Quilter : 2023 Half Year Results Statement

News release

8 August 2023

Quilter plc interim results for the period ended 30 June 2023

Quilter delivers 25% increase in adjusted profit and improved operating margin. Further growth and efficiency initiatives underway

Steven Levin, Chief Executive Officer, said:

"We have delivered a strong improvement in first half profitability, pleasing flow outcomes in the Quilter channel and improved our market share of new advised platform flows. Our business model is fully aligned with the principles of the Consumer Duty regime and my focus is on doing more for our customers to improve business momentum in the near-term, and deliver faster growth and higher returns to shareholders in the longer-term. We are targeting an additional £50 million of Simplification savings by 2025 and we expect consensus profit estimates for this year to increase materially."

Highlights

• Assets under Management and Administration ("AuMA") of £101.7 billion at the end of June 2023, increased by 2% on 31 December 2022 (£99.6 billion) principally due to positive market movements of £1.9 billion and:
  o Core business gross inflows of £5.5 billion in the first half which were broadly evenly spread between each quarter. Core net inflows in the first half were £0.7 billion (Q1: £409 million, Q2: £247 million). This reflected a good performance from the Quilter channel in both High Net Worth and Affluent with a more muted performance from our IFA/Direct channels across both segments. Market share of gross platform flows increased in both quarters. Notably, Q2 flows were up 5% year-on-year despite a 9% decline in the overall market over the same period.
  o Non-core net outflows of £0.5 billion (H1 2022: £0.2 billion) which relate to assets we still manage on behalf of businesses we have sold.
• Adjusted profit before tax increased by 25% to £76 million (H1 2022: £61 million). Revenue increased by 3% to £312 million (H1 2022: £303 million) supported by revenue generated on corporate cash balances. This was coupled with strong expense discipline which delivered a third consecutive decline in first half costs, despite inflationary pressures, and supported an increase in the operating margin to 24% (H1 2022: 20%).
• We expect to deliver our target £45 million Simplification cost savings by end 2023, a year earlier than planned. An additional £50 million of Simplification (Phase 2) savings are targeted for delivery by the end of 2025, with initiatives in train to improve each of our businesses.
• Stabilisation in Quilter restricted adviser headcount which increased by nine financial planners on December 2022 levels.
• Adjusted diluted earnings per share increased 34% to 4.3 pence (H1 2022: 3.2 pence) supported by the share count reduction from our capital return programme in 2022.
• IFRS profit after tax attributable to shareholders of £5 million (H1 2022: £151 million) with the period-on-period variance largely due to market
  valuation changes in the policyholder tax charge. Basic earnings per share of 0.4 pence (H1 2022: 9.8 pence).
• Interim Dividend of 1.5 pence per share versus 1.2 pence per share for 2022, representing an increase of 25%.
• Solvency II ratio of 240% after payment of the Interim Dividend (31 December 2022: 230%).

Key financial highlights

We assess our financial performance using a variety of measures including alternative performance measures ("APMs"), as explained further on pages 19 to 21. In the headings and tables presented, these measures are indicated with an asterisk: *.

Quilter highlights from continuing operations1		H1 2023		H1 2022
Assets and flows - core business		98.3
AuMA* (£bn)			95.2
Gross flows* (£bn)		5.5		5.8
Net inflows* (£bn)		0.7		1.6
Net inflows/opening AuMA* (annualised)		1%		3%
Assets and flows - reported		101.7
AuMA* (£bn)			98.7
Gross flows* (£bn)		5.5		5.9
Net inflows* (£bn)		0.2		1.4
Net inflows/opening AuMA* (annualised)		0%		3%
Profit and loss		7
IFRS profit before tax attributable to equity holders (£m)			182
IFRS profit after tax (£m)		5		151
Adjusted profit before tax* (£m)		76		61
Operating margin*		24%		20%
Revenue margin* (bps)		48		47
Adjusted diluted EPS from continuing operations* (pence)2		4.3		3.2
Interim dividend per share from continuing operations (pence)		1.5		1.2
Basic earnings per share from continuing operations (pence)2		0.4		9.9

1Continuing operations represent Quilter plc, excluding the results of discontinued operations relating to the sale of the Single Strategy business in 2018.

2The Financial Reporting Council published a thematic review on earnings per share in September 2022. The EPS figures for H1 2022 have been restated following the publication of this guidance as disclosed in note 8 to the interim financial statements.

Quilter plc results for the period ended 30 June 2023
Investor Relations
John-Paul Crutchley	UK	[phone]
Keilah Codd	UK	[phone]
Media
Tim Skelton-Smith	UK	[phone]
Camarco
Geoffrey Pelham-Lane	UK	[phone]

Steven Levin, CEO, and Mark Satchel, CFO, will give a presentation via webcast at 08:30am (BST) today, 8 August 2023. The presentation will be followed by a Q&A session.

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

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

Disclaimer

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

By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Quilter plc's control including amongst other things, international and global economic and business conditions, the implications and economic impact of the conflict in Ukraine, 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.

2	Quilter Interim Results 2023

Chief Executive Officer's statement

At our full year results, I said my focus was on building our distribution, enhancing our propositions, and driving efficiency to deliver better returns and faster growth. We have made good initial progress in this regard as demonstrated by our considerably higher first half profitability and improved operating margin. There is still more to be done which I discuss below under Business Improvement and Strategic Transformation.

Business performance

In the first six months of 2023, we have:

1. delivered a strong improvement in profit performance;
2. delivered robust flows in each quarter in the Quilter channel and continued to increase our market share of new Platform flows across both the Quilter and IFA channels, despite lower market activity levels; and
3. been focused on improving our business by accelerating efficiency initiatives, while positioning ourselves to deliver faster growth and higher returns in the longer term.

UK inflation and interest rates are higher than the market was anticipating earlier this year. While this continues to place pressure on the ability of consumers to save, the investment return we generate on shareholder funds has exceeded our prior expectations. This, together with strong cost management, supported an increase in first half adjusted profit of 25% to £76 million (H1 2022: £61 million). We expect UK interest rates to peak later this year, remain stable for an extended period before starting to decline. As a consequence, investment revenue is likely to remain elevated into 2024 before potentially starting to reduce. We view this eventual decline as a positive given that lower interest rates should support improved market performance and consumer confidence. This, in turn, supports higher customer saving, increased flows and provides a stronger long-term foundation to build client prosperity.

Despite inflationary headwinds, I am pleased to report a third successive first half period of lower absolute costs. Having reduced first half 2022 costs by £6 million on the 2021 level, we made similar progress this year, taking the first half cost base to £236 million. As a result, we achieved an improvement in operating margin to 24% (H1 2022: 20%).

Our High Net Worth segment delivered a steady income performance with a modest increase in revenue margin, supported by the contribution from interest margin. Operating expenses were held flat at £85 million as cost savings broadly offset planned business investment. The overall segment contribution to adjusted profit before tax was unchanged at £23 million.

Modestly higher revenues in our Affluent segment of £195 million (H1 2022: £193 million) reflected broadly stable average AuMA, the planned reduction in revenue margin on managed assets following the Cirilium reprice and a contribution from interest income on shareholder capital that supports the regulatory requirements of the business. Strong cost management combined with a lower FSCS levy led to a 15% increase in adjusted profit to £54 million for the half year (H1 2022: £47 million).

In Head Office, the cost of managing the Group declined by £1 million to £10 million. Higher interest rates contributed to an increase of £10 million in investment revenue generated on the cash and capital resources which support our regulatory capital and liquidity requirements.

Adjusted profit before tax of £76 million represents the Group's IFRS profit, adjusted for specific items that management consider to be outside of normal operations or one-off in nature. The Group's IFRS profit after tax from continuing operations was £5 million compared to £151 million in H1 2022. Principal differences between adjusted profit and IFRS profit are due to non-cash amortisation of intangible assets, business transformation expenses and the impact of policyholder tax positions on the Group's results. This latter item was significantly positive in the first half of 2022 reflecting the decline in markets during that period and was negative in the first half of 2023 due to the gain in markets this year. The year-on-year variance in IFRS profit after tax is principally due to the change in policyholder tax as a result of market movements. We expect business transformation expenses to remain elevated until 2025, reflecting spend on anticipated change programmes, but is expected to reduce substantially thereafter.

Total Group adjusted diluted earnings per share were 4.3 pence, an increase of 34% (H1 2022: 3.2 pence) with the greater increase relative to the increase in adjusted profit reflecting the benefit from a lower share count following last year's capital return exercise. On an IFRS basis, we delivered basic EPS from continuing operations of 0.4 pence per share versus 9.9 pence per share for H1 2022 on a comparable basis.

The strong profit performance we delivered for the first half of this year, combined with a constructive outlook for the remainder of the year, supports the increase in the interim dividend of 25% to 1.5 pence per share. While market uncertainty in recent years contributed to the total dividend payment being overly weighted to the second half, the Board's current expectation is that the traditional one third/two thirds split should be anticipated for 2023.

Flows and investment performance

At an aggregate level, net flows in our core business were c.1% of opening balances, with the total Group position (after non-core outflows) broadly flat. While the overall position reflected muted activity across the industry, we experienced varied trends across the business. Notably, both our Quilter channel and our Platform performed well relative to market peers:

• Quilter channel: Our High Net Worth segment delivered a 37% increase in gross flows to £266 million (H1 2022: £194 million) and our Affluent
  segment delivered a 6% increase to £1.8 billion (H1 2022: £1.7 billion). Notably, the Quilter channel delivered a stronger second quarter for new business than the first in High Net Worth and a similar outcome in each quarter in the Affluent segment, despite lower market volumes in the second quarter. Overall, this translated into broadly stable net flows for the half as a result of a modest decline in persistency as some clients withdrew monies to repay debt or maintain living standards. Net flows as a percentage of opening balances were 17% and 11% for the High Net Worth and Affluent segments respectively.

Quilter Interim Results 2023

3

• IFA channel: New business volumes in both segments were lower than the prior period reflecting lower market activity. This contributed to a net outflow for the half year in our High Net Worth business - with a small number of larger accounts restructuring their finances heavily influencing this outcome - and a broadly flat contribution from IFA flows to our Platform within the Affluent business. We need to deliver a better performance at the net level and I have made some changes to ensure we deliver on our potential. Both distribution channels within the Affluent segment have now been brought together under common leadership. Delivering stronger net IFA flows will be an important contributor to bridging the gap between our current performance and where we want to be.
• Within Affluent, we were pleased with the overall level of new business onto our Platform, given the challenging market. We were the only advised platform to write more than £2 billion of new business in the first quarter and broadly maintained that level of gross flows in the second quarter. Second quarter new business flows onto our Platform increased by 5% period-on-period, despite market volumes being around 9% lower (Source: Fundscape) and our leading peers underperforming this benchmark. I am delighted we remain the number one market platform for new advised flows and we continued to increase our market share of new business in each quarter.
• Finally, our non-coreportfolios, which largely relate to residual assets we manage on behalf of businesses we sold in previous periods together with some legacy run-off funds, remain in outflow, as expected. An outflow of £457 million in the first half was higher than in the prior period (H1 2022: £164 million). The second quarter outflow was elevated by c.£200 million of sub-scale fund closures. Excluding this, the book is running off at a mid-teens rate and we expect this trend to continue given that these assets are managed on behalf of individuals who are no longer active clients of the Group.

In terms of investment performance, within High Net Worth, our Growth oriented Discretionary Portfolio Service continued to modestly outperform its benchmark over 1, 3 and 5 years while our Balanced Discretionary Portfolio Service was broadly in line with benchmark over 1 year but underperformed its 3 and 5 year benchmark by around a percentage point.

Within Affluent, we continued to deliver an excellent performance from our WealthSelect managed portfolio range. Cirilium Passive and Blend also performed well during the first half of the year. Since the change in manager at Cirilium Active late last year, performance has improved significantly with second quartile performance in the period since that change was implemented. While the weak period of performance over the last two to three years will take time to work through, we are confident that the fund is positioned much better for the longer-term.

Business Improvement and Strategic Transformation

Business Improvement

We are building distribution and enhancing our propositions. We have driven our efficiency agenda by accelerating our Simplification cost reduction programme. We now expect to realise the target savings of £45 million from that initial programme by the end of this year, a year ahead of schedule.

Distribution

In High Net Worth, we are building our advice capability internationally in our Dublin and Jersey offices. We aim to grow our Investment Manager and Financial Planner headcount to around 300 client facing individuals over time. This will be achieved by developing existing staff and external recruitment. Where appropriate, we will look to take advantage of recent market dislocation by making modest bolt-on acquisitions to bolster our advice business or add teams of Investment Managers to accelerate our growth plans.

Within Affluent, our Quilter channel is building distribution on three fronts. We have:

• increased the number of RFPs, where the position has stabilised following recent declines;
• increased productivity, with annualised gross flow per adviser of £2.7 million in the first half (H1 2022: £2.4 million); and
• increased the assets our advisers manage within our propositions through back-book transfers, which totalled £326 million in the first half.

In IFA distribution, we have seen incremental flows in line with expectations from our targeted firms and delivering stronger levels of net IFA flows is an absolute priority for my distribution team.

Proposition

Our Platform and investment solutions are both market leading propositions. My focus is on ensuring both remain competitively positioned and continue to offer value to customers. For example, our Cirilium reprice coupled with improved performance in the Active range has repositioned the product and we continue to see strong appetite for our Blend and Passive offerings.

Similarly, the Platform reprice went live for new customers at the end of the second quarter and is being rolled out to existing customers during the third quarter. This reduced our Platform administration fee to clients meaningfully, with this partially offset through sharing of the interest margin earned on Platform cash between clients and Quilter. This allows us to offer clients a competitive rate of interest across the market, while partially offsetting some of the impact of the lower platform charge. The overall cost to us over an interest rate cycle is expected to be in line with the single basis point of Platform margin attrition that I guided to in March. However, while interest rates remain elevated, the net outcome will be better for clients and broadly neutral for Quilter.

A recent upgrade to our Platform introduced automated tiered adviser charging. This meets a need that advisers have sought for some time and allows them to implement sliding scale advice fees linked to the value of their customers' assets. Most importantly, it supports advisers as they adapt their own businesses to be fully aligned with Consumer Duty principles.

The advent of higher global interest rates means that cash is now seen as an attractive investment alternative for retail clients. To this end, we intend to enhance our support of cash as an asset class and will be introducing a cash hub on our Platform later in 2023. This will allow clients to hold cash and fixed term deposits alongside their other Platform assets and obtain market leading rates.

4	Quilter Interim Results 2023

Quilter's business model is fully aligned with the principles of the Consumer Duty regime. We have always believed that Quilter's unbundled pricing approach to serving clients puts client choice at the heart of our business - they choose the services they wish to take from us and only pay us for what we provide. Moreover, our unique breadth of distribution means that all our products and services are available across the market, to both our financial advisers and to independent financial advisers. That means whether through investment performance or in terms of price/value/service trade- offs, our products and solutions are competitive with third-party alternatives. We have no lock-ins, or hidden fees so the need to both demonstrate and deliver value is axiomatic to our approach.

I am pleased the introduction of Consumer Duty has provided an opportunity to reflect on the clear tangible benefit our propositions deliver for our clients and the way we communicate the value we provide to them. We are delighted with the positive response we have had from advisers and their clients on these initiatives.

Strategic Transformation

Longer term, we are focused on repositioning each of our businesses to deliver faster growth, enhanced client outcomes, improved efficiency, and higher returns. We have change programmes underway in each of our principal distribution franchises; the High Net Worth segment, and, in Affluent, our IFA and Quilter channels. This activity is underpinned at a Group level by the next stage of our Simplification programme. Taking each in turn:

1. High Net Worth Evolution

Over the last few years, we have built a Quilter branded advice business in our High Net Worth segment. This distribution channel has delivered significant incremental flows to our business. However, for historical reasons our advice and investment management businesses operate within different legal entities which complicates integrated client servicing. We plan to bring both teams together in a single legal and regulated structure, where our High Net Worth advice business will become directly authorised by the FCA for advice. That will allow us to manage relationships with clients who want an integrated investment management and advice proposition in a more seamless manner, as well supporting our productivity and efficiency goals. We will implement this change as soon as the necessary regulatory approvals are in place.

2. Affluent: IFA Channel

From an advice perspective, one of Quilter's defining strengths is the breadth of proposition and distribution we support. This breadth of distribution ensures that our Platform and solutions benefit from flows generated across the market and we remain strategically well positioned however the advice market evolves in future.

We manage around £57 billion of assets on our Platform on behalf of IFA firms. Of this, around £10 billion is on behalf of firms who solely use our Platform to access third party funds for their client portfolios. However, the majority of assets on our Platform are with firms who use third party options alongside our investment solutions. We see the highest usage of our solutions on the c.£30 billion of assets we administer for our strategic partner IFA firms. These assets are principally managed through our £11 billion WealthSelect portfolios. Given the strong operational gearing of both our Platform and Investment Solutions businesses, my objective is to first grow the assets on our Platform and then encourage use of our solutions, where it is appropriate to do so. To this end, we continue to implement our plans to grow the number of active firms using our Platform and seek to position ourselves as primary platform with all firms using our Platform. As I noted earlier, we continue to rebuild our IFA market share and, positively, flows from the "target growth firms" that we discussed at our Capital Markets Day continue to build and are higher in the first half of 2023 than they were in the corresponding period of 2022 and 2021, despite lower market volumes.

3. Affluent: Quilter Channel Transformation

We will grow our advice business and make it more efficient. We will drive growth through increasing our numbers of restricted advisers and continuing to ensure greater alignment between them and Quilter. This ensures we capture more of the flow they generate onto our Platform and into our solutions.

In terms of proposition, we have traditionally offered two alternatives to advisers:

• a National business, for advisers who do not want to be burdened with business administration and wish to use our Platform and solutions and focus their time on advising clients; and
• our Network, which services owner-operated advice businesses, who benefit from our support and use our Platform and solutions via a restricted matrix. Generally, c.80% of new flows advised upon by these firms are managed by Quilter.

Recent market consolidation activity reflects a heightened recognition by advisers of the value that can be created through proposition alignment. This creates an opportunity for a new franchise model that complements our existing propositions. We are piloting a new proposition, Quilter Partners, which will combine full alignment with our investment and Platform propositions with the entrepreneurial drive and focus of owner-operated businesses. This work is at an early stage, and we will update further as we refine our work on developing this proposition.

We are also transforming how we work to deliver a more efficient operating model and better client experience. Our advice business was built through acquisition and a historic lack of integration has led to operational complexity and a higher cost of running the business than we would like. To improve overall adviser productivity, reduce support costs, and improve risk management and our control framework, we intend to roll out common systems to all Quilter channel adviser firms over the next few years.

4. Simplification Phase II

Following the sale of Quilter Life Assurance and Quilter International, the first stage of Simplification focused on reducing complexity in our business and rationalising legacy IT systems. Targeted cost saves of approximately £45 million from this programme will be achieved by the end of this year on a run-rate basis.

Quilter Interim Results 2023

5