Half-year Report part 1

Quilter highlights from continuing operations1	H1 2019	H1 2018
Assets and flows
AuMA (£bn)2	108.7	104.7
Gross sales	6.0	7.9
NCCF (£bn)2	0.3	3.0
NCCF/opening AuMA (annualised) 4	1%	6%
Integrated flows (£bn)2	1.3	2.8
Productivity (£m)3	1.0	1.8
Asset retention5	89%	91%
Profit & loss
IFRS loss before tax attributable to equity holders (£m)	(40)	-
IFRS (loss)/profit after tax (£m)	(32)	2
Adjusted profit before tax (£m)2	89	83
Operating margin2	26%	25%
Revenue margin (bps)2	56	56
Adjusted diluted earnings per share (pence)2	4.1	4.1
Return on equity2	9.2%	14.1%
Non-financial
Restricted Financial Planners ('RFPs')	1,803	1,590
Investment Managers ('IMs')	163	168
Quilter highlights from continuing operations including Quilter Life Assurance	H1 2019	H1 2018
Assets and flows
AuMA (£bn)2	118.4	116.5
Gross sales	6.0	8.1
NCCF (£bn)2	(0.9)	2.2
Profit & loss
Adjusted profit before tax (£m)2	115	110
Operating margin2	29%	29%
Revenue margin (bps)2	57	57
Basic earnings per share (pence)2	(0.9)	18.7
Adjusted diluted earnings per share (pence)2	5.5	5.5
Return on equity2	10.2%	14.7%
1Continuing operations represent Quilter plc excluding results of QLA (for both 2018 and 2019) and the Single Strategy business (up to the date of sale which completed on 29 June 2018).
2Alternative Performance Measures ('APMs') are detailed on page 5.
3Average NCCF per Restricted Financial Planner.
4NCCF (annualised) as a % of opening AuMA (excluding Quilter Life Assurance).
5Outflows are calculated on an annualised basis.

 

Quilter plc results for the six months ended 30 June 2019

Enquiries

Investor Relations
John-Paul Crutchley	UK	+44 20 7002 7016
Media
Jane Goodland	UK	+44 77 9001 2066
Tim Skelton-Smith	UK	+44 78 2414 5076
Camarco
Geoffrey Pelham-Lane	UK	+44 20 3757 4985
Aprio (South Africa)
Julian Gwillim	SA	+27 11 880 0037

 

 

Paul Feeney, CEO, and Mark Satchel, CFO, will host a presentation for investors and analysts at 09:00am (BST) today, 5 August 2019 at Quilter plc, Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4AJ.

 

Alternatively, if you are unable to attend but would like to watch a live webcast of the presentation, please click on the link below to join via our website.

 

Live and on-demand: https://www.quilter.com/investor-relations 

 

To join by telephone:

United Kingdom/ Other	+44 333 300 0804
South Africa	+27 21 672 4118
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Access Code	23525727#

 

 

Playback facility:

United Kingdom/ Other	+44 333 300 0819
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Access Code	30129649#

 

 

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

Disclaimer

This announcement may contain certain forward-looking statements with respect to certain Quilter plc's plans and its current goals and expectations relating to its future financial condition, performance and results. 

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

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

Nothing in this announcement should be construed as a profit forecast.

 

 

Business unit descriptor:

Previous Business Unit Name	New Business Unit Name
Advice & Wealth Management
Multi-Asset	Quilter Investors
Quilter Cheviot	No change
Intrinsic	Quilter Financial Planning
Old Mutual Wealth Private Client Advisers	Quilter Private Client Advisers
Wealth Platforms
UK Platform	Quilter Wealth Solutions
International	Quilter International
Heritage	Quilter Life Assurance

Alternative Performance Measures ('APMs')

We assess our financial performance using a variety of measures. APMs are not defined by the relevant financial reporting framework which for the Group is IFRS, but we use them to provide greater insight into the financial performance, financial position and cash flows of the Group and the way it is managed.

APMs should be read together with the Group's condensed consolidated financial statements, which include the Group's statement of financial position and statement of cash flows, which are presented on pages 31 to 36.

A number of our metrics exclude Quilter Life Assurance, principally due to the closure of the institutional life book of business announced in 2017 and run-off of the legacy book as it is a closed-book business. This business has been classified as a discontinued operation for the six months to 30 June 2019. Further details of APMs used by the consolidated Group in our financial review are provided below.

APM	Definition
Adjusted profit before tax	Represents the adjusted profit before tax of the Group. Adjusted profit before tax represents the Group's IFRS profit, adjusted for key items and excludes non-core operations, as detailed on page 33 in the condensed consolidated financial statements. Due to the nature of the Group's businesses, we believe that adjusted profit before tax is an appropriate basis by which to assess the Group's underlying operating results and it enhances comparability and understanding of the financial performance of the Group. Please refer to page 15 for a detailed reconciliation of adjusted profit before tax to IFRS.
Revenue margin (bps)	Represents net management fees, divided by average AuMA. Management use this APM as it represents the Group's ability to earn revenue from AuMA.
Operating margin	Represents adjusted profit before tax divided by total fee revenue including life tax contributions and adviser fees. Operating margin excludes financing costs. Management use this APM as this is an efficiency measure that reflects the percentage of net revenues that become adjusted profit before tax.
Gross sales	Gross sales are the gross client cash inflows received from customers during the period and represent our ability to increase AuMA and revenue.
Gross outflows	Gross outflows are the gross client cash outflows returned to customers during the period and results in a decrease to AuMA and revenue.
Net client cash flows ('NCCF')	The difference between money received from and returned to customers during the relevant period for the Group or for the business indicated. This measure is considered to be a lead indicator of reported net revenue.
Integrated flows	Total NCCF, before intra-Group eliminations, that have flowed through two or more segments within the Group. It is considered to be a lead indicator of revenue generation driven by our integrated business model.
Assets under Management and Administration ('AuMA')	Represents the total market value of all financial assets managed and administered on behalf of customers and includes shareholder assets.
Average AuMA	Represents the average total market value of all financial assets managed and administrated on behalf of customers. Average AuMA is calculated using a 7-point average (half year) and 13-point average (full year) of monthly closing AuMA.
Net management fees	Consists of revenue generated from AuMA, fixed fee revenues including charges for life tax contributions, less trail commissions payable. Please refer to page 13 for more information on financial performance.
Other revenue	Represents revenue not directly linked to AuMA (e.g. encashment charges, closed book unit-linked policies, non-linked Protect policies, adviser initial fees and adviser fees linked to AuMA in Quilter Financial Planning (recurring fees)). Please refer to page 13 for more information on financial performance.
Cash generation	This presents a shareholder view of underlying cash earnings. The IFRS consolidated statement of cash flows includes policyholder cash flows and non-operating items. Cash generated from operations is calculated by removing non-cash items from adjusted profit after tax. Cash generated from operations is stated after deducting an allowance for cash required to support the capital requirements of the business generated from normal operations. The capital requirements of the business are assessed on each company's solo regulatory solvency basis.
Asset retention	The asset retention rate measures our ability to retain assets from delivering good customer outcomes and investment performance. Asset retention reflects the annualised outflows of the assets under management during the period as a percentage of opening assets under management. Asset retention is calculated as: 1 - (annualised gross outflow divided by opening assets under management).
Productivity	Productivity is a measure of the value created by NCCF from our advice business, and an indicator of the success of our integrated business model. Productivity is calculated as average integrated flow per Restricted Financial Planner.
NCCF/opening AuMA (excluding QLA)	This measure is calculated as total NCCF annualised as described above divided by opening AuMA presented as a percentage. Quilter Life Assurance is excluded from this metric principally due to the closure of the institutional life book of business announced in 2017 and run-off of the legacy book as it is a closed-book business and the business is classified as a discontinued operation.
Return on Equity ('RoE')	This calculates how many pounds of profit the Group generates with each pound of shareholders equity. This measure is calculated as adjusted profit after tax divided by average equity. For the 2018 comparative, equity was adjusted for the acquisition of Skandia UK from Old Mutual plc as part of Managed Separation and equity allocated to the discontinued operations arising from the sale of the Single Strategy business.
Adjusted diluted earnings per share	Represents the adjusted profit earnings per share. Calculated as adjusted profit after tax divided by the weighted average number of shares. Refer to page 14 and note 8 to the condensed consolidated financial statements.

Chief Executive's Review

Execution

Despite market uncertainty creating a more challenging environment, we have made good progress to make Quilter a simpler, more focussed, more efficient wealth management business. Our optimisation plans are on track, we added to our distribution franchise through the acquisitions of Charles Derby Group and Lighthouse plc, the final system testing and migration planning in respect of our new UK platform is well advanced, and this morning we announced the sale of our closed life assurance business, Quilter Life Assurance.

In July, we announced that the Board was undertaking a strategic review of Quilter Life Assurance. Following the conclusion of that review, we are pleased to announce a disposal of the business to ReAssure for consideration of £425 million, subject to obtaining the necessary regulatory approval. This represents 120% of end December 2018 pro forma own funds of £354 million after taking into account dividends of £130 million paid to Quilter in respect of historical profits during the course of 2019.

(Note: Reported own funds at 31 December 2018 were £394 million, stated after a foreseaable dividend of £90 million paid in March 2019, but before a further dividend of £40 million anticipated to be paid in Q3 2019 prior to completion; for the avoidance of doubt, neither of these dividends form part of the consideration to be received of £425 million.)

Quilter Life Assurance is predominantly a 'closed life book' where the existing products are closed to new business. With our new UK platform now close to completion, our ability to flexibly manage the Quilter Life Assurance cost base reduces and so, we believe, selling Quilter Life Assurance to a purchaser who specialises in running such businesses is in the best interests of Quilter Life Assurance's policyholders, as well as our shareholders.

Accordingly, in line with IFRS 5, Quilter Life Assurance has been classified as a discontinued operation and designated as 'held for sale' in these results, with comparative results restated in compliance with the relevant accounting standards. Commentary on business performance has been stated on both a continuing business basis excluding Quilter Life Assurance, and based on the current perimeter to ensure full comparability. It should be noted that we expect the continuing Quilter group to have an operating margin of around five percentage points lower than the current perimeter, reflecting both the level of Quilter Life Assurance's operating margin and potential stranded costs, some of which are transitory in nature. This will lead to a commensurate reduction in the starting point for our operating margin upon which our targeted 2020 and 2021 operating margin improvement will be based.

The Board is currently minded to make a meaningful capital return to shareholders arising on the net surplus proceeds from the sale. We intend to consult with our shareholders on the most appropriate means of undertaking this, and will announce the quantum and method of any potential capital return at the time of closing, expected by late 2019.

Business conditions in the first half of 2019 have been the opposite of those experienced in the same period last year. In the first half of 2018, Quilter benefited from strong new business flows and a limited contribution from positive market movements. By contrast, 2019 net flows have been more muted while the market rebound has been stronger than we expected at the beginning of the year, thereby supporting our revenue.

Against this backdrop, I am pleased with our adjusted profit before tax (including Quilter Life Assurance) for the first half of 2019 of £115 million, up 5% on the prior period. This reflected stable revenue margins coupled with broadly unchanged average AuMA and was supported by strong cost discipline and our optimisation activities. Total expenses increased modestly as investment in the business through our distribution acquisitions took effect as expected, and the normalisation of the charge for the FSCS levy was reflected in the 2019 result. Underlying costs, excluding the impact from acquisitions, were broadly unchanged on 2018, in line with the guidance provided at full year. 

Adjusted diluted earnings per share of 5.5 pence, of which 4.1 pence was from Quilter's continuing business and 1.4 pence from Quilter Life Assurance, is broadly unchanged on the first half of 2018. This is due to a more normal tax rate of 12% accrued on adjusted profit and a slightly higher number of shares eligible to receive dividends. The actual tax rate will be determined at the end of the year.

The Board is pleased to declare an interim dividend totalling 1.7 pence per share, inclusive of a distribution of 0.43 pence per share in respect of Quilter Life Assurance's first half profit contribution. The Board expects the Group's dividend pay-out ratio will move up within the target range in 2019. In normal circumstances, we expect the interim dividend to represent roughly one third of the annual pay-out, as set out in our prospectus at the time of Listing.

Our financial performance is discussed in more detail below.

Clients

Delivering good customer outcomes through a trusted advice relationship is core to the Quilter business model. The platform is at the centre of our business providing the investment 'wrappers' to meet an individual's needs, while our investment solutions provide the intellectual capital to deliver the 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 flows.

 

While gross client cash flows (excluding Quilter Life Assurance) into the business have remained relatively solid at £6.0 billion (down 5% on the second half of last year), as already noted, 2019 has been challenging in terms of NCCF. NCCF (excluding Quilter Life Assurance) of £0.3 billion during the first half of 2019 was down from £3.0 billion in the comparable period of 2018. As well as general market uncertainty caused by Brexit and broader geopolitical and macro-economic concerns, the first half of 2019 result includes two Quilter-specific issues. First, despite gross sales into Quilter Cheviot being in line with expectations, the departures of a small group of Investment Managers, who resigned in summer 2018, have begun to have an impact on outflows in that business. During the first half, we recorded outflow requests totalling £0.6 billion from clients looking to follow their Investment Managers who departed last year. We expect this pressure to continue at a similar level through the remainder of 2019. Secondly, we completed the transfer of the previously disclosed loss of a quasi-institutional £0.2 billion mandate in Quilter Cheviot late in the second quarter. In addition, due to market uncertainty, we have experienced a lower level of new gross flows onto our platform from both our restricted advisers and independent financial advisers. This has led to lower levels of flow into Quilter Wealth Solutions and Quilter Investors with the combination of these factors leading to lower net flows. Overall levels of client retention across the business were broadly unchanged, outside of the impact from the Quilter Cheviot departures.

Quilter International's modest NCCF was broadly in line with the prior year. This reflects our strategy of repositioning our business to have deeper roots in fewer markets, and to ensure the product range and client offering across our international markets is consistent with Quilter's risk appetite in all markets where we operate.

AuMA, including Quilter Life Assurance, increased by 8% from £109.3 billion at 31 December 2018 to £118.4 billion at the end of the first half of 2019. The market recovery began late in the first quarter and broadly maintained these levels in the second quarter, with the FTSE-100 up 10% overall during the first half of the year. This led to average AuMA of £114.4 billion, the principal driver of net management fees, stable on the levels experienced in the first half of 2018 (£114.5 billion).

Performance

Quilter's overall financial performance for the first half of 2019 was good. Adjusted profit before tax for the first half of 2019 of £115 million comprised £89 million from continuing operations (+7%) and £26 million in respect of QLA (-4%). Our IFRS loss before tax from continuing operations was £40 million, compared to a profit of £nil million in the first half 2018. We achieved a 29% operating margin (H1 2018: 29%), including Quilter Life Assurance, in line with first half 2018. Optimisation benefits and cost reductions offset the drag on the operating margin from the acquired advice businesses. The Lighthouse plc acquisition completed late in the period and consequently did not have a material impact on the Group's results. The combined effect of the acquisitions of Charles Derby Group and Lighthouse plc contributed to a one percentage point reduction in the operating margin.

The Lighthouse plc acquisition added 390 advisers to our business of which 143 are RFPs with the remainder currently independent financial advisers. We are enhancing the Lighthouse restricted proposition by using our solutions that are specifically designed to meet the needs of customers of our advice business. Additionally we expect a number of the independent advisers to convert to a restricted proposition based upon the ability of our propositions to meet their customers' needs. Excluding acquisitions, we achieved good growth in RFPs across our appointed representative firms, adding a net 39 RFPs across the firm representing annualised organic growth of 5%.

Our solutions have continued to deliver good investment performance for our clients. The medium and long-term performance at Quilter Cheviot, our discretionary fund management business, continued to outperform relevant ARC benchmarks, remaining first or second quartile, to the end of March. The medium and longer-term performance of Quilter Investors' multi-asset funds has also remained strong, although the shorter-term performance on the biggest range, Cirilium, has been more mixed reflecting some tactical positioning over the course of last year. We are in the process of simplifying and broadening the Quilter Investors product range through fund consolidation and new product launches over the remainder of the year. These new products, including our new multi-asset income suite and Cirilium blend proposition, are being launched in response to the specific needs of our customers, based upon direct research we conducted through our advice business.

Following the previously announced Investment Manager resignations from Quilter Cheviot after our Listing, we have focussed on adding to the Quilter Cheviot investment team and our Investment Manager headcount was back to 163 at the end of June 2019 from a low of 155 at the end of December 2018. Although we anticipate continued elevated outflows in the near term, we expect our new hires to contribute to overall growth in Assets under Management over time.

Transformation

As I have said previously, we are focussed on completing the transformation of our business through:

Ø Delivering the expected benefits from the implementation of our UK Platform Transformation Programme;

Ø Making Quilter a simpler and more focussed business. As with Charles Derby and Lighthouse this may mean making selective infill acquisitions into our core business and, as we have shown with Old Mutual Global Investors and Quilter Life Assurance, we have also undertaken disposals of non-core businesses to simplify our group; and

Ø Optimising our business by delivering the operating margin targets we set out in March 2019 as well as driving operational leverage through scaling up our UK Platform and investment solutions business, while investing to drive productivity.

 

In respect of our new UK platform, we are in the final delivery stages of the programme. The lessons learned from our soft-launch phase have been valuable and we are delighted with the improved functionality that the new platform delivers. In addition, our plans to ensure our customers and advisers are prepared for the migration are progressing well. However, the final delivery of the platform is expected to take approximately three months longer than planned. This is driven by the complexity of the programme and our commitment to a high quality outcome.

The validation of the data to be migrated to the new platform is nearing completion with very high data integrity scores. Following the final delivery of the platform, our migration plan incorporates several dress rehearsals to minimise risk and we will not compromise on that preparation period. We will then execute an initial migration of up to 10% of platform assets representing clients from up to 100 of our adviser firms which we expect to complete by early 2020. The migration of the remainder of the book is expected to complete by around this time next year.

At our full year results in March, we indicated that an extension of the project into 2020 would lead to modest additional programme costs. Therefore, given our update on the timing provided today, together with additional activities to reduce risk, including incremental call centre capacity and technical support, we have now quantified additional costs of approximately £25 million above the previously targeted £160 million. This c.15% increase in costs reflects our focus on delivering the new platform and the associated migration safely and securely and is in the interest of all stakeholders. As we enter the final phase of this programme we look forward to the significant benefits that the new platform will bring to customers, our advisers and our business. We remain completely confident that this programme will deliver enhanced functionality, superior performance and will contribute considerably to our market competitiveness.

We are pleased with both the Charles Derby Group and Lighthouse plc acquisitions which completed in the first half of the year. Our initial post-completion work with the Lighthouse team has validated the original acquisition assumptions, and integration workstreams are well underway. These acquisitions will provide a full scale, UK-wide footprint for our nationally branded advice business and will allow us to accelerate our growth plans. We are on a mission to make advice more valued and accessible, and we want Quilter to be recognised as the best place to go for trusted financial advice in the UK.

Our broader optimisation plans also continue to progress well. Late last year and early this year our focus has been on initiatives with short-term returns such as supplier contract renegotiation and driving savings in property and facility costs. Over the remainder of 2019 and beyond, our workstreams are increasingly 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 and general ledger. We have started the consolidation of the support functions which is designed to create synergies 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. I am also pleased that we have met our target of broadly unchanged costs, excluding acquisitions, in the first half of 2019 and rather than declining, as we indicated in March, our overall operating margin is stable on the first half of last year despite absorbing costs from our advice acquisitions. Excluding the impact of these incremental costs, we would have delivered a one percentage point period on period improvement in the operating margin.

Stewardship

At our 2019 AGM on 16 May, shareholders approved the reappointment of KPMG as our auditors for the 2019 financial year. We advised shareholders in our 2018 Annual Report that we would be conducting an external audit tender this year. Given the longevity of KPMG's tenure as our auditors they did not participate in the audit tender process, which has now completed. We are pleased to announce that the Quilter Board, on the recommendation of the Audit Tender Sub Committee, chaired by Rosie Harris, has appointed PwC as auditors for future reporting periods commencing on 1 January 2020. A resolution for the reappointment of PwC as auditors will be submitted for shareholder approval at our 2020 AGM.

Two resolutions at our 2019 AGM attracted a meaningful level of votes against from shareholders. The resolution to authorise Directors to allot shares was not passed, with only 49.5% of shares voted in favour. Additionally, the resolution to authorise political donations only received 75% support. 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 both 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 June 2019, the Quilter share register is split 63%:37% between the Johannesburg Stock Exchange and London Stock Exchange respectively. 

In line with the guidelines in the 2018 UK Corporate Governance Code, we have sought to fully understand the views of South African shareholders on both of these resolutions through a series of meetings undertaken early in July 2019. From these discussions, it is clear that in a current South African governance context, any linkage between business and politics is emotive. Quilter has no intention of undertaking political donations but, in line with other listed UK companies, has sought such authority to avoid any inadvertent breaches of UK company law. We believe our South African shareholders now have a better understanding of the purpose behind this resolution.

We also understand that for historical reasons, the reluctance to delegate authority to company directors to issue shares is embedded in South African investment philosophy. The 'Authority to Allot Shares' is a standard enabling resolution for UK companies and the authority sought by Quilter at the 2019 AGM was in line with UK Investment Association guidelines. While our capital position is currently strong and we have no plans to raise equity, we are concerned that not having such an authority could, at some point, disadvantage Quilter relative to our UK peers. We wish to avoid such an outcome and expect to continue to engage to agree a delegation of authority at a level acceptable to a significant majority of our shareholders. The Board will consider therefore whether to continue seeking such an authority on either a similar or amended basis at the 2020 AGM, depending on the outcome of these ongoing discussions.

Responsibility 

We monitor employee engagement on a quarterly basis, and I am delighted feedback from these reviews continues to be at a consistently high level. Ensuring Quilter brand consistency and strengthening the ties that bind our people to deliver our purpose is a core focus for us. As part of our transition to a single Quilter brand across our business, Intrinsic rebranded to Quilter Financial Planning in July and feedback from both staff and advisers has been overwhelmingly positive. The move to the Quilter brand allows our network 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.

Outlook

As previously discussed, 2019 was always expected to be a transitional year for Quilter. The flow environment is likely to remain challenging in the near-term. While overall equity market levels have been supportive so far in 2019, we are conscious that market confidence remains fragile. As well as having to manage through these external factors, we will continue to deal with the outflows in Quilter Cheviot associated with last year's Investment Manager departures and, as we lead up to and move through the UK Platform migration, we expect new customer flows onto our existing platform to remain subdued. As a consequence, in this context, we remain committed to delivering broadly flat costs in 2019, excluding the impact of acquisitions.

Our near-term agenda remains focussed on four key priorities:

Ø First, and most importantly, we will successfully implement our new UK platform, ensure a smooth migration for existing customers and deliver on the growth opportunity, once implemented.

Ø Second, integrate our advice acquisitions and build our national advice business into a full scale UK wide business.

Ø Third, execute on our optimisation plans to deliver operating leverage and higher shareholder returns.

Ø Finally, we want to make Quilter a simpler and more focussed wealth management business, as we have demonstrated with the sale of Quilter Life Assurance.

 

Each of these priorities is on track and as we look towards 2020 and beyond, we remain excited as to our growth prospects and have confidence in our strategic path. By this time next year we will have migrated to a new, modern platform with greater product scope and significantly better automation and resilience. Advisers supported by Quilter will also have an upgraded and streamlined payments system, a new and improved point of sale system, upgraded adviser and client portals and, reflective of the world we live in, stronger security controls to protect our adviser and client data. Although the external environment is more challenging than a year ago, operationally we are where we expected to be at this stage as we continue to deliver value for all our stakeholders.

 

Paul Feeney

Chief Executive Officer

 

 

Review of Financial Performance

Overview

Our financial results in the first half of 2019 reflect a good performance despite the challenging NCCF environment. NCCF for the Group from continuing operations was £0.3 billion (excluding Quilter Life Assurance). AuMA increased by 8% from the start of the year to close at £118.4 billion (including Quilter Life Assurance) predominantly as a result of positive equity market movements, with the FTSE-100 index up 10% in the six months to 30 June 2019. Adjusted profit before tax of £115 million was up 5% compared to the first half of 2018.

The Group has made good progress towards optimisation and other cost saving initiatives, which we announced in March 2019, with £11 million of expense savings in H1 2019 compared to the same period in 2018. Expenses were broadly at the same level as H1 2018, excluding the impact of acquisitions.

Key financial highlights

For six months ended 30 June 2019 Continuing operations including Quilter Life Assurance1	Advice & Wealth Management	Wealth Platforms	Head Office & Eliminations	Total Group
Gross sales (£bn)	3.2	4.0	(1.2)	6.0
Gross outflows (£bn)	(3.2)	(4.6)	0.9	(6.9)
NCCF (£bn)	-	(0.6)	(0.3)	(0.9)
NCCF (excl. Quilter Life Assurance (£bn))	-	0.6	(0.3)	0.3
Integrated flows (excl. Quilter Life Assurance (£bn))	0.8	0.5	-	1.3
AuMA (£bn)	45.1	87.5	(14.2)	118.4
NCCF/opening AuMA (excl. Quilter Life Assurance (%))	-	1%	n/a	1%
Asset retention (excl. Quilter Life Assurance (%))	84%	90%	n/a	89%
For six months ended 30 June 2018 Continuing operations including Quilter Life Assurance1	Advice & Wealth Management	Wealth Platforms	Head Office & Eliminations	Total Group
Gross sales (£bn)	4.5	5.5	(1.9)	8.1
Gross outflows (£bn)	(2.2)	(4.3)	0.6	(5.9)
NCCF (£bn)	2.3	1.2	(1.3)	2.2
NCCF (excl. Quilter Life Assurance (£bn))	2.3	2.2	(1.5)	3.0
Integrated flows (excl. Quilter Life Assurance) (£bn)	2.1	0.7	-	2.8
AuMA (£bn)	43.7	86.0	(13.2)	116.5
NCCF/opening AuMA (excl. Quilter Life Assurance (%))	11%	6%	n/a	6%
Asset retention (excl. Quilter Life Assurance (%))	89%	91%	n/a	91%
1Metrics are for continuing operations of the Quilter Group, including Quilter Life Assurance, except where noted as excluding Quilter Life Assurance.

Net client cash flow (NCCF)

NCCF performance, excluding Quilter Life Assurance, for the half year was £0.3 billion, down from £3.0 billion in the comparable period. The decrease was predominantly due to lower gross sales driven by challenging market conditions with Brexit and general geopolitical and macro-economic concerns, and higher outflows as a result of Investment Manager ('IM') departures from Quilter Cheviot who resigned during 2018. NCCF (annualised) as a percentage of opening AuMA (excluding Quilter Life Assurance) was 1%. Including Quilter Life Assurance, the Group had net outflows of £0.9 billion (H1 2018: net inflow £2.2 billion), representing weaker flows across all businesses and the anticipated run-off of the institutional book in Quilter Life Assurance. Detailed analysis on NCCF by business is shown in the supplementary information section of this announcement.

Net inflows into Quilter Investors were £0.4 billion, down 78% from H1 2018 (£1.8 billion) reflecting lower business volumes from Quilter Financial Planning as investors remained cautious following uncertain global macro-economic and geopolitical (including Brexit) concerns. Net flows into Quilter Investors from the restricted channel were £0.6 billion (H1 2018: £1.4 billion), of which £0.2 billion (H1 2018: £0.7 billion) were from third party platforms and £0.4 billion (H1 2018: £0.7 billion) from our own platform, Quilter Wealth Solutions. Overall net flows from Quilter Wealth Solutions to Quilter Investors were nil in H1 2019 (H1 2018: £0.6 billion).

Quilter Cheviot's NCCF was an outflow of £0.4 billion (H1 2018: inflow of £0.5 billion), due to the departures of IMs who resigned in summer 2018. In Q2 2019, the expected loss of a previously disclosed £0.2 billion from a quasi-institutional mandate also occurred. In total, Quilter Cheviot experienced net outflows in H1 2019 of £0.8 billion from these two sources.

Quilter Wealth Solutions had net inflows of £0.5 billion, down 76% on prior year (H1 2018: £2.1 billion). Gross sales of £3.0 billion (H1 2018: £4.3 billion) decreased by £1.3 billion predominantly as a result of lower levels of defined benefit schemes ('DB') to defined contribution schemes ('DC') pension transfers, down 64% to £0.4 billion (H1 2018: £1.1 billion).

Quilter International's NCCF of £0.1 billion was in line with the comparable period. The modest reduction in International gross flows reflects the Group's strategy to reduce its offshore geographic footprint and focus on the quality of new business within our risk appetite.

Quilter Life Assurance had net outflows of £1.2 billion, up from £1.0 billion of net outflows in H1 2018, due to the closure of the low margin institutional life book of business announced in 2017, which had net outflows of £0.8 billion in H1 2019 (H1 2018: £0.4 billion).

Integrated flows from continuing operations	H1 2019	H1 2018	% Change
Integrated flows	1.3	2.8	(54%)
Direct flows	(0.7)	1.7	-
Eliminations	(0.3)	(1.5)	80%
Total Quilter plc NCCF from continuing operations	0.3	3.0	(90%)

Integrated flows (excluding Quilter Life Assurance) were £1.3 billion, down 54% from H1 2018 (£2.8 billion), as cautious investment sentiment was reflected in a decrease in gross sales during the period from Quilter Financial Planning. Similarly, Quilter Wealth Solutions experienced a decline in flows as a result of overall lower activity levels. The restricted channel of Quilter Financial Planning accounted for £0.6 billion (H1 2018: £1.4 billion) of Quilter Investors' net flows and £0.5 billion (H1 2018: £0.6 billion) of Quilter Wealth Solutions net flows.

Total Restricted Financial Planner ('RFP') headcount of 1,803 at 30 June 2019 includes an additional 143 RFPs following the acquisition of Lighthouse. Excluding RFPs added through the Lighthouse acquisition, net RFP growth of 39 in H1 2019 represents an annualised growth rate of 5%. We continue to generate a good level of new RFP appointments within existing businesses and through the recruitment of new appointed representative firms. The repurposing of the Quilter Financial Adviser School, which we announced in September 2018, has been popular with firms with currently over 100 students studying for their financial planning qualifications. The graduate recruitment pipeline is stimulating future growth, with 28 graduates from 2019 now working in Quilter Financial Planning firms. New RFP appointments have been partially offset by natural attrition of advisers, with turnover levels within our appointed representative firms remaining relatively stable period on period. Productivity for Quilter Financial Planning was £1.0 million per RFP in H1 2019 (H1 2018: £1.8 million, FY 2018: £1.7 million), reflecting a continuation of the challenging market conditions indicated in our first quarter update. Our strategic focus of building scale within the National model, which includes higher producing RFPs within Quilter Private Client Advisers, will help drive overall productivity levels.

Asset retention (excluding Quilter Life Assurance) has declined marginally to 89% (H1 2018: 91%), as a result of the outflows in Quilter Cheviot from departing IMs already noted. Adjusting for these outflows, persistency is 90%, in line with prior year and previous medium-term experience.

Assets under management/administration (AuMA)

AuMA was £118.4 billion at the end of June 2019, up 8% from 31 December 2018 (£109.3bn), driven by positive market performance of £10.0 billion partially offset by net outflows of £0.9 billion. Excluding Quilter Life Assurance, AuMA was £108.7 billion (FY 2018: £99.3 billion), up 9%.

Quilter Investors' AuM was £20.0 billion, up 12% since the start of the year (FY 2018: £17.8 billion). The Cirilium fund range increased by 17% to £10.5 billion of AuM at the end of June 2019 (FY 2018: £9.0 billion), driven by £0.6 billion of net inflows and £0.9 billion of market movement. The WealthSelect fund range increased by 13% to £6.2 billion of AuM at the end of June 2019 (FY 2018 £5.5 billion). Quilter Cheviot AuM of £24.1 billion increased by 8% in the period, primarily as a result of positive market movements. Quilter Wealth Solutions' AuA increased by 11% to £55.3 billion, which is primarily comprised of £26.3 billion within pension propositions (of which £3.9 billion has been generated from the restricted channel and £22.4 billion from third party advisers) and £16.1 billion of ISA products. Quilter International AuMA was £20.1 billion, up 9% (FY 2018: £18.4 billion) due to positive client cash flows and favourable market over the last 6 months.

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 agreed items, as detailed in note 6 in the condensed consolidated financial statements, and is the profit measure presented in the Group's segmental reporting.

Adjusted profit before tax for H1 2019 was £115 million, 5% higher than the prior year (H1 2018: £110 million), primarily due to increased revenue in the Advice & Wealth Management segment from the continued growth in AuM at Quilter Investors. The Wealth Platform segment revenue decreased 2% to £198 million primarily due to the retail and institutional book run-off in Quilter Life Assurance. Fee revenue from Quilter Wealth Solutions increased by 1% to £86 million. Total expenses for the Group increased from £275 million to £280 million, mainly due to the impact of the Quilter Financial Planning acquisitions and additional FSCS levies incurred in the period.

The Group's overall operating margin has remained stable at 29% (H1 2018: 29%) which is broadly in line with full year 2018. Realised optimisation benefits have offset the impact of the advice acquisitions, which initially provide a drag on operating margin.

Financial performance from continuing operations including Quilter Life Assurance Six months ending 30 June 2019 (£m)	Advice & Wealth Management	Wealth Platforms	Head Office	Total Group
Net management fee	144	175	-	319
Other revenue	51	23	2	76
Total fee revenue	195	198	2	395
Expenses	(145)	(116)	(19)	(280)
Adjusted profit before tax	50	82	(17)	115
Tax				(13)
Adjusted profit after tax				102
Operating margin (%)	26%	41%		29%
Revenue margin (bps)	67	42		57
Financial performance from continuing operations including Quilter Life Assurance Six months ending 30 June 2018 (£m)	Advice & Wealth Management	Wealth Platforms	Head Office	Total Group
Net management fee	136	183	-	319
Other revenue	45	20	1	66
Total fee revenue	181	203	1	385
Expenses	(134)	(120)	(21)	(275)
Adjusted profit before tax	47	83	(20)	110
Tax				(9)
Adjusted profit after tax				101
Operating margin (%)	26%	41%		29%
Revenue margin (bps)	65	44		57

Total fee revenue

The Group's total fee revenue increased by 3% to £395 million due to growth in advice fees in Quilter Financial Planning as a consequence of the increase in the number of RFPs. Offsetting these revenue increases was a decline in revenues from Quilter Life Assurance of 10% in line with the run-off of this business.

Total fee revenue for the Advice and Wealth Management segment grew by 8% to £195 million in H1 2019 (H1 2018: £181 million), with average AuM increasing 3% from the prior year equivalent period. Other revenue increased by £6 million to £51 million, principally due to the growth in advice fees in Quilter Financial Planning.

Total fee revenue for the Wealth Platforms segment in H1 2019 was £198 million, down 2% (H1 2018: £203 million), primarily due to the retail and institutional book run-off in Quilter Life Assurance resulting in revenue from this business declining from £52 million in H1 2018 to £47 million in H1 2019. Within Quilter Wealth Solutions and Quilter International, revenues were consistent with the prior period as the 3% increase in average AuA was offset by a 1 bp reduction in average revenue margins.

The Group's blended revenue margin of 57 bps remained stable on full year 2018 and H1 2018.

The revenue margin for Advice and Wealth Management of 67 bps was 2 bps higher compared to the prior year, due to a 5 bps increase in the revenue margin for Quilter Investors to 61 bps reflecting a change in the overall mix of AuM towards investment in products which earn a higher revenue margin and additional revenue from the WealthSelect funds. Quilter Cheviot's revenue margin remained in line with prior year at 73 bps.

The revenue margin for Wealth Platforms decreased by 2 bps from the prior year to 42 bps. Consistent with recent trends, the decline was predominantly caused by the revenue margin on new business written for Quilter Wealth Solutions and Quilter International being lower than the average margin of the in-force policies at the start of the year. The revenue margin for Quilter Life Assurance remained in line with the prior period at 63 bps, reflecting the product mix change from the continued run-off of the very low margin institutional life book and from adjustments relating to life tax contributions.

Expenses              

Expenses increased by £5 million to £280 million (2018: £275 million) for the six months to 30 June 2019. The cost base from Quilter Financial Planning's acquisitions increased expenses by £6 million and the continued build out of the Quilter Investors business increased costs by a further £3 million period on period. Expenses have also increased due to the costs associated with being a standalone listed group and inflationary impacts. Overall costs are benefitting from strengthened cost disciplines across the business and savings achieved through optimisation. Expenses are broadly flat on H1 2018, excluding the impact of acquisitions.

 

 

Expense split (£m)1
	H1 2019	H1 2018	FY 2018
Front office and operations	162	156	312
IT and development	62	59	120
Support functions	42	48	105
Other	14	12	18
Total expenses	280	275	555
12018 full year categories have been reclassified.

Front office and operations expenses increased by 4% to £162 million in H1 2019 (H1 2018: £156 million), primarily due to Quilter Financial Planning's acquisitions.

IT and development expenses increased by 5% to £62 million, mainly due to increased IT run costs to facilitate the growth in the business, inflation and regulatory change, offset by a reduction in development costs. We anticipate that IT development costs are likely to increase by £6 million in H2 2019 as we invest in systems for the integration of the advice acquisitions that have been made.

Support function expenses relate to middle and back office expenses, which have decreased by 13% to £42 million (2018: £48 million). Savings have been made across various functions through optimisation while additional costs associated with becoming a listed company and inflation have been absorbed.

Other costs include Professional Indemnity Insurance, charges for regulation and licencing fees. FSCS levies have increased by £2 million in H1 2019 due to an increase in levies for asset managers across the industry and the inclusion of a full year charge compared to 9 months in 2018.

Total expenses for H1 2019 were broadly consistent with H1 2018, excluding the impact of acquisitions of £6 million, in line with previous guidance. For the full year, the Group's underlying cost base is expected to remain broadly consistent with 2018 before the impact of acquisitions, which are anticipated to add around £22 million of additional expenses to the cost base for FY 2019.  

As announced in March with our year end results, we are planning to consolidate our London office requirements to a new location due to the expiry of a number of our current property leases in 2020. The lease for our new London location has been signed and will commence on 1 October 2019. The fit out of our new premises will be carried out over Q4 2019 and H1 2020, which is currently anticipated to have a one-off cash cost of approximately £30 million. The new London office is estimated to increase our property costs by £3 million in H2 2019, £10 million in 2020 while we incur dual-running costs, resulting in circa £5 million of ongoing additional costs thereafter. These costs include the depreciation impact of the fit out costs, and the associated ongoing lease costs in accordance with IFRS 16.

Taxation

The effective tax rate ('ETR') on adjusted profit was 12% (H1 2018: 8%). 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 which is due to reduce to 17% from April 2020.

The Group's IFRS income tax expense on continuing business was £70 million for the six months to 30 June 2019, compared to a credit of £81 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 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 (loss)/profit before tax attributable to equity holders. An adjustment is made to Adjusted Profit to remove these distortions, as explained further on page 16 and in note 6(e) of the condensed consolidated financial statements.

Earnings Per Share (EPS) 

The Group's basic EPS (for continuing and discontinued operations) at H1 2019 is (0.9) pence, compared to 18.7 pence at H1 2018 and 26.6 pence at FY 2018. During the periods, the number of shares in issue has remained at 1,902 million. The shares in issue for the basic EPS calculation are 1,834 million, after the deduction of shares in Employee Benefit Trusts ('EBTs') of 68 million (H1 2018: 72 million; FY 2018: 70 million) which are held in respect of staff share schemes. Adjusted diluted EPS on continuing operations of 4.1 pence is line with H1 2018, also at 4.1 pence (FY 2018: 8.9 pence). The weighted average number of ordinary shares for the basis of the adjusted diluted EPS calculation is 1,852 million, which includes the dilutive effect of shares awarded and options granted awarded to employees under share-based payment arrangements of 18 million (H1 2018: nil: FY 2018: 7 million). Further details are included in note 8 of the condensed consolidated financial statements.

 Optimisation

As announced in March 2019, we have commenced our phased, multi-year optimisation programme, targeting a 4 percentage point uplift in the Group's operating margin by 2021.

Phase 1 of optimisation is aiming to unify and simplify the Group through a number of efficiency initiatives that should deliver improvements in operational performance. For the six months to 30 June 2019, the delivery and benefits are on track, with £11 million of savings realised from optimisation and other cost reduction initiatives during the period, when compared to 2018. Implementation costs remain in line with previous guidance.

We have focussed the first half of 2019 on the delivery of a number of quick win tactical efficiencies which have included targeted FTE restructuring, third party contract renegotiation and termination, and property and facilities savings. The initial simplification and unification of the group, mainly within the support functions, is taking place. We have initiated all the planned strategic programmes that will transform our business through the implementation of simplified and streamlined organisational structures, as well as technology enabled transformation.

For the remainder of 2019 we will continue to drive more tactical efficiencies within the business, and undertake further simplification of our support function capabilities.  

Reconciliation of adjusted profit before tax to IFRS profit

IFRS loss after tax from continuing operations was £(32) million for H1 2019, compared to a profit of £2 million in H1 2018. The table below reconciles the Group's adjusted profit to the IFRS results in H1 2019 and H1 2018.

Reconciliation of adjusted profit before tax to profit after tax	H1 2019			H1 2018
For the six months ended 30 June 2019 (£m)		Discontinued operations			Discontinued operations
	Continuing Operations	Quilter Life Assurance	Total	Continuing Operations	Quilter Life Assurance	Single Strategy business	Total
Advice and Wealth Management	50	-	50	47	-	26	73
Wealth Platforms	56	26	82	56	27	-	83
Head Office	(17)	-	(17)	(20)	-	-	(20)
Adjusted profit before tax	89	26	115	83	27	26	136
Adjusted for the following:
Adjusting for the following:
Goodwill impairment and impact of acquisition accounting	(26)	-	(26)	(28)	-	-	(28)
Profit on business disposals	-	-	-	-	-	285	285
Business transformation costs	(35)	-	(35)	(37)	-	-	(37)
Managed Separation costs	(2)	-	(2)	(17)	-	-	(17)
Finance costs	(5)	-	(5)	(8)	-	-	(8)
Policyholder tax adjustments	(61)	(15)	(76)	7	8	-	15
Voluntary customer remediation provision	-	6	6	-	-	-	-
Total adjusting items before tax	(129)	(9)	(138)	(83)	8	285	210
(Loss)/profit before tax	(40)	17	(23)	-	35	311	346
Tax attributable to policyholder returns	78	59	137	(3)	(15)	-	(18)
Income tax (expense)/credit	(70)	(61)	(131)	5	10	(1)	14
(Loss)/profit after tax	(32)	15	(17)	2	30	310	342

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 6 of the condensed consolidated financial statements and, in respect of tax, in note 7.

Business transformation costs of £35 million in H1 2019 (H1 2018: £37 million) include £30 million (H1 2018: £27 million) incurred on the UK Platform Transformation Programme and £5 million of costs in relation to the optimisation programme. In H1 2018, £10 million was provided for one-off costs associated with the separation of Quilter Investors as a result of the sale of the Single Strategy business. There is no equivalent charge for 2019.

Managed Separation costs were £2 million (H1 2018: £17 million), reflecting costs associated with our successful separation from Old Mutual plc and Listing in June 2018. Remaining future costs of Managed Separation of approximately £10 million, primarily in respect of rebrand and residual systems activity which are in line with previous cost guidance, are expected to principally be incurred in 2019.

Finance costs were £5 million (H1 2018: £8 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 £76 million for H1 2019 (H1 2018: £(15) 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 after tax that is recognised in the form of cash generated from operations.

Cash generated from operations is calculated by removing non-cash generating items from adjusted profit after tax, such as deferrals required under IFRS to spread fee income and acquisition costs over the expected duration 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 achieved a cash generation rate of 93% of adjusted profit after tax over H1 2019 (FY 2018: 88%).

 

Review of Financial Position

Capital & Liquidity

Solvency II

The Group Solvency II surplus, including Quilter Life Assurance, is £964 million at 30 June 2019 (31 December 2018: £1,059 million), representing a Solvency II ratio of 181% (31 December 2018: 190%) calculated under the standard formula. The Solvency II information for the six months to 30 June 2019 contained in this results disclosure has not been audited.

Group regulatory capital (£m)	At	At
	30 June	31 December
	20191,2	2018
Own funds	2,161	2,237
Solvency capital requirement ('SCR')	1,197	1,178
Solvency II surplus	964	1,059
Solvency II coverage ratio	181%	190%
1Based on preliminary estimates. Formal filing due to the PRA by 13 September 2019.
2Group own funds are stated after allowing for the impact of the interim dividend payment relating to H1 2019 of £31 million.

The 9 percentage point decrease in the Group Solvency II ratio is primarily due to corporate activity in the period, with the two main contributors being the acquisitions of Charles Derby Group and Lighthouse plc on 14 February and 12 June 2019, respectively. In both cases, the goodwill and intangibles assets arising on the acquisitions are not recognised on the Solvency II balance sheet, thereby reducing own funds. The Group Solvency II ratio is stated after allowing for the impact of the interim dividend payment to shareholders. Other impacts were largely offsetting.

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.

Composition of qualifying Solvency II capital

The Group own funds for Solvency II purposes of £2,161 million reflect the resources of the underlying businesses after excluding the recommended interim dividend of £31 million. The Group own funds include the Quilter plc issued subordinated debt security which qualifies as capital under Solvency II. The composition of own funds by tier is presented in the table below.

Group own funds (£m)	At	At
	30 June	31 December
	2019	2018
Tier 11	1,952	2,036
Tier 22	209	201
Total Group Solvency II own funds	2,161	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 SCR is covered by Tier 1 capital, which represents 163% of the Group SCR of £1,197 million. Tier 1 capital represents 90% of Group Solvency II own funds. Tier 2 capital represents 10% of Group Solvency II own funds and 22% of the Group surplus.

Dividend

The Board has declared an interim dividend for 2019 of 1.7 pence per share at a total cost of £31 million. The interim dividend will be paid on 20 September 2019 to shareholders on the UK and South African share registers on 30 August 2019. For shareholders on our South African share register an interim dividend of 30.24071 South African cents per share will be paid on 20 September 2019, using an exchange rate of 17.78865.

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 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 units 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 comingling of policyholder related flows.

£m			H1 2019	FY 2018
Opening cash at holding companies at 1 January			416	36
Short term loan and tier 2 bond proceeds			-	500
Loans repaid to Old Mutual plc			-	(200)
Single Strategy asset management business sale - cash proceeds			-	576
Short-term loan repayment			-	(300)
Costs of disposal and external financing fees			-	(19)
Dividends			(61)	(221)
Net capital movements			(61)	336
Managed Separation and head office costs			(25)	(54)
Interest costs			(5)	(6)
Net operational movements			(30)	(60)
Cash remittances from subsidiaries			175	167
Net capital contributions and investments			(128)	(65)
Other			2	2
Internal capital and strategic investments			49	104
Closing cash at holding companies at end of period			374	416

Net capital movements

Net capital movements in the period relate to the final dividend payment announced to the market at the time of the 2018 results. This final dividend payment for 2018 totalled £61 million and was paid on 20 May 2019.

Net operational movements

Net operational movements for the holding companies of the Group were £30 million for the period. This predominantly comprised £25 million of corporate and transformation costs, which includes costs for the Managed Separation and optimisation programmes. Interest paid of £5 million includes coupon payments on the Tier 2 bond and non-utilisation fees for the revolving credit facility. Interest on the Tier 2 bond is paid every six months in February and August each year.

Internal capital and strategic investments

The main inflow relates to cash remittances from the trading businesses totalling £175 million, partially offset by capital contributions of £128 million to support business unit operational activities, the Platform Transformation Programme, and £82 million to fund the strategic acquisitions of Charles Derby Group and Lighthouse plc. The level of dividends paid to the holding companies is, where relevant, after funds have been set aside in those businesses for the UK Platform Transformation Programme and the voluntary client redress programme.

 

Balance Sheet
Summary balance sheet (£m)	At 30 June 2019					At 31 December 2018
	Continuing Operations	Quilter Life Assurance		Total		Continuing Operations	Quilter Life Assurance	Total
Assets
Financial investments	56,422	9,704		66,126		49,533	9,686	59,219
Reinsurers' share of policyholder liabilities	-	2,087		2,087		-	2,162	2,162
Contract costs/deferred acquisition costs	477	55		532		498	64	562
Cash and cash equivalents	1,944	381		2,325		1,881	514	2,395
Goodwill and intangible assets	587	30		617		550	-	550
Trade, other receivables and other assets	1,346	51		1,397		456	30	486
Other assets	429	16		445		393	23	416
Total assets	61,205	12,324		73,529		53,311	12,479	65,790
Equity	1,598	336		1,934		1,623	382	2,005
Liabilities
Investment contract liabilities	50,286	11,040		61,326		45,211	11,239	56,450
Third-party interests in consolidated funds	6,972	-		6,972		5,116	-	5,116
Contract liabilities/deferred revenue	192	27		219		195	31	226
Borrowings	280	-		280		197	-	197
Trade, other payables and other liabilities	1,714	132		1,846		841	158	999
Other liabilities	163	789		952		128	669	797
Total liabilities	59,607	11,988		71,595		51,688	12,097	63,785
Total equity and liabilities	61,205	12,324		73,529		53,311	12,479	65,790

The Group balance sheet at 30 June 2019 has total equity of £1,934 million (FY 2018: £2,005 million). Financial investments have increased from £59,219 million to £66,126 million as at 30 June 2019 predominantly due to positive market performance. The corresponding increase is reflected in Investment contract liabilities.

Trade, other receivables and other assets have increased by £911 million to £1,397 million predominantly due to unsettled trades within Quilter Investors and Quilter Wealth Solutions compared to year end 2018. A higher level of unsettled trades is anticipated in June compared to December, and it is influenced by the timing of rebalancing activity that takes place within the Managed Portfolio Service ('MPS').

Other assets of £445 million include property plant and equipment which has increased by £29 million, of which there was a £70 million increase as a result of the implementation of IFRS 16, where a right of use asset has been created in respect of property offset by reductions in derivative assets (related to Consolidation of Funds ('CoF')) and Contract costs (as amortisation exceeds capitalisation).

Trade, other payables and other liabilities have increased by £847 million as at 30 June 2019 due to the impact of unsettled trades and MPS rebalancing, and the impact of the implementation of IFRS 16, where a lease liability of £82 million has been recognised. Third party interests in consolidated funds increased to £6,972 million from £5,116 million due to increases in funds consistent with market movements.

Principal risks and uncertainties

The principal risks and uncertainties relevant to the Group are summarised below. Generally, global macroeconomic and geopolitical concerns (including, but not limited to, the forecast slow-down in global growth and the rising risk of trade wars) may adversely impact financial market levels, volatility and thus investor sentiment for wealth management services. As a UK based financial services firm, the implications and economic and political consequences of several scenarios under which the UK may leave the EU will influence the degree to which specific UK risks impact Quilter. A Group-wide Brexit programme continues to monitor these risks and has overseen a number of actions to ensure an advanced state of readiness to mitigate any implications to our business and customers. Most recently this has included the establishment of a regulated asset management subsidiary in Ireland.

·      Strategic risks: The risk that the strategy is unsound due to poor decision making, incorrect information or assumptions, or that the activities supporting the delivery of the strategy are inadequate or poorly designed. This includes the risk of change in the business environment, such as a change in government resulting in a significant shift in policy that could impact on the strategy.

·      Market risks: The risk of an adverse change in the level or volatility of market prices of assets, liabilities or financial instruments resulting in loss of earnings or reduced solvency.

·      Business risks: The risk that business initiatives supporting the delivery of the strategy are not implemented correctly or in full, or that the business performance fails to meet expectations across one or more key deliverables, resulting in an impact to the Company's business plan objectives.

·      Insurance risks: The risk of a reduction in Own Funds from unfavourable experience or change in assumptions relating to claims, policyholder behaviours, mortality, morbidity, longevity or expenses, resulting in an adverse impact to earnings or reduced solvency.

·      Operational risks: The risk of loss (or unintended gain/profit) arising from inadequate or failed internal processes, or from personnel and systems, or from external events (other than financial or business environment risks), resulting in an adverse impact to earnings or reduced solvency.

·      Legal and regulatory: The risk of failing to comply with existing or new regulatory and legislative requirements including standards, principles and practices, or an increased level of regulatory intervention resulting in sanctions or a capital add-on being imposed or a temporary restriction on our ability to operate.

Overall governance structures are performing in line with the decision making framework. Strong reliance is placed on the structures and processes in place by the businesses' management and Boards. There is senior Quilter plc management representation on each of the main subsidiary Boards and the plc Board has joint meetings with the subsidiary Boards. In addition strategic, systemic and execution risks are considered by plc management and overseen by the plc Board. These structures and processes together with those in the businesses provide a solid base to support our business as we execute the strategy over the next few years. Further details on our principal risks can be found in the 2018 Annual Report.

 

Shareholder Information

The Board has declared an interim dividend for 2019 of 1.7 pence per share.  The interim dividend will be paid on Friday 20 September 2019 to shareholders on the UK and South African share registers on Friday 30 August 2019.

Dividend Timetable

Dividend announcement in pounds sterling with South Africa ZAR Equivalent	Monday 5 August 2019
Last day to trade cum dividend in South Africa	Tuesday 27 August 2019
Shares trade ex-dividend in South Africa	Wednesday 28 August 2019
Shares trade ex-dividend in the UK	Thursday 29 August 2019
Record Date in UK and South Africa	Friday 30 August 2019
Payment date	Friday 20 September 2019

From the opening of trading on Monday 5 August 2019 until the close of business on Friday 30 August 2019, 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 28 and Friday 30 August 2019, both dates inclusive.

Additional information

Shareholders who hold shares through the Johannesburg Stock Exchange will receive their dividend (treated as a dividend from a foreign source) in South African rand. For shareholders on our South African share register a dividend of 30.24071 cents per share will be paid on Friday 20 September 2019, using an exchange rate of 17.78865. Dividend Tax will be withheld at the rate of 20% from the amount of the gross dividend of 30.24071 South African cents per share paid to shareholders on the South African share register unless a shareholder qualifies for exemption. After the Dividend Tax has been withheld, the net dividend will be 24.19256 South African cents per share. The Company had a total of 1,902,251,098 shares in issue at today's date.

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

Odd-lot Offer

At our Annual General Meeting held in May 2019, shareholders authorised the Quilter Board to conduct an Odd-lot Offer at any time within 18 months of the meeting. 

An Odd-lot Offer is a way of offering shareholders who hold fewer than 100 Ordinary shares an opportunity to sell their shares at a small premium to the market price. The Odd-lot Offer will reduce the complexity and cost to Quilter of managing our shareholder base and will allow investors holding fewer than 100 Ordinary Shares to dispose of their holdings in a timely and cost effective manner. Eligible shareholders can, of course, elect to retain their shareholding in Quilter, if they so choose.

We intend to send relevant documents to shareholders about the Odd-lot Offer in the second half of 2019.

Supplementary Information

For the year ended 31 December 2018

1.     Key financial data

 

Gross sales (£bn)	2019			Change (H1 2019 vs H1 2018)		2018
	Q1	Q2	H1	%		Q1	Q2	Q3	Q4	FY
Quilter Investors	1.0	1.0	2.0	(35%)		1.6	1.5	1.3	1.1	5.5
Quilter Cheviot	0.7	0.5	1.2	(14%)		0.8	0.6	0.5	0.6	2.5
Advice & Wealth Management	1.7	1.5	3.2	(29%)		2.4	2.1	1.8	1.7	8.0
Quilter Wealth Solutions	1.6	1.4	3.0	(30%)		2.3	2.0	1.8	1.6	7.7
Quilter International	0.4	0.4	0.8	(11%)		0.5	0.4	0.4	0.5	1.8
Quilter Life Assurance	0.1	0.1	0.2	(33%)		0.2	0.1	0.1	0.2	0.6
Wealth Platforms	2.1	1.9	4.0	(27%)		3.0	2.5	2.3	2.3	10.1
Elimination of intra-Group items	(0.6)	(0.6)	(1.2)	(37%)		(1.0)	(0.9)	(0.7)	(0.8)	(3.4)
Quilter plc	3.2	2.8	6.0	(26%)		4.4	3.7	3.4	3.2	14.7

 

NCCF (£bn)	2019							% of Opening AuMA				2018
	Q1		Q2			H1						Q1		Q2			Q3		Q4				FY
Quilter Investors	0.2		0.2			0.4		4%				1.0		0.8			0.5		0.5				2.8
Quilter Cheviot	0.1		(0.5)			(0.4)		(4%)				0.3		0.2			0.1		0.1				0.7
Advice & Wealth Management	0.3		(0.3)			-		-				1.3		1.0			0.6		0.6				3.5
Quilter Wealth Solutions	0.4		0.1			0.5		2%				1.3		0.8			0.6		0.4				3.1
Quilter International	0.1		-			0.1		1%				0.1		-			-		0.2				0.3
Quilter Life Assurance	(0.8)		(0.4)			(1.2)		(20%)				(0.5)		(0.5)			(0.5)		(0.8)				(2.3)
Wealth Platforms	(0.3)		(0.3)			(0.6)		(1%)				0.9		0.3			0.1		(0.2)				1.1
Elimination of intra-Group items	(0.2)		(0.1)			(0.3)						(0.6)		(0.7)			(0.2)		(0.4)				(1.9)
Quilter plc	(0.2)		(0.7)			(0.9)		(2%)				1.6		0.6			0.5		-				2.7
Quilter plc (excl. Quilter Life Assurance)	0.5		(0.2)			0.3		1%				2.0		1.0			1.1		0.6				4.7
Integrated flows (excl. Quilter Life Assurance)	0.6		0.7			1.3						1.5		1.3			0.9		1.0				4.7
AuMA (£bn)	2019						Change (H1 2019 vs H1 2018)				2018
	Q1			H1			%				Q1				H1			Q3				FY
Quilter Investors	19.2			20.0			9%				17.1				18.4			18.8				17.8
Quilter Cheviot	23.7			24.1			-				22.8				24.1			24.4				22.4
Quilter Financial Planning	1.1			1.0			(17%)				1.2				1.2			1.1				1.0
Advice & Wealth Management	44.0			45.1			3%				41.1				43.7			44.3				41.2
Quilter Wealth Solutions	53.1			55.3			6%				49.7				52.3			53.4				49.9
Quilter International	19.2			20.1			5%				18.6				19.2			19.6				18.4
Quilter Life Assurance	12.2			12.1			(17%)				14.4				14.5			14.0				12.4
Wealth Platforms	84.5			87.5			2%				82.7				86.0			87.0				80.7
Elimination of intra-Group assets	(13.6)			(14.2)			8%				(12.2)				(13.2)			(13.2)				(12.6)
Quilter plc	114.9			118.4			2%				111.6				116.5			118.1				109.3
Quilter plc (excl. Quilter Life Assurance)	105.2			108.7			4%				99.7				104.7			106.7				99.3
YTD Gross flows, net flows and AuMA (£bn)
		AuMA as at 31 December 2018			Gross    sales				Gross outflows				Net flows				Market and other movements				AuMA as at 30    June 2019
Quilter Investors		17.8			2.0				(1.6)				0.4				1.8				20.0
Quilter Cheviot		22.4			1.2				(1.6)				(0.4)				2.1				24.1
Quilter Financial Planning		1.0			-				-				-				-				1.0
Advice & Wealth Management		41.2			3.2				(3.2)				-				3.9				45.1
Quilter Wealth Solutions		49.9			3.0				(2.5)				0.5				4.9				55.3
Quilter International		18.4			0.8				(0.7)				0.1				1.6				20.1
Quilter Life Assurance		12.4			0.2				(1.4)				(1.2)				0.9				12.1
Wealth Platforms		80.7			4.0				(4.6)				(0.6)				7.4				87.5
Elimination of intra-group assets		(12.6)			(1.2)				0.9				(0.3)				(1.3)				(14.2)
Quilter plc		109.3			6.0				(6.9)				(0.9)				10.0				118.4
		AuMA as at 31 December 2017			Gross sales				Gross outflows				Net flows				Market and other movements				AuMA as at 30       June 2018
Quilter Investors		16.9			3.1				(1.3)				1.8				(0.3)				18.4
Quilter Cheviot		23.6			1.4				(0.9)				0.5				-				24.1
Quilter Financial Planning		1.2			-				-				-				-				1.2
Advice & Wealth Management		41.7			4.5				(2.2)				2.3				(0.3)				43.7
Quilter Wealth Solutions		50.2			4.3				(2.2)				2.1				-				52.3
Quilter International		19.3			0.9				(0.8)				0.1				(0.2)				19.2
Quilter Life Assurance		15.3			0.3				(1.3)				(1.0)				0.2				14.5
Wealth Platforms		84.8			5.5				(4.3)				1.2				-				86.0
Elimination of intra-group assets		(12.1)			(1.9)				0.6				(1.3)				0.2				(13.2)
Quilter plc		114.4			8.1				(5.9)				2.2				(0.1)				116.5
Estimated Asset Allocation (%)																H1 2019				FY 2018
Fund profile by Investment type																Total Client AuMA				Total Client AuMA
Quilter
Fixed Interest																25%				25%
Equities																65%				65%
Cash																5%				5%
Property and Alternatives																5%				5%
Total																100%				100%
Retail																98%				97%
Institutional																2%				3%
Total																100%				100%

 

Total Fee revenue (£m)                      H1 2019	Quilter Investors	Quilter Cheviot	Quilter Financial Planning	Advice & Wealth Management	Quilter Wealth Solutions	Quilter International	Quilter Life Assurance	Wealth Platforms	Head Office	Group
Net management fee	58	85	1	144	84	56	35	175	-	319
Other revenue	2	4	45	51	2	9	12	23	2	76
Total fee revenue	60	89	46	195	86	65	47	198	2	395
Total Fee revenue (£m)                      H1 2018	Quilter Investors	Quilter Cheviot	Quilter Financial Planning	Advice & Wealth Management	Quilter Wealth Solutions	Quilter International	Quilter Life Assurance	Wealth Platforms	Head Office	Group
Net management fee	49	86	1	136	83	56	44	183	-	319
Other revenue	1	3	41	45	2	10	8	20	1	66
Total fee revenue	50	89	42	181	85	66	52	203	1	385

2. Advice and Wealth Management

The following table presents certain key financial metrics utilised by management with respect to the business units of the Advice & Wealth Management segment, for the periods indicated.

Key financial highlights	H1 2019	H1 2018	% change
Quilter Financial Planning
Net management fee	1	1	-
Other revenue	45	41	10%
Total fee revenue	46	42	10%
RFPs (#)	1,803	1,590	13%
Productivity (£m)	1.0	1.8	(44%)
Quilter Investors
Net management fee	58	49	18%
Other revenue	2	1	100%
Total fee revenue	60	50	20%
NCCF (£bn)	0.4	1.8	(78%)
Closing AuM (£bn)	20.0	18.4	9%
Average AuM (£bn)	19.1	17.5	9%
Revenue margin (bps)	61	56	5 bps
Asset retention (%)	82%	85%	(3) pp
Quilter Cheviot
Net management fee	85	86	(1%)
Other revenue	4	3	33%
Total fee revenue	89	89	-
NCCF (£bn)	(0.4)	0.5	-
Closing AuM (£bn)	24.1	24.1	-
Average AuM (£bn)	23.5	23.5	-
Revenue margin (bps)	73	73	-
Asset retention (%)	86%	92%	(6) pp
Investment managers (#)	163	168	(3%)

3. Wealth Platforms

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

Key financial highlights	H1 2019	H1 2018	% change
Quilter Wealth Solutions
Net management fee	84	83	1%
Other revenue	2	2	-
Total fee revenue	86	85	1%
NCCF (£bn)	0.5	2.1	(76%)
Closing AuA (£bn)	55.3	52.3	6%
Average AuA (£bn)	52.9	50.9	4%
Revenue margin (bps)	31	32	(1) bp
Asset retention (%)	90%	91%	(1) pp
Quilter International
Net management fee	56	56	-
Other revenue	9	10	(10%)
Total fee revenue	65	66	(2%)
NCCF (£bn)	0.1	0.1	-
Closing AuA (£bn)	20.1	19.2	5%
Average AuA (£bn)	19.2	19.0	1%
Revenue margin (bps)	59	59	-
Asset retention (%)	92%	92%	-
Quilter Life Assurance
Net management fee	35	44	(20%)
Other revenue	12	8	50%
Total fee revenue	47	52	(10%)
Expenses	(21)	(25)	(16%)
Adjusted profit before tax	26	27	(4%)
Operating margin %	55%	54%	1 pp
NCCF (£bn)	(1.2)	(1.0)	(20%)
Closing AuA (£bn)	12.1	14.5	(17%)
Average AuA (£bn)	12.2	14.5	(16%)
Revenue margin (bps)	63	63	-
Asset retention incl. institutional life book (%)	77%	83%	(6) pp