£m
128
36
71
19
40
294
45
339
Year ended
31 December
2018
£m
241
52
50
27
28
398
84
482
142
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
9: Details of expenses continued
9(b): Other operating and administrative expenses
This note provides further details in respect of the items included within other operating and administrative expenses section of the consolidated
income statement.
Staff costs
Depreciation charge on right-of-use assets
Depreciation on other plant and equipment
Operating lease payments
Amortisation of purchased software
Amortisation of other acquired intangibles
Administration and other expenses
Other operating and administrative expenses – continuing operations
Other operating and administrative expenses – discontinued operations
Total other operating and administrative expenses
Note
9(c)(i)
Year ended
31 December
2019
£m
399
13
6
–
2
45
275
740
8
748
Year ended
31 December
2018
£m
375
–
8
16
5
41
305
750
102
852
In prior years, operating lease payments principally represented rentals payable by the Group for the rental of buildings and equipment.
At 1 January 2019 the Group has initially applied IFRS 16 using the modified retrospective approach. Under this approach, comparative information
is not restated and the cumulative effect of applying IFRS 16 is recognised in retained earnings at the time of initial application. Current year
depreciation of the right-of-use asset is charged to the income statement on a straight line basis.
Administration and other expenses include business transformation costs for the year ended 31 December 2019 of £57 million (2018: £58 million)
in relation to the UK Platform Transformation Programme as well as general operating expenses such as IT related costs, premises and marketing.
Discontinued operations includes £10 million provision release for the year ended 31 December 2019 in relation to the voluntary customer
remediation provision (2018: £nil).
9(c): Staff costs and other employee-related costs
9(c)(i): Staff costs
Wages and salaries
Bonus and incentive remuneration
Social security costs
Retirement obligations
Defined contribution plans
Share-based payments
Cash settled
Equity settled
Other
Staff costs – continuing operations
Staff costs – discontinued operations
Total staff costs
Note
25(e)
25(e)
Year ended
31 December
2019
£m
250
57
29
Year ended
31 December
2018
£m
221
62
26
14
–
25
24
399
13
412
12
3
24
27
375
75
450
Quilter Annual Report 2019
143
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
9: Details of expenses continued
9(c)(ii): Employee numbers
The average number of persons employed by the Group was:
Advice and Wealth Management
Wealth Platforms
Head office
Continuing operations
Discontinued operations
Total average number of employees during the year
Year ended
31 December
2019
Number
Year ended
31 December
2018
Number
1,516
2,476
79
4,071
299
4,370
1,324
2,369
52
3,745
421
4,166
The average number of persons employed by the Group is based on permanent employees and fixed term contractors.
9(d): Auditor’s remuneration
Included in other operating and administrative expenses are fees paid to the Group’s auditors. These can be categorised as follows:
Group and Parent Company
Subsidiaries
Total fees for audit services
Fees for audit-related assurance services
Total fees for audit and audit-related assurance services
Fees for non-audit services
Total Group auditor’s remuneration – continuing operations
Total Group auditor’s remuneration – discontinued operations
Total Group auditor’s remuneration
Year ended
31 December
2019
£m
1.0
2.7
Year ended
31 December
2018
£m
1.1
2.1
3.7
1.1
4.8
–
4.8
0.2
5.0
3.2
1.2
4.4
2.3
6.7
0.2
6.9
9(e): Finance costs
This note analyses the interest costs on our borrowings and similar charges, all of which are valued at amortised cost. Finance costs comprise:
Term loans and other external debt
Subordinated debt securities (Tier 2 bond)
Loans from Old Mutual plc
Interest payable on borrowed funds
Interest expense on lease liabilities1
Other
Total finance costs – continuing operations
Total finance costs – discontinued operations
Total finance costs – total business
Year ended
31 December
2019
£m
1
9
–
Year ended
31 December
2018
£m
2
8
3
10
3
4
17
–
17
13
–
3
16
1
17
1The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect
of initially applying IFRS 16 is recognised in retained earnings at the time of initial application.
Finance costs represent the cost of interest and finance charges on the Group’s borrowings from a number of relationship banks and, in the prior
year, Old Mutual plc. The Group has had no borrowings from Old Mutual plc since 28 February 2018. More details regarding borrowed funds,
including the interest rates payable, are shown in note 29. These costs are excluded from adjusted profit within the “Finance costs” adjusting item.
Within other finance costs above is £3 million (2018: £3 million) relating to the impact of unwinding the discount rate on contingent consideration
payable as a result of various acquisitions. These costs are excluded from adjusted profit within the “Goodwill impairment and impact of
acquisition accounting” adjusting item as shown in note 7(a)(i).
144
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
Year ended
31 December
2019
£m
Year ended
31 December
2018
£m
Note
10: Tax
10(a): Tax charged to the income statement
Current tax
United Kingdom
International
Adjustments to current tax in respect of prior periods
Total current tax
Deferred tax
Origination and reversal of temporary differences
Effect on deferred tax of changes in tax rates
Adjustments to deferred tax in respect of prior periods
Total deferred tax
33
5
(11)
27
40
2
(3)
39
66
89
155
98
(32)
66
76
13
89
155
(10)
3
(11)
(18)
(61)
–
(7)
(68)
(86)
(81)
(167)
(61)
(25)
(86)
(97)
16
(81)
(167)
Total tax charged/(credited) to income statement – continuing operations
Total tax charged/(credited) to income statement – discontinued operations
5(c)
Total tax charged/(credited) to income statement
Attributable to policyholder returns – continuing operations
Attributable to equity holders – continuing operations
Total tax charged/(credited) to income statement – continuing operations
Attributable to policyholder returns – discontinued operations
Attributable to equity holders – discontinued operations
Total tax charged/(credited) to income statement – discontinued operations
Total tax charged/(credited) to income statement
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 equity holders’ profits are shown separately in the
income statement.
The tax attributable to policyholder returns is the amount payable in the year plus the movement of amounts expected to be payable in future
years. The remainder of the tax expense is attributed to shareholders as tax attributable to equity holders.
The Group’s income tax expense on continuing operations was £66 million for the year ended 31 December 2019, compared to a credit of £(86)
million for the prior year. This income tax expense/(credit) can vary significantly period on period as a result of market volatility and the impact this
has on policyholder tax. The recognition of the income received from policyholders (which is included within the Group’s revenue) to fund the
policyholder tax liability can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility to the Group’s IFRS
profit before tax attributable to equity holders. An adjustment is made to adjusted profit to remove these distortions, as explained further in
note 7(a)(v).
Significant market volatility during the year ended 31 December 2018 led to large investment losses that have reversed in 2019, resulting in
investment gains of £833 million on products subject to policyholder tax. The gain is a component of the total “investment return” gain of
£6,866 million shown in the income statement and £1,386 million shown in the discontinued operations income statement. The impact of the
£833 million investment return gain is the primary reason for the £174 million tax charge attributable to policyholder returns in respect of both
continuing (£98 million) and discontinued (£76 million) operations for the year ended 31 December 2019 (31 December 2018: £(61) million credit
in respect of continuing operations and £(97) million in respect of discontinued operations).
First time recognition of deferred tax asset on accelerated depreciation
Within the £39 million total deferred tax charge and the £(32) million tax credit attributable to equity holders (continuing operations) above, the
Group has recognised a £7 million deferred tax credit for the first time in the current year. This is in respect of a change in recognition of deferred
tax assets where the Group now recognises the future reversal of temporary differences in respect of capital allowances against matching
temporary differences in respect of amortisation of acquired intangible assets. Had this been in place in the prior year, the equivalent adjustment
in 2018 would have been a £9 million deferred tax credit, with a corresponding £2 million charge in the current year. Further detail is shown in
note 28(a).
Quilter Annual Report 2019
145
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
10: Tax continued
10(b): Reconciliation of total income tax expense
The income tax charged to profit or loss differs from the amount that would apply if all of the Group’s profits from the different tax jurisdictions had
been taxed at the UK standard corporation tax rate. The difference in the effective rate is explained below:
Profit before tax from continuing operations
Tax at UK standard rate of 19% (2018: 19%)
Different tax rate or basis on overseas operations
Untaxed and low taxed income
Disallowable expenses
Adjustments to current tax in respect of prior years
Net movement on deferred tax assets not recognised
Effect on deferred tax of changes in tax rates
Adjustments to deferred tax in respect of prior years
Income tax attributable to policyholder returns
Total tax charged/(credited) to income statement – continuing operations
Total tax charged/(credited) to income statement – discontinued operations
Total tax charged/(credited) to income statement
Note
5(c)
Year ended
31 December
2019
£m
45
9
(6)
1
3
(11)
(11)
2
(3)
82
66
89
155
Year ended
31 December
2018
£m
(20)
(4)
(5)
(8)
6
(11)
(11)
–
(7)
(46)
(86)
(81)
(167)
10(c): Reconciliation of income tax expense in the income statement to income tax on adjusted profit
Notes
Year ended
31 December
2019
£m
66
Year ended
31 December
2018
£m
(86)
Income tax expense/(credit) on continuing operations1
Tax on adjusting items
Goodwill impairment and impact of acquisition accounting
Business transformation costs
Managed Separation costs
Finance costs
Tax adjusting items
Policyholder tax adjustments
Other shareholder tax adjustments2
Tax on adjusting items – continuing operations
Less: Tax attributable to policyholder returns within adjusted profit – continuing operations3
Tax charged on adjusted profit – continuing operations
Reversal of income tax expense on the reallocation of QLA costs
Tax charged on adjusted profit – continuing operations before the reallocation of QLA costs
Income tax expense/(credit) on discontinued operations1
Tax on adjusting items
Profit on business disposals
Voluntary customer remediation provision
Tax adjusting items
Policyholder tax adjustments
Other shareholder tax adjustments2
7(a)(v)
5(c)
7(a)(v)
Tax on adjusting items – discontinued operations
Less: Tax attributable to policyholder returns within adjusted profit – discontinued operations3
Tax charged on adjusted profit – discontinued operations
Reversal of income tax credit on the reallocation of QLA costs
Tax charged/(charged) on adjusted profit – discontinued operations before the reallocation of QLA costs
Tax charged on total adjusted profit
8
14
1
2
(62)
24
(13)
(36)
17
5
22
89
–
(2)
(12)
(3)
(17)
(64)
8
(5)
3
25
8
16
2
2
64
5
97
(3)
8
5
13
(81)
4
–
37
(17)
24
60
3
(5)
(2)
11
1Includes both tax attributable to policyholders and shareholders, in compliance with IFRS reporting.
2Other shareholder tax adjustments comprise the reallocation of adjustments from policyholder tax as explained in note 7(a)(v) together with other adjustments made to deferred tax to
remove distortions arising from timing differences in respect of acquisition accounting. As such, the £7 million deferred tax credit in respect of a change of deferred tax asset recognition
described in note 10(a) has been removed from the tax charge on adjusted profit.
3Adjusted profit treats policyholder tax as a pre-tax charge (this includes policyholder tax under IFRS and the policyholder tax adjustments) and is therefore removed from tax charge on
adjusted profit.
146
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
11: 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 before and after the reallocation of QLA costs, and Headline
EPS is a requirement of the Johannesburg Stock Exchange. The Group’s EPS (in aggregate, including both continuing and discontinued operations)
on these different bases are summarised below.
Basic EPS is calculated by dividing profit after tax attributable to ordinary equity shareholders of the parent by the weighted average number of
Ordinary Shares in issue during the year. The weighted average number of shares excludes Quilter plc shares held within Employee Benefit Trusts
(“EBTs”) to satisfy the Group’s obligations under employee share awards, and Quilter plc shares held in consolidated funds (“Own shares”). Own
shares are deducted for the purpose of calculating both basic and diluted EPS.
Diluted EPS recognises the dilutive impact of shares awarded and options granted to employees under share-based payment arrangements, to
the extent they have value, in the calculation of the weighted average number of shares, as if the relevant shares were in issue for the full period.
The Group is also required to calculate headline earnings per share (“HEPS”) in accordance with the Johannesburg Stock Exchange Limited (“JSE”)
Listing Requirements, determined by reference to the South African Institute of Chartered Accountants’ circular 02/2015 Headline Earnings.
Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used measure of earnings in South Africa.
Basic earnings per share
Diluted basic earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
Source of guidance
IFRS
IFRS
Group policy
Group policy
Headline basic earnings per share (net of tax)
Headline diluted earnings per share (net of tax)
JSE Listing Requirements
JSE Listing Requirements
Year ended
31 December
2019
Pence
8.0
7.8
11.4
11.3
2.3
2.3
Year ended
31 December
2018
Pence
26.6
26.5
13.5
13.5
10.6
10.5
Notes
11(b)
11(b)
11(b)
11(b)
11(c)
11(c)
11(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 and headline profit):
Weighted average number of Ordinary Shares
Own shares including those held in EBTs
Basic weighted average number of Ordinary Shares
Adjustment for dilutive share awards and options
Diluted weighted average number of Ordinary Shares
11(b): Basic and diluted EPS (IFRS and adjusted profit)
The table below shows the profit measures used in the EPS calculations.
Year ended
31 December
2019
Millions
1,902
(67)
1,835
28
1,863
Year ended
31 December
2018
Millions
1,902
(70)
1,832
7
1,839
(Loss)/profit after tax
Total adjusting items before tax
Tax on adjusting items
Less: Policyholder tax adjustments
Adjusted profit after tax
Reversal of:
Reallocation of QLA costs1
Income tax on reallocation of QLA costs
Adjusted profit after tax before reallocation
Year ended 31 December 2019
Year ended 31 December 2018
Note
10(c)
10(c)
10(c)
Continuing
operations
£m
Discontinued
operations
£m
(21)
209
13
(62)
139
26
(5)
160
167
(101)
17
(12)
71
(26)
5
50
Total
£m
146
108
30
(74)
210
–
–
210
Continuing
operations
£m
Discontinued
operations
£m
66
107
(97)
64
140
28
(5)
163
422
(327)
(24)
37
108
(28)
5
85
Total
£m
488
(220)
(121)
101
248
–
–
248
1Adjusted profit from continuing operations includes £26 million of costs (2018: £28 million) previously reported as part of the QLA business which has been reallocated from discontinued
to continuing operations as these costs do not transfer to ReAssure on disposal at 31 December 2019. See note 5(b) for further information.
Quilter Annual Report 2019
147
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
11: Earnings per share continued
11(b): Basic and diluted EPS (IFRS and adjusted profit) continued
Year ended 31 December 2019
Year ended 31 December 2018
Post-tax profit measure used
Continuing
operations
Pence
Discontinued
operations
Pence
Total
Pence
Continuing
operations
Pence
Discontinued
operations
Pence
Basic EPS
Diluted EPS
Adjusted basic EPS
Adjusted diluted EPS
IFRS profit
IFRS profit
Adjusted profit
Adjusted profit
Adjusted basic EPS before reallocation
Adjusted profit before reallocation
Adjusted diluted EPS before reallocation Adjusted profit before reallocation
11(c): Headline earnings per share
(1.1)
(1.1)
7.5
7.5
8.7
8.6
9.1
8.9
3.9
3.8
2.7
2.7
8.0
7.8
11.4
11.3
11.4
11.3
3.5
3.5
7.6
7.6
8.9
8.9
23.1
23.0
5.9
5.9
4.6
4.6
Total
Pence
26.6
26.5
13.5
13.5
13.5
13.5
Profit attributable to ordinary equity holders
Adjusting items:
Less: profit on business disposals
Headline earnings
Headline basic EPS (pence)
Headline diluted EPS (pence)
12: Dividends
2018 Special interim dividend paid – 12.0p per ordinary share
2018 Final dividend paid – 3.3p per ordinary share
2019 Interim dividend paid – 1.7p per ordinary share
Dividends paid to ordinary shareholders
Year ended
31 December 2019
Year ended
31 December 2018
Gross
£m
(103)
(103)
Net of tax
£m
146
(103)
43
2.3
2.3
Gross
£m
(290)
(290)
Net of tax
£m
488
(294)
194
10.6
10.5
Payment date
21 September 2018
20 May 2019
20 September 2019
Year ended
31 December
2019
£m
–
61
31
Year ended
31 December
2018
£m
221
–
–
92
221
Subsequent to year ended 31 December 2019, the Directors proposed a final dividend for 2019 of 3.5 pence per Ordinary Share amounting to
£65 million in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 18 May 2020. In compliance with the rules issued
by the Prudential Regulation Authority (“PRA”) in relation to the implementation of the Solvency II regime and other regulatory requirements to
which the Group is subject, the dividend is required to remain cancellable at any point prior to it becoming due and payable on 18 May 2020 and
to be cancelled if, prior to payment, the Group ceases to hold capital resources equal to or in excess of its Solvency Capital Requirement, or if that
would be the case if the dividend was paid. The Directors have no intention of exercising this cancellation right, other than where required to do so
by the PRA or for regulatory capital purposes. Final and interim dividends paid to ordinary shareholders are calculated using the number of shares
in issue at the record date less own shares held in Employee Benefit Trusts.
148
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
13: Goodwill and intangible assets
13(a): Analysis of goodwill and intangible assets
The table below shows the movements in cost, amortisation and impairment of goodwill and intangible assets.
Gross amount
1 January 2018
Acquisitions through business combinations
Additions
Transfer to non-current assets held for sale
Other movements1
31 December 2018
Acquisitions through business combinations
Additions
Disposals
Other movements2
31 December 2019
Amortisation and impairment losses
1 January 2018
Amortisation charge for the year
Impairment of other acquired intangibles
Other movements
31 December 2018
Amortisation charge for the year
Disposals
Other movements2
31 December 2019
Carrying amount
31 December 2018
31 December 2019
Software
development
costs
£m
Other
intangible
assets
£m
Goodwill
£m
306
5
–
(1)
4
314
68
–
(30)
(2)
350
–
–
–
–
–
–
–
–
–
314
350
97
–
4
–
(1)
100
–
5
(4)
–
101
(92)
(4)
–
1
(95)
(2)
4
–
(93)
5
8
371
9
–
–
–
380
49
–
(4)
3
428
(108)
(41)
(1)
1
(149)
(45)
4
(4)
(194)
231
234
Total
£m
774
14
4
(1)
3
794
117
5
(38)
1
879
(200)
(45)
(1)
2
(244)
(47)
8
(4)
(287)
550
592
1Goodwill increased by £4 million in 2018 due to a review of the Purchase Price Allocation (“PPA”) calculation at 31 December 2017 year end relating to the Quilter Financial Planning acquisitions.
2During the year, there has been a gross up of fully amortised intangible assets in the Quilter Financial Planning and Quilter Cheviot businesses arising from previous business combinations.
Quilter Annual Report 2019
149
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
13: Goodwill and intangible assets continued
13(b): Analysis of other intangible assets
Net carrying value
Distribution channels
Customer relationships
Brand
Total other intangible assets
31 December
2019
£m
31 December
2018
£m
Average
estimated
useful life
Average
period
remaining
22
211
1
234
28
199
4
231
8 years
10 years
5 years
4 years
6 years
1 year
Distribution channel assets are in relation to various Quilter Financial Planning businesses. Customer relationship assets are largely in relation to
the Quilter Cheviot and Quilter Financial Planning businesses, the latter element increasing due to the 2019 acquisitions of Charles Derby Group
and Lighthouse plc, of which Lighthouse plc is still a provisional calculation and therefore the apportionment between goodwill and other intangibles
for this acquisition is subject to change. The brand asset is in relation to the Quilter Cheviot business.
13(c): Allocation of goodwill to cash generating units (“CGUs”) and impairment testing
The Group’s CGUs are based on the Advice and Wealth Management and Wealth Platforms operating segments, as defined in note 6(a). Goodwill is
allocated to these CGUs as follows:
Goodwill (net carrying amount)
Advice and Wealth Management
Wealth Platforms
Total goodwill
31 December
2019
£m
31 December
2018
£m
219
131
350
153
161
314
Annual impairment review
In accordance with the requirements of IAS 36 Impairment of Assets, goodwill in both the Advice and Wealth Management and Wealth Platforms
CGUs is tested for impairment annually, or earlier if an indicator of impairment exists, by comparing the carrying value of the CGU to which the
goodwill relates to the recoverable value of that CGU, being the higher of that CGU’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 NCCF, significant falls in profit and an increase in the discount rate.
The annual impairment test performed in November 2019 continued to show that there was significant headroom in the recoverable amount over
the carrying value of the CGUs. The goodwill model is subject to stress tests, including the impact of a 20% and 40% decrease in profitability and
the impact of an increase in discount rates. None of the stress test scenarios have resulted in any indication of impairment.
The impact on expected future profits resulting from muted flows and the IFRS loss after tax for continuing operations of £21 million in the year
has been partially offset by the effect of a 0.8% decrease in the Group’s cost of capital rate, used as part of the value-in-use calculation, from 10.8%
in 2018 to 10.0% in 2019. The significant headroom in the recoverable amount over the carrying value for both CGUs also means the impact of the
lower NCCF and IFRS loss from continuing operations in the current year are not considered sufficiently material to be indicators of impairment.
Following the sale of the QLA business in the year, there has been a £30 million disposal of associated goodwill. This represented the share of
goodwill in the Wealth Platforms CGU applicable to QLA, based on its fair value relative to the fair values of the other businesses within that CGU.
The annual impairment assessment performed in November 2019 excluded the impact of QLA in the Wealth Platforms CGU. This resulted in a
small decrease in headroom in the Wealth Platforms CGU, as the value-in-use of QLA was only slightly higher than its carrying value.
Value-in-use methodology
The value-in-use calculations for life assurance operations are determined as the sum of net tangible assets, the expected future profits arising
from the in-force business, together with the expected profits from future new business derived from the business plans. Future profit elements
allow for the cost of capital needed to support the business.
The net tangible assets and future profits arising from the in-force business are derived from Solvency II (“SII”) calculations. The value of in-force
(“VIF”) is calculated as the prospective value of future expected cash flows on all in-force policies at the valuation date on a policy-by-policy basis
allowing for surrender or transfer payments, death claims, income withdrawals, maintenance expenses, fund-based fees, mortality charge/
protection premiums and other policy charges. The underlying assumptions are based on the best estimate view for the future, which is largely
based on recent business experience and any emerging trends. The unit fund growth rates (gross of investment charges) and the risk discount
rates are set using the prescribed SII term-dependent risk-free interest rates. The SII calculations are adjusted for a risk margin using the
prescribed SII rules.
150
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
13: Goodwill and intangible assets continued
13(c): Allocation of goodwill to cash generating units (“CGUs”) and impairment testing continued
The value-in-use calculations for asset management operations are determined as the sum of net tangible assets and the expected profits from
existing and expected future new business.
The cash flows that have been used to determine the value-in-use of the cash generating units are based on three year business plans. These cash
flows grow at different rates because of the different strategies of the CGUs. In cases where the CGUs have made significant acquisitions in the
recent past, the profits are forecast to grow faster than the more mature businesses. Post the three year business plan, the growth rate used to
determine the terminal value of the CGUs in the annual assessment approximates to the UK long-term growth rate of 1.7% (2018: 2.1%). Market
share and market growth information are also used to inform the expected volumes of future new business.
The Group uses a single cost of capital of 10.0% (2018: 10.8%) to discount future expected business plan cash flows across its two CGUs because
they are perceived to present a similar level of risk and are integrated. Capital is provided to the Group predominantly by shareholders with only
a small amount of debt. 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 bond holders). When assessing the systematic risk (i.e. 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.
14: Property, plant and equipment
Gross amount
1 January 2018
Additions
Disposals
Foreign exchange and other movements
31 December 2018
Implementation of IFRS 161
Acquisitions through business combinations
Additions2
31 December 2019
Amortisation and impairment losses
1 January 2018
Depreciation charge for the year
Disposals
Other movements
31 December 2018
Implementation of IFRS 161
Acquisitions through business combinations
Depreciation charge for the year
31 December 2019
Carrying amount
31 December 2018
31 December 2019
Right-of-use
assets
£m
Leasehold
improvements
£m
Plant and
equipment
£m
–
–
–
–
–
143
1
60
204
–
–
–
–
–
(67)
–
(13)
(80)
–
124
13
2
–
(2)
13
(3)
1
–
11
(7)
(1)
–
–
(8)
2
–
(1)
(7)
5
4
75
5
(1)
–
79
–
1
8
88
(63)
(7)
2
1
(67)
–
(1)
(5)
(73)
12
15
Total
£m
88
7
(1)
(2)
92
140
3
68
303
(70)
(8)
2
1
(75)
(65)
(1)
(19)
(160)
17
143
1The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect
of initially applying IFRS 16 is recognised in retained earnings at the time of initial application.
2The majority of additions during the year relate to the lease for Senator House, the Group’s new London property.
Quilter Annual Report 2019
151
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
15: Loans and advances
This note analyses the loans and advances the Group has made. The carrying amounts of loans and advances were as follows:
Loans to policyholders
Loans to brokers, advisers and other loans to clients
Other loans
Gross loans and advances
Provision for impairments
Total net loans and advances
To be recovered within 12 months
To be recovered after 12 months
Total net loans and advances
31 December
2019
£m
180
31
6
31 December
2018
£m
189
27
7
217
–
217
190
27
217
223
(1)
222
199
23
222
The carrying amount of loans approximates to their fair value which is measured as the principal amounts receivable under the loan agreements.
Policyholder loans are amounts taken from an individual policyholder’s unit-linked accounts and loaned to the same policyholder. Policyholder
loans are non-interest bearing and are considered to be risk free from a shareholder perspective as the policyholder retains all associated risks.
Policyholder loans are considered to be recoverable within 12 months as they have no repayment schedule.
Loans to advisers are made on commercial terms.
Other loans represent a loan to TA Associates in respect of the deferred consideration receivable arising from the sale of the Single Strategy Asset
Management business. The loan is repayable no later than June 2022.
16: 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).
Government and government-guaranteed securities
Other debt securities, preference shares and debentures
Equity securities
Pooled investments
Short-term funds and securities treated as investments
Total financial investments
Recoverable within 12 months
Recoverable after 12 months
Total financial investments
Notes
16(a)
16(b)
31 December
2019
£m
1,018
2,160
12,051
44,101
15
31 December
2018
£m
1,175
2,095
10,006
45,931
12
59,345
59,219
59,344
1
59,345
59,044
175
59,219
The financial investments recoverability profile is based on the intention with which the financial assets are held. These assets, together with the
reinsurers’ share of investment contract liabilities, are held to cover the liabilities for linked investment contracts (net of reinsurance), all of which
can be withdrawn by policyholders on demand.
16(a): Other debt securities, preference shares and debentures
Debt securities, preference shares and debentures are neither past due nor impaired. These debt instruments and similar securities are classified
according to their local credit rating (Standard & Poor’s or an equivalent), by investment grade.
16(b): Equity securities
Equity securities are held to cover the liabilities for linked investment contracts. The majority of the listed securities are traded on the London Stock
Exchange. The majority of the Group’s holdings of unlisted equity securities arise principally from private equity investments, held exclusively on
behalf of policyholders.
152
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
17: Derivative financial instruments – assets and liabilities
The Group has limited involvement with derivative instruments and does not use them for speculation purposes. Derivative instruments are
used to manage well-defined foreign exchange risks arising out of the normal course of business. The Group enters into forward foreign exchange
contracts to reduce currency risk on accounts receivable and future revenues denominated in United States dollars. The Group does not anticipate
any material adverse effect on its financial position resulting from its involvement in these types of contracts, nor does it anticipate non-
performance by counterparties. The Group only deals with highly rated counterparties.
The majority of derivatives included within the statement of financial position relate to instruments included as a consequence of the consolidation
of investment funds. These can be seen within the segmented statement of financial position (note 6(c)).
18: 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 please refer to note 19. The Group’s exposure to various risks
associated with financial instruments is discussed in note 36(b).
31 December 2019 – Measurement basis
Assets
Investments in associated undertakings1
Loans and advances
Financial investments
Trade, other receivables and other assets
Derivative assets
Cash and cash equivalents
Total assets that include financial instruments
Total other non-financial assets
Total assets
Liabilities
Investment contract liabilities
Third-party interests in consolidation of funds
Borrowings and lease liabilities2
Trade, other payables and other liabilities
Derivative liabilities
Total liabilities that include financial instruments
Total other non-financial liabilities
Total liabilities
Mandatorily
at FVTPL
£m
Fair value
Designated
at FVTPL
£m
Amortised
cost
£m
Non-financial
assets and
liabilities
£m
–
180
59,343
–
32
1,159
60,714
–
60,714
52,455
7,675
–
–
17
60,147
–
60,147
–
–
2
–
–
–
2
–
2
–
–
–
–
–
–
–
–
–
37
–
373
–
1,314
1,724
–
1,724
–
–
335
730
–
1,065
–
1,065
1
–
–
51
–
–
52
1,246
1,298
–
–
–
106
–
106
349
455
Total
£m
1
217
59,345
424
32
2,473
62,492
1,246
63,738
52,455
7,675
335
836
17
61,318
349
61,667
1Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.
2The Group has initially applied IFRS 16 at 1 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated.
Quilter Annual Report 2019
153
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
18: Categories of financial instruments continued
31 December 2018 – Measurement basis
Assets
Investments in associated undertakings1
Loans and advances
Financial investments
Reinsurers’ share of policyholder liabilities
Trade, other receivables and other assets2
Derivative assets
Cash and cash equivalents
Total assets that include financial instruments
Total other non-financial assets
Total assets
Liabilities
Insurance contract liabilities
Investment contract liabilities
Third-party interests in consolidation of funds
Borrowings
Trade, other payables and other liabilities
Derivative liabilities
Total liabilities that include financial instruments
Total other non-financial liabilities
Total liabilities
Mandatorily
at FVTPL
£m
Fair value
Designated
at FVTPL
£m
Amortised
cost
£m
Non-financial
assets and
liabilities
£m
–
189
59,052
1,671
–
46
1,361
62,319
–
62,319
–
56,450
5,116
–
–
37
61,603
–
61,603
–
–
167
–
–
–
–
167
–
167
–
–
–
–
–
–
–
–
–
–
33
–
–
486
–
1,034
1,553
–
1,553
–
–
–
197
840
–
1,037
–
1,037
2
–
–
491
44
–
–
537
1,214
1,751
602
–
–
–
159
–
761
384
1,145
Total
£m
2
222
59,219
2,162
530
46
2,395
64,576
1,214
65,790
602
56,450
5,116
197
999
37
63,401
384
63,785
1Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.
2The Group’s contract assets are now included within Trade, other receivables and other assets, having previously been shown separately on the statement of financial position.
19: 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 fair value hierarchy (see note 19(b)),
prescribed under IFRS, provides an indication about the reliability of inputs used in determining fair value.
19(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 company shares or within consolidated investment funds the valuation is based on the latest available set of audited
financial statements where available, or if more recent, a statement of valuation provided by the private company’s management.
There have been no significant changes in the valuation techniques applied when valuing financial instruments. Where assets are valued by the
Group, the general principles applied to those instruments measured at fair value are outlined below:
Reinsurers’ share of policyholder liabilities
Reinsurers’ share of policyholder liabilities are measured on a basis that is consistent with the measurement of the provisions held in respect
of the related insurance contracts. Reinsurance contracts which cover financial risk are measured at fair value of the underlying assets.
154
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
19: Fair value methodology continued
19(a): Determination of fair value continued
Loans and advances
Loans and advances include loans to policyholders, loans to brokers, and other secured and unsecured loans. Loans and advances to policyholders
of investment linked contracts are measured at fair value. All other loans are stated at their amortised cost.
Financial investments
Financial investments include government and government-guaranteed securities, listed and unlisted debt securities, preference shares and
debentures, listed and unlisted equity securities, listed and unlisted pooled investments (see below), short-term funds and securities treated as
investments and certain other securities.
Pooled investments represent the Group’s holdings of shares/units in open-ended investment companies, unit trusts, mutual funds and similar
investment vehicles. Pooled investments are recognised at fair value. The fair values of pooled investments are based on widely published prices
that are regularly updated.
Other financial investments that are measured at fair value use observable market prices where available. In the absence of observable market
prices, these investments and securities are fair valued utilising various approaches including discounted cash flows, the application of an 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 the Group’s
over the counter forward foreign exchange contracts is determined by the underlying foreign currency 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 interest in consolidated funds
Third-party interests in consolidated funds are measured at the attributable net asset value of each fund.
Borrowings and lease liabilities
Borrowings and lease liabilities are stated at amortised cost.
19(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, reinsurers’ share of
investment contract liabilities and investment contract liabilities directly linked to
other Level 1 financial assets.
Level 2 – valuation techniques using observable inputs: financial 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 (“OTC”) derivatives, certain privately placed debt instruments
and third-party interests in consolidated funds.
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. However, certain
financial assets and liabilities are valued on the basis of valuation techniques that feature one or more significant inputs that are unobservable
and, for them, the derivation of fair value is more judgemental. A financial asset or liability in its entirety is classified as valued using significant
unobservable inputs if a significant proportion of that asset or liability’s carrying amount is driven by unobservable inputs.
In this context, ‘unobservable’ means that there is little or no current market data available for which to determine the price at which an arm’s length
transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of
fair value. Furthermore, in some cases the majority of the fair value derived from a valuation technique with significant unobservable data may be
attributable to observable inputs. Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to
uncertainty about the overall fair value of the asset or liability being measured.
Quilter Annual Report 2019
155
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
19: Fair value methodology continued
19(c): Transfer between fair value hierarchies
The Group deems a transfer to have occurred between Level 1 and Level 2 or Level 3 when an active, traded primary market ceases to exist for that
financial instrument. A transfer between Level 2 and Level 3 occurs when the majority of the significant inputs used to determine fair value of the
instrument become unobservable. Transfers from Levels 3 or 2 to Level 1 are also possible when assets become actively priced.
There were transfers of financial investments of £139 million from Level 1 to Level 2 during the year (31 December 2018: £13 million). There were
transfers of financial investments of £76 million from Level 2 to Level 1 during the year (31 December 2018: £107 million). These movements are
matched exactly by transfers of investment contract liabilities. See note 19(e) for the reconciliation of Level 3 financial instruments.
19(d): Financial assets and liabilities measured at fair value, classified according to 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, together with the reinsurers’ share of investment contract liabilities, are held to cover the liabilities for linked investment
contracts (net of reinsurance). The difference between linked assets and linked liabilities is principally due to short-term timing differences between
policyholder premiums being received and invested in advance of policies being issued, and tax liabilities within funds which are reflected within
the Group’s tax liabilities.
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 table below presents a summary of the Group’s financial assets and liabilities that are measured at fair value in the consolidated statement
of financial position according to their IFRS 9 classification (see note 18 for full details).
Financial assets measured at fair value
Level 1
Level 2
Level 3
Total
Financial liabilities measured at fair value
Level 1
Level 2
Level 3
Total
31 December 2019
31 December 2018
£m
%
£m
%
46,904
12,095
1,717
60,716
50,315
8,115
1,717
60,147
77.3%
19.9%
2.8%
100.0%
83.6%
13.5%
2.9%
100.0%
52,060
9,272
1,154
62,486
54,944
5,508
1,151
61,603
83.4%
14.8%
1.8%
100.0%
89.2%
8.9%
1.9%
100.0%
156
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
19: Fair value methodology continued
19(d): Financial assets and liabilities measured at fair value, classified according to fair value hierarchy continued
The tables below further analyse the Group’s financial assets and liabilities measured at fair value by the fair value hierarchy described in note 19(b):
31 December 2019
Financial assets measured at fair value
Mandatorily (fair value through profit or loss)
Loans and advances
Financial investments
Cash and cash equivalents
Derivative assets
Designated (fair value through profit or loss)
Financial investments
Total assets measured at fair value
Financial liabilities measured at fair value
Mandatorily (fair value through profit or loss)
Investment contract liabilities
Third-party interests in consolidated funds
Derivative liabilities
Level 1
£m
Level 2
£m
46,902
180
45,563
1,159
–
2
2
12,095
–
12,063
–
32
–
–
Level 3
£m
1,717
–
1,717
–
–
–
–
Total
£m
60,714
180
59,343
1,159
32
2
2
46,904
12,095
1,717
60,716
50,315
50,315
–
–
8,115
423
7,675
17
1,717
1,717
–
–
60,147
52,455
7,675
17
Total liabilities measured at fair value
50,315
8,115
1,717
60,147
31 December 2018
Financial assets measured at fair value
Mandatorily (fair value through profit or loss)
Reinsurers’ share of policyholder liabilities
Loans and advances
Financial investments
Cash and cash equivalents
Derivative assets
Designated (fair value through profit or loss)
Financial investments
Total assets measured at fair value
Financial liabilities measured at fair value
Mandatorily (fair value through profit or loss)
Investment contract liabilities
Third-party interests in consolidated funds
Derivative liabilities
Level 1
£m
51,893
1,671
189
48,672
1,361
–
167
167
Level 2
£m
9,272
–
–
9,226
–
46
–
–
Level 3
£m
1,154
–
–
1,154
–
–
–
–
Total
£m
62,319
1,671
189
59,052
1,361
46
167
167
52,060
9,272
1,154
62,486
54,944
54,944
–
–
5,508
355
5,116
37
1,151
1,151
–
–
61,603
56,450
5,116
37
Total liabilities measured at fair value
54,944
5,508
1,151
61,603
Quilter Annual Report 2019
157
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
19: Fair value methodology continued
19(e): Level 3 fair value hierarchy disclosure
All of the assets that are classified as Level 3 are held within linked policyholder funds. This means that all of the investment risk associated with
these assets is borne by policyholders and that the value of these assets is exactly matched by a corresponding liability due to policyholders. The
Group bears no risk from a change in the market value of these assets except to the extent that it has an impact on management fees earned.
In the prior year, included within the assets classified as Level 3 was a shareholder investment in an unlisted equity (31 December 2018: £3 million);
this was not matched by a corresponding liability and therefore any changes in market value were recognised in the Group’s income statement.
Following the acquisition of the Charles Derby Group during the year, the Group’s investment is no longer held as a Level 3 financial investment,
but instead as an investment in subsidiary which is eliminated on consolidation.
The table below reconciles the opening balance of Level 3 financial assets to the closing balance at each year end:
At beginning of the year
Total net fair value gains recognised in:
– profit or loss
Purchases
Sales
Transfers in
Transfers out
Foreign exchange and other
Total Level 3 financial assets
Unrealised fair value gains/(losses) relating to assets held at the year end recognised in:
– profit or loss
Year ended
31 December
2019
£m
1,154
Year ended
31 December
2018
£m
1,169
(20)
314
(24)
369
(71)
(5)
54
38
(25)
69
(151)
–
1,717
1,154
(20)
54
Amounts shown as sales arise principally from the sale of private company shares, unlisted pooled investments and from distributions received
in respect of holdings in property funds.
Transfers into Level 3 assets in the current year total £369 million (31 December 2018: £69 million). This is due to a combination of stale priced
assets that were previously shown within Level 2 and for which price updates have not been received for more than six months, and an increase
in suspended funds previously showed 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 comprise £71 million (31 December 2018: £151 million) of stale priced assets that
were not previously being repriced and that have been transferred into Level 2 as they are now actively priced.
The table below analyses the type of Level 3 financial assets held:
Pooled investments
Unlisted and stale price pooled investments
Suspended funds
Private equity investments
Total Level 3 financial assets
31 December
2019
£m
361
133
228
1,356
31 December
2018
£m
86
82
4
1,068
1,717
1,154
158
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
19: Fair value methodology continued
19(e): Level 3 fair value hierarchy disclosure continued
All of the liabilities that are classified as Level 3 are investment contract liabilities which exactly match against the Level 3 assets held in linked
policyholder funds.
The table below reconciles the opening balance of Level 3 financial liabilities to the closing balance at each year end:
At beginning of the year
Total net fair value gains recognised in:
– profit or loss
Purchases
Sales
Transfers in
Transfers out
Foreign exchange and other
Total Level 3 financial liabilities
Unrealised fair value gains/(losses) relating to liabilities held at the year end recognised in:
– profit or loss
Year ended
31 December
2019
£m
1,151
Year ended
31 December
2018
£m
1,167
(20)
314
(24)
369
(71)
(2)
53
38
(25)
69
(151)
–
1,717
1,151
(20)
53
19(f): Effect of changes in significant unobservable assumptions to reasonable possible alternatives
Details of the valuation techniques applied to the different categories of financial instruments can be found in note 19(a) above, including the
valuation techniques applied when significant unobservable assumptions are used to value Level 3 assets.
The majority of the Group’s Level 3 assets are held within private equity investments, where the valuation of these assets is performed on an
asset-by-asset basis using a valuation methodology appropriate to the specific investment and in line with industry guidelines. Private equity
investments are valued at the value disclosed in the latest available set of audited financial statements or, if more recent information is available,
from investment managers or professional valuation experts at the value of the underlying assets of the private equity investment. For this reason,
no reasonable alternative assumptions are applicable and management therefore performs a sensitivity test of an aggregate 10% change in the
value of the financial asset or liability (31 December 2018: 10%), representing a reasonable possible alternative judgement in the context of the
current macro-economic environment in which the Group operates. It is therefore considered that the impact of this sensitivity will be in the range
of £172 million to the reported fair value of Level 3 assets, both favourable and unfavourable (31 December 2018: £115 million). As described in
note 19(e), changes in the value of Level 3 assets held within linked policyholder funds are exactly matched by corresponding changes in the value
of liabilities due to policyholders and therefore have no impact on the Group’s net asset value or profit or loss, except to the extent that it has an
impact on management fees earned.
19(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. Their classification
within the fair value hierarchy would be as follows:
Trade, other receivables, and other assets
Trade, other payables, and other liabilities
Level 3
Level 3
Cash and cash equivalents (excluding money market funds) are held at amortised cost and therefore not carried at fair value. The cash and cash
equivalents that are held at amortised cost would be classified as Level 1 in the fair value hierarchy.
Loans and advances are financial assets held at amortised cost and therefore not carried at fair value, with the exception of policyholder loans
which are categorised as FVTPL. The loans and advances that are held at amortised cost would be classified as Level 3 in the fair value hierarchy.
Borrowed funds are financial liabilities held at amortised cost and therefore not carried at fair value. Borrowed funds relate to subordinated
liabilities and would be classified as Level 2 in the fair value hierarchy.
Lease liabilities valued under IFRS 16 are held at amortised cost and therefore not carried at fair value. They would be classified as Level 3 in the
fair value hierarchy.
Quilter Annual Report 2019
159
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
20: Structured entities
20(a): Group’s involvement in structured entities
Some investment vehicles are classified as structured entities because they have a narrow and well defined purpose. In structured entities,
voting rights are not the predominant factor in deciding who controls the entity but rather it is the Group’s exposure to the variability of returns
from these entities.
The Group invests in collective investment vehicles, including OEICs and unit trusts, in order to match unit-linked investment contract liabilities.
Shareholder funds are also invested in collective investment vehicles, principally in respect of money market funds as an alternative to bank
deposits. These structured entities are not consolidated where the Group determines that it does not have control.
The Group’s holdings in collective investment vehicles are subject to the terms and conditions of the respective investment vehicle’s offering
documentation and are susceptible to market price risk arising from uncertainties about future values of those investment vehicles. All of the
investment vehicles in the investment portfolios are managed by portfolio managers who are compensated by the respective investment vehicles
for their services. Such compensation generally consists of an asset-based fee and a performance based incentive fee, and is reflected in the
valuation of the investment vehicles.
20(b): Interests in unconsolidated structured entities
The Group invests in unconsolidated structured entities as part of its normal investment and trading activities. The Group’s total interest in
unconsolidated structured entities is classified as investments and securities held at fair value through profit or loss. The table below provides
a summary of the carrying value of the Group’s interests in unconsolidated structured entities:
Financial investments
Cash and cash equivalents
Total Group interest in unconsolidated structured entities
31 December
2019
£m
38,264
1,159
39,423
31 December
2018
£m
40,815
1,361
42,176
The Group’s maximum exposure to loss with regard to the interests presented above is the carrying amount of the Group’s investments. Once
the Group has disposed of its shares or units in a fund, it ceases to be exposed to any risk from that fund. The Group’s holdings in the above
unconsolidated structured entities are mostly less than 50% and as such the net asset value of these structured entities is likely to be significantly
higher than their carrying value.
20(c): Consolidation considerations for structured entities managed by the Group
The Group acts as fund manager to a number of investment funds. Determining whether the Group controls such an investment fund usually
focuses on the assessment of decision-making rights as fund manager, the investor’s rights to remove the fund manager and the aggregate
economic interests of the Group in the fund in the form of interest held and exposure to variable returns.
In most instances the Group’s decision-making authority, in its capacity as fund manager, with regard to these funds is regarded to be well-defined.
Discretion is exercised when decisions regarding the relevant activities of these funds are being made. For funds managed by the Group where the
investors have the right to remove the Group as fund manager without cause, the fees earned by the Group are considered to be market related.
These agreements include only terms, conditions or amounts that are customarily present in arrangements for similar services and level of skills
negotiated on an arm’s length basis. The Group has concluded that it acts as agent on behalf of the investors in all instances.
The Group is considered to be acting as principal where the Group is the fund manager and is able to make the investment decisions on behalf
of the unit holders and earn a variable fee, and there are no kick out rights that would remove the Group as fund manager.
There have been no changes in facts or circumstances which have changed the Group’s conclusion on the consolidation of funds.
The Group has not provided any non-contractual support to any consolidated or unconsolidated structured entities.
20(d): Other interests in unconsolidated structured entities
There are no investments at the current or prior reporting date managed by the Group in which it has no holding. In the prior year, there was
£1 million of fees recorded in the income statement in relation to previously managed investments, which are no longer part of the Group following
the sale of the Single Strategy business in 2018.
160
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
21: Trade, other receivables and other assets
The note analyses total trade, other receivables and other assets.
Debtors arising from reinsurance business
Outstanding settlements
Other receivables
Accrued interest
Accrued income1
Other accruals and prepayments
Contract assets1
Management fees
Other assets
Total trade, other receivables and other assets
To be settled within 12 months
To be settled after 12 months
Total trade, other receivables and other assets
31 December
2019
£m
31 December
2018
£m
–
245
78
2
34
30
19
16
–
424
424
–
424
5
327
94
2
29
34
15
23
1
530
530
–
530
1Following refinement of the Group’s interpretation of IFRS 15 post adoption at 1 January 2018 and to conform with current year presentation, in the year ended 31 December 2018 £29 million
of assets have been reclassified from contract assets to accrued income.
Other receivables mainly relate to trade debtors, tax debtors and other debtors.
There have been no non-performing receivables or material impairments in the financial year that require disclosure. Information about the
Group’s impairment losses on trade receivables is included in note 36(b). None of the receivables reflected above have been subject to the
renegotiation of terms.
All amounts are current, short-term and interest free with the carrying amount approximating to fair value.
22: Deferred acquisition costs and contract costs
Deferred acquisition costs (on insurance contracts) and contract costs (on investment contracts and asset management contracts) relate to costs
that the Group incur to obtain new business. These acquisition costs are capitalised in the statement of financial position and are amortised in
profit or loss over the life of the contracts. The table below analyses the movements in these balances relating to insurance, investment and asset
management contracts.
1 January 2018
Reclassification to contract costs1
New business
Amortisation
Other movements
Continuing operations movement
Discontinued operations movement
31 December 2018
New business
Amortisation
Continuing operations movement
Foreign exchange
Discontinued operations movement
Disposal of subsidiaries
31 December 2019
Deferred acquisition costs
Contract costs
Investment
contracts
£m
592
(592)
–
–
–
–
Insurance
contracts
£m
14
–
–
–
–
–
Asset
management
£m
5
(5)
–
–
–
–
Investment
contracts
£m
–
592
50
(79)
2
(27)
Asset
management
£m
–
5
1
(2)
–
(1)
–
–
–
–
–
–
–
–
–
(3)
11
–
–
–
–
(3)
(8)
–
–
–
–
–
–
–
–
–
–
(18)
547
36
(75)
(39)
(3)
(14)
(39)
452
–
4
–
(1)
(1)
–
–
–
3
Total
£m
611
–
51
(81)
2
(28)
(21)
562
36
(76)
(40)
(3)
(17)
(47)
455
1Reclassified from deferred acquisition costs to contract costs at 1 January 2018, as a result of IFRS 15.
Quilter Annual Report 2019
161
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
23: Cash and cash equivalents
23(a): Analysis of cash and cash equivalents
Cash at bank
Money market funds
Cash and cash equivalents in consolidated funds
Total cash and cash equivalents
31 December
2019
£m
787
1,159
527
31 December
2018
£m
550
1,361
484
2,473
2,395
Except for cash and cash equivalents subject to consolidation of funds of £527 million (2018: £484 million), management do not consider that there
are any material amounts of cash and cash equivalents which are not available for use in the Group’s day-to-day operations.
23(b): Analysis of net cash flows from operating activities
Cash flows from operating activities
Profit before tax
Adjustments for non-cash movements in net profit for the year
Depreciation of property, plant and equipment1
Movement on deferred acquisition and contract costs
Movement on deferred fee income and contract liabilities
Amortisation and impairment of intangibles
Fair value and other movements in financial assets
Fair value movements in investment contract liabilities
Other change in investment contract liabilities
Profit on sale of subsidiaries
Other movements1
Net changes in working capital
Increase in derivatives2
Decrease/(increase) in loans and advances
(Decrease)/increase in provisions
Movement in other assets/liabilities3,4
Taxation paid
Net cash flows (used in)/ from operating activities
31 December
2019
£m
31 December
2018
£m
301
321
19
57
(13)
48
(7,650)
6,518
(1,209)
(103)
65
(2,268)
(6)
5
(28)
(10)
(39)
(37)
(2,043)
8
49
(14)
46
3,473
(4,119)
1,412
(290)
19
584
(353)
(23)
(6)
(280)
(662)
(92)
151
1In the year ended 31 December 2018, £2 million has been reclassified from Other movements to Depreciation of property, plant and equipment to conform with current year presentation.
2The movement in derivatives primarily relates to consolidated funds as explained in note 20.
3Working capital changes in respect of other assets and liabilities primarily relate to consolidated funds.
4In the year ended 31 December 2018, £7 million has been reclassified between net changes in working capital and acquisitions of interests in subsidiaries to conform with the current year
presentation of contingent consideration payments (see note 5(a)).
162
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
23: Cash and cash equivalents continued
23(c): Cash flows from financing activities is further analysed below
31 December 2019
Opening balance at 1 January 2019
Cash flows from financing activities
Liability related:
Finance costs on external borrowings
Equity related:
Dividends paid to ordinary equity holders of the Company
Payment of lease liabilities
Cash flows from financing activities
Other changes
External debt interest accrual
Changes in lease liabilities
Other changes in liabilities
Liability related
Equity related
31 December 2019
31 December 2018
Opening balance at 1 January 2018
Cash flows from financing activities
Liability related:
Finance costs
Proceeds from issue of subordinated and other debt
Subordinated and other debt repaid
Equity related:
Dividends paid to ordinary equity holders of the Company
Cash flows from financing activities
Other changes
Other changes in liabilities2
Liability related
Equity related
31 December 2018
Liabilities
Borrowings
and lease
liabilities
£m
Note 29
197
Deposits
from
reinsurers
£m
Note 30
16
Equity1
Changes in
equity
£m
Total
£m
2,005
2,218
(9)
–
(16)
(25)
4
64
6
74
89
335
(1)
–
–
(1)
–
–
1
1
–
16
Liabilities
Borrowings
and lease
liabilities
£m
Note 29
782
Deposits
from
reinsurers
£m
Note 30
16
(7)
497
(516)
–
(26)
(559)
(559)
–
197
(1)
–
–
–
(1)
1
1
–
16
–
(92)
–
(92)
–
–
–
–
158
2,071
Equity1
Changes in
equity
£m
(10)
(92)
(16)
(118)
4
64
7
75
247
2,422
Total
£m
1,099
1,897
–
–
–
(221)
(221)
–
–
1,127
2,005
(8)
497
(516)
(221)
(248)
(558)
(558)
1,127
2,218
1Full details of changes in equity are shown in the consolidated statement of changes in equity.
2Other changes in liabilities in the year ended 31 December 2018 includes the £566 million receivable transferred into the Group as part of the acquisition of the Skandia UK Group Limited,
which offsets with the corresponding payable already within the Group, as explained in note 5(a).
Quilter Annual Report 2019
163
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
24: Ordinary Share capital and merger reserve
24(a): Ordinary Share capital
Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash, other financial assets or issue a variable
number of own equity instruments. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction
from the proceeds, net of tax. The Parent Company’s equity capital currently comprises 1,902,251,098 Ordinary Shares of 7p each with an aggregated
nominal value of £133,157,577 (31 December 2018: 1,902,251,098 Ordinary Shares of 7p each with an aggregated nominal value of £133,157,577).
This note gives details of the Company’s Ordinary Share capital and shows the movements during the period:
At 1 January 2018
Issue of share capital1
Sub-division of Ordinary Shares of 100p each to 1p each2
Bonus shares issued to ordinary shareholders of 1p each3
Conversion of Ordinary Shares of 1p each to 7p each4
At 31 December 2018
At 1 January 2019
At 31 December 2019
Number of shares
130,000,257
1
130,000,258
12,870,025,542
13,000,025,800
315,731,886
13,315,757,686
(11,413,506,588)
1,902,251,098
1,902,251,098
1,902,251,098
Nominal
value
£m
130
–
Share
premium
£m
58
–
130
–
130
3
133
–
133
133
133
58
–
58
–
58
–
58
58
58
1On 31 January 2018, the Company allotted and issued 1 Ordinary Share of £1. On 6 June 2018, the Board approved a reorganisation of its share capital to enable the implementation of the
Managed Separation and to ensure that existing shareholders of Old Mutual plc received one Ordinary Share for every three Ordinary Shares they hold in Old Mutual plc, as described in the
prospectus document. The share capital reorganisation consisted of the following steps:
2Each of the Company’s existing 130,000,258 Ordinary Shares of £1.00 each was sub-divided into 100 Ordinary Shares of £0.01 each, following which the Company’s share capital consisted
of 13,000,025,800 Ordinary Shares of £0.01 each, with an aggregate nominal value of £130,000,258;
3The Company allotted 315,731,886 bonus Ordinary Shares of £0.01 each to the existing shareholders of the Company (with any fractional entitlements arising to be aggregated and allotted
to Old Mutual plc), following which the Company’s share capital consisted of 13,315,757,686 Ordinary Shares of £0.01 each, with an aggregate nominal value of £133,157,577; and
4The Company’s 13,315,757,686 Ordinary Shares of £0.01 each were consolidated into Ordinary Shares of £0.07 each (with any fractional entitlements arising to be aggregated and allotted
to Old Mutual plc), following which the Company’s share capital consists of 1,902,251,098 Ordinary Shares of £0.07 each, with an aggregate nominal value of £133,157,577.
24(b): Merger reserve
On 31 January 2018, the Group acquired the Skandia UK Limited group of entities from its then parent company Old Mutual plc. This comprised of
seven Old Mutual plc group entities with a net asset value of £591 million. The transfer was effected by the issue of one share and with the balance
giving rise to a merger reserve of £591 million in the consolidated statement of financial position, being the difference between the nominal value
of the share issued by the parent company for the acquisition of the shares of the subsidiaries and the subsidiaries’ net asset value. No debt was
taken on as a result of this transaction. The most significant asset within these entities was a £566 million receivable which corresponded to an
equivalent payable within the Group’s consolidated statement of financial position. The net effect of this transaction for the Group was to replace
a payable due to Old Mutual plc with equity.
Following the acquisition the Company allotted 315,731,886 bonus ordinary shares of £0.01 each to the existing shareholders of the Company
(with any fractional entitlements arising to be aggregated and allotted to Old Mutual plc), with a total nominal value of £3 million. This had the effect
of reducing the merger reserve by £3 million to £588 million at 31 December 2018.
This transaction attracted merger relief under section 612 of the Companies Act 2006.
During the year ended 31 December 2019, there was a partial repayment of the receivable and a subsequent dividend paid by Skandia UK Limited
up to its parent Quilter plc. The resulting decrease in Skandia UK Limited’s net asset value gave rise to a £439 million impairment of Quilter plc’s
investment in Skandia UK Limited and an associated release of the merger reserve.
164
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
25: Share-based payments
During the year ended 31 December 2019, the Group participated in a number of share-based payment arrangements. This note describes the
nature of the plans and how the share options and awards are valued.
25(a): Description of share-based payment arrangements
The Group operates the following share-based payment schemes with awards over Quilter plc shares which came into force on 25 June 2018:
the Quilter plc Performance Share Plan, the Quilter plc Share Reward Plan, the Quilter plc Share Incentive Plan, and the Quilter plc Sharesave Plan.
The Old Mutual Wealth Joint Share Ownership Plan, the Old Mutual Wealth Phantom Share Reward Plan and the Old Mutual plc Managed
Separation Incentive Plan were awards over Old Mutual plc shares or, in the case of the Old Mutual Wealth Phantom Share Reward Plan, notional
Old Mutual plc shares. These share-based payment schemes were transferred to awards over Quilter plc shares on 25 June 2018 and continue
to the original vesting dates.
Description of award
Vesting conditions
Scheme
Restricted
shares
Conditional
shares
Options
Other
Dividend
entitlement1
Contractual
life
(years)
Typical
service
(years)
Quilter plc Performance Share Plan
Quilter plc Performance Share Plan
Quilter plc Share Reward Plan
Quilter plc Share Incentive Plan
Quilter plc Sharesave Plan3
Old Mutual Wealth Joint Share
Ownership Plan4
Old Mutual Wealth Phantom Share
Reward Plan5
Old Mutual plc Managed Separation
Incentive Plan
Charles Derby Group Performance
Share Plan
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Up to 10
Not less
than 3
Typically 3
Not less
than 3
3
3
3
2
–
31/2-51/2
3 & 5
3
Typically 3
Up to 10
Up to 10
3
3
–
5
Performance
(measure)
AP EPS CAGR2
and Relative Total
Shareholder Return
Conduct, Risk &
Compliance Underpins
–
–
–
–
–
Targets in respect of
Managed Separation
completion
AP EPS CAGR
1Participants are entitled to actual dividends for the Joint Share Ownership Plan Restricted shares and the Share Incentive Plan. For all other schemes participants are entitled to dividend
equivalents.
2Adjusted Profit compound annual growth rate (“CAGR”).
3The Quilter plc Sharesave Plan is linked to a savings plan.
4The Joint Share Ownership Plan (“JSOP”) was implemented for certain key employees of the Group in 2013, with the final grant of awards in 2016. It provided participants with an interest in the
capital growth of the company by granting joint ownership of shares in Old Mutual Wealth Management Ltd (now Quilter plc) with an EBT, whereby the trust owned the principal value of the
shares and the participants owned any growth in value during the vesting period. Upon the demerger and listing of Quilter plc, the trust exercised a call option to acquire the participants’
interest in the shares based on the growth in value of the Company between grant and listing, in return for consideration shares in Quilter plc. The consideration shares for any awards that
remain unvested are restricted until the normal vesting date, and attract dividends during that time.
5Awards granted under the Phantom Share Reward Plan prior to the demerger of Quilter plc were made over notional ordinary shares in Old Mutual plc that were settled in cash on the vesting
date. Upon the demerger and listing of Quilter plc, all unvested notional share awards were converted to conditional awards over ordinary shares in Quilter plc, which will be settled in Quilter plc
shares on the normal vesting dates.
Quilter Annual Report 2019
165
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
25: Share-based payments continued
25(b): Reconciliation of movements in options
The movement in options outstanding under the Performance Share Plans and Sharesave Plan arrangements during the year is detailed below:
Options over Shares (London Stock Exchange)
Outstanding at beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Cancelled during the year
Outstanding at end of the year
Exercisable at end of the year
Number of
options
2,468,964
23,632,437
(624,694)
(175,789)
(39,120)
(554,064)
24,707,734
Full year 2019
Weighted average
exercise price
£0.00
£0.73
£0.30
£0.00
£1.25
£1.25
Full year 2018
Number of
options
7,622,956
2,824,136
(2,252,333)
(5,578,539)
(5,967)
(141,289)
Weighted average
exercise price
£1.60
£0.00
£1.60
£1.60
£1.60
£1.60
£0.65
2,468,964
–
–
–
£0.00
–
The weighted average fair value of options at the measurement date, for options granted during the year ended 31 December 2019 is £0.73,
and for the year ended 31 December 2018 was £1.24.
The options outstanding at 31 December 2019 have exercise prices of £nil for both the Quilter plc Performance Share Plan and Charles Derby
Group Performance Share Plan, and £1.25 for the Quilter plc Sharesave Plan, with a weighted average remaining contractual life of 2.7 years.
At 31 December 2018 the exercise price was £nil, as they were all nil cost options, with a weighted average remaining contractual life of 2.2 years.
25(c): Measurements and assumptions
In determining the fair value of equity-settled share-based awards and the related charge to the income statement, the Group makes assumptions
about future events and market conditions. Specifically, management makes estimates of the likely number of shares that will vest and the fair
value of each award granted which is valued and ‘locked in’ at the grant date.
The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted.
The estimate of fair value of share options granted is measured using either a Black-Scholes option pricing model or a Monte Carlo simulation.
The inputs used in the measurement of fair values at the grant date for awards granted during 2019 were as follows:
Scheme
Quilter plc Performance Share Plan
– Share Options (Nil cost options)
Quilter plc Performance Share Plan
– Conditional Shares
Quilter plc Share Reward Plan
– Conditional Shares
Quilter plc Sharesave Plan
Charles Derby Group Performance share plan
Weighted
average
share
price
£
Weighted
average
exercise
price
£
Weighted
average
expected
volatility
Weighted
average
expected
life
(years)
Weighted
average
risk free
interest
rate
Weighted
average
expected
dividend
yield
Expected
forfeitures
per annum
1.39
0.00
29.3%
2.75
0.6%
0.0%
1.39
0.00
29.3%
3.00
0.6%
0.0%
1.39
1.42
0.00
1.25
29.3%
28.1%
2.04
3.65
0.6%
0.8%
0.0%
3.0%
4%
4%
4%
10%
– Share Options (Nil cost options)
1.39
0.00
29.3%
3.75
0.7%
0.0%
4%
166
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
25: Share-based payments continued
25(d): Share grants
The following summarises the fair value of Restricted Shares and Conditional Shares granted by the Group during the year:
Instruments granted during the year
Quilter plc Performance Share Plan – Conditional Shares
Quilter plc Share Reward Plan – Conditional Shares
Quilter plc Share Incentive Plan – Restricted Shares
Old Mutual Wealth Phantom Share Reward Plan – Conditional Shares
Full year 2019
Full year 2018
Number
granted
4,048,663
10,314,569
–
–
Weighted average
fair value
£1.39
£1.39
£0.00
£0.00
Number
granted
5,928,616
–
5,202,140
6,474,853
Weighted average
fair value
£1.41
–
£1.53
£1.52
25(e): Financial impact
The total expense recognised in the year arising from equity compensation plans was as follows:
Expense arising from equity-settled share and share option plans – continuing operations
Expense arising from equity-settled share and share option plans – discontinued operations
Total expense arising from equity-settled share and share option plans
Expense arising from cash-settled share and share option plans – continuing operations
Total expense arising from share and share option plans
Full year 2019
£m
25
1
Full year 2018
£m
24
3
26
–
26
27
3
30
26: Insurance and investment contract liabilities
The following table provides a summary of the Group’s insurance and investment contract liabilities and related reinsurance assets. Following the
sale of QLA (see note 5) the Group has no pure insurance contracts (unbundled elements of linked investment contracts are included within “unit
linked investment contracts and similar contracts”) and as a result the Group no longer has any insurance liabilities or related reinsurance assets.
31 December 2019
31 December 2018
Insurance contract liabilities
Life assurance policyholder liabilities
Outstanding claims
Insurance contract liabilities
Notes
26(a)
–
–
–
Investment contract liabilities
Total life assurance policyholder liabilities
26(c)
52,455
52,455
–
–
–
–
–
Gross
£m
Reinsurance
£m
Net
£m
Gross
£m
Reinsurance
£m
–
–
–
588
14
602
(478)
(13)
(491)
Net
£m
110
1
111
52,455
52,455
56,450
57,052
(1,671)
(2,162)
54,779
54,890
Quilter Annual Report 2019
167
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
26: Insurance and investment contract liabilities continued
26(a): Insurance contract liabilities
Movements in the amounts outstanding in respect of life assurance policyholder liabilities, other than outstanding claims, are set out below:
Carrying amount at 1 January
Impact of new business
Impact of experience effects1
Impact of assumption changes
Other movements
Movement shown in discontinued operations
income statement2
Disposal of subsidiaries
Life assurance policyholder liabilities
Note
5(c)
31 December 2019
31 December 2018
Gross
£m
588
4
36
91
–
131
(719)
–
Reinsurance
£m
(478)
(11)
(24)
(86)
–
(121)
599
–
Net
£m
110
(7)
12
5
–
10
(120)
–
Gross
£m
480
2
38
69
(1)
Reinsurance
£m
(375)
(10)
(26)
(68)
1
108
–
588
(103)
–
(478)
Net
£m
105
(8)
12
1
–
5
–
110
1Impact of experience effects includes the difference between the assumptions made and the actual experience during the period.
2The movement in gross insurance contract liabilities for 2019 of £131 million is a £134 million change in insurance contract liabilities and a £(3) million claim reported within gross premiums
in the discontinued operations income statement.
26(b): Assumptions – life assurance
The key assumptions considered are mortality/morbidity rates, maintenance expenses, interest rates, persistency rates and maintenance
expense inflation. These assumptions are based on market data and internal experience data. External data is also used where either no internal
experience data exists or where internal data is too sparse to give credible estimates of the true expectation of experience. Anticipated future
trends have been allowed for in deriving mortality and morbidity assumptions.
The liabilities for non-linked contracts have been calculated using a gross premium discounted cash flow approach on a policy by policy basis,
using the following assumptions. The Continuous Mortality Investigation (“CMI”), supported by the Institute and Faculty of Actuaries (“IFoA”),
provides mortality and sickness rate tables for UK life insurers and pension funds. The interest rate assumption is set with reference to a matching
portfolio of gilts.
Class of business
Non-linked protection business (pre 1 January 2013)1
excluding stand-alone critical illness policies
Non-linked protection business (post 31 December 2012)1
and all stand-alone critical illness policies
Pension annuity payment
Mortality/morbidity
Interest rates
2019
2018
2019
2018
Based on relevant CMI tables
0.993%
1.378%
Based on relevant CMI tables
100% PA92 (C2030) ult. projected
using the long-term cohort basis2
1.242%
1.724%
1.050%
1.420%
1On 1 January 2013, the discount rate was impacted by the Finance Act 2012 amendments to the life tax rules.
2PA92 (C2030) ult. is the CMI reference for the relevant Pension Annuity table.
For non-linked contracts (defined as insurance contracts under IFRS 4), the margin of prudence for the individual assumptions is generally taken as
the 60% confidence interval over a one year timeframe so that, broadly speaking, in 100 scenarios the reserves are expected to cover the liabilities
in 60 of those scenarios. Overall, the level of confidence is likely to be greater than 60% on the basis that these margins are applied to several
assumptions at the same time and prudence is applied to all future years.
The liability values did not make allowance for the amortisation of the DAC asset. A separate liability adequacy test was carried out on best
estimate assumptions allowing for all of the cash flows used to derive the liability values and the run off of the DAC.
168
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
26: Insurance and investment contract liabilities continued
26(b): Assumptions – life assurance continued
Impact of assumption changes
Assumptions are reviewed annually and updated as appropriate. The impact of the assumption changes on the Group’s annual IFRS profit before
tax are as follows:
2019
Assumption
Mortality/morbidity rates
Maintenance expense inflation
Interest rates
Methodology changes
Persistency rates
Total
2018
Assumption
Mortality/morbidity rates
Maintenance expense
Interest rates
Persistency rates
Total
Impact on
IFRS profit
before tax
(before
reinsurance)
£m
Impact on
IFRS profit
before tax
(after
reinsurance)
£m
Impact of
reinsurance
£m
5
1
(104)
8
(1)
(91)
(5)
–
90
–
1
86
–
1
(14)
8
–
(5)
Impact on
IFRS profit
before tax
(before
reinsurance)
£m
Impact on
IFRS profit
before tax
(after
reinsurance)
£m
Impact of
reinsurance
£m
(86)
2
21
(6)
(69)
81
–
(18)
5
68
(5)
2
3
(1)
(1)
The sensitivity of IFRS profit before tax to variations in key assumptions are shown below. The values for 2018 have been determined by varying
the relevant assumption as at the reporting date and considering the consequential impact assuming other assumptions remain unchanged.
Sensitivities have not been included for 2019 due to the disposal of QLA.
(Decrease)/Increase in IFRS profit before tax
Mortality/morbidity rates
Maintenance expenses
Persistency rates
+10%
£m
(3.3)
(2.2)
2.6
2018
-10%
£m
3.4
2.2
(2.8)
Quilter Annual Report 2019
169
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
26: Insurance and investment contract liabilities continued
26(c): Investment contract liabilities
Movements in the amounts outstanding in respect of unit-linked and other investment contracts are set out below:
Carrying amount at 1 January
From continuing operations
Fair value movements
Investment income
Movements arising from investment return
From discontinued operations
Fair value movements
Investment income1
Movements arising from investment return
Contributions received1
Maturities
Withdrawals and surrenders
Claims and benefits
Other movements
Change in liability
Currency translation (gain)/loss
Disposal of subsidiaries
Investment contract liabilities
31 December 2019
31 December 2018
Gross
£m
56,450
Reinsurance
£m
(1,671)
Net
£m
54,779
Gross
£m
59,139
Reinsurance
£m
(2,525)
Net
£m
56,614
5,091
719
5,810
1,427
142
1,569
5,718
(166)
(7,419)
(205)
2
5,309
(121)
(9,183)
–
–
–
(205)
–
(205)
1,148
–
–
–
(1)
942
–
729
5,091
719
5,810
1,222
142
1,364
6,866
(166)
(7,419)
(205)
1
6,251
(121)
(8,454)
(3,109)
610
(2,499)
(1,010)
160
(850)
7,152
(183)
(6,091)
(234)
(2)
(2,707)
18
–
–
–
–
78
–
78
774
–
–
–
2
854
–
–
(3,109)
610
(2,499)
(932)
160
(772)
7,926
(183)
(6,091)
(234)
–
(1,853)
18
–
52,455
–
52,455
56,450
(1,671)
54,779
1In the year ended 31 December 2018, within discontinued operations, the Group has reclassified £35 million from Investment income to Contributions received to conform with current
year presentation.
For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit.
The benefits offered under the unit-linked investment contracts are based on the risk appetite of policyholders and the return on their selected
investments and collective fund investments, whose underlying investments include equities, debt securities, property and derivatives. This
investment mix is unique to individual policyholders.
The maturity value of these financial liabilities is determined by the fair value of the linked assets at maturity date. There will be no difference
between the carrying amount and the maturity amount at maturity date.
The reinsurers’ share of policyholder liabilities relating to investment contract liabilities has reduced to £nil (2018: £1,671 million) due to the disposal
of QLA. Reinsurance contributions received of £1,148 million are disclosed net of withdrawals, reflecting the total of payments made to and
settlements received from the reinsurer. The underlying movements in the investment funds to which the reinsurance arrangements relate
indicate contributions received of £(219) million (2018: £(202) million) and withdrawals of £1,367 million (2018: £976 million). In the prior year the
reinsurers’ share of policyholder liabilities were rated according to the credit ratings in note 36.
26(d): Methodology and assumptions – investment contracts
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.
170
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
27: Provisions
31 December 2019
Balance at beginning of the year
Adjustment on initial application of IFRS 16
Additions from business combinations
Charge to income statement1
Utilised during the year
Unused amounts reversed
Reclassification within Statement of Financial Position
Disposals
Balance at 31 December 2019
31 December 2018
Balance at beginning of the year
Additions from business combinations
Charge to income statement1
Utilised during the year
Unused amounts reversed
Reclassification within Statement of Financial Position
Balance at 31 December 2018
Sale of
QLA
£m
–
–
–
6
–
–
–
–
6
Compensation
provisions
£m
54
–
14
9
(19)
(13)
(3)
(11)
Sale of Single
Strategy
business
£m
20
–
–
1
(11)
–
–
–
31
10
Compensation
provisions
£m
82
–
11
(31)
(4)
(4)
Sale of Single
Strategy
business
£m
–
–
25
(5)
–
–
54
20
Other
£m
20
(5)
1
7
(1)
(4)
–
(1)
17
Other
£m
22
1
3
(5)
(1)
–
20
Total
£m
94
(5)
15
23
(31)
(17)
(3)
(12)
64
Total
£m
104
1
39
(41)
(5)
(4)
94
1Part of the charge to income statement in both 2019 and 2018 is included within the discontinued operations income statement.
Provisions arising on the disposal of Quilter Life Assurance
The QLA business was sold on 31 December 2019 (see note 5), resulting in a number of provisions totalling £6 million being established in respect
of the costs of disposing the business and the related costs of business separation.
The costs of business separation arise from the process to separate QLA’s infrastructure, which is complex and covers a wide range of areas
including people, IT systems, data, contracts and facilities. A programme team has been established to ensure the transition of these areas to the
acquirer. These provisions have been based on external quotations and estimations, and estimates of the time required for incremental resource
costs to achieve the separation.
The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. Work will take place during 2020
and 2021. Calculation of the provision is 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 have made use of their past experience of previous IT migrations following business disposals. Management estimate
a provision sensitivity of +/-25% (£1.5 million).
Of the total £6 million provision, £2 million is estimated to be payable after one year.
Compensation provisions
Compensation provisions total £31 million (31 December 2018: £54 million), and are comprised of the following:
QLA Voluntary client remediation provision of £nil (31 December 2018: £38 million)
This provision was established within the QLA business and has therefore formed part of the Group’s discontinued operations, which were
subsequently disposed of on 31 December 2019.
During 2017, as part of its ongoing work to promote fair customer outcomes, the Group conducted product reviews consistent with the
recommendations from the FCA’s thematic feedback and the FCA’s guidance FG16/8 Fair treatment of long-standing customers in the life
insurance sector. Following these reviews, the Group decided to commence voluntary remediation to customers with certain legacy products,
establishing a provision for £69 million. The redress relates to early encashment charges and contribution servicing charges made on pension
products and, following the re-introduction of annual reviews, compensation payable to a subset of protection plan holders.
During 2018, £27 million was utilised against programme costs and pension remediation incurred. In addition £4 million was reclassified to
“investment contract liabilities”, reflecting the capping of early encashment charges on live pension plans. At the end of 2018 there was £38 million
of the provision remaining, including £6 million of programme costs.
Quilter Annual Report 2019
171
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
27: Provisions continued
During 2019, the components of the remaining provision were reviewed as refinements in supporting data emerged together with improvements
in estimation methodology and modelling, resulting in a £10 million release. A further £14 million (31 December 2018: £27 million) was utilised
during the year, with £3 million reclassified as “Trade, other payables and other liabilities”. The remaining £11 million provision prior to the sale of
QLA was transferred to the acquirer on 31 December 2019.
Lighthouse pension transfer advice complaints of £12 million (31 December 2018: £nil)
A provision was established within the fair value of the Lighthouse assets and liabilities acquired. The provision relates to approximately 30
complaints received on advice provided by Lighthouse in respect of pension transfers for British Steel pension scheme members, prior to the
Group’s acquisition of Lighthouse in June 2019. All the complaints received relate to transfers before that date.
The Group has performed a detailed case file review of a sample of 5 of the complaints, as a sample representative of the overall population. The
loss per client as a proportion of the transfer value of the pension was determined and extrapolated to the overall complaint population. The
methodology employed to assess the probable redress payable uses assumptions and estimation techniques which are consistent with principles
under the FCA’s FG17/9 “Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers”. A provision of £9 million has
been calculated for the potential redress of all complaints received to date. The final costs of redress for complaints upheld will depend on specific
calculations on a case-by-case basis and therefore may vary from the currently provided amounts. Further details are provided in note 34.
An additional provision for £3 million has been established in respect of the cost of legal and professional fees related to the complaints and
redress process, which includes the anticipated costs to review advice provided of a similar nature in relation to cases that management believe
may have similar characteristics.
No reduction in the provision has been recognised at the reporting date in relation to recoverability of any redress or other costs under
Lighthouse’s professional indemnity insurance policy.
Compensation provisions (other) of £19 million (31 December 2018: £16 million)
Other compensation provisions of £19 million are all held within the Group’s continuing operations and include amounts relating to the cost of
correcting deficiencies in policy administration systems, including restatements and clawbacks, any associated litigation costs and the related
costs to compensate previous or existing policyholders. This provision represents management’s best estimate of expected outcomes based
upon previous experience. Due to the nature of the provision, the timing of the expected cash outflows is uncertain. Estimates are reviewed
annually and adjusted as appropriate for new circumstances. Management estimate a provision sensitivity of +/-25% (£5 million).
Sale of Single Strategy Asset Management business provision
In 2018, a restructuring provision was recognised as a result of the sale of the Single Strategy Asset Management business to enable the remaining
Quilter Investors business to function as a standalone operation going forward. The provision includes those costs directly related to replacing and
restoring the operational capability that previously underpinned and supported both parts of the asset management business. Key parts of this
capability had either been disposed of or disrupted as a consequence of the sale. The provision established for restructuring was £19 million, of
which £5 million was utilised during 2018. In 2019, a further £11 million of the restructuring provision was utilised and therefore £3 million of the
provision remains at year end 31 December 2019. Management estimate a provision sensitivity of +/-20% (£0.6 million).
Additional provisions totalling £6 million were also made in the year ended 31 December 2018 as a consequence of the sale of the Single Strategy
Asset Management business. These were in relation to various sale related future commitments, the outcome of which was uncertain at the time
of the sale and the most significant of which is in relation to the guarantee of revenues in future years. A further £1 million was added to the
provision during 2019, bringing the closing balance to £7 million at 31 December 2019.
The provision takes into account sensitivities including potential scenarios which would result in a reduction in Group assets under management
held in Merian (Single Strategy Asset Management business) funds, leading to a reduction in the management fees paid to Merian. The maximum
potential exposure is £29 million, arising between 2020 and 2022.
Of the total £10 million provision outstanding, £3 million (2018: £6 million) is estimated to be payable after one year.
Other provisions
Other provisions include amounts for the resolution of legal uncertainties and the settlement of other claims raised by contracting parties,
property dilapidation provisions (up to the end of 31 December 2018) and indemnity commission provisions. Where material, provisions and
accruals are discounted at discount rates specific to the risks inherent in the liability. The timing and final amounts of payments in respect of
some of the provisions, particularly those in respect of litigation claims and similar actions against the Group, are uncertain and could result in
adjustments to the amounts recorded. During 2019, provisions related to dilapidations were removed as part of the establishment of right-of-use
assets and lease liabilities under IFRS 16 Leases. Management estimate a provision sensitivity of +/-20% (£3 million).
The total £17 million provision outstanding is all estimated to be payable within one year (2018: £6 million).
172
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
28: Tax assets and liabilities
Deferred income taxes are calculated on all temporary differences at the tax rate applicable to the jurisdiction in which the timing differences arise.
Deferred tax summary
Deferred tax assets
Deferred tax liabilities
Net deferred tax liability
31 December
2019
£m
43
88
31 December
2018
£m
38
59
45
21
28(a): Deferred tax assets
Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable, being
where, on the basis of all available evidence, it is considered more likely than not that there will be suitable taxable profits against which the reversal
of the deferred tax asset can be deducted.
The movement on recognised deferred tax assets is as follows:
Year ended 31 December 2019
Tax losses carried forward
Accelerated depreciation
Other temporary differences
Share-based payments
Contract liabilities
Deferred expenses
Netted against liabilities
Deferred tax assets at 31 December 2019
At
beginning
of the year
£m
19
13
4
4
2
35
(39)
38
Income
statement
(charge)/
credit1
£m
(1)
6
(3)
4
(1)
(15)
12
2
Charged
to equity
£m
–
–
2
–
–
–
–
2
Acquisition/
disposal of
subsidiaries
£m
1
–
–
–
(1)
(13)
14
1
At end
of the
year
£m
19
19
3
8
–
7
(13)
43
The credit to the income statement of £6 million in 2019 in respect of accelerated depreciation includes a credit of £7 million relating to a change
in deferred tax asset recognition, as explained in note 10(a). Had this been in place in the prior year, the equivalent adjustment in 2018 would have
been a £9 million deferred tax credit, with a corresponding £2 million charge in the current year. Further detail is shown in note 10(a).
Year ended 31 December 2018
Tax losses carried forward
Accelerated depreciation
Other temporary differences
Share-based payments
Contract liabilities
Deferred expenses
Netted against liabilities
Deferred tax assets at 31 December 2018
At
beginning
of the year
£m
6
17
4
2
3
24
(34)
22
Income
statement
(charge)/
credit1
£m
13
(4)
–
2
(1)
11
(5)
16
Charged
to equity
£m
–
–
–
–
–
–
–
–
Acquisition/
disposal of
subsidiaries
£m
–
–
–
–
–
–
–
–
At end
of the
year
£m
19
13
4
4
2
35
(39)
38
1The income statement credit of £2 million in year ended 31 December 2019 (2018: £16 million) relates to continuing operations only.
The recognition of deferred tax assets is subject to the estimation of future taxable profits, which is based on the annual business planning process
and in particular on estimated levels of assets under management, which are subject to a large number of factors including worldwide stock market
movements and related movements in foreign exchange rates, together with estimates of net client cash flow, expenses and other charges.
The business plan, adjusted for known and estimated tax sensitivities, is used to determine the extent to which deferred tax assets are recognised.
In general the Group assesses recoverability based on estimated taxable profits over a three-year planning horizon. Where credible longer-term
profit forecasts are available (e.g. for the life insurance companies) the specific entity may assess recoverability over a longer period, subject to a
higher level of sensitivity testing.
Quilter Annual Report 2019
173
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
28: Tax assets and liabilities continued
28(a): Deferred tax assets continued
Sensitivity analysis demonstrates significant headroom in the recoverable amount of the deferred tax asset over the taxable profits contained
within the three-year planning horizon. The impact of a 20% decrease in profitability over that period has been assessed and would not result in
any impact over recoverability of deferred tax assets.
Unrecognised deferred tax assets
The amounts for which no deferred tax asset has been recognised comprises:
Expiring in less than a year
Expiring between one and five years
Expiring after five years
Unrelieved tax losses
Accelerated depreciation
Other timing differences
Total unrecognised deferred tax assets
31 December 2019
31 December 2018
Gross
amount
£m
–
–
472
472
28
7
507
Tax
£m
–
–
80
80
5
2
87
Gross
amount
£m
–
–
663
663
93
285
1,041
Tax
£m
–
–
112
112
16
49
177
Movements in unrecognised deferred tax assets
The value of unrecognised deferred tax assets decreased by £90 million during the year mainly as a result of the sale of QLA and the adoption of
IFRIC 23, in respect of uncertain tax positions, from 1 January 2019.
28(b): Deferred tax liabilities
The movement on deferred tax liabilities is as follows:
Year ended 31 December 2019
Deferred acquisition costs
Other acquired intangibles
Other temporary differences
Investment gains
Netted against assets
Deferred tax liabilities at 31 December 2019
Year ended 31 December 2018
Deferred acquisition costs
Other acquired intangibles
Other temporary differences
Investment gains
Netted against assets
Deferred tax liabilities at 31 December 2018
At
beginning
of the year
£m
11
40
1
46
(39)
59
At
beginning
of the year
£m
15
41
1
167
(34)
190
Income
statement
(credit)/
charge1
£m
(3)
(8)
(1)
92
12
92
Income
statement
(credit)/
charge1
£m
(4)
(8)
–
(121)
(5)
(138)
Acquisition/
disposal of
subsidiaries
£m
(8)
7
–
(76)
14
(63)
Acquisition/
disposal of
subsidiaries
£m
–
7
–
–
–
7
At end
of the
year
£m
–
39
–
62
(13)
88
At end
of the
year
£m
11
40
1
46
(39)
59
1In the year ended 31 December 2019, of the £92 million income statement charge, £41 million relates to continuing operations and £51 million to discontinued operations. In the year ended
2018, of the £(138) million income statement credit, £(52) million relates to continuing operations and £(86) million relates to discontinued operations.
28(c): Current tax receivables and payables
Current tax receivables and current tax payables at 31 December 2019 were £13 million (2018: £47 million) and £6 million (2018: £5 million), respectively.
174
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
29: Borrowings and lease liabilities
The following table analyses the Group’s borrowings and lease liabilities:
Subordinated debt: fixed rate loan at 4.478%
Lease liabilities
Total borrowings and lease liabilities
31 December
2019
£m
198
137
31 December
2018
£m
197
–
335
197
29(a): Borrowings
Borrowed funds are repayable on demand and categorised in terms of IFRS 9 Financial Instruments as “Financial liabilities at amortised cost”. The
carrying value of the Group’s borrowings is considered to be materially inline with the fair value. All amounts outstanding at 31 December 2019 are
payable to a number of relationship banks.
On 28 February 2018, the Group issued a £200 million subordinated debt security in the form of a 10-year Tier 2 bond with a one-time issuer call
option after five years to J.P. Morgan Securities plc, paying a semi-annual coupon of 4.478% (the “Tier 2 Bond”). The bond was remarketed and sold
to the secondary market in full on 13 April 2018. It is now listed and regulated under the terms of the London Stock Exchange. The loan matures
in 2028 with the option to redeem in 2023.
In addition, the Group entered into a £125 million revolving credit facility which remains undrawn and is being held for contingent funding purposes.
29(b): Lease liabilities
The Group adopted IFRS 16 Leases for the first time in 2019 and this replaces IAS 17 Leases and IFRIC 4 Determining whether an Arrangement Contains
a Lease. Further information on IFRS 16 can be found in notes 2 and 4.
The Group has entered into commercial non-cancellable leases on certain property, plant and equipment where it is not in the best interest of the
Group to purchase these assets. Such leases have varying terms, escalation clauses and renewal rights.
Lease liabilities represent the obligation to pay lease rentals as required by IFRS 16, and are categorised as financial liabilities at amortised cost.
Opening balance at 1 January
Implementation of IFRS 16
Acquisitions through business combinations
Additions1
Interest charge for the year
Payment for interest portion of lease liability
Payment for principal portion of lease liability
Closing balance at 31 December
To be settled within 12 months
To be settled after 12 months
Total lease liabilities
Maturity analysis2
Within one year
One to five years
More than five years
Total lease liabilities – undiscounted
1The majority of additions during the year relate to the lease for Senator House, the Group’s new London property.
2The maturity analysis of lease liabilities is on an undiscounted basis.
31 December
2019
£m
–
89
1
60
3
(3)
(13)
137
13
124
137
15
50
99
164
Quilter Annual Report 2019
175
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
29: Borrowings and lease liabilities continued
29(b): Lease liabilities continued
Operating lease commitments prior to the implementation of IFRS 16
Prior to 1 January 2019, all Group leases were classified as operating leases, being leases where the lessor retains substantially all the risks and
rewards of the ownership of the leased asset.
The future aggregate minimum lease payments under non-cancellable operating leases prior to the implementation of IFRS 16 were:
Within one year
One to five years
More than five years
Total outstanding commitments under non-cancellable operating leases
30: Trade, other payables and other liabilities
Claims outstanding
Amounts owed to intermediaries
Amounts payable on direct insurance business
Deposits received from reinsurers
Accounts payable on reinsurance business
Outstanding settlements
Accruals and deferred income
Trade creditors
Contingent consideration
Other liabilities
Total trade, other payables and other liabilities
To be settled within 12 months
To be settled after 12 months
Total trade, other payables and other liabilities
31 December
2018
£m
15
40
43
98
31 December
2018
£m
226
22
248
16
8
386
147
33
37
124
999
981
18
999
31 December
2019
£m
182
11
193
16
1
270
160
41
39
116
836
832
4
836
176
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
31: Contract liabilities and deferred revenue
Prior to the implementation of IFRS 15 Revenues from Contracts with Customers on 1 January 2018, contract liabilities were classified as deferred
revenue. Contract liabilities relate to non-refundable front-end fee income, comprising fees received at inception or receivable over an initial period
for services not yet provided, and is deferred through the creation of a contract liability on the statement of financial position and released to
income as the services are provided. Equal service provision is assumed over the lifetime of the contract and, as such, the contract liability is
amortised on a linear basis over the expected life of the contract, adjusted for expected persistency. The contract liability principally comprises
fee income already received in cash. The table below analyses the movements in contract liabilities.
1 January 2018
Reclassification to contract liabilities1
Fees and commission income deferred
Amortisation
Foreign exchange
Continuing operations movements
Discontinued operations movements
31 December 2018
Fees and commission income deferred
Amortisation
Foreign exchange
Continuing operations movement
Discontinued operations movement
Disposal of subsidiaries
31 December 2019
1Reclassified as a result of IFRS 15 at 1 January 2018.
Life and Savings
Asset Management
Deferred
Revenue
£m
242
(242)
–
–
–
–
–
–
–
–
–
–
–
–
–
Contract
Liabilities
£m
–
242
10
(12)
(4)
(6)
(11)
225
8
(12)
1
(3)
(8)
(23)
191
Deferred
Revenue
£m
2
(2)
–
–
–
Contract
Liabilities
£m
–
2
–
(1)
–
–
–
–
–
–
–
–
–
–
–
(1)
–
1
–
(1)
–
(1)
–
–
–
Total
£m
244
–
10
(13)
(4)
(7)
(11)
226
8
(13)
1
(4)
(8)
(23)
191
The Group expects to recognise the above contract liability balances as revenue in the following years:
Within one year
One to five years
More than five years
Total contract liabilities
31 December
2019
£m
31 December
2018
£m
25
68
98
191
27
78
121
226
Quilter Annual Report 2019
177
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
32: Post-employment benefits
The Group operates a number of defined contribution and defined benefit pension schemes in the UK, the Channel Islands and Ireland.
Defined contribution pension schemes
The Group operates a number of defined contribution schemes. The schemes require contributions to be made to funds held in trust, separate
from the assets of the Group. Participants receive either a monthly pension supplement to their salaries or contributions to personal pension
plans. For the defined contribution schemes, the Group pays contributions to separately administered pension schemes. The Group has no
further payment obligations once the contributions have been paid. The contributions are recognised in current service cost in the consolidated
income statement as staff costs and other employee-related costs when they are due.
Defined benefit schemes
The Group operates two defined benefit schemes: The Quilter Cheviot Limited Retirement Benefits Scheme and the Quilter Cheviot Channel
Islands Retirement Benefits Scheme which are both closed to new members. The assets of these schemes are held in separate trustee
administered funds. Pension costs and contributions relating to defined benefit schemes are assessed in accordance with the advice of qualified
actuaries. Actuarial advice confirms that the current level of contributions payable to each pension scheme, together with existing assets, are
adequate to secure members’ benefits over the remaining service lives of participating employees. The Group’s policy is to fund at least the
amounts sufficient to meet minimum funding requirements under applicable employee benefit and tax regulations. The schemes are reviewed
at least on a triennial basis or in accordance with local practice and regulations. In the intervening years the actuary reviews the continuing
appropriateness of the assumptions applied.
The Trustees of the Quilter Cheviot Limited Retirement Benefits scheme purchased a bulk annuity from Aviva in July 2019 to de-risk the defined
benefit pension scheme obligation. This investment strategy intends to equally match the assets and liabilities of the scheme. This covers all
remaining insured scheme benefits following previous bulk annuity transactions in 2013, 2014 and 2015. The Group agreed to inject a capital
contribution of £7 million to effect this transaction.
The Group took the decision to fund the buy-in based on the following considerations:
• a buy-in will remove volatility of the scheme from the balance sheet of the Group, and no further contributions would be expected. The Group
has made discretionary contributions each of the last four years to the Scheme, which total £2 million since December 2015;
• the buy-in will transfer the pension risks associated with the scheme to a third-party insurer. The only remaining risk will be the counterparty risk
of insurer;
• there will be a substantially reduced requirement for the Group to hold capital in respect of pensions risk; and
• there will be a reduction in the required management time and running costs in respect of the scheme.
At the time of the bulk annuity purchase in July 2019, the difference between the annuity purchase price and the defined benefit obligation covered
by the policy was accounted for in other comprehensive income. The accounting treatment is based on the following considerations made by the
Group:
• the employer is not relieved of primary responsibility for the obligation. The policy simply covers the benefit payments that continue to be
payable by the Scheme;
• the contract is effectively an investment of the Scheme; and
• the contract provides the option to convert the bulk annuity into individual policies which would transfer the obligation to the insurer (known as
a “buy-out”). Whilst this course of action may be considered in future, this is not a requirement and a separate decision will be required before
any buy-out proceeds. There are currently no plans either by management or Trustees to convert the buy-in contract to individual policies.
The Group has considered the requirements of IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their
Interaction, including whether the Group has an ‘unconditional right’ to a refund of any surplus that may exist at the conclusion of the schemes.
This includes a scenario where the schemes’ liabilities are gradually settled over time until all members have left the schemes (i.e. on the death of
the last beneficiary), along with all other potential outcomes for the schemes. The Group has concluded that it does not have an unconditional
right to a refund of any surplus that may exist under these circumstances, and in accordance with IFRIC 14 has not recognised the current surplus
as an asset within the statement of financial position. In addition, the Group has concluded that there are no minimum funding requirements of
the schemes and, as such, no liability has been recognised.
IAS 19 Employee Benefits disclosures
This note gives full IAS 19 Employee Benefits disclosures for the above schemes.
178
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
32: Post-employment benefits continued
32(a): Liability for defined benefit obligations
The IAS 19 value of the assets and the scheme obligations are as follows:
Changes in retirement benefit obligations
Total IAS 19 retirement benefit obligation at 1 January
Interest cost on benefit obligation
Effect of changes in actuarial assumptions
Actuarial (losses)/gains
Benefits paid
Total IAS 19 retirement benefit obligations at year end
Change in plan assets
Total IAS 19 fair value of scheme assets at 1 January
Actual return on plan assets
Company contributions
Benefits paid
Total IAS 19 fair value of scheme assets at year end
Net IAS 19 asset recognised in statement of financial position
Funded status of plan
Unrecognised assets
Net IAS 19 amount recognised in statement of financial position
31 December
2019
£m
31 December
2018
£m
(44)
(1)
(2)
(6)
15
(38)
56
(8)
6
(15)
39
1
(1)
–
(48)
(1)
1
1
3
(44)
61
(3)
1
(3)
56
12
(12)
–
Contributions for the year to the defined benefit schemes totalled £6 million (2018: £1 million), and £1 million was accrued at 31 December 2019.
The Group expects to contribute £1 million in the next financial year, based upon the current funded status and the expected return assumption
for the next financial year.
Changes in the asset ceiling
Opening unrecognised asset due to asset ceiling
Changes in asset ceiling
Closing unrecognised asset due to the asset ceiling
31 December
2019
£m
31 December
2018
£m
12
(11)
1
13
(1)
12
32(b): Income/expense recognised in the income statement
The total pension charge to staff costs for all of the Group’s defined benefit schemes for the year ended 2019 was £nil (2018: £nil).
Actuarial gains and losses and the effect of the limit to the pension asset under IAS 19 Employee Benefits paragraph 58 have been reported in
other comprehensive income.
The cumulative amount of actuarial losses recognised in other comprehensive income is £33 million (2018: £26 million).
Assumptions
The expected long-term rate of return on assets represents the Group’s best estimate of the long-term return on the scheme assets and generally
was estimated by computing a weighted average return of the underlying long-term expected returns on the different asset classes, based on the
target asset allocations. The expected long-term return on assets is a long-term assumption that generally is expected to remain the same from
one year to the next unless there is a significant change in the target asset allocation, the fees and expenses paid by the plan or market conditions.
The Group, in consultation with its independent investment consultants and actuaries, determined the asset allocation targets based on its
assessment of business and financial conditions, demographic and actuarial data, funding characteristics and related risk factors. Other relevant
factors, including industry practices, long-term historical and prospective capital market returns, were also considered.
The scheme return objectives provide long-term measures for monitoring the investment performance against growth in the pension obligations.
The overall allocation is expected to help protect the plan’s funded status while generating sufficiently stable real returns (net of inflation) to help
cover current and future benefit payments.
Quilter Annual Report 2019
179
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
32: Post-employment benefits continued
32(b): Income/expense recognised in the income statement continued
Both the equity and fixed income portions of the asset allocation use a combination of active and passive investment strategies and different
investment styles. The fixed income asset allocation consists of longer duration fixed income securities in order to help reduce plan exposure to
interest rate variation and to better correlate assets with obligations. The longer duration fixed income allocation is expected to help stabilise plan
contributions over the long run.
The weighted average duration of the defined benefit obligation is 19 years, based upon actual cash flows.
The following table presents the principal actuarial assumptions at the end of the reporting year:
Discount rate
Rate of increase in defined benefit funds
Inflation
The mortality assumptions used give the following life expectancy at 65:
2019
%
2.1
3.5
2.8
2018
%
2.9
3.6
3.3
31 December 2019
31 December 2018
Life expectancy at 65 for
male member currently
Life expectancy at 65 for
female member currently
Mortality table
S2PA Light
S2PA Light
Aged 65
23.40
23.30
Aged 45
25.40
24.90
Aged 65
24.40
24.30
Aged 45
26.70
26.10
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, inflation rate and rate of mortality.
The sensitivities regarding the principal assumptions used to measure the defined benefit obligations are described below. Reasonably possible
changes at the reporting date to one of the principal actuarial assumptions, holding other assumptions constant, would have affected the defined
benefit obligation as follows:
Discount rate (0.1% movement)
Inflation rate (0.1% movement)
Rate of mortality (increase by 1 year)
At 31 December 2019
At 31 December 2018
Increase
£m
(0.7)
0.3
1.6
Decrease
£m
0.7
(0.3)
–
Increase
£m
(0.8)
0.4
1.5
Decrease
£m
0.8
(0.4)
–
32(c): Scheme assets allocation
Scheme assets are stated at their fair values. Total scheme assets are comprised as follows:
Equity securities
Debt securities
Cash and other assets
Total IAS 19 fair value of scheme assets
At 31 December
2019
%
4
94
2
At 31 December
2018
%
21
77
2
At 31 December
2019
£m
2
36
1
At 31 December
2018
£m
12
43
1
100
100
39
56
Equity instruments, debt instruments and investment fund assets have a quoted market price. All other assets, including the value of the bulk
annuity policy, do not have a quoted market price. The bulk annuity policy, where assets are matched to the value of liabilities, is included at values
provided by the insurer in accordance with relevant guidelines.
180
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
33: Master netting or similar agreements
The Group offsets financial assets and liabilities in the statement of financial position when it has a legal enforceable right to do so and intends
to settle on a net basis simultaneously. Currently, the only such offsetting within the Group relates to the pooling of bank accounts and, in some
circumstances a bank account may be overdrawn and therefore offset. The following tables present information on the potential effect of netting
offset arrangements after taking into consideration these types of agreements.
31 December 2019
Financial assets
Cash and cash equivalents
Financial liabilities
Trade, other payables and other liabilities
31 December 2018
Financial assets
Cash and cash equivalents
Financial liabilities
Trade, other payables and other liabilities
Amounts
offset in the
statement of
financial
position
£m
Net amounts
reported in
the statement
of financial
position
£m
(78)
(78)
2,473
–
Amounts
offset in the
statement of
financial
position
£m
Net amounts
reported in
the statement
of financial
position
£m
(24)
(24)
2,395
–
Gross
amounts
£m
2,551
78
Gross
amounts
£m
2,419
24
34: Contingent liabilities
The Group, in the ordinary course of business, enters into transactions that expose it to tax, legal and business risks. The Group recognises a
provision when it has a present obligation as a result of past events, it is probable that a transfer of economic benefits will be required to settle the
obligation and a reliable estimate of the amount can be made (see note 27). Possible obligations and known liabilities where no reliable estimate
can be made or it is considered improbable that an outflow would result are reported as contingent liabilities in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
Tax
The Revenue authorities in the principal jurisdictions in which the Group operates routinely review historical transactions undertaken and tax law
interpretations made by the Group. The Group is committed to conducting its tax affairs in accordance with the tax legislation of the jurisdictions
in which they operate. All interpretations made by management are made with reference to the specific facts and circumstances of the transaction
and the relevant legislation.
There are occasions where the Group’s interpretation of tax law may be challenged by the Revenue authorities. The financial statements include
provisions that reflect the Group’s assessment of liabilities which might reasonably be expected to materialise as part of their review. The Board is
satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the resources required to fund such
potential settlements are sufficient.
Due to the level of estimation required in determining tax provisions, amounts eventually payable may differ from the provision recognised.
Complaints and disputes
The Group is committed to treating customers fairly and supporting its customers in meeting their lifetime goals. The Group does from time to
time receive complaints and claims, and enters into commercial disputes with service providers, in the normal course of business. The costs,
including legal costs, of these issues as they arise can be significant and, where appropriate, provisions have been established under IAS 37.
Contingent liabilities – acquisitions and disposals
The Group routinely monitors and assesses contingent liabilities arising from matters such as litigation, warranties and indemnities relating to
past acquisitions and disposals.
Prior to the Group’s acquisition of Lighthouse in June 2019, Lighthouse provided pension transfer advice to around 300 British Steel pension
scheme members between 2016 and 2018. The Group was advised after the reporting date of a number of complaints on the advice given by
Lighthouse. The Group has initiated a review of all cases advised by Lighthouse, prior to its acquisition by Quilter in June 2019, to assess the
standard of advice given to British Steel pension scheme members.
Quilter Annual Report 2019
181
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
34: Contingent liabilities continued
For the cases where a complaint has been received on the advice given by Lighthouse, the likelihood of redress is probable. An estimate of the
amount of redress payable has been made and is included within Provisions in note 27. For the remaining cases, it is possible that further costs
of redress may be incurred following the outcome of the reviews. Of the pension transfers Lighthouse advised on between 2016 and 2018,
approximately 80 cases were undertaken prior to mid-2017 after which the British Steel pension scheme was restructured and transfer values
were enhanced considerably.
As the advice was provided before the Group’s acquisition of Lighthouse, any further redress costs will be recognised as a pre-acquisition liability
within the fair value of the net assets acquired (as disclosed in note 5), with a corresponding increase in the goodwill recognised. Any adjustments
to the acquisition balance sheet must be finalised within 12 months after the acquisition, in June 2020.
35: Commitments
The Group has contractual commitments in respect of funding arrangements which will be payable in future periods. These commitments are not
recognised in the Group’s statement of financial position.
Prior to the adoption of IFRS 16 Leases on 1 January 2019, lease commitments were not recognised on the Group’s statement of financial position.
Since adoption, lease liabilities represent the obligation to pay lease rentals as required by IFRS 16, and are categorised as financial liabilities in the
statement of financial position (see note 29(b)).
36: Capital and financial risk management
36(a): Capital management
The Group manages its capital with a focus on capital efficiency and effective risk management. The capital 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 and strategic initiatives and regulatory
requirements in all businesses in the Group. 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 £2,071 million (31 December 2018: £2,005 million) and
subordinated debt which was issued at £200 million in February 2018. 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.
36(a)(i): Regulatory capital (unaudited)
The Group is subject to Solvency II group supervision by the PRA. The Group is required to measure and monitor its capital resources under the
Solvency II regulatory regime.
The Group’s insurance undertakings are 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 (the Solvency Capital Requirement or “SCR”).
The Group’s Solvency II surplus is £1,168 million at 31 December 2019 (2018: £1,059 million), representing a Solvency II ratio of 221% (2018: 190%)
calculated under the standard formula. The Solvency II regulatory position for the year ended 31 December 2019 allows for the impact of the
recommended final dividend payment of £65 million (2018: £61 million). The disclosure does not include the impact of any future distribution of the
net surplus proceeds from the QLA sale to shareholders or the impact of the odd-lot offer.
The Solvency II estimated results for year ended 31 December 2019 (unaudited) and 31 December 2018 were as follows:
Own funds
Solvency capital requirement (SCR)
Solvency II surplus
Solvency II coverage ratio
1Based on preliminary estimates. Formal annual filing due to the PRA by 19 May 2020.
2As represented within the Quilter plc Group Solvency and Financial Condition report for the year ended 31 December 2018.
182
Quilter Annual Report 2019
Year ended
31 December
20191
£m
2,132
964
1,168
221%
Year ended
31 December
20182
£m
2,237
1,178
1,059
190%
Financial statements
Notes to the consolidated
financial statements
36: Capital and financial risk management continued
36(a): Capital management continued
36(a)(i): Regulatory capital (unaudited) continued
The Group own funds include the Quilter plc issued subordinated debt security which qualifies as capital under Solvency II. The composition of
own funds by tier is presented in the table below.
Group own funds
Tier 11
Tier 22
Total Group Solvency II own funds
31 December
2019
£m
1,925
207
31 December
2018
£m
2,036
201
2,132
2,237
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 February 2018.
The Group’s insurance subsidiaries based in the UK and in Ireland are also subject to Solvency II at entity level. The Group’s asset management
and advisory businesses are subject to group supervision by the FCA under the Capital Requirement Directive IV regime (“CRD IV”). Other regulated
entities in the Group are subject to the locally applicable entity-level capital requirements in the jurisdictions in which they operate.
The solvency and the capital requirements for the Group and each of its regulated subsidiaries are reported and monitored through monthly
Capital Management Forum meetings. Throughout 2019, the Group and each of its regulated subsidiaries have complied with the applicable
regulatory capital requirements.
36(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.
Total external borrowings of the Company
Less: cash and cash equivalents of the Company
Total net external borrowings of the Company
Total shareholders’ equity of the Group
Tier 2 bond
Total Group equity (including Tier 2 bond)
Ratio of Company net external borrowings to Group equity
The Group has complied with the covenant since the facility was created in February 2018.
Note
29
29
31 December
2019
£m
198
(559)
(361)
2,071
198
2,269
31 December
2018
£m
197
(281)
(84)
2,005
197
2,202
-0.159
-0.038
36(a)(iii): Own Risk and Solvency Assessment (“ORSA”) and Internal Capital Adequacy Assessment Process (“ICAAP”)
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 and 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, entity level ORSA processes are performed for each of the solo insurance entities within the Group.
The Group ICAAP process is similar to the ORSA process although the ICAAP process is performed for a subset of the Group consisting of the
investment and advisory firms within the Group (the “ICAAP Group”). The Group ICAAP report is also produced annually and summarises the
analysis, insights and conclusions from the underlying risk and capital management processes in respect of the ICAAP Group. The ICAAP report
is submitted to the FCA 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 ICAAP Group outside the usual reporting cycle.
The conclusions of ORSA and ICAAP processes are reviewed by management and the Board throughout the year.
Quilter Annual Report 2019
183
Strategic ReportGovernanceOther information Financial statements
Notes to the consolidated financial statements continued
For the year ended 31 December 2019
36: Capital and financial risk management continued
36(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, Credit Risk Standard and Credit Risk Appetite Statement.
This framework applies to all activities where the shareholder 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 through ensuring 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 firm has in respect of the exposures; and
• any second order risks that may arise where the firm has collateral against the credit risk exposure.
The credit risk exposures of the Group are monitored regularly to ensure that counterparties remain creditworthy, to ensure there is appropriate
diversification of counterparties and to ensure that exposures are within approved limits. At 31 December 2019, the Group’s material credit
exposures were to financial institutions (primarily through the investment of shareholder funds), corporate entities (including external fund
managers and reinsurers) and individuals (primarily through fund management trade settlement activities).
There is no direct exposure to European sovereign debt (outside of the UK) within the shareholder investments. The Group has no significant
concentrations of credit risk exposure.
Reinsurance arrangements
The Group has reinsurance arrangements in place to mitigate the risk of excessive claims on unit-linked and, prior to the sale of QLA, non-linked
protection contracts. Also specific to QLA before its disposal, reinsurance arrangements were used in respect of unit linked institutional business
to access specific funds not available through direct fund links and to provide liquidity.
Since the Group uses reinsurance as a means of mitigating insurance risk, reinsurance counterparties bear a significant financial obligation to
the Group.
In general, credit risk in respect of reinsurance counterparties is controlled through the use of risk premium reinsurance terms, where reinsurance
cover is paid for as the cover is provided. In these arrangements credit risk is limited to the risk of being unable to recover amounts due as a result
of claims arising over the latest quarter, since reinsurance accounts are settled quarterly in arrears. This risk is largely mitigated since the Group
would be able to withhold amounts due to the reinsurer to offset amounts due from the reinsurer.
The Group also has reinsurance arrangements in which there is a timing difference between the reinsurance premium payment and the provision
of cover, which results in prepayment for cover by the Group. In respect of these arrangements, a credit risk exposure can arise.
Reinsurance credit risk is managed by dealing only with reinsurance firms with credit ratings which meet the requirements of the Group’s credit
risk policy on inception of new reinsurance arrangements. The Group monitors the exposure to and credit rating of reinsurance counterparties
regularly to ensure that these remain within acceptable limits. Legal agreements are in place for all reinsurance arrangements which set out the
terms of the arrangement and the rights of both the Group and the reinsurance providers.
Details of the age analyses and credit quality of reinsurance assets in respect of insurance contracts and investment contracts are included below.
Investment of shareholder funds
The risk of counterparty default in respect of the investment of shareholder funds is managed through:
• setting minimum credit rating requirements for counterparties;
• setting limits and key risk indicators for individual counterparties and counterparty concentrations;
• monitoring exposures regularly against approved limits; and
• on-going monitoring of counterparties and associated limits.
184
Quilter Annual Report 2019
Financial statements
Notes to the consolidated
financial statements
36: Capital and financial risk management continued
36(b): Credit risk continued
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 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.
Details of the credit quality of debt securities can be found in this note in the table below.
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 financial statements.
Loans and advances subject to 12 month expected credit losses (“12 month ECL”) are £37 million (2018: £33 million) and other receivables subject
to lifetime expected credit losses (“lifetime ECL”) are £246 million (2018: £335 million). These balances are not rated; they 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.
The table below represents the Group’s exposure to credit risk from cash and cash equivalents.
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.
31 December 2019
Cash at amortised cost, subject to 12 month ECL
Money market funds at FVTPL
Total cash and cash equivalents
31 December 2018
Cash at amortised cost, subject to 12 month ECL
Money market funds at FVTPL
Total cash and cash equivalents
1Cash included in the consolidation of funds is not rated (see note 23(a)).
Credit rating relating to financial assets that are neither past due nor impaired
AA
£m
272
–
272
A
£m
511
–
511
BBB
£m
2
3
5