TIDMQLT
RNS Number : 1249X
Quilter PLC
08 August 2018
Statement of directors' responsibilities in respect of the
interim financial statements
For the 6 month period ended 30 June 2018
Each of the directors of Quilter plc, confirms to the best of
his or her knowledge and belief that:
-- The condensed set of consolidated financial statements, which
comprises the consolidated income statement and statement of
comprehensive income, reconciliation of adjusted profit to profit
after tax, consolidated statement of changes in equity,
consolidated statement of financial position, consolidated
statement of cash flows and the related explanatory notes, has been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the European Union.
-- The interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of consolidated financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the financial year and that have materially affected
the financial position or performance of the entity during that
period; and any changes in the related party transactions described
in the Group's 31 December 2017 Historical Financial Information,
within the Group's listing prospectus, that could do so.
As per provision C1 of the UK Corporate Governance Code, the
results for the half year 2018 results taken as a whole, present a
fair, balanced and understandable position of the Company's
prospects.
Paul Feeney Tim Tookey
Chief Executive Officer Chief Financial Officer
7 August 2018 7 August 2018
Independent review report to Quilter plc
For the 6 month period ended 30 June 2018
Conclusion
We have been engaged by the company to review the condensed set
of financial statements for the half-yearly financial report for
the six months ended 30 June 2018 which comprises the consolidated
income statement and statement of comprehensive income,
reconciliation of adjusted profit to profit after tax, consolidated
statement of changes in equity, consolidated statement of financial
position, the consolidated statement of cash flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Jonathan Mills
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
7 August 2018
Consolidated income statement
For the 6 month period ended 30 June 2018
==================================================== ===== ========== ========== ============
GBPm
========== ========== ============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
==================================================== ===== ========== ========== ============
Revenue
Gross earned premiums 75 73 148
Premiums ceded to reinsurers (44) (43) (88)
==================================================== ===== ========== ========== ============
Net earned premiums 31 30 60
Fee income and other income from service
activities 8 523 437 895
Investment return 293 2,681 5,195
Other income 10 5 13
==================================================== ===== ========== ========== ============
Total revenue 857 3,153 6,163
==================================================== ===== ========== ========== ============
Expenses
Claims and benefits paid (45) (38) (76)
Reinsurance recoveries 29 25 54
==================================================== ===== ========== ========== ============
Net insurance claims and benefits incurred (16) (13) (22)
Change in reinsurance assets and liabilities 17(c) 20 26 85
Change in insurance contract liabilities 21(a) (23) (22) (78)
Change in investment contract liabilities (192) (2,264) (4,308)
Fee and commission expenses, and other acquisition
costs (230) (154) (320)
Change in third party interest in consolidated
funds 3 (325) (673)
Other operating and administrative expenses (392) (376) (816)
Finance costs 9 (10) (20) (39)
==================================================== ===== ========== ========== ============
Total expenses (840) (3,148) (6,171)
==================================================== ===== ========== ========== ============
Profit on the acquisition and re-measurement
of subsidiaries 5(a) - - 3
==================================================== ===== ========== ========== ============
Profit/(Loss) before tax from continuing
operations 17 5 (5)
Tax credit/(expense) attributable to policyholders'
funds 18 (29) (49)
==================================================== ===== ========== ========== ============
Profit/(Loss) before tax attributable to
shareholders' profits 35 (24) (54)
==================================================== ===== ========== ========== ============
Income tax credit/(expense) 10(a) 15 (22) (41)
Less: tax (credit)/expense attributable
to policyholders' funds (18) 29 49
==================================================== ===== ========== ========== ============
Tax credit/(expense) attributable to shareholders'
profits (3) 7 8
==================================================== ===== ========== ========== ============
Profit/(Loss) after tax from continuing
operations 32 (17) (46)
Profit after tax from discontinued operations 5(d) 310 111 203
==================================================== ===== ========== ========== ============
Profit for the period after tax 342 94 157
==================================================== ===== ========== ========== ============
Attributable to:
Equity holders of Quilter plc 342 94 157
==================================================== ===== ========== ========== ============
Earnings per ordinary share on profit attributable to ordinary shareholders
of Quilter plc
=================================================================================================
Basic
From continuing operations (pence) 1.8 (1.0) (2.5)
From discontinued operations (pence) 5(d) 16.9 6.1 11.1
==================================================== ===== ========== ========== ============
Basic earnings per ordinary share (pence) 11(a) 18.7 5.1 8.6
==================================================== ===== ========== ========== ============
Diluted
From continuing operations (pence) 1.8 (1.0) (2.5)
From discontinued operations (pence) 5(d) 16.9 6.1 11.1
==================================================== ===== ========== ========== ============
Diluted earnings per ordinary share (pence) 11(b) 18.7 5.1 8.6
==================================================== ===== ========== ========== ============
The attached notes form an integral part of these condensed
consolidated interim financial statements.
Consolidated statement of comprehensive income
For the 6 month period ended 30 June 2018
GBPm
========== ========== ============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
================================================== ========== ========== ============
Profit for the period 342 94 157
Other comprehensive income:
Exchange gains on translation of foreign
operations(1) - 1 3
Other comprehensive income / (expense) for
the period(2) (1) - -
Items that may be reclassified subsequently
to income statement (1) 1 3
Income tax on items that will not be reclassified
subsequently to income statement(2) - 2 3
================================================== ========== ========== ============
Items that will not be reclassified subsequently
to income statement - 2 3
Total other comprehensive income, net of
tax(1) (1) 3 6
================================================== ========== ========== ============
Total comprehensive income for the period 341 97 163
================================================== ========== ========== ============
Attributable to:
Continuing operations 31 (13) (47)
Discontinued operations 5e 310 110 210
================================================== ========== ========== ============
Equity holders of Quilter plc 341 97 163
================================================== ========== ========== ============
(1) In the year ended 31 December 2017, GBP3 million previously
shown within the consolidated statement of changes in equity as a
change in participation in subsidiaries has been reclassified to
other comprehensive income, to conform with current
presentation.
(2) In the year ended 31 December 2017, GBP3 million previously
shown within other comprehensive income for the period has been
reclassified to income tax on items that will not be reclassified
subsequently to income statement, to conform with current
presentation.
The attached notes form an integral part of these condensed
consolidated interim financial statements.
Reconciliation of adjusted profit to profit after tax
For the 6 month period ended 30 June 2018
GBPm
========== ========== ============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
=============================================== ===== ========== ========== ============
Adjusted profit before tax
Advice and Wealth Management 47 32 82
Wealth Platforms 83 74 158
Head Office (20) (11) (31)
Adjusted profit before tax 6(b) 110 95 209
=============================================== ===== ========== ========== ============
Reconciliation of adjusted profit to Profit
after tax
Adjusting for the following:
Goodwill impairment and impact of acquisition
accounting (28) (28) (54)
Profit on business acquisitions and disposals - - 3
Business transformation costs (37) (59) (89)
Managed Separation costs (17) (12) (32)
Finance costs (8) (20) (39)
Policyholder tax adjustments 15 - 17
Voluntary customer remediation provision - - (69)
=============================================== ===== ========== ========== ============
Total adjusting items before tax 7(a) (75) (119) (263)
=============================================== ===== ========== ========== ============
Profit/(Loss) before tax attributable to
shareholders' profits 35 (24) (54)
Income tax attributable to policyholder
returns (18) 29 49
=============================================== ===== ========== ========== ============
Profit/(Loss) before tax from continuing
operations 17 5 (5)
Income tax credit/(expense) on continuing
operations 10(b) 15 (22) (41)
Profit/(Loss) after tax from continuing
operations 32 (17) (46)
Profit after tax from discontinued operations 5(d) 310 111 203
=============================================== ===== ========== ========== ============
Profit for the period after tax 342 94 157
=============================================== ===== ========== ========== ============
Adjusted profit after tax attributable to ordinary shareholders of Quilter
plc
============================================================================================
GBPm
========== ========== ============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
=============================================== ===== ========== ========== ============
Adjusted profit before shareholder tax 110 95 209
Shareholder tax on adjusted profit 10(c) (9) (15) (14)
=============================================== ===== ========== ========== ============
Adjusted profit after tax attributable to
ordinary shareholders
of Quilter plc 11(c) 101 80 195
=============================================== ===== ========== ========== ============
Adjusted weighted average number of ordinary
shares used to
calculate adjusted basic and diluted earnings
per share (millions) 11(c) 1,830 1,830 1,830
=============================================== ===== ========== ========== ============
Adjusted basic and diluted earnings per
share (pence) 11(c) 5.5 4.4 10.7
=============================================== ===== ========== ========== ============
Basis of preparation of adjusted profit
Adjusted profit (previously named 'Operating profit' in the
prospectus) reflects the directors' view of the underlying
performance of the Group and is used for management decision making
and internal performance management. It is the profit measure
presented in the Group's segmental reporting. Adjusted profit is a
non-GAAP measure which adjusts the IFRS profit for specific agreed
items as detailed in note 7(a): Adjusted profit adjusting
items.
Adjusted profit excludes the impairment of goodwill;
amortisation and impairment of other intangibles acquired in
business combinations; the profit or loss on business acquisitions
and disposals; costs related to business transformation, in
particular the development of our new platform capability and
outsourcing of UK business administration and other one-off and
restructuring costs; Managed Separation costs; the effects of
interest costs on borrowings; and voluntary customer remediation
provisions. Adjusted profit also treats policyholder tax as a
pre-tax charge (to offset against the related income collected from
policyholders), though adjusted to remove the impact of
non-operating items.
Execution of the Group's strategy of Managed Separation from Old
Mutual plc entails a number of significant costs that are regarded
as non-operating, or one-off in nature. These costs are recognised
within IFRS profit and excluded from adjusted profit.
Adjusted earnings applied in the calculation of adjusted
earnings per share is calculated based on adjusted profit after
tax. The calculation of the adjusted weighted average number of
shares includes own shares held in policyholders' funds.
The notes form an integral part of these condensed consolidated
interim financial statements.
Consolidated statement of changes in equity
For the 6 month period ended 30 June 2018
GBPm
============================ =========== ========= ============ ========= =========
Foreign Total
For the 6 month Share-based currency share-
period Share Share Merger payments Other translation Retained holders'
ended 30 June 2018 Notes capital premium reserve reserve reserves reserve earnings equity
===================== ===== ======== ======== ======== =========== ========= ============ ========= =========
Balance at 1 January
2018 130 58 - 38 1 - 872 1,099
Profit for the period - - - - - - 342 342
Other comprehensive
income/(expense) - - - 1 - - (2) (1)
Total comprehensive income - - - 1 - - 340 341
Acquisition of
Skandia
UK 19 - - 591 - - - - 591
Issue of share
capital 19 3 - (3) - - - - -
Movement in treasury
shares - - - - - - 1 1
Equity share-based
payment
transactions(1) - - - (2) - - 30 28
Change in
participation
in subsidiaries - - - (12) - - 12 -
Total transactions with the
owners of the Company 3 - 588 (14) - - 43 620
============================ ======== ======== ======== =========== ========= ============ ========= =========
Balance at 30 June
2018 133 58 588 25 1 - 1,255 2,060
===================== ===== ======== ======== ======== =========== ========= ============ ========= =========
(1) Equity share-based payment transactions include GBP28
million of IFRS 2 costs and a GBP30 million transfer to retained
earnings representing share-based payment schemes that have fully
vested.
GBPm
============================ =========== ========= ============ ========= =========
Foreign Total
For the 6 month Share-based currency share-
period Share Share Merger payments Other translation Retained holders'
ended 30 June 2017 Notes capital premium reserve reserve reserves reserve earnings equity
===================== ===== ======== ======== ======== =========== ========= ============ ========= =========
Balance at 1 January
2017 130 - - 75 3 2 782 992
Profit for the period - - - - - - 94 94
Other comprehensive
income - - - - - - 3 3
Total comprehensive income - - - - - - 97 97
Dividends - - - - - - (210) (210)
Issue of share
capital 19 200 - - - - - - 200
Equity share-based
payment
transactions(1) - - - (9) - - - (9)
Change in
participation
in subsidiaries - - - (1) (1) (2) 4 -
Total transactions with the
owners of the Company 200 - - (10) (1) (2) (206) (19)
============================ ======== ======== ======== =========== ========= ============ ========= =========
Balance at 30 June
2017 330 - - 65 2 - 673 1,070
===================== ===== ======== ======== ======== =========== ========= ============ ========= =========
(1) Equity share-based payment transactions include a GBP22
million payment in respect of the shares schemes offset by GBP13
million of IFRS 2 costs.
GBPm
============================ =========== ========= ============ ========= =========
Foreign Total
Share-based currency share-
For the year ended 31 Share Share Merger payments Other translation Retained holders'
December 2017 Notes capital premium reserve reserve reserves reserve earnings equity
===================== ===== ======== ======== ======== =========== ========= ============ ========= =========
Balance at 1 January
2017 130 - - 75 3 2 782 992
Profit for the year - - - - - - 157 157
Other comprehensive
income(3) - - - - - - 6 6
======== ======== ======== =========== ========= ============ ========= =========
Total comprehensive
income - - - - - - 163 163
Dividends - - - - - - (210) (210)
Issue of share
capital 19 200 58 - - - - - 258
Reduction of share
capital 19 (200) - - - - - 200 -
Movement in treasury
shares(1) - - - - - - (99) (99)
Equity share-based
payment
transactions(2) - - - (36) - - 31 (5)
Change in
participation
in subsidiaries(3) - - - (1) (2) (2) 5 -
Total transactions with the
owners of the Company - 58 - (37) (2) (2) (73) (56)
============================ ======== ======== ======== =========== ========= ============ ========= =========
Balance at 31
December
2017 130 58 - 38 1 - 872 1,099
===================== ===== ======== ======== ======== =========== ========= ============ ========= =========
(1) Movement in treasury shares includes GBP99 million of
treasury shares within the JSOP Trust that transferred from Old
Mutual plc to the Company during 2017. See note 20(g) for further
details.
(2) Equity share-based payment transactions include a GBP31
million transfer to retained earnings representing share-based
payment schemes that have fully vested.
(3) A credit to retained earnings of GBP3 million has been
reclassified from changes in participation in subsidiaries to other
comprehensive income, to conform with current year
presentation.
The notes form an integral part of these condensed consolidated
interim financial statements.
Consolidated statement of financial position
At 30 June 2018
GBPm
======== ======== ============
At At At
30 June 30 June 31 December
Notes 2018 2017 2017
============================================== ===== ======== ======== ============
Assets
Goodwill and intangible assets 12 566 678 574
Property, plant and equipment 17 21 18
Investments in associated undertakings(2) 1 1 1
Deferred acquisition costs 12 636 611
Contract costs(1) 575 - -
Contract assets(1) 45 - -
Loans and advances 13 219 200 199
Financial investments(2) 14 64,569 58,493 64,250
Reinsurers' share of policyholder liabilities 17 2,666 3,085 2,908
Deferred tax assets 19 11 22
Current tax receivable 3 24 -
Trade, other receivables and other assets 1,437 1,063 497
Derivative assets 33 84 87
Cash and cash equivalents 18 3,375 2,171 2,360
Assets of operations classified as held
for sale 5(g) - - 446
============================================== ===== ======== ======== ============
Total assets 73,537 66,467 71,973
============================================== ===== ======== ======== ============
Equity and liabilities
Equity
============================================== ===== ======== ======== ============
Ordinary share capital 19 133 330 130
Ordinary share premium reserve 19 58 - 58
Merger reserve 19 588 - -
Share-based payments reserve 25 65 38
Other reserves 1 2 1
Retained earnings 1,255 673 872
============================================== ===== ======== ======== ============
Total equity 2,060 1,070 1,099
============================================== ===== ======== ======== ============
Liabilities
Long-term business insurance policyholder
liabilities 21 513 436 489
Investment contract liabilities 21 60,140 55,303 59,139
Third-party interests in consolidated funds 8,105 6,479 7,905
Provisions and accruals 22 115 34 104
Deferred tax liabilities 164 178 190
Current tax payable 12 35 38
Borrowings 23 197 838 782
Trade, other payables and other liabilities 1,937 1,416 1,331
Deferred revenue - 254 244
Contract liabilities(1) 235 - -
Derivative liabilities 59 424 433
Liabilities of operations classified as
held for sale 5(g) - - 219
============================================== ===== ======== ======== ============
Total liabilities 71,477 65,397 70,874
============================================== ===== ======== ======== ============
Total equity and liabilities 73,537 66,467 71,973
============================================== ===== ======== ======== ============
(1) The Group has initially applied IFRS 15 and IFRS 9 at 1
January 2018. It has applied IFRS 15 using the cumulative effect
method, under which the comparative information is not restated. It
has also taken advantage of the exemption in paragraph 7.2.15 of
IFRS 9 from restating prior periods in respect of IFRS 9's
classification and measurement (including impairment) requirements.
Refer to note 4(b) for further information.
(2) As at 31 December 2017, GBP2 million has been reclassified
from investments in associated undertakings to financial
investments to conform with current year presentation.
Approved by the Board on 7 August 2018.
Paul Feeney Tim Tookey
Chief Executive Officer Chief Financial Officer
The attached notes form an integral part of these condensed
consolidated interim financial statements.
Consolidated statement of cash flows
For the 6 month period ended 30 June 2018
The cash flows presented in this statement cover all the Group's activities
and include flows from both policyholder and shareholder activities. All
cash and cash equivalents are available for use by the Group except for
cash and cash equivalents in Consolidated Funds.
GBPm
========== ========== ============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
=============================================== ===== ========== ========== ============
Cash flows from operating activities
Profit before tax 328 123 227
Non-cash movements in profit before tax 853 1,969 4,061
Net changes in working capital(2) (368) 335 1,281
Taxation paid (70) (19) (9)
=============================================== ===== ========== ========== ============
Total net cash flows from operating activities 743 2,408 5,560
=============================================== ===== ========== ========== ============
Cash flows from investing activities
Net acquisitions of financial investments (224) (1,982) (4,760)
Acquisition of property, plant and equipment (2) (6) (8)
Acquisition of intangible assets (2) (1) (9)
Acquisition of interests in subsidiaries
and associated undertakings joint ventures (568) (24) (33)
Net proceeds from the disposal of interests
in subsidiaries(1) 350 208 208
=============================================== ===== ========== ========== ============
Total net cash used in investing activities (446) (1,805) (4,602)
=============================================== ===== ========== ========== ============
Cash flows from financing activities
Dividends paid to ordinary equity holders
of the Company - (210) (210)
Finance costs (3) (20) (39)
Proceeds from issue of ordinary shares 591 200 258
Proceeds from issue of subordinated and
other debt 497 - -
Subordinated and other debt repaid (516) (1) (57)
=============================================== ===== ========== ========== ============
Total net cash from/(used in) financing
activities 569 (31) (48)
=============================================== ===== ========== ========== ============
Net increase in cash and cash equivalents 866 572 910
Cash and cash equivalents at beginning of
the year 2,508 1,595 1,595
Effects of exchange rate changes on cash
and cash equivalents 1 4 2
=============================================== ===== ========== ========== ============
Cash and cash equivalents at end of the
period 18 3,375 2,171 2,507
=============================================== ===== ========== ========== ============
Cash flows include both continuing and discontinued operations
and cash held for sale.
(1) Net proceeds from the disposal of interests in subsidiaries
includes the cash consideration on disposal of the Single Strategy
business of GBP540 million (see note 5(b)), less cash within the
Single Strategy business at the point of disposal of GBP170 million
and GBP20 million transaction costs.
(2) In the year end 31 December 2017, the cash flow statement
has been amended to include cash of GBP147 million that was
previously included in assets held for sale in respect of the
Single Strategy business which has subsequently been sold in
2018.
The attached notes form an integral part of these condensed
consolidated interim financial statements.
Basis of preparation and significant accounting policies
For the 6 month period ended 30 June 2018
General Information
These interim financial statements are the condensed
consolidated interim financial statements for the Group, consisting
of Quilter plc, formerly known as Old Mutual Wealth Management
Limited, and its subsidiaries. Quilter plc (the 'Company'), a
public limited company incorporated and domiciled in the United
Kingdom ('UK'), together with its subsidiaries (collectively, the
'Group') offers investment and wealth management services, life
assurance and long-term savings, and financial advice through its
subsidiaries and associates primarily in the UK with a presence in
a number of cross-border markets.
The address of the registered office is Millennium Bridge House,
2 Lambeth Hill, London EC4V 4AJ.
The Company was, until 25 June 2018, a wholly owned subsidiary
of Old Mutual plc, a FTSE 100 listed group. The Company formed part
of the Old Mutual Wealth division of Old Mutual plc, for which it
acted as a holding company and delivered strategic and governance
oversight. On 25 June 2018, Quilter plc was listed on the London
and the Johannesburg Stock Exchanges and is no longer part of the
Old Mutual plc group.
1: Basis of preparation
The IFRS condensed consolidated interim financial statements
('interim financial statements') of Quilter plc for the six months
to 30 June 2018 have been prepared in accordance with IAS 34
Interim Financial Reporting issued by the International Accounting
Standards Board, as adopted by the European Union. These interim
financial statements, which are unaudited, should be read in
conjunction with the Group's Historical Financial Information
('HFI') as at and for the year ended 31 December 2017 included in
the listing prospectus dated 20 April 2018, which is available on
the Group's website.
Pursuant to section 435 of the Companies Act, the comparative
figures for the financial year ended 31 December 2017 are not the
company's statutory accounts for that financial year. Those
accounts were company only accounts and have been reported on by
the company's auditor and delivered to the registrar of companies.
The report of the auditor was (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by
way of emphasis without qualifying their report, and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
They do not include all of the information required for a
complete set of IFRS financial statements. However, selected notes
are included to explain events and transactions that are
significant to an understanding of the changes in the Group's
financial position and performance since the publication of the
2017 HFI report in the prospectus. The Board also believes that
alternative performance measures ('APMs') provided, such as
adjusted profit, are also useful for both management and
investors.
This is the first set of the Group's financial statements where
IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts
with Customers have been applied. Changes in significant accounting
policies to reflect these new IFRSs are explained in note 4. All
other accounting policies for recognition, measurement,
consolidation and presentation are as outlined in the 2017 HFI
report in the prospectus. The interim financial statements have
been prepared on the historical cost basis, except for the
revaluation of certain financial instruments, and are presented in
pounds sterling, which is the currency of the primary economic
environment in which the Group operates.
Going concern
The directors have considered the resilience of the Group,
taking into account its current financial position, the principal
risks facing the business and the effectiveness of any mitigating
strategies. As a result, the directors believe that the Group is
well placed to manage its business risks in the context of the
current economic outlook and have sufficient financial resources to
continue in business for a period of at least 12 months from the
date of approval of these interim financial statements. They
therefore continue to adopt the going concern basis in preparing
the interim financial statements.
Critical accounting estimates and judgements
In preparing these interim financial statements, management has
made estimates and judgements that affect the amounts of assets and
liabilities, income and expense reported, as well as the
application of the Group's accounting policies. The critical areas
of accounting estimates and judgement are the same as the 2017 HFI
report in the prospectus, except for new significant judgements and
key sources of estimation uncertainty introduced through applying
IFRS 9 and IFRS 15 for the first time. This is explained in more
detail in note 4.
Acquisitions and disposals within the period ended 30 June 2018
and year ended 31 December 2017
Within these financial statements, the following acquisitions
and disposals have taken place and therefore their financial
impacts feature within certain reporting periods (further details
of the acquisitions is included in note 5). As part of the
separation from Old Mutual plc, the acquisition of Skandia UK
Limited included GBP566 million of intercompany indebtedness which
was replaced with equity in the form of share capital and a merger
reserve (further details are included in note 19).
Acquisitions completed within the six month period ended 30 June
2018:
-- Skandia UK Limited - acquired from Old Mutual Plc on 31 January 2018
-- Quilter Private Client Advisers ('QPCA') - acquired six adviser businesses
Disposals completed within the six month period ended 30 June
2018:
-- Old Mutual Wealth Single Strategy Business - sale completed on 29 June 2018
Acquisitions completed within the twelve month period ended 31
December 2017:
-- Caerus Capital Group Limited - acquired on 1 June 2017
-- QPCA - acquired eight adviser businesses during the year
-- Attivo Investment Management Limited - acquired on 29 March 2017
-- Commsale 2000 Limited - acquired from Old Mutual plc on 29 September 2017
-- Global Edge Technology Limited - acquired from Old Mutual plc on 30 November 2017
Disposals completed within the twelve month period ended 31
December 2017:
-- Old Mutual Wealth Italy S.p.A - sale completed on 9 January 2017
Accounting policy elections
The following significant accounting policy election has been
made by the Group:
Financial instruments
The Group has elected to designate at fair value through profit
and loss ('FVTPL') some government debt securities, held to back
insurance liabilities, which would ordinarily be held at amortised
cost or fair value through other comprehensive income ('FVOCI')
under IFRS 9, to eliminate or reduce an accounting mismatch that
would otherwise arise.
Basis of consolidation
The consolidated interim financial statements incorporate the
assets, liabilities and the results of the Company and its
subsidiary undertakings (investees). Subsidiary undertakings are
those entities, including structured entities, controlled by the
Group. Subsidiaries are consolidated from the date the Group
obtains control and are excluded form consolidation from the date
the Group loses control.
Where necessary, adjustments are made to financial statements of
subsidiaries to bring the accounting policies used in line with
Group policies. All intercompany transactions, balances and
unrealised surpluses and deficits on transactions between Group
companies are eliminated on consolidation.
On consolidation, the interests of parties other than the Group
are assessed to determine whether they should be classified as
liabilities or as non-controlling interests ('NCIs') on the
consolidated statement of financial position under equity. The
amounts are reported as a liability and described as 'Third-party
interests in consolidated funds'. Such interests are not recorded
as non-controlling interests as these instruments are puttable
instruments as defined by IAS 32 Financial Instruments:
Presentation and meet the liability classification requirements set
out in IAS 32. These liabilities are regarded as current, as they
are repayable on demand, although it is not expected that they will
be settled in a short time period.
Non-controlling interests in the results and equity of
subsidiaries are shown separately in the consolidated interim
financial statements.
Liquidity analysis of the statement of financial position
The Group's statement of financial position is in order of
liquidity as is permitted by IAS 1 Presentation of Financial
Statements. For each asset and liability line item, those amounts,
expected to be recovered or settled after more than twelve months
after the reporting date are disclosed separately in the notes to
the financial statements, except where specific notes are not
required within the consolidated interim financial statements.
Critical accounting estimates and judgements
The preparation of financial statements requires management to
exercise judgement in applying accounting policies and make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements.
Critical accounting estimates and judgements are those that involve
the most complex or subjective assessments and assumptions.
Management uses its knowledge of current facts and circumstances
and applies estimation and assumption setting techniques that are
aligned with relevant actuarial and accounting guidance to make
predictions about future actions and events. Actual results may
differ significantly from those estimates.
The Group Audit Committee reviews the reasonableness of
judgements and assumptions applied and the appropriateness of
significant accounting policies adopted in the preparation of these
financial statements.
The areas where judgements, estimates and assumptions have the
most significant effect on the amounts recognised in the condensed
consolidated financial statements are summarised separately
below:
Area Critical accounting judgement
Consolidation Assessment of whether the Group controls underlying entities
(investees), including investment funds, based on whether
the Group has (1) power over the investee, (2) exposure
or rights to variable returns from its involvement with
the investee and (3) the ability to affect those returns
through its power over the investee.
--------------------------------------------------------------
Insurance Assessment of the significance of insurance risk transferred
contracts to the Group in determining whether a contract should be
- classification classified (and accounted for) as an insurance or investment
contract.
--------------------------------------------------------------
Provisions In assessing whether a provision should be recognised or
and contingent a contingent liability disclosed, the Group evaluates the
liabilities likelihood of a constructive or legal obligation to settle
- recognition an event that took place in the past and whether a reliable
estimate can be made.
--------------------------------------------------------------
Deferred tax The calculation and recognition of temporary differences
resulting in deferred tax balances includes judgement as
to the extent to which future taxable profits are available
against which temporary differences can be utilised.
--------------------------------------------------------------
Area Critical accounting assumption/estimate
Insurance Measurement involves significant use of assumptions including
contracts mortality, morbidity, persistency, expense valuation and
- measurement interest rates.
-----------------------------------------------------------------
Provisions The amount of provision is calculated based on the Group's
- measurement estimation of the expenditure required to settle the obligation
at the statement of financial position date.
-----------------------------------------------------------------
Deferred tax The estimation of future taxable profits is performed as
part of the annual business planning process, and is based
on estimated levels of assets under management, which are
subject to a large number of factors including worldwide
stock market movements, related movements in foreign exchange
rates and net client cash flow, together with estimates
of expenses and other charges.
-----------------------------------------------------------------
Goodwill and The valuation of intangible assets that are recognised
intangible as the result of a business combination involves the use
assets of valuation models.
In relation to goodwill impairment, the determination of
a cash generating unit's ('CGUs') recoverable value is
based on the discounted value of the expected future profits
of each business. Significant estimates include forecast
cash flows, new business growth and discount rates.
Intangible assets are tested for impairment using an income
approach method using estimates such as forecast cash flows
and discount rate.
-----------------------------------------------------------------
Valuation Where quoted market prices are not available, valuation
of investments techniques are used to value financial investments, using
both observable and unobservable market inputs. These are
categorised as level 3 in the fair value hierarchy.
-----------------------------------------------------------------
Impairment Under IFRS 9, a forward-looking impairment model, based
of financial on expected credit losses ('ECLs'), applies to financial
assets at assets held at amortised cost. ECLs are probability-weighted
amortised estimates of credit losses. In calculating this ECL allowance,
cost the Group considers information about past events and current
conditions as well as supportable information about future
events and economic conditions.
In addition, for loans to which the three stage general
model of impairment is applied, judgement is required to
determine which indicators represent a significant increase
in credit risk and thereby trigger the recognition of a
lifetime ECL allowance.
-----------------------------------------------------------------
2: New standards, amendments to standards, and interpretations
adopted in the 2018 condensed financial statements
The Group adopted IFRS 9 Financial Instruments and IFRS 15
Revenue from Contracts with Customers for the first time in 2018.
Although significant standards, they did not have a material impact
on the Group. The majority of the Group's financial assets and
liabilities continue to be measured at fair value through profit or
loss ('FVTPL') after the implementation of IFRS 9. In relation to
IFRS 15 the Group was already largely compliant in the way it
recognises fee and commission income. The impact of adopting these
two new standards is outlined in note 4: Significant accounting
policies.
Other standards:
There are a number of amendments to IFRS that have been issued
by the International Accounting Standards Board ('IASB') that
become mandatory during 2018 or in a subsequent accounting period.
The Group has evaluated these changes and none are expected to have
a significant impact on the condensed consolidated interim
financial statements.
3: Future standards, amendments to standards, and
interpretations not early-adopted in these financial statements
Certain new standards, interpretations and amendments to
existing standards have been published by the IASB that are
mandatory for the Group's annual accounting periods beginning after
1 January 2018. The Group has not early adopted these standards,
amendments and interpretations. The new standards that will have a
significant impact on the Group are summarised below:
n IFRS 16 Leases
The IASB issued IFRS 16 Leases in January 2016. IFRS 16 sets out
the principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract, i.e. the
customer ('lessee') and the supplier ('lessor'). IFRS 16 replaces
the previous leases standard, IAS 17 Leases, and related
Interpretations.
For lessees, IFRS 16 will result in almost all leases being
recognised in the statement of financial position as IFRS 16
eliminates the classification of leases as either operating leases
or finance leases as is required by IAS 17 and, instead, introduces
a single lessee accounting model. Applying that model, a lessee is
required to recognise:
(a) assets (the right to use the leased item) and liabilities
(to pay lease rentals); and
(b) depreciation of lease assets separately from interest on
lease liabilities in the income statement.
The only exceptions to these requirements are for leased
arrangements that are short term in nature (less than 12 months) or
low value leased items.
Accounting for lessors will not change significantly, as IFRS 16
substantially carries forward the lessor accounting requirements in
IAS 17. Accordingly, a lessor continues to classify its leases as
operating leases or finance leases, and to account for those two
types of leases differently.
The most significant effect of the new requirements in IFRS 16
is a potential increase in the recognition of lease assets and
financial liabilities on the statement of financial position. The
Group is currently assessing the impact of IFRS 16 and has
identified those lease arrangements for which the right to use
assets and financial liabilities are required to be recognised,
i.e. those that are neither short term nor low value. The Group is
in the process of quantifying the right to use assets and financial
liabilities. The new requirements are not likely to have a material
impact on the Group.
Effective date
IFRS 16 will be effective for accounting periods beginning on or
after 1 January 2019. The Group intends to apply the simplified
transition approach and will not restate comparative amounts for
the year prior to first adoption.
n IFRS 17 Insurance contracts
The IASB issued IFRS 17 Insurance Contracts in May 2017. IFRS 17
replaces its interim predecessor, IFRS 4 Insurance Contracts, and
is a comprehensive standard which provides a single accounting
model for all insurance contracts. IFRS 17 replaces a wide range of
different accounting practices previously permitted, improving
transparency and enabling investors and regulators to understand
and compare the financial position and performance of an insurer,
irrespective of where they are based geographically.
The measurement model
The use of current estimates at each reporting date and an
explicit risk adjustment to measure obligations created by
insurance contracts, provides up to date information about cash
flows and associated risk and timing. 'Day one' profits are
deferred and recognised in the income statement through the release
of the contractual service margin ('CSM'), which has the effect of
recognising revenue as services are provided and the insurer is
released from risk. This is consistent with the treatment in IFRS
15.
Presentation and disclosure
Insurers' financial statements will look different under IFRS
17. Insurers will be required to provide information about sources
of profit or losses from insurance service, comprising insurance
revenue and insurance service expenses (underwriting activity), as
well as insurance finance income or expense (investing activity).
New performance metrics and KPIs will be required to explain
business results to the investment community. Disclosure
requirements focus on amounts recognised in the financial
statements, significant judgements and changes in those judgements,
as well as information about the nature and extent of risks that
arise from insurance contracts.
Effective date
IFRS 17 has an effective date of 1 January 2021, with early
adoption available. The standard is yet to be endorsed by the EU.
Management is currently assessing the impact of this standard on
the Group, prior to establishing a multi-functional project team
involving Finance, Actuarial, Risk and IT to assess operational
impacts.
n Other
The IASB issued IFRIC 23 Uncertainty over Income Tax Treatments
in June 2017. This Interpretation sets out how to determine taxable
profit (tax loss), tax bases, unused tax losses, unused tax credits
and tax rates (collectively referred to as 'accounting tax
position') where there is uncertainty over treatment. The Group is
currently evaluating the impact of the adoption of this
interpretation. IFRIC 23 is effective for the Group for the year
commencing 1 January 2019.
Although there are other new standards, interpretations and
amendments to existing standards that have been published, they are
not expected to have a significant impact on the condensed
consolidated interim financial statements of the Group.
4: Significant accounting policies
Except as described below, the accounting policies applied in
these interim financial statements are the same as those applied in
the Group's Historical Financial Information, within the listing
prospectus, as at and for the year ended 31 December 2017.
The changes in accounting policies are also expected to be
reflected in the Group's consolidated financial statements as at
and for the year ending 31 December 2018.
Changes in significant accounting policies
4(a): Merger accounting and the merger reserve
A pooling of interests method or merger accounting is used by
the Group for common control combinations, which are transactions
between entities that are ultimately controlled by the same party
or parties. This method treats the merged entities as if they had
been combined throughout the current and comparative accounting
periods. Merger accounting principles for these combinations result
in the recognition of a merger reserve in the consolidated
statement of financial position, being the difference between the
nominal value of any new shares issued by the parent company for
the acquisition of the shares of the subsidiary and the
subsidiary's Net Asset Value ('NAV'). Such transactions attract
merger relief under section 612 of the Companies Act 2006. For
further information see note 19.
4(b): New IFRSs
As outlined in note 2 above, the Group has adopted IFRS 9
Financial instruments (July 2014) and IFRS 15 Revenue from
Contracts with Customers from 1 January 2018. The adoption of IFRS
15 has not resulted in any material impact on the Group's existing
practises and accounting policies, except for the incorporation of
new terminology introduced by the standard. The adoption of IFRS 9
during the six month period has resulted in changes to accounting
policies and a small adjustment to opening retained earnings for
moving to a forward looking impairment model, based on ECLs.
4(b)(i): IFRS 9 Financial Instruments
Financial instruments (other than derivatives)
Financial instruments cover a wide range of financial assets,
including financial investments, trade receivables and cash and
cash equivalents and financial liabilities, including investment
contract liabilities, trade payables, and borrowings.
Financial assets and financial liabilities are recognised in the
Group's statement of financial position when the Group becomes
party to the contractual provisions of the instrument. The Group
derecognises a financial asset when the contractual rights to
receive cash flows have expired or been forfeited by the Group. A
financial liability is derecognised when, and only when the
liability is extinguished.
Classification and measurement of financial assets and financial
liabilities
Initial measurement
A financial asset (unless it is a trade receivable without a
significant financing component that is initially measured at the
transaction price) is initially measured at fair value plus, for an
item not at fair value through the profit or loss ('FVTPL'),
transaction costs that are directly attributable to its
acquisition.
Subsequent measurement
Under IFRS 9, for the purpose of subsequent measurement, a
financial asset is classified, on initial recognition, as measured
at: amortised cost; FVOCI-debt instrument; FVOCI-equity investment;
or FVTPL. The classification of financial assets depends on (i) the
purpose for which they were acquired, (ii) the business model in
which a financial asset is managed, and (iii) its contractual cash
flow characteristics. This classification determines the subsequent
measurement basis. The following accounting policies apply to the
subsequent measurement of financial assets.
Measurement basis Accounting policies
Financial assets These financial assets are subsequently measured at fair
at FVTPL value. Net gains and losses, including interest and dividend
income, are recognised in profit or loss.
------------------------------------------------------------------
Amortised cost These financial assets are subsequently measured at amortised
cost using the effective interest rate method. The amortised
cost is reduced by impairment losses. Interest income,
foreign exchange gains and losses and impairment are
recognised in profit or loss. Any gain or loss on de-recognition
is recognised in profit or loss.
------------------------------------------------------------------
Debt investments These financial assets are subsequently measured at fair
at FVOCI value. Interest income calculated using the effective
interest method, foreign exchange gains and losses and
impairment are recognised in profit or loss. Other net
gains and losses are recognised in OCI. On de-recognition,
gains and losses accumulated in OCI are reclassified
to profit or loss.
------------------------------------------------------------------
Equity investments These financial assets are subsequently measured at fair
at FVOCI value. Dividends are recognised as income in profit or
loss unless the dividend clearly represents a recovery
of part of the cost of the investment. Other net gains
and losses are recognised in OCI and are never reclassified
to profit or loss.
------------------------------------------------------------------
Business model assessment
The Group assesses the objective of a business model in which an
asset is held at a portfolio level because this best represents the
way the business is managed and information is reported to
management. The assessment considers the stated portfolio policies
and objectives. It is important to determine whether management's
strategy in holding the financial asset is to earn contractual
interest revenue, for example to match the duration of financial
assets to the duration of liabilities that are funding those assets
or to realise cash flows through the sale of the assets. The
frequency, volume and timing of sales in prior periods may be
reviewed, along with the reasons for such sales and expectations
about future sales activity. This helps management determine
whether financial assets should be measured at fair value.
Financial assets are not reclassified subsequent to their
initial recognition, except in the period after the Group changes
its business model for managing financial assets. Reclassifications
are expected to occur infrequently.
Amortised cost
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated at FVTPL:
-- the asset is held within a business model whose objective is
to hold assets to collect contractual cash flows; and
-- the contractual terms of the financial asset give rise to
cash flows that are solely payments of principal and interest
('SPPI') on the principal amount outstanding on specified
dates.
For the purposes of this assessment, principal is defined as the
fair value of the financial asset on initial recognition. Interest
is defined as consideration of the time value of money and for the
credit risk associated with the principal amount outstanding during
a particular period of time and for other basic lending risks and
costs (e.g. liquidity risk and administrative costs), as well as
profit margin.
Financial assets at FVOCI
A debt instrument is measured at FVOCI only if it meets both of
the following conditions and is not designated at FVTPL:
-- the asset is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling
financial assets; and
-- the contractual terms of the financial asset give rise to
cash flows that are SPPI on the principal amount outstanding on
specified dates.
On initial recognition of an equity investment that is not held
for trading, the Group may irrevocably elect to present subsequent
changes in fair value in OCI. This election is made on an
investment-by-investment basis.
Financial assets at FVTPL
All other financial assets that are not measured at amortised
cost or FVOCI are classified as measured at FVTPL. This includes
all derivative financial assets. In addition, on initial
recognition, the Group may irrevocably designate a financial asset
that otherwise meets the requirements to be measured at amortised
cost or at FVOCI, at FVTPL, if doing so eliminates or significantly
reduces an accounting mismatch that would otherwise arise.
Financial assets that are held for trading or whose performance
is evaluated on a fair value basis are measured at FVTPL because
this best reflects the way they are managed and they do not satisfy
the qualifying conditions for the other two business models.
The Group's interests in pooled investment funds, equity
securities and debt securities are designated at FVTPL, as they are
part of groups of financial assets which are managed and whose
performance is evaluated on a fair value basis. These investments
are recognised at fair value initially and subsequently, with
changes in fair value recognised in investment return in the
consolidated income statement.
The fair value of quoted financial investments, which represents
the vast majority of the Group's investments, are based on the
value within the bid-offer spread that is most representative of
fair value. If the market for a financial investment is not active,
the Group establishes fair value by using valuation techniques such
as recent arm's length transactions, reference to similar listed
investments, discounted cash flow or option pricing models.
The Group recognises purchases and sales of financial
investments on trade date, which is the date that the Group commits
to purchase or sell the assets. The costs associated with
investment transactions are included within expenses in the
statement of comprehensive income.
Loans and advances
Loans with fixed maturities, including policyholder loans, are
recognised when cash is advanced to borrowers or policyholders.
Policyholder loans are interest free and are designated at FVTPL
since they are taken from the policyholder's account and thereby
linked to underlying investments held at FVTPL. Other loans and
advances are carried at amortised cost using the effective interest
rate method. These assets are subject to the impairment
requirements outlined below.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits that are readily convertible to a known amount of cash.
Cash and cash equivalents held within consolidated unit trust funds
are classified as FVTPL. All other cash and cash equivalents are
classified as at amortised cost which means they are initially
recognised at fair value and subsequently carried at amortised cost
using the effective interest method and are subject to the
impairment requirements outlined below.
Financial liabilities and equity
Management also determines the classification of financial
liabilities at initial recognition. The Group classifies its
financial liabilities, as measured at either amortised cost or
FVTPL.
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. At inception, investment contract liabilities for unit linked
business are designated as financial liabilities and measured at
FVTPL. For unit-linked contracts, the fair value liability is equal
to the total value of units allocated to the policyholders, based
on the bid price of the underlying assets in the fund. The FVTPL
classification reflects the fact that the matching investment
portfolio, that mirrors the unit-linked liabilities, is managed,
and its performance evaluated, on a fair value basis. Other
financial liabilities are measured at amortised cost using the
effective interest method.
An equity instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all of its
liabilities.
Trade payables and receivables
Due to the short term nature of trade payables and receivables,
their carrying amount is considered to be the same as their fair
value.
Investments in subsidiaries
Parent Company investments in subsidiary undertakings are
initially stated at cost. Subsequently, investments in subsidiary
undertakings are stated at cost less provision for impairment. An
investment in a subsidiary is deemed to be impaired when its
carrying amount is greater than its estimated recoverable amount,
and there is evidence to suggest that the impairment occurred
subsequent to the initial recognition of the asset in the financial
statements. All impairments are recognised in the income statement
as they occur.
Impairment of financial assets
IFRS 9 introduces an expected loss accounting model for credit
losses that differs significantly from the incurred loss model
under IAS 39 and results in earlier recognition of credit losses.
For further details of our credit risk management practices, refer
to the credit risk section of our 2017 Historical Financial
Information, within the listing prospectus.
The new impairment model applies to financial assets measured at
amortised cost, contract assets and debt investments at FVOCI, but
not to investments in equity instruments. Financial assets at
amortised cost include trade receivables, cash and cash equivalents
and corporate debt securities.
Under IFRS 9, credit loss allowances are measured on each
reporting date according to a three stage ECL impairment model.
Performing financial assets
Stage 1
From initial recognition of a financial asset to the date on
which an asset has experienced a significant increase in credit
risk relative to its initial recognition, a stage 1 loss allowance
is recognised equal to the credit losses expected to result from
its default occurring over the earlier of the next 12 months or its
maturity date ('12-month ECL').
Stage 2
Following a significant increase in credit risk relative to the
initial recognition of the financial asset, a stage 2 loss
allowance is recognised equal to the credit losses expected from
all possible default events over the remaining lifetime of the
asset ('Lifetime ECL').
The assessment of whether there has been a significant increase
in credit risk requires considerable judgment, based on the
lifetime probability of default ('PD'). Stage 1 and 2 allowances
are held against performing loans; the main difference between
stage 1 and stage 2 allowances is the time horizon. Stage 1
allowances are estimated using the PD with a maximum period of 12
months, while stage 2 allowances are estimated using the PD over
the remaining lifetime of the asset.
Impaired financial assets
Stage 3
When a financial asset is considered to be credit-impaired, the
allowance for credit losses ('ACL') continues to represent lifetime
expected credit losses, however, interest income is calculated
based on the amortised cost of the asset, net of the loss
allowance, rather than its gross carrying amount.
Application of the new impairment model
The Group applies IFRS 9's new ECL model to two main types of
financial assets that are measured at amortised cost or FVOCI:
-- Trade receivables and contract assets, to which the
simplified approach prescribed by IFRS 9 is applied. This approach
requires the recognition of a Lifetime ECL allowance on day
one.
-- Loans at amortised cost, to which the general three stage
model (described above) is applied, whereby a 12 month ECL is
recognised initially and the balance is monitored for significant
increases in credit risk which triggers the recognition of a
Lifetime ECL allowance.
ECLs are a probability-weighted estimate of credit losses. ECLs
for financial assets that are not credit-impaired at the reporting
date are measured as the present value of all cash shortfalls (i.e.
the difference between the cash flows due in accordance with the
contract and the cash flows that the Group expects to receive).
ECLs for financial assets that are credit-impaired at the reporting
date are measured as the difference between the gross carrying
amount and the present value of estimated future cash flows. ECLs
are discounted at the effective interest rate of the financial
asset. The maximum period considered when estimating ECLs is the
maximum contractual period over which the Group is exposed to
credit risk.
The measurement of ECLs considers information about past events
and current conditions, as well as supportable information about
future events and economic conditions. The Group has revised its
impairment methodology for estimating the ACL, taking into account
forward-looking information in determining the appropriate level of
allowance. In addition it has identified indicators and set up
procedures for monitoring for significant increases in credit
risk.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial
assets carried at amortised cost and any debt financial assets
carried at FVOCI are credit-impaired. A financial asset is credit
impaired when one or more events that have a detrimental impact on
the estimated future cash flows of the financial asset have
occurred. Evidence that a financial asset is credit-impaired
includes events such as significant financial difficulty of the
borrower or issuer, a breach of contract such as a default or past
due event or the restructuring of a loan or advance by the Group on
terms that the Group would not otherwise consider.
Presentation of impairment
Loss allowances for financial assets measured at amortised cost
are deducted from the gross carrying amount of the assets. For debt
securities at FVOCI, the loss allowance is recognised in OCI,
instead of reducing the carrying amount of the asset.
Write-offs
Loans and debt securities are written off (either partially or
in full) when there is no realistic prospect of the amount being
recovered. This is generally the case when the Group concludes that
the borrower does not have assets or sources of income that could
generate sufficient cash flows to repay the amounts subject to the
write-off.
Hedge accounting
The Group does not currently apply hedge accounting and has
elected to defer the application of hedge accounting requirements
in IFRS 9 and will assess them once the IASB has completed its
project. It will disclose information on the impact of adoption in
the first set of financial statements, in which it has applied the
IFRS 9 hedging requirements.
IFRS 9 Transition
Assessments have been carried out on the basis of the facts and
circumstances that existed at the date of initial application to
determine the business model within which a financial asset is held
and to establish the designation and revocation of previous
designations of certain financial assets and financial liabilities
as measured at FVTPL.
Changes in accounting policies resulting from the adoption of
IFRS 9 have been applied retrospectively, except that, in
accordance with the transitional provisions in IFRS 9 (7.2.15),
comparative information for prior periods has not been restated.
Accordingly, all comparative period information is presented in
accordance with the Group's previous accounting policies, as
described in the 2017 Historical Financial Information report.
Differences in the carrying amounts of financial assets and
financial liabilities resulting from the adoption of IFRS 9 are
recognised in retained earnings as at 1 January 2018.
Classification and measurement on adoption
For the Quilter Group, there is no financial impact on adopting
IFRS 9 for changes in the measurement basis for financial assets
and liabilities and consequently no adjustment to opening retained
earnings at 1 January 2018. There has however been a change to
classification terminology, outlined below for the Group's main
financial instruments:
IFRS 9 IAS 39
Financial instrument Classifications Classifications Measurement
and measurement model
models
------------------ ---------------------- ------------
Amortised Cost Loans and receivables Amortised
* Cash and cash equivalents Cost
* Trade receivables
* Loans and advances (not unit-linked)
------------------ ---------------------- ------------
FVTPL (mandatory) FVTPL FVTPL
* Debt instruments (unit-linked)(1) (designated)
* Equity instruments (unit-linked)
* Loans and advances (unit-linked)
------------------ ---------------------- ------------
(1) Quilter's unit-linked business, where a portfolio of
financial assets and liabilities is managed and its performance
evaluated on a fair value basis in accordance with its risk
management strategy, is required to be held at FVTPL (not elected)
under IFRS 9. This is due to the business model being neither (i)
held to collect contractual cash flows nor (ii) held both to
collect contractual cash flows and to sell financial assets.
IFRS 9 introduces a third classification and measurement model,
fair value through other comprehensive income ('FVOCI'), which was
not applicable to the Group on transition.
Impairment on adoption
For assets in the scope of the IFRS 9 impairment model,
impairment losses are generally expected to increase. The Group has
determined that the application of IFRS 9's impairment requirements
at 1 January 2018 results in a small additional impairment
allowance as follows:
GBPm
============================================================== ==================
Opening retained earnings IAS 39 872.0
Increase in provision for trade receivables (0.1)
Increase in provision for loans (0.1)
Total adjustment to retained earnings for adoption of IFRS 9 (0.2)
============================================================== ==================
Opening retained earnings IFRS 9 871.8
============================================================== ==================
4(b)(ii): IFRS 15 Revenue from Contracts with Customers
As indicated in note 2 above, the Group has adopted IFRS 15
Revenue from Contracts with Customers as issued by the IASB in May
2014 using the cumulative effect method. Accordingly, the
information presented for 2017 has not been restated, i.e. it is
presented, as previously reported, under IAS 18 Revenue.
Under IFRS 15, revenue is recognised when a customer obtains
control of goods or services. Determining the timing of the
transfer of control, at a point in time or over time, requires
judgement. IFRS 15 establishes a comprehensive framework for
determining whether, how much and when revenue is recognised.
The Group performed an assessment to determine the impact of the
new standard on the Group's statement of financial position and
performance. It considered the five-step analysis prescribed by the
standard, taking into account the different types of contracts it
has with its customers, the corresponding types of services
provided to customers and when these service obligations are
satisfied. In addition, the Group considered the types of fee
income generated across all products from the contracts with its
customers and when the fee income is recognised - see the table
below for further information. The assessment concluded that new
requirements would not result in the Group having to change the
nature or timing of satisfaction of performance obligations and
significant payment terms. Consequently, the cumulative impact of
adoption was nil and as a result no adjustment to the Group's
opening retained earnings as at 1 January 2018 has been
recognised.
Fee and commission income represents the fair value of services
provided, net of value-added tax and consists predominantly of fees
charged to clients in respect of investment contracts, fund
management activities and the provision of financial advice. This
includes income in respect of plan and policy administration,
investment management services, surrenders and other
contract-related services in relation to the Group's unit linked
business. The fees may be for fixed amounts or vary with the
amounts being managed, and will generally be charged as an
adjustment to the client's balance.
Fee and commission income is recognised as revenue as investment
management and other services are provided to policyholders.
Typically these services are deemed to be provided evenly over the
lifetime of a contract, except where service obligations are fully
delivered at the inception of the relevant contract. Where fees
such as initiation and advice fees are received at the beginning of
the contract for services not yet provided, either immediately at
inception or over an initial period, the income is deferred and
recognised as a contract liability on the statement of financial
position and released to the income statement as services are
provided over the lifetime of the contract.
Performance-based incentive fees are charged for managing
certain investment funds in the Group's asset management business.
These fees are based on the fund's performance at fixed dates
relative to a benchmark. Revenue is recognised only when the
performance of the fund for the period is known and has
crystallised, usually bi-annually.
The table below summarises the types of fee and commission
income generated by the Group.
Type of Description Nature of
fee change in
accounting
policy
Premium This relates to initial fees taken on receipt IFRS 15 did
based fees of clients' investments and recognised on receipt not have a
over the life of the contract. significant
impact on
the Group's
accounting
policies.
------------------------------------------------------- -------------
Fund based Periodic fee income based on the market valuation
fees of the investment contracts and recognised over
time in line with the provision of investment
management services.
------------------------------------------------------- -------------
Fixed fees Periodic fee income fixed in value according to
underlying contract terms, and transactional dealing
fees. These are recognised on provision of the
transaction.
-------------------------------------------------------
Surrender Fee income relates to client charges received
fees on the surrender of an investment contract or
insurance contract, which is based on the value
of the policy and recognised on surrender of the
policy.
-------------------------------------------------------
Other fee Fees in respect of advice provided to clients.
and commission Typically, fee income is paid by providers of
income the financial products at the point of sale to
the client. This is when the advice has been provided
to the client and the financial adviser's performance
obligation has been fully delivered. Accordingly,
fee income is recognised at the inception of the
financial product sold.
------------------------------------------------------- -------------
The introduction of IFRS 15 did not result in changes to the
Group's significant accounting policies, except to update them for
new terminology introduced by the new standard for contract costs
(previously known as deferred acquisition costs for non-insurance
contracts), contract assets (previously known as accrued income
from contracts with customers), and contract liabilities
(previously known as deferred fee income from contracts with
customers).
Notes to the condensed consolidated interim financial statements
For the 6 month period ended 30 June 2018
5: Acquisitions, discontinued operations and disposal groups
held for sale
This note provides details of the acquisitions and disposals of
subsidiaries the Group has made during the period, together with
details of businesses held for sale during that same period.
5(a) Business acquisitions completed during the period
Business acquisitions completed during period ended 30 June
2018
Acquisition of Skandia UK Limited from Old Mutual plc
On 31 January 2018, the Group acquired the Skandia UK Limited
group of entities from Old Mutual plc which comprises seven Old
Mutual plc group entities with a net asset value ('NAV') of GBP591
million. The transfer was financed by the issue of a share and with
the balance represented by a merger reserve. No debt was taken on
as a result of this transaction. The most significant asset within
these entities is a GBP566 million receivable which corresponds to
an equivalent payable within the Group's statement of financial
position. The net effect of this transaction for the Group is to
replace a payable due to Old Mutual plc with equity. For further
information see note 19.
Quilter Private Client Advisers ('QPCA') (formerly Old Mutual
Wealth Private Client Advisers)
During the first half of 2018, the Group completed the
acquisition of six adviser businesses as part of the expansion of
the QPCA business. The total cash consideration paid was an initial
GBP2 million with additional potential deferred consideration of
GBP5.5 million which is expected to be paid in full (discounted to
net present value for this and all other listed acquisitions
below), dependent upon meeting certain performance targets,
generally relating to funds under management.
Goodwill of GBP3 million and other intangible assets of GBP3
million were recognised as a result of the transaction. The
deferred consideration was capitalised in the calculation of
goodwill recognised.
Business acquisitions completed during year ended 31 December
2017
Caerus Capital Group Limited ('Caerus')
On 1 June 2017, the Group, completed the acquisition of 100% of
the share capital of Caerus, a UK based adviser network that
operates in a similar manner to Intrinsic (another Group business
within the Advice and Wealth Management segment) and which has
approximately GBP4 billion of funds under advice and 300
advisers.
The total consideration of GBP24 million includes GBP15 million
cash consideration and up to GBP3 million that has been deferred
for two years and up to GBP6 million that has been deferred for
three years. The deferred consideration has been included as part
of the cost of the acquisition as there is no continuing employment
condition applying to the sellers of the business. The deferred
consideration payable is dependent on turnover targets post
acquisition and is potentially reduced by the amount of any
relevant claims arising from in-force business existing prior to
the payment dates.
The purchase price has been allocated based on the fair value of
assets acquired and liabilities assumed at the date of acquisition
determined in accordance to IFRS 3 Business Combinations.
The carrying value of assets and liabilities in Caerus's
consolidated statement of financial position on acquisition date
approximates the fair value of these items determined by the Group.
In addition, the Group recognised identified intangible assets of
GBP10 million relating to customer distribution channels. The value
of the intangible assets was determined by applying cash flows to
standard industry valuations models. Goodwill of GBP10 million was
recognised on the acquisition which is attributable to the delivery
of cost and revenue synergies that cannot be linked to identifiable
intangible assets.
Transaction costs incurred of GBP1 million relating to the
acquisition have been recognised within other expenses in the
consolidated income statement, but not included within adjusted
profit.
Quilter Private Client Advisers ('QPCA')
During 2017, the Group completed the acquisition of eight
adviser businesses as part of the expansion of its QPCA business
that was launched in October 2015. The aim is to develop an Quilter
plc branded, employed adviser business focused upon servicing upper
affluent and high net worth clients, offering a centrally-defined
restricted advice proposition focused upon Group's investment
solutions and platform.
The purchase price has been allocated based on the fair value of
assets acquired and liabilities assumed at the date of acquisition
determined in accordance to IFRS 3 Business Combinations.
The aggregate estimated consideration payable is GBP20 million,
of which GBP10 million was cash consideration and up to GBP10
million in relation to deferred payments. The amount of deferred
consideration is dependent upon meeting certain performance
targets, generally relating to the value of funds under management
and levels of on-going fee income. The deferred consideration has
been included as part of the cost of the acquisition. Total other
intangible assets of GBP9 million in respect of customer
relationships have been recognised as a result of the acquisitions,
together with goodwill of GBP7 million, GBP2 million of which has
been transferred from intangibles to goodwill following a review of
the purchase price allocations in 2018 (see note 12a).
Transaction costs incurred of GBP1 million relating to the
acquisitions have been recognised within other operating expenses
in the consolidated income statement, but not included within
adjusted profit.
Attivo Investment Management Limited ('AIM')
On 29 March 2017, the Group completed the acquisition of 100% of
the share capital of AIM, a UK based investment management business
offering a comprehensive investment management service.
The fair value of the total estimated consideration was GBP9
million, of which GBP5 million was cash consideration and GBP4
million was deferred for two years. The deferred consideration is
included within the cost of the acquisition because it is dependent
on levels of assets under management being maintained, with no
requirement for continuing employment applied to the sellers of the
business.
The book value of total assets and total net assets of the
acquired business were both less than GBP1 million.
The purchase price has been based on the fair value of assets
acquired and liabilities assumed at the date of acquisition
determined in accordance to IFRS 3 Business Combinations.
5: Acquisitions, discontinued operations and disposal groups
held for sale continued
5(a) Business acquisitions completed during the period
continued
The carrying value of assets and liabilities in AIM's statement
of financial position on acquisition date approximates the fair
value of these items determined by the Group. Other intangible
assets of GBP8 million, relating to customer relationships, were
recognised as a result of the acquisition. No goodwill was
recognised on this transaction.
Transaction costs incurred of GBP0.5 million relating to the
acquisition have been recognised within other operating expenses in
the consolidated income statement, but not included within adjusted
profit.
Commsale 2000 Limited ('Commsale')
On 29 September 2017, the Group acquired Commsale from Old
Mutual plc. Commsale is a UK based service company that runs the
lease for the head office building and is responsible for the
payment of rent, rates and service charges relating to the building
and recharging the costs to all tenants through a service
charge.
This represents a business combination involving entities or
businesses under common control because the combining businesses
are ultimately controlled by the same party or parties before and
after the business combination.
The total consideration was GBP0.29 million. The fair value of
the identifiable assets at the date of acquisition was GBP0.45
million, with a gain on purchase of GBP0.16 million being
recognised, representing assets not valued within the agreed
consideration.
Global Edge Technology Ltd ('GET')
On 30 November 2017, the Group acquired 100% of the issued share
capital of GET from Old Mutual plc. GET is a service company
incorporated in South Africa, with a branch in the UK that provides
IT support for the Quilter group's Platform business services.
This represents a business combination involving entities or
businesses under common control because the combining businesses
are ultimately controlled by the same party or parties before and
after the business combination.
The total consideration was GBP0.8 million. The fair value of
the identifiable assets at the date of acquisition was GBP4.1
million, with a gain on purchase GBP3.3 million being recognised.
We determined that the excess of book value over consideration paid
was attributable to potential future integration costs which, if
incurred, would be expensed in future periods. As potential future
integrating activities do not qualify to be recognised as a
liability in the application of the acquisition method of
accounting, no such liability was recognised, and we recorded the
excess as a bargain purchase gain.
5(b) Disposal of subsidiaries, associated undertakings and
strategic investments
Period ended 30 June 2018
In December 2017, the Group announced that it had entered into
an agreement to sell its Single Strategy asset management business
('Single Strategy business') to a special purpose vehicle
ultimately owned by funds managed by TA Associates and certain
members of the Single Strategy management team (together 'the
Acquirer'). On 29 June 2018, the Group completed the sale for a
total consideration of GBP583 million, comprising cash
consideration of GBP540 million on completion, with an additional
GBP7 million anticipated to be payable thereafter, paid primarily
in 2019 to 2021 as surplus capital associated with the separation
from the Group is released in the business. The deferred
consideration is not subject to performance conditions. The
remaining proceeds of GBP36 million were received in cash as a
pre-completion dividend on 15 June 2018. Economic ownership of the
Single Strategy business has passed to the Acquirer effective from
1 January 2018 with all profits and performance fees generated up
until 31 December 2017 for the account of Quilter plc. The results
of the Single Strategy business continued to be included as part of
the Group up until the date of sale on the 29 June 2018. The Group
recognised a post tax profit on disposal of GBP290 million.
Year ended 31 December 2017
In August 2016, the Group announced that it has agreed to sell
Old Mutual Wealth Italy S.p.A. to Ergo Previdenza S.p.A. ('Ergo'),
a member of the Flavia insurance group. The sale completed on 9
January 2017. The consideration for the transaction was GBP221
million (EUR278 million) in cash, plus interest to completion
recognising a profit on disposal of GBP80 million.
5(c) Discontinued operations
For the period ended 30 June 2017, and year ended 31 December
2017, the Group's Discontinued Operations included the Single
Strategy Business (previously part of Old Mutual Global Investors)
and Old Mutual Wealth Italy S.p.A (up to the date its sale
completed on 9 January 2017).
GBPm
=============== ============= =============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
=============== ============= =============
Old Mutual Old Mutual
Single Strategy Wealth Italy Wealth Italy
business S.p.A. S.p.A.
====================================== =============== ============= =============
Consideration received(1) 546 221 221
Less: transaction costs (20) (4) (4)
======================================= =============== ============= =============
Net proceeds from sale 526 217 217
Carrying value of net assets disposed
of (241) (137) (137)
======================================= =============== ============= =============
Profit on sale of operations before
tax 285 80 80
Tax on disposals 5 - -
======================================= =============== ============= =============
Profit on sale of operations after
tax 290 80 80
======================================= =============== ============= =============
(1) Consideration received in respect of the Single Strategy business
includes cash received together with the deferred consideration (discounted),
and excludes any pre-completion dividend.
5: Acquisitions, discontinued operations and disposal groups
held for sale continued
5(d) Discontinued income statement
The table below sets out the trading results of the Group's
discontinued operations and also any profit on the sale of
discontinued operations during the period.
GBPm
========== ========== ============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Note 2018 2017 2017
=================================================== ==== ========== ========== ============
Revenue
Fee income and other income from service
activities 8 136 134 389
Investment return - 3 7
Other income 2 1 3
=================================================== ==== ========== ========== ============
Total revenue 138 138 399
Expenses
Fee and commission expenses, and other acquisition
costs (31) (28) (62)
Other operating and administrative expenses (81) (72) (185)
Total expenses (112) (100) (247)
Profit on the disposal of subsidiaries 5(c) 285 80 80
=================================================== ==== ========== ========== ============
Profit before tax from discontinued operations 311 118 232
Tax (expense) attributable to shareholders'
funds (1) (7) (29)
=================================================== ==== ========== ========== ============
Profit for the period after tax from discontinued
operations 310 111 203
=================================================== ==== ========== ========== ============
Attributable to:
Equity holders of Quilter plc 310 111 203
=================================================== ==== ========== ========== ============
Earnings per ordinary share on profit attributable to ordinary shareholders
of Quilter plc
===============================================================================================
Basic - from discontinued operations (pence) 16.9 6.1 11.1
=================================================== ==== ========== ========== ============
Diluted - from discontinued operations (pence) 16.9 6.1 11.1
=================================================== ==== ========== ========== ============
5(e) Statement of comprehensive income from discontinued operations
GBPm GBPm
========== ========== ============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
=================================================== ========== ========== ============
Profit for the period 310 111 203
Other comprehensive income from discontinued
operations:
Items that may be reclassified subsequently
to income statement
Exchange gains on translation of foreign
operations - 1 4
Other comprehensive income/(expenses) for
the period - (2) 3
Total other comprehensive income from discontinued
operations, net of tax - (1) 7
==================================================== ========== ========== ============
Total comprehensive income for the period
from discontinued operations 310 110 210
==================================================== ========== ========== ============
5(f): Net cash flows from discontinued operations
================================================== ========== ========== ============
GBPm
========== ========== ============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
================================================== ========== ========== ============
Total net cash flows used in operating activities (63) (55) (22)
Total net cash from investing activities 131 135 137
Total net cash used in financing activities (45) - -
=================================================== ========== ========== ============
Net increase in cash and cash equivalents 23 80 115
=================================================== ========== ========== ============
5: Acquisitions, discontinued operations and disposal groups
held for sale continued
5(g) Assets and liabilities held for sale
Assets and liabilities of operations classified as held for sale
at 31 December 2017 relate to the Single Strategy business. The
operation has been classified as held for sale from December 2017
and on 29 June 2018, the Group completed the sale. See note 5(b)
above. The assets and liabilities held for sale are disclosed in
the table below.
GBPm
======== ======== ============
At At At
30 June 30 June 31 December
Note 2018 2017 2017
============================================ ===== ======== ======== ============
Assets classified as held for sale
Goodwill and intangible assets 12(b) - - 82
Deferred acquisition costs - - 4
Deferred tax assets - - 9
Trade, other receivables and other assets - - 204
Cash and cash equivalents 18 - - 147
Assets of operations classified as held
for sale - - 446
============================================ ===== ======== ======== ============
Liabilities directly associated with assets
classified as held for sale
Current tax payable - - 33
Trade, other payables and other liabilities - - 186
Liabilities of operations classified as
held for sale - - 219
============================================ ===== ======== ======== ============
Net assets of operations classified as held
for sale - - 227
============================================ ===== ======== ======== ============
6: Segmental information
6(a) Segmental presentation
There have been no changes to the presentation of segment
information for the period in these financial statements. The
businesses have been segmented based on our agreed segmentation
post separation from Old Mutual plc.
The Group's operating segments comprise Advice and Wealth
Management and Wealth Platforms. Head Office revenues and expenses
are also included within continuing business and this segmentation
is consistent with how the Group is managed. For all reporting
periods, these businesses have been classified as continuing
operations in the IFRS income statement and as core operations in
determining the adjusted profit. Head Office includes certain
revenues and central costs that are not allocated to the
segments.
For the periods ended 30 June 2018, 30 June 2017 and 31 December
2017, the Group has classified the European operations and the
Single Strategy business as discontinued because they have either
been sold or held for sale. Further detail is included in note
5(c).
The Group's segmental results are analysed and reported on a
basis with the way that management and the Board of directors of
Quilter plc assess performance of the underlying businesses and
allocate resources. Information is presented to the Board on a
consolidated basis in pounds sterling (the presentation currency)
and in the functional currency of each business.
Adjusted profit is one of the key measures reported to the
Group's management and Board of directors for their consideration
in the allocation of resources to, and the review of, the
performance of the segments. As appropriate to the business line,
the Board reviews additional measures to assess the performance of
each of the segments. These typically also include sales, net
client cash flows, assets under management and administration, and
revenue and operating margins.
Consistent with internal reporting, assets, liabilities,
revenues and expenses that are not directly attributable to a
particular segment are allocated between segments where appropriate
and where there is a reasonable basis for doing so. The Group
accounts for inter-segment revenues and transfers as if the
transactions were with third parties at current market prices.
The revenues generated in each reported segment are provided in
the analysis of profits and losses in note 6(b). The segmental
information in this note reflects the adjusted and IFRS measures of
profit or loss and the assets and liabilities for each operating
segment as provided to management and the Board of directors. There
are no differences between the measurement of the assets and
liabilities reflected in the primary statements and that reported
for the segments.
The Group is primarily engaged in the following business
activities from which it generates revenue: investment contracts,
asset management and financial advice (fee income and other income
from service activities), and life assurance (premium income).
Other revenue includes gains and losses on investment
securities.
The principal lines of business from which each operating
segment derives its revenues are as follows:
Advice and Wealth Management
This segment comprises Quilter Investors (formerly Old Mutual
Global Investors), Quilter Cheviot Limited and Quilter Financial
Planning, including Quilter Private Client Advisers ('QPCA').
Quilter Investors is a leading provider of investment solutions
in the UK multi-asset market. It develops and manages investment
solutions in the form of funds for Quilter plc and third party
clients. It has several fund ranges which vary in breadth of
underlying asset class. The business has primarily been
accumulation focused, with recent development of decumulation
solutions.
Quilter Cheviot Limited provides discretionary investment
management in the United Kingdom with bespoke investment portfolios
tailored to the individual needs of affluent and high-net worth
customers, charities, companies and institutions through a network
of branches in London and the regions. Investment management
services are also provided by branches in Jersey, Channel Islands
and the Republic of Ireland.
Quilter Financial Planning is a restricted and independent
financial adviser network (including QPCA) providing mortgage and
financial planning advice and financial solutions for both
individuals and businesses through a network of intermediaries.
They operate across all markets, from wealth management and
retirement planning advice through to dealing with property wealth
and personal and business protection needs.
Wealth Platforms
This segment comprises Quilter Wealth Solutions ('QWS') and
Quilter Life Assurance ('QLA'), and Quilter International
cross-border businesses.
QWS and QLA provides advice based predominantly unit linked
wealth management products and services in the UK, which serves a
largely affluent customer base through advised multi-channel
distribution. The QLA business is predominantly a closed book, made
up of legacy products. Protection and institutional pension
products are also part of the business.
Quilter International is a cross-border business, focusing on
high net worth and affluent local customers and expatriates in
Asia, the Middle East, Europe and Latin America.
In addition to the two operating segments, Head Office comprises
the investment return on centrally held assets, central function
expenses, such as Group treasury and finance functions, along with
central core structural borrowings and certain tax balances in the
segmental statement of financial position.
6: Segmental information continued
6(b)(i): Adjusted profit statement - segmental information for
the 6 month period ended 30 June 2018
GBPm
=========== ========== ======= ======== =============== ========= ==========
Adjusted profit - Continuing Reconciliation to
operations IFRS
========================================== ======================================
Operating segments
Adjusting
Advice items IFRS
and Wealth Wealth Head Adjusted Consolidation (Note Income
Notes Management Platforms Office profit Adjustments(1) 7(a)) Statement
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Revenue
Gross earned premiums - 75 - 75 - - 75
Premiums ceded to
reinsurers - (44) - (44) - - (44)
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Net earned premiums - 31 - 31 - - 31
Fee income and other
income
from service activities 8 272 256 - 528 (5) - 523
Investment return 4 207 1 212 81 - 293
Other income - 63 3 66 (56) - 10
Segmental revenue 276 557 4 837 20 - 857
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Expenses
Claims and benefits paid - (45) - (45) - - (45)
Reinsurance recoveries - 29 - 29 - - 29
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Net insurance claims and
benefits
incurred - (16) - (16) - - (16)
Change in reinsurance
assets
and liabilities - 20 - 20 - - 20
Change in insurance
contract
liabilities - (23) - (23) - - (23)
Change in investment
contract
liabilities - (192) - (192) - - (192)
Fee and commission
expenses,
and other acquisition
costs (82) (86) - (168) (62) - (230)
Change in third-party
interest
in
consolidated funds - - - - 3 - 3
Other operating and
administrative
expenses (145) (180) (24) (349) 39 (82) (392)
Finance costs 9 (2) - - (2) - (8) (10)
Segmental expenses (229) (477) (24) (730) (20) (90) (840)
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Adjusted profit/(loss)
before
all tax 47 80 (20) 107 - (90) 17
Tax attributable to
policyholders'
funds - 3 - 3 - 15 18
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Adjusted profit/(loss)
before
tax attributable to
shareholders'
funds 47 83 (20) 110 - (75) 35
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Reconciliation to IFRS:
Adjusted for
non-operating
items: 7(a)
Goodwill impairment and
impact
of acquisition
accounting (28) - - (28)
Business transformation
costs (10) (27) - (37)
Managed Separation costs - - (17) (17)
Finance costs - - (8) (8)
Policyholder tax
adjustments - 15 - 15
Reallocation of central
costs(2) - (2) 2 -
========================= ===== =========== ========== ======= ========
Adjusting items before
tax (38) (14) (23) (75)
========================= ===== =========== ========== ======= ========
IFRS profit before tax
attributable
to shareholders' funds 9 69 (43) 35
========================= ===== =========== ========== ======= ========
(1) Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of investment
funds.
(2) Reallocation of central costs reverses management
reallocations included within adjusted profit to reconcile back to
IFRS profit.
6: Segmental information continued
6(b)(ii): Adjusted profit statement - segmental information for
the 6 month period ended 30 June 2017
GBPm
=========== ========== ======= ======== =============== ========= ==========
Adjusted profit - Continuing Reconciliation to
operations IFRS
========================================== ======================================
Operating segments
Adjusting
Advice items IFRS
and Wealth Wealth Head Adjusted Consolidation (Note Income
Notes Management Platforms Office profit Adjustments(1) 7(a)) Statement
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Revenue
Gross earned premiums - 73 - 73 - - 73
Premiums ceded to
reinsurers - (43) - (43) - - (43)
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Net earned premiums - 30 - 30 - - 30
Fee income and other
income
from service activities 8 185 262 - 447 (10) - 437
Investment return 1 2,306 - 2,307 374 - 2,681
Other income - 46 - 46 (41) - 5
Segmental revenue 186 2,644 - 2,830 323 - 3,153
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Expenses
Claims and benefits paid - (38) - (38) - - (38)
Reinsurance recoveries - 25 - 25 - - 25
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Net insurance claims and
benefits
incurred - (13) - (13) - - (13)
Change in reinsurance
assets
and liabilities - 26 - 26 - - 26
Change in insurance
contract
liabilities - (22) - (22) - - (22)
Change in investment
contract
liabilities - (2,264) - (2,264) - - (2,264)
Fee and commission
expenses,
and other acquisition
costs (26) (101) - (127) (27) - (154)
Change in third-party
interest
in
consolidated funds - - - - (325) - (325)
Other operating and
administrative
expenses (128) (167) (11) (306) 29 (99) (376)
Finance costs 9 - - - - - (20) (20)
Segmental expenses (154) (2,541) (11) (2,706) (323) (119) (3,148)
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Adjusted profit/(loss)
before
all tax 32 103 (11) 124 - (119) 5
Tax attributable to
policyholders'
funds - (29) - (29) - - (29)
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Adjusted profit/(loss)
before
tax attributable to
shareholders'
funds 32 74 (11) 95 - (119) (24)
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Reconciliation to IFRS:
Adjusted for
non-operating
items: 7(a)
Goodwill impairment and
impact
of acquisition
accounting (28) - - (28)
Business transformation
costs - (59) - (59)
Managed Separation costs - - (12) (12)
Finance costs - - (20) (20)
Adjusting items before
tax (28) (59) (32) (119)
========================= ===== =========== ========== =======
IFRS profit/(loss) before
tax attributable to
shareholders'
funds 4 15 (43) (24)
========================= ===== =========== ========== ======= ========
(1) Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of investment
funds.
6: Segmental information continued
6(b)(iii): Adjusted profit statement - segmental information for
the year ended 31 December 2017
GBPm
=========== ========== ======= ======== =============== ========= ==========
Adjusted profit - Continuing Reconciliation to
operations IFRS
========================================== ======================================
Operating segments
Adjusting
Advice items IFRS
and Wealth Wealth Head Adjusted Consolidation (Note Income
Notes Management Platforms Office profit Adjustments(1) 7(a)) Statement
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Revenue
Gross earned premiums - 148 - 148 - - 148
Premiums ceded to
reinsurers - (88) - (88) - - (88)
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Net earned premiums - 60 - 60 - - 60
Fee income and other
income
from service activities 8 382 526 - 908 (13) - 895
Net investment income 3 4,412 1 4,416 779 - 5,195
Other income 2 83 3 88 (75) - 13
Segmental revenue 387 5,081 4 5,472 691 - 6,163
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Expenses
Claims and benefits paid - (76) - (76) - - (76)
Reinsurance recoveries - 54 - 54 - - 54
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Net insurance claims and
benefits
incurred - (22) - (22) - - (22)
Change in reinsurance
assets
and liabilities - 85 - 85 - - 85
Change in insurance
contract
liabilities - (78) - (78) - - (78)
Change in investment
contract
liabilities - (4,308) - (4,308) - - (4,308)
Fee and commission
expenses,
and other acquisition
costs (52) (198) - (250) (70) - (320)
Change in third-party
interest
in
consolidated funds - - - - (673) - (673)
Other operating and
administrative
expenses (253) (336) (35) (624) 52 (244) (816)
Finance costs 9 - - - - - (39) (39)
Segmental expenses (305) (4,857) (35) (5,197) (691) (283) (6,171)
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Profit on disposal of
subsidiaries,
associated undertakings
and
strategic investments - - - - - 3 3
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Adjusted profit/(loss)
before
all tax 82 224 (31) 275 - (280) (5)
Tax attributable to
policyholders'
funds - (66) - (66) - 17 (49)
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Adjusted profit/(loss)
before
tax attributable to
shareholders'
funds 82 158 (31) 209 - (263) (54)
========================= ===== =========== ========== ======= ======== =============== ========= ==========
Reconciliation to IFRS:
Adjusted for
non-operating
items: 7(a)
Goodwill impairment and
impact
of acquisition
accounting (53) - (1) (54)
Net profit on business
disposals
and acquisitions - - 3 3
Business transformation
costs - (89) - (89)
Managed Separation costs - - (32) (32)
Finance costs - - (39) (39)
Policyholder tax
adjustments - 17 - 17
Voluntary customer
remediation
provision - (69) - (69)
========================= ===== =========== ========== ======= ======== --------------- --------- ----------
Adjusting items before
tax (53) (141) (69) (263)
========================= ===== =========== ========== ======= ======== --------------- --------- ----------
IFRS profit/(loss) before
tax attributable to
shareholders'
funds 29 17 (100) (54)
========================= ===== =========== ========== ======= ======== --------------- --------- ----------
(1) Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of investment
funds.
6: Segmental information continued
6(c)(i): Statement of financial position - segmental information
at 30 June 2018
GBPm
=========== ========== ======= =============== =========== ============ ======
Advice Total
& Wealth Wealth Head Consolidation Continuing Discontinued
Notes Management Platforms Office Adjustments(1) Operations Operations Total
========================= ===== =========== ========== ======= =============== =========== ============ ======
Assets
Goodwill and intangible
assets 12 401 165 - - 566 - 566
Property, plant and
equipment 10 7 - - 17 - 17
Investments in associated
undertakings - - 1 - 1 - 1
Deferred acquisition
costs - 12 - - 12 - 12
Contract costs - 575 - - 575 - 575
Contract assets 45 - - - 45 - 45
Loans and advances 13 22 190 7 - 219 - 219
Financial investments 14 5 57,735 2 6,827 64,569 - 64,569
Reinsurers' share of
policyholder
liabilities 17 - 2,666 - - 2,666 - 2,666
Deferred tax assets 6 13 - - 19 - 19
Current tax receivable - 3 - - 3 - 3
Trade, other receivables
and other assets 370 328 4 735 1,437 - 1,437
Derivative assets - - - 33 33 - 33
Cash and cash equivalents 18 365 1,138 618 1,254 3,375 - 3,375
Inter-segment funding -
assets - 12 - (12) - - -
========================= ===== =========== ========== ======= =============== =========== ============ ======
Total assets 1,224 62,844 632 8,837 73,537 - 73,537
========================= ===== =========== ========== ======= =============== =========== ============ ======
Liabilities
Long-term business
insurance
policyholder liabilities 21 - 513 - - 513 - 513
Investment contract
liabilities 21 - 60,140 - - 60,140 - 60,140
Third-party interests in
consolidated funds - - - 8,105 8,105 - 8,105
Provisions and accruals 22 18 85 12 - 115 - 115
Deferred tax liabilities 42 122 - - 164 - 164
Current tax payable 6 17 (11) - 12 - 12
Borrowings 23 - - 197 - 197 - 197
Trade, other payables and
other liabilities 522 694 31 690 1,937 - 1,937
Contract liabilities 1 234 - - 235 - 235
Derivative liabilities - 1 - 58 59 - 59
Inter-segment funding -
liabilities - - 12 (12) - - -
========================= ===== =========== ========== ======= =============== =========== ============ ======
Total liabilities 589 61,806 241 8,841 71,477 - 71,477
========================= ===== =========== ========== ======= =============== =========== ============ ======
Total equity 2,060
========================= ===== =========== ========== ======= =============== =========== ============ ======
Total equity and
liabilities 73,537
========================= ===== =========== ========== ======= =============== =========== ============ ======
(1) Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of investment
funds.
6: Segmental information continued
6(c)(ii): Statement of financial position - segmental
information at 30 June 2017
GBPm
=========== ========== ======= =============== =========== ============== ======
Advice Total
& Wealth Wealth Head Consolidation Continuing Discontinued
Notes Management Platforms Office Adjustments(1) Operations Operations(2) Total
======================= ===== =========== ========== ======= =============== =========== ============== ======
Assets
Goodwill and intangible
assets 12 432 162 - - 594 84 678
Property, plant and
equipment 10 11 - - 21 - 21
Investments in
associated
undertakings - - 1 - 1 - 1
Deferred acquisition
costs - 636 - - 636 - 636
Loans and advances 13 13 186 1 - 200 - 200
Financial investments 14 2 52,392 1 6,098 58,493 - 58,493
Reinsurers' share of
policyholder
liabilities 17 - 3,085 - - 3,085 - 3,085
Deferred tax assets 5 - - - 5 6 11
Current tax receivable - 24 - - 24 - 24
Trade, other
receivables
and other assets 276 294 111 217 898 165 1,063
Derivative assets - 2 - 82 84 - 84
Cash and cash
equivalents 18 300 929 63 785 2,077 94 2,171
Inter-segment funding -
assets 4 27 1 (32) - - -
======================= ===== =========== ========== ======= =============== =========== ============== ======
Total assets 1,042 57,748 178 7,150 66,118 349 66,467
======================= ===== =========== ========== ======= =============== =========== ============== ======
Liabilities
Long-term business
insurance
policyholder
liabilities 21 - 436 - - 436 - 436
Investment contract
liabilities 21 - 55,303 - - 55,303 - 55,303
Third-party interests
in
consolidated funds - - - 6,479 6,479 - 6,479
Provisions and accruals 22 9 24 1 - 34 - 34
Deferred tax
liabilities 43 135 - - 178 - 178
Current tax
payable/(receivable) 16 23 (16) - 23 12 35
Borrowings 23 - - 838 - 838 - 838
Trade, other payables
and
other liabilities 351 599 27 279 1,256 160 1,416
Deferred revenue - 254 - - 254 - 254
Derivative liabilities - - - 424 424 - 424
Inter-segment funding -
liabilities 2 - 30 (32) - - -
======================= ===== =========== ========== ======= =============== =========== ============== ======
Total liabilities 421 56,774 880 7,150 65,225 172 65,397
======================= ===== =========== ========== ======= =============== =========== ============== ======
Total equity 1,070
======================= ===== =========== ========== ======= =============== =========== ============== ======
Total equity and
liabilities 66,467
======================= ===== =========== ========== ======= =============== =========== ============== ======
(1) Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of investment
funds.
(2) Discontinued operations includes the balances of the Group's
Single Strategy business.
6: Segmental information continued
6(c)(iii): Statement of financial position - segmental
information at 31 December 2017
GBPm
=========== ========== ======= =============== =========== ============== ======
Advice Total
& Wealth Wealth Head Consolidation Continuing Discontinued
Notes Management Platforms Office Adjustments(1) Operations Operations(2) Total
======================= ===== =========== ========== ======= =============== =========== ============== ======
Assets
Goodwill and intangible
assets 12 412 162 - - 574 - 574
Property, plant and
equipment 9 9 - - 18 - 18
Investments in
associated
undertakings(3) - - 1 - 1 - 1
Deferred acquisition
costs - 611 - - 611 - 611
Loans and advances 13 18 180 1 - 199 - 199
Financial
investments(3) 14 2 56,562 1 7,685 64,250 - 64,250
Reinsurers' share of
policyholder
liabilities 17 - 2,908 - - 2,908 - 2,908
Deferred tax assets 6 15 1 - 22 - 22
Trade, other
receivables
and other assets 208 210 19 60 497 - 497
Derivative assets - 1 - 86 87 - 87
Cash and cash
equivalents 18 303 1,061 83 913 2,360 - 2,360
Assets of operations
classified
as held for sale 5(g) - - - - - 446 446
Inter-segment funding -
assets 4 12 - (16) - - -
======================= ===== =========== ========== ======= =============== =========== ============== ======
Total assets 962 61,731 106 8,728 71,527 446 71,973
======================= ===== =========== ========== ======= =============== =========== ============== ======
Liabilities
Long-term business
insurance
policyholder
liabilities 21 - 489 - - 489 - 489
Investment contract
liabilities 21 - 59,139 - - 59,139 - 59,139
Third-party interests
in
consolidated funds - - - 7,905 7,905 - 7,905
Provisions and accruals 22 10 89 5 - 104 - 104
Deferred tax
liabilities 40 150 - - 190 - 190
Current tax payable 21 40 (23) - 38 - 38
Borrowings 23 - - 782 - 782 - 782
Trade, other payables
and
other liabilities 275 607 43 406 1,331 - 1,331
Deferred revenue 1 243 - - 244 - 244
Derivative liabilities - - - 433 433 - 433
Liabilities of
operations
classified as held for
sale 5(g) - - - - - 219 219
Inter-segment funding -
liabilities - - 16 (16) - - -
======================= ===== =========== ========== ======= =============== =========== ============== ======
Total liabilities 347 60,757 823 8,728 70,655 219 70,874
======================= ===== =========== ========== ======= =============== =========== ============== ======
Total equity 1,099
======================= ===== =========== ========== ======= =============== =========== ============== ======
Total equity and
liabilities 71,973
======================= ===== =========== ========== ======= =============== =========== ============== ======
(1) Consolidation adjustments comprise the elimination of
inter-segment transactions and the consolidation of investment
funds.
(2) Discontinued operations includes the balances of the Group's
Single Strategy business.
(3) As at 31 December 2017, GBP2 million has been reclassified
from investments in associated undertakings to financial
investments to conform with current year presentation.
December 2017 comparatives for the segmental statement of
financial position have been re-presented due to the reallocation
of a UK holding company from Wealth Platforms to Head Office. This
change was made to ensure that all material intercompany loan
balances are reported (and eliminate) within Head Office.
6: Segmental information continued
6(d)(i): Geographic segmental information
In presenting geographic segmental information, revenue is based
on the geographic location of our businesses. The Group has defined
two geographic areas: UK and International.
GBPm
========== ========== ======= ============= ============= ========== ============ ======
UK International
=============================== ============= ============= ========== ============ ======
For the 6
month
period ended Advice Total
30 and Wealth Wealth Head Wealth Consolidation continuing Discontinued Total
June 2018 Notes Management Platforms Office Platforms adjustments operations operations Group
============== ===== ========== ========== ============= ============= ========== ============ ======
Revenue
Gross earned
premiums - 74 - 1 - 75 - 75
Premiums ceded
to
reinsurers - (43) - (1) - (44) - (44)
============== ===== ========== ========== ======= ============= ============= ========== ============ ======
Net earned
premiums - 31 - - - 31 - 31
============== ===== ========== ========== ======= ============= ============= ============
Premium based
fees 43 8 - 38 - 89 - 89
Fund based
fees(1) 230 122 - 50 - 402 136 538
Retrocessions
received,
intragroup - 9 - 3 (12) - - -
Fixed fees - 2 - 14 - 16 - 16
Surrender
charges - 1 - 9 - 10 - 10
Other fee and
commission
income - - - - 6 6 - 6
Fee income and
other
income from
service
activities 8 273 142 - 114 (6) 523 136 659
Investment
return 4 209 1 (2) 81 293 - 293
Other income - 80 3 4 (77) 10 2 12
Total revenue 277 462 4 116 (2) 857 138 995
(1) Income from fiduciary activities
is included within fund based fees.
GBPm
========== ========== ======= ============= ============= ========== ============ ======
UK International
For the 6
month Advice Total
period ended and Wealth Wealth Head Wealth Consolidation continuing Discontinued Total
30 June 2017 Notes Management Platforms Office Platforms adjustments operations operations Group
Revenue
Gross earned
premiums - 73 - 1 (1) 73 - 73
Premiums ceded
to
reinsurers - (42) - (1) - (43) - (43)
============== ===== ========== ========== ======= ============= ============= ========== ============ ======
Net earned
premiums - 31 - - (1) 30 - 30
Premium based
fees 35 16 - 35 - 86 - 86
Fund based
fees(1) 149 118 - 55 - 322 134 456
Retrocessions
received,
intragroup - 10 - 3 (13) - - -
Fixed fees - 2 - 13 - 15 - 15
Surrender
charges - - - 10 - 10 - 10
Other fee and
commission
income - - - - 4 4 - 4
Fee income and
other
income from
service
activities 8 184 146 - 116 (9) 437 134 571
Investment
return 1 1,759 - 548 373 2,681 3 2,684
Other income - 59 - 3 (57) 5 1 6
Total revenue 185 1,995 - 667 306 3,153 138 3,291
(1) Income from fiduciary activities
is included within fund based fees.
6: Segmental information continued
6(d)(i): Geographical segmental information continued
GBPm
UK International
For the year
ended Advice Total
31 December and Wealth Wealth Head Wealth Consolidation continuing Discontinued Total
2017 Notes Management Platforms Office Platforms adjustments operations operations Group
========== ======
Revenue
Gross earned
premiums - 147 - 1 - 148 - 148
Premiums ceded
to
reinsurers - (87) - (1) - (88) - (88)
Net earned
premiums - 60 - - - 60 - 60
============== ===== ========== ========== ======= ============= ============= ============
Premium based
fees 76 29 - 74 - 179 - 179
Fund based
fees(1) 306 241 - 107 - 654 389 1,043
Retrocessions
received,
intragroup - 17 - 6 (23) - - -
Fixed fees - 5 - 26 - 31 - 31
Surrender
charges - 1 - 20 - 21 - 21
Other fee and
commission
income - - - - 10 10 - 10
Fee income and
other
income from
service
activities 8 382 293 - 233 (13) 895 389 1,284
============== ========== ========== ======= ============= ============
Investment
return 3 3,366 1 1,046 779 5,195 7 5,202
Other income 2 81 3 2 (75) 13 3 16
Total revenue 387 3,800 4 1,281 691 6,163 399 6,562
(1) Income from fiduciary activities
is included within fund based fees.
7: Other key performance information
7(a): Adjusted profit adjusting items
Summary of adjusting items for determination of adjusted
profit
In determining the adjusted profit for core operations, certain
adjustments are made to profit before tax to reflect the underlying
long-term performance of the Group. The following table shows an
analysis of those adjustments before and after tax.
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
================================================ ========== ========== ============
Expense/(income)
Goodwill impairment and impact of acquisition
accounting 7(b) 28 28 54
Net (profit)/loss on disposals and acquisitions 7(c) - - (3)
Business transformation costs 7(d) 37 59 89
Managed Separation costs 7(e) 17 12 32
Finance costs 7(f) 8 20 39
Policyholder tax adjustments 7(g) (15) - (17)
Voluntary customer remediation provision 7(h) - - 69
Total adjusting items before tax 75 119 263
Tax on adjusting items 10(c) (21) (22) (39)
Less: policyholder tax adjustments 15 - 17
Total adjusting items after tax 69 97 241
7(b) Goodwill impairment and impact of acquisition
accounting
When applying acquisition accounting, contract costs and
contract liabilities existing at the point of acquisition are not
recognised under IFRS. These are reversed on acquisition in the
statement of financial position and replaced by goodwill and other
intangible assets. In determining adjusted profit, the Group
recognises contract costs and contract liabilities in relation to
policies sold by acquired businesses pre-acquisition. The Group
excludes the impairment of goodwill, the amortisation and
impairment of acquired other intangible assets as well as the
movements in certain acquisition date provisions. Costs incurred on
completed acquisitions are also excluded from adjusted profit,
including any finance costs related to discounted deferred
consideration.
The effect of these adjustments to determine adjusted profit are
summarised below:
For the 6 month period ended 30
June 2018
GBPm
===========
Advice and
Wealth Management Wealth Platforms Head office Total Group
Amortisation of other acquired intangible
assets 21 - - 21
Acquisition costs 6 - - 6
Unwinding of discount on deferred
consideration 1 - - 1
================== ================ =========== ===========
Total goodwill impairment and impact
of acquisition accounting 28 - - 28
================== ================ =========== ===========
For the 6 month period ended 30
June 2017
GBPm
===========
Advice and
Wealth Management Wealth Platforms Head office Total Group
Amortisation of other acquired intangible
assets 18 - - 18
Acquisition costs 10 - - 10
Total goodwill impairment and impact
of acquisition accounting 28 - - 28
For the year ended 31 December 2017
GBPm
===========
Advice and
Wealth Management Wealth Platforms Head office Total Group
Amortisation of other acquired intangible
assets 39 - - 39
Change in acquisition date provisions - - 1 1
Acquisition costs 13 - - 13
Unwinding of discount on deferred
consideration 1 - - 1
Total goodwill impairment and impact
of acquisition accounting 53 - 1 54
7: Other key performance information continued
7(c) Net profit/loss on business disposals and acquisitions
As part of the Group's Managed Separation from Old Mutual plc,
on 29 September 2017 the Group acquired Commsale 2000 Limited
('Commsale') from Old Mutual plc. The total consideration was for
GBP0.29 million. The NAV at the date of acquisition was GBP0.45
million, with a gain on purchase of GBP0.16 million being
recognised, representing assets not valued within the agreed
consideration.
On 30 November 2017, the Company acquired 100% of the whole of
the issued share capital of Global Edge Technologies (Pty) Ltd
('GET'), a company incorporated in South Africa, from OM Group (UK)
Limited (part of the Old Mutual plc group) for GBP0.8 million.
Along with recording the book values of the assets acquired and
liabilities assumed of GBP4 million, the Company recognised a
bargain purchase gain of GBP3.3 million.
We determined that the excess of book value over consideration
paid was attributable to potential future integration costs which,
if incurred, would be expensed in future periods. As potential
future integrating activities do not qualify to be recorded as a
liability in the application of the acquisition method of
accounting, none was recorded, and we recorded the excess as a
bargain purchase gain.
7(d) Business transformation costs
Within business transformation costs are three items: costs
associated with the UK Platform Transformation Progamme, build out
costs incurred within Quilter Investors as a result of the sale of
our Single Strategy business and, in the prior period, certain
one-off charges relating to the transformation of our business as
we separated from Old Mutual plc. Each item is described in detail
below.
UK Platform Transformation Programme - 30 June 2018: GBP27
million, 30 June 2017: GBP59 million, 31 December 2017: GBP74
million
In 2013, the Group embarked on a significant programme to
develop new platform capabilities and to outsource UK business
administration. This involved replacing many aspects of the
existing UK platform, and on completion certain elements of service
provision would be migrated to International Financial Data
Services ('IFDS') under a long-term outsourcing agreement. The cost
of developing the new technology did not meet the criteria for
capitalisation and were expensed. These costs and the costs of
decommissioning existing technology and migrating of services to
IFDS are excluded from adjusted profit. Only costs that are
directly attributable to the programme have been excluded from
adjusted profit as management is of the view that this long-term
investment in operational capability is a non-operating adjusting
item. The contracts with International Financial Data Services
related to the UK Platform Transformation came to an end by mutual
agreement effective as of 2 May 2017. For the period ended 30 June
2018, these costs total GBPnil million (30 June 2017: GBP53
million, 31 December 2017: GBP53 million).
The Group conducted a comprehensive review of the options
available to the UK Platform business and entered into a new
contract with FNZ, having concluded that FNZ's scale, market-proven
and functionally-rich offering was the most suitable to meet the
current and anticipated needs of the business.
In partnership with FNZ, the Group expects to deliver all the
existing functionality of the platform with increased levels of
straight-through processing and enhanced functionality by late 2018
/ early 2019, with migration of the in-force book to follow shortly
thereafter. For the period ended 30 June 2018, these costs totalled
GBP27 million (30 June 2017: GBP6 million, 31 December 2017: GBP21
million).
Quilter Investors' build out costs - 30 June 2018: GBP10
million, 30 June 2017: GBPnil, 31 December 2017: GBPnil
In March 2016, Old Mutual plc announced its Managed Separation
strategy that sought to unlock and create significant long-term
value for shareholders. As part of this strategy, Quilter's
Multi-Asset (now renamed as Quilter Investors) and Single Strategy
teams were to develop as separate distinct businesses, and the
Single Strategy business was sold to its management and TA
Associates on 29 June 2018. As result, the Group has incurred GBP10
million of one-off costs in the period ended 30 June 2018.
One-off transformational costs as a result of our separation
from Old Mutual plc - 30 June 2018: GBPnil, 30 June 2017: GBPnil,
31 December 2017: GBP15 million
The Group historically had a number of arrangements with the
wider Old Mutual plc group's South African businesses. As a
consequence of Managed Separation these arrangements were severed
and, as a result, deferred acquisition cost balances totalling
GBP10 million were written off (included within fee and commission
expenses in the income statement), together with a loss incurred of
GBP5 million on the cancellation of reinsurance arrangements
(included within other costs within the income statement) in the
year ended 31 December 2017. These charges are regarded as one-off
and related to the transformation of the business to a standalone
group.
7(e) Managed Separation costs
One-off costs related to the implementation of Managed
Separation recognised in the IFRS income statement have been
excluded from adjusted profit on the basis that they are not
representative of the operating activity of the Group. These costs
relate to preparing the Group to operate as a standalone business
and the execution of various transactions required to implement our
Managed Separation strategy. They are not expected to persist in
the long term as they relate to a fundamental restructuring of the
Group, which is not operational in nature, rather than more routine
restructuring activity which would be seen as part of the usual
course of business. The treatment and the disclosure of these costs
as an adjusting item are also intended to make these costs more
visible to the readers of the financial statements in the context
of publicly disclosed estimates previously given in relation to
these items. For the period ended 30 June 2018, these costs
totalled GBP17 million (30 June 2017: GBP12 million, 31 December
2017: GBP32 million).
7(f) Finance costs
The nature of much of the Group's operations means that, for
management's decision-making and internal performance management,
the effects of interest costs on borrowings are removed when
calculating adjusted profit. For the period ended 30 June 2018, the
finance costs totalled GBP8 million (30 June 2017: GBP20 million,
31 December 2017: GBP39 million) - see note 9.
7(g) Policyholder tax adjustments
Adjustments to policyholder tax are made to remove distortions
arising from market volatility that can, in turn, lead to
volatility in the policyholder tax charge between periods. In
addition, adjustments are made to remove distortions to
policyholder tax arising from the utilisation of tax allowances
from elsewhere in the Quilter group (e.g. capital losses) which are
regarded economically as impacting shareholder tax, and from
distortions arising from other non-operating adjusting items. For
the period ended 30 June 2018, this adjustment to adjusted profit
totalled GBP15 million (30 June 2017: GBPnil, 31 December 2017:
GBP17 million).
7: Other key performance information continued
7(h) Voluntary Customer Remediation Provision
As detailed in Note 22 Provisions and Accruals, as part of its
on-going work to promote fair customer outcomes, the Group has
conducted product reviews consistent with the recommendations from
the Financial Conduct Authority's ('FCA') thematic feedback and the
FCA's guidance 'FG16/8 Fair treatment of long-standing customers in
the life insurance sector'. Following these reviews, the Group has
decided to commence voluntary remediation to customers in certain
products, resulting in an additional provision raised during the
2017 year of GBP69 million.
The provision has been recognised in the IFRS income statement
but has been excluded from adjusted profit on the basis that it is
not representative of the operating performance of the business for
the year ended 31 December 2017.
8: Fee income and other income from service activities
This note analyses the fees and commission earned by the Group from negotiating,
or participating in the negotiation of a transaction for third-parties,
transaction and performance fees earned and movements in deferred origination
fees.
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Fee income and other income from service activities
Premium based fees(1) 89 86 179
Fund based fees(1,2) 402 322 654
Fixed fees 16 15 31
Surrender charges 10 10 21
Other fee and commission income 6 4 10
Fee income and other income from service activities
- continuing operations 523 437 895
Fee income and other income from service activities
- discontinued operations 136 134 389
Total fee income and other income from service
activities 659 571 1,284
(1) Year ended December 2017 has been restated
to aid comparability.
(2) Income from fiduciary activities is included
within fund based fees.
9: Finance costs
This note analyses the interest costs on our borrowings and
similar charges. Finance costs comprise:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Term loans and other external debt 2 - -
Subordinated debt securities 3 - -
Loans from Old Mutual plc 3 20 39
============================================= ========== ========== ============
Interest payable on borrowed funds 8 20 39
Other 2 - -
Total finance costs - continuing operations 10 20 39
============================================= ========== ========== ============
Finance costs represent the cost of interest and finance charges
on the Group's borrowings from a number of relationship banks and
Old Mutual plc. More details regarding borrowed funds, including
the interest rates payable, are shown in note 23. These costs are
excluded from adjusted profit within the 'Finance costs' adjusting
item.
In addition, within other finance costs above is the impact of
unwinding the discount rate on deferred consideration payable as a
result of various acquisitions. These costs are excluded from
adjusted profit within the 'Goodwill impairment and impact of
acquisition accounting' adjusting item.
10: Tax
This note analyses the income tax expense recognised in profit or loss
for the period and the various factors that have contributed to the composition
of the charge.
10(a) Tax charged to the income statement
The total tax charge for the period comprises:
GBPm
==========
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Current tax
United Kingdom 12 21 43
International 2 2 3
Adjustments to current tax in respect of prior
periods - 1 1
========== ==========
Total current tax 14 24 47
========== ==========
Deferred tax
Origination and reversal of temporary differences (25) - 2
Effect on deferred tax of changes in tax rates - (2) (1)
Adjustments to deferred tax in respect of prior
periods (4) - (7)
Total deferred tax (29) (2) (6)
Total tax (credited)/charged to income statement
- continuing operations (15) 22 41
Total tax charged to income statement - discontinued
operations 1 7 29
========== ==========
Total tax (credited)/charged to income statement (14) 29 70
==========
Policyholder tax
Certain products are subject to tax on policyholders' investment
returns. This 'policyholder tax' is an element of tax expense. To
make the tax expense more meaningful, tax attributable to
policyholder returns and tax attributable to shareholder profits is
shown separately in the income statement.
The tax attributable to policyholder returns is the amount
payable in the year plus the movement of amounts expected to be
payable in future years. The remainder of the tax expense is
attributed to shareholders as tax attributable to shareholder
profits.
10(b) Reconciliation of total income tax expense
The income tax charged to profit or loss differs from the amount that
would apply if all of the Group's profits from the different tax jurisdictions
had been taxed at the UK standard corporation tax rate. The difference
in the effective rate is explained below:
GBPm
========== ============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
========== ========== ============
Profit/(Loss) before tax 17 5 (5)
Tax at UK standard rate of 19% (2017: 19.25%) 3 1 (1)
Different tax rate or basis on overseas operations (3) (4) (3)
Untaxed and low taxed income (2) (1) (2)
Disallowable expenses 4 4 8
Net movement on deferred tax assets not recognised (6) - (21)
Effect on deferred tax of changes in tax rates - (2) (1)
Income tax attributable to policyholder returns (11) 24 61
Total tax (credited)/charged to income statement
- continuing operations (15) 22 41
Total tax charged to income statement - discontinued
operations 1 7 29
========== ========== ============
Total tax (credited)/charged to income statement (14) 29 70
========== ============
10: Tax continued
10(c) Reconciliation of income tax expense in the IFRS income statement
to income tax on adjusted profit.
GBPm
==========
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Income tax (credit)/expense on continuing operations (15) 22 41
Tax on adjusting items
Impairment of goodwill and impact of acquisition
accounting 3 5 8
Policyholder tax adjustments 15 - 17
Other shareholder tax (8) - (26)
Business transformation costs 7 11 14
Managed Separation costs 2 2 4
Finance costs 2 4 8
Voluntary customer remediation provision - - 14
Total tax on adjusting items 21 22 39
Tax attributable to policyholders returns 3 (29) (66)
Tax charged on adjusted profit - continuing
operations 9 15 14
Tax charged on adjusted profit - discontinued
operations 5 7 29
Tax charged on adjusted profit 14 22 43
11: Earnings and earnings per share
The Group calculates earnings per share ('EPS') on a number of
different bases as appropriate to prevailing International and UK
practices and guidance. IFRS requires the calculation of basic and
diluted EPS. Adjusted EPS reflects earnings per share that is
consistent with the Group's alternative profit measure. The Group's
EPS on these different bases are summarised below.
Disclosure of basic and diluted EPS is required by IAS 33
Earnings per Share. On 6 June 2018, the Board approved a
reorganisation of the Company's share capital to enable the
implementation of the Managed Separation before the initial public
offering on 25 June 2018 and, consequently, both basic and diluted
EPS for historical periods was not representative of the Group's
current structure. In accordance with IAS 33, share transactions
that change the number of shares in issue but do not result in any
corresponding change to an entity's resources, such as share
splits, bonus issues to existing shareholders and share
consolidations are adjusted for in the EPS denominator as if these
transactions had occurred at the start of the earliest period for
which EPS is presented. Accordingly, the weighted average number of
ordinary shares in issue at 30 June 2017 and 31 December 2017 have
been retrospectively restated to take account of the new share
structure at listing. As a result, the Group's EPS has fallen
relative to the position shown in the 31 December 2017 Historical
Financial Information, within the listing prospectus, because the
number of shares has increased on listing.
For further information on share capital refer to note 19: Share
capital.
Pence
============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Source of guidance Notes 2018 2017 2017
========== ========== ============
Basic earnings per share IFRS 11(a) 18.7 5.1 8.6
Diluted basic earnings per
share IFRS 11(b) 18.7 5.1 8.6
Adjusted basic earnings per
share Group policy 11(c) 5.5 4.4 10.7
Adjusted diluted earnings per
share Group policy 11(c) 5.5 4.4 10.7
Headline earning per share JSE Listing
(net of tax) Requirements 11(d) 2.8 0.8 4.0
Diluted headline earning per JSE Listing
share (net of tax) Requirements 11(d) 2.8 0.8 4.0
11: Earnings and earnings per share continued
11(a) Basic earnings per share (IFRS)
Basic EPS is calculated by dividing the profit for the financial
period attributable to ordinary equity shareholders of the parent
by the weighted average number of ordinary shares in issue during
the year. The weighted average number of shares excludes Quilter
plc shares (treasury shares) held within Employee Benefit Trusts
('EBTs') to satisfy the Group's obligations under employee share
awards. Treasury shares are deducted for the purpose of calculating
both basic and diluted EPS.
(i) The profit attributable to ordinary shareholders
is:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
========== ========== ============
Profit/(Loss) for the financial period attributable
to shareholders of the Company from
continuing operations 32 (17) (46)
Profit for the financial period attributable
to shareholders of the Company from
discontinued operations 310 111 203
Profit for the for the financial period for
the calculation of earnings per share 342 94 157
========== ========== ============
The table below summarises the calculation of the weighted average number
of ordinary shares for the purposes of calculating basic earnings per
share:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Weighted average number of ordinary shares
in issue (millions) 1,902 1,902 1,902
Treasury shares including those held in
EBTs (millions) (72) (72) (72)
==========
Adjusted weighted average number of ordinary
shares used to
calculate basic earnings per share (millions) 1,830 1,830 1,830
========== ============
Basic earnings per ordinary share (pence) 18.7 5.1 8.6
========== ========== ============
11(b) Diluted earnings per share (IFRS)
Diluted EPS recognises the dilutive impact of shares and options
awarded to employees under share-based payment arrangements
(potential ordinary shares), to the extent they have value, in the
calculation of the weighted average number of shares, as if the
relevant shares were in issue for the full year. The table below
summarises the calculation of weighted average number of shares for
the purpose of deriving diluted EPS:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
Profit attributable to ordinary equity holders
(GBPm) 342 94 157
Diluted profit attributable to ordinary
equity holders (GBPm) 342 94 157
Adjusted weighted average number of ordinary
shares (millions) 11(a) 1,830 1,830 1,830
Adjustments for share options held by EBTs
and similar trusts (millions) - - -
Weighted average number of ordinary shares
used to calculate
diluted earnings per share (millions) 1,830 1,830 1,830
============
Diluted earnings per ordinary share (pence) 18.7 5.1 8.6
===== ========== ============
There is no dilutive impact of potential shares on EPS for the period
ended 30 June 2018 because the new share based-payment arrangements, settled
in Quilter plc shares, have only been in place since listing (25 June
2018).
11: Earnings and earnings per share continued
11(c) Adjusted earnings per share
The following table presents a reconciliation of profit for the
financial period to adjusted profit after tax attributable to
ordinary equity holders and summarises the calculation of adjusted
earnings per share:
+ GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Notes 2018 2017 2017
Profit for the financial period attributable
to shareholders of the Company 342 94 157
Adjusting items 7 75 119 263
Income tax expense on adjusting items 10(c) (21) (22) (39)
Less: Policyholder tax adjustments 10(c) 15 - 17
Less: Profit after tax from discontinued
operations 5(d) (310) (111) (203)
Adjusted profit after tax attributable to
ordinary shareholders (GBPm) 101 80 195
Adjusted weighted average number of ordinary
shares used to
calculate adjusted basic earnings per share
(millions) 11(a) 1,830 1,830 1,830
========== ========== ============
Adjusted basic earnings per share (pence) 5.5 4.4 10.7
========== ========== ============
Adjusted weighted average number of ordinary
shares used to
calculate diluted adjusted earnings per share
(millions) 11(b) 1,830 1,830 1,830
========== ========== ============
Adjusted diluted earnings per share (pence) 5.5 4.4 10.7
========== ========== ============
11(d) Headline earnings per share
The Group is required to calculate headline earnings per share
('HEPS') in accordance with the JSE Limited ('JSE') Listing
Requirements, determined by reference to the South African
Institute of Chartered Accountants' circular 02/2015 'Headline
Earnings'. The table below sets out a reconciliation of basic EPS
and HEPS in accordance with that circular. Disclosure of HEPS is
not a requirement of IFRS, but it is a commonly used measure of
earnings in South Africa.
The table below reconciles the profit for the financial period
attributable to equity holders of the parent to headline earnings
and summarises the calculation of basic HEPS:
+ + GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Net of Net of Net of
Gross tax Gross tax Gross tax
Profit for the period attributable
to shareholders of the Company 342 94 157
Adjusting items:
(Profit) on disposals of subsidiaries (285) (290) (80) (80) (83) (83)
Headline earnings (285) 52 (80) 14 (83) 74
Diluted headline earnings 52 14 74
Weighted average number of ordinary
shares
(millions) 1,830 1,830 1,830
Diluted weighted average number
of ordinary shares (millions) 1,830 1,830 1,830
Headline earnings per share (pence) 2.8 0.8 4.0
Adjusted headline earnings per
share (pence) 2.8 0.8 4.0
======== =======
12: Goodwill and intangible assets
12(a): Analysis of goodwill and intangible
assets
The table below shows the movements in cost, amortisation and impairment
of goodwill and intangible assets.
GBPm
Software
development Other intangible
Goodwill cost(4) assets(4) Total
Gross amount
At 1 January 2017 373 94 350 817
Acquisitions through business
combinations(1) 15 - 27 42
Other movements - 5 (4) 1
At 30 June 2017 388 99 373 860
Acquisitions through business combinations - - 3 3
Transfer to non-current assets held
for sale(2) (82) (2) (3) (87)
Other movements - - (2) (2)
At 31 December 2017 306 97 371 774
Acquisitions through business combinations 3 - 5 8
Transfer to non-current assets held
for sale (1) - - (1)
Other movements(3) 5 2 - 7
At 30 June 2018 313 99 376 788
Amortisation and impairment losses
At 1 January 2017 - (90) (73) (163)
Amortisation charge for the period - (1) (19) (20)
Other movements - (3) 4 1
At 30 June 2017 - (94) (88) (182)
Amortisation charge for the period - (1) (20) (21)
Transfer to non-current assets held
for sale - 2 3 5
Other movements - 1 (3) (2)
At 31 December 2017 - (92) (108) (200)
Amortisation charge for the period - (2) (21) (23)
Other movements - - 1 1
At 30 June 2018 - (94) (128) (222)
Carrying amount
At 30 June 2017 388 5 285 678
At 31 December 2017 306 5 263 574
At 30 June 2018 313 5 248 566
=============== ============ ================
(1) Goodwill acquired through business combinations for the year
ended 31 December 2017 of GBP15 million relates to the acquisition
of Caerus Capital Group Limited (GBP10 million) and various
acquisitions by the QPCA business (GBP5 million). Refer to note
5(a) for further information.
(2) Goodwill transferred to non-current assets held for sale
relates to the Single Strategy asset management business (see note
5(g)).
(3) Goodwill has increased by GBP5 million in 2018 due to a
review of the purchase price allocation ('PPA') calculation at 31
December 2017 year end relating to the QPCA acquisitions resulting
in a reclassification from other intangibles to goodwill.
(4) In year ended 31 December 2017, GBP6 million has been
reclassified from software development costs to other intangibles
assets to conform with current year presentation.
The net carrying amount of intangible assets at 30 June 2018
principally comprises:
-- GBP182 million (FY 2017: GBP197 million) relating to
distribution channels in the Quilter Cheviot business (to be
amortised over a further 7 years).
-- GBP22 million (FY 2017: GBP25 million) relating to mutual
fund and asset management relationship assets in the Intrinsic
business (to be amortised over a further 4 years).
-- GBP5 million (FY 2017: GBP6 million) relating to the Quilter
Cheviot brand (to be amortised over a further 2 years).
-- GBP3 million (FY 2017: GBP3 million) relating to the
acquisition of AAM Advisory Pte Ltd (to be amortised over a further
8 years).
-- GBP10 million (FY 2017: GBP8 million) relating to customer
distribution channels of Caerus Capital Group Limited (to be
amortised over a further 7 years).
-- GBP18 million (2017: GBP16 million) relating to customer
relationships of the QPCA business (to be amortised over 6-8
years).
-- GBP8 million (2017: GBP8 million) relating to customer
relationships of Attivo Investment Management Limited (to be
amortised over 6 years).
12: Goodwill and intangible assets continued
12(b): Allocation of goodwill to cash generating units ('CGUs') and impairment
testing
Goodwill is allocated to the Group's CGUs, which are contained within
the following operating segments as follows:
GBPm
========= ========
At At At
30 June 30 June 31 December
2018 2017 2017
Goodwill (net carrying amount)
Advice and Wealth Management 151 148 148
Wealth Platforms 162 158 158
Discontinued Operations - 82 -
Goodwill (as per the Statement of Financial
Position) 313 388 306
Goodwill held for sale - - 82
Total goodwill 313 388 388
Goodwill is tested for impairment by comparing the carrying
value of the CGU to which the goodwill relates, to the recoverable
value of that CGU. In accordance with the requirements of IAS 36
'Impairment of Assets', goodwill is tested annually for impairment
for each CGU, by comparing the carrying amount of each CGU to its
recoverable amount, being the higher of that CGU's value-in-use or
fair value less costs to sell. An impairment charge is recognised
when the recoverable amount is less than the carrying value.
The cash flows attributable to the value of new business are
determined with reference to latest approved three-year business
plans. The three-year business plan takes into account the
management strategy for the underlying businesses, the capital
available for deployment, the underlying macro-economic factors
which impact the business and the region in which it operates as
well as socio-economic factors. Projections beyond the plan period
are extrapolated using an inflation based growth assumption.
The value-in-use calculations for life assurance operations are
determined as the sum of net tangible assets, the expected future
profits arising from the in-force business (after allowing for the
cost of capital needed to support the business) and the expected
profits from future new business. In determining the expected
future profits, the same set of best estimate assumptions for
persistency, expense, mortality and morbidity are used as per the
Solvency II calculation. Market share and market growth information
are also used to inform the expected volumes of future new
business.
The cash flows that have been used to determine the value in use
of the cash generating units are based on the three year business
plans. These cash flows grow at different rates because of the
different strategies of the cash generating units. In cases where
the cash generating units have made significant acquisitions in the
recent past, the profits are forecast to grow faster than the more
mature businesses. Post the three year growth forecast, the growth
rate used to determine the terminal value of the cash generating
units approximates the long-term growth rate of the countries in
which they operate.
The Group's CGUs generate revenues through their life assurance,
asset management, long-term savings and advisory businesses.
Goodwill is allocated to the Group's CGUs, which are contained
within its distinct operating segments. On disposals of businesses,
goodwill is allocated to them based on the relative value-in-use of
the business from calculations used within the impairment
reviews.
During the period, the group updated its assessment of goodwill
allocated to the life assurance, asset management, long-term
savings and advisory businesses for impairment. The recoverable
amounts of goodwill allocated to the CGUs are determined from
value-in-use calculations. There was no indication of impairment of
goodwill allocated to the CGUs during the period.
13: Loans and advances
This note analyses the loans and advances the Group has made. The carrying
amounts of loans and advances were as follows:
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
Loans to policyholders 190 185 181
Loans to brokers and other loans to clients 23 15 19
Other loans 7 - -
========
Gross loans and advances 220 200 200
Provision for impairments (1) - (1)
Total net loans and advances 219 200 199
The carrying amount of loans approximates to their fair value
which is measured as the principal amounts receivable under the
loan agreements.
Policyholder loans are taken from an individual policyholder's
transaction account and loaned to the specific policyholder and are
therefore considered risk free. Policyholder loans are interest
free.
All loans, except broker loans which have a set repayment
schedule, are repayable on demand. All broker loans and other loans
to clients earn interest at a rate of between annual LIBOR plus
0.5% and 10%.
The provision for impairments is a specific impairment relating
to a financial adviser that is not expected to be recovered.
14: Financial investments
The table below analyses the investments and securities that the
Group invests in, either for its own proprietary behalf (shareholder
funds) or on behalf of third parties (policyholder funds).
GBPm
======== ========
At At At
30 June 30 June 31 December
2018 2017 2017
Government and government-guaranteed securities 1,562 1,595 2,427
Other debt securities, preference shares
and debentures 2,524 1,435 2,401
Equity securities(1) 13,944 9,558 12,556
Pooled investments 46,520 45,900 46,455
Short-term funds and securities treated
as investments 19 5 15
Other - - 396
Total financial investments 64,569 58,493 64,250
Less: financial investments classified as
held for sale - - -
Total financial investments net of held
for sale 64,569 58,493 64,250
To be recovered within 12 months 64,403 58,295 64,074
To be recovered after 12 months 166 198 176
64,569 58,493 64,250
(1) As at 31 December 2017, GBP2 million has been represented
from investments in associated undertakings to financial
investments to aid comparability between periods.
The financial investments contractual maturity profile is based
on the intention with which the financial assets are held. These
assets, together with the reinsurers' share of investment contract
liabilities, are held to cover the liabilities for linked
investment contracts (net of reinsurance).
14(a) Debt instruments and similar securities
All debt instruments and similar securities are neither past due
nor impaired and are analysed in the table below. These debt
instruments and similar securities are classified according to
their local credit rating (Standard & Poor's or an equivalent),
by investment grade.
14(b) Equity securities
Equity securities are held to cover the liabilities for linked
investment contracts. The majority of the listed securities are
traded on the London Stock Exchange.
The Group's holdings of unlisted equity securities arise
principally from private equity investments.
15: Categories of financial instruments
The analysis of financial assets and liabilities into their
categories as defined in IFRS 9 Financial Instruments is set out in
the following tables. Assets and liabilities of a non-financial
nature, or financial assets and liabilities that are specifically
excluded from the scope of IFRS 9, are reflected in the
non-financial assets and liabilities category. The Group has taken
advantage of the exemption in paragraph 7.2.15 of IFRS 9 from
restating prior periods in respect of IFRS 9's classification and
measurement (including impairment) requirements.
All gains and losses on measuring the financial assets and
liabilities at each reporting date are included in the
determination of profit or loss for the period.
For information about the methods and assumptions used in
determining fair value please refer to note 16.
At 30 June 2018
GBPm
Measurement basis Fair value(1)
Non-financial
Mandatorily Designated Amortised assets
at FVTPL at FVTPL cost and liabilities Total
Assets
Investments in associated undertakings
and
joint ventures(2) - - - 1 1
Reinsurers' share of policyholder
liabilities 2,263 - - 403 2,666
Loans and advances 190 - 29 - 219
Financial investments 64,399 170 - - 64,569
Trade, other receivables and other
assets - - 1,437 - 1,437
Derivative financial instruments 33 - - - 33
Cash and cash equivalents - - 3,375 - 3,375
Total assets that include financial
instruments 66,885 170 4,841 404 72,300
Total other non-financial assets - - - 1,237 1,237
Total assets 66,885 170 4,841 1,641 73,537
Liabilities
Long-term business insurance policyholder
liabilities - - - 513 513
Investment contract liabilities 60,140 - - - 60,140
Third-party interest in consolidation
of funds 8,105 - - - 8,105
Borrowings - - 197 - 197
Trade, other payables and other
liabilities - - 1,937 - 1,937
Derivative financial instruments 59 - - - 59
Total liabilities that include financial
instruments 68,304 - 2,134 513 70,951
Total other non-financial liabilities - - - 526 526
Total liabilities 68,304 - 2,134 1,039 71,477
(1) The Group adopted IFRS 9 Financial Instruments for the first
time in 2018. IFRS 9 introduces new classification and measurement
categories. The Fair Value Through Profit or Loss (FVTPL) category
includes financial assets that are managed (and their performance
evaluated) on a fair value basis, including those previously
described as 'held for trading'. The majority of the Group's
financial assets and liabilities continue to be measured at FVTPL
after the implementation. The Group has taken advantage of the
exemption in paragraph 7.2.15 of IFRS 9 from restating prior
periods in respect of IFRS 9's classification and measurement
(including impairment) requirements. For further information on
IFRS 9 refer to note 4.
(2) Investments in associated undertakings and joint ventures
classified as non-financial assets and liabilities are equity
accounted.
15: Categories of financial instruments continued
At 30 June 2017
GBPm
Measurement basis Fair value(1) Amortised cost
Designated
at fair Financial
value through liabilities Non-financial
Held the profit Loans amortised assets
for trading or loss and receivables cost and liabilities Total
Assets
Investments in associated
undertakings
and
joint ventures(2) - - - - 1 1
Reinsurers' share of
policyholder
liabilities - 2,759 - - 326 3,085
Loans and advances - 184 16 - - 200
Financial investments - 58,493 - - - 58,493
Trade, other receivables
and
other assets - - 299 - 764 1,063
Derivative financial
instruments 84 - - - - 84
Cash and cash equivalents - - 2,171 - - 2,171
Total assets that include
financial
instruments 84 61,436 2,486 - 1,091 65,097
Total other non-financial
assets - - - - 1,370 1,370
Total assets 84 61,436 2,486 - 2,461 66,467
============ ================ ======
Liabilities
Long-term business
insurance
policyholder liabilities - - - - 436 436
Investment contract
liabilities - 55,303 - - - 55,303
Third-party interest in
consolidation
of funds - 6,479 - - - 6,479
Borrowings - - - 838 - 838
Trade, other payables and
other
liabilities - - - 360 1,056 1,416
Derivative financial
instruments 424 - - - - 424
Total liabilities that
include
financial instruments 424 61,782 - 1,198 1,492 64,896
Total other non-financial
liabilities - - - - 501 501
Total liabilities 424 61,782 - 1,198 1,993 65,397
============ ================ ======
(1) The Group adopted IFRS 9 Financial Instruments for the first
time in 2018. The Group has taken advantage of the exemption in
paragraph 7.2.15 of IFRS 9 from restating prior periods in respect
of IFRS 9's classification and measurement (including impairment)
requirements. For further information on IFRS 9 refer to note
4.
(2) Investments in associated undertakings and joint ventures
classified as non-financial assets and liabilities are equity
accounted.
15: Categories of financial instruments continued
At 31 December 2017
GBPm
Measurement basis Fair value(1) Amortised cost
Designated
at fair Financial
value through liabilities Non-financial
Held the profit Loans amortised assets
for trading or loss and receivables cost and liabilities Total
Assets
Investments in associated
undertakings
and
joint ventures(2,3) - - - - 1 1
Reinsurers' share of
policyholder
liabilities - 2,525 - - 383 2,908
Loans and advances - 180 19 - - 199
Financial investments(3) - 64,250 - - - 64,250
Trade, other receivables
and
other assets - - 154 - 343 497
Derivative financial
instruments 87 - - - - 87
Cash and cash equivalents - - 2,360 - - 2,360
Total assets that include
financial
instruments 87 66,955 2,533 - 727 70,302
Total other non-financial
assets - - - - 1,225 1,225
============ ================ ======
Total assets net of held
for
sale 87 66,955 2,533 - 1,952 71,527
Total assets classified as
held
for sale - - 147 - 299 446
Total assets 87 66,955 2,680 - 2,251 71,973
============ ================ ======
Liabilities
Long-term business
insurance
policyholder liabilities - - - - 489 489
Investment contract
liabilities - 59,139 - - - 59,139
Third-party interest in
consolidation
of funds - 7,905 - - - 7,905
Borrowings - - - 782 - 782
Trade, other payables and
other
liabilities - - - 505 826 1,331
Derivative financial
instruments 433 - - - - 433
Total liabilities that
include
financial instruments 433 67,044 - 1,287 1,315 70,079
Total other non-financial
liabilities - - - - 576 576
Total liabilities net of
held
for sale 433 67,044 - 1,287 1,891 70,655
Total liabilities
classified
as held for sale - - - - 219 219
Total liabilities 433 67,044 - 1,287 2,110 70,874
(1) The Group adopted IFRS 9 Financial Instruments for the first
time in 2018. The Group has taken advantage of the exemption in
paragraph 7.2.15 of IFRS 9 from restating prior periods in respect
of IFRS 9's classification and measurement (including impairment)
requirements. For further information on IFRS 9 refer to note
4.
(2) Investments in associated undertakings and joint ventures
classified as non-financial assets and liabilities are equity
accounted.
(3) As at 31 December 2017, GBP2 million has been reclassified
from investments in associated undertakings to financial
investments to conform with current year presentation.
16: Fair value methodology
This section explains the judgements and estimates made in
determining the fair values of financial instruments that are
recognised and measured at fair value in the financial statements.
Classifying financial instruments into the three levels below,
prescribed under accounting standards, provides an indication about
the reliability of inputs used in determining fair value.
16(a) Determination of fair value
The fair value of financial instruments that are actively traded
in organised financial markets is determined by reference to quoted
market exit prices for assets and offer prices for liabilities, at
the close of business on the reporting date, without any deduction
for transaction costs.
-- For units in unit trusts and shares in open ended investment
companies, fair value is determined by reference to published
quoted prices representing exit values in an active market.
-- For equity and debt securities not actively traded in
organised markets and where the price cannot be retrieved, the fair
value is determined by reference to similar instruments for which
market observable prices exist.
-- For assets that have been suspended from trading on an active
market, the last published price is used. Many suspended assets are
still regularly priced. At the reporting date all suspended assets
are assessed for impairment.
-- Where the assets are private company shares the valuation is
based on the latest available set of audited financial statements
where available, or if more recent, a statement of valuation
provided by the private company's management.
There have been no significant changes in the valuation
techniques applied when valuing financial instruments. The general
principles applied to those instruments measured at fair value are
outlined below:
Reinsurers' share of policyholder liabilities
Reinsurers' share of policyholder liabilities are measured on a
basis that is consistent with the measurement of the provisions
held in respect of the related insurance contracts. Reinsurance
contracts which cover financial risk are measured at fair value of
the underlying assets.
Loans and advances
Loans and advances include loans to policyholders, loans to
brokers, and other secured and unsecured loans. Loans and advances
to policyholders of investment linked contracts are measured at
fair value. All other loans are stated at their amortised cost.
Financial investments
Financial investments include government and
government-guaranteed securities, listed and unlisted debt
securities, preference shares and debentures, listed and unlisted
equity securities, listed and unlisted pooled investments (see
below), short-term funds and securities treated as investments and
certain other securities.
Pooled investments represent the Group's holdings of
shares/units in open-ended investment companies, unit trusts,
mutual funds and similar investment vehicles. Pooled investments
are recognised at fair value. The fair values of pooled investments
are based on widely published prices that are regularly
updated.
Other financial investments that are measured at fair value are
measured at observable market prices where available. In the
absence of observable market prices, these investments and
securities are fair valued utilising various approaches including
discounted cash flows, the application of an EBITDA multiple or any
other relevant technique.
Derivatives
The fair value of derivatives is determined with reference to
the exchange traded prices of the specific instruments. In
situations where the derivatives are traded over the counter the
fair value of the instruments is determined by the utilisation of
option pricing models.
Investment contract liabilities
The fair value of the investment contract liabilities is
determined with reference to the underlying funds that are held by
the Group.
Third-party interest in consolidation of funds
Third-party interests in consolidation of funds are measured at
the attributable net asset value of each fund.
Borrowed funds
Borrowed funds are stated at amortised cost.
16: Fair value methodology continued
16(b) Fair value hierarchy
Fair values are determined according to the following
hierarchy.
Description of hierarchy Types of instruments classified in
the respective levels
Level 1 - quoted market prices: financial Listed equity securities, government
assets and liabilities with quoted securities and other listed debt
prices for identical instruments securities and similar instruments
in active markets. that are actively traded, actively
traded pooled investments, certain
quoted derivative assets and liabilities,
reinsurers' share of investment contract
liabilities and investment contract
liabilities directly linked to other
Level 1 financial assets.
Level 2 - valuation techniques using Unlisted equity and debt securities
observable inputs: financial assets where the valuation is based on models
and liabilities with quoted prices involving no significant unobservable
for similar instruments in active data.
markets or quoted prices for identical OTC derivatives, certain privately
or similar instruments in inactive placed debt instruments and third-party
markets and financial assets and interests in consolidated funds.
liabilities valued using models where
all significant inputs are observable.
Level 3 - valuation techniques using Unlisted equity and securities with
significant unobservable inputs: significant unobservable inputs,
financial assets and liabilities securities where the market is not
valued using valuation techniques considered sufficiently active, including
where one or more significant inputs certain inactive pooled investments.
are unobservable.
The judgement as to whether a market is active may include, for
example, consideration of factors such as the magnitude and
frequency of trading activity, the availability of prices and the
size of bid/offer spreads. In inactive markets, obtaining assurance
that the transaction price provides evidence of fair value or
determining the adjustments to transaction prices that are
necessary to measure the fair value of the asset or liability
requires additional work during the valuation process.
The majority of valuation techniques employ only observable data
and so the reliability of the fair value measurement is high.
However, certain financial assets and liabilities are valued on the
basis of valuation techniques that feature one or more significant
inputs that are unobservable and, for them, the derivation of fair
value is more judgemental. A financial asset or liability in its
entirety is classified as valued using significant unobservable
inputs if a significant proportion of that asset or liability's
carrying amount is driven by unobservable inputs.
In this context, 'unobservable' means that there is little or no
current market data available for which to determine the price at
which an arm's length transaction would be likely to occur. It
generally does not mean that there is no market data available at
all upon which to base a determination of fair value. Furthermore,
in some cases the majority of the fair value derived from a
valuation technique with significant unobservable data may be
attributable to observable inputs. Consequently, the effect of
uncertainty in determining unobservable inputs will generally be
restricted to uncertainty about the overall fair value of the asset
or liability being measured.
16(c) Transfer between fair value hierarchies
The Group deems a transfer to have occurred between Level 1 and
Level 2 or Level 3 when an active, traded primary market ceases to
exist for that financial instrument. A transfer between Level 2 and
Level 3 occurs when the majority of the significant inputs used to
determine fair value of the instrument become unobservable.
16(d) Financial assets and liabilities measured at fair value,
classified according to fair value hierarchy
The tables below present a summary of the Group's financial
assets and liabilities that are measured at fair value in the
consolidated statement of financial position according to their
IFRS 9 classification, as set out in changes to accounting policies
in note 4. The Group has initially applied IFRS 9 at January 2018.
Under the transition methods selected, comparative information is
not restated.
The Group has not disclosed the fair value for financial
instruments such as short term trade receivables and payables
because their carrying values are a reasonable approximation of
fair value.
The majority of the Group's financial assets are measured using
quoted market prices for identical instruments in active markets
(Level 1) and there has been no significant change since the 2017
Historical Financial Information, within the listing
prospectus.
The assets, together with the reinsurers' share of investment
contract liabilities, are held to cover the liabilities for linked
investment contracts (net of reinsurance). The difference between
linked assets and linked liabilities is principally due to short
term timing differences between policyholder premiums being
received and invested in advance of policies being issued, and tax
liabilities within funds which are reflected within the Group's tax
liabilities.
16: Fair value methodology continued
At 31 December
At 30 June 2018 At 30 June 2017 2017
GBPm % GBPm % GBPm %
Financial assets measured
at fair value
Level 1 56,816 84.7% 54,182 88.1% 57,945 86.4%
Level 2 9,128 13.6% 6,695 10.9% 7,928 11.8%
Level 3(1) 1,111 1.7% 643 1.0% 1,169 1.8%
======== ======== =======
Total 67,055 100.0% 61,520 100.0% 67,042 100.0%
======== ======= ======== =======
Financial liabilities measured
at fair value
Level 1 58,566 85.8% 54,107 87.0% 57,399 85.1%
Level 2 8,629 12.6% 7,458 12.0% 8,911 13.2%
Level 3 1,109 1.6% 641 1.0% 1,167 1.7%
======== ======== =======
Total 68,304 100.0% 62,206 100.0% 67,477 100.0%
======== ======= ======== =======
(1) As at 31 December 2017, GBP2 million has been reclassified
from investments in associated undertakings to level 3 financial
assets to conform with current year presentation.
GBPm
At 30 June 2018 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Mandatorily (fair value through profit
or loss) 56,646 9,128 1,111 66,885
======= ======= ======
Reinsurers' share of policyholder liabilities 2,263 - - 2,263
Loans and advances 190 - - 190
Financial investments 54,193 9,095 1,111 64,399
Derivative financial instruments -
assets - 33 - 33
======= =======
Designated (fair value through profit
or loss) 170 - - 170
======= =======
Financial investments 170 - - 170
======= =======
Total assets measured at fair value 56,816 9,128 1,111 67,055
======= ======= ======
Financial liabilities measured at fair
value
Mandatorily (fair value through profit
or loss) 58,566 8,629 1,109 68,304
======= ======= ======
Investment contract liabilities 58,566 465 1,109 60,140
Third-party interests in consolidated
funds - 8,105 - 8,105
Derivative financial instruments -
liabilities - 59 - 59
======= =======
Total liabilities measured at fair value 58,566 8,629 1,109 68,304
GBPm
At 30 June 2017 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Held-for-trading (fair value through
profit or loss) 2 82 - 84
======= ======= ======
Derivative assets 2 82 - 84
======= =======
Designated (fair value through profit
or loss) 54,180 6,613 643 61,436
======= ======= ======
Reinsurers' share of policyholder liabilities 2,759 - - 2,759
Loans and advances 184 - - 184
Financial investments 51,237 6,613 643 58,493
Total assets measured at fair value 54,182 6,695 643 61,520
Financial liabilities measured at fair
value
Held-for-trading (fair value through
profit or loss) - 424 - 424
======= ======= ======
Derivative financial instruments -
liabilities - 424 - 424
======= =======
Designated (fair value through profit
or loss) 54,107 7,034 641 61,782
======= ======= ======
Investment contract liabilities 54,107 555 641 55,303
Third-party interests in consolidated
funds - 6,479 - 6,479
Total liabilities measured at fair value 54,107 7,458 641 62,206
16: Fair value methodology continued
GBPm
======
At 31 December 2017 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Held-for-trading (fair value through
profit or loss) - 87 - 87
======= ======= ======
Derivative financial instruments -
assets - 87 - 87
======= =======
Designated (fair value through profit
or loss) 57,945 7,841 1,169 66,955
Reinsurers' share of policyholder liabilities 2,525 - - 2,525
Loans and advances 180 - - 180
Financial investments(1) 55,240 7,841 1,169 64,250
Total assets measured at fair value 57,945 7,928 1,169 67,042
Financial liabilities measured at fair
value
Held-for-trading (fair value through
profit or loss) - 433 - 433
======= ======= ======
Derivative financial instruments -
liabilities - 433 - 433
======= =======
Designated (fair value through profit
or loss) 57,399 8,478 1,167 67,044
======= ======= ======
Investment contract liabilities 57,399 573 1,167 59,139
Third-party interests in consolidated
funds - 7,905 - 7,905
Total liabilities measured at fair value 57,399 8,911 1,167 67,477
(1) As at 31 December 2017, GBP2 million has been reclassified
from investments in associated undertakings to level 3 financial
investments to conform with current year presentation.
16(e) Level 3 fair value hierarchy disclosure
All of the assets that are classified as Level 3 are held within
linked policyholder funds. This means that all of the investment
risk associated with these assets is borne by policyholders and
that the value of these assets is exactly matched by a
corresponding liability due to policyholders. The Group bears no
risk from a change in the market value of these assets except to
the extent that it has an impact on management fees earned.
The table below reconciles the opening balances of Level 3
financial assets to closing balances at the end of the period:
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
At beginning of the year 1,169 581 581
Total net fair value gains recognised in:
- profit or loss 20 - (23)
Purchases - 2 618
Sales (2) (3) (23)
Transfers in 57 187 167
Transfers out (133) (126) (152)
Foreign exchange and other - 2 1
======== ============
Total level 3 financial assets 1,111 643 1,169
======== ============
Amounts shown as sales arise principally from the sale of
private company shares and unlisted pooled investments and from
distributions received in respect of holdings in property
funds.
Transfers into Level 3 assets for the current period comprise
GBP57 million (30 June 2017: GBP187 million, 31 December 2017:
GBP167 million) of private company shares that were previously
shown within Level 2 and for which price updates have not been
received for more than six months. Transfers out of Level 3 assets
in the current period comprise GBP133 million (30 June 2017: GBP126
million, 31 December 2017: GBP152 million) of private company
shares that were not previously being repriced and that have been
transferred into Level 2 as they are now actively priced.
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
Pooled investments 87 274 186
Unlisted and stale price pooled investments 86 272 185
Suspended funds 1 2 1
Private equity investments 1,024 360 983
Other - 9 -
1,111 643 1,169
16: Fair value methodology continued
16(f) Effect of changes in significant unobservable assumptions
to reasonable possible alternatives
Favourable and unfavourable changes are determined on the basis
of changes in the value of the financial asset or liability as a
result of varying the levels of the unobservable parameters using
statistical techniques. When parameters are not amenable to
statistical analysis, quantification of uncertainty is
judgemental.
When the fair value of a financial asset or liability is
affected by more than one unobservable assumption, the figures
shown reflect the most favourable or most unfavourable change from
varying the assumptions individually.
The valuations of the private equity investments are performed
on an asset-by-asset basis using a valuation methodology
appropriate to the specific investment and in line with industry
guidelines. Private equity investments are valued at the value
disclosed in the latest available set of audited financial
statements or if more recent information is available from
investment managers or professional valuation experts at the value
of the underlying assets of the private equity investment.
Details of the valuation techniques applied to the different
categories of financial instruments can be found in note 16(a)
above.
Management believe that in aggregate, 10% (31 December 2017:
10%) change in the value of the financial asset or liability
represents a reasonable possible alternative judgement in the
context of the current macro-economic environment in which the
Group operates. It is therefore considered that the impact of
alternative assumptions will be in the range of GBP111 million,
both favourable and unfavourable (31 December 2017: GBP117
million). As described in note 16(e) above, changes in the value of
level 3 assets are exactly matched by corresponding changes in the
value of liabilities due to policyholders and therefore have no
impact on the Group's profit or loss or net asset value.
16(g): Fair value hierarchy for assets and liabilities not
measured at fair value
All of the Group's financial instruments are carried at fair
value except for certain amounts included within 'Trade, other
receivables, and other assets' and 'Trade, other payables, and
other liabilities'. The carrying values of these are considered
reasonable approximations of their respective fair values, as they
are either short term in nature or are repriced to current market
rates at frequent intervals. These instruments would be classified
as Level 3 in terms of the fair value hierarchy.
17: Reinsurers' share of policyholder liabilities
This note details the reinsurance recoverables on insurance and investment
contract liabilities.
17(a) Carrying amounts
The reinsurance assets as at 30 June 2018
comprised:
GBPm
======== ========
At At
30 June 30 June At 31 December
2018 2017 2017
Reinsurers' share of policyholder liabilities
Reinsurers' share of long-term business insurance
policyholder liabilities
Life assurance policyholder liabilities 395 316 375
Outstanding claims 8 10 8
======== ========
403 326 383
Reinsurers' share of investment contract liabilities
Reinsurers' share of unit-linked investment
contracts 2,263 2,759 2,525
Total reinsurers' share of policyholder liabilities 2,666 3,085 2,908
======== ========
Of the total GBP2,666 million, (30 June 2017: GBP3,085 million,
31 December 2017: GBP2,908 million) is expected to be recovered in
less than one year after the statement of financial position
date.
The reinsurers' share of policyholder liabilities of GBP2,263
million (30 June 2017: GBP2,759 million, 31 December 2017: GBP2,525
million) relating to investment contracts is where the direct
management of assets is ceded to a third party through a
reinsurance arrangement. Due to the nature of the arrangement,
there is no transfer of insurance risk.
17(b) Assumptions
The assumptions, including discount rates, used for reinsurance
of policyholder liabilities follow those used for the equivalent
gross policyholder liabilities. Reinsurance assets are valued net
of an allowance for their recoverability.
For unit-linked business, the unit liabilities are determined as
the value of units credited to policyholders. Since these
liabilities are determined on a retrospective basis no assumptions
for future experience are required. Assumptions for future
experience are required for unit-linked business in assessing
whether the total of the contract assets and contract liabilities
is greater than the present value of future profits expected to
arise on the relevant blocks of business (the 'recoverability
test'). If this is the case, then the contract assets are
restricted to the recoverable amount. For linked contracts, the
assumptions are on a best estimate basis.
17: Reinsurers' share of policyholder liabilities continued
17(c) Movements
Movements in the amounts outstanding in respect of reinsurers' share of
unit-linked investment contracts and policyholder liabilities, other than
outstanding claims, are set out below:
GBPm
========= =========
At At At
30 June 30 June 31 December
Unit-linked investment contracts 2018 2017 2017
Carrying amount at 1 January 2,525 2,560 2,560
Net premium income (266) (6) (365)
Fair value movements 4 205 330
(262) 199 (35)
Total reinsurers' share of unit-linked
investment contract liabilities 2,263 2,759 2,525
GBPm
======== ========
At At At
30 June 30 June 31 December
Life assurance policyholder liabilities 2018 2017 2017
Carrying amount at 1 January 375 290 290
Impact of new business 6 41 55
Impact of experience effects 12 9 23
Impact of assumption changes 2 (24) 7
20 26 85
Total reinsurers' share of life assurance
policyholder liabilities 395 316 375
The impact of assumption changes in the above analysis shows the
resulting movement in the carrying value of reinsurance assets with
corresponding movements in gross insurance contract
liabilities.
18: Cash and cash equivalents
Cash and cash equivalents as at 30 June
2018 comprised:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
Cash and cash equivalents for the Group,
including cash held for sale 2,120 1,386 1,595
Cash and cash equivalents in Consolidated
Funds 1,255 785 912
Total cash and cash equivalents per consolidated
statement of cash flows 3,375 2,171 2,507
Less: cash and cash equivalents included
in assets held for sale - - (147)
================================================== ========== ========== ============
Total cash and cash equivalents per consolidated
statement of financial position 3,375 2,171 2,360
================================================== ========== ========== ============
Except for cash and cash equivalents subject to consolidation of
funds of GBP1,255 million (30 June 2017: GBP785 million, 31
December 2017: GBP912 million), management do not consider that
there are any material amounts of cash and cash equivalents which
are not available for use in the Group's day-to-day operations.
19: Share capital
Share capital
Financial instruments issued are classified as equity when there
is no contractual obligation to transfer cash, other financial
assets or issue a variable number of own equity instruments.
Incremental costs directly attributable to the issue of equity
instruments are shown in equity as a deduction from the proceeds,
net of tax. The Parent Company's equity capital currently comprises
1,902,251,098 ordinary shares of 7p each with an aggregated nominal
value of GBP133,157,577 (2017: 130,000,257 ordinary shares of 100p
each with an aggregated nominal value of GBP130,000,257).
This note gives details of the Company's ordinary share capital and shows
the movements during the period.
GBPm GBPm
Number of Nominal
shares value Share premium
At 1 January 2017 130,000,256 130 -
Issue of share capital(1) 200,000,000 200 -
At 30 June 2017 330,000,256 330 -
At 1 July 2017 330,000,256 330 -
Reduction of share capital(2) (200,000,000) (200) -
Issue of share capital(3) 1 - 58
At 31 December 2017 130,000,257 130 58
At 1 January 2018 130,000,257 130 58
Issue of share capital(4) 1 - -
130,000,258 130 58
Sub-division of ordinary shares of 100p
each to 1p each(5) 12,870,025,542 - -
13,000,025,800 130 58
Bonus shares issued to ordinary shareholders
of 1p each(6) 315,731,886 3 -
13,315,757,686 133 58
Conversion of ordinary shares of 1p each
to 7p each(7) (11,413,506,588) - -
At 30 June 2018 1,902,251,098 133 58
(1) On 3 May 2017, the Company allotted and issued 200 million
GBP1 ordinary shares, for a consideration of GBP200 million, to its
now former parent Old Mutual plc.
(2) On 27 November 2017, the Company carried out a share capital
reduction, which cancelled the 200 million GBP1 ordinary
shares.
(3) On 21 December 2017, Old Mutual plc contributed GBP58
million to the Company in exchange for the issue of 1 share.
(4) On 31 January 2018, the Company allotted and issued 1
ordinary share of GBP1.
On 6 June 2018, the Board approved a reorganisation of its share
capital to enable the implementation of the Managed Separation and
to ensure that existing shareholders of Old Mutual plc received one
Ordinary Share for every three ordinary shares they hold in Old
Mutual plc, as described in the prospectus document. The Share
Capital Reorganisation consisted of the following steps:
(5) (a) Each of the Company's existing 130,000,258 ordinary
shares of GBP1.00 each was sub-divided into 100 ordinary shares of
GBP0.01 each, following which the Company's share capital consisted
of 13,000,025,800 ordinary shares of GBP0.01 each, with an
aggregate nominal value of GBP130,000,258;
(6) (b) The Company allotted 315,731,886 bonus ordinary shares
of GBP0.01 each to the existing shareholders of the Company (with
any fractional entitlements arising to be aggregated and allotted
to Old Mutual plc), following which the Company's share capital
consisted of 13,315,757,686 ordinary shares of GBP0.01 each, with
an aggregate nominal value of GBP133,157,577; and
(7) (c) The Company's 13,315,757,686 ordinary shares of GBP0.01
each were consolidated into Ordinary Shares of GBP0.07 each (with
any fractional entitlements arising to be aggregated and allotted
to Old Mutual plc), following which the Company's share capital
consists of 1,902,251,098 Ordinary Shares of GBP0.07 each, with an
aggregate nominal value of GBP133,157,577.
Merger reserve
On 31 January 2018, the Group acquired the Skandia UK Limited
group of entities from its then parent company Old Mutual plc. This
comprised of seven Old Mutual plc group entities with a net asset
value of GBP591 million. The transfer was financed by the issue of
one share and with the balance giving rise to a merger reserve of
GBP591 million in the consolidated statement of financial position,
being the difference between the nominal value of the share issued
by the parent company for the acquisition of the shares of the
subsidiaries and the subsidiary's net asset value. No debt was
taken on as a result of this transaction. The most significant
asset within these entities is a GBP566 million receivable which
corresponds to an equivalent payable within the Group's
consolidated statement of financial position. The net effect of
this transaction for the Group is to replace a payable due to Old
Mutual plc with equity.
This transaction attracted merger relief under section 612 of
the Companies Act 2006.
20: Share-based payments
During the period ended 30 June 2018 and the year ended 31
December 2017, the Group participated in a number of Old Mutual plc
and Quilter plc share-based payment arrangements. This note
describes the nature of the plans and how the share options and
awards are valued.
20(a) Measurements
and
assumptions
The Group had the following share-based payment arrangements for the period
ended 25 June 2018 and the year ended 31 December 2017:
Contractual
Description of award life Vesting conditions
Typical
Restricted Conditional Dividend Service Performance
Scheme shares Shares Options Other entitlement Years (years) (measure)
Old Mutual plc Share ü - - - ü 1 - 3 - -
Reward Plan years
- Restricted Shares
Old Mutual plc - - ü - - 10 years Not Target growth
Performance less in
Share Plan than EPS and ROE
- Restricted Shares 3 years
Old Mutual plc 2008
Sharesave 3(1/2) 3 &
Plan(1) - - ü ü - - 5(1/2) 5 -
Old Mutual Wealth
Joint
Ownership Plan
- Jointly
Owned/Restricted
Shares ü - - ü ü 3 3 -
Old Mutual Wealth
Phantom
Share Reward Plan
- Conditional Typically
Shares - ü - - - 3 years 3 -
(1) Scheme is linked
to a savings plan
20(b) Arrangements in place from 25 June 2018 onwards
The shares schemes listed in note 20(a) above were all awards
over Old Mutual plc shares. The majority of these schemes were
subject to early exercise, apart from the Joint Share Ownership
Plan and the Phantom Share Reward Plan which were transferred to
awards over Quilter shares as explained below. The Group also
created three new share-based payment arrangements which came into
force on 25 June 2018: the Quilter plc Share Incentive Plan, the
Quilter plc Share Reward Plan, and the Quilter plc Performance
Share Plan.
Contractual
Description of award life Vesting conditions
Typical
Restricted Conditional Dividend Service Performance
Scheme shares shares Options Other Entitlement Years (years) (measure)
Old Mutual Wealth
Share
Ownership Plan
- Jointly
Owned/Restricted
Shares(1) ü - - ü ü 3 years 3 -
Old Mutual Wealth
Phantom
Share Reward
Plan 2017
- Conditional Typically
Shares(2) - ü - - - 3 years 3 -
Quilter plc Share
Incentive
Plan Not less
- Restricted than 3
Shares ü - - - - years 2 -
Quilter plc Share
Reward
Plan
- Conditional Typically
Shares - ü - - - 3 years 3 -
Quilter plc - - ü - - Up to 3 Target growth
Performance 10 years in
Share Plan EPS and
- Share Relative
Options(3) TSR
Quilter plc - ü - - - Not less 3 Conduct,
Performance than 3 Risk &
Share Plan years Compliance
- Conditional Underpins
Shares(3)
(1) The Joint Share Ownership Plan ('JSOP') was implemented for
certain key employees of Quilter in 2013, with the final grant of
awards in 2016. It provided participants with an interest in the
capital growth of the company by granting joint ownership of shares
in Old Mutual Wealth Management Limited (now Quilter plc) with an
employee benefit trust ('EBT'), whereby the trust owned the
principal value of the shares and the participants owned any growth
in value during the vesting period. Upon the demerger and listing
of Quilter plc, the trust exercised a call option to acquire the
participants' interest in the shares based on the growth in value
of the Company between grant and listing, in return for
consideration shares in Quilter plc. The consideration shares for
any awards that remain unvested are restricted until the normal
vesting date, and attract dividends during that time.
(2) Awards granted under the Phantom Share Reward Plan prior to
the demerger of Quilter plc were made over notional ordinary shares
in Old Mutual plc that were settled in cash on the vesting date.
Upon the demerger and listing of Quilter plc, all unvested notional
share awards were converted to conditional awards over ordinary
shares in Quilter plc, which will be settled in Quilter plc shares
on the normal vesting dates.
(3) Options granted under the Performance Share Plan are subject
to a performance period commencing 1 January 2018, but with a grant
date of 25 June 2018. In accordance with IFRS 2 Share-base Payment
the cost of this award is recognised from the start of the
performance period until the date upon which the options are
expected to vest.
20: Share-based payments continued
20(c) Reconciliation of movements in options
The movement in the options outstanding under these arrangements during
the period is detailed below:
Six months ended Year ended
30 June 2018 31 December 2017
Weighted Weighted
average average
Options over shares Number exercise Number exercise
(London Stock Exchange) of options price of options price
Outstanding at beginning of the period 7,622,956 GBP1.60 10,250,582 GBP1.60
Granted during the period 2,824,136 GBP0.00 - -
Forfeited during the period (2,083,686) GBP1.60 (794,653) GBP1.62
Exercised during the period (5,533,303) GBP1.60 (1,819,897) GBP1.61
Expired during the period (5,967) - (39,892) -
Other transfers during the period - - 26,816 -
Outstanding at end of the period 2,824,136 GBP1.45 7,622,956 GBP1.60
Exercisable at end of the period - GBP0.00 151,809 GBP1.61
The amount outstanding at the end of the period for 2018 and 2017 includes
an amount for employees who have transferred into/out of Quilter plc from/to
other Old Mutual divisions.
The following table summarises information about options outstanding at
30 June 2018 and 31 December 2017:
Weighted remaining
contractual Weighted average
Outstanding life exercise
Year Range of exercise price options Years price
At 30 June 2018 GBP0.00 to GBP0.00 2,824,136 2.7 GBP0.00
At 31 December 2017 GBP1.28 to GBP1.87 7,622,956 1.1 GBP1.94
20(d) Measurements and assumptions
In determining the fair value of equity-settled share-based
awards and the related charge to the income statement, the Group
makes assumptions about future events and market conditions.
Specifically, management makes estimates of the likely number of
shares that will vest and the fair value of each award granted
which is valued and 'locked in' at the grant date.
The fair value of services received in return for share options
granted are measured by reference to the fair value of share
options granted. The estimate of fair value of share options
granted is measured using a Black-Scholes option pricing model.
Where share options are granted under a service and non-market
based performance condition, such conditions are not taken into
account in the grant date fair value measurement of the share
options granted. There are no market conditions associated with the
share option grants.
20(e) Forfeitable/Restricted share grants
The following summarises the fair value of restricted shares
granted by the Group during the period:
Weighted
Instruments granted and purchased during the average
period Number granted fair value
Quilter plc Share Incentive Plan - Restricted
Shares 2018 4,860,240 GBP1.53
Old Mutual plc Share Reward Plan - Restricted
shares 2017 1,890,693 GBP2.18
============== ===========
The share price at measurement date was used to determine the
fair value of the restricted shares. Expected dividends were not
incorporated into the measurement of fair value where the holder of
the restricted share is entitled to dividends throughout the
vesting period.
20(f) Financial impact
The total expense recognised for the period arising from equity compensation
plans was as follows:
GBPm
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2018 2017 2017
==========
Expense arising from equity settled share and
share option plans - continuing operations 9 4 9
Expense arising from equity settled share and
share option plans - discontinued operations 1 - 1
Total expense arising from equity settled and
share option plans 10 4 10
20: Share-based payments continued
20(g) Employee Benefit Trust ('EBT')
On 22 December 2017 an EBT which was set up for the benefit of
the Group employees, and specifically for the purposes of the JSOP,
was transferred to the Group from Old Mutual plc. As a result of
this transfer, on consolidation the Group's equity was reduced by
an amount of GBP99 million, representing the value of Company
shares held within the trust, which are recognised as treasury
shares and deducted from equity.
The EBT held 72 million Quilter plc shares at the point of
Quilter plc listing on, 25 June 2018. Following the listing of
Quilter plc, the shares in the trust will be used to support not
only the JSOP, but also other share schemes.
21: Insurance and investment contract liabilities
The following is a summary of the Group's insurance and investment contract
provisions and related reinsurance assets as at 30 June 2018.
GBPm
At 30 June 2018 At 30 June 2017 At 31 December
2017
===========================
Gross Reinsurance Net Gross Reinsurance Net Gross Reinsurance Net
Life assurance policyholder
liabilities
Long-term business insurance
policyholder liabilities
===========
Life assurance policyholder
liabilities 503 (395) 108 424 (316) 108 480 (375) 105
Outstanding claims 10 (8) 2 12 (10) 2 9 (8) 1
513 (403) 110 436 (326) 110 489 (383) 106
Investment contract
liabilities
Unit-linked investment
contracts 60,140 (2,263) 57,877 55,303 (2,759) 52,544 59,139 (2,525) 56,614
Total life assurance
policyholder liabilities 60,653 (2,666) 57,987 55,739 (3,085) 52,654 59,628 (2,908) 56,720
21(a) Insurance contract liabilities (gross
of reinsurance)
Movements in the amounts outstanding in respect of life assurance policyholder
liabilities, other than outstanding claims, are set out below:
GBPm
======== ========
At At At
30 June 30 June 31 December
2018 2017 2017
Carrying amount at 1 January 480 402 402
======== ======== ============
Impact of new business 2 34 42
Impact of experience effects 19 13 30
Impact of assumption changes 2 (25) 7
Other movements - - (1)
23 22 78
Total insurance contract life assurance policyholder
liabilities 503 424 480
======== ======== ============
21(b) Unit-linked investment contract liabilities
(gross of reinsurance)
Movements in the amounts outstanding in respect of unit-linked and other
investment contracts are set out below:
GBPm
======== ========
At At At
30 June 30 June 31 December
2018 2017 2017
Carrying amount at 1 January 59,139 51,265 51,265
======== ======== ============
Fair value movements (205) 2,111 3,958
Investment income 401 357 681
======== ========
Movements arising from investment return 196 2,468 4,639
Contributions received 4,047 4,683 9,717
Maturities (100) (119) (220)
Withdrawals and surrenders (2,894) (2,792) (5,682)
Claims and benefits (116) (107) (217)
Reclassification from provisions 3 - -
Other movements (129) (125) (408)
======== ========
Change in liability 1,007 4,008 7,829
Currency translation (gain)/loss (6) 30 45
======== ======== ============
Total unit-linked investment contract policyholder
liabilities 60,140 55,303 59,139
======== ======== ============
21: Insurance and investment contract liabilities continued
For unit-linked investment contracts, movements in asset values
are offset by corresponding changes in liabilities, limiting the
net impact on profit.
The benefits offered under the unit-linked investment contracts
are based on the risk appetite of policyholders and the return on
their selected investments and collective fund investments, whose
underlying investments include equities, debt securities, property
and derivatives. This investment mix is unique to individual
policyholders.
The maturity value of these financial liabilities is determined
by the fair value of the linked assets at maturity date. There will
be no difference between the carrying amount and the maturity
amount at maturity date.
None of the reinsurers share of policyholder liabilities
relating to investment contract liabilities were past due as at 30
June 2018 (30 June 2017: GBPnil, 31 December 2017: GBPnil).
22: Provisions and accruals
GBPm
Compensation Sale of Single
Six months ended 30 June 2018 provisions Strategy business Other Total
Balance at beginning of the period 82 - 22 104
Charge to income statement 4 19 1 24
Utilised during the period (4) (2) (2) (8)
Unused amounts reversed (1) - (1) (2)
Reclassification within Statement
of Financial Position (3) - - (3)
Balance at 30 June 2018 78 17 20 115
GBPm
Compensation Sale of Single
Six months ended 30 June 2017 provisions Strategy business Other Total
Balance at beginning of the period 13 - 16 29
Charge to income statement (1) - 5 4
Utilised during the year - - 2 2
Disposals (1) - - (1)
Balance at 30 June 2017 11 - 23 34
GBPm
============ =====
Compensation Sale of Single
Year ended 31 December 2017 provisions Strategy business Other Total
Balance at beginning of the year 13 - 16 29
Charge to income statement - Voluntary
remediation 69 - - 69
Charge to income statement - Other 7 - 6 13
Utilised during the year (5) - (5) (10)
Foreign exchange and other movements (2) - 5 3
Balance at 31 December 2017 82 - 22 104
Compensation provisions
Compensation provisions totalled GBP78 million (31 December
2017: GBP82 million).
Voluntary client remediation provision
As part of its ongoing work to promote fair customer outcomes,
the Group has conducted product reviews consistent with the
recommendations from the FCA's thematic feedback and the FCA's
guidance 'FG16/8 Fair treatment of long-standing customers in the
life insurance sector'. Following these reviews, the Group has
decided to commence voluntary remediation to customers in certain
legacy products, resulting in an additional provision raised during
the 2017 year of GBP69 million, including GBP7 million of programme
cost and GBP13 million of estimated interest. During the period
ended 30 June 2018, GBP1 million was utilised (31 December 2017:
GBPnil) and GBP3 million was reclassified as a liability to
long-term business insurance policyholder liabilities within the
statement of financial position.
The voluntary remediation relates to early encashment charges
and contribution servicing charges made on pension products and
following the re-introduction of annual reviews, compensation
payable to a subset of Protection plan holders.
The voluntary remediation comprises retrospective refunds and
compensation, going back to 1 January 2009, and prospective 5% caps
on early encashment charges.
The Group intends to substantially complete the review and
remediation in 2019.
Estimates and assumptions
Key estimates and assumptions in relation to the provision
are:
-- Protection policy sustainability period assumption of 4 years; and
-- The programme costs of carrying out the remediation activity
and interest on remediation payments.
If past reviews had been carried out, policies would be expected
to have funds sufficient to provide up to four years' cover from
the current statement of position date, on the basis that future
premium increases are not applied. This assumption has been used to
determine the cost of reconstructing the impacted Protection
policies to their expected values.
22: Provisions and accruals continued
The programme costs of conducting the remediation activity are
highly variable and are subject to a number of uncertainties. In
calculating the best estimate of these costs, consideration has
been given to such matters as the identification of impacted
customers, access to and the quality of customer files, likelihood
of the customer contesting the offer, the complexity of the
calculations, the level of quality assurance and checking, the ease
of contacting and communicating with customers and the level of
customer interactions.
Sensitivities relating to the assumptions and uncertainties are
provided in the table below:
Assumption Change in assumption Consequential change
in provision
Protection policy sustainability Protection policy sustainability -GBP1.6m
period period assumption reduced
to 3 years
Protection policy sustainability Protection policy sustainability +GBP1.9m
period period assumption reduced
to 5 years
Programme cost per case Estimate based on bottom +/- GBP1.4m
of conducting the review of range
No provision has been recognised for any potential enforced
redress and associated penalties that may be levied by the FCA, as
explained in note 24 Contingent liabilities.
Compensation provision (other)
The compensation provision also includes amounts relating to
regulatory uncertainty and multiple causal events; on-going
resolution of claims as a result of mis-selling guarantee contacts;
and to the provision for claw-back of prescribed claims. This
provision is held to allow for the possible future payment of
claims that have been previously reversed. Due to the nature of the
provision, the timing of the expected cash outflows is uncertain.
Estimates are reviewed annually and adjusted as appropriate for new
circumstances.
Sale of Single Strategy business
A restructuring provision was recognised as a result of the sale
of the Single Strategy business to enable the remaining Quilter
Investors business to function as a standalone operation going
forward. The provision includes those costs directly related to
replacing and restoring the operational capability that previously
underpinned and supported both parts of the asset management
business. Key parts of this capability had either been disposed of
or disrupted as a consequence of the sale. The provision was
established for GBP10 million, of which GBP2 million has been
utilised. The carried forward provision at 30 June 2018 is GBP8
million. Further provisions may be established as the project
progresses.
Additional provisions totalling GBP9 million have been made as a
consequence of the sale of the Single Strategy business. These have
been made in relation to various sale related future commitments,
the outcome of which is uncertain at the time of the sale and the
most significant of which is in relation to the guarantee of
revenues in future years.
Other provisions
Other provisions also include long-term staff benefits and
amounts for the resolution of legal uncertainties and the
settlement of other claims raised by contracting parties. Where
material, provisions and accruals are discounted at discount rates
specific to the risks inherent in the liability. The timing and
final amounts of payments in respect of some of the provisions,
particularly those in respect of litigation claims and similar
actions against the Group, are uncertain and could result in
adjustments to the amounts recorded.
Of the total provisions recorded above, GBP20 million, (2017:
GBP22 million) is estimated to be payable after one year.
23: Borrowings
The following table analyses the Group's borrowed funds,
repayable on demand and categorised in terms of IFRS 9 Financial
Instruments as "Financial liabilities amortised cost". All amounts
outstanding at 30 June 2018 are payable to a number of relationship
banks. All amounts outstanding at 31 December 2017 were payable
either to the Group's previous ultimate Parent Company, Old Mutual
plc, or to other related entities within the Old Mutual plc
group.
GBPm
At At At
30 June 30 June 31 December
2018 2017 2017
Subordinated debt
Fixed rate loan at 5.50%(1) - 566 566
Fixed rate loan at 4.48%(2) 197 - -
Other borrowed funds
Fixed rate loan note at 10%(3) - 53 -
Floating rate loan at 6 month LIBOR + 0.25%(4) - 92 93
Floating rate loan at 3 month LIBOR + 0.10%(5) - 84 80
Fixed rate loan at 3.125%(6) - 43 43
197 838 782
======== ======== ============
(1) Commenced on 25 February 2015 and was used to finance the
acquisition of the Quilter Cheviot group.
(2) Commenced on 28 February 2018 and used for general corporate
purposes.
(3) Commenced during 2015 and was used to finance the
acquisition of the Quilter Cheviot group.
(4) Commenced during 2014 and was used to finance the
acquisition of Intrinsic Financial Services Limited.
(5) Commenced in 2011 and was used to finance other historical
corporate activity.
(6) Commenced on 21 June 2016 was used to finance one of the
Group's employee benefit trusts.
23: Borrowings continued
On 23 February 2018, the Group entered into, and fully drew down
on 28 February 2018, the New Term Loan, a GBP300 million senior
unsecured term loan with a number of relationship banks with an
annual coupon of 45 basis points above LIBOR, to be updated every
three months. The New Term Loan was repaid in full using proceeds
from the sale of the Single Strategy Business following the
completion of the transaction in June 2018.
On 28 February 2018, the Group entered into a GBP125 million
revolving credit facility, which remains undrawn, and issued a
GBP200 million subordinated debt security. This was issued in the
form of a 10-year Tier 2 bond with a one-time issuer call option
after five years to J.P. Morgan Securities plc, paying a
semi-annual coupon of 4.478% p.a. The debt security is listed on
the London Stock Exchange and has a Fitch instrument rating of
BBB-. On 13 April 2018, the debt security was sold by J.P. Morgan
Securities plc to traditional debt capital market investors.
Including the impact of amortisation of set-up costs, the issuance
of this security will increase financing costs by approximately
GBP10 million on an annual basis.
As part of a series of internal transactions, GBP566 million of
intercompany indebtedness to other companies within the Old Mutual
plc group was equitised, with the effect of the intercompany
indebtedness being cancelled and replaced with equity in the form
of share capital and a merger reserve. The overall indebtedness
also reduced by GBP16 million from ordinary course
transactions.
The remaining GBP200 million intercompany indebtedness was
repaid in full from the new facilities referred to above and from
existing cash resources on 28 February 2018. On the same date, the
GBP70 million revolving credit facility with Old Mutual plc was
cancelled.
Amounts borrowed as at 31 December 2017 were borrowed from Old
Mutual plc and were unsecured and were repayable on demand. The
carrying amount approximates to fair value which is valued as the
principal amount repayable.
24: Contingent liabilities
The Group, in the ordinary course of business, enters into
transactions that expose it to tax, legal and business risks. The
Group recognises a provision when it has a present obligation as a
result of past events, it is probable that a transfer of economic
benefits will be required to settle the obligation and a reliable
estimate of the amount can be made (see note 22). Possible
obligations and known liabilities where no reliable estimate can be
made or it is considered improbable that an outflow would result
are reported as contingent liabilities in accordance with IAS 37:
'Provisions, Contingent Liabilities and Contingent Assets'.
Tax
The Revenue authorities in the principal jurisdictions in which
the Group operates routinely review historical transactions
undertaken and tax law interpretations made by the Group. The Group
is committed to conducting its tax affairs in accordance with the
tax legislation of the jurisdictions in which they operate. All
interpretations made by management are made with reference to the
specific facts and circumstances of the transaction and the
relevant legislation.
There are occasions where the Group's interpretation of tax law
may be challenged by the Revenue authorities. The financial
statements include provisions that reflect the Group's assessment
of liabilities which might reasonably be expected to materialise as
part of their review. The Board is satisfied that adequate
provisions have been made to cater for the resolution of tax
uncertainties and that the resources required to fund such
potential settlements are sufficient.
Due to the level of estimation required in determining tax
provisions amounts eventually payable may differ from the provision
recognised.
Contingent liabilities - acquisitions and disposals
The Group routinely monitors and reassesses contingent
liabilities arising from matters such as litigation, warranties and
indemnities relating to past acquisitions and disposals. These are
not expected to result in any material provisions.
UK Financial Conduct Authority Investigation - Old Mutual Wealth
Life Assurance Limited ('OMWLA')
On 2 March 2016 the UK Financial Conduct Authority ('FCA')
commenced an investigation of a number of firms, including OMWLA, a
Quilter plc Group subsidiary, in relation to potential breaches of
the FCA's standards pertaining to matters covered by its Thematic
Review, an industry-wide review into the treatment of long-standing
customers invested in closed-book products sold by the life
insurance sector (TR 16/2). The FCA has not concluded its
investigation of OMWLA, and as a result it is not possible to
assess the outcome of the investigation and, by extension, the
extent of any financial consequences for the Group.
25: Capital and financial risk management
The principal risks and uncertainties of the Group and the
management of these risks have not materially changed since the
year ended 31 December 2017.
Details of the principal risks and uncertainties can be found in
the published prospectus within the 2017 Historical Financial
Information, within the listing prospectus; Capital and Risk
Management information in Note 42 of the Historic Financial
Information and the estimation techniques and uncertainties in the
specific disclosures to which they relate.
26: Related party transactions
In the normal course of business, the Group enters into
transactions with related parties that relate to insurance and
investment management business. These are conducted on an arm's
length basis and are not material to the Group's results. There
were no transactions with related parties during the six months
ended 30 June 2018 which had a material effect on the results or
financial position of the Group except for the repayment of
intercompany indebtedness to other companies with the Old Mutual
plc group which has been disclosed in note 23: Borrowings. Except
for these intra-group loan repayments, the nature of the related
party transactions of the Group has not changed from those
described in the 2017 Historical Financial Information included in
the listing prospectus dated 20 April 2018.
27: Events after reporting date
Special interim dividend
Subsequent to 30 June 2018, the Board has declared a special
interim dividend of 12 pence per ordinary share in connection with
the sale of the Single Strategy business. This amounts to GBP221
million in total, and will be accounted for as an appropriation of
retained earnings in the year ending 31 December 2018.
The special interim dividend will be paid on 21 September 2018
to shareholders on the UK and South African share registers as at
24 August 2018.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKODQCBKDBFK
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