Quilter plc 2020 Full Year Results - Part 1

RNS Number : 7171R

Quilter PLC

10 March 2021

 

NEWS RELEASE

10 March 2021

Quilter plc preliminary results for the year ended 31 December 2020

Financial results ahead of market expectations underpinned by operational efficiency and capital strength

Management basis - continuing business

· Adjusted profit before tax for the Group of £168 million (2019: £182 million).

· Adjusted diluted earnings per share from continuing operations of 8.5 pence (2019: 8.6 pence), reflecting a reduced share count due to our capital return programme.

· Final dividend of 3.6 pence per share (2019: 3.5 pence per share), bringing the total dividend for the year to 4.6 pence per share (2019: 5.2 pence per share).

· Assets under Management and Administration ("AuMA") up 7% to £117.8 billion at 31 December 2020 (31 December 2019: £110.4 billion).

o  Net Client Cash Flow ("NCCF") of £1.6 billion increased significantly on the prior year (2019: £0.3 billion).

o  Integrated net inflows of £2.3 billion (2019: £2.6 billion).

· IFRS profit before tax attributable to equity holders from continuing operations of £50 million (2019: loss of £53 million).

· Operational efficiency delivered a reduction in full year operating expenses of £16 million (3%) despite incremental costs from acquisitions of c.£12 million, higher FSCS levy and regulatory expenses of £7 million together with other cost headwinds including COVID-19 costs of c.£5 million, reflecting further cost savings from the Optimisation programme and tactical savings of c.£40 million from management actions.

· Resilient operating margin of 25% (2019: 26%) with the decline limited to one percentage point due to management actions largely offsetting the challenging market environment.

Statutory results

· IFRS profit after tax from continuing operations of £89 million (2019: loss of £21 million).

· Basic earnings per share from continuing operations of 5.1 pence (2019: (1.1) pence).

· Diluted earnings per share from continuing operations of 5.0 pence (2019: (1.1) pence).

· Solvency II ratio of 217% after payment of the recommended final dividend (2019: 221%).

Strategic progress

· Platform Transformation Programme successfully completed with final migration in late February 2021, in line with plan.

· Optimisation ahead of schedule with run-rate savings of £46 million by end-2020 alongside tactical cost savings of c.£40 million. Additional optimisation savings of c.£15 million identified and expected to be realised by mid-2022, with a cost to achieve of c.£16 million.

· 2019 Advice acquisitions integrated. Business repositioned to deliver a more seamless one-Quilter proposition to reinforce delivery of good customer outcomes. Increased focus on adviser productivity, efficiency and customer focus expected to lead to the departure of a small number of restricted financial planners in 2021.

· Continued capital management discipline. Share repurchases of £175 million completed up to close of business on 9 March 2021 at an average price of 132 pence per share. Odd-lot Offer completed in May 2020 at a cost of £21 million representing a purchase price of 126 pence per share. Regulatory approval in place for next £100 million tranche of share repurchase programme.

· Strategic review of Quilter International in progress.

Paul Feeney, Chief Executive Officer, said: 

For all of us, 2020 was a year of extraordinary challenges, both personal and professional. At Quilter, I am pleased that we have not only come through the year well but also strategically and operationally stronger. The successful completion of our Platform Transformation Programme is a significant milestone. It not only proves our organisational capability to manage a project on this scale safely, but also sets us up for more accelerated growth in the huge UK wealth market. I was also pleased to have demonstrated our ability to outperform on cost expectations in challenging market conditions. We responded quickly to the changed environment in the second quarter by identifying tactical cost savings of £30 million and over-achieved against this target leading to a 3% decline in year-on-year costs despite other meaningful expense headwinds.

None of this would have been possible without the extraordinary efforts of all my colleagues, right across the organisation, who have done a great job in exceptional and unusual conditions. I am also delighted that our work has been recognised across the industry through the various awards we have won this year. In particular, being named "Company of the Year" in the recent FT Adviser service awards, retaining Quilter Financial Planning's spot as the UK's number one financial advice firm. More recently, Quilter Cheviot was awarded wealth manager of the year by Professional Adviser.

I am excited as I look out to 2021 and beyond. Since we Listed, our focus has been on transforming Quilter into the business we planned; a modern UK focussed wealth manager built around the core tenets of trusted financial advice, value for money, responsible and sustainable investment solutions and excellent customer service, all enabled and supported by the most advanced technology platform. Now with significant progress made on our transformation, we are wholly focussed on driving growth and efficiency through even better customer outcomes.

Quilter highlights from continuing operations1	2020	2019
Assets and flows
AuMA (£bn)2	117.8	110.4
Gross sales (£bn)2	10.9	12.3
NCCF (£bn)2	1.6	0.3
NCCF/opening AuMA2	1%	-
Integrated net inflows (£bn)2	2.3	2.6
Productivity (£m)2,3	1.3	1.6
Asset retention2	92%	88%
Profit & loss
IFRS profit/(loss) before tax attributable to equity holders from continuing operations (£m)2	50	(53)
IFRS profit/(loss) after tax from continuing operations (£m)	89	(21)
Adjusted profit before tax (£m)2	168	182
Operating margin2	25%	26%
Revenue margin (bps)2	51	55
Return on equity2	7.6%	8.3%
Adjusted diluted EPS from continuing operations (pence)2	8.5	8.6
Diluted earnings per share from continuing operations (pence)	5.0	(1.1)
Non-financial
Restricted Financial Planners ("RFPs")4	1,842	1,799
Investment Managers ("IMs")4	169	167
1 Continuing operations represent Quilter plc, excluding the results of Quilter Life Assurance ("QLA") in 2019, which was sold on 31 December 2019 to ReAssure.
2 Alternative Performance Measures ("APMs") are detailed and defined on pages 5 to 7.
3 Productivity is the measure of the value created by integrated net inflows from our advice business per average Restricted Financial Planner.
4 Closing headcount as at 31 December.
Alternative Performance Measures ("APMs")
We assess our financial performance using a variety of measures including APMs, as explained further on pages 5 to 7. In the headings and tables presented from page 12 onwards, these measures are indicated with an asterisk: *.

Quilter plc results for the year ended 31 December 2020

John-Paul Crutchley	UK	[phone]
Keilah Codd	UK	[phone]
Media
Jane Goodland	UK	[phone]
Tim Skelton-Smith	UK	[phone]
Camarco
Geoffrey Pelham-Lane	UK	[phone]

Paul Feeney, CEO, and Mark Satchel, CFO, will host a virtual presentation and Q&A session for investors and analysts at 08:00am (GMT) today, 10 March 2021, accessible via our website.

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

Alternatively, if you would like to join the presentation and Q&A via the telephone, please use the numbers below. We strongly advise dialling-in five to ten minutes prior to the start of the presentation.

To join by telephone:

United Kingdom/ Other	[phone]
South Africa	[phone]
United States	[phone]
Access Code	23196769#

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, 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.

 

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
Old Mutual UK Platform	Quilter Investment Platform
International	Quilter International
Quilter Life Assurance	Sold on 31 December 2019 to ReAssure

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 consolidated financial statements, which include the Group's income statement, statement of financial position and statement of cash flows, which are presented on pages 33 to 37.

Further details of APMs used by the Group in its financial review are provided below. The Group's APMs have not changed due to the adoption of new accounting standards during the period, as disclosed in note 1 to the consolidated financial statements.

APM	Definition
Adjusted profit before tax	Adjusted profit before tax for the Group represents the Group's IFRS profit, adjusted for key items and excludes non-core operations, as detailed on page 44 in the consolidated financial statements. Due to the nature of the Group's businesses, management believe that adjusted profit before tax is an appropriate basis by which to assess the Group's underlying operating results as it enhances comparability and understanding of the financial performance of the Group. A detailed reconciliation of the adjusted profit before tax metrics presented, and how these reconcile to IFRS, is provided on page 17. Adjusted profit before tax is referred to throughout the Chief Executive Officer's statement and Financial review, with comparison to the prior period explained on page 14. A reconciliation from each line item on the IFRS income statement to adjusted profit before tax is provided in note 5(c) to the consolidated financial statements on page 46.
IFRS profit before tax attributable to equity holders	IFRS profit before tax attributable to equity holders represents the profit after policyholder tax ('tax attributable to policyholder returns') but before shareholder tax('tax attributable to equity holders'). The tax charge for the Group's UK life insurance entity, Old Mutual Wealth Life & Pensions, comprises policyholder tax and shareholder tax. Policyholder tax is regarded economically as a pre-tax cost to the Group, in that it is based on the return on assets held by the Group's life insurance entities to match against related unit-linked liabilities in respect of clients' policies, and for which the company charges fees to clients. As such, policyholder tax can be a charge or credit in any period depending on underlying market movements on those assets held to cover linked liabilities. Shareholder tax is the remaining tax after deducting policyholder tax and is more reflective of the profitability of the entity.  This metric is included on the face of the Group's income statement on page 33 and is included in the adjusted profit before tax to IFRS profit after tax reconciliation in note 5(a) to the consolidated financial statements.
IFRS profit before tax (excluding amortisation, policyholder tax adjustments and other one-off items)	This profit metric is calculated using the Group's IFRS profit before tax, from continuing and discontinued operations, and is adjusted to exclude amortisation of intangible assets, policyholder tax adjustments, and other one-off items as disclosed in the reconciliation in the Group's Annual Report. This APM was relabeled in 2019, to provide a more meaningful title (was previously called IFRS profit before tax (excluding policyholder tax and life tax contributions)). This metric is used as the basis for remuneration, which is explained in the Remuneration Report in the Group's Annual Report.
Revenue margin (bps)	Revenue margin represents net management fees, divided by average AuMA.Management uses this APM as it represents the Group's ability to earn revenue from AuMA. Revenue margin by segment and for the Group is explained on page 15 of the Financial review.
Operating margin	Operating margin represents adjusted profit before tax divided by total net fee revenue. Management use this APM as this is an efficiency measure that reflects the percentage of total net fee revenue that becomes adjusted profit before tax. Operating margin is referred to in the Chief Executive Officer's statement and Financial review, with comparison to the prior period explained in the adjusted profit section on page 14.
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 sales are disclosed by business on page 12 of the Financial review and by business and segment in the Supplementary information on pages 25 to 30.
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. Gross outflows are disclosed by business on page 12 of the Financial review and by business and segment in the Supplementary information on pages 25 to 30.
Net client cash flows ("NCCF")	NCCF is 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 total net fee revenue. NCCF is referred to throughout this document, with a separate section in the Financial review on pages 12 to 13 and is presented by business and segment in the Supplementary information on pages 25 to 30.
Integrated net inflows	Integrated net inflows are total NCCF from continuing operations, 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. Integrated net inflows are explained in the NCCF section of the Financial review on page 13.
Assets under Management and Administration ("AuMA")	AuMA represents the total market value of all financial assets managed and administered on behalf of customers. For reporting, the Advice and Wealth Management segment presents Assets under Management and Wealth Platforms segment presents Assets under Administration. AuMA is referred to throughout this document, with a separate section in the Financial review on page 13 and is presented by business and segment in the Supplementary information on page 26.
Average AuMA	Average AuMA represents the average total market value of all financial assets managed and administered 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.
Total net fee revenue	Total net fee revenue represents revenue earned from net management fees and other revenue listed below and is a key input into the Group's operating margin. Further information on total net fee revenue is provided on page 14 of the Financial review and note 5(c) in the consolidated financial statements.
Net management fees	Net management fees consists of revenue generated from AuMA, fixed fee revenues including charges for policyholder tax contributions, less trail commissions payable. Net management fees are presented net of trail commission payable as trail commission is a variable cost directly linked to revenue, which is a treatment and presentation commonly used across our industry. Net management fees is a part of total net fee revenue and is a key input into the Group's operating margin. Further information on net management fees is provided on page 14 and note 5(c) in the consolidated financial statements.
Other revenue	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)). Other revenue is a part of total net fee revenue, which is included in the calculation of the Group's operating margin. Further information on other revenue is provided on page 14 and note 5(c) in the consolidated financial statements.
Operating expenses	Operating expenses represent the underlying costs for the Group, which need to be incurred to earn total net fee revenue and excludes the impact of material one-off items. Operating expenses are included in the calculation of adjusted profit before tax and impact the Group's operating margin. A reconciliation of operating expenses to the applicable IFRS line items is included in note 5(c) to the consolidated financial statements, and the adjusting items excluded from operating expenses are explained in note 5(b). Operating expenses are explained on page 15 of the Financial review. This APM was relabeled this year, from 'expenses' to 'operating expenses', to reflect a more meaningful title and provide a clearer distinction between the statutory expense measure and this APM.
Cash generation	Cash generated from operations is calculated by removing non-cash generative items from adjusted profit before tax, such as deferrals required under IFRS to spread fee income and acquisition costs over the lives of the underlying contracts with customers. It is stated after deducting an allowance for net cash required to support the capital requirements generated by new business offset by a release of capital from the in-force book. Cash generation is explained on page 18 of the Financial review.
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 gross outflows of the assets under management during the period as a percentage of opening assets under management and administration. Asset retention is calculated as: 1 - (annualised gross outflow divided by opening AuMA). Asset retention is provided for the Group on page 2, and by segment on pages 29 to 30.
NCCF/opening AuMA (excluding QLA)	This measure is calculated as total NCCF annualised (as described above) divided by opening AuMA presented as a percentage. This metric is provided on page 2.
Productivity	Productivity is a measure of the value created by integrated net inflows from our advice business and is an indicator of the success of our integrated business model. Productivity is calculated as integrated net client cash flow per average Restricted Financial Planner. Productivity is provided on pages 2, 13 and 29.
Return on Equity ("RoE")	Return on equity calculates how many pounds of profit the Group generates from continuing operations with each pound of shareholder equity. This measure is calculated as adjusted profit after tax divided by average equity. Equity is adjusted for the impact of discontinued operations, if applicable. Return on equity is provided on page 2.
Adjusted diluted earnings per share	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 55 and note 8 in the consolidated financial statements. A continuing and discontinued view of diluted earnings per share has also been presented, and the calculation of all EPS metrics, in note 8 to the consolidated financial statements. Adjusted diluted earnings per share is referred to throughout this document, with additional details in the EPS section in the Financial reviewon page 16.
Headline earnings per share	The Group is required to calculate headline earnings per share in accordance with the Johannesburg Stock Exchange Limited Listing Requirements, determined by reference to the South African Institute of Chartered Accountants' circular 02/2015. This is calculated on a basic and diluted basis. For details of the calculation, refer to note 8 of the consolidated financial statements.

Chief Executive Officer's statement

Execution

2020 will go down as one of the more demanding years in living memory with an unprecedented level of personal and business turmoil across the world. Our hearts go out to all those whose lives have been forever blighted by the consequences of COVID-19, whether through the passing of loved ones, financial hardship or having to deal with the personal challenges and mental health consequences of isolation during lockdown.

Against this backdrop, I have been humbled by the dedication, resilience, passion, and single-minded focus of all my colleagues across Quilter to deliver against the odds. They have not only met the expectations of all our stakeholders but have risen to the challenge of ensuring that, despite the unprecedented environment, 2020 was business-as-normal when it came to delivering for our customers, executing upon our strategic plans or just being there to support one another.

The four things that characterised Quilter through the crisis were:

· our focus on the welfare of our colleagues, advisers, customers and charitable partners;

· a focus on maintaining continuity of customer service at a high level and ensuring operational resilience;

· our financial resilience, with an unrelenting focus on costs and efficiency, coupled with strong liquidity following the sale of Quilter Life Assurance; and

· our continued strategic delivery including delivering our Platform Transformation Programme, implementing our new General Ledger and adviser payments system as well as integrating the advice acquisitions made in 2019.

I am also pleased that our work has been recognised across the industry through the various awards we have won this year. In particular, being named "Company of the Year" in the recent FT Adviser service awards, retaining Quilter Financial Planning's spot as the UK's number one financial advice firm and more recently, Quilter Cheviot being awarded wealth manager of the year in the Professional Adviser Wealth Partnership Awards.

2020 was a year that presented many challenges but our people have risen to them and have come through stronger with our business better positioned. The future has arrived early, and we have embraced it.

Strategic delivery

There are three strands to our strategic transformation agenda at Quilter and the more uncertain environment makes our focus on execution even more resolute:

· we will leverage the transformational power of our new UK Platform to deliver faster growth and productivity;

· we will make Quilter a simpler business, focussed on customer segments, to drive even better customer outcomes; and

· we will optimise our business by completing the cost reduction plans we set out in March 2019, to drive operational leverage.

I am delighted to report that our UK Platform Transformation Programme has been successfully completed with the final migration occurring just after year end in February 2021, during a full UK lockdown. This followed a successful initial migration of c.8% of the total platform assets in February 2020 which demonstrated that our platform technology worked well at scale and proved our ability to undertake a large migration in a safe and controlled manner. Our second migration completed in November 2020, in line with the revised timeline we set out in response to changed circumstances arising from COVID-19. That migration covered the majority (c.70%) of total platform assets and c.2,000 adviser firms. Finally, around 5,000 adviser firms were involved in the last migration in February 2021. In a number of instances, firms in this last migration do not use Quilter as a primary platform and we anticipate that their successful transfer onto our market-leading technology will be a gateway to a stronger business relationship over time.

Each migration followed the same rigorous approach:

· intense planning and validation of our readiness plans ahead of migration, incorporating a number of dry runs and dress rehearsals;

· elevated post-migration customer and adviser support in the immediate post-migration period; and

· incorporating adviser feedback to drive system improvements and embedding lessons learned from each migration into our planning for the next migration.

Successful platform migrations on this scale are rare and they are rare for a reason given their complex organisational, logistical and technological demands. We are pleased to have not only successfully completed this programme safely but to also have embedded the core competencies for a transformation project of this scale into our core business skillset.

We are delighted to have reached this milestone and our unique combination of flexible product wrappers, sophisticated management of investment solutions and range of tools, all built on robust new technology delivers an advanced platform experience for the intermediary community. We have already received excellent feedback on day-to-day usability, simplicity of portfolio management as well as our bespoke reporting features. Each of these are designed to make an adviser's life easier. Our award-winning technical expertise has supported advisers to quickly adapt to fully use the Platform's capability which, coupled with our commitment to service, delivers a market leading offering.

Turning to Quilter Financial Planning, our focus has been on integrating the acquisitions we made in 2019. Charles Derby was re-branded to Quilter Financial Advisers, our mass-affluent National business. The integration of Lighthouse plc ("Lighthouse") is largely complete with advisers adopting the Quilter Financial Planners proposition, advice standards and technology. The generation of new client leads through our affinity relationships has remained strong despite the inevitable impact of COVID-19.

I appointed Stephen Gazard as CEO of Quilter Financial Planning in June with a view to repositioning the business to drive stronger net flows from a more productive base of advisers. Over the last five years we have built up a strong, hard to replicate, advice business focused on delivering good customer outcomes. Stephen's focus is straightforward: to take our existing strong franchise and simplify it to deliver cost effective, client-focused propositions that deliver good-outcomes to our customers. This makes the next stage of Quilter Financial Planning's evolution a very exciting one. While this will lead to certain advisers who are either not fully aligned with our proposition or who lack sufficient scale or strategic alignment leaving the business in 2021, we will have a simpler higher growth business delivering quality assured client outcomes to an even higher level of consistency.

In line with these plans to simplify our business and better align our resources to our principal customer groups, we will transfer Quilter Private Client Advisers into Quilter Cheviot later this year. Combining these businesses will allow us to deliver a seamless client proposition encompassing advice and bespoke investment management. Where desired, this will ensure integrated delivery of good client outcomes, while helping us maximise the growth potential within our higher net worth proposition.

I am also pleased to announce that, subject to regulatory approval, Steven Levin will be taking on an additional role as CEO of Quilter Investors while maintaining his existing responsibilities for the Quilter Investment Platform. As we seek to drive growth and efficiency across Quilter, we believe it makes sense to bring these two parts of our organisation closer together. I have tasked Steven with simplifying the client experience and ensuring a seamless approach to customer pricing and proposition development to further drive and deliver good customer outcomes.

We have also simplified and broadened the Quilter Investors product range through fund consolidation and new product launches, including our new multi-asset income suite and Cirilium Blend proposition. Both of these new investment propositions have significant assets under management and are performing well versus peers.

Our Optimisation programme continues to progress in line with plan. There are three strands to Optimisation:

· driving closer integration of capabilities across Quilter;

· rationalising technology and discretionary spend processes; and

· driving efficiency as interdependencies are streamlined.

Our net Optimisation run-rate savings increased by £22 million from the end 2019 level, to total run rate savings of £46 million to date and are ahead of where we expected to be at this point. While we delayed some staff restructuring activities at the outset of the COVID-19 situation, good progress on the overall programme has been maintained. Notably, we took completion of our new London property in August and exited all three of our legacy London sites in 2020. Although COVID-19 lockdowns have limited our ability to make the most of our new space, I am excited by the opportunities to collaborate that it will provide once we are able to return to the office.

Following the sale of Quilter Life Assurance at the end of 2019, we commenced a capital return programme to return £375 million to shareholders by way of a share buyback. Over the course of 2020 we purchased 118.3 million shares at a cost of £153 million giving an average price of 129.3 pence per share. Since year end, a further 14.3 million shares have been purchased giving an aggregate capital return of £175 million to date.

In December 2020, we announced the Board had begun a strategic review of the Isle of Man based Quilter International business. The strategic options range from a decision to retain the business through to a disposal. This review has made considerable progress but the Board is not yet in a position to reach a conclusion. We continue to note that if a disposal were to be decided upon, there is no certainty that any potential transaction would be concluded. We expect to update the market on the outcome of the strategic review by late Spring 2021.

Operational delivery

Delivering good customer outcomes through a trusted advice relationship is central to the Quilter business model. The Quilter Investment Platform is at the heart of our business, providing the investment 'wrappers' and other functionality to meet both our client and their adviser needs, while our investment solutions provide the intellectual capability to deliver the outcomes our clients seek. Confidence in our proposition is demonstrated through both the continued attraction of our solutions to independent financial advisers and the resilience of our integrated net inflows.

We experienced substantial improvement in year-on-year net flows even though gross client cash flows into the business in 2020 at £10.9 billion were around 11% lower than 2019 levels. NCCF increased to £1.6 billion versus £0.3 billion in 2019. This reflected improved persistency in client assets across each of Quilter Cheviot, Quilter International and the Quilter Investment Platform. Across the Group, overall levels of client retention improved to 92% versus 88% (90% excluding the impact of the specific team departure in Quilter Cheviot) in 2019. The overall level of DB to DC flows were broadly stable on 2019 and we welcomed the FCA announcement on plans to reform the DB transfer market which will help promote better, industry-wide, customer outcomes. I am pleased to note that our existing approach was already consistent with the FCA's announcement.

Overall AuMA increased by c.7% over the course of the year with a closing balance of £117.8 billion at 31 December 2020 compared with £110.4 billion at 31 December 2019. Average AuMA, the principal driver of net management fee revenue, of £107.9 billion for the year was modestly above the 2019 level of £105.7 billion. 

I was pleased with consistent gross sales of £5.7 billion onto the Quilter Investment Platform in the period with the increase in NCCF from £0.9 billion in 2019 to £1.5 billion in 2020 while undertaking two major client asset migrations during the year. This consistency provides a solid foundation from which our new platform will be able to drive stronger flows given the wider range of products we can offer and assets we can hold.

Quilter International experienced modestly lower gross and net flows versus the prior year reflecting the nature of its business.

Over the course of the year, we recruited 137 Restricted Financial Planners, bringing our total to 1,842 net of departures. Limited net organic growth was a function of the external environment coupled with increased focus on individual adviser productivity. We expect further departures during 2021 as we reposition Quilter Financial Planning to drive better flow momentum while delivering good customer outcomes. The pipeline of firms seeking to join our network remains strong.

We have continued to add to the Quilter Cheviot investment team and our Investment Manager headcount increased to 169 at the end of 2020 from 167 in December 2019 and a low of 155 at the end of December 2018. We will to continue to selectively add to our Investment Manager headcount which will support growth in assets under management over time.

Our investment propositions continued to deliver good investment performance for clients. The medium and long-term performance at Quilter Cheviot continued to outperform relevant ARC benchmarks, remaining mainly first or second quartile, to the end of December 2020.

Quilter Investors' multi-asset solutions performance was also good, with performance on the biggest range, Cirilium Active, improving markedly to deliver second quartile outcome on a one-year view across all five active portfolios, with its longer-term performance also strong. Wealth Select continues to perform strongly over one, three and five years and we broadened access to this range by adding it to our restricted adviser panel. Cirilium Blend has performed satisfactorily since launch, remaining mostly second quartile. A notable milestone was reached with the Cirilium Passive range passing through the £2 billion AuM mark, making it Quilter Investors' third largest solution.

I was delighted to recruit Bambos Hambi as Chief Investment Officer of Quilter Investors in November from Aberdeen Standard Investments ("ASI"). At ASI, Bambos was Head of Multi-Manager Strategies and led one of the biggest fund selection teams in the UK. Bambos has a strong reputation for his down-to-earth, patient long-term investment approach - he will be a strong cultural fit with Quilter.

Business performance

I am very satisfied with our adjusted profit before tax for 2020 of £168 million, down 8% on 2019, given the broader market environment experienced during the year. Lower total net fee revenue of £682 million (2019: £712 million) reflected a decline in revenue margins as a result of the mix shift in Quilter Investors and Quilter International, as well as the planned repricing on the Quilter Investment Platform. Our overall revenue out-turn for the year has been better than we anticipated at the time of our Interim Results as a result of stronger market levels during the second half of the year. This, together with our commitment to cost discipline, has supported the profit out-turn.

In 2020 we focused strongly on cost management to protect the overall P&L from volatility in the external environment. A year ago, ahead of COVID-19 impacting markets, we were expecting a 2020 cost out-turn of around £560 million. After the sharp decline in markets at the end of March, we set a revised target of £530 million with our first quarter 2020 trading update with the intention of reducing expenditure by c.£30 million. We outperformed against this target and delivered tactical reductions in expenditure of c.£40 millionversus our plan through lower variable compensation costs, reduced marketing and development spend and other short-term initiatives. As a result, full year operating expenses came in well below our revised target with a year-on-year decline of £16 million to £514 million (2019: £530 million). This was achieved despite absorbing a full year of costs from the Quilter Financial Planning acquisitions made during 2019, which added £12 million of costs including restructuring spend, as well as a £7 million higher charge for the 2020 FSCS levy and other regulatory costs. We also accommodated costs stranded from the sale of Quilter Life Assurance, and property dual-running costs in relation to the new London premises. Separately, there was a cost drag of £5 million relative to our expectations in respect of COVID-19 related expenses from support arrangements, costs of additional equipment required to enable staff to work from home and the impact of deferring certain planned redundancies until later in the year.

The decline in our operating margin for the full year was limited to a percentage point to 25% (2019: 26%, excluding Quilter Life Assurance) representing a significantly better out-turn than the 21% achieved in the first half of the year. Given more robust market levels and a better revenue outlook, the majority of the c.£40 million of tactical cost savings achieved in 2020 are expected to return to the expense line in 2021. As these savings contributed to an improvement in the operating margin of around six percentage points, underlying year-on-year progress into 2021 should be considered against a base excluding the benefit of these essentially one-time savings.

Our IFRS profit after tax from continuing operations was £89 million, compared to a loss of £21 million in 2019. The difference between this measure and our Adjusted Profit is largely due to non-cash amortisation of intangible assets, our Business Transformation costs and changes in the impact that policyholder tax positions can have on the Group's results. Business Transformation costs will remain in 2021 reflecting the final expenditure on the Platform Transformation Programme and further expenses incurred as part of our Optimisation initiatives.

Adjusted earnings per share of 8.5 pence compared with 8.6 pence from Quilter's continuing operations in 2019. On an IFRS basis, we delivered basic EPS from continuing operations of 5.1 pence versus a loss of 1.1 pence per share for the comparable period of 2019 on the same basis. Period-end shares declined by 6.2% or 118.3 million as a result of our share buyback programme.

The Board is recommending a final dividend of 3.6 pence per share which, together with the interim dividend of 1.0 pence per share, takes the proposed full year dividend to 4.6 pence per share. This compares to a 2019 dividend of 5.2 pence per share (inclusive of a distribution of 1.2 pence per share in respect of Quilter Life Assurance's profit contribution).

Finally, the provision made in respect of certain Defined Benefit ("DB") pension transfers for former British Steel Pension Scheme ("BSPS") members is unchanged since the interim results. We continue to work and co-operate with the FCA and the skilled person who has been appointed in relation to this matter, and their work will be described in more detail in the Annual Report. Whilst the relevant advice pre-dated our acquisition of Lighthouse, we have ensured that Lighthouse has responded to the situation consistent with our values.

Culture

Creating an inclusive and diverse culture where all colleagues feel they can be themselves has always been a core tenet of our cultural agenda. As much as this subject is important to all of us at Quilter, events elsewhere in 2020 really laid bare how much still needs to be done. The death of George Floyd in the US and subsequent protests in May emphasised the importance of decisive action and my own communication on the topic acted as a catalyst for colleagues opening up and demonstrated to me that, as an organisation, we had further work to do. In response, we created two new pan-Quilter employee networks for cultural diversity and LGBT+, to complement our existing gender equality network. We also launched an enhanced suite of family-friendly policies, appointed a new Head of Inclusion and Wellbeing, significantly enhanced our diversity data, implemented a diverse shortlist requirement for our most senior management roles and have begun to speak openly on these issues both internally and externally. In 2021 we will report our ethnic diversity data for the first time and set future targets. I was also pleased with our progress on the proportion of women in our senior management, meeting our target of 35% by the end of 2020. We have more room to improve and have reset our target to reach a minimum of 38% by the end of 2023. It is a priority for us to build on our progress in 2021 and I am confident that we will do so.

We monitor colleague engagement on a quarterly basis. This is an established process at Quilter that has been in place since prior to our Listing. We purposefully stepped up our communication over the period of lockdown with my Executive Committee and I sending weekly updates to colleagues across the organisation and encouraging feedback to help foster a greater spirit of involvement. I am delighted that our regular "Peakon" engagement scores across the organisation remain at a consistently high level.

We have a deep commitment to acting and investing responsibly and in 2020 we made excellent progress towards embedding environmental, social and governance (ESG) factors throughout our business. Climate change is undoubtedly the most significant challenge the world faces and tackling it is a responsibility of everyone. In 2020 we formalised our climate change strategy with the objective to reduce Quilter's contribution to climate change and support the transition to a low carbon economy. To achieve this ambition, we have developed a framework which is helping us to reduce our direct carbon footprint, embed climate considerations in our investment management and stewardship activity, offer clients climate-focused investment solutions and align with the Task Force on Climate-related Financial Disclosure. I am pleased with our progress on incorporating ESG considerations into our entire value chain. We are embedding ESG into our standard advice process to help clients invest according to their ESG preferences, and we are embedding ESG even more deeply into our standard investment management processes, both within our multi-asset investment solutions and our discretionary wealth management business. We celebrated the 10 year anniversary of our Climate Assets Fund which has benefited from increasing investor interest in ESG funds. To provide clients and advisers with greater transparency, in 2020, we incorporated ESG ratings for third-party funds available on our UK platform. Upon this solid foundation we will enhance our approach to responsible investment even further in 2021.

Outlook

Markets globally entered 2021 on an optimistic note and recent COVID-19 vaccine related news has been positive with roll-out plans progressing well in the UK. Although the full economic impact of the pandemic is only just beginning to be experienced, in terms of broader social challenges I am optimistic that the worst may be behind us. Quilter remains well positioned in an industry with secular long-term growth prospects. Completing the migration of assets onto our new UK platform in February 2021 was a watershed moment for the Group, not just because this has been a key area of focus internally and externally over the last five years but, more importantly, because the new Platform will strengthen the cohesion between our different UK business capabilities and will be a catalyst for faster growth in the future.

We are hopeful that flow momentum will continue to improve in 2021 with the year having started well in this regard. Boosting accessibility to our Wealth Select range by including it in our restricted proposition in Quilter Financial Planning will improve asset retention and integrated flows. While this may have an adverse impact on the revenue margin in Quilter Investors, these actions should be accretive to assets under management and administration which drive revenue generation.

We remain focused on controlling costs through both our Optimisation programme and other management initiatives and expect the 2021 cost out-turn to be around £560 million, assuming broadly stable markets. We need to ensure Quilter is fit for the future and so our Optimisation plans remain on track to deliver planned cost savings of £50 million by end 2021. Our work on Optimisation has also identified additional cost savings of £15 million which we intend to realise by mid-2022. To achieve this, the Group expects to incur additional Business Transformation costs of £16 million.

2020 has been an intense year with significant progress on strategic execution coupled with strong operational performance. Since we Listed, our focus has been on transformation. Our focus is now on execution, leveraging the strengths and capabilities of the modern integrated wealth manager that we have built.Now that Quilter is much closer to being the finished article, I look forward to the business reaching its full potential in 2021 and beyond.

Paul Feeney

Chief Executive Officer

Financial review

Review of financial performance

Overview

During 2020 international equity markets experienced significant volatility as a consequence of the Coronavirus pandemic. Volatility in equity market values can significantly impact the value of the Group's Assets under management and administration ("AuMA"), and therefore the Group's revenue, as the majority of the Group's revenue is based on asset levels. The FTSE-100 index ended the year down 14% on closing 2019 levels while the MSCI World index (GBP) was up 11% on the 2019 year-end index value. Between this, equity markets reached a low point towards the end of the first quarter of 2020, as indicated by the FTSE-100 index recording a low of 5,672 a drop of 25% from the start of the year, and the MSCI World Index (GBP) recording a low value of 3,586, a fall of 16% from the opening index value as the start of the year. Global equity markets recovered in the second half of the year, with the FTSE-100 index up 5% over this period and the MSCI World Index (GBP) up 10% - buoyed predominantly by the performance of technology stocks in the US.

The Group's AuMA ended the year at £117.8 billion, a 7% increase from the opening position at the start of 2020. This increase comprised £5.8 billion of positive market movements as a consequence of the equity market rally late in the year, and positive net client cash flow of £1.6 billion. Adjusted profit before tax decreased by 8% to £168 million, with a decline in overall revenue margins as a result of asset mix shifts in Quilter Investors and Quilter International, and the repricing on the Quilter Investment Platform. Generally, revenue adversely impacted by the fall in global markets in the first half of the year, had reversed in the subsequent period. The Group's IFRS profit after tax from continuing operations was £89 million, compared to a loss after tax of £21 million in 2019. The improvement was primarily due to the positive impact on policyholder tax following the decline in equity market values, which can vary year-on-year as a result of market volatility.

Adjusted diluted earnings per share from continuing operations were broadly unchanged at 8.5p (2019: 8.6p).

Alternative Performance Measures ("APMs")

We assess our financial performance using a variety of measures including APMs, as explained further on pages 5 to 7. In the headings and tables presented, these measures are indicated with an asterisk: *

Key financial highlights

Year ended 31 December 2020 Continuing operations	Advice & Wealth Management	Wealth Platforms	Eliminations	Total Group
Gross sales (£bn)*	7.1	7.3	(3.5)	10.9
Gross outflows (£bn)*	(6.5)	(5.5)	2.7	(9.3)
NCCF (£bn)*	0.6	1.8	(0.8)	1.6
Integrated net inflows (£bn)*	0.9	1.4	-	2.3
AuMA (£bn)*	48.5	84.3	(15.0)	117.8
NCCF/opening AuMA (%)*	1%	2%	n/a	1%
Asset retention (%)*	86%	93%	n/a	92%
Year ended 31 December 2019 Continuing operations	Advice & Wealth Management	Wealth Platforms	Eliminations	Total Group
Gross sales (£bn)*	7.5	8.0	(3.2)	12.3
Gross outflows (£bn)*	(7.8)	(6.6)	2.4	(12.0)
NCCF (£bn)*	(0.3)	1.4	(0.8)	0.3
Integrated net inflows (£bn)*	1.6	1.0	-	2.6
AuMA (£bn)*	45.8	77.7	(13.1)	110.4
NCCF/opening AuMA (%)*	(1%)	2%	n/a	-
Asset retention (%)*	81%	90%	n/a	88%

¹Continuing operations represent Quilter plc, excluding the results of Quilter Life Assurance ("QLA") in 2019, which was sold to ReAssure on 31 December 2019.

Net client cash flow ("NCCF")* 

Net client cash inflows were £1.6 billion for the year (2019: £0.3 billion), during a period where the impact of COVID-19 on the global economy has been dramatic, creating economic uncertainty and market volatility. The Group experienced slightly lower gross sales in 2020 due to the impact of the pandemic, which was more than offset by lower outflows in comparison to 2019, notably for Quilter Investment Platform, Quilter Cheviot, and Quilter International. Detailed analysis on NCCF by business is shown in the supplementary information section of this announcement. 

Net inflows to Quilter Investors were down 40% on the prior year at £0.3 billion (2019: £0.5 billion), driven by a decrease in flows from Quilter Financial Planning as the pandemic environment presented advisers with less opportunity to attract new business. Cirilium Active started the year with challenged investment performance which resulted in outflows and switches to lower margin in-house solutions. Pleasingly, performance improved during the year. Quilter Financial Planning attracted net inflows into Cirilium Blend, Cirilium Passive and WealthSelect during the year and net inflows into WealthSelect via the Quilter Investment Platform were up 23% when compared to the prior year.  

Quilter Cheviot attracted net inflows of £0.3 billion (2019: outflow of £0.8 billion), which was an improvement on the prior year, primarily due to lower levels of outflows linked to the Investment Managers ("IMs") who resigned in mid-2018 (2020: £0.2 billion outflow, 2019: outflows of £1.3 billion) and the loss of a £0.2 billion quasi-institutional mandate in the second quarter of 2019. Excluding the departures of IMs who resigned in the summer of 2018, NCCF was stable at £0.5 billion (2019: £0.5 billion).

Quilter Investment Platform recorded net inflows of £1.5 billion, up 67% (2019: £0.9 billion) where the year-on-year reduction in gross sales has been more than offset by the reduction in outflows. The impacts of COVID-19 reduced overall market activity as advisers spent most of the year focused on servicing existing clients rather than seeking to attract new clients given the restrictions on face-to-face meetings. Gross outflows were down 18% to £4.2 billion (2019: outflow of £5.1 billion). In addition, client led withdrawals were lower year-on-year as clients stayed invested during the worst periods of the market downturn and the UK lockdown restricted consumer spending, reducing withdrawals. Defined benefit ("DB") to defined contribution ("DC") pension scheme transfers were broadly stable with the prior year at £0.9 billion (2019: £0.8 billion). 

Quilter International's net inflows were down 40% to £0.3 billion (2019: £0.5 billion) as the prior year was supported by a small number of large single investments from Hong Kong and Latin America in the fourth quarter, which totalled £0.3 billion. Excluding this, NCCF was broadly in line with the prior year.

Net flows (£bn)	2020	2019	% Change
Total integrated net inflows*	2.3	2.6	(12%)
Direct net inflows/(outflows)	0.1	(1.5)	-
Eliminations	(0.8)	(0.8)	-
Total Quilter plc NCCF*	1.6	0.3	433%

Integrated net inflows of £2.3 billion were down 12% from 2019 (£2.6 billion). The restricted channel of Quilter Financial Planning accounted for £0.8 billion (2019: £1.2 billion) of Quilter Investors' net flows, £1.2 billion (2019: £1.0 billion) of Quilter Investment Platforms' net flows and £0.3 billion (2019: £0.4 billion) of Quilter Cheviot net flows. The year-on-year improvement in direct net inflows was primarily driven by outflows related to the departure of a specific IM team at Quilter Cheviot not recurring in 2020, together with an increase in the performance of direct flows to the Wealth Platforms businesses.

Total Restricted Financial Planner ("RFP") headcount was 1,842 at 31 December 2020, up by 2% from 1,799 at 31 December 2019. Organic growth for the year was limited as a result of the external environment coupled with a scaling back of acquisitions in Quilter Private Client Advisers as a consequence of the ongoing pandemic. Productivity* for Quilter Financial Planning was £1.3 million per RFP for the year (2019: restated to £1.6 million) as a result of reduced net inflows to Quilter Investors and Quilter Cheviot in light of the challenging market environment. Net inflows to Quilter Investment Platform performed well, up 20% year-on-year, emphasising the strength of Quilter's platform proposition and realising benefits from the acquisitions made in 2019.

Asset retention* has increased to 92% (2019: 88%), predominantly as a result of lower outflows from Quilter Investment Platform and Quilter Cheviot.

Assets under Management/Administration*

AuMA was £117.8 billion at 31 December 2020, up 7% from 31 December 2019 (£110.4 billion), driven by positive market movements of £5.8 billion and £1.6 billion of net inflows.

Quilter Investors' AuM was £23.2 billion, up 7% since the start of the year (2019: £21.6 billion). The Cirilium fund range AuM increased by 11% to £12.3 billion at 31 December 2020 (2019: £11.1 billion), with £0.1 billion of net outflows and £1.3 billion of positive market movements. Within the Cirilium fund range, net outflows from Cirilium Active to Cirilum Passive and Cirilium Blend solutions was a notable characteristic during the year, with the COVID-19 environment adding some acceleration to the trend experienced during 2019. The WealthSelect fund range AuM increased by 18% to £7.9 billion at the end of December 2020 (2019: £6.7 billion) with £0.7 billion of net inflows and £0.5 billion of positive market movement. Quilter Cheviot AuM of £25.3 billion increased by 5% in the year, primarily as a result of positive market movements. Quilter Investment Platforms' AuA increased by 9% to £62.5 billion, driven by increases in the market value of assets and net inflows. Net inflows of £1.2 billion were received from Quilter Financial Planning and total assets held by Quilter Financial Planning clients on the platform was £9.7 billion. Net inflows of £0.3 billion were received from Independent Financial Advisers during the year (2019: outflow of £0.2 billion). Quilter International AuA of £21.8 billion was a 6% increase on the prior year (2019: £20.5 billion) primarily due to exposure to rebounding US and international markets, low surrender rates and broadly stable sales levels, partially offset by unfavourable exchange rate market movements.

IFRS profit after tax

The Group's IFRS profit after tax was £88 million for 2020, compared to £146 million in the prior year. 2019 included profit after tax from discontinued operations of £167 million, which related to the QLA business that was sold on 31 December 2019.

IFRS profit after tax from continuing operations was £89 million in 2020, compared to a loss after tax of £21 million in 2019, primarily due to the impact of a decrease in policyholder tax, which can vary significantly year-on-year as a result of market volatility, and a reduction in IFRS operating and administrative expenses during 2020 driven by the costs associated with the delivery of the Optimisation programme and the Platform Transformation Programme.

The Group's IFRS income and total expenses are impacted by the unit-linked investment contracts within Quilter Investment Platform and Quilter International, where the investment return on the underlying portfolio of assets is offset by a corresponding movement in policyholder liabilities. Consequently, the decrease of £2.7 billion in IFRS income from £7.4 billion in 2019 to £4.7 billion in 2020 is offset by a corresponding decrease in IFRS total expenses, which was £4.6 billion in 2020, reduced from £7.4 billion in the prior year.

Adjusted profit before tax*

Adjusted profit before tax reflects the Board's view of the underlying performance of the Group and is used for management decision making and internal performance management. Adjusted profit before tax is a non-GAAP measure which adjusts IFRS profit for specific items, as detailed in note 5 of the consolidated financial statements on page 44, and is the profit measure presented for the Group's segmental reporting.

Adjusted profit before tax was £168 million for the year, 8% lower than the prior year (2019: £182 million). Adjusted profit before tax for the Advice and Wealth Management segment decreased by 13% year-on-year and the Wealth Platforms segment increased by 2% compared to the prior year.

Total net fee revenue was £682 million, 4% lower than the prior year (2019: £712 million). Net management fees of £552 million were lower than those of the prior year (2019: £579 million) predominantly due to market volatility, reduced new client activity as a consequence of COVID-19, and the decline in overall revenue margins as a result of anticipated asset mix changes. The revenue margin was reduced following the Quilter Investment Platform reprice in April 2020, a continuation of the trend of clients switching from Cirilium Active to the lower margin Cirilium Passive and Cirilium Blend funds, the non-recurrence of the 2019 revenue provision release within Quilter Investors, and the anticipated trend in Quilter International where the proportion of assets on older-style pricing structures was reducing relative to the size of the overall book. The revenue margin within Quilter Cheviot remained broadly stable year-on-year. Other revenue of £130 million was down marginally against prior year (2019: £133 million), primarily due to the impact of adverse FX movements and lower interest rates and improved surrender experience for Quilter International, which were partially offset by higher advisory revenues generated by Quilter Financial Planning as a result of acquisitions made in 2019.

Operating expenses for the Group decreased from £530 million in 2019 to £514 million, primarily due to c.£40 million of tactical cost savings made during the year, with lower variable compensation costs, decreased marketing spend, and delayed development spend, which were partially offset by increased FSCS levies and regulatory costs, expenses incurred to prepare the business for remote working and providing a safe COVID-19 workplace, and higher one-off costs in relation the London office move during the year.

The Group's overall operating margin has decreased to 25% (2019: 26%) as a result of the reduction in revenue.

Financial performance from continuing operations 2020 (£m)	Advice & Wealth Management	Wealth Platforms	Head Office	Total Group
Net management fees*	279	273	-	552
Other revenue*	117	12	1	130
Total net fee revenue*	396	285	1	682
Operating expenses*	(306)	(171)	(37)	(514)
Adjusted profit before tax*	90	114	(36)	168
Tax				(16)
Adjusted profit after tax				152
Operating margin (%)*	23%	40%		25%
Revenue margin (bps)*	63	36		51

Financial performance from continuing operations 2019 (£m)	Advice & Wealth Management	Wealth Platforms	Head Office	Total Group
Net management fees*	296	283	-	579
Other revenue*	111	19	3	133
Total net fee revenue*	407	302	3	712
Operating expenses*	(304)	(190)	(36)	(530)
Adjusted profit before tax*	103	112	(33)	182
Tax				(22)
Adjusted profit after tax				160
Operating margin (%)*	25%	37%		26%
Revenue margin (bps)*	67	38		55

Total net fee revenue*

The Group's total net fee revenue decreased by 4% to £682 million (2019: £712 million) due to the mix shift within Quilter Investors and Quilter International to lower margin products, and the repricing of the Quilter Investment Platform resulting in the blended revenue margin for the Group to decrease by 4 bps to 51 bps. Generally, revenue adversely impacted by the fall in global markets in the first half of the year reversed in the subsequent period and average AuMA for the year was £107.9 billion (2019: £105.7 billion).

Total net fee revenue for the Advice and Wealth Management segment decreased by 3% during the year, to £396 million (2019: £407 million). Quilter Investors' net management fee revenue decreased by £12 million from the prior year as a result of a non-recurring revenue provision release of c.£8 million in 2019 and the earlier referenced mix shift to lower margin products. Total net fee revenue within Quilter Cheviot was 4% lower at £171 million (2019: £178 million) as average AuM was 1% lower than prior year and reduced revenues were earned following the reduction in base interest rates in March 2020.Other revenue increased to £117 million (2019: £111 million), principally due to the increase in advice fees in Quilter Financial Planning as a result of the acquisitions in 2019. Within the revenue generated by advice, recurring and fixed fees increased by £10 million against prior year, of which £8 million related to the increase of acquisitions in the prior year, while revenues generated through initial fees reduced marginally on that of the prior year.

Total net fee revenue for the Wealth Platforms segment was £285 million, down 6% from £302 million in 2019. Quilter Investment Platforms' net fee revenue decreased by £10 million, down 6% to £167 million, despite higher average asset levels, due to the continuing trend of new business margins being lower than the existing back book rates, an increase in the proportion of assets for Quilter Financial Planning clients, and the platform reprice implemented in April 2020. Quilter International's net fee revenue was £7 million lower than the prior year at £118 million, mainly as a result of the impact of adverse FX movements, lower interest rates and improved surrender experience, which is reflected in the decrease in other revenue.

The revenue margin for Advice and Wealth Management of 63 bps was 4 bps lower in comparison to the prior year. This decline was predominantly due to a 7 bps decrease in the average revenue margin for Quilter Investors to 53 bps, driven by the strategy to build out and develop a fuller suite of investment propositions. As previously reported, the comparative period margin included the impact of non-recurring revenue provision releases in 2019. Quilter Cheviot's revenue margin remained stable with that of the prior year at 72 bps. The revenue margin for Wealth Platforms decreased by 2 bps to 36 bps, due to the anticipated trend for lower margin products for new business written into Quilter International, and the charging structure reprice from April 2020 within Quilter Investment Platform.

The Group's revenue margin* of 51 bps was 4 bps lower than prior year (2019: 55 bps).

Operating expenses*

Operating expenses decreased by £16 million to £514 million during the year (2019: £530 million). The Group incurred £7 million of additional FSCS levy and regulatory fee costs compared to the prior year, the acquisitions made by Quilter Financial Planning in 2019 increased operating expenses by £12 million in 2020, and property dual-running costs in relation to the new London premises of £10 million. These cost increases, and those arising from inflation, were more than offset by c.£40 million of tactical cost savings, which included lower variable compensation costs, decreased marketing spend, and delayed development spend. Continued cost discipline was also achieved through further savings from the Optimisation programme, where additional in-year benefits of £13 million were realised in 2020 compared to 2019. Further details on the Optimisation programme expense savings are provided further in the Financial review.

Operating expense split (£m)
	2020	20191
Front office and operations	226	211
IT	85	86
Development	9	20
Support functions	70	85
Property	43	28
Regulatory fees and levies	22	15
Variable compensation	59	85
Operating expenses*	514	530
1For the 2019 comparatives, some costs have been reallocated between categories to align with current year presentation.

Front office and operations expenses increased by 7% to £226 million (2019: £211 million), primarily due to the impact of the Quilter Financial Planning acquisitions made during the course of 2019 resulting in a full year run-rate of costs during 2020, including one-off integration costs.

IT expenses decreased by 1% to £85 million (2019: £86 million), driven by savings realised as part of the Optimisation programme, which were partially offset by increased information security costs.

Development expenses decreased by 55% to £9 million (2019: £20 million). The decrease was mainly due to lower development costs due to a reduction in regulatory change requirements in 2020 compared to the prior year, and postponed change activity as a consequence of COVID-19. 

Support functions expenses decreased by 18% to £70 million (2019: £85 million) driven by continued savings realised as part of the Optimisation programme, partially offset by increased costs in relation to the COVID-19 pandemic to mobilise remote working across the business.

Property costs increased to £43 million (2019: £28 million). This is driven by the property dual-run and exit costs associated with the London office move of approximately £10 million as previously guided, and increased facilities costs incurred to provide a COVID-19 secure environment.

Regulatory fees and levies, which includes the Group's FSCS levies and FCA fees, have increased by 47% to £22 million (2019: £15 million) driven by increased claims experience across the financial services industry in the UK, which is levied by the FCA. Recent announcements by the FCA indicate that the industry FSCS levy may increase to over £1 billion in 2021/22 - an increase of 48% on that of the disclosed final levy in 2020/21. Accordingly, it is anticipated that the FSCS levy cost to the Group will continue to increase in 2021.

Variable compensation costs decreased by 31% to £59 million as a result of the impact of COVID-19 on the achievement of the Group's planned adjusted profit before tax for the year. Management anticipate that variable compensation costs will increase to more normalised levels in future periods if current equity market levels are maintained, with the extent of the cost increase predominantly dependent upon the adjusted profit generated by the business.

Total operating expenses for 2021 are expected to be broadly in line with our original expectations for 2020, at around £560 million, as variable compensation, marketing and development spend return to more normalised levels as the impact of COVID-19 and the associated restrictions are eased, along with an anticipated increase in regulatory levies. Offsetting the increase will be further benefits arising from the Optimisation programme.

Taxation

The effective tax rate ("ETR") on adjusted profit before tax was 10% (2019: 11%). 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 change in the UK corporation tax rate from 1 April 2020 from 17% to 19% which resulted in a rebase in the Group's deferred tax assets and liabilities, and had a net positive impact to the tax expense. The Group's ETR is dependent upon a number of factors including the level of Quilter International profits, as well as the UK corporation tax rate.  

The Group's IFRS income tax expense on continuing business was a credit of £3 million for the year ended 31 December 2020, compared to a charge of £66 million for the prior year. The primary reason for the IFRS income tax credit for the year is due to first-time recognition of a deferred tax asset in relation to accrued interest expense. The income tax expense or credit can vary significantly year-on-year as a result of market volatility and the impact market movements have on policyholder tax. The recognition of the income received from policyholders (which is included within the Group's IFRS revenue) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility to the Group's IFRS profit or loss before tax attributable to equity holders. An adjustment is made to adjusted profit before tax to remove these distortions, as explained further on page 18 and in note 5(b) of the consolidated financial statements.

Earnings Per Share ("EPS")

Basic EPS for 2020 was 5.0 pence (2019: 8.0 pence). Basic EPS is based on the Group's IFRS profit and reported including both continuing and discontinued operations. For 2020, the basic EPS from continuing operations was 5.1 pence (2019: (1.1) pence), and (0.1) pence relates to discontinued operations (2019: 9.1 pence). Discontinued operations in 2019 included profit attributable to the QLA business, and the gain on sale, whilst 2020 only includes a residual amount of costs associated with business disposals. During the year, the average number of shares in issue decreased to 1,842 million (2019: 1,902 million). The average number of shares in issue used for the basic EPS calculation was 1,760 million (2019: 1,835 million), after the deduction of own shares held in Employee Benefit Trusts and consolidated funds of 82 million (2019: 67 million). The reduction in the number of shares in issue in the year is due to the share buyback programme, which commenced in 2020, with 118 million shares bought and cancelled during the year. The decrease in shares in issue as a result of the buyback, and the corresponding impact on the average number of shares in issue used for the EPS calculation, led to an increase of 0.2 pence in the basic EPS for 2020.

The average number of shares in issue used for the diluted EPS calculation was 1,797 million (December 2019: 1,863 million). This includes the dilutive effect of shares and options awarded to employees under share-based payment arrangements of 37 million (December 2019: 28 million). The dilutive effect of share awards has continued to increase due to more share options being awarded to employees.

Optimisation

The Optimisation programme has delivered notable efficiencies and improvements in operational performance for the Group through greater technology utilisation and integration activity. Our technology enabled transformation over 2020 included successful deployment of new finance and procurement modules as part of our general ledger consolidation and modernisation activity effective from January 2021. The HR module, efficiency gains and further technical releases will follow in 2021. The automation of manual operational processes within Quilter International using robotics has continued and only a few deployments remain in what has been a transformational initiative for the business. Further potential deployment of robotics in the wider Quilter business is under assessment.

Quilter continued to leverage support function centres of excellence to achieve cost savings and reduce spend across the business by introducing tighter supplier management practices, insourcing capabilities and rationalising and consolidating technology and other suppliers across the Group.

In addition to benefits arising from prior years, the Group delivered a further £13 million of cost reduction in 2020 against the 2018 cost base, with £22 million of run-rate benefit bringing the total delivered run-rate to £46 million and associated implementation costs since inception of £56 million. Given COVID-19, management made the decision to delay certain planned activities in the short term which marginally reduced the timing of the realised benefit profile in 2020. The Optimisation programme remains on track to deliver the initial expected cost reductions.

Quilter will continue to transform with focus turning now towards operational and customer-facing areas of the business as the Group seeks to integrate further, drive efficiencies and improve both the adviser and customer experience whilst also pursuing benefits within support function centres of excellence post technology implementations. Therefore, in addition to the benefits and costs previously announced, the Group has extended the Optimisation business transformation with additional optimisation annualised run-rate savings of c.£15 million identified with costs to achieve of c.£16 million expected to be realised by mid-2022. At the outset of the Optimisation project the Group indicated that certain business activities were out of scope due to our focus on delivering a successful platform migration and to limit disruption to those parts of the business responsible for revenue generation. With the Platform migration now complete, the Group is now considering the potential for a final phase of Optimisation efficiencies and expects to provide an update on this in the latter part of the year.

Lighthouse pension transfer advice provision

As reported in the Group's 2019 Annual Report, a provision was recognised in relation to a number of complaints received on pension transfer advice provided by Lighthouse for British Steel Pension Scheme members, prior to the Group's acquisition of Lighthouse in June 2019. All the complaints received related to transfers before that date and, as such, the provision was established within the fair value of the Lighthouse assets and liabilities acquired with a corresponding increase in goodwill.

A total provision of £28 million (31 December 2019: £12 million) has been calculated for the potential redress of all British Steel cases, including anticipated costs of legal and professional fees associated with the redress activity. The provision was increased during 2020 following the publication of the FCA thematic review and additional client complaints being received.

The recognition of the total provision of £28 million has been apportioned between the fair value of net assets of Lighthouse at acquisition and the expenses of the Group. £24 million (31 December 2019: £12 million) is recognised within the fair value of net assets acquired and impacts the goodwill balance recognised upon acquisition. The impact on the goodwill balance was partially offset by the recognition of an insurance recovery asset of £3 million, and a deferred tax asset of £2 million, resulting in a net increase to goodwill of £19 million.

The increase in the provision subsequent to acquisition of £5 million has been recognised within expenses of the Group, with £1 million of this provision utilised during the year.

The final costs of redress for cases upheld will depend on specific calculations on a case-by-case basis, and will be impacted by market movements and other parameters affecting the defined contribution scheme asset. Final redress costs are therefore exposed to volatility from these movements which may result in final settlement cost varying from the amounts currently provided.

Further details are provided in notes 4(a), 17 and 18 to the financial statements

Reconciliation of adjusted profit before tax* to IFRS profit

Adjusted profit before tax for the Group was £168 million (2019: £182 million from continuing operations excluding Quilter Life Assurance which was sold 31 December 2019).

The Group's IFRS profit after tax from continuing operations was £89 million, compared to a loss after tax of £(21) million in 2019, primarily due to the change in policyholder tax, which can vary significantly year-on-year as a result of market volatility. The table below provides the reconciliation of the Group's adjusted profit before tax to the IFRS profit/(loss) after tax for 2020 and 2019.

Reconciliation of adjusted profit before tax to IFRS profit/(loss) after tax	For the year ended 31 December 2020			For the year ended 31 December 2019
£m	Continuing Operations	Discontinued operations1	Total	Continuing Operations	Discontinued operations1	Total
Advice and Wealth Management	90	-	90	103	-	103
Wealth Platforms	114	-	114	112	53	165
Head Office	(36)	-	(36)	(33)	-	(33)
Adjusted profit before tax*	168	-	168	182	53	235
Reallocation of QLA costs	-	-	-	(26)	26	-
Adjusted profit before tax after reallocation*	168	-	168	156	79	235
Adjusting for the following:
Impact of acquisition and disposal related accounting	(42)	-	(42)	(54)	-	(54)
(Loss)/profit on business disposals	-	(1)	(1)	-	103	103
Business transformation costs	(70)	-	(70)	(77)	-	(77)
Managed Separation costs	-	-	-	(6)	-	(6)
Finance costs	(10)	-	(10)	(10)	-	(10)
Policyholder tax adjustments	9	-	9	(62)	(12)	(74)
Customer remediation	(5)	-	(5)	-	10	10
Total adjusting items before tax	(118)	(1)	(119)	(209)	101	(108)
Profit/(loss) before tax attributable to equity holders*	50	(1)	49	(53)	180	127
Tax attributable to policyholder returns	36	-	36	98	76	174
Income tax credit/(expense)	3	-	3	(66)	(89)	(155)
Profit/(loss) after tax2	89	(1)	88	(21)	167	146

¹Discontinued operations includes the results of the Quilter Life Assurance ("QLA") business in 2019.

²IFRS profit/(loss) after tax.

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 5 of the consolidated financial statements.

The 'impact of acquisition and disposal related accounting' costs of £42 million (2019: £54 million) include amortisation of acquired intangible assets of £45 million (2019: £45 million), acquisition and disposal related costs, including the unwinding of discounting on contingent consideration of £1 million (2019: £9 million), partially offset by fair value gains on the revaluation of contingent consideration of £4 million (2019: £nil). These costs have decreased in 2020, principally due to the impact of no material acquisitions being made during the year.

The loss on business disposals of £1 million (2019: profit of £103 million) represents transaction and separation costs recognised during the year, which relate to the sale of the QLA and Single Strategy businesses in prior years. The Group recognised a profit on disposal of £103 million in the prior year in relation to the sale of QLA to ReAssure on 31 December 2019.

Business transformation costs of £70 million (2019: £77 million) include £38 million (2019: £57 million) incurred on the UK Platform Transformation Programme and £33 million of costs (2019: £18 million) in relation to the Optimisation programme.In 2020, a credit of £1 million has been recognised in relation to the separation of Quilter Investors as a result of the sale of the Single Strategy business, and in 2019 restructuring costs of £3 million were incurred as a result of the sale of QLA.

Managed Separation costs were nil (2019: £6 million), reflecting costs associated with our successful separation from Old Mutual plc and Listing in June 2018. In 2019, this cost was primarily incurred on the rebranding activities within the business, with residual costs expected to be incurred in early 2021 for the final rebranding activity of the UK Platform business following the final client asset migration.

Finance costs were £10 million (2019: £10 million) wholly related to the interest and amortisation of setup fees on the Tier 2 bond and Revolving Credit Facility.

Policyholder tax adjustments from continuing operations were a credit of £9 million for 2020 (2019: debit of £74 million) in relation 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 profit/(loss) before tax attributable to equity holders.

The customer remediation adjustment of £5 million in 2020 relates to the impact of post-acquisition market movements on the British Steel complaints provision relating to Lighthouse. The £10 million credit in the prior period relates to the release of the voluntary customer remediation provision in QLA associated with certain legacy products.

Cash generation*

Cash generation measures the proportion of adjusted profit after tax that is recognised in the form of cash generated from operations. The Group achieved a cash generation rate of 86% of adjusted profit after tax over 2020 (2019: 85%, restated for continuing business only following the disposal of QLA).

 

Review of financial position

Capital and liquidity

Solvency II

The Group's Solvency II surplus is £1,021 million at 31 December 2020 (31 December 2019: £1,168 million), representing a Solvency II ratio of 217% (31 December 2019: 221%). The Solvency II information for the year to 31 December 2020 contained in this results disclosure has not been audited.

The Group's Solvency II capital position is stated after allowing for the impact of the recommended final dividend payment of £61 million (2019: £64 million).

		At	At
		31 December	31 December
Group regulatory capital (£m)		20201	20192
Own funds		1,897	2,132
Solvency capital requirement ("SCR")		876	964
Solvency II surplus		1,021	1,168
Solvency II coverage ratio		217%	221%
1Filing of annual regulatory reporting forms due by 20 May 2021.
2As represented within the Quilter plc Group Solvency and Financial Condition Report for the year ended 31 December 2019.

The 4 percentage point decrease in the Group Solvency II ratio from the 2019 position is primarily due to the capital movements associated with the Odd-lot Offer and Tranches 1 and 2 of the share buyback net of profit recognised in the year and changes in capital requirements for the Group. 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. Quilter expects to continue to maintain a solvency position significantly in excess of its internal target in the near term as a consequence of the surplus capital arising from the sale of QLA that is still intended to be returned to shareholders via further share buybacks.

Composition of qualifying Solvency II capital

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

		At	At
		31 December	31 December
Group own funds (£m)		2020	2019
Tier 11		1,688	1,925
Tier 22		209	207
Total Group Solvency II own funds		1,897	2,132
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 193% of the Group SCR of £876 million. Tier 1 capital represents 89% of Group Solvency II own funds. Tier 2 capital represents 11% of Group Solvency II own funds and 20% of the Group surplus.

Dividend

The Board has recommended a final dividend of 3.6 pence per share at a total cost of £61 million. Subject to shareholder approval, the recommended final dividend will be paid on 17 May 2021 to shareholders on the UK and South African share registers on 9 April 2021. For shareholders on our South African share register a dividend of 76.88786 South African cents per share will be paid on 17 May 2021, using an exchange rate of 21.35774. This will bring the dividend for the full year to 4.6 pence per share (2019: 5.2 pence per share).

Holding company cash

The holding company cash statement includes cash flows generated by the three main 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 together with other cash receipts, and cash paid out in respect of corporate costs and capital servicing (including interest and dividends). Other capital movements, including those in respect of acquisitions and disposals together with funding for ongoing business requirements, are also included. It is an unaudited non-GAAP analysis and aims to give a more illustrative view of business cash flows as they relate to the Group's holding companies compared to the IFRS consolidated statement of cash flows which is prepared in accordance with IAS 7 ("Statement of cash flows") and includes commingling of policyholder related flows.

 

£m			2020	2019
Opening cash at holding companies at 1 January			815	416
Quilter Life Assurance business sale - cash proceeds			-	446
Quilter Life Assurance business sale - costs of disposal			(24)	(7)
Single Strategy business sale - deferred consideration received			7	-
Share repurchase and Odd-lot Offer			(198)	-
Dividends paid			(81)	(92)
Net capital movements			(296)	347
Head Office costs and Optimisation programme funding			(74)	(49)
Interest costs			(9)	(9)
Net operational movements			(83)	(58)
Cash remittances from subsidiaries			170	307
Net capital contributions and investments			(94)	(200)
Other net movements			5	3
Internal capital and strategic investments			81	110
Closing cash at holding companies at end of period			517	815

Net capital movements

Net capital movements in the year were an outflow of £296 million. This includes £157 million relating to the share repurchase programme (including £4 million of costs), £21 million for the Odd-lot Offer and £20 million in respect of additional share repurchases to cover future vesting awards, and two dividend payments made to shareholders of £64 million on 18 May 2020 and £17 million on 21 September 2020. £24 million of costs relating to the disposal of the QLA business were also incurred during the year in line with expectations, with £7 million received in respect of final proceeds from the Single Strategy business sale.

Net operational movements

Net operational movements were an outflow of £83 million for the year and includes £74 million of corporate and business transformation costs. Interest paid of £9 million relates to coupon payments on the Tier 2 bond and non-utilisation fees for the revolving credit facility.

Internal capital and strategic investments

The net inflow of £81m is principally due to £170 million of cash remittances from the trading businesses partially offset by £94 million of capital contributions distributed to support business operational activities, particularly due to the impact of COVID-19 and funding provided for the Platform Transformation Programme. 

Balance Sheet
Summary balance sheet (£m)	At 31 December 2020	At 31 December 2019 (restated)1	At 1 January 2019 (restated)1
	Total	Total	Total
Assets
Financial investments	63,274	57,207	58,054
Contract costs/deferred acquisition costs	413	455	551
Cash and cash equivalents	1,921	2,253	2,305
Reinsurers' share of insurance policyholder liabilities2	-	-	2,162
Goodwill and intangible assets	556	592	550
Trade, other receivables and other assets	701	605	718
Other assets	507	439	371
Total assets	67,372	61,551	64,711
Equity	1,878	2,071	2,005
Liabilities
Investment contract liabilities	57,407	52,455	56,450
Insurance contract liabilities2	-	-	602
Third-party interests in consolidated funds	6,513	5,318	3,833
Contract liabilities/deferred revenue	379	403	456
Borrowings-sub-ordinated debt	199	198	197
Lease liabilities	120	137	-
Trade, other payables and other liabilities	672	801	979
Other liabilities	204	168	189
Total liabilities	65,494	59,480	62,706
Total equity and liabilities	67,372	61,551	64,711

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

²The consolidated statement of financial position at 1 January 2019 includes balances for Deferred acquisition costs, Reinsurers' share of insurance policyholder liabilities

and Insurance contract liabilities relating to the Quilter Life Assurance ("QLA") business that was sold on 31 December 2019.

The Group balance sheet at 31 December 2020 has total equity of £1,878 million (31 December 2019: £2,071 million). Total equity has decreased by £193 million during the year, predominantly due to the payment of dividends totalling £81 million in the year (2019: £92 million) and a reduction of £179 million in relation to the Group's share buyback programme, partially offset by the recognition of £88 million of statutory IFRS profit after tax.

Financial investments increased from £57,207 million at 31 December 2019 to £63,274 million at 31 December 2020, predominantly due to positive market performance, following the recovery from COVID-19 related market losses in Q1 2020, and positive net client cash flows in Quilter Investment Platform and Quilter International. The corresponding impact is reflected in Investment contract liabilities (an increase from £52,455 million at 31 December 2019 to £57,407 million at 31 December 2020).

Cash and cash equivalents of £1,921 million decreased by £332 million from £2,253 million at 31 December 2019. The decrease includes £198 million of payments made in respect of the Group's share buyback programme, odd-lot-offer and other share purchases, together with dividend payments of £81 million. Included within this balance are cash investments due to policyholders, and cash to support the capital and funding requirements of the business.

Goodwill and intangible assets decreased by £36 million to £556 million at 31 December 2020. The decrease is largely due to the amortisation of intangible assets of £47 million, partially offset by a £7 million increase in the Lighthouse goodwill balance, which is £40 million at 31 December 2020 (31 December 2019: £33 million).

Trade, other receivables and other assets increased by £96 million to £701 million, mainly due to an increase in unsettled trades across the business at the balance sheet date.

Other assets of £507 million increased by £68 million from £439 million at 31 December 2019. The balance is comprised of property, plant and equipment, loans and advances, deferred and current tax assets and derivative assets. Movement in the year principally relates to an increase in deferred tax assets and a higher derivative asset balance associated with the consolidation of funds.

Trade, other payables and other liabilities decreased by £129 million to £672 million at 31 December 2020. The decrease includes the impact of a reduction in outstanding death claims and surrenders recognised at the year end, together with a decrease in other liabilities associated with the consolidation of funds.

Other liabilities have increased from £36 million to £204 million primarily due to an increase in provisions, deferred tax liabilities and in derivative liabilities associated with the consolidation of funds.

Changes to comparative amounts

Following a review of the Group's consolidated investment funds, changes to previously reported comparative amounts on the consolidated statement of financial position, consolidated income statement, and consolidated statement of cash flows have been identified and changes to comparative amounts have been accordingly reflected in this year's financial statements. There has been no impact on the Group's profit for the current or prior year, including the Group's KPIs and alternative performance measures, and no impact on equity for any of the periods presented. In accordance with the requirements under the accounting standards, an additional balance sheet has been presented as at 1 January 2019, as the opening balance sheet for the comparative year, which reflects the changes (as also presented in the balance sheet section above). Full details, and the financial line items impacted, are included in note 3(b) on page 40 of the consolidated financial statements.

Principal risks and uncertainties

Effective risk management is key to Quilter delivering on its strategy to be a modern, UK-focused wealth manager. Our Enterprise Risk Management Framework is embedded across Quilter, and helps Quilter assess and manage its risk exposures.

2020 has been a truly unprecedented year, as the world has grappled with the COVID-19 pandemic which has caused disruption on an unparalleled scale. Quilter, and its key third party partners, have adapted well to these challenges, with operations and key programmes continuing, many in a largely virtual manner. Key successes, including two client migrations within the Platform Transformation Programme, have evidenced that Quilter has been able to implement complex change in challenging circumstances.

Quilter's principal revenue streams are asset value based. A significant market fall was experienced in Q1 2020, with a recovery experienced in most markets through the remainder of the year, with Quilter's Assets under Management and Administration increasing by c.7% during 2020 as a result of market movement and net inflows. The evolving COVID-19 pandemic continues to expose Quilter to risks associated with equity market volatility and adverse investor sentiment. While the length and severity of the impact remains unclear, the Group would not expect these to adversely affect the underlying medium to long-term prospects of the business. Beyond COVID-19, the agreement of the UK-EU Trade and Cooperation Agreement has reduced the geopolitical risk profile and should lesson investor concerns, although the full impacts of the end of the Brexit transition period are yet to be seen. 

As announced in June 2020, the FCA has initiated a skilled persons (s.166) review into historic advice given by Lighthouse, prior to its acquisition, as announced in June 2020. In addition, as previously announced, the FCA has also commenced an enforcement investigation into whether Lighthouse has breached certain FCA requirements in connection with advising on and arranging DB pension transfers in the period from 1 April 2015 to 30 April 2019. We continue to work and co-operate with the FCA and the skilled person who has been appointed in relation to this matter. Even though the relevant advice pre-dated our acquisition of Lighthouse, we have ensured that Lighthouse has responded to the situation consistent with our values.

The Directors have carried out a robust assessment of the principal risks facing Quilter, including those that would threaten its business model, future performance, solvency and liquidity, as well as those non-financial in nature. The articulation of these principal risks and uncertainties is consistent with Quilter's 'Top Risk' reporting that is reviewed quarterly by the Board Risk Committee and Board. The table below sets out Quilter's current principal risks and uncertainties.

Risk	Summary
Business and strategic risks
Economic environment	Quilter's principal revenue streams are asset-value related and as such Quilter is exposed to the condition of global economic markets. The evolving COVID-19 pandemic continues to have significant impacts on economic activity resulting in market volatility. These conditions are expected to continue into 2021, alongside residual uncertainty in relation to the full impacts of the implementation of the UK-EU Trade and Cooperation Agreement. Volatility in debt, equity and currency markets may adversely impact customer investment portfolios which in turn impacts Quilter's ability to generate fee-based revenue.
Business financial performance	The challenging external environment experienced in 2020 is set to continue to impact net flows, revenues and profitability into 2021, with margin compression also set to be expedited by the current conditions. Prudent cost management, both through tactical in year savings, and longer-term optimisation initiatives, has reduced the cost base, though increasing Financial Services Compensation Scheme levies present a further cost challenge. An unmitigated negative impact on earnings, share price and/or capital position, could have a resulting adverse effect on Quilter's market credibility and financial standing.
Investment performance	Strong investment performance within Quilter Investors' fund management proposition and within Quilter Cheviot's discretionary fund management proposition are key to enable Quilter to meet customer expectations and to grow its customer base, and assets under management. Weaker short-term performance of Quilter Investors' Cirilium Active range was noted during volatile markets in the first quarter of 2020, with a range of management actions ongoing to support stronger performance. Stronger performance has been observed for the remainder of the year as these management actions have been implemented. Longer term under-performance of core investment management propositions could have a material effect on Quilter's business, financial performance and reputation.
Change	Quilter continues to be subject to material change programmes, as a series of long-running programmes are due to be completed during 2021, including the Platform Transformation Programme (PTP). A series of new business change programmes including the work to strengthen controls at Quilter Financial Planning, and several key digital and data initiatives will be ongoing in 2021. This delivery profile carries a delivery risk, a risk of implementation issues, and a dependence on key individuals. As 2021 progresses there will be a need to ensure these projects remain on track to deliver the intended benefits, without risking disruption to continuing operations and the control environment.
Operational and regulatory risks
Advice	Quilter's financial advice services are subject to fundamental regulatory conduct requirements to assure suitability of advisory recommendations. Failure to operate effective arrangements to support the delivery of suitable advice could expose Quilter to risks associated with customer detriment, regulatory censure and remediation programmes, and consequential impacts to the Group's business, financial condition and reputation. The current scrutiny of the defined benefit transfer advice provided by Lighthouse has increased the risk profile during 2020 given the need to remediate impacted cases where relevant and deliver fair outcomes for customers.
Information technology	Quilter's business is highly dependent on its technology infrastructure and applications to perform necessary business functions, including to support the provision of services to customers. COVID-19 has required adaptation to mass home working, which has been successfully achieved across Quilter. Much of Quilter's legacy IT estate is currently being replaced, with a move to Software as a Service (SAAS) applications reducing the Group's internal technology complexity, though increasing reliance on third parties. Failure to manage technology risk could have a material adverse impact on Quilter's business, its resilience capabilities, financial condition, operations and its reputation.
Information security	Quilter's business, by its nature, requires it to store, retrieve, evaluate and utilise customer and company data and information, some of which is highly sensitive. The COVID-19 conditions mean there is increased remote handling of data. Quilter is subject to the risk of information security breaches from parties with criminal or malicious intent. Should Quilter's intrusion detection and anti-penetration software not anticipate, prevent or mitigate a network failure or disruption, it may have a material adverse effect on Quilter's customers, business, financial condition, operations, and reputation.
People	Quilter relies on its talent to deliver its service to customers and to implement the broad range of strategic change initiatives that are currently being delivered. In 2020 the COVID-19 operating conditions has posed further people challenges, although a strong focus on supporting staff through this difficult time has reduced its impact. Failure to retain key staff or to attract suitable talent may impact the delivery of Quilter's strategy and may have an adverse impact on Quilter's business, its financial and operational performance and its delivery of service to customers.
Third party, including outsourcing	Quilter procures certain services from third parties, which will increase as the Platform Transformation Programme concludes and results in significant business process and technology outsourcing to FNZ. If Quilter does not effectively oversee its third-party providers, they do not perform as anticipated, or Quilter experiences technological or other problems with a third party, Quilter may experience operational difficulties, increased costs and loss of business, potential customer detriment and damage to its reputation.
Operational resilience	The pandemic has tested Quilter's ability to respond and adapt to sudden disruptions and has shown Quilter to successfully manage during this crisis period. Following the maturing of crisis management protocols, the focus in 2021 will switch to reviewing standards for articulating critical processes and dependencies, and of the effectiveness of testing such that the firm can robustly demonstrate preparedness for future scenarios, and manage the risk that future events could pose to customers or Quilter.
Regulatory	Quilter is subject to regulation in the UK by the Prudential Regulation Authority and the Financial Conduct Authority, and by a range of regulators internationally. Additionally, the firm is subject to the privacy regulations enforced by Information Commissioner's Office and international equivalents. Quilter faces risks associated with compliance with these regulations and to changes in regulations or regulatory focus or interpretation in the markets in which Quilter operates. Failure to manage regulatory compliance effectively could result in regulatory censure, including the possibility of fines or prohibitions which could impact business performance and reputation.

Quilter monitors its emerging risk profile on a regular basis, with the risk profile being regularly reviewed by the Board Risk Committee and Board. The current emerging risks being tracked are:

Emerging risks
Near term
Pandemic evolution	Pandemic evolution
Cyber threat developments	Cyber threat developments
Margin pressure	Margin pressure
Medium term
Political and regulatory change	Political and regulatory change
Climate change / Environmental, Social and Governance (ESG) considerations	Climate change / Environmental, Social and Governance (ESG) considerations
Disruptive competition	Disruptive competition
Longer term
Generational shifts	Generational shifts

Shareholder information

The Board has agreed to recommend to shareholders the payment of a final dividend of 3.6 pence per share. This will be considered at the Quilter plc Annual General Meeting, which will be held on Thursday 13 May 2021. The final dividend will be paid on Monday 17 May 2021 to shareholders on the UK and South African share registers on Friday 9 April 2021

Dividend Timetable

Dividend announcement in pounds sterling with South Africa ZAR Equivalent	Wednesday 10 March 2021
Last day to trade cum dividend in South Africa	Tuesday 6 April 2021
Shares trade ex-dividend in South Africa	Wednesday 7 April 2021
Shares trade ex-dividend in the UK	Thursday 8 April 2021
Record Date in UK and South Africa	Friday 9 April 2021
Annual General Meeting	Thursday 13 May 2021
Final dividend payment date	Monday 17 May 2021

From the opening of trading on Wednesday 10 March 2021 until the close of business on Friday 9 April 2021, 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 7 April and Friday 9 April 2021, both dates inclusive.

Additional information

For shareholders on our South African share register a dividend of 76.88786 South African cents per share will be paid on Monday 17 May 2021, based on an exchange rate of 21.35774. Dividend Tax will be withheld at the rate of 20% from the amount of the gross dividend of 76.88786 South African cents per share paid to South African shareholders unless a shareholder qualifies for exemption. After the Dividend Tax has been withheld, the net dividend will be 61.51029 South African cents per share. The Company had a total of 1,769,610,747 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.

Share Buyback Programme

Following the completion of the sale of Quilter Life Assurance to Reassure Group plc for £425 million (and interest income of £21 million), the  Board announced that they planned to return the full net surplus sale proceeds (after disposal costs) of £375 million to shareholders, by way of a share buyback programme (the 'Programme').

Following receipt of regulatory approval, Quilter commenced the Programme on the London and Johannesburg exchanges on Wednesday 11 March 2020. The Programme is subject to staged regulatory and Board approvals and the following staged tranches have so far been launched:

-  The initial tranche of £50 million completed on 4 June 2020 with over 43 million shares repurchased. 

-  A further tranche of the Programme of up to £75 million commenced on Thursday 25 June 2020 and completed on Wednesday 30 September 2020.

-  The most recent tranche of up to £50 million commenced on Tuesday 13 October 2020 and completed on Tuesday 9 March 2021.

As at Tuesday 9 March 2021 a total of c.132.6 million shares have been purchased and cancelled at an average price of 132 pence under the Programme.

The Programme is subject to staged regulatory approval and the Board will continue to keep the Programme under review to make sure it remains prudent including ongoing consideration of the financial position and prospects of the business given the market environment, and the most efficient and effective means of returning capital to shareholders.

Odd-lot Offer

In March 2020, as part of our drive for greater efficiency and in line with our desire to act in the best interests of all our shareholders, the Board launched an Odd-lot Offer for shareholders on the London and Johannesburg Stock Exchanges. The Odd-lot Offer was a way of offering shareholders who held fewer than 100 Ordinary Shares the opportunity to sell their shares at a 5% premium to the market price (the 'Offer Price'), without incurring any dealing costs. Odd-lot Holders could choose to sell all of their shares at the Offer Price or they could choose to keep their shareholding in Quilter.

The Odd-lot Offer closed on Friday 15 May 2020. Quilter purchased a total of 16,263,364 of its own ordinary shares of 7 pence each. Following the implementation of the Odd-lot Offer, the Company's shareholder base has been reduced by circa 45% (209,282 shareholders). This reduction will reduce administrative costs, including, for example, the costs of printing and distributing financial statements, circulars and notices.

The Odd-lot Shares were held in Treasury and subsequently on Monday 1 June 2020 were transferred to the Company's Employee Benefit Trust to satisfy awards under employee share schemes.

Supplementary information

Alternative Performance Measures ("APMs")

We assess our financial performance using a variety of measures including APMs, as explained further on pages 5 to 7. These measures are indicated with an asterisk: *.

For the year ended 31 December 2020

1.  Key financial data

	2020					Change (FY 2020 vs FY 2019)		2019
Gross sales* (£bn)	Q1	Q2	Q3	Q4	FY	%		Q1	Q2	Q3	Q4	FY
Quilter Investors1	1.5	1.2	1.1	1.2	5.0	2%		1.0	1.0	0.9	2.0	4.9
Quilter Cheviot	0.7	0.5	0.5	0.4	2.1	(19%)		0.7	0.5	0.7	0.7	2.6
Advice & Wealth Management	2.2	1.7	1.6	1.6	7.1	(5%)		1.7	1.5	1.6	2.7	7.5
Quilter Investment Platform	1.7	1.3	1.2	1.5	5.7	(5%)		1.6	1.4	1.4	1.6	6.0
Quilter International	0.4	0.4	0.3	0.5	1.6	(20%)		0.4	0.4	0.4	0.8	2.0
Wealth Platforms	2.1	1.7	1.5	2.0	7.3	(9%)		2.0	1.8	1.8	2.4	8.0
Elimination of intra-Group items	(1.0)	(1.3)	(0.4)	(0.8)	(3.5)	-		(0.6)	(0.4)	(0.6)	(1.6)	(3.2)
Quilter plc	3.3	2.1	2.7	2.8	10.9	(11%)		3.1	2.9	2.8	3.5	12.3
Quilter Life Assurance	-	-	-	-	-	-		0.1	0.1	0.2	-	0.4

¹Quilter Investors' gross sales in Q2 2020 was restated from £1.6 billion due to Managed Portfolio Service fund rebalance.

		2020												% of opening AuMA					2019
NCCF* (£bn)		Q1			Q2			Q3		Q4		FY							Q1		Q2	Q3			Q4		FY
Quilter Investors		0.2			0.1			-		-		0.3		1%					0.2		0.2	-			0.1		0.5
Quilter Cheviot		0.1			0.1			-		0.1		0.3		1%					0.1		(0.5)	(0.4)			-		(0.8)
Advice & Wealth Management		0.3			0.2			-		0.1		0.6		1%					0.3		(0.3)	(0.4)			0.1		(0.3)
Quilter Investment Platform		0.5			0.5			0.1		0.4		1.5		3%					0.4		0.1	0.1			0.3		0.9
Quilter International		0.1			0.1			-		0.1		0.3		1%					0.1		-	0.1			0.3		0.5
Wealth Platforms		0.6			0.6			0.1		0.5		1.8		2%					0.5		0.1	0.2			0.6		1.4
Elimination of intra-Group items		(0.4)			(0.2)			-		(0.2)		(0.8)		-					(0.3)		-	(0.3)			(0.2)		(0.8)
Quilter plc		0.5			0.6			0.1		0.4		1.6		1%					0.5		(0.2)	(0.5)			0.5		0.3
Quilter Life Assurance		-			-			-						-					(0.8)		(0.4)	(1.1)			(1.2)		(3.5)
Integrated net inflows*		0.8			0.6			0.4		0.5		2.3		-					0.6		0.8	0.4			0.8		2.6
	2020												Change (FY 2020 vs FY 2019)				2019
AuMA* (£bn)	Q1			H1		Q3			FY				%				Q1			H1			Q3			FY
Quilter Investors	18.1			20.8		21.3			23.2				7%				19.8			20.7			21.0			21.6
Quilter Cheviot	20.7			23.3		23.6			25.3				5%				23.6			24.0			23.8			24.2
Advice & Wealth Management	38.8			44.1		44.9			48.5				6%				43.4			44.7			44.8			45.8
Quilter Investment Platform	49.5			56.2		57.7			62.5				9%				52.6			54.8			55.7			57.2
Quilter International	18.4			20.4		20.6			21.8				6%				19.2			20.0			20.2			20.5
Wealth Platforms	67.9			76.6		78.3			84.3				8%				71.8			74.8			75.9			77.7
Elimination of intra-Group assets	(11.4)			(13.3)		(13.7)			(15.0)				15%				(11.6)			(12.2)			(12.5)			(13.1)
Quilter plc	95.3			107.4		109.5			117.8				7%				103.6			107.3			108.2			110.4
Quilter Life Assurance	-			-		-			-				-				11.2			11.1			10.3			-
YTD Gross flows, net flows and AuMA (£bn)
			AuMA as at 31 December 2019*				Gross  sales*				Gross outflows*				NCCF*					Market and other movements				AuMA as at 31 December  2020*
Quilter Investors			21.6				5.0				(4.7)				0.3					1.3				23.2
Quilter Cheviot			24.2				2.1				(1.8)				0.3					0.8				25.3
Advice & Wealth Management			45.8				7.1				(6.5)				0.6					2.1				48.5
Quilter Investment Platform			57.2				5.7				(4.2)				1.5					3.8				62.5
Quilter International			20.5				1.6				(1.3)				0.3					1.0				21.8
Wealth Platforms			77.7				7.3				(5.5)				1.8					4.8				84.3
Elimination of intra-group assets			(13.1)				(3.5)				2.7				(0.8)					(1.1)				(15.0)
Quilter plc			110.4				10.9				(9.3)				1.6					5.8				117.8
			AuMA as at 31 December 2018*				Gross Sales*				Gross Outflows*				NCCF*					Market and other movements				AuMA as at 31 December  2019*
Quilter Investors			18.5				4.9				(4.4)				0.5					2.6				21.6
Quilter Cheviot			22.2				2.6				(3.4)				(0.8)					2.8				24.2
Advice & Wealth Management			40.7				7.5				(7.8)				(0.3)					5.4				45.8
Quilter Investment Platform			49.4				6.0				(5.1)				0.9					6.9				57.2
Quilter International			18.3				2.0				(1.5)				0.5					1.7				20.5
Wealth Platforms			67.7				8.0				(6.6)				1.4					8.6				77.7
Elimination of intra-group assets			(10.7)				(3.2)				2.4				(0.8)					(1.6)				(13.1)
Quilter plc			97.7				12.3				(12.0)				0.3					12.4				110.4

Estimated asset allocation (%)	2020	2019
Fund profile by Investment type	Total client AuMA	Total client AuMA
Quilter
Fixed interest	24%	26%
Equities	65%	64%
Cash	5%	4%
Property and alternatives	6%	6%
Total	100%	100%

Total net fee revenue* 2020 (£m)		Quilter Investors	Quilter Cheviot	Quilter Financial Planning		Advice & Wealth Management		Quilter Investment Platform		Quilter International		Wealth Platforms	Head Office	Group
Net management fee*		111	168	-		279		167		106		273	-	552
Other revenue*		-	3	114		117		-		12		12	1	130
Total net fee revenue*		111	171	114		396		167		118		285	1	682
Total net fee revenue*  2019 (£m)		Quilter Investors	Quilter Cheviot		Quilter Financial Planning	Advice & Wealth Management		Quilter Investment Platform		Quilter International		Wealth Platforms	Head Office	Group
Net management fee*		123	171		2	296		173		110		283	-	579
Other revenue*		1	7		103	111		4		15		19	3	133
Total net fee revenue*		124	178		105	407		177		125		302	3	712

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	2020	2019	% change
Quilter Financial Planning
Net management fees (£m)*	-	2	(100%)
Other revenue (£m)*	114	103	11%
Total net fee revenue (£m)*	114	105	9%
RFPs + PCA (#)	1,842	1,799	2%
Productivity (£m)*	1.3	1.6	(19%)
Quilter Investors
Net management fees (£m)*	111	123	(10%)
Other revenue (£m)*	-	1	(100%)
Total net fee revenue (£m)*	111	124	(10%)
NCCF (£bn)*	0.3	0.5	(40%)
Closing AuM (£bn)*	23.2	21.6	7%
Average AuM (£bn)*	21.0	20.4	3%
Revenue margin (bps)*	53	60	(7) bps
Asset retention (%)*	78%	75%	3 pp
Quilter Cheviot
Net management fees (£m)*	168	171	(2%)
Other revenue (£m)*	3	7	(57%)
Total net fee revenue (£m)*	171	178	(4%)
NCCF (£bn)*	0.3	(0.8)	-
Closing AuM (£bn)*	25.3	24.2	5%
Average AuM (£bn)*	23.3	23.6	(1%)
Revenue margin (bps)*	72	72	-
Asset retention (%)*	93%	85%	8 pp
Investment managers (#)	169	167	1%

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	2020	2019	% change
Quilter Investment Platform
Net management fees (£m)*	167	173	(3%)
Other revenue (£m)*	-	4	(100%)
Total net fee revenue (£m)*	167	177	(6%)
NCCF (£bn)*	1.5	0.9	67%
Closing AuA (£bn)*	62.5	57.2	9%
Average AuA (£bn)*	56.5	54.1	4%
Revenue margin (bps)*	29	31	(2) bp
Asset retention (%)*	93%	90%	3 pp
Quilter International
Net management fees (£m)*	106	110	(4%)
Other revenue (£m)*	12	15	(20%)
Total net fee revenue (£m)*	118	125	(6%)
NCCF (£bn)*	0.3	0.5	(40%)
Closing AuA (£bn)*	21.8	20.5	6%
Average AuA (£bn)*	20.3	19.6	4%
Revenue margin (bps)*	52	56	(4) bp
Asset retention (%)*	94%	92%	2 pp

 

END

 

 

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