6 March 2024 

Quilter plc preliminary results for the year ended 31 December 2023

Quilter delivers a 25% increase in adjusted profit to £167 million and a five percentage point improvement in the operating margin to 27%

Steven Levin, Chief Executive Officer, said:

"2023 was a year of strong delivery. We wrote a higher level of new business and delivered record profitability through higher revenues and 3% lower costs. Our Affluent segment is delivering strong growth while our High Net Worth segment is investing in growth which will be realised over the next few years. The structural need to save for retirement combined with our growth plans and focus on operational efficiency, supported by a strong balance sheet, means we are well positioned as market conditions improve."

Highlights:

·    Assets under Management and Administration ("AuMA") of £106.7 billion at 31 December 2023 increased by 7% over the year (31 December 2022: £99.6 billion). This reflects supportive markets into year-end combined with a modest contribution from net flows. Core business net inflows of £832 million (2022: £2,122 million) represented 1% of opening AuMA (2022: 2%). This was supported by continued strong inflows into the Quilter channel with net outflows in the IFA channel, reflective of challenging market conditions.

·      Adjusted profit before tax increased by 25% to £167 million (2022: £134 million).

·      Revenue increased by 3% to £625 million (2022: £606 million) supported by interest revenue generated on corporate cash balances. This was coupled with robust expense discipline which delivered another year of lower costs, despite inflationary pressures, supporting an increase in the operating margin to 27% (2022: 22%).

·    Target £45 million Phase One Simplification cost savings were completed by end 2023, a year earlier than planned. An additional £50 million of Simplification (Phase Two) savings are targeted for delivery by the end of 2025, with £8 million already attained on a run-rate basis by end-2023.

·      Broad stabilisation in Quilter restricted adviser headcount which declined by 1% on December 2022 levels. Detailed plans are in place to grow Adviser headcount in 2024 and beyond.

·      Adjusted diluted earnings per share increased 19% to 9.4 pence (2022: 7.9 pence).

·     IFRS profit after tax attributable to shareholders of £42 million (2022: £175 million) with the year-on-year variance largely due to market valuation changes in the policyholder tax charge. Basic earnings per share of 3.1 pence (2022: 12.2 pence).

·      Proposed Full Year Dividend of 5.2 pence per share versus 4.5 pence per share for 2022, representing an increase of 16%.  

·      Solvency II ratio of 271% after payment of the recommended Final Dividend (31 December 2022: 230%). In late 2023, we obtained a c.£80 million capital benefit (14 percentage point Solvency II ratio contribution) from a reduction in risk margin as a result of changes in the PRA's capital rules.

Key financial highlights

We assess our financial performance using a variety of measures including alternative performance measures ("APMs"), as explained further on pages 18 to 20. In the headings and tables presented, these measures are indicated with an asterisk: *.

Quilter plc results for the year ended 31 December 2023

Steven Levin, CEO, and Mark Satchel, CFO, will give a presentation via webcast at 08:30am (GMT) today, 6 March 2024. The presentation will be followed by a Q&A session.

The presentation will be available to view live via webcast or can be listened to via a conference call facility. Details to join online or via conference call can be found on our website: 2023 results and presentations | Quilter plc

Note: Neither the content of the Company's website nor the content of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

Disclaimer

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

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

Chief Executive Officer's statement

Business performance

A year ago, I set out my plans to deliver better returns and drive faster growth through building our distribution, enhancing our propositions, and improving our operational efficiency. We have made good progress against each of these targets but there is more to be done to deliver on Quilter's full potential, which I discuss further below. In summary, 2023 was a good year for Quilter. We delivered:

·      record profitability under our current corporate perimeter (following disposals of Quilter International and Quilter Life Assurance);

·      increased new business flows across the Quilter channel and improved our market share of new gross Platform flows in both the Quilter and IFA channels, despite a lower new business market overall for the industry; and

·      improved efficiency, while investing to deliver faster growth and higher returns in the longer-term.

Although higher than expected interest rates in 2023 led to a squeeze in consumer incomes and reduced propensity to invest, we benefitted from higher investment returns on shareholder funds. This, together with robust cost management, delivered a strong increase in adjusted profit of 25% to £167 million (2022: £134 million).

I am pleased to report another year of lower costs, despite inflationary headwinds. In 2022 we reduced costs by £8 million from the 2021 base level of £480 million, and this year we reduced costs by a further £14 million, taking the cost base to £458 million. That represents a decline of 3% in 2023 and contributed to an improvement in operating margin to 27% (2022: 22%), a level that exceeds our 2025 target. We are now focused on our medium-term goal of 30%.

Across our two segments:

·      High Net Worth delivered steady income with higher costs reflecting business investment through new adviser and investment manager hires. This led to a decline in adjusted profit before tax to £41 million (2022: £45 million).

·      Modestly higher revenues in our Affluent segment of £393 million (2022: £387 million) reflected the contribution from interest income on the shareholder capital which supports the business, partially offset by mix changes and the planned margin reduction on managed assets following the Cirilium reprice at the end of the first quarter of 2023. Strong cost management combined with a lower FSCS levy led to a 18% increase in adjusted profit to £124 million for the year (2022: £105 million).    

Group adjusted profit before tax of £167 million represents the Group's IFRS profit, adjusted for specific items that management consider to be outside of normal operations or one-off in nature. The Group's IFRS profit after tax was £42 million compared to £175 million in 2022. Principal differences between adjusted profit and IFRS profit are due to non-cash amortisation of intangible assets, business transformation expenses (which are pre-funded and expensed as incurred), finance costs and the impact of policyholder tax positions on the Group's results. This latter item was negative in 2023 due to the gain in markets and was significantly positive in 2022 reflecting the market decline during that year. Business transformation expenses will remain elevated in 2024 and 2025, reflecting spend on anticipated change programmes, but are expected to reduce substantially thereafter.

Total Group adjusted diluted earnings per share were 9.4 pence, an increase of 19% (2022: 7.9 pence). On an IFRS basis, we delivered basic EPS of 3.1 pence per share versus 12.2 pence per share for 2022.

Flows and investment performance

Turning to flows, at an aggregate level, net flows in our core business were 1% of opening balances, with the reported Group position (after non-core outflows) broadly flat. Although the Group position reflected muted activity levels across the industry, we saw varied trends across the business. Notably, both our Quilter channel and the level of new business onto our Platform were good relative to market peers:

·      Across the Quilter channel, we achieved a 16% increase in gross flows to £513 million (2022: £443 million) in our High Net Worth segment, and a 12% increase to £3.6 billion (2022: £3.2 billion) in our Affluent segment.

·      New IFA flows in Affluent were around 7% higher, despite lower levels of new business across the market, and declined by a similar amount in our High Net Worth business. We saw net outflows in both segments reflecting higher levels of redemptions and acquisitions of IFA firms and a small number of larger corporate/charity accounts heavily influencing this outcome in our High Net Worth segment.

·      Within Affluent, we were particularly pleased that we maintained our position as the leading advised platform for new business flows during the year and we attained the position of the largest UK Advised Platform by assets during the second quarter of 2023 (according to Fundscape).

In terms of investment performance, High Net Worth has been strong, outperforming the ARC PCI Steady Growth and Equity Risk peer groups over 1, 3 and 5 years. Within Affluent, we continued to deliver good performance from our WealthSelect managed portfolio range. Cirilium Passive and Blend also performed well. Pleasingly, since the change in manager for Cirilium Active towards the end of 2022, the performance has improved. We are confident that the fund is now much better positioned.

Business improvement

Distribution

In High Net Worth, we continue to build our advice capability across the UK and internationally in our Dublin and Jersey offices. We also launched a brand refresh in November to reinvigorate market awareness of our Quilter Cheviot proposition and to bring the Financial Planning business under the Quilter Cheviot brand. We plan to grow our client facing professional headcount (investment managers and financial planners) to around 300 over time through developing existing staff and external recruitment. Where appropriate, we will look to take advantage of recent market dislocation by making modest bolt-on acquisitions to bolster our advice business or add teams of investment managers to accelerate our growth plans.

Within Affluent, our Quilter channel is building distribution on three fronts. We are targeting increased:

·      adviser numbers, where the position has broadly stabilised versus the reductions seen in recent years. Total adviser headcount declined marginally over the year reflecting a combination of natural attrition and retirements. The loss of advisers directly as a result of market consolidation was significantly lower than in the prior year;

·      adviser productivity, where in 2023 we achieved a 22% increase in annual gross flow per adviser to £2.8 million (2022: £2.3 million); and

·      adviser assets managed within our propositions through back-book transfers, which totalled c.£750 million during the year.

We continue to improve our share of gross market flows in the IFA channel. Total new business flow from IFAs onto our Platform was up 7% year-on-year despite lower market volumes overall. That led to an improvement in our share of new IFA business to 8.0% from 7.4% in 2022. Notably, in the latter part of the year our share of new business was ahead of our share of total assets under administration for the first time in a number of years.

Proposition

Our Platform and investment solutions are both market-leading propositions. My focus is on ensuring both remain competitively positioned and continue to offer value to customers.

·      The reprice of our Cirilium proposition coupled with improved performance in the Active range repositioned the product and we continue to see strong appetite for our Blend and Passive offerings.

·      We meaningfully reduced our Platform administration fee to clients, with this partially offset through a clearly communicated sharing arrangement on the interest earned on Platform-held cash. We use our purchasing power to obtain better interest rates than individual clients can get themselves and pass the majority of this benefit onto clients. The overall cost to us over an interest rate cycle is expected to be in line with the basis point of Platform margin attrition that we guided to in March 2023 and while interest rates remain elevated, the net outcome will be better returns for clients and a broadly neutral impact on Platform margins for Quilter.

The nature of our business model meant we were well-positioned for the introduction of Consumer Duty in July 2023. Our unique breadth of distribution means that all our products and services are available across the market, to both our financial advisers and independent financial advisers. That means whether through investment performance or in terms of price/value/service trade-offs, our products and solutions need to be competitive with third-party alternatives. As such, the need to both demonstrate and deliver value is central to our approach. Our unbundled pricing approach is aligned with Consumer Duty principles and puts client choice at the heart of our business. Notwithstanding this, Consumer Duty, rightly, creates an expectation on firms to continuously improve how they deliver customer value. This is something which we are focused on and, as well as the above, some of the initiatives we implemented in 2023 included:

·      Tiered Adviser Charging: A Platform upgrade to implement automated tiered adviser charging meets a need that advisers have wanted from industry players for some time. This makes it easy for advisers to put sliding scale advice fees in place, linked to the value of their customers' assets. Most importantly, it supports advisers as they adapt their own businesses to be fully aligned with Consumer Duty principles.

·      CashHub: Higher global interest rates means that cash is now seen as an attractive investment alternative for retail clients. To support cash as an asset class we introduced CashHub on our Platform in late 2023 for our advisers and rolled it out to IFAs in early 2024. This allows clients to manage their cash holdings alongside their other Platform assets, with instant access, notice deposits and fixed deposits held at selected banks. This provides market-leading rates together with the ability to maximise depositor protection by parcelling deposits up into individual accounts across a number of institutions, depending on client preference.

Also, in early 2024, we implemented a Platform software upgrade that ensured that clients would not pay an administration fee on cash balances but also allowed those cash balances to count towards the aggregate assets held by a client group for tiered charging under our family linking arrangements. This potentially allows cash held to reduce the overall charge that all members of the family pay for their Platform administration services.

Strategic Transformation

We have strategic programmes underway in each of our principal franchises: the High Net Worth segment, and, in Affluent, our IFA and Quilter channels. This activity is underpinned at a Group level with the next stage of our Simplification programme. Taking each in turn:

1.     High Net Worth evolution

Over the last few years, we have built a Quilter-branded advice business in our High Net Worth segment which has contributed significant incremental flows to our business. For historical reasons our advice and investment management businesses have been managed through different legal entities which complicates integrated client servicing. In 2024, we plan to bring both teams together in a single legal and regulated structure under the new Quilter Cheviot brand, having applied to extend Quilter Cheviot's regulatory permissions to include financial planning. Alongside the rebrand, this will unify our market proposition for clients with often more complex financial needs and allow us to manage client relationships in a far more seamless way. We will implement this change as soon as necessary regulatory approvals are in place.

2.     Affluent: IFA Channel

One of the defining characteristics of Quilter is the breadth of the advice proposition and distribution we support. Our dual channel distribution allows our Platform and solutions to administer and manage flows generated by both our own advisers and independent firms. This ensures we are strategically well positioned for however the advice market evolves over time. Both our Platform and investment solutions businesses have capacity to deliver strong operating leverage and have operating metrics which are as good as any in the industry.

Our Platform administers c.£60 billion of assets on behalf of IFA firms which are invested in both our and third-party funds. We aim to grow these assets by increasing the active numbers of firms using our Platform and the share of assets we administer for those firms.

We also offer our leading WealthSelect managed portfolio solution to firms on our Platform, with a view to increasing the percentage of their assets we both manage and administer. From early 2024, we have made WealthSelect available on three third-party platforms which will also provide another source of new business flows into our solutions.

3.     Affluent: Quilter Channel Transformation

Our advice business advises on c.£15 billion of assets on our Platform and in our solutions, and around £10 billion on third party platforms. This integrated business has the potential to deliver higher returns, and our plans to transform this channel are already delivering improved results. Our focus is on increasing assets on our Platform, improving adviser productivity, reducing support costs, and delivering a better customer experience. This work is on track, and we are currently in the process of selecting preferred suppliers to work with us on this programme.

We have been piloting Quilter Partners - a co-branded proposition with adviser firms where flows are fully aligned with our investment solutions and Platform. This allows us to participate in the growth of these firms while retaining the entrepreneurial drive and focus of self-owned businesses. We have been working with seven potential Quilter partner firms and will undertake further transactions where there is mutual economic alignment for firms to partner with us under this structure.

Adding new advisers to our business is a key contributor to future growth and training new advisers will be an increasing contributor to that growth. We aim to transition our Financial Adviser School into a profession-leading financial advice Academy, and in 2024 we expect a marked step up in investment here. Our target is for the new academy, coupled with new external hires, to deliver net growth in restricted financial planners in 2024 with momentum increasing from 2025 onwards.

4.     Simplification Phase Two

Following the sale of Quilter Life Assurance and Quilter International, the initial stage of Simplification focused on reducing complexity in our business and decommissioning legacy IT infrastructure. Targeted cost saves of £45 million from this programme were achieved by the end of 2023, on a run-rate basis, a year earlier than originally planned.

Simplification phase two targets a further £50 million of annualised cost savings to be achieved by the end 2025 on a run-rate basis, with a cost to achieve of approximately £65 million, inclusive of spend on our Advice transformation plans and High Net Worth initiatives. These savings arise from the simplification of our governance and internal administration processes, property rationalisation, coupled with IT and Operations efficiencies from our investment in Advice technology. These additional cost savings will support delivery towards our 30% operating margin ambitions and £8 million of this target was delivered by end 2023 on a run-rate basis.

Shareholder returns

The strong profit performance we delivered in 2023 supports the increase in the recommended final dividend of 3.7 pence per share (2022: 3.3 pence). Together with the interim dividend of 1.5 pence per share, this brings the recommended total shareholder payment to 5.2 pence per share, an increase of 16%. This represents a pay-out ratio of 61% (2022: 57%).

We have a strong balance sheet with a Solvency II ratio of 271% after an accrual for payment of the final dividend. The overall ratio benefitted from a change in the calculation of our risk margin which freed up around £80 million of capital and increased the Solvency II ratio by around 14 percentage points. That capital is still in our regulated life company and is expected to be passed back up to the holding companies later this year.

We also completed an Odd-lot Offer during the year which both reduced the cost of managing our shareholder base and provided a mechanism for small shareholders to sell their holdings in a cost-effective manner. The offer completed in November 2023 with the Company acquiring just under 16 million shares at a price of 88.1 pence (ZAR 20.09) per share. This reduced the number of shareholders on our register by around 126,000 (c.60%). These shares have been transferred into the Quilter Employee Benefit Trust and will be used to meet obligations under future staff share awards under compensation plans.

Ongoing advice

Delivering advice is core to how we operate, and we have policies in place that underline the need for advisers to meet their ongoing servicing obligations. Our complaints related to ongoing servicing have remained at a low and consistent level over the last four years.

Where our regular adviser oversight has determined that a customer may not have received the servicing they have paid for, or where we have received complaints from customers regarding ongoing servicing, this has been investigated, and, where appropriate, remediation has been undertaken and recognised as a normal business as usual expense.

Subsequent to the year-end, on 15 February 2024, the FCA wrote to around 20 advice firms, including Quilter, requesting information regarding ongoing servicing. Consistent with our focus on delivering good customer outcomes, we are commencing a review of historical data and practices across our network to determine what, if any, further action may be required. This may lead to remedial costs but it is too early to quantify.

Outlook

Market expectations are for a period of UK interest rate stability before rates begin to decline around the middle of 2024. While that will eventually lead to lower investment income, we welcome this transition as we expect lower interest rates will support market performance and increase consumer focus on longer-term savings products. With wage increases in the UK now outpacing retail price inflation, the environment for longer-term saving is more constructive than has been the situation for some time. Our expectation is that flows will continue to improve over 2024 as consumer and market sentiment returns to more normal levels.    

We are focused on driving towards a 30% operating margin. We intend to increase growth investment spend in 2024 and also expect the FSCS levy to increase from current levels. While this will lead to a mid to high single digit increase in operating expenses, our current expectation is for a modest year-on-year increase in Adjusted Profit, excluding any potential costs associated with the aforementioned review of historical advice.

The structural need to save for retirement combined with our growth plans and focus on operational efficiency, supported by a strong balance sheet, means we are well positioned as market conditions improve.

Steven Levin

Chief Executive Officer

Financial review

Review of financial performance

Overview

The Group achieved a strong improvement in adjusted profit performance in 2023 against the backdrop of ongoing geopolitical and macroeconomic uncertainty. Inflationary and interest rate pressures continued to weigh on consumer confidence and disposable income, resulting in a significant headwind to flows as consumers held off on discretionary investment and drew down on savings to service the increased cost of debt.

The Group's reported AuMA was £106.7 billion at the end of the year, a 7% increase on the opening position (2022: £99.6 billion), representing positive market movements towards the year-end of £7.0 billion and net inflows of £0.1 billion. Average AuMA of £102.1 billion for 2023 was 1% lower than prior year (2022: £102.8 billion). Adjusted profit before tax increased by 25% to £167 million (2022: £134 million) despite the subdued flow environment, reflecting the continued delivery of cost management through our Simplification programme and higher interest revenue earned on cash and capital resources. This was partially offset by a 3% decline in net management fee revenue due to lower average AuMA and a 1 bp decrease in revenue margin predominantly due to planned pricing reductions.

Alternative Performance Measures ("APMs")

We assess our financial performance using a variety of measures including APMs, as explained further on pages 18 to 20. In the headings and tables presented, these measures are indicated with an asterisk: *.

Key financial highlights

Net inflows for the core business of £0.8 billion for 2023 were lower than the prior year (2022: £2.1 billion). Gross flows were 7% higher than the prior year at £11.1 billion (2022: £10.4 billion), whilst higher outflows reflected increased levels of client drawdown to offset pressures from higher inflation and interest rates coupled with market consolidation activity.

In the Affluent segment core business, net inflows in the Quilter channel of £1.6 billion were in line with the comparative year. Gross flows of £3.6 billion were 12% higher than the prior year (2022: £3.2 billion), demonstrating the continued strength of our integrated channel. We continued our focus on generating back book transfers in 2023, with c.£750 million of assets under advice by Quilter Financial Planning transferring onto our Platform from external platforms. Productivity, representing Quilter channel gross sales per Quilter Adviser, increased to £2.8 million (2022: £2.3 million), in line with our objectives of increasing alignment in our Advice business. Quilter channel gross outflows increased to £2.0 billion (2022: £1.6 billion) primarily due to higher levels of client drawdown during the year.

The IFA channel on Quilter Investment Platform recorded gross inflows of £5.3 billion, up 7% year-on-year (2022: £4.9 billion) reflecting our continued performance in gaining market share of new business despite lower levels of new business flow across the industry. The Quilter Investment Platform continues to maintain the leading market share of gross sales against our Retail Advised Platform peers, based on the latest available Fundscape data (Q3 2023). Net outflows of £0.2 billion (2022: net inflow of £0.4 billion) reflect higher levels of client led redemptions and headwinds from the impact of industry consolidation. Our Platform has continued to win net positive flows from competitor platforms over 2023. Net inflows as a percentage of opening AuMA for the IFA channel on Quilter Investment Platform was nil% (2022: 1%).

Fund flows via third-party platforms reported net outflows of £0.3 billion (2022: net outflows of £0.6 billion), predominantly due to planned fund closures.

Asset retention for the Affluent segment of 89% was below prior year (2022: 91%) due to increased withdrawal activity, inflationary pressure and interest rate headwinds.

Within the High Net Worth segment, gross inflows of £2.2 billion were broadly in line with the previous year (2022: £2.3 billion). Net flows were an outflow of £0.1 billion (2022: net inflow of £0.9 billion) primarily due to the slowdown in IFA flows and a small number of larger charity and corporate account losses, which were offset by steady net inflows from the Quilter channel. Asset retention fell 4 percentage points to 91% (2022: 95%) reflecting the higher interest rate environment where some clients have opted to redeem existing investments to repay debt obligations.

The Group's core business AuMA ended the year at £103.4 billion, up 7% from the opening position (2022: £96.2 billion), due to positive year-end market movements of £6.4 billion and net inflows of £0.8 billion. The Affluent segment AuMA increased by 8% to £77.5 billion (2022: £71.5 billion) of which £25.5 billion is managed by Quilter, versus the opening position of £22.7 billion. The High Net Worth Segment AuM was £27.0 billion, up 6% from the opening position of £25.5 billion, with all assets managed by Quilter.

In total, £52.2 billion, representing 50% of core business AuMA, is managed by Quilter across the Group (2022: £48.0 billion, 50%).

The Group's revenue margin of 47 bps was 1 bp lower than the prior year (2022: 48 bps). For assets administered within the Affluent segment, the revenue margin was 27 bps in line with prior year. The revenue margin on assets managed in the Affluent segment decreased by 6 bps to 41 bps as a result of product mix changes, the planned reprice of the Cirilium Active range that occurred at the end of the first quarter of 2023, and the introduction of AuM scale discounts in the second half of the year. The High Net Worth segment's revenue margin decreased by 1 bp to 71 bps primarily due to lower commission revenue, partially offset by revenue from interest margin generated on client balances.

Adjusted profit before tax increased by 25% to £167 million (2022: £134 million). Net management fees of £477 million were lower by 3% (2022: £490 million) primarily as a result of a decline in average AuMA year-on-year of 1% to £102.1 billion (2022: £102.8 billion) and the planned reduction in net management fee margins. Interest revenue generated on client funds included within net management fees were £23 million (2022: £7 million). Other revenue of £86 million decreased by 14% (2022: £100 million) reflecting lower mortgage and protection business levels, reduced activity within the market and slightly lower adviser headcount.

Investment revenue increased from £16 million in 2022 to £62 million in 2023, due to an increase in interest income earned on shareholder cash and capital resources. This level of resources is expected to gradually decline as a result of investment in the business and planned spend on business transformation. Operating expenses decreased by 3% on the prior year to £458 million (2022: £472 million) primarily due to continued strong cost management, lower FSCS levies and Simplification cost initiative savings offset by higher inflation. The Group operating margin improved by 5 percentage points to 27% (2022: 22%).

The Group's IFRS profit after tax was £42 million compared to £175 million for 2022. The year-on-year decrease in IFRS profit is largely attributable to variances in policyholder tax outcomes which moved to an expense of £76 million in 2023 (due to net market gains) from a credit of £134 million (due to net market declines) in 2022.

Adjusted diluted earnings per share increased 19% to 9.4 pence (2022: 7.9 pence).

Total net revenue*

Total net revenue for the Affluent segment was £393 million, an increase of 2% year-on-year (2022: £387 million). Net management fees of £292 million were 3% lower than the prior year (2022: £300 million), primarily due to lower average AuMA, the Cirilium Active reprice and the introduction of AuM scale related discounts. A revised Platform pricing policy was introduced in the second half of the year, coupled with an interest sharing arrangement on cash balances held on the Platform. Interest margin generated on cash balances held on the Platform reported within net management fees, amounted to £10 million in 2023 (2022: £nil million). Other revenue predominantly reflects our share of income from the provision of advice within Quilter Financial Planning. Recurring charges and fixed fees were lower than the prior year, predominantly as a result of lower average levels of assets under advice and reduced volumes of new mortgage business. Investment revenue of £31 million (2022: £8 million) represents interest earned on shareholder capital held to meet the regulatory capital requirements of the business.

Total net revenue in the High Net Worth segment was broadly unchanged at £211 million (2022: £212 million). Net management fees, which include interest margin earned on cash balances of £13 million (2022: £7 million), were 3% lower at £185 million (2022: £190 million) largely due to lower average AuM. Investment revenue of £6 million earned on regulatory capital to support the business (2022: £1 million) was higher than prior year due to higher interest rates. Other revenue of £20 million (2022: £21 million), predominantly reflects revenue generated in Quilter Cheviot Financial Planning, and was broadly in line with prior year.

Operating expenses*

Operating expenses decreased by 3% to £458 million (2022: £472 million). Our focus on embedding sustainable cost savings through business simplification activities enabled us to achieve a lower cost base whilst absorbing significant inflationary headwinds.

Total base costs reduced by 4% to £227 million (2022: £236 million). Base costs as a percentage of revenues reduced 3 percentage points to 36% (2022: 39%). This reduction reflects the impact of the Business Simplification programme which continued to deliver sustainable savings across support staff, operations, technology and property. This is partially offset by the impact of inflation during the year.

Revenue-generating staff base costs increased by 4% to £96 million (2022: £92 million) and remain at a similar proportion of revenues as we continue to invest in our people and proposition across our business segments to drive growth.

Variable staff compensation of £74 million were at a similar level to 2022 (2022: £75 million).

Other variable costs remained stable at £45 million (2022: £46 million) with increased development spend, which includes costs associated with enhancing our proposition and the implementation of regulatory change such as the FCA's Consumer Duty, offset by lower operating expenses associated with our Platform.

Regulatory and professional indemnity costs decreased by 30% to £16 million (2022: £23 million) predominantly reflecting the lower industry FSCS Levy in 2023. We expect these costs to increase again in 2024 and 2025.

Taxation

The UK corporation tax rate increased to 25% from 19% on 1 April 2023, resulting in a UK blended corporate tax rate of 23.5% for the 2023 financial year. The effective tax rate ("ETR") on adjusted profit before tax was 23% (2022: 14%). The Group's ETR is broadly in line with the UK blended corporation tax rate of 23.5% and there are no material movements for the year. The Group's ETR is dependent on a number of factors, including future changes in the UK corporation tax rate.

The Group's IFRS income tax expense was a charge of £46 million for the year ended 31 December 2023, compared to a credit of £110 million for the prior year. The 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 to fund the policyholder tax liability (which is included within the Group's IFRS revenue) 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 shareholder returns. An adjustment is made to adjusted profit before tax to remove these distortions, as explained further on page 10 and in note 5(b) to the condensed consolidated financial statements.

Business Simplification

At our Capital Markets Day in November 2021, we announced a target of £45 million of annualised run-rate savings by the end of 2024. We delivered this a year early. As announced at the half-year results in 2023, the Group expects to achieve a further £50 million of annualised run rate savings by the end of 2025. Approximately £8 million of these additional savings were achieved during 2023 on a run-rate basis.

As at 31 December 2023, the Simplification programme had delivered £53 million of annualised run-rate savings. An incremental £30 million of annualised run-rate savings were achieved during 2023 largely through the continued rationalisation of the Group's technology and property estates together with a reduction in support costs as we simplify our structures and organisation to support our two business segments, Affluent and High Net Worth. During 2023, the Group spent £25 million on Simplification initiatives (2022: £17 million). The implementation costs to deliver the remaining annualised run-rate savings are estimated to be £78 million.

Lighthouse Defined Benefit to Defined Contribution ("DB to DC") pension transfer advice provision

As reported previously, a provision was recognised in relation to DB to DC pension transfer advice provided by Lighthouse advisers prior to our acquisition of Lighthouse and their subsequent transitioning to our systems.

In 2020, the FCA commenced an enforcement investigation and required Lighthouse to commission a skilled person review in relation to certain DB to DC pension transfer advice by Lighthouse. The skilled person's review concluded in December 2022 and, in May 2023, the FCA issued a public Final Notice to Lighthouse setting out its findings. The FCA found that Lighthouse had provided unsuitable DB to DC pension transfer advice but imposed no financial penalty on Quilter. The FCA agreed that the remaining review work can be conducted as a Group-managed past business review. At 31 December 2023, a provision of £6 million (2022: £5 million) remains for the potential redress of DB to DC pension transfer cases as part of the Group-managed past business review.

Reconciliation of adjusted profit before tax* to IFRS profit

Adjusted profit before tax represents the Group's IFRS profit, adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature, as detailed on page 29 in the condensed consolidated financial statements. The exclusion of certain adjusting items may result in adjusted profit before tax being materially higher or lower than the IFRS profit after tax.

Adjusted profit before tax does not provide a complete picture of the Group's financial performance, which is disclosed in the IFRS consolidated statement of comprehensive income, but is instead intended to provide additional comparability and understanding of the financial results.

The impact of acquisition and disposal-related accounting costs of £39 million (2022: £42 million) include amortisation of acquired intangible assets.

Business transformation costs of £28 million were incurred in 2023 (2022: £30 million). Simplification costs, as already noted in this financial review, amounted to £25 million for 2023 (2022: £17 million).

The customer remediation expense of £6 million in 2023 (2022: income of £12 million) reflects an estimate of redress payable and additional legal, consulting and other costs in 2023 related to the Group-managed past business review of Lighthouse. In 2022, insurance proceeds in relation to claims in respect of legal liabilities arising in connection with Lighthouse's DB to DC pension transfer advice cases were received, contributing £12 million to the Group's profit before tax. These impacts are excluded from adjusted profit on the basis that the advice activities to which the charge and benefit relates were provided prior to the Group's acquisition of the business.

Exchange rate movements for 2023 were an expense of £2 million (2022: £4 million income) which relate to foreign exchange movement on cash held in South African Rand in preparation for payments to shareholders.

Policyholder tax adjustments to adjusted profit were a credit of £62 million for 2023 (2022: charge of £138 million) in relation to the removal of timing differences arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between years. 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 profit before tax.

Cash generation*

Cash generation measures the proportion of adjusted profit after tax that is recognised in the form of cash generated from operations. The Group achieved a cash generation rate of 82% of adjusted profit after tax over 2023 (2022: 75%).

Review of financial position

Capital and liquidity

Solvency II

The Group's Solvency II surplus is £972 million at 31 December 2023 (31 December 2022: £820 million), representing a Solvency II ratio of 271% (31 December 2022: 230%). The Solvency II information for the year to 31 December 2023 contained in this results disclosure has not been audited.

The Group's Solvency II capital position is stated after allowing for the impact of the foreseeable dividend payment of £50 million (31 December 2022: £45 million).

The 41 percentage point increase in the Group Solvency II ratio from the 31 December 2022 position is due to a number of favourable developments including the reduction to risk margin as a result of changes to the UK Solvency II rules, positive market variances, business initiatives, and the surpluses recognised by the asset management and advice businesses. The increase in solvency is partly offset by the effect of dividends to shareholders and the capital movements associated with the Odd-lot Offer.

Composition of qualifying Solvency II capital

The Group's own funds include the Quilter plc issued subordinated debt security which qualifies as capital under Solvency II. The composition of own funds by tier is presented in the table below.

The Group SCR is covered by Tier 1 capital, which represents 235% of the Group SCR of £568 million. Tier 1 capital represents 87% of Group Solvency II own funds. Tier 2 capital represents 13% of Group Solvency II own funds and 21% of the Group Solvency II surplus.

Final Dividend

The Quilter Board recommended a Final Dividend of 3.7 pence per share at a total cost of £50 million. Subject to shareholder approval at the 2024 Annual General Meeting, the recommended Final Dividend will be paid on Tuesday 28 May 2024 to shareholders on the UK and South African share registers on Friday 19 April 2024 (the "Record Date"). For shareholders on our South African share register, a Final Dividend of 89.02751 South African cents per share will be paid on Tuesday 28 May 2024, using an exchange rate of 24.06149.

Holding company cash

The holding company cash statement includes cash flows generated by the three main holding companies within the business: Quilter plc, Quilter Holdings Limited and Quilter UK Holding Limited. The 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.

Net capital movements

Net capital movements in the year totalled an outflow of £85 million. This includes £65 million of dividend payments made to shareholders and £14 million relating to the Odd-lot Offer, £2 million relating to the issuance of new debt, plus £4 million in final settlement following the disposal of the Single Strategy business.

Net operational movements

Net operational movements were an outflow of £48 million for the year, which includes £43 million of corporate and transformation costs, finance costs of £18 million relating to coupon payments on the Tier 2 bonds and non-utilisation fees for the revolving credit facility, and £13 million of net interest received on money market funds, Group loans and cash holdings.

Internal capital and strategic investments

The net inflow of £90 million is principally due to £176 million of cash remittances from the trading businesses, partially offset by £86 million of capital contributions to support business operational activities and further investment in the underlying business.

Shareholder information - Final Dividend

The Quilter Board has agreed to recommend to shareholders the payment of a Final Dividend of 3.7 pence per share. This will be considered at the Quilter plc Annual General Meeting which will be held on Thursday 23 May 2024. Subject to shareholder approval, the Final Dividend will be paid on Tuesday 28 May 2024 to shareholders on the UK and South African share registers on Friday 19 April 2024 (the "Record Date").

Dividend Timetable

From the opening of trading on Wednesday 6 March 2024 until the close of business on Friday 19 April 2024, no transfers between the London and Johannesburg registers will be permitted. Share certificates for shareholders on the South African register may not be dematerialised or rematerialised between Wednesday 17 April 2024 and Friday 19 April 2024, both dates inclusive.

Additional information

For shareholders on our South African share register a Final Dividend of 89.02751 South African cents per share will be paid on Tuesday 28 May 2024, based on an exchange rate of 24.06149. Dividend Tax will be withheld at the rate of 20% from the amount of the gross dividend of 89.02751 South African cents per share paid to South African shareholders unless a shareholder qualifies for exemption. After the Dividend Tax has been withheld, the net Final Dividend will be 71.22201 South African cents per share. The Company had a total of 1,404,105,498 shares in issue at today's date.

If you are uncertain as to the tax treatment of any dividends, you should consult your own tax adviser.

Supplementary information

Alternative Performance Measures ("APMs")

We assess our financial performance using a variety of measures including APMs, as explained further on pages 18 to 20. These measures are indicated with an asterisk: *.

For the year ended 31 December 2023

1.     Key financial data

1. Affluent

The following table presents certain key financial metrics utilised by management with respect to the business units of the Affluent segment, for the years indicated.

2. High Net Worth

The following table presents certain key financial metrics utilised by management with respect to the business units of the High Net Worth segment, for the years indicated.

Financial performance by segment

The following table presents a breakdown of financial performance by segment and Quilter plc for the years indicated.

¹Net management fee includes the interest earned on client holdings in Quilter Cheviot and Quilter Investment Platform.

Alternative Performance Measures

We assess our financial performance using a variety of alternative performance measures ("APMs"). APMs are not defined under IFRS, but we use them to provide further insight into the financial performance, financial position and cash flows of the Group and the way it is managed.

APMs should be read together with the Group's condensed consolidated financial statements, which include the Group's statement of comprehensive income, statement of financial position and statement of cash flows, which are presented on pages 23 to 26.

Further details of APMs used by the Group in its Financial review are provided below.