RNS Number : 7193R
Quilter PLC
10 March 2021
 

Statement of Directors' responsibilities

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

The Directors confirm to the best of their knowledge:

 

The results in this preliminary announcement have been taken from the Group's 2020 Annual report, which will be available on the Company's website on 25 March 2021; and

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

 

 

Signed on behalf of the Board

 

 

 

Paul Feeney                                           Mark Satchel
Chief Executive Officer                         Chief Financial Officer

10 March 2021

 

Consolidated income statement

 

For the year ended 31 December 2020

 

 

 

 

 

 

£m

 

Notes

Year ended 31 December 2020

Year ended 31 December 2019 restated¹

Income

 

 

 

Fee income and other income from service activities

6(d)

795

837

Investment return

 

3,896

6,566

Other income

 

20

16

Total income

 

4,711

7,419

Expenses

 

 

 

Insurance contract claims and changes in liabilities

 

(1)

(1)

Change in investment contract liabilities

16

(3,328)

(5,810)

Fee and commission expenses, and other acquisition costs

 

(147)

(167)

Change in third party interest in consolidated funds

 

(440)

(634)

Other operating and administrative expenses

 

(692)

(745)

Finance costs

 

(17)

(17)

Total expenses

 

(4,625)

(7,374)

Profit before tax from continuing operations

 

86

45

Tax expense attributable to policyholder returns

7(a)

(36)

(98)

Profit/(loss) before tax attributable to equity holders from continuing operations

 

50

(53)

  Income tax credit/(expense)

7(a)

3

(66)

  Less: tax expense attributable to policyholder returns

 

36

98

Tax credit attributable to equity holders

 

39

32

Profit/(loss) after tax from continuing operations

 

89

(21)

(Loss)/profit after tax from discontinued operations

4(c)

(1)

167

Profit after tax

 

88

146

 

 

 

 

Attributable to:

 

 

 

Equity holders of Quilter plc

 

88

146

 

 

 

 

Earnings per Ordinary Share on profit attributable to Ordinary Shareholders of Quilter plc

Basic

 

 

 

From continuing operations (pence)

8(b)

5.1

(1.1)

From discontinued operations (pence)

4(c)

(0.1)

9.1

Basic earnings per Ordinary Share (pence)

8(b)

5.0

8.0

Diluted

 

 

 

From continuing operations (pence)

8(b)

5.0

(1.1)

From discontinued operations (pence)

4(c)

(0.1)

8.9

Diluted earnings per Ordinary Share (pence)

8(b)

4.9

7.8

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

 

 

Consolidated statement of comprehensive income

For the year ended 31 December 2020

 

 

 

 

 

 

 

 

 

 

£m

 

Note

Year ended 31 December 2020

Year ended 31 December 2019

Profit after tax

 

88

146

Exchange losses on translation of foreign operations

 

-

(1)

Items that may be reclassified subsequently to income statement

 

-

(1)

 

 

 

 

Measurement movements on defined benefit plans

 

-

(7)

Tax on amounts related to defined benefit pension plans

 

-

1

Items that will not be reclassified subsequently to income statement

 

-

(6)

Total other comprehensive expense, net of tax

 

-

(7)

 

 

 

 

Total comprehensive income

 

88

139

Attributable to:

 

 

 

Continuing operations

 

89

(28)

Discontinued operations

4(d)

(1)

167

Equity holders of Quilter plc

 

88

139




 

 

Consolidated statement of changes in equity

For the year ended 31 December 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

31 December 2020

Notes

Share

capital

Share

premium

Capital redemption reserve

Merger

reserve

Share-based payments reserve

Other reserves

Retained earnings

Total

share-

holders'

equity

Balance at 1 January 2020

 

133

58

-

149

45

1

1,685

2,071

Profit for the year

 

-

-

-

-

-

-

88

88

Total comprehensive income

-

-

-

-

-

-

88

88

Dividends

9

-

-

-

-

-

-

(81)

(81)

Shares repurchased in the buyback programme1

15

(8)

-

8

-

-

-

(179)

(179)

Movement in own shares2

 

-

-

-

-

-

-

(44)

(44)

Equity share-based payment transactions

 

-

-

-

-

(3)

-

28

25

Dividend equivalents paid on vested shares

 

-

-

-

-

-

-

(2)

(2)

Total transactions with the owners of the Company

(8)

-

8

-

(3)

-

(278)

(281)

Balance at 31 December 2020

 

125

58

8

149

42

1

1,495

1,878


 

31 December 2019

Notes

Share

capital

Share

premium

Merger

reserve

Share-based payments reserve

Other reserves

Retained earnings

Total

share-

holders'

equity

Shareholders' equity at beginning of the year

 

133

58

588

34

1

1,191

2,005

Adjustment on initial application of IFRS 16 (net of tax)

 

-

-

-

-

-

(5)

(5)

Balance at 1 January 2019

 

133

58

588

34

1

1,186

2,000

Profit for the year

 

-

-

-

-

-

146

146

Other comprehensive expense

 

-

-

-

-

-

(7)

(7)

Total comprehensive income

 

-

-

-

-

-

139

139

Dividends

9

-

-

-

-

-

(92)

(92)

Release of merger reserve

 

-

-

(439)

-

-

439

-

Movement in own shares

 

-

-

-

-

-

(2)

(2)

Equity share-based payment transactions

 

-

-

-

11

-

15

26

Total transactions with the owners of the Company

-

-

(439)

11

-

360

(68)

Balance at 31 December 2019

 

133

58

149

45

1

1,685

2,071

1On 11 March 2020 the Company announced a share buyback programme to purchase shares up to a maximum value of £375 million, in order to reduce the share capital of the Company. The programme commenced on 11 March 2020 and will continue into 2021. During the year ended 31 December 2020, the Company acquired 118.3 million shares for a total consideration of £153 million and incurred additional costs of £4 million. The shares, which have a nominal value of £8 million, have subsequently been cancelled, giving rise to a capital redemption reserve of the same value as required by the Companies Act 2006. In December 2020, the committed remaining share buyback for which irrevocable instruction had been provided by the Board, of £22 million was accrued as a liability against retained earnings.

2Movement in own shares includes 16.3 million shares repurchased for total consideration of £21 million in respect of the previously announced Odd-lot Offer.



 

 

Consolidated statement of financial position

 

At 31 December 2020

 

 

 

 

 

 

 

 

 

 

 

 

£m

 

Notes

31 December 2020 

31 December 2019 restated¹

1 January

2019 restated¹

Assets

 

 

 

 

Goodwill and intangible assets

10

556

592

550

Property, plant and equipment

 

142

143

17

Investments in associated undertakings

 

1

1

2

Deferred acquisition costs2

 

-

-

11

Contract costs

 

413

455

551

Loans and advances

 

219

217

222

Financial investments

11

63,274

57,207

58,054

Reinsurers' share of insurance policyholder liabilities2

 

-

-

2.162

Deferred tax assets

 

78

43

38

Current tax receivable

 

24

13

47

Trade, other receivables and other assets

 

701

605

718

Derivative assets

 

43

22

34

Cash and cash equivalents

14

1,921

2,253

2,305

Total assets

 

67,372

61,551

64,711

 

 

 

 

 

Equity and liabilities

 

 

 

 

Equity

 

 

 

 

Ordinary Share capital

15

125

133

133

Ordinary Share premium reserve

15

58

58

58

Capital redemption reserve

15

8

-

-

Merger reserve

 

149

149

588

Share-based payments reserve

 

42

45

34

Other reserves

 

1

1

1

Retained earnings

 

1,495

1,685

1,191

Total equity

 

1,878

2,071

2,005

Liabilities

 

 

 

 

Insurance contract liabilities2

 

-

-

602

Investment contract liabilities

16

57,407

52,455

56,450

Third-party interests in consolidated funds

 

6,513

5,318

3,833

Provisions

17

77

64

94

Deferred tax liabilities

 

106

88

59

Current tax payable

 

1

6

5

Borrowings and lease liabilities

 

319

335

197

Trade, other payables and other liabilities

 

672

801

979

Contract liabilities

 

379

403

456

Derivative liabilities

 

20

10

31

Total liabilities

 

65,494

59,480

62,706

Total equity and liabilities

 

67,372

61,551

64,711

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

2The consolidated statement of financial position at 1 January 2019 includes balances for Deferred acquisition costs, Reinsurers' share of insurance policyholder liabilities and Insurance contract liabilities relating to the Quilter Life Assurance ("QLA") business that was sold on 31 December 2019.

 

 

Approved by the Board of Directors and authorised for issue on 10 March 2021 and signed on its behalf:

 

 

 

 

Paul Feeney                           Mark Satchel

Chief Executive Officer         Chief Financial Officer

 

 

 

Consolidated statement of cash flows

For the year ended 31 December 2020

The cash flows presented in this statement cover all the Group's activities (including cash flows within the Group's discontinued operations) and includes flows from both policyholder and shareholder activities. All cash and cash equivalents are available for use by the Group except for cash and cash equivalents in consolidated funds (as shown in note 14(a)).

 

 

 

£m

 

Notes

Year ended 31 December 2020

Year ended 31 December 2019

restated1

Cash flows from operating activities

 

 

 

Cash flows from/(used in) operating activities

 

1,473

(2,035)

Taxation paid

 

(28)

(37)

Total net cash from/(used in) operating activities

14(b)

1,445

(2,072)

Cash flows from investing activities

 

 

 

Net (acquisitions)/disposals of financial investments

 

(1,419)

2,159

Acquisition of property, plant and equipment

 

(28)

(8)

Acquisition of intangible assets

10(a)

(4)

(5)

Acquisition of interests in subsidiaries2

4(a)

(20)

(87)

Net (payments)/proceeds from the disposal of interests in subsidiaries

 

(3)

78

Total net cash (used in)/from investing activities

 

(1,474)

2,137

Cash flows from financing activities

 

 

 

Dividends paid to ordinary equity holders of the Company

9

(81)

(92)

Finance costs on external borrowings

 

(10)

(10)

Payment of interest on lease liabilities

 

(2)

(3)

Payment of principal lease liabilities

 

(14)

(13)

Repurchase of shares3

 

(41)

-

Repurchase and cancellation of shares4

 

(157)

-

Total net cash used in financing activities

 

(305)

(118)

Net increase in cash and cash equivalents

 

(334)

(53)

Cash and cash equivalents at the beginning of the year

 

2,253

2,305

Effects of exchange rate changes on cash and cash equivalents

 

2

1

Cash and cash equivalents at end of the year

14(a)

1,921

2,253

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

2The acquisition of interests in subsidiaries balance includes £20 million of contingent consideration payments relating to historical acquisitions (31 December 2019: £21 million).

3Repurchase of shares includes shares acquired under the Odd-lot Offer as explained in the consolidated statement of changes in equity, together with other shares acquired for use within the Group's employee share schemes. 

4Repurchase and cancellation of shares are in respect of cash movements associated with the share buyback programme. Further details are included within the consolidated statement of changes in equity.

 

 

 

 

Basis of preparation

For the year ended 31 December 2020

General information

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, 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 Senator House, 85 Queen Victoria Street, London, EC4V 4AB.

1: Basis of preparation

The results in this preliminary announcement have been taken from the Group's 2020 Annual report which will be available on the Company's website on 25 March 2021. These condensed consolidated financial statements of Quilter plc for the year ended 31 December 2020 have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 ("IFRS") and the applicable legal requirements of the Companies Act 2006. In addition to complying with international accounting standards in conformity with the requirements of the Companies Act 2006, the condensed consolidated financial statements also comply with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

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

Going concern

The Directors have considered the resilience of the Group, taking into account its current financial position, the principal risks facing the business and the effectiveness of the mitigating strategies which are or could be applied. This included an assessment of capital, liquidity and solvency over a three-year planning period, which considered the impact of COVID-19, and concluded that the Group can withstand a severe but plausible downside scenario for at least the next 12 months after the date of signing the 2020 financial statements. This assessment incorporated a number of stress tests covering a broad range of scenarios, including economic and market shocks, new business growth scenarios, severe business interruption, and a progression of the COVID-19 pandemic, equivalent to 1-200 year events. 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 the consolidated financial statements, and continue to adopt the going concern basis in preparing the consolidated financial statements.

Critical accounting estimates and judgements

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

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

Area

Critical accounting judgements

Related notes

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

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

17

 

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

Area

Critical accounting estimates

Related notes

Provision for cost of Lighthouse defined benefit pension advice

An estimation of the provision required for the British Steel DB pension transfer redress was determined based upon calculations performed as part of the skilled person review, which was considered representative of the broader population to form a reasonable estimate. The estimation per case is based upon FCA guidelines and modelling performed, and factors including pension transfer value, date of retirement, discount rate, and retail price indexation. The calculations were then extrapolated to the entire population of British Steel DB cases that were advised on by Lighthouse advisers. The proportion of cases to be upheld, and therefore which requires redress payments to be made, was estimated based upon the current position of the review performed by the skilled person of the Lighthouse DB pension transfers.

17

 

Insurance recovery asset in respect of Lighthouse defined benefit pension advice

For Lighthouse DB pension transfer advice provided, management has determined its best estimate of the insurance recovery asset under Lighthouse's professional indemnity policies. Under the PI Policies, Lighthouse is entitled to be indemnified for a "Claim" (and defence costs) in respect of legal liabilities arising in connection with Lighthouse's DB pension transfer advice activities; however, at the current time the insurers have not confirmed coverage for legal liabilities.

17

Measurement of deferred tax

 

The estimation of future taxable profits is performed as part of the annual business planning process, and is based on estimated levels of AuMA, which are subject to a large number of factors including global stock market movements, related movements in foreign exchange rates and net client cash flow, together with estimates of expenses and other charges. The business plan, adjusted for known and estimated tax sensitivities, is used to determine the extent to which deferred tax assets are recognised. In general the Group assesses recoverability based on estimated taxable profits over a three-year planning horizon. Where credible longer-term profit forecasts are available, the specific entity may assess recoverability over a longer period, subject to a higher level of sensitivity testing. Following the impact that COVID-19 has had on global markets and, in particular, on the Group's expected future levels of AuMA, management have reassessed the sensitivity on the recoverability of deferred tax assets based on the latest forecast cash flows.

n/a

 

 

Other principal estimates

The Group's assessment of goodwill and intangible assets for impairment uses the latest cash flow forecasts from the Group's three-year business plan. These forecasts include estimates relating to equity market levels and growth in AuMA in future periods, together with levels of new business growth, net client cash flow, revenue margins, and future expenses and discount rates (see note 10). Management do not believe that the use of these estimates have a significant risk of causing a material adjustment to the carrying amount of the assets within the next financial year.

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

There were no new standards or interpretations which became effective from 1 January 2020.

Amendments to standards:

The following amendments to the accounting standards, issued by the International Accounting Standards Board ("IASB") and in conformity with the requirements of the Companies Act 2006, the condensed consolidated financial statements also comply with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, have been adopted by the Group from 1 January 2020 with no material impact on the Group's consolidated results, financial position or disclosures:

·      Amendments to References to the Conceptual Framework in IFRS Standards

·      Amendments to IFRS 3 Business Combinations - Definition of a Business

·      Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Definition of Material

·      Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures - Interest Rate Benchmark Reform

·      Amendments to IFRS 16 Leases - COVID-19-Related Rent Concessions

 

3: Significant changes in the year

3(a): Impacts of COVID-19

The Group's focus in managing the response to COVID-19 has been to ensure colleagues' health and safety, maintain operational resilience with high levels of client service, and provide good outcomes for shareholders. When the scale of the COVID-19 pandemic became apparent, the Group responded quickly to the challenges faced, with 98% of the Group's colleagues working remotely from late March 2020 and the accelerated delivery of IT and remote telephony solutions allowing Quilter to maintain high client service levels and to support customers and advisers.

The Group reviewed its financial budgets and operating plans in response to the challenges arising from COVID-19 and the unpredictable operating outlook. The Group is operationally resilient and remains focused on completing its principal strategic projects. The continued volatility in financial markets and the impact of more limited face-to-face contact within the advice segment is creating a challenging revenue environment and the Group has updated its future cash flows accordingly. Against this backdrop, the Group has undertaken a number of management actions to reduce expenses but has acknowledged that future operating margin outcomes will likely be below previous target guidance provided by management. The Group did not use the support measures made available to companies by the UK Government.

An impairment assessment of the Group's goodwill was performed at 30 June 2020, as the impact of COVID-19 was deemed to be an indicator of impairment, and again at 31 December 2020 as part of the annual impairment assessment. The assessments were carried out using the most recent Board approved forecasts which incorporated market levels and future assumptions considered relevant in the current market conditions. The assessment concluded that no impairment was required. A sensitivity analysis demonstrated that further significant changes to key assumptions would be necessary before an impairment is required. Full details are included in note 10.

The Group has assessed the recoverable amount of deferred tax assets based on the taxable profits contained in the most recent Board approved three-year forecasts which, as noted above, incorporate market levels and assumptions that reflect the impact of COVID-19 and concluded that the Group has sufficient future taxable profits and reversal of taxable temporary differences to support the £78 million deferred tax asset recognised at 31 December 2020. Further details are included in note 29 of the Group's 2020 Annual report.

There have been no major changes to the Group's capital and financial risk management as a result of COVID-19. Full capital and financial risk management disclosures are included within note 19.

Detailed discussion of the Group's performance and financial position to 31 December 2020 are included in the Financial Review.

 

 

 

3(b): Prior year restatements

3(b): Changes to comparative amounts

Changes to comparative amounts have been made in respect of consolidated investment funds and fee income receivable. The changes are explained in detail in notes 3(b)(i) and 3(b)(ii) respectively, with no impact to the Group's profit, equity or alternative performance measures. The changes to the statement of financial position for the prior periods presented are shown below:

Consolidated statement of financial position (extract)

 

 

31 December 2019

1 January 2019

 

 

As

Reported

£m

Consolidated funds

Note 3(b)(i)

£m

Fee income receivable Note 3(b)(ii)

£m

Restated

£m

As

Reported

£m

Consolidated funds

Note 3(b)(i)

£m

Fee income receivable

Note 3(b)(ii)

£m

Restated

£m

Financial investments

 

59,345

(2,138)

-

     

57,207

59,219

(1,165)

-

58,054

Trade, other receivables and other assets

424

(31)

212

 

605

530

(42)

 

230

718

Derivative assets

32

(10)

-

22

46

(12)

-

34

Cash and cash equivalents

2,473

(220)

-

2,253

2,395

(90)

-

2,305

Other1

 

1,464

-

-

1,464

3,600

-

-

3,600

Total assets

 

63,738

(2,399)

212

61,551

65,790

(1,309)

230

64,711

 

 

 

 

 

 

 

 

 

 

Third-party interests in consolidated funds

7,675

(2,357)

-

5,318

5,116

(1,283)

-

3,833

Trade, other payables and other liabilities

 

836

(35)

-

801

999

(20)

-

979

Contract liabilities

 

191

-

212

403

226

-

230

456

Derivative liabilities

 

17

(7)

-

10

37

(6)

-

31

Other1

 

52,948

-

-

52,948

57,407

-

-

57,407

Total liabilities

 

61,667

(2,399)

212

59,480

63,785

(1,309)

230

62,706

 

 

 

 

 

 

 

 

 

 

Total equity

 

2,071

-

-

2,071

2,005

-

-

2,005

1'Other' represents remaining assets and liabilities not impacted by the changes to comparative amounts.

Changes in respect of consolidated investment funds have also impacted the Group's consolidated income statement in the prior year. There are no prior year income statement impacts arising from the fee income receivable reclassification. 

Consolidated income statement (extract)

 

Year ended 31 December 2019

 

 

As

reported

£m

Consolidated funds

Note 3(b)(i)

£m

Restated

£m

Fee income and other income from service activities

 

936

(99)

837

Investment return

 

6,866

(300)

6,566

Other income

 

22

(6)

16

Total income

 

7,824

(405)

7,419

 

 

 

 

 

Fee and commission expenses and other acquisition costs

 

(294)

127

(167)

Change in third-party interest in consolidated funds

 

(917)

283

(634)

Other operating and administrative expenses

 

(740)

(5)

(745)

Other1

 

(5,828)

-

(5,828)

Total expenses

 

(7,779)

(405)

(7,374)

 

 

 

 

 

Profit before tax from continuing operations

 

45

-

45

1'Other' represents remaining expenses not impacted by the changes to comparative amounts.

The impact to the Group's consolidated statement of cash flows in respect of changes in consolidated investment funds in the prior year is shown below. There are no prior year cash flow statement impacts arising from the fee income receivable reclassification.

Consolidated statement of cash flows (extract)

 

Year ended 31 December 2019

 

 

As

reported

£m

Consolidated funds

Note 3(b)(i)

£m

Restated

£m

Cash flows used in operating activities

 

(2,006)

(29)

(2,035)

Total net cash used in operating activities

 

(2,043)

(29)

(2,072)

Net (acquisitions)/disposals of financial investments

 

2,260

(101)

2,159

Total net cash from/(used in) investing activities

 

2,238

(101)

2,137

Net increase/(decrease) in cash and cash equivalents

 

77

(130)

(53)

Cash and cash equivalents at the beginning of the year

 

2,395

(90)

2,305

Cash and cash equivalents at end of the year

 

2,473

(220)

2,253

 

 

 

 

3(b)(i): Consolidated funds

Following a review of the Group's consolidated investment funds methodology, corrections to previously reported values have been made on the consolidated statement of financial position and consolidated income statement (with corresponding impacts on the consolidated statement of cash flows). There has been no impact on profit or equity for any of the periods presented. The nature of the changes is as follows:

Statement of financial position impacts:

-      Changes to the calculation of minority ownership of certain fund investments have been made, reflecting a re-evaluation of the status of nominee holdings, held by the Group on behalf of its clients, that had historically been included in the control assessment. This has resulted in a restatement of fund assets and liabilities attributable to the Group, and an adjustment to de-consolidate a number of investment funds where the Group was incorrectly deemed to have been the controlling entity in previous periods.

Income statement impacts:

-      The changes to the calculation of minority ownership described above have resulted in changes to a number of line items in the Group's consolidated income statement for the year ending 31 December 2019, as shown in the table above.

-      In addition, fund management fee income received from consolidated funds and previously included within 'Fee income and other income from service activities' has been eliminated on consolidation, resulting in it being re-presented primarily as investment return.

-      A correction has been made in respect of realised and unrealised gains and losses on investments within a limited number of funds being previously presented within the Group's fee and commission expenses rather than investment return.

3(b)(ii): Fee income receivable

Fee Income Receivable ("FIR") relates to premium based establishment fee income, where income is taken over an initial period of the contract. When a policy is written, future income is capitalised, and the resulting asset is subsequently amortised as the cash proceeds are received.

Deferred Fee Income ("DFI") is the initial fee income, including FIR, which is deferred over the expected life of the contract as the services are provided. DFI is recognised as a contract liability.

In the prior year, the Group's FIR (all written within investment contracts in the Group's International business which is part of the Group's Wealth Platforms segment) and DFI were reported net within the statement of financial position within contract liabilities. This interpretation was made as both balances arise within individual contracts and FIR was assumed to represent a contract asset (which are permitted to be presented net with contract liabilities) rather than an unconditional receivable.

Following a review performed during the year, these FIR balances have been reclassified from a contract asset (previously netted within contract liabilities) to a receivable, as consideration is only conditional upon the passage of time. The prior year balance has been restated accordingly. This has no impact upon equity at the beginning or end of the prior year.

The impact of the changes to the consolidated statement of financial position is summarised in the table above.

4: Acquisitions, disposals and discontinued operations

4(a): Business acquisitions

Business acquisitions completed during the year ended 31 December 2020

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

Business acquisitions completed during the year ended 31 December 2019

Charles Derby Group Limited ("CDG") acquisition on 14 February 2019

The purchase price of £31 million was allocated based on the fair value of net assets acquired at the date of acquisition, determined in accordance with IFRS 3 Business Combinations. These allocations are now final and the Group recognised goodwill of £23 million in relation to this acquisition.

Lighthouse Group plc ("Lighthouse") acquisition on 12 June 2019

The estimated fair value of net assets acquired in Lighthouse of £13 million included a provision of £12 million in respect of pension transfer advice provided to certain Lighthouse clients between 2016 and 2018, prior to the Group's acquisition of Lighthouse in June 2019.

As a result of an investigation by the FCA into defined benefit ("DB") pension transfer advice, including advice provided to British Steel employees by Lighthouse, and an additional number of complaints received during 2020, the Group increased its scope for the provision to include all British Steel customers, rather than only those who have raised a complaint, and performed a detailed case review (further details of which are included in note 17). This resulted in an increase to the provision at acquisition of a further £12 million, which brought the provision balance to £24 million. An insurance recovery asset of £3 million related to the provision was recognised at 30 June 2020, representing management's assessment of the fair value on a best estimate basis. Discussions with Lighthouse's insurers remain ongoing. A further review of the tax treatment resulted in the recognition of a deferred tax asset of £2 million. The impact upon the fair value of net assets acquired as a result of the British Steel DB pension transfer advice provision, insurance recovery asset and deferred tax asset at acquisition is a net liability of £19 million, which is an increase in the net liability of £7 million from the £12 million estimated balance reported recognised at 31 December 2019.

The final determination of the fair value of net assets acquired in Lighthouse is assessed as £6 million, and the Group has recognised goodwill of £40 million in relation to this acquisition, which is an increase in goodwill of £7 million from the estimated balance recognised at 31 December 2019. No further adjustments can be made to the fair value of net assets acquired as the Group is now beyond the 12-month post-acquisition period permitted for such entries under IFRS 3 Business Combinations.

Contingent consideration arising from business combinations

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

 

 

 

£m

 

 

31 December 2020

31 December 2019

Opening balance

 

39

37

Acquisitions during the year

 

-

22

Payments

 

(20)

(21)

Financing interest charge

 

2

3

Other movements

 

(5)

(2)

Closing balance

 

16

39

Contingent consideration represents management's best estimate of the amount payable in relation to each acquisition discounted to net present value. The basis of each acquisition varies but includes payments based upon a percentage of the level of assets under administration, funds under management and levels of on-going fee income at future dates. Management estimate that a 20% increase/(decrease) in these key underlying assumptions would have resulted in a £3 million/£(4) million movement in the year-end contingent consideration balance.

4(b): Business disposals

Year ended 31 December 2020

There have been no disposals during the year ended 31 December 2020.

Year ended 31 December 2019

On 31 December 2019, the Group completed the sale of the Quilter Life Assurance ("QLA") business (consisting two of the Group's subsidiary undertakings: Old Mutual Wealth Life Assurance Limited and Old Mutual Wealth Pensions Trustee Limited) to ReAssure Group for total consideration of £446 million. The Group recognised a profit on the disposal of QLA of £103 million. Provisions established in respect of this disposal are shown in note 17.

  

 

(Loss)/profit on sale of operations

 

 

 

 

£m

 

Year ended 31 December 2020

Year ended 31 December 2019

 

Quilter Life Assurance and Single Strategy business

Quilter Life Assurance

Consideration received

-

446

Less: transaction and separation costs1

(1)

(19)

Net (costs)/proceeds from sale

(1)

427

Carrying value of net assets disposed

-

(294)

Goodwill allocated and disposed

-

(30)

(Loss)/profit on sale of operations after tax

(1)

103

1An additional £1 million of transaction and separation costs relating to the historical sales of the QLA and Single Strategy businesses have been recognised in the year ended 31 December 2020.

4(c): Discontinued operations - income statement

The Group's discontinued operations principally relate to the QLA business that was disposed of on 31 December 2019 and the associated profit on sale.

 

 

 

£m

 

Notes

Year ended 31 December 2020

Year ended 31 December 2019

Income

 

 

 

Gross earned premiums

 

-

145

Premiums ceded to reinsurers

 

-

(86)

Net earned premiums

 

-

59

Fee income and other income from service activities

6(d)

-

164

Investment return

 

-

1,386

Total income

 

-

1,609

Expenses

 

 

 

Claims and benefits paid

 

-

(98)

Reinsurance recoveries

 

-

72

Net insurance claims and benefits incurred

 

-

(26)

Change in reinsurance assets and liabilities

 

-

121

Change in insurance contract liabilities

 

-

(134)

Change in investment contract liabilities

16

-

(1,364)

Fee and commission expenses, and other acquisition costs

 

-

(45)

Other operating and administrative expenses

 

-

(8)

Total expenses

 

-

(1,456)

(Loss)/profit on sale of operations before tax

4(b)

(1)

103

(Loss)/profit before tax from discontinued operations

 

(1)

256

Tax expense attributable to policyholder returns

7(a)

-

(76)

(Loss)/profit before tax attributable to equity holders from discontinued operations

 

(1)

180

Income tax expense

7(a)

-

(89)

Less: tax expense attributable to policyholder returns

 

-

76

Tax expense attributable to equity holders

 

-

(13)

(Loss)/profit after tax from discontinued operations

 

(1)

167

Attributable to:

 

 

 

Equity holders of Quilter plc

 

(1)

167

 

 

 

 

Earnings per Ordinary Share on profit attributable to Ordinary Shareholders of Quilter plc

Basic - from discontinued operations (pence)

8(b)

(0.1)

9.1

Diluted - from discontinued operations (pence)

8(b)

(0.1)

8.9

 

 

4(d): Discontinued operations - Statement of comprehensive income

 

 

£m

 

Year ended 31 December 2020

Year ended 31 December 2019

(Loss)/profit after tax

(1)

167

Total comprehensive (expense)/income for the period from discontinued operations

(1)

167

4(e): Discontinued operations - Net cash flows

 

 

 

£m

 

 

Year ended 31 December 2020

Year ended 31 December 2019

Total net cash flows used in operating activities

 

-

(3,789)

Total net cash (used in)/from investing activities

 

(10)

3,765

Total net cash used in financing activities

 

-

(130)

Net decrease in cash and cash equivalents

 

(10)

(154)

5: Alternative performance measures ("APMs")

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

Basis of preparation of adjusted profit

Adjusted profit is one of the Group's Alternative Performance Measures and reflects the Directors' view of the underlying performance of the Group. It is used for management decision making and internal performance management and is the profit measure presented in the Group's segmental reporting. Adjusted profit is a non-GAAP measure which adjusts the Group's IFRS profit for specified items as detailed in note 5(b). The definition of adjusted profit is unchanged from the last annual financial statements.

 

 

 

 

 

 

 

£m

 

 

Year ended 31 December 2020

Year ended 31 December 2019

 

Notes

Continuing operations

Discontinued operations

Total

Continuing operations

Discontinued operations¹

Total

Advice and Wealth Management

 

90

-

90

103

-

103

Wealth Platforms

 

114

-

114

112

53

165

Head Office

 

(36)

-

(36)

(33)

-

(33)

Adjusted profit before tax

 

168

-

168

182

53

235

Reallocation of QLA costs

 

-

-

-

(26)

26

-

Adjusted profit before tax after reallocation

6(b)

168

-

168

156

79

235

Adjusting items:

 

 

 

 

 

 

 

Impact of acquisition and disposal related accounting

5(b)(i)

(42)

-

(42)

(54)

-

(54)

(Loss)/profit on business disposals

4(b)

-

(1)

(1)

-

103

103

Business transformation costs

5(b)(ii)

(70)

-

(70)

(77)

-

(77)

Managed Separation costs

5(b)(iii)

-

-

-

(6)

-

(6)

Finance costs

5(b)(iv)

(10)

-

(10)

(10)

-

(10)

Policyholder tax adjustments

5(b)(v)

9

-

9

(62)

(12)

(74)

Customer remediation

5(b)(vi)

(5)

-

(5)

-

10

10

Total adjusting items before tax

 

(118)

(1)

(119)

(209)

101

(108)

Profit/(loss) before tax attributable to equity holders

 

50

(1)

49

(53)

180

127

Tax attributable to policyholder returns

7(a)

36

-

36

98

76

174

Income tax credit/(expense)

7(a),(b)

3

-

3

(66)

(89)

(155)

Profit/(loss) after tax2

 

89

(1)

88

(21)

167

146

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

2IFRS profit/(loss) after tax.

5(b): Adjusting items 

In determining adjusted profit before tax, certain adjustments are made to IFRS profit before tax to reflect the underlying performance of the Group. These are detailed below.

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

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

 

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

 

 

 

£m

 

Note

Year ended 31 December 2020

Year ended 31 December 2019

Amortisation of other acquired intangible assets

10(a)

45

45

Fair value gains on revaluation of contingent consideration

 

(4)

-

Acquisition and disposal related (income)/costs1

 

(1)

6

Unwinding of discount on contingent consideration

 

2

3

Total impact of acquisition and disposal related accounting

42

54

1Acquisition and disposal related (income)/costs in the year ended 31 December 2020 includes a £(1)m acceleration of discounting unwind following the settlement of a loan receivable from TA Associates that related to deferred consideration arising from the sale of the Single Strategy Asset Management business. Other acquisition and disposal related (income)/costs include items such as transaction costs or deferred incentives arising on the acquisition of businesses.

5(b)(ii): Business transformation costs

Business transformation costs include four items: costs associated with the UK Platform Transformation Programme, build out costs incurred within Quilter Investors as a result of the sale of the Single Strategy business, Optimisation Programme costs, and restructuring costs incurred as a result of the sale of Quilter Life Assurance. All items are within the Group's continuing operations. For the year ended 31 December 2020, these costs totalled £70 million (31 December 2019: £77 million) in aggregate, the principal components of which are described below:

UK Platform Transformation Programme - 31 December 2020: £38 million, 31 December 2019: £57 million 

The second major migration of client assets completed in November 2020 and the final migration completed successfully in February 2021 with all Quilter Investment Platform assets now live on the new platform. The total costs of the programme are expected to be approximately £200 million, in line with previous guidance.    

Optimisation Programme costs - 31 December 2020: £33 million, 31 December 2019: £18 million

The Optimisation programme has delivered notable efficiencies and improvements in operational performance for the Group through greater technology utilisation and integration activity. Technology enabled transformation over 2020 included successful deployment of new finance and procurement modules as part of our general ledger consolidation and modernisation activity effective from January 2021, with £33 million of total costs for the Optimisation programme incurred for the year ended 31 December 2020. The Group also continued to leverage support function centres of excellence to achieve cost savings and reduce spend across the business by introducing tighter supplier management practices, insourcing capabilities and rationalising and consolidating technology and other suppliers across the Group.

Quilter Investors' build out costs - 31 December 2020: £(1) million, 31 December 2019: £(1) million

As part of the Group's strategy to separate from Old Mutual plc in 2018, the Group incurred build out costs to develop Quilter Investors as a separate business distinct from the Single Strategy business, which was subsequently sold on 29 June 2018. The build was substantially completed in 2019, resulting in the release of £1m of the provision established to complete the build in 2019, with a further £1m release in 2020.

Restructuring costs following disposal of Quilter Life Assurance - 31 December 2020: £nil, 31 December 2019: £3 million

As a result of the disposal of QLA on 31 December 2019, the Group recognised £3 million as an adjusting item principally in respect of redundancy costs. The Group expects to incur further restructuring costs during the following 12 months, including the cost of decommissioning IT systems, as the Transitional Service Agreement with ReAssure (the acquirer) runs off during 2021 and the remaining Quilter business is restructured following the disposal.

5(b)(iii): Managed Separation costs

One-off costs related to the Managed Separation from Old Mutual plc have been excluded from adjusted profit on the basis that they relate to a fundamental restructuring of the Group are therefore not representative of the operating activity of the Group. For the year ended 31 December 2020 these costs were £0.1 million (31 December 2019: £6 million). The costs incurred in 2020 were in respect of rebranding and further rebranding costs are expected to be incurred in 2021.

5(b)(iv): 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 external borrowings are removed when calculating adjusted profit. For the period ended 31 December 2020 finance costs were £10 million (31 December 2019: £10 million).

5(b)(v): Policyholder tax adjustments

For the year ended 31 December 2020 the total policyholder tax adjustments to adjusted profit is £9 million (31 December 2019: £(74) million) relating to both continuing and discontinued operations, as shown in note 7(c). Adjustments to policyholder tax are made to remove distortions arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from policyholders (which is included within the Group's income) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding tax expense, creating volatility to the Group's IFRS profit/(loss) before tax attributable to equity holders. For a further explanation of the impact of markets on the policyholder tax charge see note 7(a). Adjustments are also made to remove policyholder tax distortions from other non-operating adjusting items.

5(b)(vi): Customer remediation

Lighthouse pension transfer advice provision - 31 December 2020 £5 million, 31 December 2019 £nil

With regard to the provision for redress payable and related costs established within the fair value of the Lighthouse assets and liabilities acquired in June 2019 in relation to advice provided to British Steel pension members, a further £5 million (31 December 2019: £nil) increase in the provision has been recognised in the income statement in the year ended 31 December 2020, reflecting the impact of post-acquisition market and discount rate movements. This has been excluded from adjusted profit on the basis that the costs are not representative of the operating activity of the Group. Further details of the provision are provided in note 17.

QLA voluntary client remediation provision - 31 December 2020 £nil, 31 December 2019 £10 million

Within QLA (disposed of on 31 December 2019), a voluntary customer remediation provision was established in 2017 following product reviews and consistent with recommendations from the Financial Conduct Authority's ("FCA") thematic review and the FCA's guidance FG16/8 Fair treatment of long-standing customers in the life assurance sector. During 2019, £10 million of the provision was released (as detailed in note 17).

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

This reconciliation shows how each line of the Group's consolidated IFRS income statement is allocated to the Group's APMs: Net management fees, Total net fee revenue and Operating Expenses, which are all defined on pages 5 to 7 and form the Group's adjusted profit for continuing operations. The IFRS income statement column in the table below, down to "Profit/(loss) before tax attributable to equity holders from continuing operations", reconciles to each line of the Group's consolidated income statement. Allocations are determined by management and aim to show the Group's sources of profit (net of relevant directly attributable expenses). These allocations remain consistent from period to period to ensure comparability, unless otherwise stated.

 

 

 

 

 

 

 

£m

Year ended 31 December 2020

Net mgmt fees1

Other revenue1

Total net fee revenue1

Operating Expenses1

Adjusted profit before tax

Consol. of funds2

IFRS

income statement

 

 

 

 

 

 

 

 

Fee income and other income from service activities

680

195

875

-

875

(80)

795

Investment return

-

3,340

3,340

-

3,340

556

3,896

Other income

-

1

1

15

16

4

20

Total income

680

3,536

4,216

15

4,231

480

4,711

Expenses

 

 

 

 

 

 

-

Insurance contract claims and changes in liabilities

-

(1)

(1)

-

(1)

-

(1)

Change in investment contract liabilities

-

(3,328)

(3,328)

-

(3,328)

-

(3,328)

Fee and commission expenses, and other acquisition costs

(70)

(74)

(144)

-

(144)

(3)

(147)

Change in third party interest in consolidated funds

-

-

-

-

-

(440)

(440)

Other operating and administrative expenses

(13)

(2)

(15)

(640)

(655)

(37)

(692)

Finance costs3

-

(1)

(1)

(16)

(17)

-

(17)

Total expenses

(83)

(3,406)

(3,489)

(656)

(4,145)

(480)

(4,625)

Tax expense attributable to policyholder returns

(36)

-

(36)

-

(36)

-

(36)

Profit/(loss) before tax attributable to equity holders from continuing operations

561

130

691

(641)

50

-

50

Adjusting items:

 

 

 

 

 

 

 

Impact of acquisition and disposal related accounting

-

-

-

42

42

 

 

Business transformation costs

-

-

-

70

70

 

 

Finance costs

-

-

-

10

10

 

 

Customer remediation

-

-

-

5

5

 

 

Policyholder tax adjustments

(9)

-

(9)

-

(9)

 

 

Adjusting items

(9)

-

(9)

127

118

 

 

Total Group - continuing operations

552

130

682

(514)

168

 

 

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

 

 

 

 

 

 

 

£m

Year ended 31 December 2019

Net mgmt fees1

Other revenue1

Total net fee revenue1

Operating Expenses1

Adjusted profit before tax

Consol. of funds

2,3

IFRS

income statement3

Income

 

 

 

 

 

 

 

Fee income and other income from service activities

689

230

919

-

919

(82)

837

Investment return

40

5,795

5,835

-

5,835

731

6,566

Other income

            - 

1

1

-

1

15

16

Total income

729

6,026

6,755

-

6,755

664

7,419

Expenses

 

 

 

 

 

 

 

Insurance contract claims and changes in liabilities

-

(1)

(1)

-

(1)

-

(1)

Change in investment contract liabilities

-

(5,810)

(5,810)

-

(5,810)

-

(5,810)

Fee and commission expenses, and other acquisition costs

(100)

(77)

(177)

-

(177)

10

(167)

Change in third party interest in consolidated funds

-

-

                - 

-

                - 

(634)

(634)

Other operating and administrative expenses

(14)

(1)

(15)

(690)

(705)

(40)

(745)

Finance costs4

-

(4)

(4)

(13)

(17)

-

(17)

Total expenses

(114)

(5,893)

(6,007)

(703)

(6,710)

(664)

(7,374)

Tax expense attributable to policyholder returns

(98)

-

(98)

-

(98)

-

(98)

Profit/(loss) before tax attributable to equity holders from continuing operations

517

133

650

(703)

(53)

-

(53)

Adjusting items:

 

 

 

 

 

 

 

Impact of acquisition and disposal related accounting

-

-

-

54

54

 

 

Business transformation costs

-

-

-

77

77

 

 

Managed Separation costs

-

-

-

6

6

 

 

Finance costs

-

-

-

10

10

 

 

Policyholder tax adjustments

62

-

62

                - 

62

 

 

Adjusting items

62

-

62

147

209

 

 

Adjusted profit before tax after reallocation

579

133

712

(556)

156

 

 

Reallocation of QLA costs

-

-

-

26

26

 

 

Total Group - continuing operations

579

133

712

(530)

182

 

 

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

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

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

4During the year ended 31 December 2020, management reassessed the presentation of lease interest expenses within the adjusted profit analysis in the table above. These expenses have historically been reported within "Other revenue" and are now reported within "Operating expenses" for adjusted profit.

6: Segmental information

6(a): Segmental presentation

The Group's operating segments comprise Advice and Wealth Management and Wealth Platforms, which is consistent with the manner in which the Group is structured and managed. For all reporting periods, these segments have been classified as continuing operations in the income statement. Head Office includes certain revenues and central costs that are not allocated to the segments. There have been no changes to the basis of segmentation for the periods presented within these consolidated financial statements.

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

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

The segmental information in this note reflects the adjusted and IFRS profit measures and the assets and liabilities for each operating segment as provided to management and the Board. Income is further segmented into the geographic location of the businesses in note 6(d).

Continuing operations:

Advice and Wealth Management

This segment comprises Quilter Investors, Quilter Cheviot and Quilter Financial Planning.

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

Quilter Cheviot provides discretionary investment management predominantly 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 operations in the Channel Islands and the Republic of Ireland.

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

Wealth Platforms

This segment comprises Quilter Investment Platform ("QIP") and Quilter International.

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

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

Head office

In addition to the two operating segments, Head Office comprises the investment return on centrally held assets, central support function expenses, central core structural borrowings and certain tax balances in the segmental statement of financial position.

Discontinued operations:

The disposal of Quilter Life Assurance ("QLA") on 31 December 2019, previously part of the Wealth Platforms operating segment, resulted in that business being classified as a discontinued operation. The results of that business, along with the profit on disposal, have been presented as discontinued operations. See note 4 for further information.

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

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

 

 

 

 

 

 

£m

 

 

Operating segments

 

 

 

 

Notes

Advice and Wealth Management

Wealth Platforms

Head Office

Consolidation adjustments1

Consolidated income statement

Income

 

 

 

 

 

 

Fee income and other income from service activities

6(d)

456

426

-

(87)

795

Investment return

 

4

3,335

1

556

3,896

Other income

 

4

117

5

(106)

20

Segmental income

 

464

3,878

6

363

4,711

Expenses

 

 

 

 

 

 

Insurance contract claims and changes in liabilities

 

-

(1)

-

-

(1)

Change in investment contract liabilities

16

-

(3,328)

-

-

(3,328)

Fee and commission expenses, and other acquisition costs

 

(50)

(101)

-

4

(147)

Change in third party interest in consolidated funds

 

-

-

-

(440)

(440)

Other operating and administrative expenses

 

(370)

(324)

(71)

73

(692)

Finance costs

 

(3)

(4)

(10)

-

(17)

Segmental expenses

 

(423)

(3,758)

(81)

(363)

(4,625)

Profit/(loss) before tax from continuing operations

 

41

120

(75)

-

86

Tax attributable to policyholder returns

 

-

(36)

-

-

(36)

Profit/(loss) before tax attributable to equity holders from continuing operations

 

41

84

(75)

-

50

Adjusted for non-operating items:

 

 

 

 

 

 

Impact of acquisition and disposal related accounting

5(b)(i)

44

-

(2)

-

42

Business transformation costs

5(b)(ii)

-

39

31

-

70

Finance costs

5(b)(iv)

-

-

10

-

10

Policyholder tax adjustments

5(b)(v)

-

(9)

-

-

(9)

Customer remediation

5(b)(vi)

5

-

-

-

5

Adjusting items before tax

 

49

30

39

-

118

Adjusted profit/(loss) before tax - continuing operations

 

90

114

(36)

-

168

1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of funds.

6(b)(ii): Adjusted profit statement - segmental information for the year ended 31 December 2019

 

 

 

 

 

 

 

£m

 

 

Operating segments

 

 

 

 

 

Notes

Advice and Wealth Management

Wealth Platforms

Head Office

Reallocation of QLA costs1

Consolidation adjustments2,3

Consolidated income statement3

Income

 

 

 

 

 

 

 

Fee income and other income from service activities

6(d)

486

438

-

-

(87)

837

Investment return

 

10

5,823

3

-

730

6,566

Other income

 

1

160

6

-

(151)

16

Segmental income

 

497

6,421

9

-

492

7,419

Expenses

 

 

 

 

 

 

 

Insurance contract claims and changes in liabilities

 

-

(1)

-

-

-

(1)

Change in investment contract liabilities

16

-

(5,810)

-

-

-

(5,810)

Fee and commission expenses, and other acquisition costs

 

(73)

(110)

-

-

16

(167)

Change in third party interest in consolidated funds

 

-

-

-

-

(634)

(634)

Other operating and administrative expenses

 

(368)

(409)

(68)

(26)

126

(745)

Finance costs

 

(4)

(3)

(10)

-

-

(17)

Segmental expenses

 

(445)

(6,333)

(78)

(26)

(492)

(7,374)

Profit/(loss) before tax from continuing operations

 

52

88

(69)

(26)

-

45

Tax attributable to policyholder returns

 

-

(98)

-

-

-

(98)

Profit/(loss) before tax attributable to equity holders from continuing operations

 

52

(10)

(69)

(26)

-

(53)

Adjusted for non-operating items:

 

 

 

 

 

 

 

Impact of acquisition and disposal related accounting

5(b)(i)

52

1

1

-

-

54

Business transformation costs

5(b)(ii)

(1)

58

20

-

-

77

Managed Separation costs

5(b)(iii)

-

1

5

-

-

6

Finance costs

5(b)(iv)

-

-

10

-

-

10

Policyholder tax adjustments

5(b)(v)

-

62

-

-

-

62

Adjusting items before tax

 

51

122

36

-

-

209

Adjusted profit/(loss) before tax after reallocation1

 

103

112

(33)

(26)

-

156

Reallocation of QLA costs1

 

-

-

-

26

-

26

Adjusted profit/(loss) before tax - continuing operations

 

103

112

(33)

-

-

182

1As disclosed in the Group's 2019 Annual Report, Reallocation of QLA costs includes £26 million of costs previously reported as part of the QLA business which was reclassified from discontinued to continuing operations as these costs did not transfer to ReAssure on disposal at 31 December 2019.

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

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

 

6(c)(i): Statement of financial position - segmental information at 31 December 2020

 

 

 

 

 

 

£m

 

Notes

Advice & Wealth Management

Wealth Platforms

Head Office

Consolidation Adjustments1

Total

Assets

 

 

 

 

 

 

Goodwill and intangible assets

10

423

133

-

-

556

Property, plant and equipment

 

13

129

-

-

142

Investments in associated undertakings

 

-

-

1

-

1

Contract costs

 

-

413

-

-

413

Loans and advances

 

33

186

-

-

219

Financial investments

11

-

57,162

-

6,112

63,274

Deferred tax assets

 

10

25

43

-

78

Current tax receivable

 

-

10

14

-

24

Trade, other receivables and other assets

 

228

430

2

41

701

Derivative assets

 

-

-

-

43

43

Cash and cash equivalents

14

310

690

614

307

1,921

Inter-segment funding - assets

 

63

34

20

(117)

-

Total assets

 

1,080

59,212

694

6,386

67,372

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Investment contract liabilities

16

-

57,407

-

-

57,407

Third-party interests in consolidated funds

 

-

-

-

6,513

6,513

Provisions

17

53

15

9

-

77

Deferred tax liabilities

 

36

70

-

-

106

Current tax payable/(receivable)2

 

21

(12)

(8)

-

1

Borrowings and lease liabilities

 

15

105

199

-

319

Trade, other payables and other liabilities

 

268

396

34

(26)

672

Contract liabilities

 

-

379

-

-

379

Derivative liabilities

 

-

-

-

20

20

Inter-segment funding - liabilities

 

-

20

97

(117)

-

Total liabilities

 

393

58,380

331

6,390

65,494

Total equity

 

 

 

 

 

1,878

Total equity and liabilities

 

 

 

 

 

67,372

1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of funds.

2Current tax payable/(receivable) includes Group relief payable and receivable that net to £nil on a consolidated basis but may appear as a receivable within individual segments.

 

6(c)(ii): Statement of financial position - segmental information at 31 December 2019 restated3

 

 

 

 

 

 

£m

 

Notes

Advice & Wealth Management

Wealth Platforms restated3

Head Office

Consolidation Adjustments1

Total restated3

Assets

 

 

 

 

 

 

Goodwill and intangible assets

10

458

134

-

-

592

Property, plant and equipment

 

30

111

2

-

143

Investments in associated undertakings

 

-

-

1

-

1

Contract costs

 

-

455

-

-

455

Loans and advances

 

31

180

6

-

217

Financial investments

11

1

52,249

-

4,957

57,207

Deferred tax assets

 

11

22

10

-

43

Current tax receivable

 

-

-

13

-

13

Trade, other receivables and other assets3

 

207

389

3

6

605

Derivative assets

 

-

-

-

22

22

Cash and cash equivalents

14

383

725

838

307

2,253

Inter-segment funding - assets

 

-

12

-

(12)

-

Total assets

 

1,121

54,277

873

5,280

61,551

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Investment contract liabilities

16

-

52,455

-

-

52,455

Third-party interests in consolidated funds

 

-

-

-

5,318

5,318

Provisions

17

28

26

10

-

64

Deferred tax liabilities

 

38

50

-

-

88

Current tax payable/(receivable)2

 

1

(7)

12

-

6

Borrowings

 

26

108

201

-

335

Trade, other payables and other liabilities

 

322

477

37

(35)

801

Contract liabilities3

 

1

402

-

-

403

Derivative liabilities

 

-

-

-

10

10

Inter-segment funding - liabilities

 

-

-

12

(12)

-

Total liabilities

 

416

53,511

272

5,281

59,480

Total equity

 

 

 

 

 

2,071

Total equity and liabilities

 

 

 

 

 

61,551

1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of funds.

2Current tax payable/(receivable) includes Group relief payable and receivable that net to £nil on a consolidated basis but may appear as a receivable within individual segments.

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

6(d): Geographic segmental information

This note analyses the Group's total income, split by geographic location of our businesses (UK and International) and further analyses the Group's fee income and other income from service activities, based on the type of fees earned.  The Group also earns an immaterial amount of income through operations based in the Republic of Ireland and the Channel Islands.

 

 

 

 

 

 

£m

 

£m

 

UK

International

 

 

 

UK

Year ended 31 December 2020

Advice and Wealth Management

Wealth Platforms

Head Office

Wealth Platforms

Consolidation adjustments

Total

continuing operations

 

Discontinued operations

Premium based fees

113

-

-

70

-

183

 

-

Fund based fees1

343

167

-

88

(93)

506

 

-

Retrocessions received, intragroup

-

2

-

6

(8)

-

 

-

Fixed fees

-

2

-

29

-

31

 

-

Exit fees

-

-

-

13

-

13

 

-

Other fee and commission income

-

48

-

-

14

62

 

-

Fee income and other income from service activities

456

220

-

206

(87)

795

 

-

Investment return

4

2,273

2

1,062

555

3,896

 

-

Other income

4

143

5

-

(132)

20

 

-

Total income

464

2,636

7

1,268

336

4,711

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

 

UK

International

 

 

 

UK

Year ended 31 December 2019

Advice and Wealth Management

Wealth Platforms

Head Office

Wealth Platforms

Consolidation adjustments2

Total

continuing operations

 

Discontinued operations

Gross earned premiums

-

-

-

1

-

1

 

145

Premiums ceded to reinsurers

-

-

-

(1)

-

(1)

 

(86)

Net earned premiums

-

-

-

-

-

-

 

59

Premium based fees

103

-

-

72

-

175

 

11

Fund based fees1

383

175

-

101

(95)

564

 

65

Retrocessions received, intragroup

-

2

-

2

(4)

-

 

10

Fixed fees

-

3

-

28

-

31

 

2

Exit fees

-

-

-

16

-

16

 

1

Other fee and commission income

-

39

-

-

12

51

 

75

Fee income and other income from service activities

486

219

-

219

(87)

837

 

164

Investment return2

10

3,825

3

1,998

730

6,566

 

1,386

Other income

1

161

6

(1)

(151)

16

 

-

Total income

497

4,205

9

2,216

492

7,419

 

1,609

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

 

 

 

 

 

 

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

 

 

 

 

 

 

7: Tax

7(a): Tax charged to the income statement

 

 

 

£m

 

Note

Year ended 31 December     2020

Year ended 31 December        2019

Current tax

 

 

 

United Kingdom

 

18

33

International

 

2

5

Adjustments to current tax in respect of prior periods

 

(7)

(11)

Total current tax charge

 

13

27

Deferred tax

 

 

 

Origination and reversal of temporary differences

 

(20)

40

Effect on deferred tax of changes in tax rates

 

-

2

Adjustments to deferred tax in respect of prior periods

 

4

(3)

Total deferred tax (credit)/charge

 

(16)

39

Total tax (credited)/charged to income statement - continuing operations

 

(3)

66

Total tax charged to income statement - discontinued operations

4(c)

-

89

Total tax (credited)/charged to income statement

 

(3)

155

 

 

 

 

Attributable to policyholder returns - continuing operations

 

36

98

Attributable to equity holders - continuing operations

 

(39)

(32)

Total tax (credited)/charged to income statement - continuing operations

 

(3)

66

Attributable to policyholder returns - discontinued operations

4(c)

-

76

Attributable to equity holders - discontinued operations

 

-

13

Total tax charged to income statement - discontinued operations

 

-

89

Total tax (credited)/charged to income statement

 

(3)

155

Policyholder tax

Certain products are subject to tax on policyholders' investment returns. This "policyholder tax" is an element of total tax expense. To make the tax expense more meaningful, tax attributable to policyholder returns and tax attributable to equity holders' profits are 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 equity holders.

The Group's income tax credit on continuing operations was £(3) million for the year ended 31 December 2020, compared to an expense of £66 million for the prior year. This income tax (credit)/expense can vary significantly period on period as a result of market volatility and the impact this has on policyholder tax. The recognition of the income received from policyholders (which is included within the Group's income) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility to the Group's IFRS profit before tax attributable to equity holders. An adjustment is made to adjusted profit to remove these distortions, as explained further in note 5(b)(v).

Market movements during the year ended 31 December 2020 resulted in investment gains of £170 million on products subject to policyholder tax. The gain is a component of the total "investment return" gain of £3,896 million shown in the income statement. The impact of the £3,896 million investment return gain is the primary reason for the £36 million tax expense attributable to policyholder returns in respect of the continuing operations for the period ended 31 December 2020 (31 December 2019: £98 million expense in respect of continuing operations and £76 million expense in respect of discontinued operations).

First time recognition of deferred tax asset on accrued interest expense

Within the £(16) million total deferred tax credit and the £ (39) million tax credit attributable to equity holders (continuing operations) above, the Group has recognised a £(39) million deferred tax credit for the first time in respect of accrued interest expense. At December 2019, acknowledging the fact that the tax authorities may challenge the Group's tax treatment, management exercised judgement concluding that the tax treatment of the accrued interest expense was an uncertain tax position. Following full disclosure to the tax authorities and after assessing recoverability against forecast future profits the Group reassessed the accounting tax position at 31 December 2020 and recognised a deferred tax asset. 

7(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:

 

 

 

£m

 

Note

Year ended 31 December 2020

Year ended 31 December 2019

Profit before tax from continuing operations

 

86

45

Tax at UK standard rate of 19% (2019: 19%)

 

16

9

Different tax rate or basis on overseas operations

 

(8)

(6)

Untaxed and low taxed income

 

(1)

1

Expenses not deductible for tax

 

2

3

Adjustments to current tax in respect of prior years

 

(7)

(11)

Net movements on unrecognised deferred tax assets1

 

(39)

(11)

Effect on deferred tax of changes in tax rates

 

-

2

Adjustments to deferred tax in respect of prior years

 

4

(3)

Income tax attributable to policyholder returns (net of tax relief)

 

30

82

Total tax (credited)/charged to income statement - continuing operations

 

(3)

66

Total tax charged to income statement - discontinued operations

4(c)

-

89

Total tax (credited)/charged to income statement

 

(3)

155

1Includes first time recognition of accrued interest expense as explained in note 7(a).

 

 

7(c): Reconciliation of income tax expense in the income statement to income tax on adjusted profit

 

 

 

£m

 

Notes

Year ended 31 December      2020

Year ended 31 December      2019

Income tax (credit)/expense on continuing operations1

 

(3)

66

Reversal of income tax credit on the reallocation of QLA costs

 

-

5

Income tax (credit)/expense on continuing operations before the reallocation of QLA costs

 

(3)

71

Tax on adjusting items

 

 

 

Impact of acquisition and disposal related accounting

 

3

8

Business transformation costs

 

13

14

Managed Separation costs

 

-

1

Finance costs

 

2

2

Customer remediation

 

1

-

Tax adjusting items

 

 

 

Policyholder tax adjustments

5(b)(v)

9

(62)

Other shareholder tax adjustments2

 

36

24

Tax on adjusting items - continuing operations

 

64

(13)

Less: tax attributable to policyholder returns within adjusted profit - continuing operations3

 

(45)

(36)

Tax charged on adjusted profit - continuing operations

 

16

22

Income tax credit on the reallocation of QLA costs

 

-

(5)

Tax charged on adjusted profit - continuing operations after the reallocation of QLA costs

 

16

17

 

 

 

 

Income tax expense on discontinued operations1

4(c)

-

89

Reversal of income tax expense on the reallocation of QLA costs

 

-

(5)

Income tax expense on discontinued operations before the reallocation of QLA costs

 

-

84

Tax on adjusting items

 

 

 

Customer remediation

 

-

(2)

Tax adjusting items

 

 

 

Policyholder tax adjustments

5(b)(v)

-

(12)

Other shareholder tax adjustments2

 

-

(3)

Tax on adjusting items - discontinued operations

 

-

(17)

Less: Tax attributable to policyholder returns within adjusted profit - discontinued operations3

 

-

(64)

Tax charged on adjusted profit - discontinued operations

 

-

3

Income tax expense on the reallocation of QLA costs

 

-

5

Tax charged on adjusted profit - discontinued operations after the reallocation of QLA costs

 

-

8

 

 

 

 

Tax charged on total adjusted profit

 

16

25

1Includes both tax attributable to policyholders and shareholders, in compliance with IFRS reporting.

2Other shareholder tax adjustments comprise the reallocation of adjustments from policyholder tax as explained in note 5(b)(v) and shareholder tax adjustments for one off items in line with the Group's adjusted profit policy.

3Adjusted profit treats policyholder tax as a pre-tax charge (this includes policyholder tax under IFRS and the policyholder tax adjustments) and is therefore removed from tax charge on adjusted profit.

8: Earnings per share

The Group calculates earnings per share ("EPS") on a number of different bases. IFRS requires the calculation of basic and diluted EPS. Adjusted EPS reflects earnings that are consistent with the Group's adjusted profit measure before and after the reallocation of QLA costs, and Headline earnings per share ("HEPS") is a requirement of the Johannesburg Stock Exchange. The Group's EPS (in aggregate, including both continuing and discontinued operations) on these different bases are summarised below.

Basic EPS is calculated by dividing profit after tax 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 held within Employee Benefit Trusts ("EBTs") to satisfy the Group's obligations under employee share awards, and Quilter plc shares held in consolidated funds ("Own shares"). Own shares are deducted for the purpose of calculating both basic and diluted EPS.

Diluted EPS recognises the dilutive impact of shares awarded and options granted to employees under share-based payment arrangements, 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 Group is also required to calculate HEPS in accordance with the Johannesburg Stock Exchange ("JSE") Listing Requirements, determined by reference to the South African Institute of Chartered Accountants' circular 1/2019 Headline Earnings. Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used measure of earnings in South Africa.

 

 

 

 

Pence

 

Source of guidance

Notes

Year ended 31 December       2020

Year ended 31 December         2019

Basic earnings per share

IFRS

8(b)

5.0

8.0

Diluted basic earnings per share

IFRS

8(b)

4.9

7.8

Adjusted basic earnings per share

Group policy

8(b)

8.6

11.4

Adjusted diluted earnings per share

Group policy

8(b)

8.5

11.3

Headline basic earnings per share (net of tax)

JSE Listing Requirements

8(c)

5.2

2.3

Headline diluted earnings per share (net of tax)

JSE Listing Requirements

8(c)

5.1

2.3

8(a): Weighted average number of Ordinary Shares

The table below summarises the calculation of the weighted average number of Ordinary Shares for the purposes of calculating basic and diluted earnings per share for each profit measure (IFRS, adjusted and headline profit):

 

 

 

Millions

 

 

Year ended 31 December     2020

Year ended 31 December          2019

Weighted average number of Ordinary Shares

 

1,842

1,902

Treasury shares including those held in EBTs

 

(82)

(67)

Basic weighted average number of Ordinary Shares

 

1,760

1,835

Adjustment for dilutive share awards and options

 

37

28

Diluted weighted average number of Ordinary Shares

 

1,797

1,863

8(b): Basic and diluted EPS (IFRS and adjusted profit)

 

 

 

 

 

 

 

£m

 

 

Year ended 31 December 2020

Year ended 31 December 2019

 

Notes

Continuing operations

Discontinued operations

Total

Continuing operations

Discontinued operations

Total

Profit/(loss) after tax

 

89

(1)

88

(21)

167

146

Total adjusting items before tax

5(a)

118

1

119

209

(101)

108

Tax on adjusting items

7(c)

(64)

-

(64)

13

17

30

Less: Policyholder tax adjustments

7(c)

9

-

9

(62)

(12)

(74)

Adjusted profit after tax after reallocation

 

152

-

152

139

71

210

Reversal of:

 

 

 

 

 

 

 

Reallocation of QLA costs1

 

-

-

-

26

(26)

-

Income tax on reallocation of QLA costs

7(c)

-

-

-

(5)

5

-

Adjusted profit after tax

 

152

-

152

160

50

210

1Reallocation of QLA costs included £26 million of costs previously reported as part of the QLA business which were reclassified from discontinued to continuing operations in 2019 as these costs did not transfer to ReAssure (the acquirer) on disposal at 31 December 2019.

 

 

 

Year ended 31 December 2020

Year ended 31 December 2019

 

 

Continuing operations

Discontinued operations

Total

Continuing operations

Discontinued operations

Total

 

Post-tax profit measure used

Pence

Pence

Pence

Pence

Pence

Pence

Basic EPS

IFRS profit

5.1

(0.1)

5.0

(1.1)

9.1

8.0

Diluted EPS

IFRS profit

5.0

(0.1)

4.9

(1.1)

8.9

7.8

Adjusted basic EPS

Adjusted profit

8.6

-

8.6

8.7

2.7

11.4

Adjusted diluted EPS

Adjusted profit

8.5

-

8.5

8.6

2.7

11.3

Adjusted basic EPS after reallocation1

Adjusted profit after reallocation

N/A

N/A

N/A

7.5

3.9

11.4

Adjusted diluted EPS after reallocation1

Adjusted profit after reallocation

N/A

N/A

N/A

7.5

3.8

11.3

1Reallocation of QLA costs included £26 million of costs previously reported as part of the QLA business which were reclassified from discontinued to continuing operations in 2019 as these costs did not transfer to ReAssure (the acquirer) on disposal at 31 December 2019.

8(c): Headline earnings per share

 

 

+

+

 

£m

 

 

Year ended

31 December 2020

Year ended

31 December 2019

 

Note

Gross

Net of tax

Gross

Net of tax

Profit attributable to ordinary equity holders

 

 

88

 

146

Adjusted for:

 

 

 

 

 

Loss/(profit) on business disposals

4(b)

1

1

(103)

(103)

Impairment loss on right-of-use assets

 

3

2

-

-

Headline earnings

 

 

91

 

43

Headline basic EPS (pence)

 

 

5.2

 

2.3

Headline diluted EPS (pence)

 

 

5.1

 

2.3

9: Dividends

 

 

 

 

 

 

 

£m

 

Payment

date

Year ended

31 December        2020

Year ended

 31 December        2019

2018 Final dividend paid - 3.3p per Ordinary Share

20 May 2019

-

61

2019 Interim dividend paid - 1.7p per Ordinary Share

20 September 2019

-

31

2019 Final dividend paid - 3.5p per Ordinary Share

18 May 2020

64

-

2020 Interim dividend paid - 1.0p per Ordinary Share

21 September 2020

17

 

Dividends paid to Ordinary Shareholders

 

81

92

Subsequent to year ended 31 December 2020, the Directors proposed a final dividend for 2020 of 3.6 pence per Ordinary Share amounting to £61 million in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 17 May 2021. In compliance with the rules issued by the Prudential Regulation Authority ("PRA") in relation to the implementation of the Solvency II regime and other regulatory requirements to which the Group is subject, the dividend is required to remain cancellable at any point prior to it becoming due and payable on 17 May 2021 and to be cancelled if, prior to payment, the Group ceases to hold capital resources equal to or in excess of its Solvency Capital Requirement, or if that would be the case if the dividend was paid. The Directors have no intention of exercising this cancellation right, other than where required to do so by the PRA or for regulatory capital purposes. Final and interim dividends paid to Ordinary Shareholders are calculated using the number of shares in issue at the record date less own shares held in Employee Benefit Trusts.

10: Goodwill and intangible assets

10(a): Analysis of goodwill and intangible assets

The table below shows the movements in cost and amortisation of goodwill and intangible assets.

 

 

 

 

£m

 

Goodwill

Software development costs

Other intangible assets

Total

Gross amount

 

 

 

 

1 January 2019

314

100

380

794

Acquisitions through business combinations

68

-

49

117

Additions

-

5

-

5

Disposals

(30)

(4)

(4)

(38)

Other movements1

(2)

-

3

1

31 December 2019

350

101

428

879

Acquisitions through business combinations2

6

-

1

7

Additions

-

4

-

4

31 December 2020

356

105

429

890

 

 

 

 

 

Accumulated amortisation and impairment losses

 

 

 

 

1 January 2019

-

(95)

(149)

(244)

Amortisation charge for the year

-

(2)

(45)

(47)

Disposals

-

4

4

8

Other movements1

-

-

(4)

(4)

31 December 2019

-

(93)

(194)

(287)

Amortisation charge for the year

-

(2)

(45)

(47)

31 December 2020

-

(95)

(239)

(334)

 

 

 

 

 

Carrying amount

 

 

 

 

 

 

 

 

 

31 December 2019

350

8

234

592

31 December 2020

356

10

190

556

1During 2019, there was a gross up of fully amortised intangible assets in the Quilter Financial Planning and Quilter Cheviot businesses arising from previous business combinations.

2During 2020, there have been fair value adjustments of £7 million made to the net assets acquired in Lighthouse, with corresponding movements in goodwill of £7 million, other intangible assets of £1 million and associated deferred tax liabilities of £(1) million. Refer to note 4(a) for further details. Other fair value adjustments of £(1) million have been made to goodwill in relation to acquisitions within the Quilter Private Client Adviser business.

10(b): Analysis of other intangible assets

 

 

£m

 

 

 

31 December 2020

31 December 2019

Average estimated useful life

Average period remaining

Net carrying value

 

 

 

 

Distribution channels - Quilter Financial Planning

15

22

8 years

3 years

Customer relationships

 

 

 

 

Quilter Cheviot

114

141

10 years

4 years

Quilter Financial Planning

54

61

8 years

6 years

Other

7

9

8 years

4 years

Brand - Quilter Cheviot

-

1

n/a

n/a

Total other intangible assets

190

234

 

 

10(c): Allocation of goodwill to cash generating units ("CGUs") and impairment testing

The Group considers that there are two groups of CGUs for goodwill impairment testing purposes. Goodwill is allocated to these groups of CGUs as follows:

 

 

£m

 

31 December

2020

31 December 2019

Goodwill (net carrying amount)

 

 

Advice and Wealth Management

225

219

Wealth Platforms

131

131

Total goodwill

356

350

Impairment review

In accordance with the requirements of IAS 36 Impairment of Assets, goodwill in both the Advice and Wealth Management and Wealth Platforms CGUs is tested for impairment annually, or earlier if an indicator of impairment exists, by comparing the carrying value of the CGU to which the goodwill relates to the recoverable value of that CGU, being the higher of that CGU's value-in-use or fair value less costs to sell. If applicable, an impairment charge is recognised when the recoverable amount is less than the carrying value. Goodwill impairment indicators include sudden stock market falls, the absence of Net Client Cash Flows ("NCCF"), significant falls in profits and an increase in the discount rate.

The significant volatility in global financial markets resulting from the COVID-19 pandemic and the effect this has on the Group's AuMA and revenue, provided an indicator of impairment at 30 June 2020 and consequently the goodwill balance was assessed, concluding that, whilst there was a reduction in the surplus of the recoverable amount over the carrying value since 31 December 2019, no impairment was required.

At 31 December 2020, the annual impairment assessment was performed, using the latest cash flow forecasts from the Group's three-year business plan, approved by the Board. The Group's business plan takes into consideration the partial recovery in equity markets experienced in H2 2020, which has resulted in an increase in the Group's AuMA and revenue. As a result, the surplus of the recoverable amount of the CGUs over the carrying amount has increased since the previous impairment test was carried out at 30 June 2020.

The following table details the separate percentage change required in each key assumption before the carrying value would exceed the recoverable amount, assuming all other variables remain the same. There has been an increase in the percentage changes required since 30 June 2020, reflecting the impact of the partial recovery in equity markets. The table continues to demonstrate that further adverse movements to the key assumptions used in the CGU value-in-use calculation would be required before impairment is indicated.

 

 

Advice and Wealth Management

Wealth Platforms

Reduction in forecast cash flows

 

46%

69%

Increase in discount rate required

 

21% (from 9% to 30%)

27% (from 9% to 36%)

Forecast cash flows are impacted by movements in underlying assumptions, including equity market levels, revenue margins and NCCF. The Group considers that forecast cash flows are most sensitive to movements in equity markets because they have a direct impact on the level of the Group's fee income, as demonstrated by the recent volatility resulting from COVID-19. The most significant impact is seen within the Advice and Wealth Management segment, where AuMA is more correlated to equity market levels and is the key driver for future cash flows.

The principal sensitivity within equity market level assumptions relates to the estimated growth in equity market indices included in the three-year revenue forecasts. Management forecast equity market growth for each business using estimated asset specific growth rates that are supported by internal research, historical performance, Bank of England forecasts and other external estimates.

Value-in-use methodology

The value-in-use calculations for life assurance operations are determined as the sum of net tangible assets, the expected future cash flows arising from the in-force business, together with the expected cash flows from future new business derived from the business plans. Future cash flow elements allow for the cost of capital needed to support the business.

The net tangible assets and future cash flows arising from the in-force business are derived from Solvency II ("SII") calculations. The value of in-force ("VIF") is calculated as the prospective value of future expected cash flows on all in-force policies at the valuation date on a policy-by-policy basis allowing for surrender or transfer payments, death claims, income withdrawals, maintenance expenses, fund-based fees, mortality charge and other policy charges. The underlying assumptions are based on the best estimate view for the future, which is largely based on recent business experience and any emerging trends. The unit fund growth rates (gross of investment charges) and the risk discount rates are set using the prescribed SII term-dependent risk-free interest rates. The SII calculations are adjusted for a risk margin using the prescribed SII rules.

The value-in-use calculations for asset management operations are determined as the sum of net tangible assets and the expected cash flows from existing and expected future new business.

The cash flows that have been used to determine the value-in-use of the CGUs are based on the most recent management approved three-year profit forecasts, which incorporate the impact of COVID-19 and anticipated equity market growth on the Group's future cash flows. These cash flows change at different rates because of the different strategies of the CGUs. In cases where the CGUs have made significant acquisitions in the recent past, the cash flows are forecast to grow faster than the more mature businesses. Post the three-year forecasts, the growth rate used to determine the terminal value of the CGUs in the annual assessment approximates to the UK long-term growth rate of 0.6% (2019: 1.7%). Market share and market growth information are also used to inform the expected volumes of future new business.

IAS 36 does not permit any cost savings linked to future restructuring activity to be included within the value-in-use calculation unless an associated restructuring provision has also been recognised. Consequently, for the purpose of the value-in-use calculation, a number of planned cost savings (and the related implementation costs), primarily in relation to the Optimisation programme, have been removed from the future cash flows.

The Group uses a single cost of capital of 9.0% (2019: 10.0%) to discount future expected business plan cash flows across its two groups of CGUs because they are perceived to present a similar level of risk and are integrated. Capital is provided to the Group predominantly by shareholders with a small amount of debt. The cost of capital is the weighted average of the cost of equity (return required by shareholders) and the cost of debt (return required by bond and property lease holders). When assessing the systematic risk (i.e. beta value) within the calculation of the cost of equity, a triangulation approach is used that combines beta values obtained from historical data, a forward-looking view on the progression of beta values and the external views of investors.

 

 

11: Financial investments

The table below analyses the investments and securities that the Group invests in, either on its own proprietary behalf (shareholder funds) or on behalf of third parties (policyholder funds).

 

 

£m

 

31 December 2020

31 December 2019

restated1

Government and government-guaranteed securities

632

558

Other debt securities, preference shares and debentures

1,952

1,897

Equity securities

14,163

8,560

Pooled investments

46,518

46,177

Short-term funds and securities treated as investments

9

15

Total financial investments

63,274

57,207

 

 

 

Recoverable within 12 months

63,274

57,206

Recoverable after 12 months

-

1

Total financial investments

63,274

57,207

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

The financial investments recoverability profile is based on the intention with which the financial assets are held. These assets are held to cover the liabilities for linked investment contracts, all of which can be withdrawn by policyholders on demand.

12: 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.

For information about the methods and assumptions used in determining fair value please refer to note 13. The Group's exposure to various risks associated with financial instruments is discussed in note 19.

31 December 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

 

Fair value

 

 

 

 

 

Measurement basis

Mandatorily at FVTPL

Designated at FVTPL

 

Amortised cost

 

Non-financial assets and liabilities

Total

Assets

 

 

 

 

 

 

 

Investments in associated undertakings1

-

-

 

-

 

1

1

Loans and advances

186

-

 

33

 

-

219

Financial investments

63,248

1

 

25

 

-

63,274

Trade, other receivables and other assets

-

-

 

444

 

257

701

Derivative assets

43

-

 

-

 

-

43

Cash and cash equivalents

1,064

-

 

857

 

-

1,921

Total assets that include financial instruments

64,541

1

 

1,359

 

258

66,159

Total other non-financial assets

-

-

 

-

 

1,213

1,213

Total assets

64,541

1

 

1,359

 

1,471

67,372

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Investment contract liabilities

-

57,407

 

-

 

-

57,407

Third-party interests in consolidation of funds

6,513

-

 

-

 

-

6,513

Borrowings and lease liabilities

-

-

 

319

 

-

319

Trade, other payables and other liabilities

-

-

 

590

 

82

672

Derivative liabilities

20

-

 

-

 

-

20

Total liabilities that include financial instruments

6,533

57,407

 

909

 

82

64,931

Total other non-financial liabilities

-

-

 

-

 

563

563

Total liabilities

6,533

57,407

 

909

 

645

65,494

1Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.

 

 

31 December 2019 (restated)3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

Measurement basis

Fair value

 

 

 

 

 

 

Mandatorily at FVTPL

Designated at FVTPL2

 

Amortised cost

 

Non-financial assets and liabilities2

Total

Assets

 

 

 

 

 

 

 

Investments in associated undertakings1

-

-

 

-

 

1

1

Loans and advances

180

-

 

37

 

-

217

Financial investments

57,205

2

 

-

 

-

57,207

Trade, other receivables and other assets2

-

-

 

342

 

263

605

Derivative assets

22

-

 

-

 

-

22

Cash and cash equivalents

1,159

-

 

1,094

 

-

2,253

Total assets that include financial instruments

58,566

2

 

1,473

 

264

60,305

Total other non-financial assets

-

-

 

-

 

1,246

1,246

Total assets

58,566

2

 

1,473

 

1,510

61,551

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Investment contract liabilities2

-

52,455

 

-

 

-

52,455

Third-party interests in consolidation of funds

5,318

-

 

-

 

-

5,318

Borrowings and lease liabilities

-

-

 

335

 

-

335

Trade, other payables and other liabilities

-

-

 

695

 

106

801

Derivative liabilities

10

-

 

-

 

-

10

Total liabilities that include financial instruments

5,328

52,455

 

1,030

 

106

58,919

Total other non-financial liabilities

-

-

 

-

 

561

561

Total liabilities

5,328

52,455

 

1,030

 

667

59,480

1Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted.

2Following a review of the Group's presentation of financial liabilities held at FVTPL, comparative amounts have been restated from those previously reported. The review identified amounts presented within mandatorily at FVTPL that are now presented as designated at FVTPL in the table above. These liabilities were previously shown as mandatorily at fair value through profit or loss ("FVTPL") as they form part of the Group's unit-linked business model. These liabilities are now classified as designated at FVTPL as they are managed on a fair value basis (in that their value is directly linked to the market value of the matching portfolio of unit-linked assets) therefore avoiding an accounting mismatch. There is no change to the underlying calculation of the fair value of these liabilities.

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

13: 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 of fair value hierarchy (see note 13(b)), prescribed under IFRS, provides an indication about the reliability of inputs used in determining fair value.

13(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; and

·      where the assets are private company shares or within consolidated investment funds 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. Where assets are valued by the Group, the general principles applied to those instruments measured at fair value are outlined below:

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 use 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 earnings before interest, tax, depreciation and amortisation 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. The fair value of the Group's over-the-counter forward foreign exchange contracts is determined by the underlying foreign currency exchange rates.

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 consolidated funds

Third-party interests in consolidated funds are measured at the attributable net asset value of each fund.

Borrowings and lease liabilities

Borrowings and lease liabilities are stated at amortised cost.

13(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 assets and liabilities with quoted prices for identical instruments in active markets.

Listed equity securities, government securities and other listed debt securities and similar instruments that are actively traded, actively traded pooled investments, certain quoted derivative assets and liabilities, policyholder loans (where they form part of a policyholders' unit-linked policy) and investment contract liabilities directly linked to other Level 1 financial assets.

Level 2 - valuation techniques using observable inputs: financial assets and liabilities with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial assets and liabilities valued using models where all significant inputs are observable.

Unlisted equity and debt securities where the valuation is based on models involving no significant unobservable data.

Over-the-counter ("OTC") derivatives, certain privately placed debt instruments and third-party interests in consolidated funds which meet the definition of Level 2 financial instruments.

Level 3 - valuation techniques using significant unobservable inputs: financial assets and liabilities valued using valuation techniques where one or more significant inputs are unobservable.

Unlisted equity and securities with significant unobservable inputs, securities where the market is not considered sufficiently active, including certain inactive pooled investments.

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.

When allocating investments within consolidated investment funds to the fair value hierarchy, management have adopted a simplified approach whereby investments (outside of those identified as Level 3) in listed equities and securities are allocated to fair value Level 1, and investments in unlisted equity and debt securities are allocated to Level 2, to align to the classifications set out in the table above.

13(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. Transfers from Levels 3 or 2 to Level 1 are also possible when assets become actively priced.

There were transfers of financial investments of £9 million from Level 1 to Level 2 during the year (31 December 2019: £139 million). There were transfers of financial investments of £3 million from Level 2 to Level 1 during the year (31 December 2019: £76 million). These movements are matched exactly by transfers of investment contract liabilities. See note 13(e) for the reconciliation of Level 3 financial instruments.

13(d): Financial assets and liabilities measured at fair value, classified according to fair value hierarchy

The majority of the Group's financial assets are measured using quoted market prices for identical instruments in active markets (Level 1) and there have been no significant changes during the year.

The linked assets 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.

Differences between assets and liabilities within the respective levels of the fair value hierarchy also arise due to the mix of underlying assets and liabilities within consolidated funds. In addition, third-party interests in consolidated funds are classified as Level 2.

The table below presents 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 (see note 12 for full details).

 

31 December 2020

31 December 2019

restated1

 

£m

%

£m

%

Financial assets measured at fair value

 

 

 

 

Level 1

56,927

88.2%

48,009

82.0%

Level 2

5,793

9.0%

8,842

15.1%

Level 3

1,822

2.8%

1,717

2.9%

Total

64,542

100.0%

58,568

100.0%

Financial liabilities measured at fair value

 

 

 

 

Level 1

55,135

86.3%

50,315

87.0%

Level 2

6,985

10.9%

5,751

10.0%

Level 3

1,820

2.8%

1,717

3.0%

Total

63,940

100.0%

57,783

100.0%

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

The tables below further analyse the Group's financial assets and liabilities measured at fair value by the fair value hierarchy described in note 13(b):

 

 

 

 

£m

31 December 2020

Level 1

Level 2

Level 3

Total

Financial assets measured at fair value

 

 

 

 

Mandatorily (fair value through profit or loss)

56,926

5,793

1,822

64,541

   Loans and advances2

186

-

-

186

   Financial investments

55,676

5,750

1,822

63,248

   Cash and cash equivalents

1,064

-

-

1,064

   Derivative assets

-

43

-

43

 

 

 

 

 

Designated (fair value through profit or loss)

1

-

-

1

   Financial investments

1

-

-

1

 

 

 

 

 

Total assets measured at fair value

56,927

5,793

1,822

64,542

 

 

 

 

 

Financial liabilities measured at fair value

 

 

 

 

Mandatorily (fair value through profit or loss)

-

6,533

-

6,533

   Third-party interests in consolidated funds

-

6,513

-

6,513

   Derivative liabilities

-

20

-

20

 

 

 

 

 

Designated (fair value through profit or loss)

55,135

452

1,820

57,407

   Investment contract liabilities

55,135

452

1,820

57,407

 

 

 

 

 

Total liabilities measured at fair value

55,135

6,985

1,820

63,940

 

 

 

 

 

£m

31 December 2019 (restated)1

Level 1

Level 2

Level 3

Total

Financial assets measured at fair value

 

 

 

 

Mandatorily (fair value through profit or loss)

48,007

8,842

1,717

58,566

   Loans and advances2

180

-

-

180

   Financial investments

46,668

8,820

1,717

57,205

   Cash and cash equivalents

1,159

-

-

1,159

   Derivative assets

-

22

-

22

 

 

 

 

 

Designated (fair value through profit or loss)

2

-

-

2

   Financial investments

2

-

-

2

 

 

 

 

 

Total assets measured at fair value

48,009

8,842

1,717

58,568

 

 

 

 

 

Financial liabilities measured at fair value

 

 

 

 

Mandatorily (fair value through profit or loss)

-

5,328

-

5,328

   Third-party interests in consolidated funds

-

5,318

-

5,318

   Derivative liabilities

-

10

-

10

 

 

 

 

 

Designated (fair value through profit or loss)

50,315

423

1,717

52,455

   Investment contract liabilities3

50,315

423

1,717

52,455

 

 

 

 

 

Total liabilities measured at fair value

 

50,315

5,751

1,717

57,783

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

2Loans and advances mandatorily at fair value through profit or loss, included within fair value Level 1, solely relate to policyholder loans.

3Following a review of the Group's presentation of financial liabilities held at FVTPL, comparative amounts have been restated from those previously reported. The review identified amounts presented within mandatorily at FVTPL that are now presented as designated at FVTPL in the table above.

13(e): Level 3 fair value hierarchy disclosure

The majority of the assets classified as Level 3 are held within linked policyholder funds. Where this is the case, all of the investment risk associated with these assets is borne by policyholders and 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.

During the year ended 31 December 2020, Level 3 assets also include a shareholder investment in suspended funds to the value of £2 million (31 December 2019: £nil); this is not matched by a corresponding liability and therefore any changes in market value are recognised in the Group's consolidated income statement. The table below reconciles the opening balance of Level 3 financial assets to the closing balance at each year end:

 

 

£m

 

31 December 2020

31 December 2019

At beginning of the year1

1,717

1,154

Fair value losses charged to income statement

(121)

(20)

Purchases

16

314

Sales

(8)

(24)

Transfers in

930

369

Transfers out

(714)

(71)

Foreign exchange and other

2

(5)

Total Level 3 financial assets

1,822

1,717

Unrealised fair value losses charged to income statement relating to assets held at the year end

(110)

(20)

1The opening balance for 2019 includes a £3 million shareholder investment in an unlisted equity, the Charles Derby Group; this was not matched by a corresponding liability and therefore any changes in market value were recognised in the Group's income statement. Following the acquisition of the Charles Derby Group in 2019, the Group's investment is no longer held as a Level 3 financial investment, but instead as an investment in subsidiary which is eliminated on consolidation.

Amounts shown as sales arise principally from the sale of private company shares, unlisted pooled investments and from distributions received in respect of holdings in property funds.

Transfers into Level 3 assets in the current year total £930 million (31 December 2019: £369 million). This is due to a combination of stale priced assets that were previously shown within Level 2 and for which price updates have not been received for more than six months, and a significant increase in suspended funds previously shown within Level 1, predominately due to the COVID-19 pandemic resulting in a number of property fund suspensions. Suspended funds are valued based on external valuation reports received from fund managers. Transfers out of Level 3 assets in the current year of £714 million (31 December 2019: £71 million) result from a transfer to Level 2 assets relating to assets that are now being actively repriced (that were previously stale) and where fund suspensions have been lifted following the market recovery during the second half of the year. During 2020 a suspended fund with a value of £85 million has been wound up and cash returned to policyholders, resulting in the cash being placed in a cash fund within Level 1 assets.

The table below analyses the type of Level 3 financial assets held:

 

 

 

£m

 

 

31 December 2020

31 December 2019

Pooled investments

 

522

361

   Unlisted and stale price pooled investments

 

87

133

   Suspended funds

 

435

228

Private equity investments

 

1,300

1,356

Total Level 3 financial assets

 

1,822

1,717

All of the liabilities that are classified as Level 3 are investment contract liabilities which exactly match against the Level 3 assets held in linked policyholder funds.

The table below reconciles the opening balance of Level 3 financial liabilities to the closing balance at each year end:

 

 

£m

 

31 December 2020

31 December 2019

At beginning of the year

1,717

1,151

Fair value losses charged to income statement

(120)

(20)

Purchases

16

314

Sales

(8)

(24)

Transfers in

927

369

Transfers out

(714)

(71)

Foreign exchange and other

2

(2)

Total Level 3 financial liabilities

1,820

1,717

Unrealised fair value losses charged to income statement relating to liabilities held at the year end

(110)

(20)

13(f): Effect of changes in significant unobservable assumptions to reasonable possible alternatives

Details of the valuation techniques applied to the different categories of financial instruments can be found in note 13(a) above, including the valuation techniques applied when significant unobservable assumptions are used to value Level 3 assets.

The majority of the Group's Level 3 assets are held within private equity investments, where the valuation of these assets is 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. For this reason, no reasonable alternative assumptions are applicable and management therefore performs a sensitivity test of an aggregate 10% change in the value of the financial asset or liability (31 December 2019: 10%), representing 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 this sensitivity will be in the range of £182 million to the reported fair value of Level 3 assets, both favourable and unfavourable (31 December 2019: £172 million). As described in note 13(e), changes in the value of Level 3 assets held within linked policyholder funds are exactly matched by corresponding changes in the value of liabilities due to policyholders and therefore have no impact on the Group's net asset value or profit or loss, except to the extent that it has an impact on management fees earned.

13(g): Fair value hierarchy for assets and liabilities not measured at fair value

Certain financial instruments of the Group are not carried at fair value. 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. Their classification within the fair value hierarchy would be as follows:

Trade, other receivables, and other assets        Level 3

Trade, other payables, and other liabilities                        Level 3

Cash and cash equivalents (excluding money market funds) are held at amortised cost and therefore not carried at fair value. The cash and cash equivalents that are held at amortised cost would be classified as Level 1 in the fair value hierarchy.

Fixed term deposits, which are included within Financial investments, are held at amortised cost and therefore not carried at fair value. The fixed term deposits that are held at amortised cost would be classified as Level 1 in the fair value hierarchy.

Loans and advances are financial assets held at amortised cost and therefore not carried at fair value, with the exception of policyholder loans which are categorised as FVTPL. The loans and advances that are held at amortised cost would be classified as Level 3 in the fair value hierarchy.

Borrowed funds are financial liabilities held at amortised cost and therefore not carried at fair value. Borrowed funds relate to subordinated liabilities and would be classified as Level 2 in the fair value hierarchy.

Lease liabilities valued under IFRS 16 are held at amortised cost and therefore not carried at fair value. They would be classified as Level 3 in the fair value hierarchy.

14: Cash and cash equivalents

14(a): Analysis of cash and cash equivalents

 

 

 

£m

 

 

31 December

2020

31 December

2019

restated1

Cash at bank

 

550

787

Money market funds

 

1,064

1,159

Cash and cash equivalents in consolidated funds

 

307

307

Total cash and cash equivalents per statement of financial position

 

1,921

2,253

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

Except for cash and cash equivalents subject to consolidation of funds of £307 million (2019: £307 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.

14(b): Analysis of net cash flows from operating activities:

 

 

 

£m

 

Notes

31 December 2020

31 December 2019

restated1

Cash flows from operating activities

 

 

 

Profit before tax from continuing operations

 

86

45

(Loss)/profit before tax from discontinued operations

4(c)

(1)

256

 

 

85

301

Adjustments for

 

 

 

Depreciation and impairment of property, plant and equipment

 

23

19

Movement on deferred acquisition and contract costs

 

44

57

Movement on contract liabilities and fee income receivable

 

(7)

(13)

Amortisation and impairment of intangibles

10

47

48

Fair value and other movements in financial assets

 

(3,319)

(7,650)

Fair value movements in investment contract liabilities

16

2,632

6,518

Other change in investment contract liabilities

 

2,187

(1,209)

Loss/(profit) on sale of subsidiaries

4(b)

1

(103)

Other movements

 

40

65

 

 

1,648

(2,268)

Net changes in working capital

 

 

 

Increase in derivatives

 

(11)

(10)

(Increase)/decrease in loans and advances

 

(5)

5

Increase/(decrease) in provisions

17

1

(28)

Movement in other assets/liabilities2

 

(245)

(35)

 

 

(260)

(68)

Taxation paid

 

(28)

(37)

Net cash flows from/(used in) operating activities

 

1,445

(2,072)

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

2Working capital changes in respect of other assets and liabilities primarily relate to consolidated funds.

15: Share capital and capital redemption reserve

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 1,783,969,051 Ordinary Shares of 7p each with an aggregated nominal value of £124,877,834 (31 December 2019: 1,902,251,098 Ordinary Shares of 7p each with an aggregated nominal value of £133,157,577). 

This note gives details of the Company's Ordinary Share capital and shows the movements during the year:      

 

 

 

£m

£m

 

 

Number of shares

Nominal value

Share premium

At 1 January 2019

 

1,902,251,098

133

58

At 31 December 2019

 

1,902,251,098

133

58

Shares cancelled through share buyback programme

 

(118,282,047)

(8)

-

At 31 December 2020

 

1,783,969,051

125

58

On 11 March 2020 the Company announced a share buyback programme to purchase shares up to a maximum value of £375 million, in order to reduce the share capital of the Company. The programme commenced on 11 March 2020 and will continue into 2021. During the year ended 31 December 2020, the Company acquired 118.3 million shares for a total consideration of £153 million and incurred additional costs of £4 million. The shares, which have a nominal value of £8 million, have subsequently been cancelled, giving rise to a capital redemption reserve of the same value as required by the Companies Act 2006. In December, the committed remainder of £22 million was accrued as a liability against retained earnings.

16: Investment contract liabilities

The following table provides a summary of the Group's investment contract liabilities:

 

 

 

 

 

 

£m

 

31 December 2020

31 December 2019

 

Gross

Re-

insurance

Net

Gross

Re-

insurance

Net

Carrying amount at 1 January

52,455

-

52,455

56,450

(1,671)

54,779

From continuing operations

 

 

 

 

 

 

 Fair value movements

2,632

-

2,632

5,091

-

5,091

 Investment income

696

-

696

719

-

719

Movements arising from investment return

3,328

-

3,328

5,810

-

5,810

From discontinued operations

 

 

 

 

 

 

 Fair value movements

-

-

-

1,427

(205)

1,222

 Investment income

-

-

-

142

-

142

Movements arising from investment return

-

-

-

1,569

(205)

1,364

Contributions received

4,871

-

4,871

5,718

1,148

6,866

Maturities

(97)

-

(97)

(166)

-

(166)

Withdrawals and surrenders

(3,226)

-

(3,226)

(7,419)

-

(7,419)

Claims and benefits

(59)

-

(59)

(205)

-

(205)

Other movements

2

-

2

2

(1)

1

Change in liability

4,819

-

4,819

5,309

942

6,251

Currency translation loss/(gain)

133

-

133

(121)

-

(121)

Disposal of subsidiaries

-

-

-

(9,183)

729

(8,454)

Investment contract liabilities

57,407

-

57,407

52,455

-

52,455

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.

The reinsurers' share of policyholder liabilities relating to investment contract liabilities reduced to £nil in 2019 due to the disposal of QLA.

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 costs asset and contract liability 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 costs asset is restricted to the recoverable amount. For linked contracts, the assumptions are on a best estimate basis.

Following the sale of QLA in 2019 (see note 4(b)) the Group no longer has any pure insurance contracts. Within the Group's International business, insurance contracts are unbundled. The insurance component does not give rise to any future liabilities and the deposit component is presented in investment contract liabilities. As a result, the Group no longer has any insurance liabilities or reinsurance assets. In the year ended 31 December 2020 unbundled insurance premiums of £1 million (31 December 2019: £1 million) are offset by £(1) million (31 December 2019: £(1) million) of premiums ceded to reinsurers.

 

 

 

17: Provisions

 

 

 

 

 

£m

31 December 2020

Compensation

provisions

Sale of QLA

Sale of Single Strategy business

Clawback and other provisions

Total

Balance at beginning of the year

31

6

10

17

64

Additions from business combinations

12

-

-

-

12

Charge to income statement

10

-

-

1

11

Utilised during the year

(5)

(3)

(1)

(4)

(13)

Unused amounts reversed

(6)

-

(2)

(3)

(11)

Reclassification within statement of financial position1

-

-

-

14

14

Balance at 31 December 2020

42

3

7

25

77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

31 December 2019

Compensation

provisions

Sale of QLA

Sale of Single Strategy business

Clawback and other provisions

Total

Balance at beginning of the year

54

-

20

20

94

Adjustment on initial application of IFRS 16

-

-

-

(5)

(5)

Additions from business combinations

14

-

-

1

15

Charge to income statement2

9

6

1

7

23

Utilised during the year

(19)

-

(11)

(1)

(31)

Unused amounts reversed

(13)

-

-

(4)

(17)

Disposals

(11)

-

-

(1)

(12)

Reclassification within statement of financial position

(3)

-

-

-

(3)

Balance at 31 December 2019

31

6

10

17

64

1Clawback provision was disclosed on a net basis in 2019. In 2020 the balance has been reclassified, with the liability due to product providers on indemnity commission disclosed within provisions and the recoverable amount from brokers disclosed within receivables.

2Part of the charge to income statement in 2019 is included within the discontinued operations income statement.

Compensation provisions

Compensation provisions total £42 million (31 December 2019: £31 million), and are comprised of the following:

Lighthouse pension transfer advice provision of £28 million (31 December 2019: £12 million)

A provision for pension transfer advice was established within the fair value of the Lighthouse assets and liabilities acquired. As at 31 December 2019, the provision related to approximately 30 complaints received on advice provided by Lighthouse in respect of pension transfers for British Steel pension scheme members, prior to the Group's acquisition of Lighthouse in June 2019. All the complaints received related to transfers before that date.

During 2020, the FCA reported the results of their thematic review into the general market of pension transfers, which included British Steel pension transfers. The FCA review determined that the percentage of unsuitable files for British Steel transfers was higher than those for other pension scheme transfers in their sample. The FCA review included a sample of British Steel pension transfer advice provided by Lighthouse. Additionally, approximately 45 further complaints have been received from British Steel pension scheme members subsequent to the publication of the Group's 2019 Annual Report. As such, the Group has extended the provision to include consideration of the full population of 265 British Steel transfers on which Lighthouse advisers provided advice and the relevant customers proceeded to make a transfer, in order to determine a more reliable approximation of the estimated redress payable.

In April 2020, the Group was informed by the FCA that it would be required to appoint a skilled person to review the British Steel pension transfers. A skilled person has been appointed, and they have performed provisional redress calculations on a significant portion of the British Steel complaints received by Lighthouse where the advice given was not suitable. The redress calculated on the complaints has been extrapolated to the entire population of British Steel transfers, by subdividing the population into cohorts with similar characteristics, including dividing into transfers pre and post June 2017 when the Trustees of the British Steel pension fund changed the basis on which transfer values were calculated. The timing of any benefits withdrawn by the member after the transfer also has an impact upon the redress calculated. The estimated redress per client as a proportion of the transfer value of the pensions was determined for each cohort and extrapolated to the overall population of cases where advice was provided, and that advice was then acted upon. The methodology employed to assess the calculated redress payable uses assumptions and estimation techniques which are consistent with principles under the FCA's FG17/9 "Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers".

A total provision of £28 million (31 December 2019: £12 million) has been calculated for the potential redress of all British Steel cases, including anticipated costs associated with the redress activity. This is comprised of two parts:

 

(a)   Client redress provision of £25 million (31 December 2019: £9 million). As noted above, this provision was increased during 2020 following the publication of the FCA thematic review and additional client complaints received.

(b)   Anticipated costs associated with redress activity of £3 million (31 December 2019: £3 million). This provision is recognised in respect of the anticipated costs of legal and professional fees related to the cases and redress process, which includes the expected costs to review advice provided of a similar nature in relation to cases that management believe may have similar characteristics. £1 million of the legal and professional fees provision has been utilised during the year, and the provision was increased by a further £1 million during the year.

 

The recognition of the total provision before utilisation of £29 million has been further apportioned between the fair value of net assets of Lighthouse at acquisition and the expenses of the Group:

 

(a)   £24 million (31 December 2019: £12 million) is recognised within the fair value of net assets acquired and impacts the goodwill balance recognised upon acquisition.

(b)   The increase in the provision subsequent to acquisition of £5 million has been recognised within expenses of the Group.

 

The table below shows the change in this provision and how the amounts have been recognised:

 

 

 

 

 

 

£m

Notes

31 December 2020

Utilised during the year

Balance before utilisation

Increase in 2020

31 December 2019

Client redress provision

 

25

-

25

16

9

Anticipated costs

 

3

(1)

4

1

3

Total Lighthouse pension transfer advice complaints provision

28

(1)

29

17

12

 

 

 

 

 

 

 

Recognised within fair value of acquired net assets

4(a)

24

 

24

12

12

Recognised within expenses

5(b)(vi)

5

 

5

5

-

Additionally, the recognition of the fair value of acquired assets has been increased by management's estimate of the fair value of the insurance recoverable of £3 million and the deferred tax asset receivable of £2 million (both described in note 4(a)) which, taken together with the £12 million increase in client redress provision described above, results in a net decrease of £7 million to the fair value of the acquired net assets, which has been recognised as an increase in the goodwill balance in the year ending 31 December 2020.

Management has not changed the £3 million insurance recoverable that has been included in the fair value of the acquired net assets of Lighthouse. Discussion with insurers is ongoing and management will review the recoverable amount as and when they receive further certainty. The insurance asset at 31 December 2020 is disclosed within "Trade, other receivables and other assets".

The final costs of redress for cases upheld will depend on specific calculations on a case-by-case basis, which are impacted by market movements and other parameters affecting the defined contribution scheme asset, and therefore exposed to volatility from this, and may vary from the amounts currently provided. The skilled person review is expected to conclude in the second half of 2021, after which settlements to customers will be made.

The key assumptions which have an impact upon the redress payable calculation are the discount rate, changes in market levels and proportion of cases where redress is estimated to be payable. For the purpose of the redress calculation, changes in the discount rate impact the valuation of the defined benefit ("DB") scheme at the reporting date, and market level changes impact the valuation of the personal pension scheme for each client. The following table presents the potential change to the provision balance at 31 December 2020 as a result of movements in the key assumptions:

 

 

 

 

£m

 

 

 

 

31 December 2020

 

 

 

Increase

Decrease

Change in discount rate to value the DB pension liability of 0.25%

 

 

(4)

4

Change in market levels of 5%

 

 

(2)

2

Change in number of cases upheld of 10%

 

 

1

(1)

A further assumption which has an impact upon the provision is the timing of benefits taken. The uncertainty regarding the timing of benefits taken by each member for the cases not yet determined by the skilled person has a potentially material future impact upon the provision. The range of outcomes for the provision, including anticipated costs, varies from £25 million to £36 million at each extremity of possible timing of benefits taken.

Compensation provisions (other) of £14 million (31 December 2019: £19 million)

Other compensation provisions of £14 million are all held within the Group's continuing operations and include amounts relating to the cost of correcting deficiencies in policy administration systems, including restatements, any associated litigation costs and the related costs to compensate previous or existing policyholders and customers. This provision represents management's best estimate of expected outcomes based upon previous experience, and a review of the details of each case. Due to the nature of the provision, the timing of the expected cash outflows is uncertain. The best estimate of timing of outflows is that the majority of the balance is expected to be settled within 12 months. Estimates are reviewed annually and adjusted as appropriate for new circumstances. Management estimate a reasonably possible change of +/- £4 million, based upon a review of the cases and the range of potential outcomes.  

Provisions arising on the disposal of Quilter Life Assurance

The QLA business was sold on 31 December 2019 (see note 4(b)), resulting in a number of provisions totalling £6 million being established in respect of the costs of disposing the business and the related costs of business separation.

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

The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. Work has taken place during 2020 and will continue into 2021. Calculation of the provision is based on management's best estimate of the work required, the time it is expected to take, the number and skills of the staff required and their cost, and the cost of related external IT services to support the work. In reaching these judgements and estimates, management have made use of their past experience of previous IT migrations following business disposals. Management estimate a reasonably possible change of +/- £1 million, based upon the time it takes to complete the work, which is expected to conclude in 2021.

During the year £3 million of the provision has been utilised.

Sale of Single Strategy Asset Management business provision

In 2018, a restructuring provision was recognised as a result of the sale of the Single Strategy Asset Management 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 established for restructuring was £19 million, of which £5 million was utilised during 2018 and a further £11 million utilised in 2019. During 2020, further utilisation of £1 million has been incurred, and £2 million has been reversed, and therefore the provision at year end 31 December 2020 is £nil.

Additional provisions totalling £6 million were also made in the year ended 31 December 2018 as a consequence of the sale of the Single Strategy Asset Management business. These were in relation to various sale related future commitments, the outcome of which was uncertain at the time of the sale and the most significant of which is in relation to the guarantee of revenues for the seller in future years arising from funds invested by customers of Quilter. A further £1 million was added to the provision during 2019, bringing the closing balance to £7 million at 31 December 2019. The balance remains at £7 million at 31 December 2020.

The provision considers sensitivities including potential scenarios which would result in a reduction in Group assets under management held in Merian (Single Strategy Asset Management business) funds, leading to a reduction in the management fees paid to Merian. The scenarios are based upon assumptions determined considering historical outflows over the past three years, expectation of outflows in the next 2 years and the latest information received from Merian. Per the conditions of the sale agreement, the maximum remaining potential exposure is £17 million, based on business periods between 2020 and 2022. The expected range of payments based upon the latest information received from Merian and management's reasonable expectations of AUM invested within Merian funds during the assessment periods varies from £5 million to £12 million.   

Of the total £7 million provision outstanding, £2 million is expected to be settled in the first half of 2021 related to the 2020 measurement year, and the remaining £5 million (2019: £3 million) is estimated to be payable after one year, with expected final settlement due in the first half of 2023.

Clawback and other provisions

Other provisions include amounts for the resolution of legal uncertainties and the settlement of other claims raised by contracting parties and indemnity commission provisions. 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.

Included within the balance in 2020 is £18 million of clawback provisions in respect of potential refunds due to product providers on indemnity commission, within the Quilter Financial Planning business. This provision, which is estimated and charged as a reduction of revenue on the income statement at the point of sale of each policy, is based upon assumptions determined from historical experience of the proportion of policyholders cancelling their policies, which requires Quilter to refund a portion of commission previously received. The provision has been assessed at the reporting date and adjusted for the latest cancellation information available. At 31 December 2020, an associated balance of £13 million recoverable from brokers is included within "Trade, other receivables and other assets". At 31 December 2019 the associated asset of £14 million was offset within the provision balance.

Management estimate a reasonably possible change of +/- £6 million, based upon the potential range of outcomes for the proportion of cancelled policies within the clawback provision, and a detailed review of the other provisions.

Of the total £25 million provision outstanding, £13 million is estimated to be payable within one year (2019: £17 million).

18: 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 17). 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.

Contingent liabilities - acquisitions and disposals

The Group routinely monitors and assesses contingent liabilities arising from matters such as litigation, warranties and indemnities relating to past acquisitions and disposals. In April 2020, the Group was informed by the FCA that it would be required to appoint a skilled person, under section 166(3)(a) of the Financial Services and Markets Act 2000 ("FSMA"), in relation to Lighthouse Defined Benefit ("DB") pension transfer advice. The review covers Lighthouse Advisory Services Limited only, and no other companies within the Group. The review covers the period from 1 April 2015 to 27 January 2020, which is the date that Lighthouse converted to the Quilter Financial Planning advice process for their Defined Benefit transfer activity.

The review will cover British Steel DB pension transfer advice activity undertaken by Lighthouse, and a representative sample of other Lighthouse DB pension transfer advice activity. The skilled person will also calculate redress, following the FCA's FG17/9 "Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers" guidance. The skilled person will also review the redress methodology applied by Lighthouse to any complaints already upheld. The skilled person's final report is expected to be submitted to the FCA in the third quarter of 2021.

For the British Steel cases, management currently consider that the likelihood of redress is probable on the majority of the cases, but this is subject to confirmation through the ongoing skilled person review process. An estimate of the amount of redress payable has been made and is included within Provisions in note 17. For the non-British Steel cases, it is possible that further costs of redress may be incurred following the outcome of the skilled person review. At present, there is no indication of redress payable in relation to non-British Steel cases.

Any further redress costs related to non-British Steel cases, and any differences between the provision and final payment to be made for British Steel cases, will be recognised as an expense or credit in the Income Statement, following the finalisation of the acquisition balance sheet of Lighthouse in June 2020.

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. This may include amounts relating to first time recognition of a deferred tax asset on accrued interest expenses, as explained in note 7(a).

Complaints and disputes

The Group is committed to treating customers fairly and supporting its customers in meeting their lifetime goals. The Group does from time to time receive complaints and claims, and enters into commercial disputes with service providers, in the normal course of business. The costs, including legal costs, of these issues as they arise can be significant and, where appropriate, provisions have been established under IAS 37.

19: Capital and financial risk management
19(a): Capital management

The Group manages its capital with a focus on capital efficiency and effective risk management. The capital management objectives are to maintain the Group's ability to continue as a going concern while supporting the optimisation of return relative to the risks. The Group ensures that it can meet its expected capital and financing needs at all times having regard to the Group's business plans, forecasts, strategic initiatives and regulatory requirements in all businesses in the Group. Capital forecasts have been reviewed regularly during 2020 in response to the emerging impacts of the COVID-19 pandemic which has evolved over the year and, where appropriate, management actions have been taken in response to these forecasts.  

The Group's overall capital risk appetite is set with reference to the requirements of the relevant stakeholders and seeks to:

·      maintain sufficient, but not excessive, financial strength to support stakeholder requirements;

·      optimise debt to equity structure to enhance shareholder returns; and

·      retain financial flexibility by maintaining liquidity including unutilised committed credit lines.

The primary sources of capital used by the Group are equity shareholders' funds of £1,878 million (31 December 2019: £2,071 million) and subordinated debt which was issued at £200 million in February 2018. Alternative resources are utilised where appropriate. Risk appetite has been defined for the level of capital, liquidity and debt within the Group. The risk appetite includes long-term targets, early warning thresholds and risk appetite limits. The dividend policy sets out the target dividend level in relation to profits.

The regulatory capital for the Group is assessed under Solvency II requirements.

19(a)(i): Regulatory capital (unaudited)

The Group is subject to Solvency II group supervision by the PRA. The Central Bank of Ireland is Quilter's lead supervisor within the European Union and exercises a limited form of Solvency II group supervision over the Group. The Group is required to measure and monitor its capital resources under the Solvency II regulatory regime. 

The Group's insurance undertakings are included in the Group solvency calculation on a Solvency II basis. Other regulated entities are included in the Group solvency calculation according to the relevant sectoral rules. The Group's Solvency II surplus is the amount by which the Group's capital on a Solvency II basis (own funds) exceeds the Solvency II capital requirement (solvency capital requirement or "SCR"). 

The Group's Solvency II surplus is £1,021 million at 31 December 2020 (2019: £1,168 million), representing a Solvency II ratio of 217% (2019: 221%) calculated under the standard formula. The Solvency II regulatory position for the year ended 31 December 2020 allows for the impact of the recommended final dividend payment of £61 million (2019: £64 million). The disclosure does not include the impact of Tranche 3 of the share buyback which has yet to be approved by the Group's regulators.

The Solvency II results for the year ended 31 December 2020 (unaudited estimate) and 31 December 2019 were as follows:

 

 

£m

 

31 December 20201

31 December 20192

Own funds

1,897

2,132

Solvency capital requirement (SCR)

876

964

Solvency II surplus

1,021

1,168

Solvency II coverage ratio

217%

221%

1Based on preliminary estimates. Filing of annual regulatory reporting forms due by 20 May 2021.

2As represented within the Quilter plc Group Solvency and Financial Condition Report for the year ended 31 December 2019.

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

 

 

£m

Group own funds

31 December 2020

31 December 2019

Tier 11

1,688

1,925

Tier 22

209

207

Total Group Solvency II own funds

1,897

2,132

1All Tier 1 capital is unrestricted for tiering purposes.

2Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond, which was issued at £200 million in February 2018.

The Group's insurance subsidiaries based in the UK and Ireland are also subject to Solvency II at entity level. Other regulated entities in the Group are subject to the locally applicable entity-level capital requirements in the jurisdictions in which they operate. In addition, the Group's asset management and advice businesses are subject to group supervision by the FCA under the CRD IV regime.

The solvency and capital requirements for the Group and its regulated subsidiaries are reported and monitored through monthly Capital Management Forum meetings. Throughout 2020, the Group has complied with the regulatory capital requirements that apply at a consolidated level and Quilter's insurance undertakings and investment firms have complied with the regulatory capital requirements that apply at entity level.

19(a)(ii): Loan covenants

Under the terms of the revolving credit facility agreement, the Group is required to comply with the following financial covenant: the ratio of total net borrowings to consolidated equity shareholders' funds shall not exceed 0.5.      

 

 

 

£m

 

 

31 December 2020

31 December 2019

Total external borrowings of the Company

 

199

198

Less: cash and cash equivalents of the Company

 

(314)

(559)

Total net external borrowings of the Company

 

(115)

(361)

Total shareholders' equity of the Group

 

1,878

2,071

Tier 2 bond

 

199

198

Total Group equity (including Tier 2 bond)

 

2,077

2,269

Ratio of Company net external borrowings to Group equity

 

-0.055

-0.159

The Group has complied with the covenant since the facility was created in February 2018.

19(a)(iii): Own Risk and Solvency Assessment ("ORSA") and Internal Capital Adequacy Assessment Process ("ICAAP")

The Group ORSA process is an ongoing cycle of risk and capital management processes which provides an overall assessment of the current and future risk profile of the Group and demonstrates the relationship between business strategy, risk appetite, risk profile and solvency needs. These assessments support strategic planning and risk-based decision making.

The underlying ORSA processes cover the Group and consider how risks and solvency needs may evolve over the planning period. The ORSA includes stress and scenario tests, which are performed to assess the financial and operational resilience of the Group.

The Group ORSA report is produced annually and summarises the analysis, insights and conclusions from the underlying risk and capital management processes in respect of the Group. The ORSA report is submitted to the PRA as part of the normal supervisory process and may be supplemented by ad hoc assessments where there is a material change in the risk profile of the Group outside the usual reporting cycle.

In addition to the Group ORSA process, entity level ORSA processes are performed for each of the solo insurance entities within the Group.

The Group ICAAP process is similar to the ORSA process although the ICAAP process is performed for a subset of the Group consisting of the investment and advisory firms within the Group (the "ICAAP Group"). The Group ICAAP report is also produced annually and summarises the analysis, insights and conclusions from the underlying risk and capital management processes in respect of the ICAAP Group. The ICAAP report is submitted to the FCA as part of the normal supervisory process and may be supplemented by ad-hoc assessments where there is a material change in the risk profile of the ICAAP Group outside the usual reporting cycle.

The conclusions of ORSA and ICAAP processes are reviewed by management and the Board throughout the year.

19(b): Credit risk
Overall exposure to credit risk

Credit risk is the risk of adverse movements in credit spreads (relative to the reference yield curve), credit ratings or default rates leading to a deterioration in the level or volatility of assets, liabilities or financial instruments resulting in loss of earnings or reduced solvency. This includes counterparty default risk, counterparty concentration risk and spread risk.

The Group has established a Credit Risk Framework that includes a Credit Risk Policy, Credit Risk Standard and Credit Risk Appetite Statement. This framework applies to all activities where the shareholder is exposed to credit risk, either directly or indirectly, ensuring appropriate identification, measurement, management, monitoring and reporting of the Group's credit risk exposures. 

The credit risk arising from all exposures is mitigated through ensuring the Group only enters into relationships with appropriately robust counterparties, adhering to the Group Credit Risk Policy. For each asset, consideration is given as to:

·      the credit rating of the counterparty, which is used to derive the probability of default;

·      the loss given default;

·      the potential recovery which may be made in the event of default;

·      the extent of any collateral that the firm has in respect of the exposures; and

·      any second order risks that may arise where the firm has collateral against the credit risk exposure.

The credit risk exposures of the Group are monitored regularly to ensure that counterparties remain creditworthy, to ensure there is appropriate diversification of counterparties and to ensure that exposures are within approved limits. At 31 December 2020, the Group's material credit exposures were to financial institutions (primarily through the investment of shareholder funds), corporate entities (including external fund managers and reinsurers) and individuals (primarily through fund management trade settlement activities).

There is no direct exposure to European sovereign debt (outside of the UK) within the shareholder investments. The Group has no significant concentrations of credit risk exposure. 

Other credit risks

The Group is exposed to financial adviser counterparty risk through a number of loans that it makes to its advisers and the payment of upfront commission on the sale of certain types of business. The risk of default by financial advisers is managed through monthly monitoring of loan and commission debt balances.

The Group is also exposed to the risk of default by fund management groups in respect of settlements and rebates of fund management charges on collective investments held for the benefit of policyholders. This risk is managed through the due diligence process which is completed before entering into any relationship with a fund group. Amounts due to and from fund groups are monitored for prompt settlement and appropriate action is taken where settlement is not timely.

Legal contracts are maintained where the Group enters into credit transactions with a counterparty.

Impact of credit risk on fair value

Due to the limited exposure that the Group has to credit risk, credit risk does not have a material impact on the fair value movement of financial instruments for the year under review. The fair value movements on these instruments are mainly due to changes in market conditions.

Maximum exposure to credit risk

The Group's maximum exposure to credit risk does not differ from the carrying value disclosed in the relevant notes to the financial statements.

Loans and advances subject to 12 month expected credit losses ("12 month ECL") are £31 million (2019: £37 million) and other receivables subject to lifetime expected credit losses ("lifetime ECL") are £525 million (2019 restated - see note 3(b): £458 million). These balances are not rated; they represent the pool of counterparties that do not require a rating. These counterparties individually generate no material credit exposure and this pool is highly diversified, monitored and subject to limits. 

Exposure arising from financial instruments not recognised on the statement of financial position is measured as the maximum amount that the Group would have to pay, which may be significantly greater than the amount that would be recognised as a liability. The Group does not have any significant exposure arising from items not recognised on the statement of financial position.

The table below represents the Group's exposure to credit risk from cash and cash equivalents.

 

 

 

 

 

 

 

£m

 

Credit rating relating to cash and cash equivalents that are neither past due nor impaired

31 December 2020

AAA

AA

A

BBB

<BBB

Not rated1

Carrying value

Cash at amortised cost, subject to 12 month ECL

-

81

464

1

4

307

857

Money market funds at FVTPL

1,062

-

-

-

2

-

1,064

Total cash and cash equivalents

1,062

81

464

1

6

307

1,921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

 

 

Credit rating relating to cash and cash equivalents that are neither past due nor impaired

 

31 December 2019 (restated2)

AAA

AA

A

BBB

<BBB

Not rated1

Carrying value

 

Cash at amortised cost, subject to 12 month ECL

-

272

511

2

2

307

1,094

 

Money market funds at FVTPL

1,156

-

-

3

-

-

1,159

 

Total cash and cash equivalents

1,156

272

511

5

2

307

2,253

 

                               

1Cash included in the consolidation of funds is not rated (see note 14(a)).

2See notes 3(b) for details of changes to comparatives.

Impairment allowance

Assets that are measured and classified at amortised cost are monitored for any expected credit loss ("ECL") on either a 12 month or lifetime ECL model. The majority of such assets within the Group are measured on the lifetime ECL model, with the exception of some specific loans that are on the 12 month ECL model.

Impairment allowance

£m

Balance at 1 January 2019

(0.9)

Additions due to increased broker loans

(0.3)

31 December 2019

(1.2)

Reduction due to reassessment of broker loans impairment modelling

0.4

31 December 2020

(0.8)

19(c): Market risk

Market risk is the risk of an adverse change in the level or volatility of market prices of assets, liabilities or financial instruments resulting in loss of earnings or reduced solvency. Market risk arises from changes in equity, bond and property prices, interest rates and foreign exchange rates. Market risk arises differently across the Group's businesses depending on the types of financial assets and liabilities held.

The Group has a market risk policy which sets out the risk management framework, permitted and prohibited market risk exposures, maximum limits on market risk exposures, management information and stress testing requirements which are used to monitor and manage market risk. The policy is cascaded to the businesses across the Group, and Group level governance and monitoring processes provide oversight of the management of market risk by the individual businesses.

The Group does not undertake any principal trading for its own account. The Group's revenue is however affected by the value of assets under management and consequently it has exposure to equity market levels and economic conditions. Scenario testing is undertaken to test the resilience of the business to severe but plausible events, including assessment of the potential implications of climate related risks and opportunities, and to assist in the identification of management actions. 

19(c)(i): Equity and property price risk

In accordance with the market risk policy, the Group does not generally invest shareholder assets in equity or property, or related collective investments, except where the exposure arises due to:

·      mismatches between unitised fund assets and liabilities. These mismatches are permitted, subject to maximum limits, to avoid excessive dealing costs; and

·      seed capital investments. Seed capital is invested within new unit-linked funds at the time when these funds are launched. The seed capital is then withdrawn from the funds as policyholders invest in the funds.

The above exposures are not material to the Group.

The Group derives fees (e.g. annual management charges) and incurs costs (e.g. adviser fund based renewal commissions) which are linked to the performance of the underlying assets. Therefore future earnings will be affected by equity and property market performance.

Equity and property price sensitivity testing

A movement in equity and property prices would impact the fee income that is based on the market value of the investments held for the policyholders. In this analysis, all linked renewal commission is assumed to be fund based. The sensitivity is applied as an instantaneous shock to equity and property prices at the start of the year. The sensitivity analysis is not limited to the unit-linked business and therefore reflects the sensitivity of the Group as a whole.

 

 

£m

Impact on profit after tax and shareholder's equity

 

31 December 2020

31 December 2019

Impact of 10% increase in equity and property prices

32

32

Impact of 10% decrease in equity and property prices

(32)

(32)

19(c)(ii): Interest rate risk

Interest rate risk arises primarily from bank balances held with financial institutions. A small amount of the Group's assets are held in fixed interest UK government bonds, which are exposed to fluctuations in interest rates.

Fixed interest UK government bonds are mainly held to match liabilities by durations and so the exposure to interest rate risk is not material.

A rise in interest rates would also cause an immediate fall in the value of investments in fixed income securities within unit-linked funds. The unit-linked funds asset look-through analysis has revealed that less than 30% of the Group's linked assets are invested in the fixed income securities which generally have short durations, resulting in a low material impact in fund based revenues.

Conversely, a reduction in interest rates would cause a rise in the value of investments in fixed income securities within unit-linked funds. It would also reduce the interest rate earned on bank balances, and could potentially result in the Group incurring interest charges on these balances, if interest rates become negative.

Exposure of the IFRS income statement and statement of financial position equity to interest rates are summarised below.

Interest rate sensitivity testing

The impact of an increase and decrease in market interest rates of 1% is tested (e.g. if the current interest rate is 5%, the test allows for the effects of an instantaneous change to 4% and 6% from the start of the year). The test allows consistently for similar changes in investment returns and movements in the market value of any fixed interest assets backing the liabilities. The sensitivity of profit to changes in interest rates is provided.

 

 

£m

Impact on profit after tax and shareholder's equity

 

Year ended    31 December 2020

Year ended      31 December 2019

Impact of 1% increase in interest rates

16

16

Impact of 1% decrease in interest rates

(8)

(12)

19(c)(iii): Currency translation risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group's functional currency is Sterling, which accounts for the majority of the Group's transactions, but the Group also has minor exposures to foreign exchange risk in respect to accounts receivable and future revenues denominated in US Dollars, Euros and Swedish Krona through its International operations. Where currency risk is considered material, risk mitigation techniques are adopted, such as using derivative financial instruments such as forward foreign exchange contracts. After risk mitigation, the Group does not have material foreign currency risk exposure.

19(d): Liquidity risk

Liquidity risk is the risk that there are insufficient assets or that assets cannot be realised in order to settle financial obligations as they fall due or that market conditions preclude the ability of the Group to trade in illiquid assets in order to maintain its asset and liability matching ("ALM") profile. The Group manages liquidity on a daily basis through:

·      maintaining adequate high quality liquid assets and banking facilities, the level of which is informed through appropriate liquidity stress testing;

·      continuously monitoring forecast and actual cash flows; and

·      monitoring a number of key risk indicators to help in the identification of a liquidity stress.

Individual businesses maintain and manage their local liquidity requirements according to their business needs within the overall Group Liquidity Risk Framework that includes a Group Liquidity Risk Policy, Group Liquidity Risk Standard and Group Liquidity Risk Appetite Statement. The Group framework is applied consistently across all businesses in the Group to identify, manage, measure, monitor and report on all liquidity risks that have a material impact on liquidity levels. This framework considers both short-term liquidity and cash management considerations and longer-term funding risk considerations.

Liquidity is monitored centrally by Group Treasury, with management actions taken at a business level to ensure each business has liquidity to cover its minimum liquidity requirement, with an appropriate buffer set in line with the Group Risk Appetite Statement.  

Throughout the Covid-19 pandemic experienced in 2020 all of the subsidiaries and the Group Holding Companies have operated above their individual liquidity targets and there were no new liquidity stresses identified over this period to include in the liquidity monitoring process. Daily liquidity monitoring continues across the group to enable timely identification of any emerging issues.

The Group maintains contingency funding arrangements to provide liquidity support to businesses in the event of liquidity stresses that are greater than their risk appetite. Contingency Funding Plans are in place for each individual business in order to set out the approach and management actions that would be taken should liquidity levels fall below minimum liquidity requirements. The plans undergo an annual review and testing cycle to ensure they are fit for purpose and can be relied upon during a liquidity stress.  

Information on the nature of the investments and securities held is given in note 11.

The Group has a £125 million five year Revolving Credit Facility with a five bank club that represents a form of contingency liquidity for the Group. No drawdown on this facility has been made since inception or through the period of the COVID-19 pandemic. The Group has exercised the option to extend the facility for a further two year period, to February 2025, and has continued to meet all the covenants attached to its financing arrangements.   

The financing arrangements are considered sufficient to maintain the target liquidity levels of the Group and offer coverage for appropriate stress scenarios identified within the liquidity stress testing undertaken across the Group.

The Group does not have material liquidity exposure to special purpose entities or investment funds.

19(e): Insurance Risk

19(e)(i): Overview

The Group assumes insurance risk by providing life assurance cover to customers within insurance policies, under which the Group agrees to compensate the policyholder or other beneficiary in the event that a specified uncertain future event (the insured event) affecting the policyholder occurs. The Group does not offer general insurance business and therefore does not take on other forms of insurance risk such as motor and property insurance risks.

Insurance risk arises through exposure to variable claims experience on life assurance, exposure to variable operating experience in respect of factors such as persistency levels and management expenses. Unfavourable persistency, expenses and mortality claim rates, relative to the actuarial assumptions made in the pricing process, may result in profit margins reducing below the target levels included in the pricing process.

The Group has implemented an insurance risk policy which sets out the Group requirements for the management, measurement, monitoring and reporting of insurance risks. The Group has implemented three standards to support the insurance risk policy, as follows:

·      Underwriting and Claims Standard;

·      Reinsurance Standard; and

·      Technical Provisions Standard.

The sensitivity of the Group's earnings and capital position to insurance risks is monitored through the Group's capital management processes.  

The Group manages its insurance risks through the following mechanisms:

·      management of expense levels relative to approved budgets;

·      pricing of insurance contracts utilising analysis of mortality, persistency and expense experience;

·      underwriting of mortality risks;

·      reinsurance, which is used to limit the Group's exposure to large single claims and catastrophes through transfer of mortality risk exposures; and

·      the Group does not offer group insurance business in order to avoid risk concentrations of insurance risk.

Mortality

Mortality risk is the risk that death claims experience is higher than the rates assumed when pricing contracts.

A risk charge is applied to meet the expected cost of the insured benefit (in excess of the unit value). This risk charge can be altered in the event of changes in the expectation for future claims experience, subject to the objective to provide fair customer outcomes.

Persistency

Persistency risk is the risk that the level of surrenders or withdrawals on insurance policies occur at levels that are different to the levels assumed in the pricing process and relative to the levels assumed in determination of technical provisions. Persistency statistics are monitored monthly and a detailed persistency analysis at a product group level is carried out on an annual basis. Management actions may be triggered if persistency statistics indicate significant adverse movement or emerging trends in experience.

Expenses                       

Expense risk is the risk that actual expenses and expense inflation differ from the levels expected and allowed for within the pricing process. Expense levels are monitored quarterly against budgets and forecasts. Expense drivers are used to allocate expenses to entities and products. Some product structures include maintenance charges. These charges are reviewed annually in light of changes in maintenance expense levels and the market rate of inflation. This review may result in changes in charge levels.

19(e)(ii): Sensitivity analysis.

Sensitivity analysis has been performed by applying the following parameters to the statement of financial position and income statement as at 31 December 2020 and 31 December 2019. Interest rate and equity and property price sensitivities are included within the Group market sensitivities above.

Expenses

The increase in expenses is assumed to apply to the costs associated with the maintenance and acquisition of contracts. It is assumed that these expenses are increased by 10% from the start of the year, so is applied as an expense shock rather than a gradual increase. The only administrative expenses that are deferrable are sales bonuses but as new business volumes are unchanged in this sensitivity, sales bonuses and the associated deferrals have not been increased. Administrative expenses have been allocated equally between life and pensions.

An increase in expenses of 10% would have decreased profit by £11 million after tax (2019: £13 million).

Mortality

Mortality risk is not material as the Group does not provide material mortality insurance on its products and mortality benefits are reinsured.

19(f): Operational risk

Operational risk is the risk that failure of people, processes, systems or external events results in financial loss, damage to brand/reputation or adverse regulatory intervention, or government or regulatory fine. Operational risk includes all risks resulting from operational activities, excluding the risks already described above and excluding strategic risks and risks resulting from being part of a wider group of companies.

Operational risk includes the effects of failure of administration processes, IT and Information Security maintenance and development processes, investment processes (including settlements with fund managers, fund pricing and matching and dealing), product development and management processes, legal risks (e.g. risk of inadequate legal contract with third parties), poorly managed responses to regulatory change, which in the future may include transitional financial risks from climate change, risks relating to the relationship with third party suppliers and outsourcers, and the consequences of financial crime and business interruption events.

In accordance with Group policies, management have primary responsibility for the identification, assessment, management and monitoring of risks, and the escalation and reporting on issues to executive management.

The Group executive management have responsibility for implementing the Group Operational Risk management methodologies and frameworks and for the development and implementation of action plans designed to manage risk levels within acceptable tolerances and to resolve issues identified.

19(g): Contractual maturity analysis

Investment contract policyholders have the option to terminate or transfer their contracts at any time and to receive the surrender or transfer value of their policies, and these liabilities are therefore classified as less than three months maturity. Although these liabilities are payable on demand, the Group does not expect that all liabilities will be settled within this period. Following the sale of QLA at the end of 2019 the Group has no pure insurance contracts (unbundled elements of linked investment contracts are included within "unit linked investment contracts and similar contracts").

20: Related party transactions

In the normal course of business, the Group enters into transactions with related parties. Loans to related parties 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 current and prior year which had a material effect on the results or financial position of the Group. Full details of transactions with related parties, including key management personnel compensation is included within note 39 of the financial statements within the Group's 2020 Annual report. The Group's interest in subsidiaries and related undertakings are set out in Appendix B of the financial statements within the Group's 2020 Annual report.

 

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