Quilter Regulatory News (QLT)

Statement of Directors' responsibilities

in respect of the preliminary announcement of the Annual Report and the financial statements

The Directors confirm to the best of their knowledge:

· The results in this preliminary announcement have been taken from the Group's 2021 Annual Report, which will be available on the Company's website on 25 March 2022; and

· The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group.

Signed on behalf of the Board

Paul Feeney Mark SatchelChief Executive Officer Chief Financial Officer

9 March 2022

1See note 3(c) for details of changes to comparative amounts.

1On 11 March 2020, the Company announced a share buyback programme to purchase shares up to a maximum value of £375 million, in order to return the net surplus proceeds to shareholders arising from the sale of Quilter Life Assurance which had the impact of reducing the share capital of the Company. During the year ended 31 December 2021, the Company acquired 128.1 million shares (31 December 2020: 118.3 million) for a total consideration of £197 million (December 2020: £153 million) and incurred additional costs of £3 million (31 December 2020: £4 million). The shares, which have a nominal value of £9 million (31 December 2020: £8 million), have subsequently been cancelled, giving rise to a capital redemption reserve by the same value as required by the Companies Act 2006. At 31 December 2021, the committed remaining share buyback for which a legally binding instruction had been provided by the Board, of £26 million (31 December 2020: £22 million, 31 December 2019: £nil), was accrued as a liability. The increase in the liability in the year of £4 million (31 December 2020: £22 million) was recognised in retained earnings.

Approved by the Board of Directors and authorised for issue on 9 March 2022 and signed on its behalf:

Paul Feeney Mark Satchel

Chief Executive Officer Chief Financial Officer

Consolidated statement of cash flows

For the year ended 31 December 2021

The cash flows presented in this statement cover all the Group's activities (continuing and discontinued operations) and include flows from both policyholder and shareholder activities. All cash and cash equivalents are available for use by the Group except for cash and cash equivalents in consolidated funds (as shown in note 13). Cash flows for discontinued operations are shown separately in note 4(d).

1The acquisition of interests in subsidiaries balance of £7 million results from contingent consideration payments relating to historical acquisitions (31 December 2020: £20 million).

2Repurchase and cancellation of shares are in respect of cash movements associated with the share buyback programme. Further details are included within the consolidated statement of changes in equity. 

 Basis of preparation and significant accounting policies

For the year ended 31 December 2021

General information

Quilter plc (the "Company"), a public limited company incorporated in England and Wales and domiciled in the United Kingdom ("UK"), together with its subsidiaries (collectively, the "Group") offers investment and wealth management services, long-term savings and financial advice through its subsidiaries and associates primarily in the UK.

The address of the registered office is Senator House, 85 Queen Victoria Street, London, EC4V 4AB.

1: Basis of preparation

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. Quilter plc transitioned to UK-adopted International Accounting Standards in its company and Group financial statements on 1 January 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework. The financial statements of Quilter plc for the year ended 31 December 2021 have been prepared in accordance with UK-adopted International Accounting Standards ("IFRS") and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

These condensed consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments, and are presented in pounds sterling, which is the currency of the primary economic environment in which the Group operates.

Going concern

The Directors have considered the resilience of the Group, its current financial position, the principal risks facing the business and the effectiveness of any mitigating strategies which are or could be applied. This included an assessment of capital and liquidity over a three-year planning period concluding that the Group can withstand a severe but plausible downside scenario for at least the next 12 months after the date of signing the 2021 financial statements. This assessment incorporated a number of stress tests covering a broad range of scenarios, including economic and market shocks of up to 40% falls in equity markets, mass lapse events, new business growth scenarios and severe business interruption, equivalent to 1-in-50 and 1-in-200 year events. The Group took into consideration risks related to climate change as part of the assessment. As a result, the Directors believe that the Group is well placed to manage its business risks in the context of the current economic outlook and has sufficient financial resources to continue in business for a period of at least 12 months from the date of approval of these financial statements and continue to adopt the going concern basis in preparing the financial statements.

Critical accounting estimates and judgements

The preparation of financial statements requires management to exercise judgement in applying the Group's significant accounting policies and make estimates and assumptions that affect the reported amounts of net assets and liabilities at the date of the financial statements. The Board Audit Committee reviews these areas of judgement and estimates and the appropriateness of significant accounting policies adopted in the preparation of these financial statements.

Critical accounting judgements

The Group's critical accounting judgements are detailed below and are those that management make when applying the significant accounting policies and that have the most effect on the net profit and net assets recognised in the Group's financial statements.

Discontinued operations

Management judgement was applied in the classification of Quilter International (disposed in November 2021) as a discontinued operation. Management concluded that Quilter International represented a separate major line of business, being the Group's only major cross-border business and, as such, met the discontinued operations criteria. Accordingly, the Group restated prior year comparatives. Judgement was also applied in the recognition of specific ongoing costs to the Group's continuing operations that will remain in the business after the disposal of Quilter International. See note 4 for further details.

Recognition of provisions following the sale of Quilter International

Management exercised significant judgement in determining the accounting treatment for a number of provisions in respect of the sale of Quilter International. The sale requires a series of business activities to be performed over the period of two to three years subsequent to the sale, resulting in costs to separate the business from the Group. This includes separation from a significant number of IT systems and the migration of data. Provisions have been established where costs are either contractual obligations resulting from the sale agreement or represent a constructive liability in respect of ancillary work to separate the businesses. Significant judgement was required to assess whether the costs were directly attributable and incremental to the sale and whether a legal or constructive obligation existed in order to recognise the provisions. See note16 for further details.

Recognition of insurance recovery asset in respect of Lighthouse defined benefit pension advice

For Lighthouse DB to DC pension transfer advice provided, management has applied judgement in order to determine whether an asset can be reasonably estimated, and the measurement of such asset, in relation to an insurance recovery under Lighthouse's professional indemnity policies ("PI Policies"). Under the PI Policies, Lighthouse is entitled, subject to the policy terms and limits, to be indemnified for claims and defence costs in respect of legal liabilities arising in connection with Lighthouse's DB pension transfer advice activities; however, at the current time the insurers have not confirmed coverage for legal liabilities. See note 16 for further details.

Critical accounting estimates

The Group's critical accounting estimates are shown below and involve the most complex or subjective assessments and assumptions, which have a significant risk of resulting in material adjustments to the net carrying amounts of assets and liabilities within the next financial year. Management uses its knowledge of current facts and circumstances and applies estimation and assumption setting techniques that are aligned with relevant actuarial and accounting standards and guidance to make predictions about future actions and events. Actual results may differ from those estimates.

Provision for cost of defined benefit pension advice

A significant portion of the provision required for British Steel DB pension transfer redress was determined based upon calculations performed as part of the skilled person review for cases upheld, and subsequent formal offers of redress payments made. An estimation of the remainder of the provision required for cases where a formal offer has yet to be made was based upon those calculations and the suitability assessments of all cases performed by the skilled person, which are nearing completion. The calculations per case where an offer has been made are based upon FCA guidelines and modelling performed, and factors including pension transfer value, date of retirement, discount rate and inflation rate assumptions.

An estimation was determined on a similar basis for unsuitable pension advice related to schemes other than the British Steel Pension Scheme, using a methodology which takes account of recent experience and applying a proportion of transfer value to determine redress payable as an indicative provision. See note 16 for further details.

Measurement of deferred tax

The estimation of future taxable profits is performed as part of the annual business planning process, and is based on estimated levels of AuMA, which are subject to a large number of factors including global stock market movements, related movements in foreign exchange rates and net client cash flow, together with estimates of expenses and other charges. The business plan, adjusted for known and estimated tax sensitivities, is used to determine the extent to which deferred tax assets are recognised. In general, the Group assesses recoverability based on estimated taxable profits over a three-year planning horizon. Management has reassessed the sensitivity on the recoverability of deferred tax assets based on the latest forecast cash flows.

Other principal estimates

The Group's assessment of goodwill and intangible assets for impairment uses the latest cash flow forecasts from the Group's three-year business plan. These forecasts include estimates relating to equity market levels and growth in AuMA in future periods, together with levels of new business growth, net client cash flow, revenue margins, and future expenses and discount rates (see note 9). Management does not believe that the use of these estimates has a significant risk of causing a material adjustment to the carrying amount of the assets within the next financial year.

2: New standards, amendments to standards, and interpretations adopted by the Group

There were no new standards or interpretations which became effective from 1 January 2021.

The following amendments to accounting standards became applicable for the current reporting period, with no material impact on the Group's consolidated results, financial position or disclosures:

3: Significant changes in the year

3(a): Disposal of Quilter International

On 30 November 2021, the Group completed the sale of Quilter International to Utmost Group for consideration of £481 million. Quilter International has been classified as a discontinued operation and the comparative amounts in the Group's financial statements have been restated accordingly. Further details of the Group's discontinued operations and assets and liabilities disposed of are included in note 4.

3(b): New segmentation

The Group determines and presents operating segments based on the information that is provided internally to the Group's Chief Operating Decision Maker ("CODM"). In assessing the Group's operating segments, the CODM considered the nature of the services provided, product offerings, customer bases, operating and distribution channels amongst other factors.

As part of the Group's strategic ambitions to drive growth, and following the disposal of Quilter International, the CODM agreed to reorganise the Group into two new client-focused segments: Affluent and High Net Worth. Affluent encompasses the financial planning businesses, Quilter Financial Planning, the Quilter Investment Platform and Quilter Investors, the multi-asset investment solutions business. High Net Worth includes the discretionary fund management business, Quilter Cheviot, together with Quilter Private Client Advisers. The new segments replace the segments reported in the 2020 Annual Report: Advice and Wealth Management and Wealth Platforms. Comparatives have been restated as appropriate to reflect the new segmentation.

3(c): Changes to comparative amounts

Changes to comparative amounts have been made in respect of consolidated investment funds and fund-based fees. The comparative figures for the year ended 31 December 2020 have been restated accordingly in the Income Statement and related notes in order to satisfy the presentational requirements of IFRS with respect to revenue and expenditure. The changes are explained below, with no impact to the Group's profit, equity or alternative performance measures.

3(c)(i): Consolidated investment funds

For the year ended 31 December 2020, to correct an understatement of revenue and expenditure in respect of third-party interests in consolidated funds, the Group has increased investment return from consolidated funds by £21 million with a corresponding £21 million increase in the change in third-party interests in consolidated funds expense. The understatement arose due to an omission in information provided by an external party.

3(c)(ii): Fund-based fees

This is periodic fee income based on the market valuation of the Group's investment contracts. It is calculated and recognised on a daily basis in line with the provision of investment management services.

For the year ended 31 December 2020, to correct a misclassification of fee rebates, the Group has reduced Fee and commission expenses, and other acquisition costs by £9 million with a corresponding £9 million reduction in Fee income and other income from service activities.

Notes to the condensed consolidated financial statements

For the year ended 31 December 2021

4: Business combinations

4(a): Business disposals

On 30 November 2021, the Group completed the sale of Quilter International to Utmost Group for consideration of £481 million. The Group has recognised a profit on disposal of £89 million. Provisions established in respect of this disposal are shown in note 16. Separation, migration and decommissioning expenses incurred as a result of the disposal of £19 million are included within Other operating and administrative expenses in the discontinued operations income statement.

In 2021, the Group also sold LighthouseCarrwood Limited generating a profit of £2 million which is not reflected in the table above as the former subsidiary's activities did not represent a major line of business and therefore is regarded as being part of the Group's continuing operations.

4(b): Discontinued operations - income statement

The Group's discontinued operations principally relate to Quilter International, the sale of which completed on 30 November 2021.

1Loss on sale of operations before tax in the prior year relates to transaction and separation costs associated with the historical sales of the QLA and Single Strategy businesses.

£10 million of Other operating and administrative expenses (31 December 2020: £17 million) previously reported in Quilter International are now presented within continuing operations, as costs of this nature did not transfer to Utmost Group (the acquirer) on disposal.

4(c): Discontinued operations - statement of comprehensive income

4(d): Discontinued operations - net cash flows

4(e): Business acquisitions

There have been no material acquisitions during the year ended 31 December 2021 or the year ended 31 December 2020.

Contingent consideration arising from historical business acquisitions:

The table below details the movements in the contingent consideration balance during the current and prior year arising from the business acquisitions in previous years.

Contingent consideration represents the Group's best estimate of the amount payable in relation to each acquisition discounted to net present value. The basis used for each acquisition varies but includes payments based on a percentage of the level of assets under administration, funds under management and levels of ongoing fee income at future dates.

5: Alternative performance measures ("APMs")

5(a): Adjusted profit before tax and reconciliation to profit after tax

Basis of preparation of adjusted profit before tax

Adjusted profit before tax is one of the Group's alternative performance measures and represents the Group's IFRS profit, adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature, as detailed in note 5(b). Adjusted profit before tax does not provide a complete picture of the Group's financial performance, which is disclosed in the IFRS income statement, but is instead intended to provide additional comparability and understanding of the financial results.  

1Discontinued operations includes the results of Quilter International.

2IFRS profit after tax.

5(b): Adjusting items 

In determining adjusted profit before tax, the Group's IFRS profit before tax is adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature. These are detailed below.

5(b)(i): Impact of acquisition and disposal related accounting

The recognition of goodwill and other acquired intangibles is created on the acquisition of a business and represents the premium paid over the fair value of the Group's share of the identifiable assets and liabilities acquired at the date of acquisition (as recognised under IFRS 3 Business Combinations). The Group excludes any impairment of goodwill from adjusted profit as well as the amortisation and impairment of acquired intangible assets, any acquisition costs, finance costs related to the discounting of contingent consideration and incidental items relating to past disposals.

The effect of these adjustments to determine adjusted profit are summarised below. All adjustments are in respect of continuing operations.

1Acquisition and disposal related income in the year ended 31 December 2020 includes a £1 million credit for the acceleration of the discounting unwind following settlement of a loan receivable from TA Associates that related to deferred consideration arising from the sale of the Single Strategy Asset Management business.

Business transformation costs include three key items: costs associated with the UK Platform Transformation Programme; Optimisation programme costs and business separation costs following disposal of Quilter International. For the year ended 31 December 2021, these costs totalled £70 million (31 December 2020: £70 million) in aggregate, the principal components of which are described below:

UK Platform Transformation Programme - 31 December 2021: £28 million, 31 December 2020: £38 million 

The Platform Transformation Programme commenced in 2017 to replace our UK Platform, significantly upgrading its functionality as well as ensuring its underlying technology was brought up to modern standards, making it highly resilient and scalable to support business growth for the foreseeable future. The last of three phased migrations completed successfully in February 2021 with all Quilter Investment Platform assets now live on the new platform. The total lifetime costs of the programme are £202 million to 31 December 2021, and no further costs are expected.

Optimisation Programme costs - 31 December 2021: £22 million, 31 December 2020: £33 million

The Optimisation programme commenced in 2018 to provide closer business integration, creating central support, rationalising technology and reducing third-party spend. It is due to be largely complete by mid-2022. Since inception, the programme has delivered £61 million of run-rate cost savings with associated implementation costs of £81 million during this time, with the overall target of £65 million of run-rate benefits and associated delivery cost of up to £91 million.

During 2021, the Group successfully deployed the new finance, HR and procurement modules as part of our general ledger consolidation and modernisation activity. The Group continues to consolidate its technology estate and in particular the data centre, telephony and data reporting solutions. In Quilter Financial Planning the streamlining and improvement in productivity of the business has delivered cost savings during the year.

Business separation costs following disposal of Quilter International - 31 December 2021: £19 million, 31 December 2020: £nil

The costs of business separation arise from the process to separate Quilter International's infrastructure, which is complex and covers a wide range of areas including people, IT systems, data and contracts facilities. A programme team has been established to ensure the transformation of these areas to the acquirer. These provisions have been based on external quotations and estimations, together with estimates of the time required for incremental resource costs to achieve the separation. The costs are predominantly expected to occur over a three-year period.

The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. Work has taken place during 2021 in preparation for migration. Calculation of the provision is based on management's best estimate of the work required, the time it is expected to take, the number and skills of the staff required and their cost, and the cost of related external IT services to support the work. In reaching these judgements and estimates, management has made use of its past experience of previous IT migrations following business disposals, including the recent migration of QLA.

Quilter Investors' build out costs - 31 December 2021: £nil, 31 December 2020: £(1) million

The Group incurred build out costs to develop Quilter Investors as a separate business distinct from the Single Strategy business, which was sold on 29 June 2018. The build was substantially completed in 2019, resulting in the release of the remaining £1 million of the provision during 2020 which was established to complete the build.

Restructuring costs following disposal of Quilter Life Assurance - 31 December 2021: £1 million, 31 December 2020: £nil

Following the disposal of Quilter Life Assurance on 31 December 2019, the Group recognised £1 million for the cost of decommissioning IT systems as the Transitional Service Agreement with ReAssure runs off.

For the year ended 31 December 2021, these costs were £2 million (31 December 2020: £nil) and relate to further rebranding of the Quilter business. These one-off costs relating to the Group's separation from Old Mutual have been excluded from adjusted profit on the basis that they relate to a fundamental restructuring of the Group and are not representative of the operating activity of the Group.

The nature of much of the Group's operations means that, for management's decision-making and internal performance management, the effects of interest costs on external borrowings are removed when calculating adjusted profit. For the year ended 31 December 2021, finance costs were £10 million (31 December 2020: £10 million).

For the year ended 31 December 2021, the total policyholder tax adjustments to adjusted profit is £(7) million (31 December 2020: £9 million). Adjustments to policyholder tax are made to remove distortions arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from policyholders (which is included within the Group's income) 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/(loss) before tax attributable to equity holders. For a further explanation of the impact of markets on the policyholder tax charge see note 7(a). Adjustments are also made to remove policyholder tax distortions from other non-operating adjusting items.

Lighthouse pension transfer advice provision - 31 December 2021: £7 million, 31 December 2020: £5 million

The provision for the potential redress of British Steel Pension Scheme cases and other DB to DC pension transfer cases has been increased by £7 million in the year, which has been recognised in the income statement (31 December 2020: £5 million). This increase reflects the impact of post-acquisition market and discount rate movements, together with further consideration of the cases where redress is potentially payable, as part of the ongoing skilled person review. This has been excluded from adjusted profit on the basis that the advice activities to which the charge relates was provided prior to the Group's acquisition of the business. Further details of the provision are provided in note 16.

5(c): Reconciliation of IFRS income and expenses to "Total net fee revenue" and "Operating expenses" within adjusted profit

This reconciliation shows how each line of the Group's consolidated IFRS income statement is allocated to the Group's APMs: Net management fees, Total net fee revenue and Operating expenses, which are all defined in the Alternative Performance Measures section, and form the Group's adjusted profit before tax for continuing operations. The IFRS income statement column in the table below, down to "Profit/(loss) before tax attributable to equity holders from continuing operations", reconciles to each line of the Group's consolidated income statement. Allocations are determined by management and aim to show the Group's sources of profit (net of relevant directly attributable expenses). These allocations remain consistent from year to year to ensure comparability, unless otherwise stated.

1The APMs "Net Management Fees", "Other revenue", "Total net fee revenue" and "Operating expenses" are commented on within the Financial review.

2Consolidation of funds shows the grossing up impact to the Group's consolidated income statement as a result of the consolidation of funds requirements, as described within note 5(a). This grossing up is excluded from the Group's adjusted profit.

3See note 3(c) for details of changes to comparative amounts.

4See note 4(b) for details of cost reallocations.

6: Segmental information

6(a): Segmental presentation

The Group's operating segments comprise High Net Worth and Affluent, which is consistent with the manner in which the Group is now structured and managed. For all reporting periods, these segments have been classified as continuing operations in the income statement. Head Office includes certain revenues and central costs that are not allocated to the segments.

Adjusted profit before tax is an Alternative performance measure ("APM") reported to the Group's management and Board. Management and the Board use additional APMs to assess the performance of each of the segments, including net client cash flows, assets under management and administration, total net fee revenue and operating margin.

Consistent with internal reporting, income and expenses that are not directly attributable to a particular segment are allocated between segments where appropriate. The Group accounts for inter-segment income and transfers as if the transactions were with third parties at current market prices. Intra-group recharges in respect of operating and administration expenses within businesses disclosed as discontinued operations are not adjusted for potential future changes to the level of remaining costs following the disposal of those businesses.

The segmental information in this note reflects the adjusted and IFRS profit measures for each operating segment as provided to management and the Board. Income is analysed in further detail for each operating segment in note 6(c).

Continuing operations:

High Net Worth

This segment comprises Quilter Cheviot and Quilter Private Client Advisers.

Quilter Cheviot provides discretionary investment management predominantly in the United Kingdom with bespoke investment portfolios tailored to the individual needs of high net worth customers, charities, companies and institutions through a network of branches in London and the regions. Investment management services are also provided by operations in the Channel Islands and the Republic of Ireland.

Quilter Private Client Advisers provide financial advice for protection, mortgages, savings, investments and pensions.

Affluent

This segment is comprised of Quilter Investment Platform, Quilter Investors and Quilter Financial Planning.

Quilter Investment Platform is a leading investment platform provider of advice-based wealth management products and services in the UK, which serves a largely affluent customer base through advised multi-channel distribution.

Quilter Investors is a leading provider of investment solutions in the UK multi-asset market. It develops and manages investment solutions in the form of funds for the Group and third-party clients. It has several fund ranges which vary in breadth of underlying asset class.

Quilter Financial Planning is a restricted and independent financial adviser network including Quilter Financial Advisers and Lighthouse, providing mortgage and financial planning advice and financial solutions for both individuals and businesses through a network of intermediaries. It operates across all markets, from wealth management and retirement planning advice through to dealing with property wealth and personal and business protection needs.

Head Office

In addition to the Group's two operating segments, Head Office comprises the investment return on centrally held assets, central support function expenses, central core structural borrowings and certain tax balances.

Discontinued operations:

Quilter International, which would have formed part of the Affluent operating segment, has been classified as a discontinued operation following the Group's announcement on 1 April 2021 of the disposal of the business and subsequent disposal on 30 November 2021. See note 4 for full details. Comparative amounts for the year ended 31 December 2020 have been restated accordingly.

Quilter International is a cross-border business, focusing on high net worth and affluent local customers and expatriates in the UK, Asia, the Middle East, Europe and Latin America.

6(b)(i): Adjusted profit statement - segmental information for the year ended 31 December 2021

The table below presents the Group's continuing operations split by operating segment, reconciling the segmented IFRS income statement (to "Profit/(loss) before tax attributable to equity holders from continuing operations") to adjusted profit before tax.

1See note 4(b) for details of cost reallocations.

2Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.

6(b)(ii): Adjusted profit statement - segmental information for the year ended 31 December 2020

1See note 4(b) for details of cost reallocations.

2Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds.

3See note 3(c) for details of changes to comparative amounts.

6(c): Breakdown of income

This note analyses the Group's income into further detail based on the types of fees earned and split by operating segment, which is aligned to the Group's customer base.

1Income from fiduciary activities is included within fund-based fees.

2See note 3(c) for details of changes to comparative amounts.

7: Tax

7(a): Tax charged to the income statement