## Annual ## Report 2022 # Contents ## Strategic Report - 2 2022 highlights - 3 Chair's statement - 5 Chief Executive Officer's statement - 8 Meet our Executive Committee - 10 Our markets - 12 Our strategy - 20 Our business model - 22 Section 172 (1) statement - 26 Responsible Business - 32 Task Force on Climate-related Financial Disclosures statement - 35 Non-financial information statement - 36 Financial review - 44 Risk review - 50 Viability statement and going concern ## Governance Report - 52 Chair's introduction to corporate governance - 54 Governance at a glance - 56 Board of Directors - 59 Principal decisions of the Board in 2022 - 62 Report from the Designated Workforce Engagement Directors - 64 Board Corporate Governance and Nominations Committee Report - 69 Board Audit Committee Report - 75 Board Risk Committee Report - 79 Board Technology and Operations Committee Report - 82 Remuneration Report - 82 Board Remuneration Committee Report - 84 Remuneration at a glance - 89 Directors' Remuneration Policy (summary) - 94 Annual Report on Remuneration - 108 Directors' Report ## Financial statements - 113 Statement of Directors' responsibilities - 114 Independent auditors' report - 121 Primary financial statements - 126 Notes to the consolidated financial statements - 194 Appendix - 196 Parent Company financial statements ## Other information - 205 Shareholder information - 209 Alternative Performance Measures - 212 Glossary ## Our business Quilter is a modern, UK-focused, full-service wealth manager providing advice-led investment solutions and investment administration services to high net worth and affluent clients and their adviser firms. ## Our purpose Our purpose is to help create prosperity for the generations of today and tomorrow. We strive to do this through long-term advice-based relationships, delivering good investment management performance while maintaining consistently high quality customer service. ## Visit pic.quilter.com/monitor-relations for the latest news ## Learn how we grow in a way the creates long-term sustainable value at pic.quilter.com/responsible-business ## Quilter plc share register Quilter plc listed on the London and Johannesburg Stock Exchanges on 25 June 2018. Quilter plc has a premium listing on the London Stock Exchange and a secondary listing on the Johannesburg Stock Exchange. Quilter Annual Report 2022 1 ## 2022 highlights Financial performance highlights, continuing business only Strategic highlights ### -11% ## £375m £328m ## £99.6bn | Assets under management and administration (“AuMA”)* | | Completion of the | £328 million Capital | | --- | --- | --- | --- | | | | £375 million share | Return in June 2022 | | 2021 | £111.8bn | buyback programme | to return the net surplus | | | | from the Quilter Life | proceeds from the sale | | | -55% | Assurance sale proceeds | of Quilter International | ## £1.8bn Net flows* Our Board and Executive Committee 2021 £4.0bn Read more about the Board changes on page 66 and our Executive Committee on page 8. ### -3% ## £134m Responsible business highlights Adjusted profit before tax* 2021 £138m ### n/a ## £175m IFRS profit after tax from continuing operations | | | Progressed our | Set carbon reduction | | --- | --- | --- | --- | | 2021 | £23m | | | | | | responsible investment | targets for both Scope 1 | | | | propositions through the | and Scope 2 emissions | ### +7% ## 7.9p ### launch of new strategies for our operations Adjusted diluted earnings per share* Operational highlights 2021 7.4p ## +13% £65m ## 4.5p ### Optimisation Recommended total dividend per share (continuing operations) ### programme achieved ### targeted cost savings 2021 4.0p ### of £65 million ### 0% ### Quilter’s Business ## 22% ### Simplification Operating Margin* ### programme continues ### to track towards the 2021 22% ### proposed £45 million ### target, with annualised ### Note: run-rate savings of All 2021 comparatives presented above exclude Quilter International, which was sold ### £23 million achieved on 30 November 2021. ### to date Alternative Performance Measures (“APMs”) WeassessourfinancialperformanceusingavarietyofmeasuresincludingAPMs, as explained further on page 209. These measures are indicated with an asterisk. 2022 2022 2022 2022 2022 2022 2022 2 Quilter Annual Report 2022 £1.8bn £99.6bn £134m £175m 7.9p 4.5p 22% # Chair's statement **Ruth Markland** Chair Although I joined the Board of Quilter just after our Listing in 2018, this is my first letter to you as Chair of your Company. 2022 was a notable year for Quilter, not just because the business environment presented challenges for the entire Wealth Management industry but also because it marked a year of significant transition in the leadership of your Company. I assumed the responsibility of chairing the company at the conclusion of the 2022 Annual General Meeting and Steven Levin succeeded Paul Feeney as Chief Executive Officer on 1 November 2022. The Board was unanimous in its view that Steven is the right person to take on the leadership of Quilter. He has been instrumental in building our business in recent years and has proven expertise in terms of large scale transformations and successfully delivered our Platform Transformation Programme. Steven had also been responsible for our Affluent segment, the largest revenue and profit contributor to the Group. With this deep knowledge of the Group, he is well-placed to take Quilter on the next phase of its strategic journey. More background on the Board's deliberations on both my and Steven's appointments is provided in the Corporate Governance Report on pages 52 to 111. I would like to thank Paul Feeney for his service to Quilter over the last decade. Paul was not only responsible for conceiving Quilter's strategy but also successfully listed the Company and oversaw the disposal of a number of parts of the business which were subsequently deemed non-core. These disposals included our single strategy asset management business, our heritage life assurance business, and, more recently, our international business. These actions generated around £1.5bn of surplus capital of which c.£1.3 billion was returned to current and past shareholders. We wish Paul well in all his future endeavours. I am greatly looking forward to working with Steven and delivering on Quilter's potential in the years ahead. My principal focus, and that of your Board, is to support, challenge and guide Steven and his executive team to ensure that we achieve the goals we have set ourselves. Steven has set out his initial perspectives on the business in his letter to shareholders. We both share the view that Quilter is a well-positioned business operating in structural growth markets. However, we have more to do to ensure that we are capturing our share of that opportunity. To get Quilter to where we want it to be will take some time but given the uniqueness of our franchise and our strong market positions, we believe that succeeding in our chosen course of action will deliver significant returns for our shareholders. ## Shareholder returns and dividend The Board is pleased to recommend a Final Dividend of 3.3 pence for the 2022 financial year which, together with the Interim Dividend of 1.2 pence per share paid in September, takes the proposed Full Year total dividend to 4.5 pence which represents an increase of 13% over the continuing business dividend for 2021. The pay-out ratio for 2022 was 57%. Following the revision to our target dividend pay-out range to 50%-70% of post-tax, post-interest adjusted profit, the 2022 Full Year Dividend sits just below the mid-point of that new range. Subject to the operating environment remaining stable, the Board expects future dividends to continue the progression up the target range. The Final Dividend will be paid on Monday 22 May 2023, subject to shareholder approval at our 2023 Annual General Meeting on Thursday 18 May 2023, to shareholders who are on the share register on Friday 21 April 2023. 4.5p +13% ## Recommended total dividend per share. ### Capital Returns As well as the normal dividend, the other notable component of shareholder returns in 2022 was the capital return to shareholders from the sale of Quilter International. After consulting with shareholders, it was clear that there was a broad consensus for the capital return to be conducted in a timely manner. To facilitate this, the Board recommended, and shareholders approved at a General Meeting held on 12 May 2022, a £328 million capital return through a B Share Scheme followed by a six for seven Share Consolidation. We consider this an effective method of rewarding our shareholders and returning capital to them in a timely and efficient manner. ### 2023 Annual General Meeting At our 2022 Annual General Meeting, resolution 16, which sought authorisation for political donations or expenditure, passed with the requisite majority of votes, however 22.5% of the votes cast were against the resolution. As in previous years, there was a significant difference in voting between the South African and UK share registers on this resolution with 63.77% and 99.94% support respectively. Quilter Annual Report 2022 3 Strategic Report Governance Report Financial statements Other information Chair's statement continued In line with provision 4 of the UK Corporate Governance Code, we continue to directly engage with our largest South African shareholders on this resolution. We continue to recognise that in a current South African governance context, any linkage between business and politics is a sensitive issue. Quilter has no intention of undertaking political donations and has not done so since Listing but, in line with other listed UK companies, we have sought such authority to avoid any inadvertent breaches of UK company law given the breadth of the applicable provisions. We will table a similar resolution at the 2023 Annual General Meeting and will continue to explain clearly the reasons why the Board believe this resolution is an important protection for the Company in the 2023 Notice of Annual General Meeting. As part of our drive for greater efficiency across our business and consistent with our desire to act in the best interests of all our shareholders, we intend to seek regulatory and shareholder approval at the 2023 Annual General Meeting to undertake a second Odd-lot Offer. An Odd-lot Offer entails Quilter making an offer to eligible shareholders (in this instance owners of fewer than 200 shares) to repurchase their shares at a modest premium to the market price. Quilter currently has nearly 200,000 shareholders, of which just under 134,000 each hold fewer than 200 shares. These, principally South African, shareholders were originally granted their shares in Old Mutual plc from their interest as policyholders when that business demutualised in 1999. They have not actively chosen to invest in a UK-domiciled company and have become Quilter shareholders as a result of our demerger from Old Mutual plc in 2018. The proposed Odd-lot offer will further reduce the cost to Quilter of managing our shareholder base and will allow investors holding small numbers of shares to dispose of their holdings in a cost effective manner. Eligible shareholders can, of course, elect to retain their shareholding in Quilter, if they so choose. # Other Board matters I would like to thank Rosie Harris for her longstanding contribution to the Quilter Board. Rosie stepped down from the Board in April 2022, having joined the Board prior to our Listing in April 2017, and she served as Chair of our Board Risk Committee from appointment. George Reid, who chairs the Board Audit Committee, took on the role of chairing the Board Risk Committee on an interim basis until a permanent successor was appointed. I am delighted that Neeta Atkar joined the Board in August 2022 and was appointed Chair of the Board Risk Committee from 1 October 2022. Neeta has a deep understanding of risk and regulation having spent her executive career working at the Bank of England and the Financial Services Authority before taking on roles in the financial services industry with Andersen Consulting, Abbey National, Royal & Sun Alliance, Lloyds Banking Group and TSB Bank where she was the Chief Risk Officer. She is also a member of the Board Audit Committee. I would also like to thank Glyn Jones, our former Chair, who stepped down from the Board in May 2022 following our Annual General Meeting, for his distinguished leadership of the Quilter Board since before Listing. In June we appointed Glyn Barker to the Board with a view to him assuming the role of Chair but subsequently, for personal reasons, he stepped down from the Board in November 2022. On my appointment to the Chair of Quilter in May 2022, Tim Breedon took on my previous responsibilities both as our Senior Independent Director and Chair of the Board Remuneration Committee and I am delighted that Tim has agreed to continue in those roles on an on going permanent basis. # Diversity and inclusion We currently meet the FTSE Women Leaders Review targets for at least 40% representation of females on our Board and at least one woman in a senior Board role. We also meet the Parker Review recommendation that all FTSE 350 boards should have at least one Director from a minority ethnic group on their board. Please refer to the fuller disclosure in the Governance Report on page 67. # Governance and culture We recognise the importance of a healthy culture within a business to ensure the successful delivery of its strategic ambition. Your Board takes an active role in shaping Quilter's culture and is encouraged by our executive team's concerted efforts in 2022 to drive greater inclusion and diversity across the organisation. While we are content with the progress made in this area, we acknowledge that there is more to be done to drive greater diversity across our business at the executive level. Managing a business responsibly is key to an organisation's long-term success and for Quilter that includes being a responsible investor. We recognise the role of investors, along with other parts of the economy, in supporting the transition to a low carbon economy – vital for the long-term prosperity of us all. Quilter is taking a proactive approach to embedding environmental, social and governance (ESG) considerations across the whole value chain of our business. Quilter has continued to maintain a high level of engagement with existing and prospective shareholders this year. Engagement levels in 2022 have been broadly consistent with 2021. Given the changes to our Board and executive leadership team, I have personally maintained a high level of engagement with our largest shareholders in 2022 and in early 2023. I met with our largest shareholders during which time we covered topics including corporate governance, executive remuneration and Chair and CEO succession process. # Conclusion 2022 was a year in which we returned the proceeds from the sale of Quilter International to shareholders, enhanced our customer propositions, delivered a resilient profit given the market context, and have put a leadership team in place to take Quilter forward on the next stage of its journey. While we expect 2023 to have its challenges, we face the future with confidence and are absolutely committed to driving growth from our simpler more focused business. On behalf of the Board, I would like to thank our management team and all our colleagues for their continued effort, focus and commitment to achieving our goals in what have been challenging market conditions. Thank you also to our shareholders for your continued support. Ruth Markland Chair 4 Quilter Annual Report 2022 ![img-0.jpeg](img-0.jpeg) ## Chief Executive ## Officer’s statement Strategic Report ### Steven Levin Governance Report Financial statements Other information ### Chief Executive Officer Before I get into the detail of our performance in 2022, I should extend · Second, the IFA Channel where our platform business provides my thanks to my predecessor, Paul Feeney, for his decade of service investment administration and investment solutions to the IFA to Quilter as well as his long-standing support for me personally. market. The enhanced capability of our new platform allows us to support a wider range of IFA firms and to meet a broader Turning now to the business, clearly, the operating environment has spectrum of customer needs than has historically been the case. a meaningful influence on the flows we can attract and revenues We continue to add new firms and generating stronger flows we generate from the assets we manage and administer on behalf from this channel is a key priority for me. of our clients. 2022 was a particularly challenging year for the entire wealth management industry due to lower equity markets and Since my appointment as Chief Executive Officer on 1 November higher bond yields. In that context, I am pleased we delivered a 2022, I have been reviewing what we have done well and what resilient adjusted profit outturn of £134 million (2021: £138 million) we need to do better. and a stable operating margin of 22% during the year. In terms of what has gone well, we have successfully reshaped Current market conditions are very different from those we our business since Listing, transformed our platform technology, anticipated at our Capital Markets Day in late 2021, prior to the war delivered significant cost reduction programmes, paid around in Ukraine. This has led us to rebase some of the targets we set out £1 billion to shareholders through special capital returns, enhanced then. Notwithstanding this, my focus will always be on managing the our investment propositions to include ESG overlays as well as things within our control to deliver the best outcomes we can for all variants to meet client risk and style preferences, and maintained our stakeholders and, as I discuss below, my priority is on improving excellent levels of service to our clients and advisers. the revenue momentum and cost efficiency of our business. But we can do better. This is a business with a huge amount Business Strategy and Transformation of potential, and we are not yet delivering the growth of which we Over the last ten-years, we have built a business that covers the full are capable. To drive improvement in our business, with customer spectrum of the UK wealth industry. While we are well-positioned to outcomes at the core of this, my focus is on building distribution, meet the needs and provide good customer outcomes to our High enhancing propositions, and driving efficiency, and for these Net Worth and Affluent clients, my initial assessment is that there to deliver better customer outcomes and a significant increase is more to be done to ensure we are delivering on our potential as in profitability. a business. We have three core channels through which we serve clients, each of which generated around £200 million of revenues Taking each in turn: per annum in 2022: · Distribution – one of the core strengths of Quilter is our · Our High Net Worth segment operates under the Quilter Cheviot two large scale distribution channels: IFAs and our own Quilter and Quilter Private Client Advisers brands. This business continues Channel advisers. We are strongly positioned in each channel, to perform well. While the growth rate of this business in terms of but we recognise the market in which we operate has evolved new flows has been good relative to peers, I believe we have the with sponsor-backed consolidation becoming an increasingly capacity to perform better. We will continue to drive our growth disruptive force. This has had two implications for Quilter. First, plans by improving productivity, as well as adding investment where IFAs who use our platform have been acquired, it can lead managers and dedicated financial advisers to enhance the to outflows from our business as they consolidate their business support and value we provide to clients. elsewhere. Secondly, in the Quilter Channel we have lost some of our own advisers to consolidators. On the former, our counter is We serve our Affluent clients through two channels: to leverage our new platform by growing our franchise with larger · First, our Quilter Channel where we provide platform and IFA firms. Progress is in line with expectations, but it is, by nature, investment solutions through our restricted adviser network. a gradual build. On the latter, we are continuing to look at ways While there is understandably a focus on absolute adviser to ensure Quilter is attractive to advisers and that they are numbers as a proxy for growth in this business, it is more aligned with our propositions to provide good customer important to me that we have a productive adviser force which outcomes. We are also finessing our exit proposition for retiring is fully aligned with our propositions, that the business continues advisers to protect our core franchise and ensure the Quilter to deliver good customer outcomes and that we deliver an proposition remains attractive compared to our peers. appropriate return to shareholders. 5Quilter Annual Report 2022 Chief Executive Officer's statement continued **Proposition** - here we need to be more agile, responsive and both customer and market focused. Quilter investors' performance was strong in 2022, with all strategies outperforming their comparators except Cirlium Active. Over the last quarter, we've reviewed our investment capabilities and decided to unify management of all our Cirlium funds under a single team to ensure greater consistency of investment style and performance, and to better align our solutions with our customer needs. This action led to the departure of the two Cirlium Active portfolio managers. To reinvigorate the market positioning of Cirlium Active under the new team, we intend to reduce pricing at the end of March with an expected mid-single digit impact on the revenue margin on our Affluent Managed Assets on a full year basis. Finally, we will be launching a responsible investment multi-asset range which mirrors the well-received action we took with WealthSelect in early 2022. - We have an award winning platform with market leading functionality. But we see increasing price competition and we need to be more competitive. We have planned actions on our Platform pricing to defend our existing flow, provide better value to customers and accelerate growth in new business. I expect this initiative to lead to around a basis point of margin attrition over the next 18 months over and above the basis point per annum to which we have historically guided, but with this expected to be more than offset by greater flows and revenues over time. - **Efficiency** - we will update on additional efficiency plans later this year. We have made good progress with our Optimisation and Simplification programmes, but our cost base remains high. We have acquired businesses, particularly in advice, and not always integrated as far as we could. That has led to cumbersome business processes, unnecessary complexity and higher costs. So, there is opportunity to further simplify our business to improve the way we manage ourselves and the way we support our customers and advisers. Getting the operating margin in our business to a satisfactory level is an absolute priority for me. All of the above is intended to drive a meaningful step-up in profitability and to make us a better business for our customers. I am determined to deliver the growth and returns our shareholders expect. Whilst some aspects of our plans might impact revenues and operating margin in the short term, we are confident they will lead to higher overall revenues and a faster growth rate in the medium term. #### Flows and Investment Performance Advice is central to all Quilter propositions and our goal is to deliver good customer outcomes in all that we do. That means providing excellent client and adviser support while delivering value including consistent investment returns, over time, in line with client risk and ESG preferences. In 2022 we faced two particular challenges: - First, across the industry, new business activity was hindered by 'risk off' sentiment following Russia's invasion of Ukraine in February which contributed to inflationary shocks from higher energy and food prices and cost-of-living pressures. This has naturally reduced the propensity for most households to save and invest beyond regular pension saving. - Secondly, as I already noted, the adviser market has been going through a period of structural change with an increasing amount of private equity capital looking to back advice consolidation vehicles. As a result, we have seen a number of smaller independent firms seeking to move their clients to these new businesses which impacted on flows in our UK Platform which administers funds on behalf of clients of these firms. While we have performed well in the current market with Quilter generating the largest share of gross flows across the retail advised industry based on the latest Fundscape data (to end December 2022), our net flows have been below the level we target. Turning to investment performance, our Wealth Select portfolios continued to deliver strong performance while our Cirlium Active proposition remained stylistically out of favour. The management team who delivered a strong track record with our Cirlium Blend range have taken over the management of Cirlium Active with a view to revitalising performance. 2022 was a more challenging year for investment performance in our High Net Worth division and, over three years, we have slipped into 3rd Asset Risk Consultants ("ARC") quartile although the cumulative difference between 2nd and 3rd quartile is just over 1.2%. We have delivered outperformance over a 10 year period. #### Business Performance Our overall assets under management and administration declined by 11% over the course of the year to £99.6 billion with the reduction in revenues limited to 2% to £606 million (2021: £618 million). Lower management fee revenues were partially offset by higher levels of interest income from the corporate capital and cash held in our business. We reduced operating expenses by £8 million from 2021 levels to £472 million despite the impact of much higher than usual inflation across our business. Across our two segments, High Net Worth delivered revenue stability, despite lower markets supported by a higher contribution from net interest income reflecting higher UK interest rates. Higher operating expenses of £11 million largely reflected planned business investment and led to a similar decline in profit to £45 million. A 5% decline in revenues in our Affluent segment to £387 million reflected weaker markets and the repositioning of our adviser base contributing to the reduction in other income. Strong cost management combined with a lower overall FSCS charge limited the decline in profits to £6 million for the Affluent segment with a contribution of £105 million for the year. Within our Head Office segment, we reduced operating expenses for managing the Group in 2022 by £6 million. In addition, higher interest rates contributed to an increase in net interest income generated on our available cash and capital resources which support our regulatory capital and liquidity requirements. Both factors contributed to a reduction in the net cost of the segment to £16 million from £29 million in 2021. The Group's IFRS profit from continuing operations after tax was £175 million compared to £23 million in 2021. Adjusted profit before tax of £134 million for 2022 (2021: £138 million) represents the Group's IFRS profit, adjusted for specific items that management consider to be outside of the Group's normal operations or one-off in nature. The exclusion of certain adjusting items may result in adjusted profit before tax being materially higher or lower than the IFRS profit after tax. Adjusted profit before tax does not provide a complete picture of the Group's financial performance, which is disclosed in the IFRS income statement, but is instead intended to provide additional comparability and understanding of the financial results. Principal differences between this measure and our IFRS profit is largely due to non-cash amortisation of intangible assets, our business transformation expenses and the impact of 6 Quilter Annual Report 2022 Chief Executive Officer's statement continued policyholder tax positions on the Group's results. This latter item was significantly positive in 2022 because of the decline in markets over the course of the year. Business transformation expenses will remain elevated in 2023 reflecting the pre-funded expenditure on our Simplification programme and other cost reduction initiatives and is expected to reduce substantially thereafter. Total Group adjusted diluted earnings per share were 7.9 pence, an increase of 7% (2021: 7.4 pence from continuing operations). We target mid-teens compound annual growth rate in EPS to 2025 from the 2020 base. Compound growth of 23% from the 2020 base represents a strong performance against that metric. However, given the planned actions being taken to accelerate growth, the rate of EPS growth is likely to be slower over the remaining target period. On an IFRS basis, we delivered basic EPS from continuing operations of 12.2 pence per share versus 1.4 pence per share for the comparable year of 2021 on the same basis. The Board is pleased to recommend a Final Dividend of 3.3 pence per share versus 2.8 pence for 2021, bringing the total dividend for the year to 4.5 pence per share, an increase of 13% on the continuing business dividend for 2021 of 4.0 pence per share (total dividend 5.6 pence per share, including 1.6 pence per share in respect of Quilter International distribution). During the year, shares in issue declined by 252 million as a result of our share buyback programme which completed in January 2022 and our B Share Scheme and Share Consolidation which returned net surplus proceeds of £328 million to shareholders following the disposal of Quilter International in November 2021. Since Listing our capital return programme from disposals has reduced our total share count by around a quarter. #### **Responsible Business and Stewardship** Ensuring Quilter is a business whose actions go beyond making a profit, has been a core part of the culture we have built since we listed. For me, this comes down to how we act and how we invest. #### **How we act** Our fundamental commitment to acting responsibly is reflected in the excellent level of customer and adviser service we provide, mirrored by our commitment to being a responsible employer. The Quilter Foundation makes a positive contribution to the communities in which we operate and this year the charity launched a local community fund to further expand its impact. During 2022, we significantly increased our focus on climate action. We set ourselves carbon reduction targets for both Scope 1 and Scope 2 emissions for our operations and expect to release a fuller climate action strategy (including Scope 3, emissions were possible) later in 2023. #### **How we invest** There are two approaches to being a responsible investor: - Risk mitigation: the integration of ESG factors and stewardship within the advice and investment process. - Specific responsible investment-related objectives: this builds on the risk mitigation and relates to linking products or strategies to specific responsible investment related outcomes or objectives. Our focus has been on strengthening the integration of ESG factors within our advice and investment processes and building on our active ownership work through our stewardship activity including exercising our voting rights and engaging with our underlying investments, be they companies or funds. This is reflected in our achievement in retaining signatory status of the Stewardship Code for 2022. In addition, we have also significantly expanded our range of dedicated responsible investment solutions both in our High Net Worth and Affluent segments. #### **Outlook** My goal is to deliver the service and propositions our customers need alongside rates of growth and returns our shareholders expect. I am focused on driving towards that outcome at pace. We anticipate investor sentiment will slowly recover this year supporting a gradual improvement in IRA net flows coupled with another strong net flow performance from the Quilter Channel and a solid out turn from our High Net Worth segment. The weighted average of these growth rates suggests an improvement in Group net flows to a bit over 2% this year. We expect this to improve to 4-5% as market activity normalises and we deliver the business initiatives I have set out, we clearly aspire to build momentum further from this level. The Group's income levels depend to a large extent on market levels and interest rates. Assuming these remain broadly stable through 2023, then the Group's Adjusted Profit will again depend on careful cost control as well as the pace of our focused investment in customer proposition initiatives. Overall, our expectation is that these factors may lead to a decline in Adjusted Profit for 2023, although we currently anticipate the outcome being modestly ahead of current market expectations. Given the changed market and economic environment since our Capital Markets Day in November 2021, we now expect to reach a 25% operating margin in 2025, rather than our previous target of 2023. Given our business mix, we continue to believe that an appropriate operating margin for our business should be higher than 30% and that clearly remains the longer-term goal which we are focused on. **Steven Levin** Chief Executive Officer Strategic Report Governance Report Financial Statements Other Information Quilter Annual Report 2022 7 # Meet our Executive Committee Steven Levin was appointed as the Chief Executive Officer on 1 November 2022, as detailed in the Board Corporate Governance and Nominations Committee Report on page 64. Shortly after his appointment, Steven announced a series of changes to the roles of the existing members of the Executive Committee and the appointment of Marcus Brookes, Penny Cole and Stephen Gazard to the Committee with effect from 1 January 2023. These changes will ensure that, as our most senior management committee for the Group, the Executive Committee is well placed to support Steven in his new role. The Executive Committee will continue to have the right balance of skills and experience that we need to deliver for our stakeholders, and to not only maintain, but accelerate the Group's performance. ![img-1.jpeg](img-1.jpeg) **Steven Levin** Chief Executive Officer Steven has deep industry knowledge, having worked in asset management, investments, platform and distribution roles. He joined the Group in 1998, the Executive Committee in 2011 and the Board in November 2022 when he was appointed as Chief Executive Officer. Steven has played a leading role in delivering several high-profile strategic initiatives for the Group, including the implementation of Quilter's new investment platform and supporting the development of Quilter's ESG proposition. As Head of Affluent, Steven focused on bringing Quilter's Platform and Investment Solution businesses together to operate in a more customer-centric manner with our Advice business. Steven's broad industry and leadership experience allows him to effectively drive strategic delivery. Steven is a qualified Actuary and Chartered Financial Analyst. ![img-2.jpeg](img-2.jpeg) **Mark Satchel** Chief Financial Officer Mark brings deep finance, corporate action and business experience to the Board. He joined Old Mutual in the UK in January 2000 and held numerous leadership positions within the finance function and businesses there, during which time he played key roles in the acquisitions of Intrinsic (now Quilter Financial Planning) and Quilter Cheviot. This experience has been invaluable in ensuring that Quilter effectively executes its strategy, for example, allowing him to lead the successful disposals of Quilter Life Assurance and Quilter International. Mark previously served as Chief Financial Officer of the business from 2010 to August 2017 and as Corporate Finance Director for the 17 month period to March 2019. Mark is qualified as a Chartered Accountant in South Africa and worked for KPMG in both South Africa and Canada prior to moving to the UK. Mark is a Trustee of The Grey Foundation in the UK. ![img-3.jpeg](img-3.jpeg) **Marcus Brookes** Chief Investment Officer & Managing Director, Quilter Investors Marcus joined Quilter Investors from Schroders Personal Wealth, where he held the role of Chief Investment Officer. He has considerable investment management experience with a deep understanding of the multi-asset sector, having managed multi-manager fund ranges for more than 20 years at Schroders, Cazenove Capital, Gartmore and Insight Investments. This extensive experience equips Marcus well to hold responsibility for Quilter Investors' portfolio management desk. In January 2023 Marcus was appointed Managing Director of Quilter Investors and focuses on manager engagement and driving Quilter Investors' investment proposition and performance in addition to his Chief Investment Officer responsibilities. ![img-4.jpeg](img-4.jpeg) **Penny Cole** Human Resources Director Penny has over 15 years' experience at Quilter. During her time with the Group, Penny has held multiple senior HR roles including Head of HR for our UK and International Platform businesses. She has worked across multiple jurisdictions and geographies and led significant and complex people change. In her previous role as People Transformation Director, Penny spearheaded the externally recognised and multi award winning 'Hello Tomorrow' programme. She has extensive experience across the spectrum of HR, including Remuneration, Culture, Talent and Succession, Organisational Design, Learning and Development and HR Operations. Penny has worked across multiple industries and sectors including Telecommunications, Third Sector and Financial Services. 8 Quilter Annual Report 2022 Meet our Executive Committee continued ![img-5.jpeg](img-5.jpeg) # **Karin Cook** **Chief Operating Officer** Karin has over 30 years' experience in the financial services industry, having held senior operations, technology and finance roles at HSBC, Morgan Stanley, Goldman Sachs and most recently at Lloyds Banking Group where her role encompassed customer operations, payments, technology, security, property and procurement. This experience enables Karin to be instrumental in driving efficiency across all areas of the Group. Karin chairs the Quilter Operating Committee, providing oversight on material technology and operational change programmes. She is a passionate, committed and informed ally to the LGBTQ+ community and has been recognised in OUTstanding LGBTQ+ Role Model Lists from Involve – The Inclusion People. ![img-6.jpeg](img-6.jpeg) # **Stephen Gazzard** **Chief Distribution Officer & Chief Executive Officer, Quilter Financial Planning** Stephen has served as Chief Executive Officer of Quilter Financial Planning since June 2020 and in January 2023 he was appointed as Chief Distribution Officer, subject to regulatory approval. Stephen brings a wealth of industry experience to Quilter, including his tenure as a financial planner and advice business owner. Prior to joining Quilter, he held numerous senior leadership roles in the wealth management profession across owner managed, AIM listed, provider owned and FTSE 100 / 250 trading environments delivering both corporate restructures and growth. ![img-7.jpeg](img-7.jpeg) # **Andy McGlone** **Chief Executive Officer at Quilter Cheviot and Quilter Private Client Advisers** Andy has substantial experience in investment management, having worked in the evolved Quilter Cheviot business for his entire career, beginning at Quilter Goodison in 1994 as a Trainee Investment Manager. He served as Managing Director before being appointed Chief Executive Officer of Quilter Cheviot in January 2019, and Quilter Private Client Advisers in January 2022, when these two businesses were brought together. Andy's deep knowledge of discretionary wealth management provides him with the ideal combination of skills and understanding to continue to ensure strong investment performance for clients and to develop the Quilter Cheviot and Quilter Private Client Advisers businesses in line with Quilter's strategy. Andy is a Fellow of the Chartered Institute for Securities and Investments. ![img-8.jpeg](img-8.jpeg) # **Nick Saere-Hardy** **Chief Risk Officer** Nick plays a key role in the definition, setting and management of Quilter's risk profile. Formerly Quilter's Chief Internal Auditor, Nick joined Quilter in June 2016 as the Head of Audit for Investment Management. Nick has a wealth of financial services experience having held senior roles at Morgan Stanley and Credit Suisse. He also spent time in professional practice with both Ernst & Young and BDO Stoy Hayward. Nick is a Chartered Accountant and member of the Institute of Chartered Accountants of Scotland. # **Senior Leaders supporting the Executive Committee** ![img-9.jpeg](img-9.jpeg) # **Clare Barrett** **Company Secretary** Clare joined Quilter in October 2017 as Deputy Company Secretary and was promoted to Company Secretary in August 2022. Clare was a key member of the team that prepared Quilter for its Listing on the London and Johannesburg Stock Exchanges in June 2018 and since then she has led the Corporate Secretariat team and overseen the implementation of Corporate Actions, including the Return of Capital, the share buyback programme and the Odd-lot Offer. Clare has extensive experience in the financial services industry having gained board corporate governance, transactional and shareholder relations experience at Hammerson plc, Legal & General Group Plc and Barclays PLC, where she was Director and Head of their Secretarial Services team. Clare is an experienced Chartered Secretary and Fellow of the Corporate Governance Institute. ![img-10.jpeg](img-10.jpeg) # **Daniel Baynton** **Chief Internal Auditor** Daniel has been a core part of the Internal Audit team since joining the business in 2016 as Head of Audit, helping to build and manage a highly effective Internal Audit function. He has been responsible for providing important independent assurance and insight to the business Boards and executive management for the Affluent Segment. Prior to joining Quilter, Daniel worked at Santander, in roles across all three lines of defence culminating in a role as Head of the Santander Conduct Risk Programme. Daniel has over 15 years' experience across financial services and started his career with Arthur Andersen and Deloitte. Daniel is a Fellow of the Association of Chartered Certified Accountants. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 9 ## Our markets The markets in which Quilter operates offer Quilter is well positioned across each part Following several significant disposals strong growth potential. Quilter provides of the wealth value chain; the provision since Listing to simplify our business, services to the High Net Worth and Affluent of advice, wealth administration, and we reorganised ourselves into two client segments of the UK population as they investment management. It is Quilter’s segments, High Net Worth and Affluent build their long-term savings ahead of mission to create prosperity for the and are well positioned to grow with our retirement and then help them manage generations of today and tomorrow. customers and their advisers. We focus on decumulation of those assets during An integrated business such as Quilter, technology and digital innovation, providing retirement itself. has opportunity to grow and win market long-term advice, delivering good investment share despite broader industry challenges management performance and maintaining such as modest growth in numbers of consistently high-quality customer service. financial advisers, fee pressure, the cost We are also being fully committed to being of regulation and continuing regulatory a responsible business. and fiscal changes. ## Key trends | Economic downturn and rising | Making financial advice | Technology and Digital innovation | | --- | --- | --- | | interest rates and cost of living | more accessible | Technology is key in all aspects and | | 2022 was a challenging year for the | The need for accessible financial | functionality of our lives and is important | | wealth management industry. The war | advice to help consumers make effective | within the wealth management sector | | in Ukraine led to high energy and | investment decisions continues to be | as well. COVID-19 lockdowns changed | | commodity prices driving increased | a growing area within the UK wealth | the way clients were willing to engage | | inflation and pushing up interest rates. | management industry. The FCA, as part | with companies and service providers. | | The combination of lower equity markets | of its consumer investment strategy in | The need for digital strategies to allow | | and higher bond yields (impacting the | 2022, set out new proposals to support | clients and advisers to digitally access | | value of bond portfolios) in 2022 has led | mass market consumers with less | their investments is more important | | a negative cyclical impact on revenue | complex needs and to prevent in-person | than before. | | levels across the industry. The | financial advice from being too costly. | | | uncertainty over the depth of economic | Offering a Hybrid advice proposition | Digital innovation across the wealth | | slowdown within the UK and globally in | that leverages technology to address | management industry is a development, | | 2023, may continue to adversely impact | this advice gap is a growing and evolving | which Quilter looks to embrace. | | investor confidence. | trend and one that will be relevant to | Innovation allows us to improve and | | | full service UK wealth managers | deliver a more personalised customer | | | such as Quilter. | experience and one which empowers | clients and advisers. 10 Quilter Annual Report 2022 Our markets continued Strategic Report ### Since 2015, the UK wealth market ### assets have grown by c.10%, on a ### compound basis. Regulatory and ## £1.8tn ### digital trends have encouraged ### clients and advisers to consolidate 2 Total market value ### investment assets onto platforms ### and we expect these trends to ### continue in the near to ### medium term. Governance Report Financial statements Other information Large market with growth trends Consolidation in the UK Wealth Responsible investment The UK wealth management market is Management market Evolving legislative and regulatory 1 | the fifth largest in the world | and whilst | The UK wealth management industry | requirements, such as TCFD and the FCA | | --- | --- | --- | --- | | macroeconomic conditions were | | has attractive attributes; strong | Sustainability Disclosure Requirement | | challenging for equity and bond markets | | structural growth, long term relationships | Regime, along with increasing demand | | during 2022, the market has grown | | with customers, recurring revenues and | from clients looking to align their | 2 | c.10% since 2015 | . The ‘baby boomer’ | high customer retention rates. | investments with environmental and | | --- | --- | --- | --- | | generation is a key customer | | | social goals, means that acting and | | demographic as they approach | | High barriers to entry into the wealth | investing will need to be an integral part | | retirement. However, an increasing | | management industry, such as brand | of a wealth managers’ proposition. | | need for individuals to take personal | | recognition, scale, technological | | | responsibility for retirement saving | | investment and adviser recruitment | Quilter’s aim is to create prosperity | | and intergenerational wealth transfer | | are enablers for consolidation, as | for the generations of today and | | will support the sustainability of the | | demonstrated by activity during 2022 | tomorrow. To create a sustainable | | industry. Building relationships with | | which included consolidation activity | business, that both acts and invests | | younger generations as they begin to | | from banks and private equity firms. | responsibly and being a responsible | | focus on their own saving for retirement | | | wealth manager forms a core part | | will also support future growth. | | | of our four strategic ambitions. | 1 Credit Suisse Global Wealth Databook 2022. 2 Fundscape Platform Report Q4 2022 Retail Advised Platform AuA, adding £148 billion St. James Place AuM. Compeer UK Wealth Management Report, 2022. Wealth managers and private banks, Boring Money Online Investing 2022. 11Quilter Annual Report 2022 ## Our strategy ## Since our Listing in 2018, we have transformed ## 01. Grow with our ## our business into a simpler, modern, full-service UK ## clients and advisers ## centric wealth manager. Our strategy is focused on ## growing with our clients and advisers, enhancing the Strategic objective: ## Aligning our expertise and resources around the needs of our advisers and ## efficiency of our operations, increasing digitalisation ## our two client segments, with tailored advice and products, and a streamlined ## across the business and being a responsible wealth ## experience, delivering relevant service offerings and good customer outcomes. ## manager. This will enable us to increase flows ### Key performance indicators ## through our two main distribution channels and ## Client numbers Net inflows as percentage Number of Restricted Number of discretionary ## manage more of those flows in our investment ## of opening AuMA* Financial Planners (“RFPs”) investment managers ## solutions. We aim to deliver top-line growth with Definition Definition Definition Definition ## operating leverage. We are guided by a strong set High Net Worth clients are based on Total net flows as a percentage of opening Number of advisers licensed to advise Number of individuals who provide of principles and values, embodying a diverse and the number of households or client units AuMA. This measure evaluates the level of clients across Pension, Investment and discretionary investment management served by Quilter Cheviot. flows during the period in relation to the Protection solutions, but only permitted to services to clients of Quilter Cheviot in ## inclusive culture, where colleagues embrace our Affluent client numbers are identified as asset base, excluding from market recommend products and solutions from line with individual circumstances and cultural values of being pioneering, dependable and individuals, or corporate or trust entities movements. providers on the Quilter Financial Planning investment objectives. actively engaged with the Quilter Restricted Panel. ## stronger together that will not only help us achieve Investment Platform. ## our goals but also benefit all of our stakeholders. 2022 performance 2022 performance 2022 performance 2022 performance ## Our four strategic pillars for delivering growth 2021 36,117458,077 ## and driving efficiency: | | Affluent. | | | Affluent. | | | --- | --- | --- | --- | --- | --- | | | | · Net inflows/opening AuMA decreased | | | · We achieved growth in discretionary | | | High Net Worth. | | | High Net Worth. | | | | | 2 percentage points in 2022 reflecting the | | | investment managers of 5% to 179 | | | | more uncertain UK economic backdrop. | | | following a number of new recruits | | · The Affluent segment delivered client | | | · Following the successful launch of our | | | | | | · Solid performance from the Quilter | | | and promotions during the year. | | | growth of 2%, demonstrating our ability | | | new Platform, we have continued to focus | | channel in the Affluent segment with to attract clients and IFA firms. on ensuring alignment and productivity gross platform flows of £2.6 billion · The number of households served by the of our own advisers. (2021: £2.6 billion). High Net Worth segment experienced · Total Restricted Financial Planners · Robust performance in the High Net | | | muted total growth, as we move towards | | decreased by 121 in 2022. | | --- | --- | --- | --- | --- | | 01 | 02 | | Worth segment with modestly lower | | | | | focussing on higher net worth clients. | | · Of the total 1,502 Restricted Financial | gross flows and stable retention leading Planners as at the end of 31 December to net inflow of £0.9 billion for the year ## Grow with our clients Enhance efficiency 2022, 60 were in the High Net Worth (2021: £1.1 billion). segment and 1,442 were in the ## and advisers Affluent segment. | | | Outlook for 2023 | | Outlook for 2023 | | Outlook for 2023 | | Outlook for 2023 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | · Grow the number of clients served, | | · Target net flow growth of 2%+ in 2023, | | · Stabilise and return to adviser growth | | · Continue to grow number of | | | | | | ensuring a high-quality client and adviser | | building to c.4-5% per annum as markets | | in 2023 and beyond. | | discretionary investment managers | | | | | experience that provides a strong range | | normalise, with aspirations to build | | | | toward our 2025 target of c.200 and build | | | | | of investment solutions and delivers good | | momentum further. | | | | out investment management proposition. | | 03 | 04 | | | | | | | | | | | | | customer outcomes. | | | | | · Total 300 client facing staff (including | | financial planners) by 2025. ## Embed digital Be a responsible ## wealth manager Alternative performance measures see pages 209-211 2022 2022 2022 2022 12 Quilter Annual Report 2022 2% 36,160467,245 601,442 179 2021 4% 2021 601,563 2021 170 Our strategy continued Strategic Report ## 01. Grow with our ## clients and advisers ### Strategic objective: ## Aligning our expertise and resources around the needs of our advisers and ## our two client segments, with tailored advice and products, and a streamlined ## experience, delivering relevant service offerings and good customer outcomes. ### Key performance indicators ## Client numbers Net inflows as percentage Number of Restricted Number of discretionary Governance Report Financial statements Other information ## of opening AuMA* Financial Planners (“RFPs”) investment managers Definition Definition Definition Definition High Net Worth clients are based on Total net flows as a percentage of opening Number of advisers licensed to advise Number of individuals who provide the number of households or client units AuMA. This measure evaluates the level of clients across Pension, Investment and discretionary investment management served by Quilter Cheviot. flows during the period in relation to the Protection solutions, but only permitted to services to clients of Quilter Cheviot in Affluent client numbers are identified as asset base, excluding from market recommend products and solutions from line with individual circumstances and individuals, or corporate or trust entities movements. providers on the Quilter Financial Planning investment objectives. actively engaged with the Quilter Restricted Panel. Investment Platform. 2022 performance 2022 performance 2022 performance 2022 performance | | | 2021 4% | 2021 601,563 | | 2021 170 | | --- | --- | --- | --- | --- | --- | | | Affluent. | | | Affluent. | | | | | · Net inflows/opening AuMA decreased | | | · We achieved growth in discretionary | | | High Net Worth. | | | High Net Worth. | | | | | 2 percentage points in 2022 reflecting the | | | investment managers of 5% to 179 | | | | more uncertain UK economic backdrop. | | | following a number of new recruits | | · The Affluent segment delivered client | | | · Following the successful launch of our | | | | | | · Solid performance from the Quilter | | | and promotions during the year. | | | growth of 2%, demonstrating our ability | | new Platform, we have continued to focus | | | channel in the Affluent segment with to attract clients and IFA firms. on ensuring alignment and productivity gross platform flows of £2.6 billion · The number of households served by the of our own advisers. (2021: £2.6 billion). High Net Worth segment experienced · Total Restricted Financial Planners · Robust performance in the High Net muted total growth, as we move towards decreased by 121 in 2022. Worth segment with modestly lower focussing on higher net worth clients. · Of the total 1,502 Restricted Financial gross flows and stable retention leading Planners as at the end of 31 December to net inflow of £0.9 billion for the year 2022, 60 were in the High Net Worth (2021: £1.1 billion). segment and 1,442 were in the Affluent segment. | Outlook for 2023 | | Outlook for 2023 | | Outlook for 2023 | | Outlook for 2023 | | | --- | --- | --- | --- | --- | --- | --- | --- | | · Grow the number of clients served, | | · Target net flow growth of 2%+ in 2023, | | · Stabilise and return to adviser growth | | · Continue to grow number of | | | | ensuring a high-quality client and adviser | | building to c.4-5% per annum as markets | | in 2023 and beyond. | | discretionary investment managers | | | experience that provides a strong range | | normalise, with aspirations to build | | | | toward our 2025 target of c.200 and build | | | of investment solutions and delivers good | | momentum further. | | | | out investment management proposition. | | | customer outcomes. | | | | | · Total 300 client facing staff (including | | financial planners) by 2025. 2022 36,160467,245 2022 2022 2022 2% 601,442 179 13Quilter Annual Report 2022 2021 36,117458,077 Our strategy continued ## 02. Enhance efficiency ### Strategic objective: ## Maximising synergies across the business, increasing operational efficiency ## and reducing costs and complexity. Simplification programme to achieve ## c.£45 million in cost savings by the end of 2024. ### Key performance indicators | Operating margin* Adjusted profit | | IFRS profit Total shareholder return | | | --- | --- | --- | --- | | | before tax* | | (“TSR”) | | Definition | Definition | Definition | Definition | | Represents adjusted profit before | Adjusted profit before tax represents the | IFRS profit after tax from continuing | The difference between the opening | | tax divided by total net fee revenue. | Group’s IFRS profit, adjusted for specific | operations, prepared in accordance with | and closing share price over the period, | | Operating margin is a profitability measure | items that management consider to be | IFRS. For remuneration purposes, IFRS | plus any dividends paid during that period. | | that reflects the percentage of adjusted | outside of the Group’s normal operations | profit before tax on a continuing basis | Performance shown for Quilter as traded | | profit before tax generated from total | or one-off in nature, as detailed in note 7(b) | is adjusted to exclude amortisation | on the London Stock Exchange. | | net fee revenues. | in the financial statements. The exclusion | of intangible assets, policyholder tax | | | | of certain adjusting items may result in | adjustments, business disposal impacts | | | | adjusted profit before tax being materially | and other one-off items (refer to Note 7(c) | | | | higher or lower than the IFRS profit after tax. | and page 95 of the Remuneration Report. | | | 2022 performance | 2022 performance | 2022 performance | 2022 performance | | 2021 22% | 2021 £138m | 2022 | | | | £175m | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2021 | | | £68m | | | | · The Group’s operating margin was | · Adjusted profit before tax of £134 million, | 2021 | | £23m | | | · Total shareholder return was negative at | | in line with the prior year, primarily as | was 3% lower than 2021. | | | | | | 33%. A similar downturn was experienced | | a result of good cost discipline. Lower | · The decline in net management fees was | | IFRS profit on a continuing basis (excluding | | | | across the wealth management sector, | amortisation, policyholder tax adjustments, revenues broadly match the decline due to lower average assets year on year. as a result of the fall in equity markets business disposal impacts and one-off items). | | in average assets. | · Other revenue increased reflecting | | IFRS profit after tax from continuing operations. | | and rise in inflation which led to lower | | --- | --- | --- | --- | --- | --- | --- | | | | interest income earned on cash and | | | | revenues and profits. | | | | capital resources, offset by lower | · The Group’s IFRS profit after tax from | | | | | | | mortgage and protection business levels | | continuing operations was £175 million, | | | | | | and lower adviser headcount. | | compared to a profit of £23 million for | | | | | | · Operating expenses in 2022 were | | 2021. The increase in profit is largely | | | | | | down 2% primarily due to continued | | attributable to policyholder tax credits | | | | | | cost discipline, lower FSCS levies and | | resulting from market losses up to | | | | | | the Optimisation and Simplification | | December 2022 of £134 million | | | | | | cost initiatives delivering the intended | | compared to market gains in the prior | | | | | | cost reductions. | | year (2021: tax charge £73 million). | | | | Outlook for 2023 | | Outlook for 2023 | Outlook for 2023 | | Outlook for 2023 | | | · Continuing the Simplification programme, | | · Accelerating growth in medium-term. | · IFRS profit after tax from continuing | | · N/A | | | | enhancing efficiency and reducing | | | operations can vary significantly | | | | | complexity, with total benefit of £45 million | | | year-on-year depending on the | | | | | of cost saving expected by 2024. | | | change in policyholder tax. Business | | | | · Given the shift in operating and market | | | | Transformation expenses will remain | | | | | conditions, we no longer expect to | | | elevated in 2023 reflecting the | | | | | achieve an operating margin of 25% for | | | expenditure on our Simplification | | | | | 2023. We still believe that an operating | | | programme and other cost reduction | | | | | margin in excess of 30% is an appropriate | | | initiatives but are expected to reduce | | | | | goal for our business, but is likely to take | | | substantially thereafter. | | | longer to attain than previous expectation of 2025. 2022 £103m 2022 2022 2022 14 Quilter Annual Report 2022 £134m (33.0%) 22% 2021 (0.1%) Our strategy continued Strategic Report ## 02. Enhance efficiency ### Strategic objective: ## Maximising synergies across the business, increasing operational efficiency ## and reducing costs and complexity. Simplification programme to achieve ## c.£45 million in cost savings by the end of 2024. ### Key performance indicators Governance Report Financial statements Other information | Operating margin* Adjusted profit | | IFRS profit Total shareholder return | | | --- | --- | --- | --- | | | before tax* | | (“TSR”) | | Definition | Definition | Definition | Definition | | Represents adjusted profit before | Adjusted profit before tax represents the | IFRS profit after tax from continuing | The difference between the opening | | tax divided by total net fee revenue. | Group’s IFRS profit, adjusted for specific | operations, prepared in accordance with | and closing share price over the period, | | Operating margin is a profitability measure | items that management consider to be | IFRS. For remuneration purposes, IFRS | plus any dividends paid during that period. | | that reflects the percentage of adjusted | outside of the Group’s normal operations | profit before tax on a continuing basis | Performance shown for Quilter as traded | | profit before tax generated from total | or one-off in nature, as detailed in note 7(b) | is adjusted to exclude amortisation | on the London Stock Exchange. | | net fee revenues. | in the financial statements. The exclusion | of intangible assets, policyholder tax | | | | of certain adjusting items may result in | adjustments, business disposal impacts | | | | adjusted profit before tax being materially | and other one-off items (refer to Note 7(c) | | | | higher or lower than the IFRS profit after tax. | and page 95 of the Remuneration Report. | | | 2022 performance | 2022 performance | 2022 performance | 2022 performance | 2021 (0.1%) | · The Group’s operating margin was | · Adjusted profit before tax of £134 million, | | · Total shareholder return was negative at | | --- | --- | --- | --- | | in line with the prior year, primarily as | was 3% lower than 2021. | | 33%. A similar downturn was experienced | | a result of good cost discipline. Lower | · The decline in net management fees was | IFRS profit on a continuing basis (excluding | across the wealth management sector, | amortisation, policyholder tax adjustments, revenues broadly match the decline due to lower average assets year on year. as a result of the fall in equity markets business disposal impacts and one-off items). | | in average assets. | · Other revenue increased reflecting | | IFRS profit after tax from continuing operations. | | and rise in inflation which led to lower | | --- | --- | --- | --- | --- | --- | --- | | | | interest income earned on cash and | | | | revenues and profits. | | | | capital resources, offset by lower | · The Group’s IFRS profit after tax from | | | | | | | mortgage and protection business levels | | continuing operations was £175 million, | | | | | | and lower adviser headcount. | | compared to a profit of £23 million for | | | | | | · Operating expenses in 2022 were | | 2021. The increase in profit is largely | | | | | | down 2% primarily due to continued | | attributable to policyholder tax credits | | | | | | cost discipline, lower FSCS levies and | | resulting from market losses up to | | | | | | the Optimisation and Simplification | | December 2022 of £134 million | | | | | | cost initiatives delivering the intended | | compared to market gains in the prior | | | | | | cost reductions. | | year (2021: tax charge £73 million). | | | | Outlook for 2023 | | Outlook for 2023 | Outlook for 2023 | | Outlook for 2023 | | | · Continuing the Simplification programme, | | · Accelerating growth in medium-term. | · IFRS profit after tax from continuing | | · N/A | | | | enhancing efficiency and reducing | | | operations can vary significantly | | | | | complexity, with total benefit of £45 million | | | year-on-year depending on the | | | | | of cost saving expected by 2024. | | | change in policyholder tax. Business | | | | · Given the shift in operating and market | | | | Transformation expenses will remain | | | | | conditions, we no longer expect to | | | elevated in 2023 reflecting the | | | | | achieve an operating margin of 25% for | | | expenditure on our Simplification | | | | | 2023. We still believe that an operating | | | programme and other cost reduction | | | | | margin in excess of 30% is an appropriate | | | initiatives but are expected to reduce | | | | | goal for our business, but is likely to take | | | substantially thereafter. | | | longer to attain than previous expectation of 2025. | | | | | 2022 | | | £103m | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 2022 | | | | £175m | | | | | 2022 | 22% | 2022 | £134m | 2021 | | £68m | | | 2022 | (33.0%) | 15Quilter Annual Report 2022 | | 2021 22% | | 2021 £138m | | 2021 | £23m | | | | | | | Our strategy continued ## 3. Embed digital ### Strategic objective: ## Enhancing and modernising our digital service experience to engage clients ## of today and tomorrow. ### Key performance indicators ## Number of visits Number of online portal Customer App downloads ## to Quilter websites customer registrations Definition Definition Definition Number of visits to any of the Quilter plc Number of customers registered to use Number of downloads to our Customer or Quilter-brand websites. our online portal, for the Quilter Investment App for our platform customers. Platform and Quilter Cheviot. 2022 performance 2022 performance 2022 performance 2021 5,721,206 2021 7k195k 2021 N/A Quilter Investment Platform. · The number of visits to any of the · Successfully launched the Affluent Quilter Quilter Cheviot. Quilter plc or Quilter-brand websites has Customer App on 31 October 2022. decreased by 15% in 2022. This reflects This signifies a key milestone in our digital · The total number of online portal a change in our website strategy journey to modernise our digital service customer registrations in 2022 which has reduced the number public experience to engage our customers increased by 7% from 2021. This reflects websites to enhance and simplify of today and tomorrow. our commitment to evolving our digital the user experience. communication and engagement with our online customer portals. | Outlook for 2023 | | Outlook for 2023 | | Outlook for 2023 | | | --- | --- | --- | --- | --- | --- | | · Enhance our digital communication | | · Grow the number of online portal | | · Grow the number of Customer App | | | | channel and branding. | | customer registrations as we improve | | downloads, as we continue to enhance | | · Continue our digital transformation | | | our digital channels. | | our digital proposition. | and ensure this is aligned with our segment strategy. 2022 2022 2022 16 Quilter Annual Report 2022 4,869,132 31,811 15k202k Our strategy continued Strategic Report Governance Report Financial statements Other information 17Quilter Annual Report 2022 Our strategy continued ## 4. Be a responsible wealth manager ### Strategic objective: ## Strive to act and invest responsibly. Acting responsibly refers to the way we ## operate and do business. It is about our culture, values, business conduct and how ## we manage our relationships with our stakeholders. Investing responsibly refers ## specifically to our products and services. It is about how we integrate responsible ## investment considerations into our financial advice, investment platform and ## investment management. Detail on our progress on the following KPIs ## can be found in the Responsible Business report on page 26. ### Key performance indicators | Female representation | | Ethnic minority | Scope 1 and 2 greenhouse | Number of young | UN PRI rating. | | --- | --- | --- | --- | --- | --- | | | 1 | | | | Please find further details of our | | in senior management | | representation in senior | gas emissions | people supported by | | UN PRI rating disclosure on our website 1 ## management the Quilter Foundation and Responsible Business report. Definition Definition Definition Definition ## Retained status as a Number of females within our senior Ethnic minority representation within Level of direct emissions from owned Number of young people supported management team. our senior management team. or controlled sources (Scope 1) and by the Quilter Foundation. signatory of the FRC’s indirect emissions from the generation ## UK Stewardship Code. of purchased energy (Scope 2). | 2022 performance | | | 2022 performance | | | 2022 performance | | | 2022 performance | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2022 | | 36% | 2022 | | 4% | 2022 | | 1,462 | | | | 2021 [X,XXX,XXX] | | | 2021 [X,XXX,XXX] | | | 2021 2,754 | | | | | | · Female representation in senior | | | · Ethnic minority representation within our | | | · Published our first Task Force on Climate | | | · Our three-year employment grant was | | | | management was 36% at the end | | | senior management team for 2022 was | | | Related Financial Disclosures (TCFD) | | | concluded in 2022 and we partnered with | | | of 2022, below the target of 38% | | | 4%, below our 5% target. | | | disclosure and set a Scope 1 and 2 | | | three charities to support 424 15-25 year | | | we had set out for 2022. | | | | | | emissions reduction target. | | | olds, reducing barriers faced when | | · Quilter Cheviot’s Women in Investing | | | | | | · In 2022 we launched our Quilter-wide | | | | gaining employment. | | | Hub continued. | | | | | | colleague sustainability committee and | | · Formed charitable partnerships with | | | · Female Client Survey conducted, | | | | | | | ran our first colleague sustainability | | | MyBnk and Centre for Financial Capability | | | aimed at understanding the | | | | | | survey designed to inform the analysis | | | to further advocate the need for financial | | | investment experiences of Quilter | | | | | | of the emissions created. | | | education. | | | Cheviot’s female customers. | | | | | | | | · Launched the Foundation’s Local | | Community Fund, helping facilitate smaller grants to causes nominated by colleagues or advisers. | Outlook for 2023 | | Outlook for 2023 | | Outlook for 2023 | | Outlook for 2023 | | | --- | --- | --- | --- | --- | --- | --- | --- | | · To further reinforce our long-term goals, | | · Work towards a 5% ethnically | | · Reduce our Scope 1 and 2 emissions | | · By 2025, we aim to have supported since | | | | we have set out new minimum targets | | diverse representation in our senior | | by 80% by 2030. | | Listing, 100,000 young people through | | | for the end of 2025 to have 40% female | | management by the end of 2023. | · Set purchased goods and services | | | the Quilter Foundation. | | | representation in senior management, | | | | engagement target. | · Launch our next strategic partnership | | | | which is in line with the FTSE Women | | | · Iterative improvements to our action | | | through the Quilter Foundation. | | | Leaders Review Target. | | | | plan with a focus on our investments. | | This grant will focus on breaking down | | | | | | · Ongoing annual Sustainability Survey and | | | the barriers to employment which exist | | | | | | | support to encourage colleague action. | | for some young people and seek to | | | | | | · Assess Taskforce for Nature Related | | | leverage the broader organisation to | | | | | | | Financial recommendations and | | offer them opportunities to engage | 1 Senior Management is defined as Executive Committee determine actions. with financial services. and their direct reports, excluding personal assistants. 2022 18 Quilter Annual Report 2022 26,557 2021 12,606 Our strategy continued Strategic Report ## 4. Be a responsible wealth manager ### Strategic objective: ## Strive to act and invest responsibly. Acting responsibly refers to the way we ## operate and do business. It is about our culture, values, business conduct and how ## we manage our relationships with our stakeholders. Investing responsibly refers ## specifically to our products and services. It is about how we integrate responsible Governance Report Financial statements Other information ## investment considerations into our financial advice, investment platform and ## investment management. Detail on our progress on the following KPIs ## can be found in the Responsible Business report on page 26. ### Key performance indicators | Female representation | | Ethnic minority | Scope 1 and 2 greenhouse | Number of young | UN PRI rating. | | --- | --- | --- | --- | --- | --- | | | 1 | | | | Please find further details of our | | in senior management | | representation in senior | gas emissions | people supported by | | UN PRI rating disclosure on our website 1 ## management the Quilter Foundation and Responsible Business report. Definition Definition Definition Definition ## Retained status as a Number of females within our senior Ethnic minority representation within Level of direct emissions from owned Number of young people supported management team. our senior management team. or controlled sources (Scope 1) and by the Quilter Foundation. signatory of the FRC’s indirect emissions from the generation ## UK Stewardship Code. of purchased energy (Scope 2). 2022 performance 2022 performance 2022 performance 2022 performance 2022 26,557 2021 12,606 | · Female representation in senior | · Ethnic minority representation within our | · Published our first Task Force on Climate | · Our three-year employment grant was | | --- | --- | --- | --- | | management was 36% at the end | senior management team for 2022 was | Related Financial Disclosures (TCFD) | concluded in 2022 and we partnered with | | of 2022, below the target of 38% | 4%, below our 5% target. | disclosure and set a Scope 1 and 2 | three charities to support 424 15-25 year | | we had set out for 2022. | | emissions reduction target. | olds, reducing barriers faced when | | · Quilter Cheviot’s Women in Investing | | · In 2022 we launched our Quilter-wide | gaining employment. | | Hub continued. | | colleague sustainability committee and | · Formed charitable partnerships with | | · Female Client Survey conducted, | | ran our first colleague sustainability | MyBnk and Centre for Financial Capability | | aimed at understanding the | | survey designed to inform the analysis | to further advocate the need for financial | | investment experiences of Quilter | | of the emissions created. | education. | | Cheviot’s female customers. | | | · Launched the Foundation’s Local | Community Fund, helping facilitate smaller grants to causes nominated by colleagues or advisers. | Outlook for 2023 | | Outlook for 2023 | | Outlook for 2023 | | Outlook for 2023 | | | --- | --- | --- | --- | --- | --- | --- | --- | | · To further reinforce our long-term goals, | | · Work towards a 5% ethnically | | · Reduce our Scope 1 and 2 emissions | | · By 2025, we aim to have supported since | | | | we have set out new minimum targets | | diverse representation in our senior | | by 80% by 2030. | | Listing, 100,000 young people through | | | for the end of 2025 to have 40% female | | management by the end of 2023. | · Set purchased goods and services | | | the Quilter Foundation. | | | representation in senior management, | | | | engagement target. | · Launch our next strategic partnership | | | | which is in line with the FTSE Women | | | · Iterative improvements to our action | | | through the Quilter Foundation. | | | Leaders Review Target. | | | | plan with a focus on our investments. | | This grant will focus on breaking down | | | | | | · Ongoing annual Sustainability Survey and | | | the barriers to employment which exist | | | | | | | support to encourage colleague action. | | for some young people and seek to | | | | | | · Assess Taskforce for Nature Related | | | leverage the broader organisation to | | | | | | | Financial recommendations and | | offer them opportunities to engage | | | | | | | determine actions. | | with financial services. | 2022 36% 2022 4% 2022 1,462 19Quilter Annual Report 2022 2021 [X,XXX,XXX] 2021 [X,XXX,XXX] 2021 2,754 ## Our business model ## Offering a differentiated model helping drive value ## We serve two ## creation, with clear benefits to clients and shareholders. ## customer segments… A differentiated model with clear Our drivers of value creation Customer profile benefits to all stakeholders A wealth management customer, Quilter is a full-service wealth manager and 1. Colleagues no matter their investable assets, is well positioned in an industry benefitting Quilter is a people-driven business, needs three things: from structural growth. We have an open with value created not only from our own · financial advice; and unbundled model, with client choice employees and advisers but also third · a platform on which to hold their at the heart of the offering. Our business parties and independent advisers who are assets; and model supports both our advisers and their supported by our services. Our culture helps · investment solutions to deliver clients as well as third-party independent us achieve our purpose while operating returns aligned to their risk appetite financial advisers and their clients, as their in a responsible manner. and ESG values. financial requirements evolve throughout their lives. 2. Technology and expertise Quilter provides each of those. As well Our highly skilled colleagues, experts in the as having our own advice force, we also Few of our peers have both their own fields of financial planning and investments, support independent financial advisers. adviser force while also supporting combined with our technological independent financial advisers. Even fewer capabilities, provide high-quality service have the scale of our distribution reach. and strong customer engagement. We have one of the largest platforms in the Retail Advised market, meaning we can 3. Risk management and operational offer the benefits of our scale to clients at resilience ## High Net Worth sustainable, fair prices. Our investment Our risk management, governance and solutions are closely aligned to the advice controls help achieve good customer ## c.£250,000+ of process and aim to offer good customer outcomes and provide a strong foundation outcomes through the investment cycle. to continue to provide high levels of service ## investable assets in challenging environments. The benefits of our model Benefits and synergies created · Our dual advice channels (our own 4. Financial resources by the High Net Worth segment advisers and independent financial We use our financial resources to invest · Quilter Private Client Advisers is advisers (IFAs)) provide strategic control for growth, as well as to facilitate inorganic a Quilter channel to drive net flows of distribution as the independent opportunities, where appropriate. while maintaining strong relationships financial adviser market consolidates. with independent advisers. · Our own platform gives us scale and · Full-range client offering: investment operating leverage across the business. management, advice or both. · Our own investment solutions enables us to capture an additional source of revenue. ## Affluent ## c.£50,000+ of ## investable assets Benefits and synergies created by the Affluent segment · Full spectrum of adviser support. · Scale benefits from shared Platform. · Single investment team and dual- channel distribution focusing resources and driving flows. 20 Quilter Annual Report 2022 Our business model continued Strategic Report ## …through two …and a single ## strong distribution operating model. ## channels… Financial advice Platform and wrappers Investment solutions We earn revenues from the advice provided Investment platforms are depositaries Quilter offers a full-breadth of investment by our advisers. A client typically pays a for managing and holding investments, management services, ranging from one-off initial advice fee, then an ongoing with assets held in collective investment bespoke portfolios at Quilter Cheviot to annual advice fee representing a accounts or appropriate tax efficient unitised, risk-based multi-asset solutions Governance Report Financial statements Other information percentage of their investment. wrappers such as ISAs or pensions. at Quilter Investors. A client pays an annual We earn revenues from the assets held. management charge based on their assets A client pays a fee on a quarterly basis, under management. representing a percentage of their investments under administration. ## Quilter ## Quilter channel proprietary ## solutions ## Quilter Platforms ### Our platforms are available ### to Quilter advisers and ### independent advisers, ### as well as directly via a ### dedicated customer portal. ## Third-party ## IFA channel ## solutions 21Quilter Annual Report 2022 ## Section 172 (1) statement ## Delivering for our stakeholders: Section 172 (1) statement Building Quilter to deliver long-term success ## The Companies Act 2006 (the “Act”) for all our stakeholders ## and the UK Corporate Governance To ensure that Quilter achieves its purpose of helping create prosperity for the generations of today and tomorrow, it is critical ## Code 2018 require the Annual Report for the Board to balance the needs, interests and expectations of our key stakeholders. At times these competing stakeholder views ## to provide information that enables can be contradictory and in order to achieve long-term success, ## our stakeholders to assess how the it is the Board’s role to navigate these complexities. The Board has a comprehensive stakeholder engagement programme and seeks ## Directors of Quilter have performed to act in the best interests of the Group, whilst being fair and ## their duties under section 172 of the Act. balanced in its approach. The Act provides that Quilter Directors must act in a way that In addition to direct engagement with our stakeholders, papers they consider in good faith and would be most likely to promote submitted to our Boards and Board Committees across the Group the success of Quilter for the benefit of shareholders as a whole. identify for their consideration where stakeholders could be In doing so, Quilter Directors must have regard, amongst other impacted by the proposals. At all times, the Boards remain focused things, to the factors set out below: on ensuring good customer outcomes. Some of the ways the Board · the likely consequences of any decision in the long term; engages with our stakeholders, including examples of how our · the interests of Quilter colleagues; Board has considered stakeholders when it made key strategic · the need to foster the Company’s business relationships; decisions in 2022, can be read on pages 59 to 61. · the impact of Quilter’s operations on the community and the environment; The Board has identified six key stakeholder groups whose · the desirability of the Company maintaining a reputation interests and needs it regularly considers. for high standards of business conduct; and · the need to act fairly for all our members. Quilter’s stakeholders Advisers The advisers who provide advice under the Quilter brand, the third-party advice firms who operate within our regulatory framework, and third-party independent advisers who use our products, services and our investment platform. Colleagues All of our 3,005 full-time, part-time and contract staff who work to support Quilter’s customers and advisers. Communities The societies in which we operate and where our products and services are taken up and the suppliers that support Quilter to deliver products and services for customers and colleagues. Customers Those who use our products and services to meet their long-term financial needs. Investors Those who have invested in Quilter shares and those who recommend investment in Quilter and its peers, including equity and debt investors, analysts and rating agencies. Regulators Our core UK regulators, the Prudential Regulation Authority and the Financial Conduct Authority, and various international regulators including the Central Bank of Ireland. 22 Quilter Annual Report 2022 Section 172 (1) statement continued Strategic Report ## Advisers Colleagues Advisers expect Quilter to: Our colleagues expect Quilter to: · Provide an investment platform that facilitates the provision · Create a values-led culture that is open and inclusive. of a high-quality service to advisers and their customers. · Invest in the development of its people and its technology so · Have a wide range of compelling investment propositions that its people can deliver excellent service to our customers. that meet the needs and expectations of customers. · Offer an attractive reward structure and a compelling · Provide a high-quality control environment that enables colleague proposition. advisers to be productive within an effective control · Provide support within and outside the workplace, particularly environment with tools that support their business. in the context of the ongoing cost-of-living challenges. · Support advisers in providing high-quality, trusted advice · Listen to ideas, suggestions and concerns, and take action to their customers which complies with all regulatory and as appropriate. best practice standards of conduct. Governance Report Financial statements Other information How does the Board engage with colleagues? How does the Board engage with advisers? · The Board receives biannual reports from the HR Director on · Our Chief Executive Officer regularly briefs the Board on key the Group’s people, culture and ways of working, and closely issues impacting all advisers. monitors colleague engagement survey scores. · The Board and Board Risk Committee scrutinise and challenge · The Board endorsed management’s plans to improve the the Strategic Risk Appetite Principles and outputs to identify inclusivity and diversity of the organisation and sponsored the how effectively and safely Quilter is supporting advisers in launch of the Group-wide Inclusion and Diversity Action Plan. serving customers. · Tazim Essani and Paul Matthews are the designated · Two members of the Board also serve on the Quilter Financial Non-executive Directors for workforce engagement and play Planning Board. They engage regularly with advisers to an active role in ensuring that the views of our colleagues are understand their perspectives and priorities and their conveyed to the Board. In 2022, Tazim and Paul continued to interactions are subsequently reported to the Board. attend certain Quilter Employee Forum meetings, and held · The Board and the Board Risk Committee receive regular monthly meetings with the Chair of the Employee Forum. updates on the quality of the service provided to advisers They further attended a workshop with the Chairs of Quilter’s following the implementation of the Group’s investment Colleague Networks. platform. · The Executive Directors engage directly with colleagues across · Management maintain a programme of communication the Group. and interactions with Quilter Financial Planning’s advisers to enhance the cultural alignment between Quilter and What was the result of this engagement? Quilter Financial Planning’s advisers. The Chief Executive · In January 2022 the Board received a briefing from an external Officer attended adviser syndicate events throughout the speaker on inclusion and diversity to ensure it can effectively year. The data and feedback from these initiatives continue oversee the Group’s efforts to drive its inclusion and diversity to be reported to the Board. agenda. The Board asked that the session be extended to Quilter’s wider management community which resulted in over What was the result of that engagement? 300 managers attending a virtual diversity and inclusion · The Board asked management to continue to enhance session. The session was designed to enhance understanding Quilter’s proposition so that it is attractive for our advisers. of what it takes to create a truly inclusive workplace and how · Enhancements have been made to make it easier for advisers the Board and management can influence the approach to to work with Quilter, including the simplification and diverse representation. automation of processes. · Feedback from engagement with the Non-executive Directors resulted in clear guidance being issued to colleagues on hybrid working arrangements. · The Board Remuneration Committee gave close consideration to the impacts for colleagues resulting from the cost-of-living crisis and inflation. The Board welcomed management’s initiative to make a one-off payment of £1,200 to employees on a full-time equivalent salary of £50,000 or less, which was confirmed alongside our half year results. · Following feedback from the Board and the Executive Committee, the frequency of the staff surveys (Peakon) will be reduced in 2023 enabling staff to give more considered feedback whilst ensuring more colleagues have their say. ## 2,200 employees (71%*) attended the Quilter Virtual Conference in January 2022 *Number of full-time, part-time and contract staff employed as at the date of the Quilter Virtual Conference. 23Quilter Annual Report 2022 Section 172 (1) statement continued ## Communities Customers Our communities and suppliers expect Quilter to: Customers expect Quilter to: · Contribute to the communities in which Quilter is located · Provide consistently high-quality service and access to and where our products and services are used. products and services that meet their needs and expectations, · Seek to mitigate the environmental impact of its operations within their risk appetite and with the flexibility to reflect their and to create products and services which facilitate our ESG preferences. customers’ desire to invest responsibly. · Provide personalised customer propositions, through · Treat suppliers fairly and professionally. supporting long-term advice-based relationships. · Deliver good investment performance. How does the Board engage with its communities? · By providing oversight of the Quilter Responsible Business How does the Board engage with customers? agenda, which affects customers, communities and the · The Board scrutinises a regular Customer Report which environment. This responsibility for the Responsible Business includes feedback on the perceived quality of Quilter products framework is delegated to the Board Corporate Governance and services to ensure the business is continually learning and Nominations Committee who receive regular updates from the feedback received from customers and their on progress. advisers. Quilter currently has three main sources of customer · By endorsing and providing regular oversight of Quilter’s feedback: Trust Pilot, Inmoment Surveys and customer strategy of being a responsible wealth manager. complaints, in addition to indicative feedback from advisers through our distribution teams and customers via our What was the result of this engagement? contact teams. · In 2022, the Quilter Foundation (the “Foundation”) had · All Board and Committee papers include, where appropriate, six active strategic partners and awarded over £700,000 analysis of the impact on customers of business proposals. in grants. · The Board and the Board Risk Committee receive regular · In addition, the Foundation launched the ‘Local Community updates from the Chief Executive Officer, with support Fund’ in January 2022. Through this initiative, any colleague from the Chief Risk Officer, on the progress of customer or adviser can nominate a local cause that is aligned to the remediation programmes. Foundation’s objectives, for grants of up to £10,000. In 2022 · The Board Remuneration Committee receives reports on how the Fund awarded over £120,000 to 17 charities, which the business has served its customers as part of its oversight included food banks and mental health charities. of the executive scorecard that drives the remuneration · Colleagues and advisers contributed to community outcomes for our senior executive team. volunteering and raised over £100,000 to support the work · The Board continues to oversee the delivery of the of the Foundation. organisational change to implement Quilter’s strategy of · A total of 23 charities benefitted from grants from the organising the business around its two core client-focused Foundation, enabling support for 26,557 young people. segments, High Net Worth and Affluent. How does the Board engage with its suppliers? What was the result of that engagement? · Quilter proactively engages with strategic and critical suppliers · The Board has overseen the development of a plan to on a regular basis through formal governance meetings and implement the new Consumer Duty which is due to be discussing business strategy, performance and areas of implemented by July 2023. The new duty aligns with a core further opportunity or risk. Throughout the year the Board part of the Company’s strategic rationale to deliver good regularly received updates on the performance of our outcomes for customers. strategic partners. · In response to feedback from the Board the reporting on how we support our customers continues to be enhanced What was the result of this engagement? to include metrics as to how Quilter’s customers feel about · Ongoing dialogue has helped ensure the supply chain has their day-to-day interactions with Quilter. remained resilient. · Quilter continued to work closely with its customers and · We work collaboratively with our strategic partners to drive regulators in relation to the conduct of past business reviews development of the functionality of the systems our and the provision of compensation to customers who received customers and advisers use. unsuitable advice, which resulted in a loss. This advice was · With the current energy crisis and rising inflation Quilter is in relation to Defined Benefit (“DB”) to Defined Contribution working closely with suppliers to understand how they would (“DC”) pension transfers from Lighthouse advisers prior to continue to operate in the event of power outages, as well as Lighthouse transitioning to Quilter’s systems and controls the steps they are taking to remain financially resilient. after its acquisition by Quilter. · Quilter has worked with government to introduce suitable legislation to ensure consumers are adequately protected online. ## 23 charities benefitted from grants from the Foundation 24 Quilter Annual Report 2022 Section 172 (1) statement continued # Investors Our investors expect Quilter to: - Deliver a strategy that creates long-term shareholder value, delivering sustainable dividends supported by cash flow and capital generation. - Have a resilient business model which generates sustainable returns for shareholders and reliable cash flow for debt investors. - Maintain robust corporate governance to ensure effective oversight and control of the business. - Maintain financial strength and resilience that enables the business to withstand market headwinds and volatility. - Integrate ESG factors within our investment processes. How does the Board engage with its investors: - Maintaining regular and constructive dialogue with investors to communicate the Company's strategy, Remuneration Policy, Chair and Chief Executive Officer succession and performance. - Providing updates on the Group's trading and financial performance to the markets, and conducting 195 meetings in 2022 with shareholders, debt holders and prospective investors. - Ensuring private shareholders received excellent support from our share registrars in the UK and South Africa. - Holding an Annual General Meeting and General Meeting that was accessible for shareholders overseas to listen to by telephone. - Consulting with our shareholders on their preferred mechanism for the distribution of the net proceeds of the sale of Quilter International. What was the result of this engagement? - Quilter returned £328 million of the net proceeds arising from the sale of Quilter International to shareholders by way of a B Share Scheme accompanied by a Share Consolidation which was implemented in May 2022. - The Board considers investor feedback on an ongoing basis. An example of how debtholders' and shareholders' interests were considered is set out on page 61 in the Principal Decisions of the Board regarding our new Tier 2 Bond Issue launched in January 2023. - Following consultation with major shareholders, the new Directors' Remuneration Policy was approved by shareholders with a 96.16% majority at the 2022 Annual General Meeting. - Continuing dialogue with major South African shareholders on the Company seeking an enabling authority at each Annual General Meeting regarding political donations. # Regulators Our regulators expect Quilter and its subsidiaries to: - Run Quilter's operations in a prudent manner, being appropriately capitalised and with sufficient liquidity to enable it to discharge its obligations. - Manage its conduct risk and internal controls. - Operate in the best interests of its customers and meet the expected outcomes of customers. - Operate in an open and transparent manner with its regulators, its customers and the financial markets both as an investment manager and a listed company in its own right. How does the Board engage with the Group's regulators? - Transparent and open regulatory relationships are fundamentally important and Quilter engages regularly with its main regulators to ensure business is conducted in line with their expectations and the evolving regulatory framework. - The Board Risk Committee receive a quarterly report on the status of material regulatory relationships and matters under discussion. - Quilter routinely shares certain Board and other relevant papers with our main regulators. - Certain Board Directors, Executive Committee members and other senior leaders meet regularly with our main UK regulators. Matters discussed in 2022 include regulatory changes such as the Consumer Duty and Appointed Representative Regime changes, the implementation of the High Net Worth and Affluent segments, the new Tier 2 Bond Issue, diversity, governance and operational resilience. - The Board received regular updates on regulatory developments in 2022. Subjects included an update on the FCA's Consumer Investments Strategy, the evolution of ESG-related regulation, the regulators' joint Discussion Paper on critical third parties to the financial sector, and the review of the UK's Financial Services Compensation Framework. What was the result of this engagement? - Consideration of the views and expectations of our regulators were core to the Board's decision making during 2022, including the return of the net proceeds to shareholders following the completion of the sale of Quilter International. - Quilter contributed responses to a number of consultations and discussion papers, including in relation to the Consumer Duty, the UK's review of the Solvency II prudential regime for insurers, the calculation of redress for non-compliant DB transfer advice, the FCA and HM Treasury's review of the Appointed Representatives regime, the FCA's consultation on protecting investors in authorised funds following the Russian invasion of Ukraine, and the review of the UK's Financial Services Compensation Framework. Strategic Report Governance Report Financial statements Other information £328m returned to shareholders through the B Share Scheme in 2022 Quilter Annual Report 2022 25 ## Responsible Business Being a responsible wealth manager ## Our purpose is to create prosperity for the ## generations of today and tomorrow. To do this, ## we must strive to create a sustainable business, ## that acts and invests responsibly. That is why ## being a responsible wealth manager is one of ## the four pillars of our Group strategy. | 2022 materiality assessment | Our strategic framework: | | --- | --- | | We are committed to reviewing | Our materiality assessment has | | our approach to responsible wealth | highlighted the need to leverage a | | management regularly to ensure | framework which prompts us to think | | it continues to reflect the areas of | about how we act and how we invest. | materiality for our business. Acting responsibly refers to the This year the materiality assessment way we operate and do business. was conducted between July and It is about our culture, values, September. The output was business conduct and how presented to the Quilter Responsible we manage our relationships Wealth Management Executive with our stakeholders. ### Steering Committee and the Quilter o w w e a c ### H t Board in September 2022. o v e r n a n c e G The assessment included desk-based research of the regulatory landscape, our competitor propositions, the e O r O a u r s u r n t t o I p l l a n d e expectations set by the external u v e u g s T r C e t e a R o r r s c t bodies (of which we are a signatory) d u h i o n O n n a i t y I n and societal trends relating to n v o s e u e l l m s o t | colleague, customer and adviser | p | | | m | | | R | | | g | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | o | | | o | | | P e | | | y | | | | | | C 9 | | | a | s | | | | | e | | | 2 | | | g | p | O | | | preferences. This research included | | | r | e | | | e | | | | | | P | s | u | g | | | 2 | o | u | | | | | e | | a | | | 8 | n | r | | | | | | o | P | | Delivering | | | | | | consideration of customer and | | u | t | | | | | s | C | | | | | g | c | | | | | i b | | | | | | a | e | | prosperity for | | | | u | | | | | | | | | | | l y | s | | | adviser research conducted by | | e l | fl | | | | | | | | | | | l | | | | | | | t | | | | | | e | | the generations | | | | o | | | | | o | R | | | | | | m | | | Quilter between 2020 and 2022. We | | C | | | | | | | | | | | | r | | | | of today and | | | e | | | | | u | | | | | | | r | | | also conducted a series of interviews | | | | | | | | | s | | | | | O | | | | tomorrow | | | | | with subject matter experts from our | | | | | | | C | | | | | | | | t | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | o | | | | | | | | c | | | | | | | responsible investment, proposition, | | | | | | | n | | | | | | a | | | | | | | | | | | | | | | s i | | | | | | p | | | | | | | | | | | | | | | d | e | | | | I m | | | | | | | | | | | | | | | | | r | C | l i m | a t e | | | | | | | | | | distribution and human resources | | | | O | | | | | | | | | | | | | | | h | | | P | | | u | | | | | | | | | | | | | | | c | | | | | | | r | | | | P a | g e 3 | 1 | | | | | | | | a | | teams to gain their perspectives. | r | | | | C | | | | | | | | | | r s | | | | | | | o | | | | o | | | | | | | | | | e | | | o | | | | | p | | | m | | | | | | | | | i | s | | | r | | | | | | | | | m | | | | | | | | v | | | | p | | | | | o | | | | u | | | | | | | | A d | | | | | | | | | s | | | | | n | | | | | | r | | | | p | | | | | | | i | | | | i t y | | | | | O | u | | | | A | | | | | | | t i | | | | | | | | | | | | | | t | | | | Based on this assessment we have | | | o | | | | | | | | | | | | | n | | | | | | | | | n | | | | | | | | | | | | e | | | | | developed the following strategy for | | | | | | | | | | | | | | | t m | | | | | s v e I n our responsible wealth management activities. This strategy is based around the framework you will find ### H t ### o w e s ### on the right-hand side of this page w e i n v and three core areas which we are focusing on in the short term. You will find these detailed on page 27. Investing responsibly refers specifically to our products and services. It is about how we seek to integrate responsible investment (“RI”) considerations into our financial advice process, investment platform tools and investment management approach. 26 Quilter Annual Report 2022 Responsible Business continued Strategic Report Governance Report Financial statements Other information Our current key areas of focus Why this pillar is important according Our commitments Measuring to our assessment of materiality to our customers our progress Invest Customers expect us to be able to manage their We will aim to: Our aim is to retain signatory responsibly money in a way that aligns with their values and · make it easy for our status of the Financial needs, whatever their life stage. customers to invest in line Reporting Council’s (“FRC”) Read more with their values and Stewardship Code and we will Customers trust us to protect, grow and pass needs; and continue to be a signatory of on page 28 | | on their wealth to the future generation. | · safeguard the futures of | the United Nations backed | | --- | --- | --- | --- | | | | our customers and their | Principles for Responsible | | | Colleagues want to be proud of the outcomes | families by considering the | Investment (“UN PRI”) as | | | we achieve for our customers and the way we | environmental, social and | these are currently | | | manage their money. | governance issues that | recognised as the custodians | | | | could impact their wealth | of best practice for | | | | where we actively manage | responsible investment | | | | their assets. | within our industry. | | Reflect our | Customers expect us to care and understand their | We will aim to build a | We have set targets to | | community | needs, making the right decisions in the moments | business that reflects the | increase the diversity of our | | | that matter. | diverse needs of our | senior management: 40% | | Read more | | customers, their families and | female representation for the | | | Customers expect us to be able to service both | the communities they live in. | end of 2025 and 5% ethnic | on page 29 them and their families as a whole. minority representation by the end of 2023. Colleagues want to feel included and part of something greater than themselves. They want Our aim is to have supported to know the business values their individual needs. 100,000 young people since listing through the Quilter Foundation by 2025. | Consider | Customers want the best for their families | We will seek to play our part | We have set a target to | | --- | --- | --- | --- | | climate impact | and future generations. | in the global effort to create | reduce our Scope 1 and 2 | | | | a more sustainable world for | emissions by 80% by 2030. | | Read more | Colleagues believe in the threat climate | future generations. | | change poses; they want us to play our part on page 31 to help tackle it. Oversight of delivery Board Responsibility for environmental, social and governance (“ESG”) matters – captured in the responsible wealth management framework – resides with the Quilter plc Board, which has delegated oversight of the reporting framework to the Board Corporate Governance and Nominations Committee. Executive Responsibility for the responsible wealth manager strategy is delegated to the Chief Executive Officer, supported by the Executive Committee. The Responsible Wealth Management Steering Committee is a formal sub-committee of the Executive and provides executive oversight, direction and monitoring of the responsible wealth management strategy. 27Quilter Annual Report 2022 Responsible Business continued Invest responsibly Priorities 2022 Onward The United Nations backed Principles for Responsible Investment 2022–4 progress priorities (“UN PRI”) define responsible investment as ‘a strategy and practice Continue Training for Quilter Ongoing to incorporate environmental, social and governance (“ESG”) factors to support Cheviot Investment programme into investment decisions and exercise active ownership’. customers, Managers to support of engagement advisers and the incorporation of with customers, We believe that incorporating ESG data into investment decisions colleagues to RI preferences into advisers and and exercising active ownership helps to mitigate risk and identify engage with suitability processes. colleagues. potential opportunities thereby contributing towards the and understand generation of long-term sustainable returns. That is why we are responsible Training made available in the process of integrating responsible investment (“RI”) practices investment to independent and into the areas of the business where we actively manage assets Quilter advisers as part on behalf of our customers. This includes iteratively improving the of Wealth Select launch. data and technology we provide to our investment professionals Embed Embedded Improve ESG and broadening the impact we have through stewardship. There responsible consideration of data coverage are differences in how this is and can be applied in practice in each investment responsible investment and broaden area of our business and you can read more about how this was practices preferences into stewardship approached in 2022 on our websites or in our Stewardship where relevant Quilter’s advice activities across Code Report. and Quilter Cheviot Quilter Read more at www.quilter.com/investments/responsible-investment/ suitability processes. Investors’ or in our Stewardship Code Report plc.quilter.com/responsible- portfolios. business/reports-and-statements Deliver reporting Initiate roll out of task Roll out of SDR. in line with force for climate-related We believe customers should have the information and choices regulatory change financial disclosures (“TCFD”). to enable them to invest in line with their values and needs. That is why we strive to understand our customers’ responsible Ensure our Launched WealthSelect Ongoing investment preferences and provide them with the option to invest proposition caters Responsible & assessment in a solution or service which has a specific responsible investment to the responsible Sustainable Portfolios of customer objective. In 2022, we made tools and training available to our investment in Quilter Investors. preferences with advisers and investment managers so that they are able to preferences of updates made understand a customer’s responsible investment preferences our customers Launched Climate where relevant. and select a solution which aligns to these. We have delivered new Assets Growth Fund, investment strategies and portfolios in recent years which have DPS Focused and responsible investment objectives, with some key new offerings a further version of delivered in 2022 as noted below. We will aim to continue to evaluate the Positive Change our proposition against our customers’ responsible investment strategy in preferences and in 2023 will do so in line with the next phase of Quilter Cheviot. the FCA’s Sustainability Disclosure Requirements (“SDR”) Regime. ## Stewardship Code Stewardship involves engaging with companies and funds to discuss and encourage improvement in their handling and disclosure of ESG issues. Quilter was proud to retain its signatory status of the Financial Reporting Council’s Stewardship Code in 2022, a status which is verified annually on the basis of Marisol Hernandez Gemma Woodward our Stewardship Code Report. This report is updated annually Head of Responsible Investment Head of Responsible Investment on our website and our 2022 report will be added after it is Affluent Segment High Net Worth Segment submitted to the FRC in April. This report provides a summary of the key stewardship activities we have undertaken during the course of the year in Quilter Cheviot and Quilter Investors as well as further detail on our responsible investment activities more generally. ## Propositional enhancements: In 2022 we launched our new WealthSelect Sustainable and Stuart Clark Claudia Quiroz Responsible Portfolios and broadened our Climate Assets range Portfolio Manager, Wealth Select Head of Sustainable Investment through the launch of a new growth fund. Quilter Cheviot 28 Quilter Annual Report 2022 Responsible Business continued Strategic Report Reflect our community Quilter Foundation highlights We believe that having an inclusive culture that embraces diversity ## helps us better understand the evolving needs of our customers, Local Community and therefore improves decision making for them and our business. ## Fund launched We are making changes to our internal practices to enable us In response to colleague to attract and retain a diverse colleague community under the feedback, we launched leadership of our Head of Inclusion and Diversity. We want to invest the Foundation’s Local in initiatives designed to make our services more accessible to a Community Fund in 2022. broader range of clients. Quilter Cheviot’s Women in Investing Hub The aim of the fund was to is an example of this. ## 3-year employment create a mechanism through which the Foundation could ## We want all of our colleagues to remain focused on the customers grant concluded make smaller grants to causes Governance Report Financial statements Other information and advisers they serve and connected to the community they nominated by colleagues operate within. That is why we chose to establish a charitable In 2022 our three-year or advisers. foundation when we listed back in 2018. The Foundation aims to employment grant concluded. break down the barriers to prosperity for young people and has We partnered with three During the year we granted supported 57,710 young people since its launch. charities, Street League, £120,000 to 17 charities Safe New Futures and School across the British Isles. of Hard Knocks, to support Priorities 2022 Onward This included a number of 424 15-25 year olds reduce progress priorities organisations contributing the barriers they faced to support to those affected gaining employment. Put the customer Implemented Deliver Consumer by the rising cost of living. | and adviser | next phase of | Duty Programme. | | | --- | --- | --- | --- | | experience | customer-centric | | | | at the heart | operating model. | | | | of our culture | | | £120,000 | | Create a more | Quilter Cheviot’s | 2025 senior | | ## granted inclusive and Women in Investing management diverse Quilter Hub continued & targets. Female Client Survey conducted. Assess routes of action to support | | Recruitment | greater diversity | | | | --- | --- | --- | --- | --- | | | practice refresh. | in adviser market. | | | | Respond to the | Provided additional | Launch refreshed | | | | needs of our | support during the | wellbeing strategy. | | | | employees in the | cost-of-living crisis | | | | | moments of truth | to colleagues. | | | | | Create a | Appointed new | Launch next | | | | demonstrable | manager of the | phase of Quilter | | | | symbol of our | Quilter Foundation | Foundation | | | | commitment | (joined January | employment grant. | | | | to go beyond | 2023) and refreshed | | Colleagues | DEC donations | | making a profit | trustee Board. | | | | ## fundraised Launched the ## £195k Foundation’s Local Community Fund. ## £120k In 2022 we unfortunately continued to see Donations to In 2022 our colleagues emergencies around the Disaster Emergency continued to show their world. Quilter responded Committee (“DEC”) support for the Quilter to both the DEC’s appeal appeals for Ukraine Foundation, raising over for Ukraine and it’s appeal and Pakistan. £100,000. Colleagues also for Pakistan. Colleagues raised over £20,000 for other fundraised over £70,000 charitable causes. Matched and Quilter plc contributed funding from Quilter plc a further £125,000. contributed a further £60,000. You can read more about our impact through the Foundation by visiting plc.quilter.com/responsible-business 29Quilter Annual Report 2022 Responsible Business continued # Inclusion and Diversity Action highlights: In 2022, we launched our two-year action plan designed to identify and deliver sustainable, long-term change. You can read more about our two-year Inclusion and Diversity Action Plan here plc.quilter.com/responsible-business The Action Plan was endorsed by the Quilter plc Board and delivery is overseen by the Inclusion and Diversity Executive Steering Committee, chaired by Quilter's Chief Executive Officer. Good progress was made in 2022 but we are cognisant of the industry wide challenge to address inclusion in financial services and realise that significant effort and focus is required over a sustained period. In 2022 our focus was on setting the foundations for success, encouraging data disclosure and education. Attracting and retaining diverse talent: A thorough review of recruitment processes was conducted to ensure our talent acquisition practices can enable our action plan. In addition, the talent acquisition team, along with the wider human resources function, underwent specialist training to ensure they are appropriately equipped to support delivery of our ambition. Education and community: The Quilter plc Board, senior leaders and line managers attended informative and inspiring sessions with John Amaechi OBE. Over 300 employees attended in total. To reinforce the importance of inclusion and diversity we also mandated a specific performance objective for managers, offering guidance and setting clear expectations. We launched our new Inclusion and Diversity Forum. The Forum meets quarterly and is designed to create a safe space for dialogue on this topic between colleagues from across our organisation. We also continue to support our employee networks - Together with Pride, Gender Diversity and Cultural Diversity. Data disclosure: We recognise the importance of data disclosure, not least in measuring and monitoring progress but also as an indicator of colleagues' level of psychological safety in sharing personal data with Quilter. In 2022 we focused on creating psychological safety through storytelling and role modelling, and we also expanded our disclosure fields to cover a broader set of diversity characteristics. # Colleague diversity data We use targets to drive our desired improvement in the diversity of our senior management. In 2022, our target was to achieve 38% female representation and 5% ethnic minority representation in this community. Although gender diversity improved year-on-year, we narrowly underachieved these targets, ending the year with 36% female and 4% ethnic minority representation. Nonetheless, we remain committed to sustainable change and believe the progress noted above will support this. To further reinforce our long-term goals, we have set out new minimum targets for the end of 2025 to have 40% female representation, which is in line with the FTSE Women Leaders Review Target, and 5% ethnic minority representation by the end of 2023. As we progress toward these medium-term minimum goals, we will continue to set stretch targets for the executive that will drive and support diverse representation across our senior management. With regards to our pay gap data, in 2022 we have reported a median gender pay gap of 31% and a median bonus gap of 44%, a reduction on 2021. We have also voluntarily included our ethnicity pay gap calculations. Our median ethnicity bonus gap of 35% is lower than 2021. The data below is as at 31 December 2022 and staff are asked to contribute their data via an electronic portal. For detail on the diversity of our Board directors see page 54. Data disclosure response rates | Gender | Gender identity | Sexual orientation | Ethnicity | Disability | Age group | Religion | Socio economic | | --- | --- | --- | --- | --- | --- | --- | --- | | 100% | 46% | 72% | 90% | 61% | 100% | 80% | 60% | Gender representation | Senior management^{1} | | | | --- | --- | --- | | 2022 | 32 (44%) | 18 (30%) | | All colleagues | | | | 2022 | 1,670 (56%) | 1,320 (44%) | | Latest UK Census (2021) benchmark | | | | 2022 | 88% | 51% | | ■ Male ■ Female | | | Gender pay gap | Gender pay data | 2022 | 2021 | | --- | --- | --- | | Mean hourly pay gap | 30% | 33% | | Median hourly pay gap | 31% | 29% | | Mean bonus gap | 62% | 72% | | Median bonus gap | 44% | 53% | | Female colleagues receiving a bonus | 90% | 92% | | Male colleagues receiving a bonus | 92% | 91% | Ethnicity pay gap | Ethnicity pay data | 2022 | 2021 | | --- | --- | --- | | Mean hourly pay gap | 12% | 15% | | Median hourly pay gap | 5% | 4% | | Mean bonus gap | 48% | 44% | | Median bonus gap | 35% | 38% | | Colleagues from an ethnic minority group receiving a bonus | 82% | 87% | | White colleagues receiving a bonus | 92% | 92% | Ethnic group representation | Ethnic group representation | Asian^{1} % | Black^{1} % | Mixed^{1} % | White^{1} % | Other^{1} % | N/A^{1} % | | --- | --- | --- | --- | --- | --- | --- | | Senior Management | 2% | 0% | 2% | 92% | 0% | 4% | | All colleagues | 6% | 2% | 2% | 87% | 1% | 2% | | Latest UK Census (2021) benchmark | 10% | 4% | 3% | 81% | 2% | — | $^{1}$Senior Management is defined as Executive Committee and their direct reports, excluding personal assistants. $^{2}$Colleagues who identified as belonging to one of the following ethnic groups: Bangladesh, Chinese, Indian, Pakistani or Asian other. $^{3}$Colleagues who identified as belonging to one of the following ethnic groups: Black African, Black Caribbean, Black other. $^{4}$Colleagues who identified as belonging to one of the following ethnic groups: Mixed White/Asian, Mixed White/Black African, Mixed White/Black Caribbean, Mixed other. $^{5}$Colleagues who identified as belonging to one of the following ethnic groups: White British, White Irish, White Gypsy/Traveler, White other. $^{6}$Colleagues who identified as belonging to one of the following ethnic groups: Arab, Any other. $^{7}$Colleagues who responded but opted not to disclose their ethnic group. 30 Quilter Annual Report 2022 Responsible Business continued Strategic Report Consider climate impact ## Operational greenhouse gas emissions We believe in the importance of playing our part in the global effort to create a more sustainable world and consider our Our 2022 Scope 1 and 2 emissions were 46% lower than exposure to climate-related risks. In 2022 we set a reduction target our 2020 baseline. The primary driver of this was the reduction for the emissions associated with our direct and indirect operations in our office footprint driven by the sale of our International (Scope 1 and 2) and continued to develop our understanding business. Moving forwards, we anticipate short-term reductions of the emissions from our value chain (Scope 3). Excluding our will be harder to achieve. In 2022 we worked with a third party to investments, the biggest contributor to our Scope 3 emissions are update our methodology for calculating Scope 3 emissions and those associated with our third-party spend. In 2022, we worked this has meant we have restated higher 2021 figures below. with a third-party to broaden our understanding of the emissions generated by the third-parties we procure services from and the Operational greenhouse gas emissions and energy use data levers we have available to reduce this impact. Delivering on these opportunities will be a priority in 2023 and we remain committed | | Greenhouse gas emissions | 2022 | 2021 | | | | --- | --- | --- | --- | --- | --- | | to building out our approach further. Further details can be found | | | | | Governance Report Financial statements Other information | | | as at 31 December | tCO2e | tCO2e | | | | in our Task Force on Climate-Related Financial Disclosures (“TCFD”) | | | | 1 | | Scope 1 emissions Global 377 1,132 report which is summarised on page 32. 1 UK 371 1,125 Priorities 2022 Onward Scope 2 (location-based) Global 1,085 1,622 progress priorities emissions UK 1,043 1,505 2 Scope 2 (market-based) Global 833 1,151 Contribute to a Scope 1 and 2 Set purchased emissions | just transition to | targets set. | goods and services | | | | UK 754 1,017 | | --- | --- | --- | --- | --- | --- | --- | | net zero by 2050 | | engagement | | 3 | | | | | | | Total Scope 1 & 2 emissions | | Global 1,462 2,754 | | target. UK 1,414 2,630 4 Scope 3 emissions Global 39,900 56,599 Iteratively improve (excluding investments) UK 39,891 54,013 our action plan | | | with a focus on | Total operational emissions Global 41,362 59,353 | | | | --- | --- | --- | --- | --- | --- | | | | our investments. | | | UK 41,305 56,643 | | | | | Operational carbon intensity | Global 14.10 19.56 | | | Enable our people | Colleague | Iterative | | | | (tCO2e per Full Time to take tangible sustainability improvements 5 | | | | Equivalent (FTE)) | UK 14.22 18.80 | | --- | --- | --- | --- | --- | | action to address | committee launched. | to encourage | | | | the climate crisis | | colleague action. | | | Streamlined Energy and Carbon Reporting (SECR) 2022 kWh 2021 kWh First Colleague Sustainability Survey. Global energy use 8,776,775 11,935,393 UK energy use 8,605,404 11,615,018 Assess the action Assess Taskforce Meaning of Scope Definitions required of Quilter for Nature All operational emissions data (incl. energy consumed) calculated according to the on biodiversity Related Financial Greenhouse Gas (GHG) Reporting Protocol – Corporate Standard. The GHG protocol Disclosures categorises emissions according to ‘Scope’, as follows: – Scope 1 (Direct GHG) These are emissions from sources that are owned or recommendations controlled by an organisation. This includes fuel combustion on site e.g. gas boilers, and determine fleet vehicles and air-conditioning leaks. actions. – Scope 2 (Energy – Indirect GHG) These are emissions from the consumption of purchased electricity, heat and steam, or other sources of energy (e.g. chilled water) generated upstream from the organisation. For purchased electricity, organisations are required to report Scope 2 emissions according to a ‘location-based’ method and a ‘market-based’ method (see below): – Location-based. This reflects the average emissions intensity of grids on which ## Colleague sustainability survey energy consumption occurs (using mostly grid-average emission factor data). – Market-based. This reflects emissions from electricity that organisations have purposefully chosen and therefore includes where they may have renewable In June 2022, we ran our first Quilter sustainability survey. energy contracts in place or generate their own energy. – Scope 3 (value chain – indirect) These are all indirect emissions (not included The survey was designed to obtain more information on colleague in Scope 2) that occur in a company’s value chain, including both upstream and commuting and working from home habits. It allowed us to hear downstream emissions (e.g. business travel, waste). their ideas about the opportunities we have to act more Due to data availability, Quilter’s calculations do not take into account the emissions generated by self-employed advisers. This includes, Quilter Financial Planning, Quilter sustainably. We had a 33% response rate, with coverage across Financial Advisers and other independent advisers who use our platform or asset our office locations. We made the results of the survey available management services. Our Scope 3 disclosures do not include data for the impact generated by our investments. to colleagues so that they could see the emissions impact of different commuting choices. As a result of the feedback, we Footnotes to data table 1 were able to refine our Scope 3 emissions calculations through Including a refrigerant leak accounting for 509 tCO2e. This figure differs from last year‘s reported value due to underestimation of gas supply in our Southampton office. the use of some actual employee commuting data and also 2 This figure differs from last year’s reported value due to a change in market-based launched a new quarterly sustainability newsletter, designed to emission factors for our geothermal supply in our Southampton office. 3 This is calculated as the total of Scope 1 and Scope 2 (location-based) emissions. promote the support we are making available to colleagues to 4 Our disclosed Scope 3 emission metrics (excluding investments) contain some enable more sustainable choices. We currently intend to repeat estimations and reliance on externally provided data. Following a change in this survey to track the impact of our improvements and reflect methodology, our emissions from purchased goods and services have been recalculated for 2021. on engagement. 5 Calculated as total operational emissions divided by the average number of FTE employees as at year-end. This metric is provided as a comparison against other organisations. 31Quilter Annual Report 2022 Responsible Business continued ## Task Force on Climate-related Financial Disclosures statement For accounting periods starting on or after 1 January 2021, the FCA required premium listed companies, such as Quilter plc, to include 1 a statement of consistency with the TCFD’s recommendations and recommended disclosures within their Annual Report. Where the relevant disclosures are provided in a separate report, listed companies must provide a description of where that document can be found. Whilst material and significant climate-related information can be found in this report, we have chosen to produce disclosures consistent with the TCFD’s recommendations and recommended disclosures in a separate standalone report, intended to supplement our annual report. This allows us to produce more detailed supplemental climate-related information, in a form tailored and accessible to a wide range of stakeholders. Our ‘2022 Group TCFD report’ can be found online at: plc.quilter.com/responsible-business/reports-and-statements. See below for a summary of the TCFD recommended recommendations, our disclosures and where in the standalone 2022 Group TCFD 1 report they can be found : Theme TCFD Recommended disclosure Our disclosure | Governance | Describe the Board’s oversight of climate-related | · We have presented the governance structure for | | --- | --- | --- | | Disclose the organisation’s | risks and opportunities. | Board oversight and management of climate-related | | governance around | See page 9 | risks and opportunities. | | climate-related risks | | · We have described relevant recent activities performed | Describe management’s role in assessing and and opportunities. by the Board and senior management. managing climate-related risks and opportunities. See pages 10 - 12 | Strategy | Describe the climate-related risks and opportunities | · The climate-related risks we have identified are market, | | --- | --- | --- | | Disclose the actual | the organisation has identified over the short, | reputational and legal, policy and regulatory, and | | and potential impacts | medium, and long term. | physical risks such as extreme weather events. | | of climate-related risks | See pages 14 - 16 | · Our climate-related opportunities include increased | | and opportunities on the | | demand for sustainable products and services. | Describe the impact of climate-related risks and organisation’s businesses, · We have described how the identified risks have opportunities on the organisation’s businesses, strategy, and financial informed our strategy, business activities and services. strategy, and financial planning. planning, where such We have an opportunity to expand upon how these risks See pages 17 - 20 information is material. have informed financial planning in our 2023 disclosure. Describe the resilience of the organisation’s strategy, · A climate-related scenario analysis exercise for the taking into consideration different climate-related Group, which explored our long-term resilience to three scenarios, including a 2°C or lower scenario. potential climate scenarios, is described. See page 21 | Risk management | Describe the organisation’s processes for identifying | · We have described how climate-related risks have been | | --- | --- | --- | | Disclose how the | and assessing climate-related risks. | integrated into our overall risk management framework, | | organisation identifies, | See page 23 | including information on how climate-related risks are | | assesses, and manages | | determined in relation to other identified risks. | Describe the organisation’s processes for managing climate-related risks. · Our approach to managing climate-related risks within climate-related risks. our investments is described in more detail, covering See pages 23, 25 - 30 our approach to ESG-integration, stewardship activities Describe how processes for identifying, assessing, and engagement. and managing climate-related risks are integrated into the organisation’s overall risk management. See pages 23 - 24 Metrics and targets Disclose the metrics used by the organisation to · With regard to our operational activities we use GHG Disclose the metrics and assess climate-related risks and opportunities In line metrics to assess, monitor, and manage our exposure targets used to assess with its strategy and risk management process. to climate-related reputational risks. We have disclosed and manage relevant See pages 32 - 34 our Scope 1 and Scope 2 GHG emissions and estimated climate-related risks and our Scope 3 emissions (excluding investments) and set Disclose Scope 1, Scope 2, and, if appropriate, opportunities where such a target to reduce our Scope 1 and 2 emissions. Scope 3 greenhouse gas (“GHG”) emissions, information is material. · With regard to our investment activities, we are not and the related risks. able to disclose our GHG emissions for investments See pages 32 - 33 due to data limitations. However, in our High Net Worth Describe the targets used by the organisation segment, we have provided a carbon-related matrix, to manage climate-related risks and opportunities the weighted average carbon intensity (“WACI”) as a and performance against targets. measurement of exposure to climate-related market risk See page 32 in our investments. Within Affluent, we have provided carbon footprint metrics for our WealthSelect Responsible and Sustainable ranges and have disclosed the WACI of a proportion of our investments to the extent that data is available and reasonable credible. 1 Our disclosures are consistent with the four recommendations and the eleven recommended disclosures set out in the report entitled ‘recommendations of the task force on climate-related financial disclosures’ published in June 2017 by the TCFD as required under the FCA’s listing rules. We have considered the document entitled ‘annex: implementing the recommendations of the task force on climate-related financial disclosures’ published in October 2021 and highlighted where future improvements are needed to meet these enhanced recommended disclosures above. 32 Quilter Annual Report 2022 Responsible Business continued Strategic Report Other key activities: our people Talent management and engagement The success of our business relies on recruiting and retaining the very best talent. As part of our annual talent and succession review, future skill needs of the organisation are identified in order to highlight any skill gaps within the organisation and plan for how to address these (for example through training, recruitment, apprenticeships etc). We have continued our partnership with Future Talent, a leading education and learning platform, to provide two flagship leadership development programmes: the Transformational Leadership Programme for experienced leaders and managers looking to step into senior leadership roles, and the Aspiring Manager Governance Report Financial statements Other information Transformational Leadership programme, aimed at first-time line managers or those aspiring to take on a management position. We currently have 234 people on our leadership programmes. We promote equal opportunities and ensure that no job applicant 6% of people who have participated in the programme have or colleague is subject to discrimination or less favourable since been promoted, compared with the Quilter average of 2.5%. treatment on the grounds of gender, marital status, nationality, A new coaching framework was also rolled out last year, primarily ethnicity, age, sexual orientation, responsibilities for dependants, designed to support new leadership and management teams that or physical or mental disability. We are committed to continuing the were coming together as the business transformed. In addition, employment of, and for arranging training for, employees who have colleagues can access training and development, including degree become disabled while employed by Quilter. We select candidates programmes and relevant professional qualifications, where for interview, career development and promotion based on their relevant to their role and development needs. skills, qualifications, experience and potential. We seek the views of our colleagues through the Workday Peakon A grievance procedure is in place to provide a clear and secure Employee Voice tool. The survey provides key engagement insights route for employees to raise a complaint or problem about any to leaders and managers and informs our people strategy to issue relating to their work, working environment, pay and benefits, ensure we are focusing on employee needs whilst also tracking working hours or a concern about any other issue affecting their key priorities such as inclusion and diversity. Our engagement score employment. In line with our whistleblowing policy, colleagues are increased to 7.4/10 in 2022, independently rated as ‘good’ and in required to report knowledge or suspicion of malpractice or actions the middle range of the finance sector. The Employee Forum that endanger Quilter’s employees or assets. The Whistleblowing represents colleagues across Quilter and meets with senior leaders Policy provides employees who raise concerns in good faith with on a monthly basis to discuss key issues that impact the interests of protection from detriment to their future employment our people. The views of the Employee Forum, together with views opportunities. Concerns can be reported to line managers, Risk and and feedback from our weekly surveys, are taken into account and Compliance or via the independent confidential ethics hotline which support management’s decision making. is available year round. This hotline is also available to suppliers and advisers who work with Quilter. We continue to make the option available to permanent employees to invest in Quilter shares via a save as you earn (“SAYE”) scheme Our customers and arrange townhalls and provide regular communications to Customer service and engagement explain our business performance. We continue to invest effort into the collation of customer feedback and seek to act upon the insights it provides to improve service HR policies and ensure our proposition continues to meet customer needs. Our people policies support our aim to create an inclusive culture We continue to monitor our Trustpilot score. As at December 2022, that embraces diversity and enables our people to thrive. They also our score stood at 4.2/5, meaning we saw an improvement through reflect relevant employment laws, including the Universal Declaration the course of the year. In 2022 we linked our pre-existing customer of Human Rights and ILO Declaration on Fundamental Principles satisfaction surveys generated for customers of our platform and and Rights at Work. All employees and suppliers providing on site Quilter Private Client Advisers to Trustpilot to enable greater services in the UK are paid no less than the real Living Wage, a transparency of the feedback we are receiving and continued to voluntary initiative run by the Living Wage Foundation. In October work with an external organisation to collate customer satisfaction 2021 they published the rates of £11.05 per hour for London and scores for these two areas of our business. Our customer £9.90 per hour outside of London and these were refreshed in satisfaction score remained flat on 2021 at 84% and market insight September 2022 to £11.95 and £10.90 respectively – the largest indicates that this was a good outcome given the disruption seen percentage increases in recent memory in direct response to the last year due to market conditions. The feedback gained from these cost of living challenges. Firms have six months to update any sources is made available to a variety of stakeholders across the employees whose pay is below these minimums to remain business and we seek to ensure we act on any areas for accredited, however, we voluntarily made the appropriate changes improvement which are highlighted. for affected individuals with immediate effect and ensured all of our starting salaries begin in excess of these amounts. In light of the pressures faced by many of our colleagues due to the rising cost of living, we made a one off payment in August 2022 to all employees on an full time salary of £50,000 or less. 33Quilter Annual Report 2022 Responsible Business continued To broaden our understanding of our customers and target All communications must consider our customers’ information customers further, we continue to run research projects. The most needs and comply with applicable regulations, including the notable example of this in 2022 was the Female Client Survey run Financial Conduct Authority’s (“FCA”) Treating Customers by Quilter Cheviot as part of the Women in Investing initiative. Fairly (“TCF”) requirements. The survey aimed to understand the investment experiences of our female clients including what aspects lead them to invest, Data privacy and IT security how they make investment decisions, and how their differing The collection and use of customers’ and advisers’ personal data circumstances affect the way they invest. We have released the is governed by our Privacy Policy and supporting standards and output of this project externally and have used the insights to overseen by a Group Data Protection Officer (“GDPO”) with the inform our proposition. support of a formal committee, the Quilter Privacy Forum. The Board oversees Quilter’s IT strategy, including our approach to In advance of the implementation of the FCA’s Consumer Duty information and data security. At an executive management level, in 2023, in 2022 we initiated a pan-Quilter programme designed the Group Chief Operating Officer is responsible for IT strategy and to ensure readiness and have a specific workstream focused on is supported by the Director of Information Security & Technology customer support. One of the customer groups we have considered and team, with input also from the GDPO and Data Guardians as part of this work is those customers who could be considered embedded in our businesses. All colleagues and full-time vulnerable, for whom we have already made various adjustments contractors are required to complete mandatory annual training in recent years to ensure they are appropriately supported. The on data privacy and IT security. programme is also implementing a new approach to the testing of customer communications so that we can continue to ensure Our Code of Conduct they are as understandable as possible. Our Code of Conduct sets out the duties of all colleagues and includes acting with integrity and respect, treating customers fairly, Consumer advocacy managing conflicts of interest, good market conduct, information, During 2022, we continued to call for the UK Government to data and communications, use of Company assets, prevention protect consumers against the threat of online financial scams. of financial crime and working with regulators and governments. This included campaigning for the online advertising elements Colleagues are required to undertake annual mandatory training of the Online Safety Bill to remain part of the bill and responding to ensure they fully understand the requirements of the code to Department for Digital, Culture, Media & Sport on the Online of conduct. Advertising Programme to make the case that it should align with the Online Safety Bill to help prevent online financial scams Financial crime, anti-bribery and corruption advertisements. As part of our work advising NHS employees, As a financial services company we recognise the potential risk we led successful calls for the government to extend the 2020/21 of being a target for financial crime, including money laundering, NHS Pension Scheme Pays deadline and the continuation of the terrorist financing, tax evasion and fraud. We also acknowledge extension of the cessation of abatement rules. Both issues helped the potential risk of bribery and corruption which could result to ensure healthcare workers were given adequate time to plan in financial loss, regulatory fines and/or censure and damage their finances and did not face undue tax costs while they were to reputation. We have zero tolerance for financial crime, bribery focused on fighting the NHS backlog, as well as ensuring the most or corruption and have a robust control environment in place experienced and senior doctors and nurses continue to work including the following policies: 1) Anti-money Laundering and without being penalised for doing so. Counter Terrorist Financing Policy, 2) Anti-bribery and Corruption Policy, 3) Fraud Prevention Policy, and 4) Financial Crime Prevention Policies and practices Policy. All colleagues are required to complete mandatory training Customer policies on these topics annually to ensure that they understand their role Our Product Governance Policy sets minimum standards for in preventing financial crime, bribery and corruption. the Group and its subsidiaries in manufacturing and distributing financial products appropriately to meet customer needs. The policy is implemented to support compliance with various regulatory frameworks, including the UK implementation of the Markets in Financial Instruments Directive (“MiFID II”), the underlying regulation on markets in financial instruments (“MiFIR”), and the Insurance Distribution Directive (“IDD”). The Product Governance Policy is subject to an annual attestation process managed by the Quilter Risk Function. In our Group, individual legal entity Boards are responsible for setting product strategy and ensuring product governance is effective. The Boards delegate execution of product strategy and operational responsibility to the business Chief Executive Officer. Our Product Governance Policy outlines minimum marketing and communications requirements for Quilter Group functions and subsidiaries. Marketing material published by businesses must be clear, fair and not misleading. Materials should be sufficient to ensure customers can make informed financial decisions in relation to the product or service, including the clear communication and explanation of charging structures for related products. 34 Quilter Annual Report 2022 Responsible Business continued Strategic Report Human rights and modern slavery ## We recognise our responsibility to not only respect the rights Non-financial information and freedoms of those that work for Quilter but also of those ## in our supply chain. Our human resource and supplier policies statement and processes prohibit Quilter from doing business with parties involved in modern slavery, forced labour, compulsory labour and The Responsible Business report from pages 26 to 35 constitutes child labour. These policies also promote equal opportunity and Quilter’s Non-Financial Information Statement, which complies eschew any form of discrimination or unfair treatment on the with sections 414CA and 414CB of The Companies Act. The table grounds of protected characteristics, or because of any other below sets out where to find details on specific matters relevant personal factor. We respect the right of employees to associate to these requirements within this section and elsewhere in our for the purposes of collective bargaining and colleagues are free Annual Report: to join a union of their choice. Anti-bribery and corruption Page 34 Working with suppliers Business model Pages 20 to 21 Governance Report Financial statements Other information Our Third-Party Risk Management Policy sets out requirements Employees Pages 30 and 33 with respect to our procurement, outsourcing and supplier Environmental matters Pages 31 to 32 management activities. Our Supplier Code of Conduct applies Human rights Page 35 to all suppliers and their sub-contractors that provide goods and Non-financial KPIs Pages 16 to 19 services to Quilter. It sets out the minimum standards we expect Principal risks Pages 47 and 48 our suppliers to adhere to when doing business with Quilter in addition to the contractual terms agreed. The Code covers legal Social matters Page 29 and compliance, ethical standards, conflicts of interest, anti-bribery and corruption, brands, trademarks and intellectual property, information and data protection, labour standards, living wage, discrimination, health and safety, and environmental management. We also expect our suppliers to promote these standards in their own supply chain where practical. Tax We are committed to full compliance with our tax obligations, paying the right amount of tax at the right time. We have zero tolerance for tax evasion and we do not promote tax avoidance or aggressive tax planning arrangements to our customers or to other parties. Our Tax Risk Policy sets out high-level requirements to ensure that tax calculations and filings comply with all applicable tax law and are prepared on a timely basis. Political lobbying Quilter is a politically neutral organisation and does not engage in party political campaigning or make party political donations. We will not employ any current politician to conduct public affairs activities in any capacity. Furthermore, we will not make any award or payment in money or in kind to any current politician for the provision of public affairs activities. Quilter did not employ any former politician to conduct public affairs activities on our behalf in 2022. If Quilter wishes to employ any former UK Government Minister or senior official within two years of leaving office, the appointment must be approved by the Advisory Committee on Business Appointments (“ACOBA”), and the employee must not lobby the government for two years after leaving office, as stated in the Ministerial Code. Quilter does, however, seek to influence government policy which could impact our customers, with particular focus on consumer rights and protection. Quilter is a member of several industry trade bodies in the UK, including the Investment Association (“IA”), Personal Investment Management and Financial Advice Association (“PIMFA”), the Association of British Insurers (“ABI”), the UK Sustainable Investment and Finance Association (“UKSIF”) and The Investing and Savings Alliance (“TISA”). 35Quilter Annual Report 2022 # Financial review Chief Financial Officer ## Review of financial performance ### Overview The Group delivered a robust set of results during 2022 against the backdrop of a recessionary global economic environment, with higher inflation, which reduced the value attributed to equity and bond investments. Accordingly, investor sentiment for wealth and savings solutions reduced during the year. Against this backdrop, the Group's AuMA ended the year at £99.6 billion, down 11% from the starting position at the beginning of the year with £14.0 billion of negative market movements more than offsetting net inflows of £1.8 billion. Average AuMA for the year was £102.8 billion compared to £105.3 billion in the comparative year. Adjusted profit before tax was £134 million, down 3% on the prior year (2021: £138 million), reflecting lower revenues given the lower average AuMA for the year, offset by good cost discipline despite the cost-of-living and inflation pressures. In this section, unless indicated otherwise all results are presented excluding Quilter International in both the current year and prior year comparative, following its sale to Utmost Group in November 2021. ### Alternative Performance Measures ("APMs") We assess our financial performance using a variety of measures including APMs, as explained further on pages 209 to 211. In the headings and tables presented, these measures are indicated with an asterisk: \* **Net inflows** of £1.8 billion for the year were 55% lower than the prior year (2021: £4.0 billion). The more challenging macroeconomic and geopolitical environment contributed to lower investment activity across the wealth management industry, with this notably evidenced through subdued gross inflows. Net inflows are stated inclusive of net outflows from assets on third-party platforms of £1.1 billion (2021: £0.6 billion). Gross flows for the Group were 20% lower than the prior year at £10.5 billion (2021: £13.2 billion), primarily as a result of lower flows into the Quilter Platform. This was due to lower investor confidence and the wider impacts of rising interest rates and inflation on the cost-of-living, leading to an industry-wide slow-down. As a consequence, net inflows as a percentage of opening AuMA were 2% (2021: 4%). - **The Affluent segment's** net inflows of £1.1 billion were down 62% on the prior year (2021: £2.9 billion) due to £1.3 billion lower net inflows in the Quilter Investment Platform against a strong prior year comparative, and net outflows of £1.1 billion (2021: net outflows of £0.6 billion) in assets managed by Quilter on third-party platforms in relation to legacy and closed books of business. Net inflows of £2.2 billion onto the Quilter Investment Platform were down 37% (2021: £3.5 billion), with lower gross sales in the IFA channel being a specific contributing factor. The Quilter distribution channel performed broadly in line with the prior year where the Platform is winning a greater share of sales from our own advisers, weighted towards pensions, and we established a simplified procedure to allow us to accelerate back book transfers. This is offset with lower overall market activity as investor confidence reduced during the course of 2022. Gross flows on the Quilter Investment Platform of £7.5 billion (2021: £9.0 billion) were 17% lower as clients reacted to the macro environment. Pension and ISA product sales comprise £5.5 billion (2021: £6.4 billion). Persistence for the Affluent segment remained good and slightly ahead of historical levels at 91% (2021: 90%). - **The High Net Worth segment** recorded net inflows of £0.9 billion which were down 18% from the prior year (2021: £1.1 billion), and continued to deliver a robust performance with good flows from the Quilter channel offsetting a slowdown in IFA flows. Gross inflows of £2.3 billion were down on 2021 of £2.7 billion, offset by lower outflows compared to the prior year. This reflects improved persistency at 95% versus 94% in 2021. 36 Quilter Annual Report 2022 Financial review continued Strategic Report Key financial highlights The Group’s AuMA ended the year at £99.6 billion, down 11% from the opening position at the start of 2022 (2021: £111.8 billion), Quilter highlights from continuing operations 1 2022 2021 due to the fall in global equity and bond indices. The Affluent Assets and flows segment AuMA of £74.9 billion decreased by 10% (2021: 2 AuMA* (£bn) 99.6 111.8 £83.3 billion) of which £24.9 billion is managed by Quilter, down Of which Affluent 74.9 83.3 on the opening position at the start of 2022 (2021: £27.4 billion). | Of which High Net Worth 25.5 28.7 | | | High Net Worth’s AuM was £25.5 billion, down 11% from opening | | --- | --- | --- | --- | | Inter-segment dual assets (0.8) (0.2) | | | 2022 (2021: £28.7 billion), with all assets managed by Quilter. | | | 2 | | In total, £50.2 billion of AuMA is managed by Quilter across | | Gross flows* (£bn) | | 10.5 13.2 | | | Of which Affluent 8.5 10.5 | | | the Group (2021: £56.0 billion). | Of which High Net Worth 2.3 2.7 The Group’s revenue margin of 47 bps was 1 bp lower than Inter-segment dual assets (0.3) 0.0 2 the prior year (2021: 48 bps). For assets administered within the Net inflows* (£bn) 1.8 4.0 Affluent segment, the revenue margin remained in line with the Governance Report Financial statements Other information Of which Affluent 1.1 2.9 prior year at 27 bps. For assets managed in the Affluent segment, Of which High Net Worth 0.9 1.1 the revenue margin decreased by 2 bps to 47 bps as a result of Inter-segment dual assets (0.2) 0.0 anticipated mix shifts in underlying assets towards lower margin 2 Net inflows/opening AuMA* 2% 4% products. Within the High Net Worth segment the revenue margin 2,3 Gross flows per adviser* (£m) 2.3 2.3 decreased by 2 bps to 69 bps, primarily due to lower commission 2 Asset retention* 92% 91% and contract charges. Profit and loss IFRS profit/(loss) before tax from continuing Adjusted profit before tax decreased by 3% to £134 million 2 operations attributable to equity holders* (£m) 199 12 (2021: £138 million). The decline in net management fees to IFRS profit/(loss) after tax from continuing £483 million (2021: £500 million) broadly matched the decline operations (£m) 175 23 in average AuMA year-on-year (2022: £102.8 billion compared to 2 Adjusted profit before tax* (£m) 134 138 2021: £105.3 billion). Other revenue increased by 4% to £123 million 2 Operating margin* 22% 22% (2021: £118 million) reflecting interest income earned on cash and 2 Revenue margin* (bps) 47 48 capital resources, offset by lower mortgage and protection new 2 Return on equity* 7.0% 8.3% business levels and lower adviser headcount. Operating expenses Adjusted diluted EPS* from continuing in 2022 were £472 million, down 2% on the prior year (2021: 2 operations (pence) 7.9 7.4 £480 million) primarily due to continued cost discipline, lower Recommended total dividend per share from FSCS levies and the Optimisation and Simplification cost initiatives 4.5 4.0 continuing business (pence) delivering the intended cost reductions. These decreased expenses Basic earnings per share from continuing have been partially offset by higher annualised FNZ charges operations (pence) 12.2 1.4 following the late Q1 2021 launch of the Platform and inflationary Non-financial increases. The Group’s operating margin was 22%, in line with the prior year. Total Restricted Financial Planners (“RFPs”) 4 in both segments 1,502 1,623 The Group’s IFRS profit after tax from continuing operations Discretionary Investment Managers in High 4 was £175 million, compared to £23 million for 2021. The increase in Net Worth segment 179 170 1 IFRS profit is largely attributable to policyholder tax credits resulting Continuing operations represent Quilter plc, excluding the results of Quilter International. Adjusted profit before tax for Quilter International in 2021 was £50 million. from market losses up to December 2022 of £134 million compared Adjusted diluted EPS from Quilter International in 2021 was 3.0 pence per share. 2 to market gains in the prior year (2021: tax charge £73 million). Alternative Performance Measures (“APMs”) are detailed and defined on pages 209 to 211. 3 Gross flows per adviser is a measure of the value created by our Quilter Adjusted diluted earnings per share for continuing operations distribution channel. 4 increased 7% to 7.9 pence (2021: 7.4 pence). Closing headcount as at 31 December. 37Quilter Annual Report 2022 Financial review continued Total net fee revenue* Operating expenses* Operating expenses decreased by £8 million to £472 million (2021: Total net fee revenue £480 million) as a result of continued cost discipline as we emerged from continuing operations High Net Continuing from the 2020/2021 pandemic and faced into higher UK inflationary 2022 (£m) Affluent Worth Head Office operations pressures and suppressed market conditions. Net management | fee* 300 183 – 483 | | | 2022 2021 | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Other revenue* 87 29 7 123 | | | | | | As a | | | | As a | | | Operating expense | Continuing | | percentage of | | | Continuing | percentage of | | | | Total net fee | split (£m) | operations | | | revenues | | operations | | revenues | | revenue* 387 212 7 606 Support staff costs 118 127 Operations 22 27 Total net fee revenue Technology 35 42 from continuing High Net Continuing operations 2021 (£m) Affluent Worth Head Office operations Property 31 31 1 | Net management | Other base costs | 30 25 | | --- | --- | --- | | fee* 311 189 – 500 | Sub-total base | | | Other revenue* 95 23 – 118 | costs 236 39% 252 41% | | | Total net fee | Revenue- | | | revenue* 406 212 – 618 | generating staff | | base costs 92 15% 83 13% Variable staff Total net fee revenue for Affluent was £387 million, down 5% compensation 75 12% 80 13% from the prior year (2021: £406 million). Net management fees of Other variable £300 million were 4% down on the prior year (2021: £311 million) 2 costs 46 8% 36 6% due to the impact of lower average AuMA which decreased by 2% Sub-total variable to £77.1 billion in 2022 (2021: £78.5 billion), and anticipated changes costs 213 35% 199 32% in fund mix in Quilter Investors where the proposition continues to Regulatory/ evolve into a broader mix of investment strategies. Other revenue professional predominantly reflects revenue generated from the provision of indemnity costs 23 4% 29 5% advice within Quilter Financial Planning. Within the revenue Operating generated by advice, mortgage and protection, recurring charges expenses* 472 78% 480 78% and fixed fees were at lower levels than the prior year due to lower 1 Other base costs includes depreciation and amortisation, audit fees, shareholder markets and lower average adviser headcount. This decrease costs, listed-related costs and governance. is offset with increased interest income earned on cash balances 2 Other variable costs includes FNZ costs, development spend and corporate functions that support the capital and liquidity requirements of the business. variable costs. Total net fee revenue in High Net Worth was £212 million, in line Support staff costs decreased by 7% to £118 million (2021: with the prior year. This was principally driven by Other revenue £127 million) primarily driven by Business Simplification activities in Quilter Cheviot, up £8 million (2021: £nil) due to interest received delivering sustainable benefits. from clients’ cash assets as a result of the rise in UK base rate. The Other revenue balance predominantly reflects the revenue Operations costs decreased by 19% to £22 million (2021: generated from Quilter Private Client Advisers which was at similar £27 million) which reflects the move to the outsourced operations levels to those of 2021. Net management fees decreased by 3% model within the Quilter Investment Platform for the full period compared to the prior year which is aligned to a similar decrease in 2022, and a simpler operational base following the business in the average AuM. This also includes an expected reduction in divestments made in preceding years. FNZ costs are reflected commission revenue as the proportion of clients on fee-only in Other variable costs. propositions continues to increase. Technology costs decreased as we continue to rationalise our infrastructure following the sale of Quilter International. Further reductions are due to the elimination of dual running costs following the completion of the Platform Transformation Programme and ongoing Business Simplification activity. Property costs remained stable at £31 million (2021: £31 million) driven by an increase in operating costs because of higher occupancy post pandemic, and the rising inflationary cost associated with utility usage which were offset by the property portfolio consolidation in 2022. Other base costs increased by 20% to £30 million (2021: £25 million) driven by annualised depreciation charges post completion of property portfolio projects. 38 Quilter Annual Report 2022 Financial review continued Revenue-generating staff base costs have increased by 11% to £92 million (2021: £83 million) reflecting the competitive environment in which we operate and as a consequence of continued investment in both Affluent and High Net Worth segments, which included increasing the number of discretionary managers and the build out of the combined advice and investment proposition in High Net Worth. In particular, the Group invested in the development of further business activities located in Dublin, Ireland within the High Net Worth segment. Variable staff compensation decreased by 6% to £75 million (2021: £80 million) with reductions in share-based payment accruals reflecting global equity market falls and further reductions relating to the business performance against the backdrop of an increasingly volatile global economy which negatively impacted markets and investor sentiment throughout 2022. Other variable costs increased by 28% to £46 million (2021: £36 million) principally due to operating expenses associated with the new platform and increased development spend following the deferral of change activity during the pandemic. Regulatory and professional indemnity costs decreased by 21% to £23 million (2021: £29 million) largely driven by reduced FSCS levy costs to Quilter of £6 million as a result of an overall lower industry levy. #### Taxation The effective tax rate ('ETR') on adjusted profit before tax was 14% (2021: 9%). The Group's ETR is lower than the UK corporation tax rate of 19% principally due to utilisation of previously unrecognised deferred tax assets in relation to trade losses. The Group's ETR is dependent on a number of factors, including future changes in the UK corporation tax rate. The Group's IFRS income tax expense was a credit of £110 million for the year ended 31 December 2022, compared to a charge of £62 million for the prior year. The income tax credit in 2022 is largely due to adverse movements in the market values of unit-linked assets during the year compared to favourable movements in those assets during 2021. The income tax expense or credit can significantly vary year-on-year as a result of market volatility and the impact market movements have on policyholder tax. The recognition of the income received from policyholders to fund the policyholder tax liability (which is included within the Group's IFRS revenue) can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility to the Group's IFRS profit or loss before tax attributable to equity holders. An adjustment is made to adjusted profit before tax to remove these distortions, as explained further on page 40 and in note 7(b) of the consolidated financial statements. #### Optimisation The Optimisation programme, which we announced in 2018, has now completed, achieving its target of annualised run-rate cost savings of £65 million. Total implementation costs since inception of £87 million are £4 million below the original £91 million estimate. In 2022, we successfully deployed the final delivery of our Group-wide general ledger system and further consolidated our data centre and data reporting solutions within the IT estate. No further costs are expected on this programme. #### Business Simplification Quilter's Business Simplification programme continues to track towards the proposed £45 million target announced at the Capital Markets Day in November 2021, with costs to achieve expected to be £55 million. In 2022, we completed the initial phase of simplification of our organisational structure following re-segmentation of the business. Further savings have been delivered across our Group functions with ongoing rationalisation of our property and technology estates being key contributors. To date the programme has delivered £23 million of annualised run-rate cost savings with an implementation cost of £17 million. #### Lighthouse DB pension transfer advice provision As reported previously, a provision was recognised in relation to DB to DC pension transfer advice provided by Lighthouse advisers prior to Lighthouse transitioning to our systems and controls following our acquisition of Lighthouse. A provision of £5 million (31 December 2021: £29 million) remains for the potential redress of British Steel Pension Scheme cases and other DB to DC pension transfer cases. This includes anticipated costs of legal and professional fees associated with the redress activity. The provision reflects (i) the outcome of the suitability review on a case-by-case basis for all cases identified as being in scope of the skilled person review relating to DB to DC pensions transfers by Lighthouse, (ii) redress calculations performed by the skilled person using the methodology designed following discussions and in collaboration with the FCA, as well as the offers made to customers who received unsuitable advice which caused them to sustain a loss, and (iii) an estimate for cases to be considered as part of the subsequent Group-managed past business review (covering an extension of the population of non-British Steel customers who were included in the skilled person review) with the current skilled person acting as reviewer. The provision decreased by £4 million during 2022, recognised as a reduction within expenses of the Group (and excluded from adjusted profit before tax), in order to reflect the results of the redress calculations performed under the skilled person review, and an estimate for cases to be considered as part of the past business review. During the year £4 million of additional legal, consulting, and other costs were incurred. Redress on British Steel Pension Scheme cases and other DB to DC pension transfer cases of £19 million and professional fees of £3 million were paid during the year. Payments are expected to be completed during 2023. Subject to FCA confirmation, we anticipate that the skilled person review will conclude during 2023. The FCA has agreed that the remaining review work described above (relating to certain Lighthouse non-British Steel customers who received DB pension transfer advice) can be conducted as a Group-managed past business review. Professional indemnity insurance coverage in relation to claims in respect of legal liabilities arising in connection with Lighthouse cases has been confirmed and the proceeds received, contributing £12 million to the profit of the Group, which has also been excluded from adjusted profit before tax. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 39 Financial review continued Reconciliation of adjusted profit before tax* to IFRS profit Adjusted profit before tax represents the Group’s IFRS profit, adjusted for specific items that management considers to be outside of the Group’s normal operations or one-off in nature, as detailed on page 142 in the consolidated financial statements. The exclusion of certain adjusting items may result in adjusted profit before tax being materially higher or lower than the IFRS profit after tax. Adjusted profit before tax does not provide a complete picture of the Group’s financial performance, which is disclosed in the IFRS income statement, but is instead intended to provide additional comparability and understanding of the financial results. Reconciliation of adjusted profit before tax to IFRS profit after tax For the year For the year ended 31 December ended | | 31 December | | Continuing | Discontinued | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | | 1 | Total | | £m | | 2022 | operations | operations | | | Affluent 105 111 50 161 High Net Worth 45 56 – 56 Head Office (16) (29) – (29) Adjusted profit before tax* 134 138 50 188 Reallocation of Quilter International costs – (10) 10 – Adjusted profit before tax after reallocation* 134 128 60 188 Adjusting for the following: Impact of acquisition and disposal-related accounting (42) (41) – (41) 2 Profit on business disposals – 2 90 92 Business transformation costs (30) (51) (19) (70) Managed Separation costs – (2) – (2) Other adjusting items (1) – – – Finance costs (10) (10) – (10) Policyholder tax adjustments 138 (7) – (7) Customer remediation 12 (7) – (7) Voluntary customer repayments (6) – – – Exchange rate gain (ZAR/GBP) 4 – – – Total adjusting items before tax 65 (116) 71 (45) Profit before tax attributable to equity holders* 199 12 131 143 Tax attributable to policyholder returns (134) 73 – 73 Income tax credit/(expense) 110 (62) – (62) 3 Profit after tax 175 23 131 154 1 2021 discontinued operations include the results of Quilter International. 2 In 2021, the discontinued operations profit on business disposals of £90 million resulted from the disposal of Quilter International. The £2 million continuing operations profit on business disposals resulted from the disposal of LighthouseCarrwood Limited. See note 6(a) for details. 3 IFRS profit after tax. The impact of acquisition and disposal-related accounting costs · The Optimisation programme incurred costs of £6 million of £42 million (2021: £41 million) include amortisation of acquired (2021: £22 million). The Optimisation programme commenced intangible assets. These costs remained stable on those of the in 2018 to provide closer business integration, create central prior year. support, rationalise technology and reduce third-party spend and is now complete, delivering annualised run-rate cost savings Business transformation costs of £30 million were incurred in 2022 of £65 million. This programme concluded during 2022. (2021: £70 million, of which £51 million was on continuing operations) · Restructuring costs following the disposal of Quilter Life consisting of: Assurance of £3 million in 2022 (2021: £1 million), including · Business Simplification costs of £17 million (2021: £nil). In 2022, property exit costs after the conclusion of the Transitional the Group simplified its structures to support the two segments, Service Agreement with ReAssure. Affluent and High Net Worth, with further work planned into 2024. · The Platform Transformation Programme concluded in 2021 During the year, we also delivered early simplification benefits with lifetime costs of £202 million. No further costs were incurred related to our property strategy and technology estate enabled in 2022 (2021: £28 million). by the completion of the Platform Transformation Programme · Investment in business costs of £4 million were incurred in and sale of Quilter International. To date the programme has 2022 (2021: £nil) as the Group continues to enable and support delivered £23 million of annualised run-rate cost savings with advisers, clients and improve productivity through better an implementation cost of £17 million. utilisation of technology. 40 Quilter Annual Report 2022 Financial review continued Policyholder tax adjustments were a credit of £138 million for 2022 (2021: debit of £7 million) in relation to the removal of timing differences arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from policyholders (which is included within the Group's IFRS revenue) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding tax expense, creating volatility to the Group's IFRS profit before tax attributable to equity holders. The customer remediation adjustment of £12 million of income in 2022 (2021: expense of £7 million) reflects the impact of the insurance proceeds received, final redress calculations performed compared with the provision estimated, as part of the ongoing skilled person review, and subsequent Group-managed past business review with the current skilled person acting as reviewer. Insurance proceeds in relation to claims in respect of legal liabilities arising in connection with Lighthouse DB to DC pension transfer advice have been received, contributing £12 million to the profit of the Group. These impacts are excluded from adjusted profit on the basis that the advice activities to which the charge and benefit relates was provided prior to the Group's acquisition of the business. Additionally, a provision release of £4 million was recognised in the current period (2021: net increase in provision of £7 million), with further costs recognised of £4 million in relation to the additional population to be reviewed as part of that Group-managed past business review, including associated professional costs. Further details of the provision are provided in note 28. The voluntary customer repayments of £6 million (2021: £nil) relate to revenue previously recognised in respect of Final Plan Closure (FPC) receipts. Foreign exchange movements for 2022 were £4 million (2021: £nil) and relate to foreign exchange gains on cash held in South African Rand in preparation for the capital return and Final Dividend payments in May 2022. Cash was converted to South African Rand upon announcement of the details of the capital return and dividend payment providing an economic hedge for the Group. The foreign exchange gain is equally offset by an amount recognised directly to retained earnings. See note 7(b)(vii) to the Group's consolidated financial statements for further detail. # Cash generation* Cash generation measures the proportion of adjusted profit after tax that is recognised in the form of cash generated from operations. The Group achieved a cash generation rate of 75% of adjusted profit after tax over 2022 (2021: 76%). # Review of financial position # Capital and liquidity # Solvency II The Group's Solvency II surplus is £820 million at 31 December 2022 (31 December 2021: £1,030 million), representing a Solvency II ratio of 230% (31 December 2021: 275%). The Solvency II information for the year to 31 December 2022 contained in this results disclosure has not been audited. The Group's Solvency II capital position is stated after allowing for the impact of the foreseeable dividend payment of £45 million (31 December 2021: £62 million). | Group Solvency II capital (£m) | At 31 December 2022^{1} | At 31 December 2021^{2} | | --- | --- | --- | | Own funds | 1,451 | 1,617 | | Solvency capital requirement ("SCR") | 631 | 587 | | Solvency II surplus | 820 | 1,030 | | Solvency II coverage ratio | 230% | 275% | $^{1}$ Firing of annual regulatory reporting forms due 19 May 2023. $^{2}$ As reported in the Group Solvency and Financial Condition Report for the year ended 31 December 2021. The 45 percentage point decrease in the Group Solvency II ratio from the 31 December 2021 position is primarily due to the capital return to shareholders of £328 million from the net surplus proceeds arising from the sale of Quilter International to Utmost Group, partly offset by the net profit recognised in the period. # Composition of qualifying Solvency II capital The Group's own funds include the Quilter plc issued subordinated debt security which qualifies as capital under Solvency II. The composition of own funds by tier is presented in the table below. | Group own funds (£m) | At 31 December 2022 | At 31 December 2021 | | --- | --- | --- | | Tier 1^{1} | 1,249 | 1,412 | | Tier 2^{2} | 202 | 205 | | Total Group Solvency II own funds | 1,451 | 1,617 | *At Tier 1 capital is unrestricted for tiering purposes. $^{1}$ Comprises a Solvency II compliant subordinated debt security in the form of a Tier 2 bond, which was issued at £230 million in February 2018. The Group SCR is covered by Tier 1 capital, which represents 198% of the Group SCR of £631 million. Tier 1 capital represents 86% of Group Solvency II own funds. Tier 2 capital represents 14% of Group Solvency II own funds and 25% of the Group surplus. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 41 Financial review continued ### Dividend The Board recommended a Final Dividend of 3.3 pence per share at a total cost of £45 million. Subject to shareholder approval at the 2023 Annual General Meeting, the recommended dividend will be paid on 22 May 2023 to shareholders on the UK and South African share registers on 21 April 2023 (the “Record date”). For shareholders on our South African share register, a Final Dividend of 72.78087 South African cents per share will be paid on 22 May 2023, using an exchange rate of 22.05481. This will bring the dividend for the full year to 4.5 pence per share (2021: 4.0 pence per share). At our Capital Markets Day on 3 November 2021, we announced a revised Group dividend policy. The new policy sets a target pay-out range of 50% to 70% of post-tax, post-interest adjusted profits, revised from 40% to 60% of post-tax adjusted profits previously and applies for the 2022 financial year. ### Share buyback programme Early in 2022, the Company completed the share buyback programme that was initiated to return to shareholders the net surplus sale proceeds (after disposal costs) of £375 million from the disposal of Quilter Life Assurance. The share buyback programme was subject to staged regulatory and Board approvals and a total of 264.1 million shares were purchased and cancelled at an average price of 141.97 pence per share. ### Capital Return (the “B Share Scheme” and the “Share Consolidation”) In March 2022, following the completion of the sale of Quilter International at the end of November 2021, the Company proposed to return the majority of the net surplus sale proceeds to shareholders through the issuance and redemption of a new class of redeemable B Shares followed by an Ordinary Share consolidation on a six new Ordinary Shares for seven old Ordinary Shares basis. Following receipt of regulatory approval and shareholder approval at a General Meeting held on 12 May 2022, the B Shares, with nominal value of 20 pence per share, were issued to shareholders on 23 May 2022. The B Shares were subsequently redeemed on 24 May 2022 in the form of a payment of 20 pence per old Ordinary Share for shareholders on our UK share register. For shareholders on our South African share register, this equated to a return of 401.33300 South African cents per old Ordinary Share, using an exchange rate of 20.06665 South African cents to one pence, the average rate achieved on 7 and 8 March 2022 (the two days immediately preceding the announcement of the Capital Return). In total, £328 million of capital was returned to our shareholders through the B Share Scheme. The six for seven Share Consolidation was executed on a contemporaneous basis with the effect of reducing the number of shares in issue to c1.4 billion, a c500 million decrease in the number of shares in issue since the Company was Listed on 25 June 2018. Following the Share Consolidation, the new Ordinary Shares have a nominal value of 8 1/6 pence. ### Debt issue In early January 2023, the Company announced plans to issue a new subordinated debt instrument in order to refinance its existing £200 million 4.478 percent Fixed Rate Reset Subordinated Notes due 2028 on their first call date of 28 February 2023. A new issue of £200 million 8.625 percent Fixed Rate Reset Subordinated Notes due April 2033 was completed on 18 January 2023. ### Holding company cash The holding company cash statement includes cash flows generated by the three main holding companies within the business: Quilter plc, Quilter Holdings Limited and Quilter UK Holding Limited. The flows associated with these companies are not directly comparable to those disclosed in the statutory statement of cash flows, which comprises flows from the entire Quilter plc Group including policyholder movements. | £m | 2022 | 2021 | | --- | --- | --- | | **Opening cash at holding companies at 1 January** | 756 | 517 | | Single Strategy business sale – warranty | – | (2) | | Quilter International sale proceeds | – | 481 | | Return of capital to shareholders | (328) | – | | Share repurchase | (28) | (197) | | Cost of disposal | (23) | – | | Dividends paid | (78) | (89) | | **Net capital movements** | (457) | 193 | | Head Office costs, Business Simplification and Optimisation programme funding | (52) | (74) | | Interest received | 4 | – | | Interest costs | (9) | (9) | | **Net operational movements** | (57) | (83) | | Cash remittances from subsidiaries | 163 | 184 | | Net capital contributions, loan repayments and investments | (15) | (53) | | Other net movements | 2 | (2) | | **Internal capital and strategic investments** | 150 | 129 | | **Closing cash at holding companies at end of year** | 392 | 756 | 42 Quilter Annual Report 2022 Financial review continued Strategic Report Net capital movements Net capital movements in the year were an outflow of £457 million. This includes £328 million of capital returned to shareholders following the sale of Quilter International, £28 million relating to the share repurchase programme, dividend payments made to shareholders of £62 million in May 2022 and £16 million in September 2022, plus £23 million of costs relating to the disposal of Quilter International. Net operational movements Net operational movements were an outflow of £57 million for the year and include £52 million of corporate and transformation costs. Interest paid of £9 million relates to coupon payments on the Tier 2 bond and non-utilisation fees for the revolving credit Governance Report Financial statements Other information facility, with £4 million interest received on money market funds and cash holdings. Internal capital and strategic investments The net inflow of £150 million is principally due to £163 million of cash remittances from the trading businesses, partially offset by £15 million of net capital contributions to support business operational activities. Mark Satchel Chief Financial Officer 43Quilter Annual Report 2022 ## Risk review ### Nick Sacre-Hardy ### Chief Risk Officer Introduction Risk governance The coming year is likely to remain challenging for Quilter given the Quilter maintains a Group Governance Manual (“GGM”) which prospect of a prolonged economic downturn, continued inflationary sets out Quilter’s approach to governance. The Quilter governance pressures, high interest rates and muted markets. Effective risk model is designed to promote transparency, accountability and management is key to generating value safely and in supporting consistency through the clear identification of roles, the separation Quilter in managing through these difficult times. of business management and governance and control structures, and by tracking performance against accountabilities. The The focus will remain on progressing Quilter’s long-term strategy, segregation of risk taking, oversight and assurance is codified growing with our clients and advisers, enhancing the efficiency of in Quilter’s three lines of defence model, which ensures clear operations, increasing digitalisation and being a responsible wealth accountability and ownership for risk and controls. The Risk manager. This, alongside the FCA’s new Consumer Duty, present new Function Charter provides clarity on the purpose and role challenges and opportunities for Quilter to create a real competitive of the Risk Function as Quilter’s second line of defence, and the advantage by delivering against our established strategy. Risks means by which it maintains its objectivity and independence remain in the execution of this strategy and the effective from management. management of these risks will be key to ensuring Quilter’s future success and the continued delivery of good customer outcomes. The Executive Risk Forum is the primary management committee overseeing the risk profile of Quilter. This forum is chaired by the How we manage risk Quilter Chief Executive Officer, with representation from across Our Enterprise Risk Management Framework (“ERMF”) is embedded the Group. Ongoing oversight of the risk profile and of risk across Quilter and helps Quilter assess and manage its risk management arrangements is undertaken by the Board Risk exposures. A strong and embedded risk culture is vital in ensuring Committee, with relevant matters also being considered by the that risk implications are considered when making strategic and Board. Similar arrangements are maintained locally in each operational decisions, and that Quilter understands its risk profile significant business. and manages the business within the approved risk appetite. The ERMF drives consistency across Quilter and aims to support On a quarterly basis, the Quilter Chief Risk Officer formally reports the evaluation and management of business opportunities, to the Board Risk Committee the second line perspective on the uncertainties and threats in a structured and disciplined manner. risk profile of the Group, performance against risk appetite and perspectives on the effectiveness of management responses. Policy framework The Quilter Policy Suite forms an integral part of our governance and risk management framework, ensuring an appropriate system of internal control. Together with the GGM, they form the basis of clear delegated authorities and accountabilities, ensuring there is appropriate Board oversight and control of important decisions, and efficient and effective management of day-to-day business. The GGM and policies are approved and adopted by the Board. The policies are subject to an annual policy compliance review, with results provided to the Board. 44 Quilter Annual Report 2022 Risk review continued Strategic Report Quilter’s three lines of defence model First line of defence Second line of defence Third line of defence Management and employees Risk function Group Internal Audit Primary responsibility for managing risks The Risk Function, which includes Group Internal Audit provides as part of day-to-day activities, in line Compliance, provides objective oversight, the Board and Management with with risk policies and appetite. Business monitoring and independent challenge independent, objective assurance. management decides which risks to take of the first line’s risk taking, and and the exposure to assume. risk management. Governance Report Financial statements Other information Strategic risk appetite principles Customer Liquidity Capital Control environment Quilter will enable Quilter will ensure that Quilter will hold or have Quilter will at all times the delivery of good it has sufficient liquidity access to sufficient capital to operate a robust control customer outcomes to meet its financial and maintain its own capital needs environment funding obligations Owner: Owner: Owner: Owners: Chief Distribution Officer Chief Financial Officer Chief Financial Officer Chief Operating Officer Chief Operating Officer Chief Risk Officer Chief Internal Auditor Risk appetite framework Conduct risk Our risk appetite is the amount of risk we are willing to take in The Financial Conduct Authority (“FCA”) is the primary conduct the pursuit of our strategic priorities and is defined by the Board. regulator for Quilter’s UK regulated entities. Quilter takes its Culturally, it sets the tone regarding our attitude towards risk taking. regulatory obligations in relation to customers and our conduct Risk appetite also plays a central role in informing decision making very seriously and is committed to operating in a responsible across Quilter, protecting and enhancing the return on capital and compliant manner. invested. This risk appetite approach is applied consistently across Quilter. Quilter seeks to deliver on these obligations through culture and values, backed by a rigorous governance system and an To support the strategic decision-making process, we apply risk approach to compliance that drives fair outcomes for customers. preferences which provide guidelines for striking the appropriate The standards of behaviour Quilter expects from its staff are set balance of risk and reward when setting our business strategy. out in the Quilter Code of Conduct. This code is aligned to the expectations of individuals set out in the FCA’s Conduct Rules. A set of strategic risk appetite principles has been determined by the Board. These principles provide the top down guidance Conduct risk is a core element of Quilter’s ERMF, recognising that on our attitude towards key areas of risk for Quilter. They support conduct risks can both impact, and result from, other risks within the ongoing management and oversight of risk, and are supported the risk universe. by a series of more granular risk appetite statements, measures, policies and standards. Quilter’s position against these principles Conduct risk is monitored across Quilter’s businesses, with is measured on a regular basis through the monitoring of quarterly reporting to the Board Risk Committee on Quilter’s underlying risk metrics. conduct risk profile, emerging issues and trends. Areas of concern are noted, and actions are identified and are tracked to completion. 45Quilter Annual Report 2022 Risk review continued Prudential risk The identification, assessment and continuous management Quilter is prudentially regulated by the Prudential Regulation of digital security related risks is aligned to our ERMF. Quilter’s Authority (“PRA”) under Solvency II, by the FCA under the risk taxonomy is a key part of this framework which drives our risk Investment Firms Prudential Regime (“IFPR”) and other applicable management processes and includes technical elements of these prudential regulations. risks such as systems availability, data loss and compromise, but also the important wider reaching business impacts of digital risk To meet these regulations, we operate a consistent approach to risk such as customer service risk. These risks are governed as part management across Quilter. We have integrated the Own Risk and of a well-established framework, including the executive sponsored Solvency Assessment (“ORSA”) and Internal Capital Adequacy and IT and Security Governance Forum and the Operations Committee Risk Assessment (“ICARA”) into our risk management framework. which report ultimately into Quilter plc Board Committees. Quilter’s ORSA and ICARA are comprehensive risk processes which The Quilter Chief Risk Officer formally reports the second line set out how risks are managed and how risks might change over opinion on the risk profile of the firm, including information security time as we execute our strategy and respond to changes in the and technology risk, on a quarterly basis. Internal Audit also external environment. regularly include digital and related risks as part of their audit planning process. We determine the capital and liquidity required to protect Quilter’s resilience. We project the development of capital and Remuneration and reward liquidity requirements over our planning period. The assessments The most important element to risk management is a good include a range of stress and scenario tests covering a broad range culture of risk informed decision making. We believe that a good of potential events, including market stresses, events which could risk culture enables effective management of risk. We link risk damage Quilter’s reputation and operational risk events. In management to personal performance and development, as well accordance with IFPR requirements we have developed recovery as to Quilter’s remuneration and reward schemes. An open and plans to identify the management actions and recovery options transparent working environment which encourages our people to which are available in the event of extreme stresses, and embrace risk management, and speak up where needed, is critical wind-down plans to ensure that we maintain sufficient capital to the achievement of our objectives. and liquidity to support the orderly wind-down of our investment and advice businesses. Risk-based planning On an annual basis a Risk Plan is developed based upon a risk Operational risk analysis exercise. This analysis encompasses a risk assessment Quilter operates a series of processes to facilitate the identification of the prevailing risk profile, as well as external factors, including and management of operational risk and the reporting of risk regulatory change. The Risk Plan details the activities that will be events. A discipline of Risk and Control Self Assessments (“RCSAs”) undertaken by the Risk Function across the risk domains, including and risk event management is facilitated by our risk system, along regulatory compliance, and includes advisory and assurance. with remedial action tracking. Root cause analysis is conducted The Risk Plan is approved annually by the Board Risk Committee, on material events. with regular tracking of progress on its delivery throughout the plan year. Digital security Embracing Digital is a key component of Quilter’s strategy, ensuring Risk profile we actively engage with our current and future customers in the 2022 has been a very challenging year. The rapid deterioration right way, across all facets of our business. Information security in the economic and geopolitical environment which began at is a core part of our ongoing management of digital platforms, and the start of the year gave rise to significant impacts on consumers a key requirement for projects that are delivering new or updated and the markets, and had a material impact on Quilter’s business digital functionality. Real-world information security events performance, impacting net flows, assets under management continuously inform our risk posture, and we use a combination and administration (“AuMA”) and revenues. of internal metrics and external threat intelligence to assess and periodically revaluate the effectiveness of our control environment. Despite these challenges Quilter remained focused on its four Using internationally recognised methodologies, we characterise strategic priorities. Good progress was made on a number of fronts, and actively monitor a wide variety of criminal actors who could including the launch of Wealth Select +, the establishment of the new be a threat to Quilter. Understanding how these criminals operate Affluent commercial and proposition function, continued Platform has enabled us to ensure we have the relevant controls in place improvements and good progress in Business Simplification. and to test these controls, using both internal methods and external parties. In July the FCA published the final rules and guidance in relation to the new Consumer Duty, which sets higher and clearer standards of consumer protection across financial services, and requires firms to put their customers’ needs first. Good progress has been made to date in the delivery of our Consumer Duty programme with appropriate first and second line resources mobilised to support implementation by July 2023. 46 Quilter Annual Report 2022 Risk review continued Strategic Report ## Principal risks and uncertainties Principal risks and uncertainties The Board requires management to put in place actions to mitigate The Directors have carried out a robust assessment of the these risks, and controls to maintain risk exposures within acceptable principal and emerging risks facing Quilter, including those that levels defined by Quilter’s risk appetite. Since 2021, improvements would threaten its business model, future performance, solvency in the risk exposure associated with Information Technology, and liquidity, as well as those risks that are non-financial in nature. Information Security, Change Execution, Third Party and Operational The articulation of these principal risks and uncertainties is Resilience has seen them removed from the table below. The table consistent with Quilter’s Enterprise Risk Framework categorisation, below sets out Quilter’s principal risks and uncertainties throughout and with the ‘Top Risk’ reporting that is provided quarterly to the 2022, including Executive Committee member ownership and key Board Risk Committee and the Board. mitigants being implemented by management. The risk trend noted is the residual risk trend (risk after the application of mitigants) during 2022. Governance Report Financial statements Other information Risk trend key Stable Decreasing Increasing ## Business and strategic risks | Risk | Economic environment | Mitigation: | | 2022 | | --- | --- | --- | --- | --- | | owner: | Quilter’s principal revenue streams are asset value related | 2022 activity | | risk | | Chief | and as such Quilter is exposed to the condition of global | · 2022 economic scenario testing at Group | | trend: | | Financial | economic markets. The evolving Ukraine conflict and | | and subsidiary level. | | | Officer | increased political uncertainty in the UK saw significant | · Diversification of shareholder cash balances across | | | | | market volatility during 2022 and this is expected to | | bank accounts and money market funds to reduce | | | | continue into 2023. Inflation acted as a significant | | credit concentration risk. | | headwind to Quilter, due to risings costs, and lower NCCF with the potential that higher interest rates could further Planned and ongoing activity impact equity markets and Quilter’s flows. Inflationary · Stress and scenario analysis, including in respect pressures are expected to start easing in 2023 but the of market shocks. pace and timing remains uncertain. · Ongoing enhanced monitoring of market and liquidity risk exposures. | Risk | Business financial performance | Mitigation: | | 2022 | | --- | --- | --- | --- | --- | | owner: | Any negative impact on earnings, share price and/or capital | 2022 activity | | risk | | Chief | position could have a resulting adverse effect on Quilter’s | · Implemented revised 2022 cost targets. | | trend: | | Financial | market credibility and financial standing. Throughout | · Explore structural efficiencies that can be employed | | | | Officer | 2022, external economic and market conditions remained | | to deliver 2023 cost base and beyond. | | challenging, and this impacted flows, AuMA and revenues. The economic and political outlook remains uncertain Planned and ongoing activity and ongoing inflationary pressures, alongside increasing · Continued monitoring of Key Risk Indicators relating interest rates, risk damaging consumer confidence to liquidity, free cash and solvency positions. further as cost-of-living pressures continue. | Risk | Strategic delivery | Mitigation: | | 2022 | | --- | --- | --- | --- | --- | | owner: | The current stage of our strategy brings with it continued | 2022 activity | | risk | | Chief | strategic execution risk and the challenging external | · Reprioritisation of the operating plan. | | trend: | | Executive | conditions have led to an increase in this risk over the year. | · Development of customer proposition and | | | | Officer | Improved structural efficiency will reduce vulnerability | | points of differentiation. | | to short-term market conditions and enable long-term investment. Customers place their trust in Quilter to Planned and ongoing activity help deliver their financial futures, and delivery of good · Maintaining robust change discipline through customer outcomes in all of Quilter’s client propositions a comprehensive change framework and effective will be key to the success of Quilter’s next phase. governance structures. · Dependency and resource mapping, identifying and retaining key capabilities. 47Quilter Annual Report 2022 Risk review continued Business and strategic risks continued | Risk | Climate strategy | Mitigation: | | 2022 | | --- | --- | --- | --- | --- | | owner: | Climate strategy risk is the risk that Quilter fails to develop | 2022 activity | | risk | | Chief | and deliver the achievable, coherent, comprehensive and | · Recruited a Head of Responsible Wealth Management. | | trend: | | Executive | robust long-term climate strategy needed to appropriately | · Began developing a detailed climate action strategy for | | | | Officer | manage climate related financial and non-financial risks | | the business which encompasses Scope 3 emissions. | | | | (as set out in our 2022 TCFD report), meet regulatory and | · Completed the requirements phase for 2022 | | | | | other stakeholder expectations, and fulfil our strategic | | TCFD-related disclosure deliverables. | | ambition. This could result in reputational damage, the potential for regulatory action, and/or financial impacts. Planned and ongoing activity Quilter takes its responsibility to the environment very · Develop requirements for 2023 TCFD-related seriously, and is determined to play its part in reducing disclosure deliverables. climate impacts. · Complete a full risk assessment to ensure the climate action strategy addresses any underlying risk factors. ## Operational and regulatory risks | Risk | Advice | Mitigation: | | 2022 | | --- | --- | --- | --- | --- | | owner: | Quilter’s financial advice services are subject to | 2022 activity | | risk | | Chief | fundamental regulatory conduct requirements to assure | · Conclusion of programme of work to enhance the | | trend: | | Executive | suitability of advisory recommendations. Failure to | | control environment that supports the delivery of | | | Officer, | operate effective arrangements to support the ongoing | | suitable advice in the Quilter Financial Planning business. | | | Quilter | delivery of suitable advice could expose Quilter to risks | · Defined benefit transfer advice remediation activity is | | | | Financial | associated with customer detriment, regulatory censure | | entering latter stages, with a small number of residual | | | Planning | and remediation programmes, with consequential | | cases being handled in compliance with the FCA’s | | | | impacts to the Group’s business, financial condition | | published section 404 compensation scheme. | | and reputation. Quilter continues to build on significant improvements to the control environment over the past Planned and ongoing activity 18 months, with an improving trend seen against this risk. · Ongoing control improvement programme transitioning into business as usual activity. · A programme of work designed to make doing business with us easier for customers and our advisers. · Automating wherever possible in support of a less manual control environment. | Risk | People | Mitigation: | | 2022 | | --- | --- | --- | --- | --- | | owner: | Quilter relies on its talent to deliver its service to | 2022 activity | | risk | | HR | customers. The tight labour market and the cost-of-living | · We Rise framework to support the delivery of Quilter’s | | trend: | | Director | pressures are continuing to drive some challenging | | strategic objectives with agility and flexibility to adapt | | | | conditions for employee retention. Failure to attract | | to the changing internal and external environment. | | and retain suitable talent may impact on the delivery of Quilter’s strategy and may have an adverse impact Planned and ongoing activity on Quilter’s business, its financial and operational · Talent management and succession programme. performance and its delivery of service to customers. · Performance and risk-adjusted remuneration arrangements. · Regular employee engagement surveys. · Quilter’s staff wellbeing initiative, ‘Thrive’. · Coaching programme to support new teams coming together as part of business transformation/change. | Risk | Regulatory | Mitigation: | | 2022 | | --- | --- | --- | --- | --- | | owner: | Quilter is subject to regulation in the UK by the PRA and | 2022 activity | | risk | | Chief Risk | the FCA. Additionally, the firm is subject to the privacy | · Plan defined for Consumer Duty implementation | | trend: | | Officer | regulations enforced by the Information Commissioner’s | | and mobilisation of the programme. | | | | Office and international equivalents. Quilter faces risks | · Implemented Appointed Representative regime changes. | | | associated with compliance with these regulations and to changes in regulations or regulatory focus or Planned and ongoing activity interpretation in the markets in which Quilter operates. · Implement Consumer Duty requirements. Failure to manage regulatory compliance effectively could · Compliance monitoring programme. result in regulatory censure, including the possibility of · Regulatory engagement management, and regulatory fines or prohibitions which could impact business horizon scanning. performance and reputation. · Staff training and staff awareness programmes. 48 Quilter Annual Report 2022 Risk review continued Strategic Report ## Emerging risk radar Quilter is a long-term business and as such we monitor risks which process and informs our capital calculations. The following are the are less certain in terms of timescales and impact. The emerging emerging risks we feel are the most significant. Economic outlook risk profile is subject to regular review by management committees and Geopolitical risk have been split out this year so they can be and the Board. The identification of these risks contributes to our appropriately articulated given the current external environment stress and scenario testing which feeds into our strategic planning Economic The Bank of England’s Monetary Policy Committee latest projections describe a challenging outlook outlook and for the UK economy with CPI inflation expected to remain elevated in the near term, it is expected inflationary to fall sharply from mid-2023. Global GDP growth has slowed and is projected to remain weak during pressure 2023. There are some signs that labour demand has started to soften, though the labour market Near term remains tight. Persistent high inflation and a recession could significantly impact all of Quilter’s Governance Report Financial statements Other information stakeholders, including customers, colleagues, and shareholders. Margin Increasing market pressures may require provision of services at a lower overall cost to customers to pressure remain competitive. An inability to adapt to margin pressure could cause a reduction in market share of new business and negatively impact retention of existing business. Operating margin is a key focus with cost control and expense management activities ongoing. Geopolitical Instability within the Eurozone, the Russia-Ukraine conflict, tensions in the Middle East, Taiwan, the risk South China Sea and North Korea, as well as ongoing strain in trade relations between the US, China and the EU have contributed to increased volatility in the financial markets in recent years and have contributed to diminished growth expectations for the global economy. It is possible that the effects of such geopolitical events will include further financial instability, slower economic growth, significant regulatory changes, currency fluctuations or higher unemployment and inflation in the UK, continental Europe and the global economy, at least in the short to medium term. Cyber threat Quilter operates in an environment where the nature of cyber threats are continually and quickly developments evolving. The ever-increasing sophistication of cyber criminality presents a persistent threat of attack, capable of compromising the continuity of operations, or the security and integrity of information. Cyber security systems need to continuously monitor and innovate in response to emerging cyber threat developments. Infectious Whilst the risk of pandemic resurgence remains low, a rise in outbreaks of other infectious diseases disease could potentially have impacts on Quilter’s operations should mitigations be required to reduce outbreak the spread. Disruptive The white labelling of platforms coupled with financial advice consolidations by private equity firms competition who are aligning to white labelling partners could see competitors acquire skills and technology, and technology accelerating their digital capabilities. This, alongside advancements in Digital/Hybrid advice could see new entrants enter the already highly competitive market, having the potential to erode Quilter’s market share and increase fee pressure across the value chain. Medium term Climate Physical climate risks are now crystallising, evidenced by summer heat waves in the UK and low change – rainfall. Whilst Quilter’s flexible working policy allowed employees to cope well with extreme heat last physical risks year, some were impacted by public transport delays and reduced childcare provision. Such events are expected to become more extreme and more frequent in future, posing challenges to Quilter, the UK’s infrastructure and critical third parties’ operations. Climate To avoid a climate catastrophe, global emissions must peak by 2025, halve by 2030, and be net zero change – by 2050. Achieving these aims has profound implications across the global economy and all industries. transition risks A disorderly transition to a low carbon economy could have financial impacts for Quilter caused by investment volatility or increased costs due to additional regulatory burden. COP27 was an opportunity for world leaders to show how they planned on turning their promises into action and whilst disappointing progress was made on phasing out fossil fuels, a historic agreement was reached on a fund to compensate developing countries for losses and damage caused by climate change. Generational The UK population is ageing. A significant proportion of UK household wealth is held by the over-45s shifts and, over the next 30 years, this is set to be transferred between generations as inheritance or gifts. term These trends present both opportunities and risks to Quilter in the form of changing consumer Longer demands and expectations. 49Quilter Annual Report 2022 ## Viability statement ## and going concern Risk management and internal control Viability statement The Directors are responsible for ensuring that management In accordance with provision 31 of the UK Corporate Governance maintains an effective system of risk management and internal Code 2018, the Directors have assessed the prospects of the Group control and for assessing its effectiveness. Such a system is for a period longer than the 12 months required in the Going designed to identify, evaluate and manage, rather than eliminate, Concern Statement. the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against Quilter’s Risk Appetite Framework supports the delivery of Quilter’s material misstatement or loss. strategy and Business Plan with risk preferences and appetite playing a central role in informing decision making across the Group. Quilter is committed to operating within a strong system of internal control that enables business to be transacted and risk taken without Every year, the Board considers the longer-term viability of the exposing itself to unacceptable potential losses or reputational Group by reviewing the three-year Business Plan, the Own Risk and damage. The Quilter Group Governance Manual sets out the Solvency Assessment (“ORSA”) and the Internal Capital Adequacy Group’s approach to internal governance and establishes the and Risk Assessment (“ICARA”) for the Group. The three-year mechanisms and processes by which management implements the review period is considered appropriate because it aligns with strategy set by the Board to direct the organisation, through setting the timeframe focused on for the annual strategic review exercise the tone and expectations from the top, delegating its authority conducted within the business and reviewed by the Board. and assessing compliance. The Business Plan makes certain key assumptions in respect of the competitive markets and the economic and political environments Quilter’s principles of internal control (covering financial, in which the Group operates, the level of support provided to operational and compliance areas) are to maintain: companies within the Group and the impact of key strategic · clearly defined delegated authorities; initiatives. This year, the Business Plan considered the impact of · clearly defined lines of responsibility; market risk and the prevailing economic and geopolitical climate, · robust recording and reporting of transactions to support and the risks and challenges this presents to the Group. In the financial statements; particular, the Business Plan considered the potential for volatility · financial reporting controls procedures and systems in debt, equity and currency markets which can adversely impact which are regularly reviewed; the Group’s AuMA, revenue and profitability. · protection of assets; and · financial crime prevention and detection. The first year of the Business Plan has the greatest certainty and is used to set detailed budgets across the Group. Although three The Enterprise Risk Management Framework is overseen by the years is regarded as an appropriate period for the assessment Board Risk Committee and aims to align strategy, capital, processes, of the Group’s viability, the Board also regularly considers other people, technology and knowledge in order to evaluate and manage strategic matters that may affect the longer-term prospects of the business opportunities and threats in a structured, disciplined Group. This includes the Board’s assessment of the principal risks manner. The Group’s principal risks and uncertainties are set and uncertainties facing the Group in the longer term, including out on pages 47 to 48. climate change and any emerging risks, such as the generational shifts potentially impacting the ability of newer generations to Further information on the Directors’ review of Risk and internal accumulate wealth from income. The Board’s longer-term view is control can be found on pages 75 to 78. that the Group will continue to grow as a wealth manager, serving clients throughout their lives encompassing their accumulation and decumulation phases. The Board’s assessment included reviews of capital and liquidity and an assessment of the principal risks over the three-year planning period. A large portion of the Group’s revenue is correlated to the Group’s AuMA, which can move materially when there is significant volatility in global financial markets. 50 Quilter Annual Report 2022 Viability statement and going concern continued Strategic Report The ORSA and ICARA processes include an assessment of a range Conclusion on viability of stresses and scenarios. These are performed in order to assess Considering the Group’s current capital and trading position, capital and liquidity requirements and to test the impact of severe its principal risks, and the remaining three-year period of the stresses on the Group. Certain scenarios are tested at severity Business Plan, with due consideration of the impact of the current levels which would be expected to occur once in every 50 and once economic climate, the Board has a reasonable expectation that the in every 200 years. These scenarios are tested in order to confirm Company and the Group can continue in operation and meet their whether the Group and underlying operating entities have liabilities as they fall due over the period to 31 December 2025. sufficient capital and liquidity to meet their financial risk appetites. Going concern Quilter has a documented recovery plan which sets out the The Directors have considered the resilience of the Group, taking management actions and recovery options available to manage into account its current financial position, the principal risks facing the impacts of severe stresses. the business and the effectiveness of the mitigating strategies which are or will be applied. As a result, the Directors believe that In all the severe but plausible adverse scenarios tested, the Group the Group is well placed to manage its business risks in the context Governance Report Financial statements Other information had sufficient capital and liquidity after allowing for management of the current economic outlook and has sufficient financial actions. This demonstrates the Group’s resilience to adverse resources to continue in business for a period of at least 12 months conditions. The management actions which were assumed included from the date of approval of these consolidated financial statements, the cessation of dividend payments in the most extreme scenarios, and continue to adopt the going concern basis in preparing the as well as actions to reduce costs, including reductions in variable consolidated financial statements. compensation costs and discretionary spending, and staff recruitment freezes, similar to the tactical cost savings made This Strategic Report was approved by the Board during 2020. on 8 March 2023. Reverse stress tests, which are performed to identify events which would make the current plan unviable, have also been performed. The results of these tests indicate that the Group can reasonably expect to have sufficient capital and liquidity to be able to meet its Ruth Markland liabilities over the planning period and could sustain a significant Chair equity market fall, after management actions, well beyond the On behalf of the Board market falls experienced during the first half of 2020 with no foreseeable market recovery. The Board regularly monitors performance against a range of predefined key performance indicators and early warning thresholds, which will identify if developments fall outside of the Group’s risk appetite or expectations, allowing management action to be taken. The Strategic Report, on pages 2 to 51, sets out the Group’s financial performance, business environment, outlook and financial management strategies. In addition, details of the Group’s principal risks and risk management framework are set out on pages 47 to 48. 51Quilter Annual Report 2022 ## Chair’s introduction to ## corporate governance Ruth Markland Chair Dear shareholder I am pleased to write to you as your Chair. I have served on the An important role of the Board is to oversee the delivery of the Board as the Senior Independent Director since Quilter was listed Company’s strategy by the executive within the agreed risk appetite in 2018 and I was honoured to be asked by my fellow Directors in order to create long-term success for our shareholders and I am to chair your Board of Directors during the year. Since that time, confident that the current Board has the right skills and experience I have spent time with colleagues, major shareholders and other for Quilter to achieve the successful execution of our strategy. stakeholders to hear their views directly and I am grateful for the support I have received. My Chair’s statement on pages 3 and 4 has touched on the external political and economic environment and challenging Whilst 2022 was undoubtedly a year of change for your Board, market conditions with the year opening with the formal cessation you will see that there was also continuity. In April, Rosie Harris of COVID-19 isolation measures and the on-going conflict in Ukraine, stood down from the Board and George Reid agreed to act as the and it is in that context that your Board has operated. On the Board Risk Committee Chair until such time as Rosie’s replacement following pages, I would like to share with you the work of your was in place. In May, Glyn Jones, our former Chair, who had Board, and some of the principal decisions we have made during indicated in late 2021 he wished to step down, also left the Board the course of 2022. at the conclusion of the 2022 AGM. I wish to note, on behalf of the Board, my sincere thanks to Rosie and Glyn who both played such I would like to thank my fellow Directors, Quilter colleagues and important roles preparing Quilter for Listing, and particularly to our stakeholders who continue to show their strong support for Glyn who served as Quilter’s Chair with distinction and led the our Company and I look forward to providing you with an update Group though significant change as we reshaped the Company on our progress in 2023. into the UK centric wealth management business we are today. 2022 also saw the implementation of our succession plan for a transition in Chief Executive Officer. Paul Feeney’s departure in October after over a decade of service marked the beginning Ruth Markland of a new chapter for Quilter under the leadership of Steven Levin. Chair Steven, who came to the role with deep knowledge and experience of Quilter built up over many years, is wholly focused on the successful execution of our strategy. In May, we announced that Neeta Atkar, an experienced Non-executive Director, following a career spent in financial services regulation and risk management, would join the Board on 11 August and would be Chair of our Board Risk Committee from 1 October. Glyn Barker joined the Board in June with a view to assuming the role as Chair but for personal reasons resigned on 11 November. At this time, and following careful consideration by the Board, I was delighted to agree to continue as Chair. I was also pleased that Tim Breedon agreed to continue as Senior Independent Director and Chair of the Board Remuneration Committee. 52 Quilter Annual Report 2022 Chair’s introduction to corporate governance continued Strategic Report Principles of the UK Corporate More ## Compliance with the UK Governance Code 2018 information Board leadership and company purpose ## Corporate Governance Long-term value and sustainability 1 to 51 Culture 61 to 63 ## Code 2018 Shareholder engagement 25 UK Corporate Governance Code 2018 (the “Code”) Other stakeholder engagement 22 to 25 Quilter is subject to the Code. It is the Board’s view that the Oversight of Board level conflicts of interest 67 Company complied with the Code and took appropriate actions Division of responsibilities during the Chair succession process to ensure compliance. Details Role of the Chair 55 of the actions taken can be found on pages 66, 70 and 83. Details Division of responsibilities on the Board 55 of our Corporate Governance framework are available on page 55 Assessment of Non-executive Director role 55 and 66 and our website at plc.quilter.com. The Code is publicly available Governance Report Assessment of independence on the Board 55 at www.frc.org.uk. Composition, succession and evaluation Disclosure Guidance and Transparency Rules (“DTRs”) Board effectiveness 68 By virtue of the information included in this Governance section Board and Executive succession planning 66 to 67 of the Annual Report including our Directors’ Report (pages 108 to 111) we comply with the corporate governance requirements Audit, risk and internal control of the FCA’s DTRs. Integrity of financial statements 71 Fair, balanced and understandable 72 Johannesburg Stock Exchange (the “JSE”) Internal controls and risk management 72 and 77 Quilter has a secondary listing on the Johannesburg Stock Assessment of external independent auditor 73 to 74 Exchange and is permitted by the JSE Listing requirements to Principal and emerging risks (Risk Review) 47 to 49 follow the corporate governance practices of our primary listing Viability statement and going concern 50 to 51 market, London. Quilter is, however, mindful of the provisions of Financial statements Other information | the King IV Governance principles and the expectations of our | Remuneration | | | --- | --- | --- | | South African shareholders. | Policy, practices and alignment with purpose, | | | | values and long-term strategy | 86 to 93 | Independent judgement and discretion 82 to 83 Board meeting attendance and Board changes during 2022 Scheduled Ad hoc Board Board meetings meetings Appointment date Resignation date Directors 1 Ruth Markland (Chair) 8/8 7/7 Steven Levin 2/2 1/1 1 November 2022 Mark Satchel 8/8 7/7 Independent Non-executive Directors Neeta Atkar 2/3 3/3 11 August 2022 2 Tim Breedon (Senior Independent Director) 7/8 6/7 Tazim Essani 7/8 7/7 Moira Kilcoyne 7/8 7/7 Paul Matthews 8/8 5/7 George Reid 7/8 7/7 Chris Samuel 8/8 7/7 Former Directors Glyn Barker 2/2 2/2 1 June 2022 11 November 2022 Paul Feeney 6/6 5/5 31 October 2022 Rosie Harris 3/3 2/4 30 April 2022 Glyn Jones 4/4 4/4 12 May 2022 1 Stepped down as Senior Independent Director and appointed as Chair on 12 May 2022 at the conclusion of the 2022 AGM. 2 Appointed as Senior Independent Director on 12 May 2022 at the conclusion of the 2022 AGM. In addition to the meetings reported above, sufficient time was provided, periodically, for the Chair to meet privately with the Senior Independent Director and the Non-executive Directors. The Board had access to briefings and training during the year, including the new FCA Consumer Duty. Where a Director was unable to attend a meeting due to illness or a long-standing conflicting commitment, they reviewed the Board papers and provided comments to the Chair in advance of the meeting. Some ad hoc Board meetings were held at short notice. 53Quilter Annual Report 2022 ## Governance at a glance ## 2022 Board activity and how the Board spent its time 12% 15% 24% Board activity 2022 2021 35% 9% 9% Risk management and governance 24% Strategy and delivery of strategy 2022 2021 26% Business performance oversight 91% 91% Stakeholder management 35% 29% ## Board composition as at 31 December 2022 | Gender identity | | | | | Ethnic background | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Number | | | | | Number | | | Number | | | of senior | | Number | | | of senior | | | of Board | Percentage | positions on | | | of Board | Percentage | positions on | | | | members | of the Board | | the Board* | | members | of the Board | | the Board* | | Men 6 60% 3 | | | | | White British or other White | | | | | (including minority-white groups) 8 80% 4 Women 4 40% 1 Mixed/Multiple Ethnic Groups 0 0 0 Not specified/prefer not to say 0 0 0 Asian/Asian British 2 20% 0 Black/African/Caribbean/ Black British 0 0 0 Other ethnic group, including Arab 0 0 0 Not specified/prefer not to say 0 0 0 *Chair, Chief Executive Officer, Chief Financial Officer, Senior Independent Director. ## Board skills and experience as at 31 December 2022 | Length of tenure for Chair and Non-executive Directors | | Industry knowledge and experience | | --- | --- | --- | | | 2022 2021 | Industry knowledge | | 0-1 years | | Accounting and finance | | 1-3 years | | Asset management | | 3-4 years | | Distribution | | 4-5 years | | Governance | | 5-6 years | | International financial services | | 6 or more years | | IT and operations | Legal Risk Wealth management Figures represent number of Board members with relevant experience. 54 Quilter Annual Report 2022 Governance at a glance continued Strategic Report ## Operating within a robust governance framework The Board is the decision-making body for all matters of such for the Board’s decision, which includes Board appointments, importance as to be of significance to Quilter as a whole because Quilter’s strategy, financial statements, capital expenditure and any of their strategic, financial or reputational implications or major acquisitions, mergers or disposals, and the appointment and consequences. A summary of the matters that are reserved removal of the Company Secretary, can be found at plc.quilter.com. ### The Board Chair Senior Independent Director Independent Ruth Markland Tim Breedon CBE Non-executive Directors Governance Report The Chair is accountable to shareholders The Senior Independent Director supports The Non-executive Directors support for leading the Board and ensuring the the Chair on all governance issues and and constructively challenge the executive Board receives timely accurate information provides a communication channel between team within a spirit of partnership and to take good decisions for the benefit the Chair and Non-executive Directors. mutual respect. All the Non-executive of all stakeholders. The Chair was Directors are considered to be independent. independent on appointment. Board Corporate Board Audit Board Risk Board Board Technology Governance and Committee Committee Remuneration and Operations Nominations Committee Committee* Financial statements Other information Committee Chair: Ruth Markland Chair: George Reid Chair: Neeta Atkar MBE Chair: Tim Breedon CBE Chair: Moira Kilcoyne ### Executive Directors Steven Levin and Mark Satchel The Quilter Board has delegated the day to day running of the Group to the Chief Executive Officer. The Executive Directors make and implement operational decisions to run the Quilter business on a day-to-day basis. To support the Chief Executive Officer in discharging his responsibilities, he is supported by the Quilter Executive Committee. The Quilter Executive Committee has in turn delegated certain of its responsibilities to the management committees below. The Executive Committee reports to the Chief Executive Officer for their respective areas of responsibility and delivery of the Operating and Business Plans. You can read more about the Executive Committee on pages 8 and 9. ### Key management committees Responsible for overseeing specific areas of responsibility such as the Group’s operations, technology functions and responsible investing. Executive Risk Forum Operating Committee Inclusion and Responsible Wealth Diversity Steering Management Steering Overseeing, challenging and Supporting the Chief Operating Committee Committee monitoring the management of Officer in the discharge of her risk and effectiveness of the duties and co-ordinating the Driving the Group’s diversity, Providing direction and systems of internal control Group’s operations and inclusion and wellbeing strategy monitoring of the responsible within the Quilter Group. technology arrangements. and action plan. wealth management strategy. *The Board Technology and Operations Committee was initially formed to oversee the implementation of the new investment platform and now this has successfully completed the Committee formally closed at the end of 2022. Further information can be found on pages 79 to 81. 55Quilter Annual Report 2022 # Board of Directors The Quilter Board comprises the Chair, the Senior Independent Director, Chief Executive Officer, Chief Financial Officer and independent Non-executive Directors. All Directors are subject to re-election annually by shareholders at the Company's Annual General Meeting. The skills and experience and how our Directors contribute to the long-term sustainable success of the Company are set out in their biographies on the following pages. ![img-11.jpeg](img-11.jpeg) **Ruth Markland** **Chair** **Appointed:** June 2018 **Committee membership** - Board Corporate Governance and Nominations Committee (C) - Board Remuneration Committee **Skills and experience:** Ruth, a former solicitor and previously Managing Partner of Freshfields Bruckhaus Deringer's Asia business, has a wealth of FTSE 100 Board experience. She spent over ten years on the Boards of Standard Chartered plc and Sage Group plc, where she served as Senior Independent Director and Chair of the Remuneration Committees. Ruth was also an Independent Non-executive Director of Deloitte LLP for five years until May 2020 and was a member of the Supervisory Board of Arcadis NV until April 2021. Her considerable experience in senior board roles provides her with the skills and experience to effectively chair the Quilter Board. Ruth was appointed as Chair of the Board on 12 May 2022. ![img-12.jpeg](img-12.jpeg) **Tim Breedon CBE** **Senior Independent Director** **Appointed:** June 2020 **Committee membership** - Board Corporate Governance and Nominations Committee - Board Remuneration Committee (C) - Board Risk Committee **Skills and experience:** Tim is an experienced Non-executive Director and Committee member. He has had a distinguished career in financial services, with past appointments including Group Chief Executive Officer of Legal & General, being a Member of the Takeover Panel, and holding Non-executive Director roles with the Association of British Insurers and the Financial Reporting Council. In February 2022, Tim retired from the board of Barclays Bank plc, and stood down as Chair of the Barclays plc and Barclays Bank plc Board Risk Committee, and as a member of the Barclays Board Audit Committee, Board Nominations Committee and Board Remuneration Committee. Tim continues to serve on the Board of Barclays plc and chairs Barclays Bank Ireland PLC and Apax Global Alpha Limited. Tim's extensive business leadership and governance best practice experience enables him to provide challenge, advice and support to Quilter management on business strategy, performance, decision making and governance matters. Tim was appointed as Senior Independent Director on 12 May 2022 and his prior experience enables him to act as a helpful sounding board for the Chair and other Board members. **Changes to Committee membership** Tim Breedon stood down as a member of the Board Risk Committee on 31 December 2022. The Board Technology and Operations Committee was initially formed to oversee the implementation of the new investment platform. Now this has successfully completed, the Committee was formally closed at the end of 2022. More information can be found on pages 79 - 81. Paul Matthews will step down as a Workforce Engagement Director, after serving three years in the role, at the conclusion of the 2023 AGM. 56 Quilter Annual Report 2022 Board of Directors continued Strategic Report | Steven Levin | Mark Satchel | | --- | --- | | Chief Executive Officer | Chief Financial Officer | | Appointed: November 2022 | Appointed: March 2019 | Skills and experience: Skills and experience: Steven has deep industry knowledge, having worked in asset Mark brings deep finance, corporate action and business Governance Report management, investments, platform and distribution roles. experience to the Board. He joined Old Mutual in the UK in January He joined the Group in 1998, the Executive Committee in 2011 2000 and held numerous leadership positions within the finance and the Board in November 2022 when he was appointed as function and businesses there, during which time he played key Chief Executive Officer. Steven has played a leading role in roles in the acquisitions of Intrinsic (now Quilter Financial Planning) delivering several high-profile strategic initiatives for the Group, and Quilter Cheviot. This experience has been invaluable in including the implementation of Quilter’s new investment platform ensuring that Quilter effectively executes its strategy, for example, and supporting the development of Quilter’s ESG proposition. allowing him to lead the successful disposals of Quilter Life As Head of Affluent, Steven focused on bringing Quilter’s Platform Assurance and Quilter International. Mark previously served as and Investment Solution businesses together to operate in a more Chief Financial Officer of the business from 2010 to August 2017 customer centric manner with our Advice business. Steven’s broad and as Corporate Finance Director for the 17 month period to industry and leadership experience allows him to effectively drive March 2019. Mark is qualified as a Chartered Accountant in South strategic delivery. Steven is a qualified Actuary and Chartered Africa and worked for KPMG in both South Africa and Canada prior Financial Analyst. to moving to the UK. Mark is a Trustee of The Grey Foundation in Financial statements Other information the UK. | Neeta Atkar MBE | Tazim Essani | | | --- | --- | --- | | Independent Non-executive | Independent Non-executive | | | Director | Director | | | Appointed: August 2022 | Appointed: March 2021 | | | Committee membership | Committee membership | | | · Board Audit Committee | · Board Audit Committee | | | · Board Risk Committee (C) | · Board Remuneration | | | · Board Technology and | | Committee | 2 Operations Committee · Workforce Engagement Director Skills and experience: Skills and experience: Neeta has extensive experience of the financial services industry, Tazim’s wealth of experience in senior executive roles at regulated having worked initially at the Bank of England and subsequently the financial services businesses over the last 30 years equips her well Financial Services Authority before taking on roles with Andersen to provide strategic guidance and constructive challenge to Quilter’s Consulting, Abbey National, Royal & Sun Alliance, Lloyds Banking leadership team. Her executive career has focused on strategy and Group and, latterly, with TSB Bank where as Chief Risk Officer, she business development to drive growth and transformation, with her was a member of the executive team responsible for creating and previous roles including a senior business strategy role at Santander listing the Bank on the Stock Exchange. Neeta has broad experience UK, Group Head of Corporate Development at Close Brothers of chairing risk committees, gained previously at Yorkshire Building Group plc and senior roles at GE Capital and Royal Bank of Scotland. Society and currently at Nomura Europe Holdings plc and at the Throughout her career, Tazim has developed a deep understanding British Business Bank plc, where she is also the Senior Independent of corporate finance, transformational change and business Director. This experience, together with her deep understanding of development, enabling her to contribute strongly to the Board’s customers, risk and regulation, will enable Neeta to make a significant deliberations. Alongside Paul Matthews, Tazim is a designated contribution to the Board as it continues to ensure that Quilter’s Workforce Engagement Director with a particular interest in risk management framework is integrated with its strategy. promoting diversity and inclusion. Tazim is a Non-executive Director of City of London Investment Group plc, a Council Member of the Royal Horticultural Society and an executive coach at The Alliance. 57Quilter Annual Report 2022 Board of Directors continued | Moira Kilcoyne | Paul Matthews | | --- | --- | | Independent Non-executive | Independent Non-executive | | Director | Director | | Appointed: December 2016 | Appointed: August 2018 | | Committee membership | Committee membership | | · Board Risk Committee | · Board Risk Committee | | · Board Technology and | · Board Remuneration | 2 Operations Committee (C) Committee · Workforce Engagement 3 Director Skills and experience: Skills and experience: Moira has extensive technology and cyber security leadership Paul is an experienced FTSE 100 Board Director who has over four experience, having spent much of her career working in senior decades’ worth of knowledge of the savings and pensions industry. technology roles at Morgan Stanley and Merrill Lynch, latterly His career at Standard Life, spanning nearly 30 years, where his executing global change management and transformative roles included Group Executive Director, Chief Executive Officer UK IT implementation as Co-Chief Information Officer for Global & Europe and Chair of Standard Life Wealth, enables him to identify, Technology and Data at Morgan Stanley. Moira is currently and support management to understand the opportunities and a Non-executive Director of Arch Capital Group and Elliot risks facing Quilter, particularly in its distribution businesses. Opportunity II and previously served as a Non-executive Director This insight enables him to effectively assess and challenge the of Citrix Systems Inc. This experience, gained at both executive and executive’s strategy proposals, execution and risk management. non-executive level, together with her understanding of business As an executive mentor at Merryck & Co, Paul uses his extensive operations, operational resilience, management of data and leadership skills and experience to coach senior leaders. Paul’s supplier oversight, equips her to oversee and challenge the design track record in leading major businesses that rely on having strong and delivery of Quilter’s technology and operations strategies as leadership and positive cultures is also helpful in discharging his well as the ongoing oversight of Quilter’s investment platform. role as a designated Workforce Engagement Director, which he Moira is a member of the Board of Governors of FINRA. performs alongside Tazim Essani. | George Reid | | Chris Samuel | | --- | --- | --- | | Independent Non-executive | | Independent Non-executive | | Director | | Director | | Appointed: February 2017 | | Appointed: July 2021 | | Committee membership | | Committee membership | | · Board Corporate Governance | | · Board Risk Committee | | | and Nominations Committee | · Board Technology and | 2 · Board Audit Committee (C) Operations Committee · Board Risk Committee · Board Technology and 2 Operations Committee Skills and experience: Skills and experience: George has extensive financial experience having spent over 20 Chris is an experienced Chair and Non-executive Director and years in the accounting profession. This knowledge, gained during his deep experience in the financial services industry enables lengthy tenures at PwC, and, latterly, Ernst & Young LLP as managing him to challenge, advise and support Quilter’s management team partner and Head of Financial Services for Scotland and UK regions, on a wide range of business, investment, distribution, finance and provides George with a deep understanding of accounting and operational matters. Chris was Chief Executive of Ignis Asset audit matters, and the control environment required for a wealth Management, a business with circa. £65bn of assets under management business. Such experience allows him to critically management, from 2009 to mid-2014. Over this period, he led the assess key accounting and financial considerations including those successful transformation, and then sale, of the business. Chris has associated with our recent disposal of Quilter International. George held Board-level positions at a number of asset management is a Fellow of the Institute of Chartered Accountants in England businesses including Gartmore, Hill Samuel Asset Management, and Wales. George is the Senior Independent Director and Audit Cambridge Place Investment Management and spent 10 years with Committee Chair of FIL Life Insurance Limited. In July 2022, George a US Investment Bank, Prudential-Bache. He began his career with was appointed as a member of the Board Corporate Governance KPMG where he qualified as a Chartered Accountant. Chris chairs and Nominations Committee. BlackRock Throgmorton Trust plc. Chris will step down as a Non-executive Director of UIL Limited on 31 May 2023 and as Chair of JP Morgan Japanese Investment Trust plc at their Annual General Meeting in January 2024. 58 Quilter Annual Report 2022 ## Principal decisions of the Board in 2022 Strategic Report Digital strategy ## Delivery of our strategic During the year, the Board continued to provide oversight to the digital strategy. In November 2022 a new mobile Customer App ## objectives was launched to help customers manage their products and services more easily. The Board has been kept closely briefed Simplification by management on the development of the Digital Hybrid Advice As Quilter has become a smaller, more UK focused Group, initiatives. The Board has discussed in detail the operating model, the Board, supported in part by findings of the 2022 externally products, target customers and regulatory requirements for this facilitated Board effectiveness review, examined its own working business growth initiative. The technology that underpins this practices with the intention to move to providing a more efficient proposal is expected to have additional broader implications for way of delivering effective oversight. We wish to become a leaner the advice business that will drive efficiency and growth and the and more agile organisation and the Board and its processes are Board agreed to reschedule the launch of the firm’s hybrid advice no exception to this. A review of the Board’s governance structure proposition. This reprioritisation will enable us to strengthen and was conducted, with assistance from the Company Secretary, in automate internal controls in Quilter Financial Planning, which is Governance Report order to simplify and streamline the principal Board Committees. a necessary building block to enable hybrid advice to be fully Following this review, the Board concluded that the activities of integrated into Quilter’s proposition. the Board Technology and Operations Committee, which had delivered on its original strategic objective of overseeing the The Board reviewed and approved proposals that are aimed delivery of Quilter’s new investment platform, could be handled at deepening and strengthening Quilter’s relationships with the in our governance process without the need for a separate Board advisers in the Quilter Network and National by making it easier Committee. In terms of the Committee’s remit, responsibility for our advisers to do business with Quilter and increasing for oversight of strategic technology development will be assumed opportunities for advisers to grow and invest in their businesses. by the Board as a whole, whilst technology and operational risk In a competitive market, the Board believe that there is more to matters will be subsumed by the Board Risk Committee. At its be done to deliver on our advice led model. December 2022 meeting, the Board formally noted their sincere thanks to the Committee Chair for her excellent leadership, and ## to management for their focus and dedication in delivering this Reviewing the Group strategy Financial statements Other information pivotal strategic matter, and agreed to formally dissolve the Board Technology and Operations Committee. The work this Committee In July 2022 the Board held an in person two day strategy session. oversaw has now been fully integrated into other governance Guided by the Board, the management team presented a processes and care has been exercised to ensure that comprehensive overview and analysis of each business segment management still have appropriate access to the skills, insights and the challenges, opportunities and progress made towards and experience of the Chair of that Committee, Moira Kilcoyne. delivering our strategic goals. External experts supported the discussions with insightful analysis on the competitor and market In a similar vein, and in recognition of the maturing internal controls position and industry insights and trends. The Board tested and and benefits delivered from the introduction and embedding of challenged the strategic priorities and asked management to new financial systems, the number of Board Audit Committee accelerate the execution of the strategy to ensure Quilter was truly meetings scheduled for 2023 has been reduced. customer centric, our governance, processes and costs are fit for the size of our current business and we are well positioned to serve Being a responsible wealth manager the needs of our customers, advisers and our investors. The Board has continued to provide close oversight on the delivery against this objective, as well as ensuring we are effectively ## managing climate-related risks. The Board was updated on the Product and proposition tools and training made available to our advisers and investment managers so that they are able to understand a customer’s The new platform is fully embedded and despite the challenging responsible investment preferences and select a solution which market conditions, and ongoing programme of improvements, aligns to these. The Board will continue to be informed about the platform continues to be a springboard for the further management’s delivery of the proposition against our customers’ development of our strategy. The Board considered and approved responsible investment preferences and have asked to be kept further investment in our technology to enable more channels to updated with regards to the FCA’s Sustainability Disclosure be available for our customers and advisers to interact with us, Requirements (“SDR”) Regime. The Board routinely examines the particularly as we support customers in generational wealth investment performance of the funds Quilter offer and the Board planning. This is also a way for all our businesses to leverage the has asked the Board Risk Committee to scrutinise in more detail capability we already have. Our digital reach improved but we also how we mitigate the risk of greenwashing. recognise that there is more to do. With investors increasingly aware of environmental concerns and as we develop solutions to support generational wealth, the Board was heartened by the progress made on environmental solutions, how these are embedded in the investment products and how we make this information clear for advisers and customers. 59Quilter Annual Report 2022 Principal decisions of the Board in 2022 continued ## Customers Setting realistic but stretching ## The new FCA Consumer Duty (the “Duty”) represents a significant financial and operating targets regulatory change over which the Board has maintained close oversight during the year. The Group Board and regulated In November 2022, the Board reviewed and approved the Business subsidiary board members have been briefed in full on the impacts Plan for the forthcoming three year period. The Business Plan sets of the Duty and progress has been monitored. In October 2022, the financial and non-financial targets for the period and shows the the Board and subsidiary Non-executive Directors met together capital and liquidity impacts of that Plan which are aligned to the to consider the plans for Quilter to implement the new Duty Group’s risk appetite. Noting the significant uncertainties in the consistently across the Group in a way that is appropriate and fair external environment at the time of setting the Business Plan, for all customers. The Directors examined the plans to assess the and the relatively smaller size of the business following the sale of changes and enhancements needed to demonstrate fully how Quilter Life Assurance and Quilter International, the Board carefully Quilter’s products and services deliver good customer outcomes. considered the targets and were mindful during 2023 that a rebase Having been reviewed by the Group and subsidiary boards and the of some elements of the Plan may be necessary to take account independent Non-executive Director Consumer Duty Champions, of the market movements. the Board agreed the implementation plan. The Board Risk Committee will closely scrutinise progress against the plan in 2023. Alongside the production of the Business Plan, management The Group implementation plan was shared with the FCA as part developed an Operating Plan which sets out the key strategic of our routine engagement. initiatives and programmes of work required to deliver the Business Plan and the Group strategy. The Board carefully considered the In addition, the Board also received updates on the programme resource available to deliver the Operating Plan, the alignment of of voluntary redress for customers within our platform business the financial and operating plans and the achievability of the Plans. where fees had been erroneously taken. The Board was pleased In particular, the Board raised some concerns with the Executive that management took prompt action to rectify the issues once regarding employee capacity to manage the demands upon them they became apparent. As is part of normal practice, a “lessons and asked for some aspects of the Plan to be reconsidered to learnt” exercise has been undertaken, which identified the need ensure targets were realistic and could be delivered safely to ensure that there are appropriate escalation routes for all and within reasonable time parameters. colleagues to raise issues so that customer complaints can be considered by appropriately qualified people. We continue to A priority of the Board has been to continue to oversee the delivery work closely with our regulator to agree any possible redress for of the Operating Plan and any material changes to that Plan, which customers who were given unsuitable historic advice with regards underpins the Business Plan. Given the market conditions in 2022 to DB to DC pensions. and the implementation of our Board succession plans, we have directed management to carefully prioritise where they should focus During the year, the Board has paid particular regard to investment their time. The Board supported management’s recommendation performance, particularly given the macroeconomic and market for there to be further investment in technology to deliver on our headwinds, and the impact the cost-of-living crisis has had on the Business Simplification programme. amount of new money that people are willing to invest. The Board had a clear focus on ensuring that our investment processes, risk ## oversight and investment risk were closely monitored at a time of Monitoring the delivery of the extreme market volatility, given the potential impacts for customers. ## 2022 Operating Plan During the year, the Board has received quarterly updates on the progress being made to deliver the 2022 Operating Plan, which supports the delivery of the Business Plan and our Group strategy. Our Chief Operating Officer has continued to provide regular updates to the Board on the progress made in simplifying the Group’s operations, and the improvements made to operational processes through automation as well as expected cost savings achieved by the use of technology. The Board spent time challenging the pace of change and asked to receive updates from the Chief Executive Officer on cost management at each meeting. 60 Quilter Annual Report 2022 Principal decisions of the Board in 2022 continued ## Overseeing material risk matters In addition to receiving reports from the Chair of the Board Risk Committee after each of their meetings, the Chief Risk Officer attends as a matter of course all Board meetings and provides his assessment of activity against the agreed risk appetite. The Board has also spent time considering the impacts for our customers of the redress programmes in place for those customers who received unsuitable advice, which resulted in a loss. This advice was in relation to DB to DC pension transfers from Lighthouse advisers prior to Lighthouse transitioning to Quilter's systems and controls after its acquisition by Quilter. The Board was also kept appraised and endorsed a voluntary programme of redress proposed by management to affected customers where we had inadvertently withheld dividends and interest payments. ## Ensuring Quilter's people and culture remain appropriate During the year, the Board received biannual updates on people, culture and ways of working. There are positive indicators around how Quilter's people work together, and the Board recognise how the distinct cultures in our business segments sit together under our overarching culture and values framework. The Board has asked management to consider further how they can ensure that Quilter continues to be a place where all colleagues thrive whilst supporting a culture where high performance is recognised and celebrated. You can read more about the inclusion and Diversity Action Plan on page 30. We are delighted to report that the Board itself met its own current diversity targets for both gender and ethnicity and you can read more about our new Board Diversity Policy on pages 64 and 67. ## Capital return and dividends Despite the challenging external market conditions, the Company's capital, liquidity and cash flow continue to be strong and the Board continued to exercise prudent oversight of these important metrics. As reported in last year's Annual Report, following conversations with major shareholders regarding the best method to return the proceeds from the sale of Quilter International, Quilter returned over £328m to shareholders by way of a B Share Scheme and Share Consolidation. The Company's dividend continues to be in line with the Dividend Policy approved by the Board and implemented in May 2022. ## Debt funding During the second half of 2022, the Board considered the options as to how to manage the potential refinancing of the existing £200 million bond issued by the Company in 2018 with a first call date option of 28 February 2023. The Board, led by our Chief Financial Officer and with support from our corporate advisers, carefully assessed the options available to us given the market dislocation in the UK bond markets in November 2022 following the government's mini budget. The Board Risk Committee reviewed in detail the Risk Factors that would be disclosed in the debt prospectus and the Board asked management to begin preparations to allow the Company to undertake a new bond issue in early 2023 to maintain optionality in the event of public debt markets reopening. The Board received a further update in December 2022 on the conditions in the debt market and were kept appraised of the potential options available to the Company. Following a normalisation of debt market conditions in early 2023 coupled with receipt of necessary legal and regulatory approvals, the Board held an ad hoc Board meeting on 6 January 2023 to consider the options available and to review in detail the transaction documents including the Prospectus associated with a potential new issue. The Board considered that the 2018 bond be called and refinanced through a new bond issue of similar size. Cognisant of its responsibilities under s172(1) of the Companies Act, the Board debated in full the appropriate course of action. Although the cost of the new debt issue was higher than the coupon on the existing funding, had the debt not been repaid, it would have repriced to a broadly similar coupon to the new issue as well as potentially having a negative impact on our reputation with credit market investors which, as a relatively infrequent issuer, could have had a negative impact on the Group's reputation across the capital markets. The new capital funding arrangement will support Quilter over the medium term. The Board confirmed that a new Tier 2 Bond should be launched and on 16 January 2023 the new bond was announced to the market with a coupon rate of 8.625% and a maturity date of 18 April 2033, and with an initial call option in the period from 18 January 2028 to 18 April 2028. The Board received an update on market and shareholder sentiment at its next Board meeting. ## Business review Following the move to simplify our structure to better support the end-to-end customer journey, the Board monitored the progress being made to fully integrate our private client advice business into Quilter Cheviot. Following the Board Strategy meetings in July 2022, and given the evolving competitor environment, the challenging external market conditions, and with the appointment of our new Chief Executive Officer, the Board asked Steven Levin to focus on execution and the delivery of our strategy. As part of this work, Steven has implemented a business review and is due to bring back to the Board his assessment of how best to deliver Quilter's strategic priorities. Strategy Report Commission Report Financial statements Other information Quilter Annual Report 2022 61 # Report from the Designated Workforce Engagement Directors **Paul Matthews** Independent Non-executive Director ![img-13.jpeg](img-13.jpeg) **Tazim Essani** Independent Non-executive Director ![img-14.jpeg](img-14.jpeg) We are pleased to present our joint report as Workforce Engagement Directors. We want to share with you some of the activities we undertook throughout 2022 and our thoughts on the outputs of this work. **What is our role** Our role is to ensure that the views and concerns of the workforce are central to all our Board decisions and are considered, in line with the Company's values, to support our long-term sustainable success. Our role offers a clear and direct link to the Board for colleagues from diverse groups and at all levels of the organisation. Our feedback complements management's colleague engagement programmes and provides the Board with further insights on colleagues and organisational culture more broadly. The Board receives biannual updates on people, culture and ways of working, with data sourced from a weekly Colleague Pulse survey, and it is our role to provide more colour around this data and help understand the tone of the conversation. Colleagues are the key to our success, and the Board recognises the importance of attracting and retaining talented people in a highly competitive labour market. The Board is committed to support colleagues, both within and outside the workplace, particularly given the current economic environment and the cost-of-living challenges in 2022 and into 2023. **Our progress** In 2022 we continued to collaborate with the Quilter Employee Forum, whose membership is made up of individuals from all parts of the organisation. With the agreement of the Forum members, we attend part of the Forum meetings to listen to the discussions, gauge the views of members and obtain feedback to share with the Board on topics as diverse as the impact for colleagues of the rising cost-of-living and the change of Chief Executive Officer. In addition, we meet monthly with the Forum Chair to discuss colleague sentiment and to share any Board updates which are relevant for the Forum. Attending the Quilter Employee Forum has also provided the opportunity to understand the experience of colleagues working in the business and to hear from them about how the business and leadership changes in 2022 have impacted them. It has been pleasing to hear that, overall, these challenges have been received positively and generated a desire from our people to see more collaboration across the business to support our customers. Through engagement with the Employee Forum, we continue to recognise how committed our colleagues are and have been able to observe many examples throughout the year of where colleagues have come together to promote good customer outcomes. During the year, we observed that the Employee Forum could be even more representative of the broader Group. Through collaboration with HR, we have considered ways to ensure all businesses and colleagues are fully represented. 5 **Employee Forums attended** 12 **Discussions with the Chair of the Employee Forum** This year we also attended a face-to-face workshop with the Chairs of all Quilter colleague networks – the LGBT+ Network, the Cultural Diversity Network, the Inclusion & Diversity Steering Committee and the Gender Equality Network. By discussing their achievements to date and planned activities for 2023, we recognise the value that these networks bring to the Group. It was a pleasure to hear how the networks, which are populated and chaired by colleagues in addition to their professional roles, display a real desire and energy to make a difference. In January 2022 the Board received a briefing from an external speaker on diversity and inclusion to support our Board in effectively overseeing the Group's efforts to drive the diversity and inclusion agenda and to better understand the benefits that openness can bring to an organisation. As a result of this, we asked management to make this session available to the senior management community and as a result, over 300 management colleagues joined a tailored virtual discussion on this vital topic. A key goal of the Quilter Inclusion & Diversity Action Plan, which was launched in July 2022, is to drive transparency about the make-up of Quilter's people. Sponsored by Tazim, the Board warmly endorsed the Action Plan. In line with other Directors and colleagues, we directly supported the Action Plan by providing our demographic data, including our age, gender identity, sexual orientation ethnicity, religion, disability, and socio-economic background to support internal and external initiatives to provide clear base metrics in order to measure and hold management and the Board to account on progress achieved. To celebrate International Women's Day, Tazim and other female Non-executive Directors attended a session focused on female talent and career progression, designed to forge connections between senior female talent and the Board. The session provided senior female colleagues the opportunity to ask the Non-executive Directors questions about their careers, and to discuss challenges, opportunities and experiences at Quilter. **Looking forward to the year ahead** 2023 will be another year of continued engagement with colleagues. The Board recognises that the dialogue between Workforce Engagement Directors and our colleague networks is an important mechanism in promoting our values across the business and understanding the perspectives of colleagues. Alongside our engagement with the Employee Forum, we attended the Quilter Conference in January 2023, and will meet with the colleague networks Chairs, engage with colleagues on our apprenticeship scheme, and identify opportunities to engage with colleagues across the organisation. Paul Matthews will step down as a Workforce Engagement Director, after serving three years in the role, at the conclusion of the 2023 AGM. 62 Quilter Annual Report 2022 Report from the Designated Workforce Engagement Directors continued # 2022 employee engagement survey scores "My manager cares about me as a person." ![img-15.jpeg](img-15.jpeg) | 2022 | 8.6/10 | | --- | --- | | 2021 | 8.4/10 | "People from all backgrounds are treated fairly here." ![img-16.jpeg](img-16.jpeg) | 2022 | 8.6/10 | | --- | --- | | 2021 | 8.4/10 | "My manager provides me with the support I need to complete my work." ![img-17.jpeg](img-17.jpeg) | 2022 | 8.4/10 | | --- | --- | | 2021 | 8.2/10 | "Overall engagement." ![img-18.jpeg](img-18.jpeg) | 2022 | 7.4/10 | | --- | --- | | 2021 | 7.0/10 | # Workforce engagement key themes ### Leadership Quilter's people strategy continues to be an essential feature to support our leadership team and all colleagues. In January 2022, the Executive Committee led a virtual conference for all colleagues to discuss our business strategy and reinforce support for our people strategy and we are pleased to see that throughout 2022 there has been positive colleague engagement and participation with the colleague programme. Colleagues also heard from external guests who covered a range of subjects, including how to shape organisational culture and financial wellbeing and resilience. Group hybrid working principles and guidelines were published in December 2022, to offer clarity to colleagues about Quilter's hybrid working arrangements. The approach encourages colleagues on a case-by-case basis to discuss with management working patterns, taking into account what works for colleagues, our customers and our business. As workforce engagement directors, we view this approach as an example of where management are adapting to the change in how people want to work in a post-pandemic environment. ### Supporting our people Quilter continues to carry out regular surveys on colleague engagement. We have seen a steady improvement in engagement across the Group with engagement scores increasing marginally throughout 2022. We are delighted to see that across the six engagement metrics we reported on last year, each score has increased. Feedback from colleagues this year highlighted that the frequency of engagement surveys is considered too high. Colleagues have reported that they often do not have the time each week to complete the survey. Following our recommendation to management that the frequency of these touchpoints be reconsidered, the frequency will change to quarterly in 2023. ### Aligning our culture and values to our strategy It is important that colleagues align with our culture and values, which are Dependable, Stronger Together and Pioneering, and that the Board has confidence that this alignment continues to strengthen. In 2022, the Board has kept oversight of the people strategy, which focused on targeted Group-wide and individual business actions to target underlying issues and improve colleague engagement scores. The Board also dedicated time to discuss culture and values at our meetings in May and September. The Board considers the way colleagues feel able to voice concerns and know that they will be listened to and appropriate action taken should issues be raised, an extremely important measure of a strong and healthy culture. We are pleased to see a rise in the related metric in this year's survey results. The survey result demonstrates that most colleagues continue to feel it is easy to highlight areas of potential concern. George Reid, who is our Whistleblowing Champion, talks more about this important role in the Board Audit Committee Report which you can read on page 73. "I feel able to report risks without fear of reprisal." ![img-19.jpeg](img-19.jpeg) | 2022 | 8.3/10 | | --- | --- | | 2021 | 8.2/10 | "The overall business strategy set by senior leadership is taking Quilter in the right direction." ![img-20.jpeg](img-20.jpeg) | 2022 | 7.5/10 | | --- | --- | | 2021 | 7.4/10 | Note: Data as at 30 December 2022 and 31 December 2021 respectively. Strategic Report Generational Report Financial statements Other information Quilter Annual Report 2022 63 # Board Corporate Governance and Nominations Committee Report **Ruth Markland** ![img-21.jpeg](img-21.jpeg) ## Dear shareholder This is my first report to shareholders as your Board Corporate Governance and Nominations Committee Chair. This Committee plays a key role in ensuring that our Board and Executive leadership have the right skills and experience to deliver our strategic priorities. It has been a busy year for the Committee with succession plans implemented for a number of key Board and Executive roles. During 2022, we announced the appointment of two new Non-executive Directors and a new Chief Executive Officer and completed the Chair succession process following Glyn Jones stepping down from the Board in May 2022. Mindful of the changes to the Board during the year, we carefully considered the membership of our Board Committees and made arrangements to refresh the membership in line with the UK Corporate Governance Code 2018. Further details including our approach to governance during this time are included in the Board Committee reports. The change in Chief Executive Officer and his senior management team gave us the opportunity to ensure that we have the right people in senior roles and that we also take action to build a strong senior management team for the longer term. There will be continuing focus on talent and succession planning in 2023. We were fortunate to conduct an externally facilitated Board effectiveness review in the Autumn of 2022, which has helped me work with my fellow Board colleagues and management to consider how we can best drive the business forward. An overview of the process and the key outputs are set out on page 68. The Committee recommended to the Board a new Board Diversity Policy which was approved with effect from 31 December 2022. The new Board Diversity Policy is a broad refresh to reflect the importance of Diversity and Inclusion at Quilter and to closely align to the voluntary targets set out in the FTSE Women Leaders Review and the new Listing Rules, which will be in place for reporting periods commencing from April 2022. I am pleased to report that Quilter has continued to meet the targets in our Board Diversity Policy for the Board. We have also met the targets in the new Listing Rules for there to be 40% female representation on the Board and for there to be at least one woman in a senior Board position (being the Chair, Chief Executive Officer, Chief Financial Officer or Senior Independent Director). In accordance with the recommendations of the Parker Review, Quilter further had at least one Director from a minority ethnic background serving on the Board. Whilst we did not achieve our internal aspiration to reach 38% female representation within our senior management population (being the Executive Committee and their direct reports), we know that we need to sustain our focus to attract and retain more senior women and to enable women to grow their careers with us. That will, we hope, ensure we reach our goal of 40% female representation in senior management roles by the end of 2025. In accordance with the Code, as at 31 December 2022, 39% of senior management (being the Executive Committee, Company Secretary and their direct reports) were female (2021: 28%). We remain committed to maintaining the momentum of our gender diversity programme. A summary of the diversity and composition of the Board is set out on page 54 and the progress made by management is summarised on page 30. The Committee has also carefully considered the next steps in simplification as Quilter is now organised in its new business segments. We continue to oversee preparations to implement a new Board and management governance structure in 2023 which will enable Quilter to be more agile and reflect the more focused organisation we now are. In December 2022, following consideration of the Board effectiveness review, the Committee recommended to the Board that the Board Technology and Operations Committee be closed. You can read more about the process and how technology and operational matters are now addressed on page 81. The Committee will continue to review the Group's Corporate Governance framework and activities performed by the Board Committees. As previously reported, the Committee further continued to oversee the Responsible Business framework and received updates on the progress being made in this strategically important area. Finally, I would like to note my thanks to Glyn Jones for his careful stewardship of Quilter during his tenure as Chair. I would further like to thank our former Company Secretary, Patrick Gonsalves, who retired at the end of July 2022. Patrick's support to Quilter in preparation for Listing and in the years following Listing was invaluable. The Board was delighted to appoint Clare Barrett, Patrick's deputy, as his successor. **Ruth Markland** 64 Quilter Annual Report 2022 Board Corporate Governance and Nominations Committee Report continued Strategic Report ## At a glance Committee activity Committee membership and meetings attended/eligible to attend | | | | 4% | | 7% | | | Scheduled | | Ad hoc | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 5% | | | | | | meetings | meetings | | 1 | | | 5% | | | 10% | | | | | | | | | | | | | | | 26% | Ruth Markland (Chair) 3/3 8/8 | | | | | | 8% | | | 9% | | 9% | | Tim Breedon 2/3 8/8 | | | | | 2 George Reid 2/2 8/8 78% 17% Former members 3 | | | Glyn Barker | | – 3/3 | | | --- | --- | --- | --- | --- | --- | | 91% | 91% | | | | | | | | | 4 | | Governance Report | | | | Glyn Jones | | 2/2 – | | 1 Some of the ad hoc meetings were sub committee meetings relating to succession. 2 40% George Reid joined the Committee on 27 July 2022. 3 Glyn Barker served as a member of the Committee during his time as a Director between June and November 2022. 4 Committee activity 2022 2021 Glyn Jones resigned from the Board and stood down as Committee Chair on 12 May 2022 at the conclusion of the 2022 AGM. Board & Board Committee Succession Planning Where a Director was unable to attend a meeting due to illness or a long-standing conflicting commitment, they reviewed the Committee papers and provided Corporate Governance comments to the Committee Chair in advance of the meeting. Responsible Business framework Executive Succession Planning and Talent Board Evaluation Financial statements Other information Committee responsibilities Discharging our responsibilities · Reviews the composition of the Board and recommends The Committee reviewed its activities over the previous 12 months the appointment of new Directors. against its Terms of Reference and confirmed that it had fully · Considers succession plans for the Chair and other discharged its responsibilities in line with its remit. The Terms Board positions. of Reference are available at plc.quilter.com. · Considers succession plans for key executive leadership positions. Attendance · Monitors corporate governance issues. The Chief Executive Officer and HR Director regularly attend · Oversees the annual Board effectiveness review. Committee meetings, except when it would not be appropriate · Provides oversight of the Group’s Responsible for them to do so. Given the Chair and Chief Executive Officer Business framework succession matters considered during the year, careful consideration was given to ensure that the attendees were Committee governance appropriate for all scheduled and ad hoc meetings. The Board Corporate Governance and Nominations Committee currently comprises the Chair of the Board, the Senior Collaboration Independent Director and one independent Non-executive The Chair briefs the Board on key discussions and provides a written Director. Ruth Markland was appointed as Chair of the Committee report to the Board, where feasible, after each meeting. Where on 12 May 2022 at the conclusion of the 2022 AGM, when she was appropriate, the papers and reports presented to the Committee also appointed as Chair of the Board. are made available to all Quilter Non-executive Directors. Details of the skills and experience of the Committee members can be found in their biographies on pages 56 to 58. Committee evaluation As part of the 2022 Board effectiveness review, the Board has assessed that the Committee membership is appropriate in providing challenge and oversight and that the Committee is operating effectively. 65Quilter Annual Report 2022 Board Corporate Governance and Nominations Committee Report continued ## Key areas of Committee focus ### Board and Board Committee succession planning A key area of responsibility for the Committee is to consider the skills and composition of the Board and Board Committee membership with a view to ensuring that there is an appropriate balance of Directors with the desired skills, experience, thought, independence and knowledge required to deliver Quilter's strategy. The accountabilities, competencies and expectations required of the holder of each role on the Board, including those required by the Code, have been documented in our Board Charter, which is reviewed annually. This includes the responsibilities of the Directors as a whole, including their responsibilities under section 172(1) of the Companies Act 2006, and the role profiles of the Chair, Senior Independent Director, Committee Chairs, Non-executive Directors and Executive Directors. The Chair considered each Directors' individual contribution to the Board together with feedback from the 2022 Board effectiveness review. The Chair provided feedback to the Non-executive Directors on their performance and Tim Breedon, as Senior Independent Director, provided feedback to the Chair. Ruth Markland, when in role as Senior Independent Director, provided feedback to the former Chair, Glyn Jones. It was confirmed that all Directors were discharging their roles effectively. The time commitment expected of the Non-executive Directors is set out in the Board Charter and their letters of appointment. The Committee is also responsible for reviewing and making recommendations to the Board on succession planning for the Board and key leadership positions within Quilter. As at year end, the Chair and all the Non-executive Directors have served on the Board for six years or less. Heightened focus is applied in the assessment of independence where Non-executive Directors have served for more than six years. All the Directors are subject to annual re-election by shareholders and the specific reasons why each Director's contribution is, and continues to be, important to the Company's long-term sustainable success are set out in their biographies on pages 56 to 58. All Non-executive Directors have been assessed as independent in accordance with the Code, and the Chair was independent on appointment. The membership of the Quilter Board is regularly reviewed by the Committee using a Board Skills, Experience and Diversity matrix to ensure that the Board has available to it all of the required skills to oversee the delivery of Quilter's strategy and long-term success. A summary of this matrix is set out on page 54. In line with best practice, the Committee has also agreed emergency succession arrangements for all of the key Board positions including the Chair of the Board, the Senior Independent Director and the Board Committee Chairs. Although strong candidates are available for each position on an emergency basis, it is still likely that some external recruitment would be required for permanent successors given that the Board is not large enough to carry a pool of succession candidates for all Board roles. ### Board changes and succession planning In April 2022, Rosie Harris stood down from the Board. Rosie had served on our Board since April 2017 and was Chair of the Board Risk Committee. The Board were extremely grateful for Rosie's wise oversight as management embedded the Risk Framework as a newly listed company. The search for Rosie's successor was led by an external executive search agency, Egon Zehnder, who have only been retained for Board searches and have no other connection with Quilter or any individual Director. Whilst the external search was conducted, the internal succession plan was enacted and George Reid, who has served on the Board Risk Committee and the Board Technology and Operations Committee since he joined the Board in 2017, and is the Chair of our Board Audit Committee, agreed to chair the Board Risk Committee until such time as a replacement could be identified. George did an exemplary job in chairing this Committee. Following the search process, the Board were pleased to welcome Neeta Atkar to the Board on 11 August 2022 with a view to Neeta assuming the role of Board Risk Committee Chair once her induction had largely concluded. Neeta has a wealth of experience as a risk practitioner and as a Board Risk Committee Chair. The Chair responsibilities were handed over to Neeta on 1 October 2022. As noted in the 2021 Annual Report, Glyn Jones, who had been Quilter Chair since November 2016 indicated in late 2021 his desire to stand down from the Board in 2022. Glyn resigned from the Board in May at the conclusion of the 2022 Annual General Meeting. Glyn was instrumental in supporting the Quilter executive team through Managed Separation and the Company's Listing in 2018, and the subsequent reshaping of the business. The Board were extremely grateful to Glyn for his oversight and careful stewardship during his tenure as Chair. In accordance with best practice, Glyn took no part in the process to oversee the search for his successor. In line with the Board Succession Plan, and given a full external search was progressing, the Board asked Ruth Markland to take on the Chair role from the conclusion of the Annual General Meeting and, in line with best practice, she ceased to chair any meetings of the Board Remuneration Committee and stood down from the Board Audit Committee at the same time. In June 2022, following an external search by Egon Zehnder against pre-agreed criteria, Glyn Barker was appointed to the Board as a Non-executive Director with a view to him becoming Quilter Chair. Glyn informed the Board of his decision to step down for personal reasons on 11 November 2022. We wish Glyn well for the future. Following this, the Board concluded it was in the best interests of shareholders and other stakeholders that Ruth Markland be asked to continue as Chair. Ruth is committed to working with her Board colleagues and the executive team to deliver for all our stakeholders. Ruth was not involved in the discussions or process to confirm her appointment as Chair which was led by our Senior Independent Director, Tim Breedon. Tim's appointment as Senior Independent Director and Chair of Board Remuneration Committee was confirmed at the same time and he was not involved in this process. Tim's wealth of business, governance and remuneration experience and wise counsel is appreciated by the whole Board. For the period from Ruth's initial appointment as Chair in May to November 2022, when she was asked to continue as Chair, the Board put in place arrangements in line with the recommendations of the Code. Tim Breedon chaired all meetings of the Board Remuneration Committee and was appointed as Senior Independent Director. 66 Quilter Annual Report 2022 Board Corporate Governance and Nominations Committee Report continued ### Executive succession As announced on 10 October 2022, Paul Feeney stood down from the Board on 31 October 2022 after over a decade of service as Chief Executive Officer and an Executive Director. Paul led the Company with vision and passion and was responsible for building Quilter into the strategically well positioned wealth manager it is today. In considering Executive succession, the Board identified Steven Levin as the nominated successor to the Chief Executive Officer role. Steven had been supported by a development plan to equip him to succeed Paul and over time his Group level responsibilities had increased to run the Affluent business. Steven was a member of Paul's Executive Committee, has a strong track record of execution and delivery and is well known to Quilter colleagues. Following an assessment of Steven's readiness and consideration of Quilter's strategy, the Board were pleased to confirm the appointment of Steven, as our Chief Executive Officer. The Committee also delegated to a Sub-Committee, chaired by the Board Audit Committee Chair, and composed of the Senior Independent Director and the Chair of the Board Risk Committee, the oversight of the process to appoint a new Chief Risk Officer and Chief Internal Auditor. In appointing our new Chief Executive Officer from within Quilter, the Committee and Board have a heightened focus on talent management in 2023. ### Diversity and inclusion An important area of focus for this Committee is to oversee Quilter's work on diversity and inclusion for the Board, senior management and broader colleagues. We received updates on the progress being made to build supportive networks, promote mentoring and achieve greater diversity in its broadest sense. Early in 2022, the Board, along with senior executives who support the Board, took part in a thought provoking interactive session on diversity and inclusion led by John Amaechi OBE, Founder of APS Intelligence, exploring our roles as leaders in making change happen. Having commented on the PCA consultation on diversity in the financial services industry and in view of the publication in February 2022 of the FTSE Women Leaders Review, and the new Listing Rule and DTR requirements for reporting periods commencing from April 2022, the Committee reviewed the Board Diversity Policy and recommended some changes to the Policy to the Board. The Board approved the new Board Diversity Policy with effect from 31 December 2022. The changes include setting more stretching targets for gender diversity on the Board and senior management. The Committee, who were joined by Tazim Essani who has a particular interest in diversity and inclusion, were keen to ensure that the Policy appropriately expressed the Board's interest in the promotion of Quilter as a place all can thrive. The Directors provided the Company Secretary with their personal data and this is aggregated and will be used by the Committee when considering Board succession and composition. I am pleased to report that the Board continues to meet the voluntary recommendations of the FTSE Women Leaders Review for female representation on the Board, including the recommendation that at least one of our senior Board members (defined as a Chair, Chief Executive Officer, Chief Financial Officer or Senior Independent Director) is female. The Board also meet the Parker Review recommendation to have at least one Director from a minority background on the Board. A summary of the diversity and composition of the Board is set out on page 54. The Board routinely engages with colleagues in a variety of ways, including mentoring and attending team events. Paul Matthews and Tazim Essani continued to serve on the Board's behalf as Workforce Engagement Directors. Tazim's sponsorship of the Company's Inclusion and Diversity Action Plan was a visible signal to our colleagues and other stakeholders as to the Board's commitment to making Quilter a place where everyone can thrive. How our Workforce Engagement Directors have discharged their responsibilities and the key areas of focus for 2023 are set out on pages 62 and 63. Paul Matthews will step down as a Workforce Engagement Director, after serving three years in the role, at the conclusion of the 2023 Annual General Meeting. We endeavour to ensure that our colleagues are representative of the communities that they work in. In accordance with the Code, as at 31 December 2022, 39% (2021: 28%) of our senior management team, comprising the Executive Committee, the Company Secretary, and their direct reports, are female. ### Responsible Business framework Being a responsible wealth manager is a core strategic priority and the Committee focused our efforts on overseeing the Responsible Business framework receiving updates during the year on how management are delivering the targets to support our reporting requirements. As in 2021, the Board directly monitored our responsible investment strategy, the Board Risk Committee ensured that the reporting of risks and risks around our ESG strategy were appropriately identified, monitored and mitigated and the Board Audit Committee scrutinised our external reporting. ### Corporate governance As noted in our 2021 Annual Report, the Committee keeps actively under review our Corporate Governance framework. With the refocusing of our business and management now reporting under the Affluent and High Net Worth segments, the Committee has spent time examining how best to govern the Group. A recommendation has been made to the Board on a simplified approach that has regard to the legal and regulatory responsibilities for our operating entities, whilst ensuring our governance is simple, proportionate and appropriate. ### Conflicts of interest In accordance with the Companies Act 2006 and the Company's Articles of Association, the Board may authorise conflicts of interest. Directors are required to declare any potential or actual conflicts of interest that could interfere with their ability to act in the best interests of Quilter. The Company Secretary maintains a Conflicts of Interest Register, which is reviewed by the Board and the Board Corporate Governance and Nominations Committee. Noting the recommendations of the Code, the Committee recommends to the Board any new external appointments that a Director wishes to adopt. During the year, the Committee carefully reviewed requests to approve new external appointments for a number of our Non-executive Directors and concluded that these additional responsibilities would not impact their time commitment or cause any potential conflicts of interest for Quilter. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 67 Board Corporate Governance and Nominations Committee Report continued ## Board effectiveness review Background The Board is collegiate and supportive and that there is a good In 2022, the Board agreed it was appropriate to commission an degree of trust and respect between Non-executive Directors. externally facilitated Board effectiveness review in line with best practice. Quilter’s last externally facilitated review was performed Following discussion of the MSP report, the Board identified some in 2019. The review was conducted between August 2022 and areas of focus for the future which have formed the basis of the November 2022 and was carried out in line with the action plan. The actions, as summarised in the table below, have recommendations of the UK Corporate Governance Code 2018. been endorsed by the Board. Led by the Senior Independent The review was led by the Chair, and we are pleased to be able to Director, the Board Corporate Governance and Nominations report on the process we undertook, the outputs from the review Committee will monitor the delivery of the plan, and the Senior and our approach for 2023. The Chair has asked the Senior Independent Director will provide regular updates to the Board. Independent Director to provide oversight to the action plan The Board has already taken action to address some of the and he will report on that to the Board. recommendations. The Board have asked MSP to perform a follow up review to check on progress in the first half of 2023. Appointment Following a selection process led by the Chair with support from Summary of the key themes the Board agreed in the action the Company Secretary and overseen by the Board Corporate plan and how these will be addressed Governance and Nominations Committee, Quilter appointed Manchester Square Partners (“MSP”) to facilitate the Board Matter to be addressed How the issue will be addressed | effectiveness review. MSP has no connection to any individual | Future Board Governance Framework and Operating Model | | | --- | --- | --- | | Director. They do provide coaching support to a small number | As Quilter has refined its | The Board will continue to drive | | of executives, but aside from this have no other connection | perimeter and refocused | the work to simplify the Board | | with Quilter. The Board Corporate Governance and Nominations | to be a UK wealth manager, | and management governance. | | Committee considered the scope of MSP’s engagement with Quilter | Board Governance will be | | | and concluded that this would not preclude MSP from being | reviewed to rationalise | | | the external facilitator of the 2022 Board effectiveness review. | how Quilter is run. | | This will include reviewing The Board Corporate Governance and Nominations Committee Committee remits and recommended to the Board the scope of the review with a view membership. to examining the performance of the Board, its Committees, Board Focus and Operation individual Directors and the Chair. | | The Board will take the | The Board Strategy meeting has been | | --- | --- | --- | | Process | opportunity to reconsider | brought forward to May 2023. | | Following briefings by the Chair and Company Secretary, the | how best to use their | | | | time effectively. | The Board calendar to be reconsidered | review was carried out by the qualitative approach of in-depth and clear steer provided to structured one-to-one interviews by MSP with each Board management on any papers required member, anchored around the following key themes: for the Board and sufficient time · Strategy I Challenges and Risk I Values and Culture allocated to ensure time is spent on the · Role of the Board I Dynamics I Engagement most strategically important matters. · Structure of the Board I Composition I Succession · Governance I Execution I Leadership Board papers will be refined to be more succinct with Board KPIs re-examined MSP also reviewed Board and Committee papers for the 12 month and refreshed. period prior to the review and the full report of the previous externally facilitated review conducted in 2019. Due to the timing The Board will keep under active of the interviews, the current Chief Executive Officer, Steven Levin, review where external stakeholder was not interviewed as part of the process. As Neeta Atkar was engagement may be of benefit to the | new to the Board in August 2022, she did not participate in the | Board, including ensuring the views | | --- | --- | | in-depth interviews, but her initial impressions were gained | of the workforce are appropriately | | by way of an informal meeting. | considered by the Board. | Board Dynamics Results and actions The Non-executive Non-executive Director only sessions MSP presented their report to the Quilter Board in December 2022, Directors will continue will be scheduled and how the Board which facilitated an open and constructive debate by the Board. to consider how best to is working will be kept under active The key themes emerging from the review were used to develop engage both inside and review. The format of talent events an action plan, which was reviewed and endorsed by the Board outside of the boardroom. will be refreshed. at its meeting on 2 March 2023. A summary of the themes and actions identified by the Board are set out opposite. Update on 2021 Board and Board Committee effectiveness The Board Corporate Governance and Nominations Committee We are pleased to report that the review concluded that good has regularly reviewed the progress on the action plan in progress has been made on all suggested improvements since response to the 2021 Board effectiveness review and the last external Board review in 2019. The review identified concluded that all actions have been satisfactorily addressed. that the Board and Board Committees are functioning well, and that governance procedures and practices are strong. 68 Quilter Annual Report 2022 ## Board Audit Committee Report Strategic Report George Reid Chair Governance Report Dear shareholder As Chair of the Board Audit Committee, I am pleased to report There have been some changes to the membership of the on the work the Committee has undertaken during 2022. Committee during the year and I would like to take this opportunity to extend my thanks to Rosie Harris for her valuable contribution The Committee’s core duties and responsibilities remain to the work of the Committee. In accordance with the UK Corporate unchanged. The Committee has continued to assist the Board Governance Code 2018 and best practice, Ruth Markland ceased in monitoring the Group’s control environment, providing strong to be a member of the Committee on assuming the role as Quilter governance over the Group’s financial reporting, and challenging Chair. We were pleased to welcome Neeta Atkar who joined the the judgements made by management and the estimates and Board and the Board Audit Committee in August 2022. assumptions on which they are based, whilst ensuring appropriate, balanced disclosures are made. I reported to you last year that the Committee will focus on Financial statements Other information simplifying the Group’s financial disclosures and I am pleased to During the year, the Committee continued to assess the financial report that progress has been made in this regard following the sale control and reporting environment and is pleased to see of Quilter International. The Committee has also worked to ensure improvements resulting from the embedding of the new general that other disclosures are presented more simply and clearly. ledger. There is more work to do to fully embed these process There will be further scope for simplification in the 2023 financial improvements in some of the subsidiary businesses. We will statements and the Committee will stay focused in this regard. remain focused on ensuring greater consistency in the reporting processes applied across the Group. Further information on how The following pages provide further information on how the the Committee has overseen the Group’s financial reporting and Committee has discharged its responsibilities during the year. controls can be found on pages 71 and 72. It is anticipated that in 2023 the Committee’s main focus will be Towards the end of the year, the Committee commissioned on overseeing, challenging and holding management to account an effectiveness review of the Internal Audit function which was on the provisions held and the evolution and adequacy of finance conducted internally by way of a questionnaire. We are pleased systems, procedures and controls. to see that the function continues to perform strongly particularly given the change in Chief Internal Auditor during the year. Details T of the Chief Internal Auditor appointment can be found on page 73. We have received assurance from both our internal effectiveness review and the FRC’s Audit Quality Review (“AQR”) that our external auditors, PricewaterhouseCoopers LLP (“PwC”), continue to perform satisfactorily. The outcome of these reviews can be found George Reid on pages 73 and 74. Chair The Committee spent time considering the accounting and related disclosures for the capital return to shareholders by way of a B Share Scheme accompanied by a Share Consolidation which was implemented in May 2022. Since year-end we have also considered the disclosure requirements arising in connection with the new issue of £200 million subordinated debt and redemption of the previous £200 million subordinated debt instrument. 69Quilter Annual Report 2022 Board Audit Committee Report continued ## At a glance Committee activity Committee membership and meetings attended/eligible to attend 6% 4% Scheduled Ad hoc 8% meetings meetings 9% 1 30% George Reid (Chair) 9/10 1/1 30% 2 9% 9% Neeta Atkar 3/3 – Tazim Essani 9/10 1/1 24% Former members 26% 3 91% 91% Glyn Barker 2/2 1/1 4 Rosie Harris 4/4 – 5 Ruth Markland 5/5 – 29% 34% 1 George Reid was unable to attend one meeting due to illness and this meeting was chaired by the Risk Committee Chair. 2 Neeta Atkar joined the Committee on 11 August 2022. Committee activity 2022 2021 3 Glyn Barker joined all Committee meetings during his time as a Director between Review of Financial Statements June and November 2022. 4 Rosie Harris resigned from the Board and stood down as a Committee member Internal and External Audit on 30 April 2022. 5 Ruth Markland ceased to be a member of the Committee on appointment Internal Controls as Quilter Chair. Regulatory Compliance and Reporting Where a Director was unable to attend a meeting due to illness or a long-standing Governance conflicting commitment, they reviewed the Committee papers and provided comments to the Committee Chair in advance of the meeting. Committee responsibilities Committee evaluation · Reviews the Group’s accounting policies and the contents As part of the 2022 Board effectiveness review, the Board of financial statements. has assessed that the Committee membership is appropriate · Monitors disclosure controls and procedures. in providing challenge and oversight and that the Committee · Considers the adequacy, scope of work and resourcing is operating effectively. of the external and internal audit functions. · Oversees the relationship with our external auditors. Discharging our responsibilities · Monitors the effectiveness of internal financial controls. The Committee reviewed its activities over the previous 12 months against its Terms of Reference and confirmed that it had fully The Committee relies on and is supported by the detailed work discharged its responsibilities in line with its remit. The Terms conducted by the Audit Committees and Governance, Audit and of Reference are available at plc.quilter.com. Risk Committees of Quilter’s significant subsidiaries. Attendance Committee governance The Chief Internal Auditor, the Chief Financial Officer, the Chief Risk The Board Audit Committee currently comprises three independent Officer and representatives of PwC, the external auditors, attend Non-executive Directors. The Chair of the Committee has recent all meetings of the Committee. The Committee holds regular and relevant financial experience and the Committee as a whole private sessions with the Chief Internal Auditor and the has competence relevant to the business sectors that Quilter representatives of PwC, without management present. operates in. On appointment as Quilter Chair, Ruth Markland ceased to be a member of the Committee. Glyn Barker, a former Collaboration accountant, attended each Committee meeting whilst he was The Chair briefs the Board on key discussions and provides a on the Board. No meetings were held in the period between Ruth written report to the Board after each meeting. The papers and Markland stepping down from the Committee and Glyn Barker reports presented to the Committee are made available to all joining the Board. Quilter Non-executive Directors. The Committee has continued to work collaboratively and effectively with other Board Committees Details of the skills and experience of the Committee members on matters such as the effectiveness of internal controls. can be found in their biographies on pages 56 to 58. 70 Quilte r Annual Report 2022 Board Audit Committee Report continued Strategic Report ## Key areas of Committee focus Financial reporting Accounting judgements and estimates The Committee reviewed and challenged the Annual Report The Committee received regular updates on the Group’s key and Accounts, Preliminary Announcement and Interim Results for accounting judgements and estimates to enable the Committee 2022. The Committee’s reviews were supported by analysis and to consider and discuss these with management and the external discussion from the Finance and Actuarial teams, reports from the auditors in advance of the end of each reporting period. Critical second line on the solvency position and reports of the external accounting judgements and material accounting estimates auditors. Having considered these inputs and the Committee’s deliberated by the Committee during review of the 2022 Annual own independent judgements, the Committee recommended Report and Accounts included the treatment of: to the Board the approval of each of these reports. Area of focus Issue/role of the Committee The Group’s accounts are prepared in accordance with Provisions for The Committee reviewed the estimates Governance Report International Financial Reporting Standards (“IFRS”). Certain past business involved in the provisioning for DB to DC alternative performance measures (“APMs”) are used to aid the review cases pension transfer cases which are subject understanding of the Group’s financial statements by Quilter’s and the related to a skilled person review in Lighthouse insurance and other past business review cases. shareholders and other stakeholders. The Committee has recovery assets The Committee also reviewed the approach continued its close scrutiny of APMs and great care has been taken to the recognition and measurement taken to ensure that where they are used, they are necessary, of insurance recovery assets in the June 2022 clearly highlighted and explained and are reconciled to statutory interim financial statements, and year-end performance measures in line with the guidance from the FRC. financial statements. The Committee has reviewed the Group’s Accounting Policies The Committee’s work included and confirmed that they are appropriate to be used for the consideration of regulatory developments 2022 financial statements. and correspondence received from the skilled person. The disclosures in the Group’s financial Financial statements Other information The Committee has also reviewed the basis of accounting, the statements were reviewed by the Committee appropriateness of adopting the going concern basis of preparation to ensure compliance with IFRS and for the Group’s financial statements, and the Group’s assessment transparent presentation. of viability for a period longer than 12 months. In doing so, the Goodwill and The Committee considered the Committee considered: intangibles appropriateness of the key assumptions · the Group’s three-year Business Plan which includes underpinning the Group’s goodwill impairment consideration of the economic, regulatory, competitive testing, and the sensitivities modelled. | and risk environment; and | In particular, the Committee considered | | --- | --- | | · the latest Group Own Risk and Solvency Assessment, and | whether the carrying amounts of goodwill | | Internal Capital Adequacy and Risk Assessment reports, which | and intangibles remained appropriate in | | cover current and future risk profile and solvency positions | the context of changes in the UK and global | | based on a series of core assumptions, stress tests and | economy during 2022. The Committee | | scenario analysis. | reviewed the associated disclosures in both | the interim and annual financial statements The form of the viability statement and period covered by to ensure these met the requirements of IFRS, and provided relevant information to the the statement were specifically considered by the Committee. readers of the financial statements. The Committee was satisfied with the content of the viability statement and supported the time period for the statement Deferred tax The approach taken to the recognition which is aligned with the Group’s three-year business planning and measurement of deferred tax assets, and the estimations and assumptions used, cycle. The viability statement can be found on pages 50 and 51. were reviewed by the Committee. In particular, the Committee considered the impact of During the year-end process, the Committee also reviewed changes in the economic climate during 2022 the Task Force on Climate-related Financial Disclosures Report. on the recoverability of deferred tax assets. In addition, the Committee reviewed the deferred tax disclosures in the Group’s financial statements to ensure compliance with IAS 12 (Income Taxes). 71Quilter Annual Report 2022 Board Audit Committee Report continued ## Key areas of Committee focus Fair, balanced and understandable Controls over financial reporting There has been a comprehensive review process to support the The Committee has remained focused on ensuring the Group’s Board in reaching its conclusion that the 2022 Annual Report is internal controls over financial reporting operate effectively. fair, balanced and understandable and provides the necessary Management has regularly reported on the state of the financial information for shareholders to assess the Group’s position, control environment throughout the year, confirming that, overall, performance, business model and strategy. there is an improving trend in the financial control environment across Quilter. This is evidenced by improved controls testing The process which enabled the Committee to reach this results, the low volume of risk events and improvements in conclusion included: data quality. The financial control environment within the Quilter · the production of the 2022 Annual Report and Accounts, Financial Planning business has received the Committee’s utmost managed closely by the Chief Financial Officer, with overall attention to ensure the necessary improvements are made. Time governance and co-ordination provided by a cross-functional has also been spent monitoring the progress made against the team of senior management; internal control recommendations from PwC and the Committee · cross-functional support for the drafting of the 2022 Annual is content that adequate progress is being made towards closing Report and Accounts which included input from Finance, Risk, these agreed actions. Investor Relations, Corporate Secretariat, HR and wider business leaders; As part of the process to review and challenge the 2022 financial · a robust review process of inputs into the 2022 Annual Report statements, the Committee considered the processes and and Accounts by all contributors, to ensure disclosures are controls in place to provide reasonable assurance regarding the balanced, accurate and verified, with further comprehensive reliability of financial reporting and the preparation of the financial reviews by senior management; statements. The Chair of the Committee has reported to the · a review by the Company Secretary of all Board and Board Board on this area. Committee minutes to ensure all material matters considered at Board level meetings have been disclosed in the 2022 Annual CASS compliance Report and Accounts; Monitoring compliance with the FCA’s Client Assets Sourcebook · a specific management paper detailing the 2022 year-end (CASS) rules, and the frameworks in place to maintain appropriate assessment of fair, balanced and understandable; CASS controls in each of the regulated businesses, is essential · a formal review by the Board Audit Committee of the draft 2022 to protecting the interests of Quilter’s customers. The Committee Annual Report and Accounts in advance of the final sign-off; and performs this role by reviewing the reports on CASS produced by · a final review by the Quilter plc Board of Directors. the internal and external auditors, the second line Risk Function and by management. Throughout the year, there has been a Having evaluated all relevant information, the assurances by focus on collaboration across the Quilter CASS entities and on management and underlying processes used to prepare the streamlining the control frameworks. The Committee has been financial information the Committee is satisfied that, taken as kept informed on the progress made and is encouraged that a whole, the 2022 Annual Report and Accounts are fair, balanced there has been a move towards greater consistency in CASS and understandable and has confirmed this to the Board. This controls over the year. process was also undertaken in respect of the Group’s 2022 Interim Results. 72 Quilter Annual Report 2022 Board Audit Committee Report continued Strategic Report Regulatory reporting During the year, the Committee approved the appointment During the year, the Committee reviewed, challenged and of a new Chief Internal Auditor, Daniel Baynton, following the recommended to the Board for approval, the Group’s 2021 annual appointment of the previous incumbent as Chief Risk Officer. Solvency II reporting having received detailed reports on the This appointment was initially on an acting basis. In December 2022, disclosures from management, the second line Actuarial function the Committee confirmed Daniel Baynton as the Chief Internal and the external auditors. The 2021 year-end consolidated Capital Auditor on a permanent basis following a comprehensive selection Requirements Directive IV disclosures were approved by the process which was overseen by the Chair of the Committee and Committee ahead of their publication on Quilter’s website. by a Sub-Committee of the Board Corporate Governance and Towards the end of the year, the Committee also scrutinised and Nominations Committee. approved the methodology and assumption changes to be applied to the 2022 year-end Solvency II reporting. The Committee has, Each year, the Committee meets jointly with the Board Risk Governance Report and will continue to, closely monitor the potential impacts of the Committee to consider together the Risk Function Plan and the Department of Business, Energy & Industry Strategy (“BEIS”) Internal Audit Plan. The Committee approved a risk-based internal consultation on restoring trust in audit and corporate governance. audit plan for 2023 focused on the most critical areas for the The Committee reviewed the BEIS Response Statement published Quilter business and focused on supporting the safe delivery in May and FRC Position Paper that followed in July. of the organisation’s strategic priorities. In particular, the plan recognises the importance of considering Consumer Duty Whistleblowing requirements during each audit review in 2023. The Chief Internal To ensure a transparent and open culture that encourages Auditor has confirmed that the necessary resources and skillsets employees to speak up, Quilter recognises the importance of are in place to deliver the 2023 Internal Audit Plan, including having having effective and trusted whistleblowing arrangements in place. appropriate contingency to ensure that the Internal Audit function It is important that the Group’s whistleblowing arrangements are can adjust and react to unexpected demands. not only effective in practice but are seen by staff and all other stakeholders as being fair, rigorous and effective in resolving Following last year’s External Quality Assessment of the Internal Financial statements Other information concerns. The Committee has received semi-annual reports on Audit function, the Committee commissioned an internal review whistleblowing from management and has considered the details this year which sought views from key stakeholders across the of specific whistleblowing complaints, the outcome of business. The results concluded that the function is well management’s investigations and the effectiveness of the respected, operates efficiently and effectively and makes a strong whistleblowing processes in place. The reports have included contribution to the control environment across the Group. The metrics from the Peakon colleague surveys which relate directly function scored highly for independence, objectivity and integrity. to a “speak up” culture. The Committee has also reviewed data The Committee also regularly monitors the effectiveness of the on grievances and other indicators that the Group has an open function using a balanced scorecard, which is reviewed periodically culture where employees feel able to raise concerns. A “mystery to ensure it remains appropriate. In addition to reviewing the shopper” survey of the whistleblowing hotline was conducted in Internal Audit function’s effectiveness, the Committee assessed the year and the outcome reported to the Committee. The Chair the level of internal audit resource and the suitability of the skills of the Board Audit Committee is the Whistleblowing Champion and experience of the Internal Audit function. for Quilter. External audit Internal audit The Committee is responsible for overseeing the relationship with Throughout the year, the Committee reviewed regular reports the external auditors and the effectiveness of the audit process. from the Chief Internal Auditor, which drew the Committee’s PwC were appointed as the Group’s statutory auditor, with effect attention to the key audit findings together with management’s from the 2020 financial year, following a formal tender process. response, updating on progress against the audit plan and proposed changes to the plan as the year progressed. The reports In advance of each Committee meeting, the Chair of the also detailed the extent to which management has self identified Committee meets separately with PwC’s lead audit partner, the issues being raised by Internal Audit, as well as the progress Mark Pugh, to ensure the discussions at Committee meetings and effectiveness of management actions taken to address audit are appropriately focused, challenging the conclusions reached findings. These measures are tracked closely as they provide by management as well as the audit work performed thereon. an indication of the maturity of the Group’s control framework. The Committee has also heard regularly from Internal Audit on its overall assessment of the internal control environment and where action is needed to enhance internal controls. 73Quilter Annual Report 2022 Board Audit Committee Report continued ## Key areas of Committee focus To support a robust and high-quality external audit the Committee effectiveness, objectivity, industry knowledge, efficiency and has received regular and detailed reports from PwC throughout service quality. The results of that survey concluded that PwC 2022 covering all aspects of their work. The Committee has continues to perform satisfactorily and had delivered an effective reviewed PwC’s internal control recommendations and also service overall for the Group. PwC scored highly for assessed management’s response to these internal control independence, integrity and objectivity which provides assurance findings. PwC has continued to contribute strongly to discussions over audit quality. The Committee was pleased to note that PwC’s on Quilter’s financial statements, the Group’s financial reporting delivery of a high-quality audit is further supported by the outcome processes and key accounting judgements. of the FRC’s AQR which assessed PwC’s 2021 audit as ‘limited improvements required’. To safeguard the independence and objectivity of the external auditors, the Committee adopted a policy on non-audit services, The scope of the inspection under the AQR covered the audit which requires that non-audit services provided by the statutory work performed on the following key audit matters: auditor, will not exceed 25% of the fees charged for audit and · Sale of Quilter International (Group); audit related services. In addition to the reports provided by PwC · Compensation provisions (Group); on their independence, the Committee has also received reports · Goodwill impairment assessment (Group); and from management providing details of the non-audit services · Impairment assessment of investments in subsidiaries (Parent). provided by PwC and consultancy support provided by other leading audit firms. Towards the end of 2022, PwC were engaged As well as the audit work performed on the following other areas on work in relation to the issue of subordinated debt and this of audit focus: engagement constituted a non-audit service. The Group’s total · Cash and cash equivalents; and fees for non-audit services remain within the 25% limit set out · Revenue recognition. in the policy. The Committee has discussed the findings of the AQR with Following the successful implementation of Audit Quality PwC and was pleased to note that there were no key findings and Indicators (“AQIs”) last year, use of these as a tool to inform some areas of good practice. We note that this puts the review the assessment of the effectiveness of the external audit has in the top category for public reporting. There were two areas of continued this year. The indicators agreed are broadly in line with limited improvements required that the Committee are satisfied the prior year audit and focus on areas important to an effective have been addressed by PwC. audit, such as project management and the timeliness of management deliverables. The AQIs have been reported on by The Company has complied with the Statutory Audit Services the external auditors to the Committee throughout the course of for Large Companies Market Investigation (Mandatory Use the audit which has provided the Committee with more in-depth of Competitive Tender Processes and Audit Committee information about factors that influence the external audit quality. Responsibilities) Order 2014 for the financial year ended 31 December 2022. Quilter has no intention of tendering for In November 2022, an effectiveness review, similar to that an alternative external auditor before the end of the current undertaken in 2021, was conducted by the Company Secretary required period of 10 years. using a written survey to seek the views of key stakeholders to inform the Board Audit Committee’s assessment of PwC’s PwC are recommended for re-appointment by shareholders performance across a range of criteria including independence, at Quilter’s AGM to be held in May 2023. Auditors’ remuneration | Year ended | | Year ended | | | --- | --- | --- | --- | | 31 December | | 31 December | | | | 2022 | | 2021 | | | £m | | £m | Fees payable for audit services Group and Parent Company 1.3 1.5 Subsidiaries 2.1 2.2 Total fees for audit services 3.4 3.7 Fees for audit-related assurance services 1.2 0.8 Fees for non-audit services 0.2 0.5 Total Group auditors’ remuneration – continuing operations 4.8 5.0 Total Group auditors’ remuneration – discontinued operations – 0.3 1 Total Group auditors’ remuneration 4.8 5.3 1 All fees are presented net of VAT. 74 Qui lter Annual Report 2022 ## Board Risk Committee Report Strategic Report Neeta Atkar MBE Chair Governance Report Dear shareholder This is my first report to you as Chair of the Board Risk Committee The Committee continues to review the adequacy of our systems having joined the Quilter Board in August 2022 and becoming for risk assessment, internal controls and reporting. As in prior Chair of the Board Risk Committee on 1 October. I am grateful years, the Committee has remained focused on protecting to George Reid, who served as the Committee Chair following the customers, with a focus on providing oversight of Advice Risk. departure of Rosie Harris at the end of April 2022. Both George We have challenged management to continue to make the and Rosie provided excellent stewardship of the Committee and necessary enhancements to the control environment in Quilter effective oversight of management during their periods as Chair. Financial Planning and continue to exercise oversight of the delivery of operational change and automation of procedures Through my induction I have spent time with all members of to support and enhance customer experience. the Quilter Board as well as the Executive Committee and senior Financial statements Other information members of the Risk Function. I am pleased to share with you The Committee has also had close regard to people risk given my report on the work the Committee has undertaken during the pressures of the economic environment and our business the year. I have been impressed by both the support and challenge change initiatives. given to management during the year and I look forward to further enhancing the role of the Committee in 2023. I am pleased to confirm that the Committee has fully discharged its responsibilities within the year and worked in collaboration with The Committee supports and advises the Board on Quilter’s other Board Committees to ensure that appropriate scrutiny and risk profile providing a pan-Quilter perspective on all material risk oversight was exercised on key risk matters. During the year, the matters. We monitor the Group’s overall risk appetite, which is the Committee Chair has provided regular updates to the Board on amount and type of risk Quilter is prepared to accept in the delivery matters considered by the Committee. of its strategy, by monitoring both our internal and external risk profile. The macroeconomic climate has been challenging during As we look forward to 2023, I intend to work closely with the Chief the year, given high inflation and a fluctuating interest rate profile. Risk Officer to enhance the reporting the Committee receives in However, we have maintained strong and conservative capital and order to support more effectively the Committee in discharging liquidity positions, with prudent surpluses over risk appetite targets its responsibilities on behalf of our stakeholders. I am grateful to throughout the year. As part of the issuance of the Bond the the Quilter team for their continuing focus and to my fellow board Committee reviewed, considered and recommended to the Board, colleagues for their support. the risk factors set out in the Prospectus dated 16 January 2023. There continues to be a high level of external regulatory change and we are focused on ensuring our plans to implement the new FCA Consumer Duty are robust with appropriate governance and resources in place to ensure that the Duty is appropriately Neeta Atkar MBE embedded in Quilter’s day-to-day processes and will be well Chair understood by our advisers and employees. Other regulatory changes, such as the enhancements to the Appointed Representatives Regime and the continuing focus on ESG risk, have been carefully considered during the year and we will continue to monitor risk mitigation activities closely. The Committee’s activity during the year in relation to ESG risk included receipt of a deep dive assessment on the risk of greenwashing and a review of the outputs of a new climate and environmental stress scenario test that has been implemented by management. More information can be found in our Responsible Business Report which forms part of the Strategic Report on pages 26 to 35. 75Quilter Annual Report 2022 Board Risk Committee Report continued ## At a glance Committee activity Committee membership and meetings attended/eligible to attend 6% Scheduled Ad hoc 15% meetings meetings 1 15% Neeta Atkar (Chair) 4/4 – 2 9% 9% Tim Breedon 8/9 1/1 Moira Kilcoyne 8/9 0/1 17% 50% 60% Paul Matthews 9/9 1/1 19% George Reid 8/9 1/1 91% 91% Chris Samuel 8/9 1/1 18% Former member 3 Rosie Harris 3/3 1/1 1 Neeta Atkar joined the Committee on 11 August 2022. Committee activity 2022 2021 2 Tim Breedon stepped down from the Committee on 31 December 2022. 3 Rosie Harris resigned from the Board and stood down as Committee Chair Top Risk Oversight on 30 April 2022. Regulatory Change Where a Director was unable to attend a meeting due to illness or a long-standing Risk Appetite, Profile and Capital & Liquidity conflicting commitment, they reviewed the Committee papers and provided comments to the Committee Chair in advance of the meeting. Risk Governance and Remuneration – Change programmes – Committee responsibilities Discharging our responsibilities · Oversees risk strategy. The Committee reviewed its activities over the previous 12 months · Monitors and reviews the internal control framework. against its Terms of Reference and confirmed that it had fully · Recommends the total level of risk Quilter is prepared to take discharged its responsibilities in line with its remit. (risk appetite). · Assesses the top and emerging risks. Attendance · Monitors the risk profile. The Chief Executive Officer, Chief Financial Officer, Chief Operating · Oversees the effectiveness of the Risk and Compliance function. Officer, Chief Risk Officer and Chief Internal Auditor regularly attend Committee meetings. The Group Chair and, on occasion, Committee governance other Non-executive Directors attended Committee meetings The Board Risk Committee currently comprises five independent for matters as desired. Non-executive Directors, with Tim Breedon stepping down from the Committee on 31 December 2022. George Reid chaired the Collaboration Committee from 1 May 2022 to 30 September 2022. The Chair briefs the Board on key discussions and provides a written report to the Board after each meeting. The papers Details of the skills and experience of the Committee members and reports presented to the Committee are made available to all can be found in their biographies on pages 56 to 58. Quilter Non-executive Directors. The Committee has continued to work collaboratively and effectively with other Board Committees Committee evaluation on matters such as the effectiveness of internal controls. As part of the 2022 Board effectiveness review, the Board has assessed that the Committee membership is appropriate in providing challenge and oversight and that the Committee is operating effectively. 76 Quilter Annual Report 2022 Board Risk Committee Report continued Strategic Report ## Key areas of Committee focus Risk appetite Capital and liquidity The Committee monitors and receives routine updates on the The Committee received routine quarterly updates from our Group’s risk appetite on behalf of the Board. During the year Chief Financial Officer on the Group’s capital, cash and liquidity we reviewed the Strategic Risk Appetite Principles (“SRAPs”) and positions against our risk appetite during the year. Despite the approved changes to Information Security and Regulatory risk challenging macroeconomic environment, Quilter remains measures within the Control Environment SRAP. The Committee strongly capitalised and has operated within capital and liquidity has closely engaged on the enhancements to the Customer SRAP risk appetites during the year. Given the changing external as management continue to refine this to more appropriately economic environment, we asked management to perform reflect how management assess customers’ outcomes in line further stress testing on economic scenario analysis on inflation with the new Consumer Duty. and interest rates and this was completed and reviewed during the year. Governance Report During Q3 the Internal Audit Failed Issues Assurance measure, which forms part of the Control Environment SRAP, exceeded the Operational risk risk appetite threshold and the Committee welcomed the action The Committee received a demonstration of a new internal taken by management to address and mitigate the areas of risk risk assessment tool, Resolver, which was implemented in 2022. in relation to the Issues Assurance failures. With the exception During the year, the Committee asked management to refresh the of this matter, the Committee was pleased to note that Quilter operational risk reporting that the Committee receives, and good continued to operate within its risk appetite limits in 2022, progress is being made on the enhancements requested. based on performance against the SRAP measures. New and emerging risks The Committee also approved the methodology for constructing The biannual updates on emerging risks identify risks to Quilter as the risk appetite thresholds (Long Term Targets, Early Warning a business from the external environment including an assessment Thresholds and Limits) together with their actual levels as at of likelihood and time scale. In Q1 2022 the Committee considered year-end 2022 for the Group. risk impacts for Quilter resulting from Russia’s invasion of Ukraine Financial statements Other information with a view to identifying how to mitigate any risks to Quilter and Prudential risk our customers. As it became apparent the economic climate was This has been the first year for the new reporting regime under worsening, the Committee received a risk assessment of the the Prudential sourcebook for investment firms (“IFPRU”) and we impacts of inflation on, amongst other things, flows, investment have reported against the new internal capital adequacy and risk performance impacting our customers and the impact for assessment (“ICARA”) for the first time. Over the year, we reviewed colleagues of the rising cost of living. the component parts of the own risk and solvency assessment (“ORSA”) and ICARA, including the capital allocations and stress Risk factors – Bond Prospectus and scenario testing which have been debated and challenged. The Committee reviewed, considered and recommended to We have reviewed and considered the recovery and wind down the Board risk factors contained within the Prospectus dated plans and have discussed with management the enhancements 16 January 2023. You can read more about the process we that will be made in 2023 to further improve the plans. undertook and the factors considered on page 61. Risk management and internal control systems The Board Risk Committee, the Board Audit Committee and the ‘Guidance on Risk Management, Internal Control and Related Board Technology and Operations Committee regularly review Financial and Business Reporting’ published by the Financial internal controls on behalf of the Board and receive regular Reporting Council. The Board Risk Committee received reports from management, Internal Audit and the Finance management’s assessment of the effectiveness of internal function. The Chairs of the Board Audit Committee, the Board controls over financial reporting as of 31 December 2022 and Risk Committee and the Board Technology and Operations concluded that, based on their assessment, they were effective. Committee regularly brief the Board on the key matters The Board also considered and endorsed this assessment as discussed by these Committees. Throughout the year ended well as the Board Audit Committee’s review of the internal 31 December 2022 and to date, the Group has operated a controls over financial reporting. The Chair of the Board Audit system of internal control that provides reasonable assurance of Committee reports on the review of controls over financial effective operations covering all controls, including financial and reporting and how the Board Audit Committee has monitored operational controls and compliance with laws and regulations. the independence and effectiveness of the internal and external Processes are in place for identifying, evaluating and managing auditors on pages 73 and 74. the principal risks facing the Group in accordance with the 77Quilter Annual Report 2022 Board Risk Committee Report continued ## Key areas of Committee focus Top risks business, clients and customers. It includes horizon scanning You can read about the Group’s assessment of our top risks and and an assessment of likely change and the impact for Quilter. how these are identified, managed and mitigated on pages 44 to The Committee spent appropriate time during the year reviewing 49 in the Risk Review. The Committee routinely receives quarterly and challenging the implementation plans for the new FCA updates from the Chief Executive Officer and the Chief Risk Officer Consumer Duty ensuring these plans are robust with appropriate on their assessment of these risks. governance and resources in place to ensure that the new Consumer Duty will be embedded in Quilter’s day-to-day Advice risk processes and be well understood by our advisers and The Committee has held in depth discussions on the controls employees. The Committee has also received an assessment on to mitigate the risk associated with how Quilter and its advisers how the future changes in the Appointed Representatives Regime provide appropriate advice to customers. Along with the Board will be implemented in Quilter Financial Planning. of Quilter Financial Planning, the Committee has overseen the improvements made to date in the control environment of that Conflicts of interest business and continues to monitor the steps being taken to The conflicts of interest inherent in our business model are closely automate control processes and fully embed a robust and monitored and an update is presented to the Committee twice effective control culture throughout the business. This will ensure a year by the Chief Executive Officer along with a second line that our customers are appropriately protected and Quilter can assessment. Policies and processes are in place to ensure that demonstrate that the advice provided is in their best interests there is appropriate scrutiny and consistency of how Quilter and promotes good customer outcomes. The Committee has manages potential conflicts of interest across the Group. challenged management to consider and mitigate the business risks for customers given the external market conditions. Data privacy risk Twice a year the Committee considers a report from the Group Conduct risk Data Protection Officer with his assessment of the data privacy The Committee has continued to monitor our ongoing risk. This assessment details the adequacy of data protection management of conduct risk and receives regular updates on policies, procedures and governance arrangements to mitigate conduct risk matters including complaints, advice and suitability, data protection risks and comply with data protection legislation, and post advice arrangements and servicing. including the General Data Protection Regulation. People risk Money Laundering Officer’s report The Committee has welcomed the improved employee The Committee receives an annual update from the Group’s engagement score during the year and has continued to Money Laundering Reporting Officer which gives a pan-Quilter monitor people risk carefully given the pressures of the economic view of the Anti-Money Laundering and Counter Terrorist environment and business change initiatives. As the working Financing operating environment and associated risks. Following environment continues to evolve post the COVID-19 pandemic an increase of Financial Crime during the COVID-19 pandemic, we have discussed an update from Human Resources on the levels have now stabilised and we are focused on managing high mitigation of people risk though the implementation of a hybrid profile and emerging issues including sanctions risk. working model. Risk and Compliance function and plans Third-party suppliers risk In July 2022, Matt Burton stepped down as Chief Risk Officer During the year this Committee, along with the Board Technology to focus on his health. The Committee is grateful to Matt for his and Operations Committee, has overseen the effectiveness of the outstanding contribution and has welcomed Nick Sacre-Hardy processes in place to manage the services provided to the Group as Chief Risk Officer. A review of the Risk function led by Nick by third-parties ensuring robust oversight and engagement with commenced in the final quarter of 2022 and the Committee our suppliers. The Committee has welcomed the ongoing focus reviewed the results and proposed changes to the risk function in this area. in Q1 2023. Strategic delivery risk The Committee monitors progress on the risk and compliance The Committee introduced biannual reviews of the strategic risk function and plans. This includes an assessment of the quality profile associated with delivery of the operating plan. The risk and appropriateness of resourcing and overall delivery of key profile has heightened during the year largely reflecting the activity. Adjustments to the plans are brought back to the impacts from market conditions due to the current economic Committee for approval if necessary. and geopolitical environment. The Committee asked management to re-assess activity in order to ensure that Quilter is focused on Looking forward the most critical activities. As we look forward to 2023, the Committee will continue to pay close regard to the impacts of the external environment for our Regulatory risk customers and advisers and ensure that Quilter is well placed The Committee receives a quarterly report which provides to ensure customer outcomes are appropriate and we continue analysis and commentary on the interactions with our regulators. to exercise oversight to manage and mitigate risk. The reporting covers regulatory change that impacts our 78 Quilter Annual Report 2022 ## Board Technology and Operations ## Committee Report Strategic Report Moira Kilcoyne Chair Governance Report Dear shareholder I am pleased to present my report as Chair of the Board The Committee was set up to oversee management’s delivery Technology and Operations Committee. of significant strategic technology change, most notably the implementation of the new investment platform. Following the During 2022, the Committee focused on driving improvements successful delivery of the investment platform in 2021 and the to the digital experience for our customers and was pleased to continued demonstration of technological and operational see the successful launch of the new Customer App for customers expertise across the Group during 2022, the Board agreed to of the investment platform. formally close the Committee with effect from 31 December 2022. The Committee has continued to oversee the development and Reflecting on the priorities agreed in 2018 following the separation delivery of the technology strategy. Good progress has been made from Old Mutual, the Committee can look back with satisfaction Financial statements Other information in the rationalisation and modernisation of our infrastructure at the significant milestones achieved and improvements made during the year, bringing this programme of work to a close. across technology and operations. The challenge and scrutiny provided by the Committee over areas such as information As change activity continued apace, we ensured that lessons security, operational resilience and change programmes has learned from the Platform Transformation Programme have been created a strong foundation for the prospects of the Group going embedded within management’s planning and risk decision making. forwards. I am looking forward to continuing to work closely with The Committee has challenged and endorsed management’s drive management in 2023 and fully participating in discussions at the for prioritising quality over cost savings and speed of delivery. Board and Board Risk Committee meetings on the important matter of strategic technology change and management of IT risks. Continuing the progress made in recent years, the Committee has overseen further enhancements to the resilience of the Group’s operations and technology to ensure availability of our services for our customers and advisers. The completion of our self-assessment of operational resilience, a regulatory requirement, is an important landmark for the Group and has supported the creation of Moira Kilcoyne additional goals in this space for the next two years. Chair We received regular updates on Information Security deliverables that are designed to keep the organisation, colleague and customer data secure through design, the deployment of key security capabilities, and targeted training for staff and awareness campaigns for customers. Following the departure of Rosie Harris at the end of April 2022, the membership of the Committee was bolstered when Neeta Atkar joined the Committee on her appointment to the Board in August 2022. Neeta’s understanding of customers and risk within the financial services industry strongly supported our deliberations. 79Quilter Annual Report 2022 Board Technology and Operations Committee Report continued ## At a glance Committee activity Committee membership and meetings attended/eligible to attend Scheduled 10% 11% meetings Moira Kilcoyne (Chair) 5/5 31% 14% 1 9% 15% 9% Neeta Atkar 2/2 40% George Reid 4/5 Chris Samuel 5/5 Former member 91% 91% 2 Rosie Harris 0/1 1 36% Neeta Atkar joined the Committee on 11 August 2022. 2 Rosie Harris resigned from the Board and stood down as Committee member 43% on 30 April 2022. Committee activity 2022 2021 Where a Director was unable to attend a meeting due to illness or a long-standing conflicting commitment, they reviewed the Committee papers and provided Change Programmes comments to the Committee Chair in advance of the meeting. Technology and Operations Strategy IT Security Operational Resilience Committee responsibilities Discharging our responsibilities · Oversees delivery of the Operations and Technology strategy. The Committee reviewed its activities over the previous 12 months · Provides oversight and challenge on Operations and against its Terms of Reference and confirmed that it had Technology risk. discharged its responsibilities in full. · Oversees Information Security, Information Management and Operational Resilience strategy, systems and controls. Attendance · Oversees strategic operational and technology change The Chief Executive Officer, Chief Financial Officer, Chief Operating programmes. Officer and Chief Risk Officer regularly attended Committee meetings. Other Non-executive Directors attended Committee Committee governance meetings for matters of particular interest. The Board Technology and Operations Committee comprised of four independent Non-executive Directors as at 31 December 2022. Collaboration The Chair briefed the Board on key discussions and provided a Details of the skills and experience of the Committee members written report to the Board, where feasible, after each meeting. can be found in their biographies on pages 56 to 58. The papers and reports presented to the Committee were made available to all Quilter Non-executive Directors. Committee evaluation As an output of the 2022 Board effectiveness review, and in line with the desire to simplify the Group Governance, the Board assessed that the Committee had successfully met its objectives and decided that it is the right time to close the Committee. You can read more about this decision and how the Committee’s responsibilities have transitioned to the Board and Board Risk Committee on page 81. 80 Qu ilter Annual Report 2022 Board Technology and Operations Committee Report continued ## Key areas of Committee focus ### Digital and data strategies A key area of focus for the Committee in 2022 has been to oversee and challenge the digital and data strategies, which have included several initiatives aimed at improving the digital experience for our customers and building foundational capabilities to support them. One component of the digital strategy has been the Customer App that was successfully launched towards the end of 2022. It has initially been deployed for Quilter Investment Platform customers as part of the Affluent segment proposition, with the intention to extend the Customer App in future to the High Net Worth segment. The Customer App was developed to include a range of functionality, with customer feedback used to identify the features of most benefit for customers. An area of focus for the Group's data strategy has been the Data Transformation Programme that has been laying the foundations for the future. The aim of the first stage of the programme has been to establish a new Group-wide data and reporting platform. This will reduce the number of technologies in the estate, but more importantly will enable customers to interact seamlessly across the entire Group. Improvement in data quality, whilst being critical for an effective operating environment, will also support management's work in readiness for the FCA Consumer Duty regulations that come into force during 2023. With the history of managed separation and acquisitions over recent years, Quilter has consciously had a number of independent website domains. As the Group has continued its focus on simplification of our brand and optimising operational efficiency and technology solutions, a project was approved in 2021 to simplify the firm's websites. Work in this area has progressed during the year with a plan to migrate business websites to align with our Affluent and High Net Worth segments. The websites will support customers and advisers to access their products and services across the Group. ### Operational resilience The Committee has continued to oversee the work to ensure the Group's operational resilience continues to be in line with our and our regulators' expectations. During the year management completed a self-assessment of operational resilience that included the Group's resilience strategy, resilience journey and the steps taken to comply with new regulatory requirements. Where services are being provided or supported by third parties, a consistent and proportionate approach has been taken by ### Transition of Committee responsibilities During 2022, the Board conducted an externally facilitated Board effectiveness review. Amongst other things, the review considered the role of the Board Committees. The Board Technology and Operations Committee was created in 2017 to oversee the implementation of the new investment platform which was successfully delivered in 2021. The Committee further oversaw the work to develop a more mature operational and technological organisation as Quilter continued management to ensure the resilience of services for our customers. The management of our external technology partners continues to be a key part of our resilience strategy. The risk posed by external threats has continued to evolve and gain prevalence, with the risks elevated by Russia's invasion of Ukraine. Management have been focused in managing the risks posed by external threats with a culture and awareness programme. This approach has now evolved to promote awareness and behavioural change to develop a positive security culture. The protection of client data and our systems underpins our digital and data strategies and the Committee has received regular updates that provide assurance of management's vigilance and continued focus on protecting our customers. ### Operations enhancements The Committee has continued to strongly encourage management to modernise, simplify and automate operational areas as part of a move to a data-driven, risk-based, processing environment. Quilter Financial Planning has been the first business to commence scoping work, with a view to enhancing controls by reducing the volume of manual processes in place through an investment in technology and data. Whilst the project is at an early stage, significant progress is anticipated during 2023. Quilter Investment Platform will be implementing the same technology, a cross divisional initiative that aims to produce further consistency and efficiency across operations. Progress on this activity will enable Quilter to progress our digital strategy at pace. ### Sale of Quilter International As part of the sale of the Quilter International business to Utmost in 2021, a Transitional Services Agreement was put in place for Quilter to continue to provide certain core services to support the former Quilter International business. The Committee spent time during the year overseeing initial preparations for the migration of these customers from Quilter's systems to Utmost's to ensure that the process will run smoothly and customer impacts are minimised. The migration is due to be completed during 2023. ### Segment technology and operations updates During the course of the year the Committee continued its approach of receiving more granular updates on technology and operations in each business segment. The sessions enabled the Committee to be informed about the collaboration across the Quilter Group and ongoing efforts to simplify key processes where it has been beneficial for customers for us to do so. to deliver more customer-centric systems and operations. The findings of the Board effectiveness review were discussed with the Board and the Board concluded that the Committee had successfully delivered its original objective, and agreed that, with effect from 31 December 2022, the Committee be closed. All the activity that the Committee conducted has been mapped to our Board Risk Committee or will be overseen directly by the Board. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 81 # Board Remuneration Committee Report **Tim Breedon** ![img-22.jpeg](img-22.jpeg) ## Dear shareholder In my first year as Chair of the Board Remuneration Committee ("Committee"), on behalf of the Board, I am pleased to present the Remuneration Report ("Report") in respect of the year ended 31 December 2022. This statement and the accompanying Report aims to ensure high levels of disclosure regarding pay policy in accordance with the UK Corporate Governance Code and transparency in respect of remuneration and decision-making. At the last AGM in May 2022, both our Report for 2021 and our new Directors' Remuneration Policy ("Policy") received 96% of votes in favour. Our Policy is intended to be in place for three years and the next binding shareholder vote will be no later than the 2025 AGM, with the Policy kept under continuous review by the Committee to ensure it remains appropriate. This Report will be subject to an advisory vote at the 2023 AGM in line with regulatory requirements. 2022 was a year of solid business performance considering the challenging market in which we are operating in, with the war in Ukraine, the cost-of-living crisis and economic uncertainty impacting investor confidence and significantly dampening the revenue environment across the wealth and asset management industry. Despite this, the Company delivered a resilient financial performance with net flows of £1.8 billion (down from £4.0 billion in 2021) and Adjusted Profit of £134 million (down from £138 million in 2021). The Committee approved a 2022 short-term incentive ("STI") outcome of £89k (46% of maximum) for the new Chief Executive Officer, Steven Levin, for the two months of qualifying service, and £418k (46% of maximum) for the Chief Financial Officer, Mark Satchel. Paul Feeney, who served as Chief Executive Officer for 10 months of the year, received £466k (41% of maximum). In determining these outcomes, the Committee exercised discretion to adjust down the STI outcome profit, relative to the reported IFRS profit, for the impact of below-the-line items where appropriate. All Executive Directors received an outcome of 32% of maximum for the vesting of the 2020 LTIP award after exercising discretion to adjust for corporate activity. Full details of these outcomes are set out in the Report. During the year, the Company acknowledged the effect of higher price inflation on employees and made a one-off cost-of-living payment of £1,200 in August 2022 to all employees with a full-time equivalent base salary of up to £50,000 per annum, and continues to monitor inflation data and market developments closely. The 2019 three-year Save As You Earn ("SAYE") scheme matured on 1 July 2022 with an option price 125 pence. Savings were returned to participants at the end of the six-month exercise period following maturity due to the prevailing share price being lower than the option price. The 2022 scheme commenced on 1 July 2022 with an option price of 117 pence and was available to all eligible UK employees over a three or five-year term. Both Executive Directors joined the 2022 Scheme. For 2022 we have reported a median gender pay gap of 31% and a median bonus gap of 44%. Whilst our pay gaps have reduced since Gender Pay Gap Reporting was introduced five years ago, we still have much further to go. To reinforce our commitment to diverse representation within our senior management roles and to driving an inclusive culture, the Committee incorporated gender and ethnic minority representation and workforce engagement targets into the Executive Directors' 2022 STI scorecards. These targets were partially met and are reflected in the Executive Directors' 2022 STI outcomes, as detailed on page 97, and will continue to form an important component of the STI scorecard in future years. Further details of our gender pay gap and diverse representation targets can be found on page 30 of the Responsible Business Report. Looking ahead, we will continue to monitor market developments and the regulatory landscape to ensure that remuneration supports the alignment of executive and shareholder interests and is consistent with the prudent risk management of the business. The Committee actively engages with shareholders and investor bodies and welcomes the opportunity for further engagement to discuss remuneration issues in advance of the 2023 AGM. I appreciate the continued support and feedback from our shareholders. I would also like to take this opportunity to thank my predecessor, Ruth Markland, for her excellent chairmanship prior to my appointment. A handwritten signature in dark ink, appearing to read 'R. Markland'. Chair of the Remuneration Committee 82 Quaker Annual Report 2022 Board Remuneration Committee Report continued Strategic Report ## At a glance Committee activity Committee membership and meetings attended/eligible to attend | 5% | | | Scheduled | Ad hoc | | --- | --- | --- | --- | --- | | | | | meetings | meetings | | | 26% | 23% | | | Tim Breedon (Chair) 7/8 3/3 25% 9% 9% Ruth Markland 8/8 2/2 38% Tazim Essani 7/8 3/3 Paul Matthews 8/8 2/3 Former members | 91% | 91% | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | 1 | | Governance Report | | | | 26% | Glyn Barker | | 1/1 1/1 | | 25% 2 Glyn Jones 5/5 – 32% 1 Glyn Barker served as a member of the Committee during his time as a Director between June and November 2022. 2 Glyn Jones resigned from the Board and stood down as a Committee member Committee activity 2022 2021 on 12 May 2022 at the conclusion of the AGM. Remuneration schemes, including all employee schemes Where a Director was unable to attend a meeting due to illness Risk and Governance or a long-standing conflicting commitment, they reviewed the Specific remuneration arrangements Committee papers and provided comments to the Committee Chair in advance of the meeting. Group Remuneration Policy Committee responsibilities Discharging our responsibilities Financial statements Other information · Sets the overarching principles and parameters of remuneration The Committee reviewed its activities over the previous 12 months policy across Quilter. against its terms of reference and confirmed that it had fully · Considers and approves remuneration arrangements discharged its responsibilities in line with its remit. The terms for Executive Directors and senior executives. of reference are available at plc.quilter.com. · Approves individual remuneration awards. · Agrees changes to senior executive incentive plans. Attendance The Chief Executive Officer, Chief Financial Officer, HR Director, Committee governance Reward Director and the Committee’s independent remuneration The Board Remuneration Committee (“Committee”) currently adviser regularly attend Committee meetings, except when it comprises three independent Non-executive Directors and would not be appropriate for them to do so. Attendees do not take the Chair of the Board, who was independent on appointment. part in decisions relating to their own remuneration and potential In accordance with the UK Corporate Governance Code, Ruth conflicts are suitably mitigated. Markland ceased to chair the Committee meetings on appointment as Quilter Chair and Tim Breedon has chaired all Committee Collaboration meetings since May 2022. Tim was confirmed as Board The Chair briefs the Board on key discussions and provides a Remuneration Committee Chair in November 2022. Tim has served written report to the Board, where feasible, after each meeting. as a member of this Committee since appointment in June 2020 The papers and reports presented to the Committee are made and has extensive remuneration experience and expertise. available to all Quilter Non-executive Directors. The Committee has met jointly with the Board Risk Committee to discuss the Details of the skills and experience of the Committee members impact of risk on remuneration matters. can be found in their biographies on pages 56 to 58. Committee evaluation As part of the 2022 Board Effectiveness Review, the Board has assessed that the Committee membership is appropriate in providing challenge and oversight and that the Committee is operating effectively. 83Quilter Annual Report 2022 ## Remuneration at a glance ## 2022 remuneration in numbers Executive Directors’ outcomes All Executive STI metrics Steven Levin Mark Satchel Paul Feeney Directors | £76m | 2% | 46% | 46% | 41% | 32% | | --- | --- | --- | --- | --- | --- | | IFRS profit before | Net flows as a | Short-term | Short-term | Short-term | Long-term | | tax (STI Outcome) | percentage of | incentive (STI) | incentive (STI) | incentive (STI) | incentive (LTI) | | 2021: £60m | opening AuMA | as a % of max | as a % of max | as a % of max | as a % of max | | | 2021: 4% | 2021: n/a | 2021: 69% | 2021: 66% | 2021: 56% | LTI metrics (2020-2022) ## Below ## 9% 64% 54% 50% ## median | Earnings per share | Total Shareholder | Total compensation | Total compensation | Total compensation | | --- | --- | --- | --- | --- | | (EPS) CAGR | Return (TSR) | as a % of max | as a % of max | as a % of max | | performance | 2021: 55th percentile | 2021: n/a | 2021: 70% | 2021: 69% | achieved 2021: 12% ## Components of Executive remuneration and outcomes for 2022 Components of remuneration Fixed pay Short-term incentive (“STI”) Long-term incentive (“LTI”) | · Salary | · Award based on annual performance | · Awards subject to three-year | | --- | --- | --- | | · Benefits | metrics that assess Company and | performance period ending | | · Pension | individual performance | 31 December 2022 | | · Normally reviewed annually | · 50% of the award is subject to a | · Award vests in Q1 following end of | | with effect from 1 April | three-year deferral under the Quilter | the performance period and subject | | | Share Reward Plan | to a further two-year holding period | How much Executive Directors earned in 2022 The following charts set out the aggregate emoluments earned by the Executive Directors for qualifying services in the year ended 31 December 2022. Steven Levin £201k Mark Satchel £1,175k Paul Feeney £1,475k | Fixed | Fixed | Fixed | | --- | --- | --- | | Salary 95.8 | Salary 450.0 | Salary 562.5 | | Benefits 1.5 | Benefits 7.1 | Benefits 8.1 | | Pension 9.6 | Pension 45.0 | Pension 56.3 | | Short-term incentive | Short-term incentive | Short-term incentive | | Total incentive award 89.0 | Total incentive award 417.5 | Total incentive award 466.0 | | Long-term incentive | Long-term incentive | Long-term incentive | | Award vests 5.5 | Award vests 254.8 | Award vests 382.2 | 84 Quilter Annual Report 2022 £107k £89k £5k £502k £418k £255k £627k £466k £382k Remuneration at a glance continued Strategic Report Link between remuneration and business strategy | Performance | | | STI scorecard | 2022 achievement | | --- | --- | --- | --- | --- | | indicators | | | weighting | (% of maximum) | | Short-term | Financial | IFRS profit before tax attributable to equity holders | 35% 50% | | | incentive | | (excluding amortisation, policyholder tax adjustments and other one-off items) | | | Net flows as a percentage of opening AuMA 25% 0% | Non-financial | Risk management | 10% | | | --- | --- | --- | --- | | | · Steven Levin (appointed 1 November 2022) | | 60% | | | · Mark Satchel | | 60% | | | · Paul Feeney (stood down 31 October 2022) | | 50% | Customer outcomes 10% 79% Governance Report | | | Strategic personal performance: | 20% | | | --- | --- | --- | --- | --- | | | | · Steven Levin (appointed 1 November 2022) | | 75% | | | | · Mark Satchel | | 75% | | | | · Paul Feeney (stood down 31 October 2022) | | 55% | | | | | LTI scorecard | 2022 achievement | | | | | weighting | (% of maximum) | | Long-term | EPS growth | EPS compound annual growth rate (2019-2022) 70% 46% | | | incentive TSR value TSR relative to FTSE 250 (excluding investment trusts) 30% 0% ## Summary of the key elements of our Policy 2022 2023 2024 2025 2026 Financial statements Other information Fixed pay | | | Vesting period | 1/3 1/3 1/3 | | --- | --- | --- | --- | | Short-term | Performance | | | | incentive | period | | | Cash element of incentive outcome (50% of the whole award) is paid in Q1 following the end of the performance year. Deferred element of incentive outcome (50% of the whole award) is granted in shares and vests in three equal tranches in Q1 2024, Q1 2025 and Q1 2026 subject to the Deferred Share Bonus Plan rules. Maximum short-term incentive opportunity is 200% of salary. Long-term Vesting period Additional incentive holding period Performance period Maximum long-term incentive opportunity 200% of salary. ## Shareholding 224% of salary 300% of salary ark Satchel 235% of salary 300% of salary aul Feeney 90% of salary 300% of salary Owned shares Minimum shareholding required (after five years) Steven Levin Unvested shares Additional awards subject to performance conditions Current shareholding M 85Quilter Annual Report 2022 P Board Remuneration Committee Report continued # Key areas of Committee focus # Key performance highlights - IFRS profit before tax attributable to equity holders (excluding amortisation, policyholder tax adjustments and other one-off items) for remuneration purposes was £76 million for 2022, compared with £60 million in 2021. - The Company continued to drive net new flows in challenging market conditions as investor sentiment was weakened by inflationary shocks and the cost-of-living crisis, with Quilter achieving the largest share of gross flows across the retail advised industry to the end of the third quarter. Our full year net flows of £1.8 billion for 2022 was down on the £4.0 billion in the previous year, and was below the level to which we aspire. As a percentage of opening AuMA, net flows were 2% compared with 4% achieved in the prior year. - AuMA decreased by 11% during the year to close at £99.6 billion, compared with £111.8 billion at the end of 2021. This was primarily the result of market headwinds, with lower equity markets and higher bond yields more than offsetting positive net flows. - Management responded strongly to the declining revenue environment by instilling strong cost discipline, achieving full-year expenses of £472 million, £8 million below prior year despite the high inflationary environment, whilst also delivering higher savings through Business Simplification than originally targeted. This contributed to an operating margin of 22%, in line with the prior year. - We significantly increased our focus on climate action in 2022, announcing a plan to reduce our Scope 1 and Scope 2 emissions by 80% by 2030 from a 2020 baseline, as well as strengthening the integration of ESG factors within our investment process; both of these measures have been incorporated into the LTI for the Executive Directors to underline our commitment to being a responsible wealth manager. - We have continued to focus resolutely on our customers, with service a priority and the launch of some key propositional updates, whilst investment performance across our Wealth Select managed portfolios remained consistently strong, although our flagship Cirilium Active range lagged industry benchmarks over the period. # Short-term incentive outcome - Business performance has been resilient in a challenging year for the entire wealth management industry but, nonetheless, our financial performance was below the targets we set ourselves at the start of the year. Our 2022 IFRS profit result for STI purposes of £76 million was in line with target, generating an outcome equal to 50% of maximum and accounted for 35% of the Executive Directors' scorecard. - Net flows as a percentage of opening AuMA were 2% (£1.8 billion), which was below the threshold target of 4% and therefore contributed a zero outcome for this metric, which accounted for 25% of the Executive Directors' scorecard. - The risk management of the business and overall progress against key customer outcome measures were positive, with Quilter achieving a Trust Pilot score of 4.2, with 78% of reviews at four or five stars and overall satisfaction at 82%. This is considerably better than many of our peers. Investment performance was generally strong with the exception of the Cirilium Active proposition, with steps taken to address this. - Good progress was made on our Inclusion and Diversity agenda, and we published our first full Action Plan and our lowest Gender Pay Gap since reporting began. The Company also made good progress in driving an inclusive culture with an improved colleague engagement score. Further details on our Inclusion, diversity and gender pay gap outcomes and targets can be found on page 87. - Overall, this generated an STI award of 46% of maximum (£89k) for the Chief Executive Officer, Steven Levin, and 46% of maximum (£418k) for the Chief Financial Officer, Mark Satchel. Paul Feeney also received an award of 41% of maximum (£466k) for the period he served as Chief Executive Officer. - In determining these outcomes, the Committee exercised discretion in the form of a downward adjustment to the STI outcome profit result, relative to the reported IFRS profit, for the impact of below-the-line items where appropriate. They compared actual costs to targets and trued up to target where costs are delayed but still expected to be incurred, to ensure management didn't benefit from any cost delays versus genuine savings. 86 Quilter Annual Report 2022 Board Remuneration Committee Report continued # Long-term incentive outcome - The performance period for the 2020 LTI award ended on 31 December 2022 and the award is due to vest on 27 March 2023, subject to a further two-year holding period. - The performance conditions were weighted 70% on adjusted EPS CAGR and 30% on TSR relative to the FTSE 250 excluding investment trusts. - In line with the treatment of prior vested LTI awards, the Committee exercised discretion to adjust the EPS growth calculation for the impact of corporate activity during the vesting period to ensure the outcome appropriately reflected underlying performance. Specifically, the Committee decided to remove the earnings of divested businesses, net of stranded costs, and neutralise the impact of the Company's share buyback and Share Consolidation programmes to ensure there was a consistent measure of underlying growth, whilst also increasing the target CAGR range to reflect an expectation of higher growth within the core, continuing operations. This had the effect of reducing the outcome of the EPS CAGR condition from 55% of maximum to 46% of maximum. The full calculation is set out on pages 99 to 100 of the Report. - The outcomes of both the earnings growth and TSR measures were negatively impacted by the challenging market conditions in 2022. Quilter's TSR – as well as other wealth and asset managers – underperformed relative to other industries within the FTSE 250 and was below the threshold target of median performance, contributing zero for that metric. - Awards will vest on 27 March 2023 with an overall outcome of 32% of maximum for the Executive Directors, as detailed on pages 99 to 100 of the Report. # Wider workforce considerations The Committee considered carefully the effect of macroeconomic conditions on the Company's broad employee base, including close monitoring of market data movements and targeted salary review budgets to ensure the Company could appropriately attract, develop and retain talent in a particularly tight labour market. During the year, the Company also acknowledged the effect of the higher price inflation on employees and made a one-off cost-of-living payment of £1,200 in August 2022 to all employees with a full-time equivalent base salary of up to £50,000 per annum. At the 1 April review date, base salaries for the wider workforce are set to increase by an average 5%, which is a higher rate than historically applied. The Company will continue to monitor inflation data and market developments closely. # Remuneration Policy - The Policy was approved by shareholders at the AGM on 12 May 2022, with 96% votes in favour. - The Policy itself had minor evolutionary updates to continue to align to market and corporate governance best practice. In applying the Policy the Committee amended the incentive metrics and weightings for 2022, increasing the weighting of net flows within the STI scorecard and expanding the LTI metrics to include strategic priorities covering operating margin and ESG measures. These updates will remain in place for 2023. - The Policy is intended to be in place for three years and assuming no changes are required earlier, will next be put to a shareholder vote for formal approval at the 2025 AGM. # Alignment to strategic priorities The application of the Policy continues to align management incentives to the four strategic priorities of the Company, as set out in the chart on page 89. # Inclusion, diversity and the gender pay gap The Committee is focused on ensuring that pay arrangements across the Group reflect our diversity and inclusion agenda. Within the personal component of the 2022 STI scorecard for the Executive Directors, the Committee included specific targets to increase the proportion of female and ethnic minority colleagues within our senior management (defined as our Executive Committee and their direct reports (excluding Personal Assistants)). These targets were not met, with the proportion of females at the end of 2022 being 36% compared with a target of 38% and the proportion of ethnic minority individuals being 4% compared with a target of 5%, as the Company progresses toward its long-term target of 40% female by the end of 2025 and 5% ethnic minority representation in senior roles by the end of 2023, as published in the Company's Inclusion and Diversity Action Plan. Further details on scorecard targets and achievements can be found within the Executive Directors' personal objectives on page 97. To support efforts on driving an inclusive and unified culture, the Committee also set a colleague engagement target of 7.4 (generated by an anonymous, weekly all-employee survey), representing a 6% increase on the starting position of 7.0. At the end of 2022, the score had improved to 7.4 in line with the target. For 2022 we have reported a median gender pay gap of 31% and a median bonus gap of 44%. Whilst our pay gaps have reduced since Gender Pay Gap Reporting was introduced five years ago, we still have further to go in this area. An inclusive culture and diverse workforce continues to be a key priority for the Company. Further details regarding our gender pay gap figures, our diverse representation targets and progress against our wider inclusion and diversity action plan can be found on pages 30 of the Responsible Business Report. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 87 Board Remuneration Committee Report continued # Key areas of Committee focus # Workforce engagement Paul Matthews and Tadrin Essani, Independent Non-executive Directors of Quilter and members of the Committee, are responsible for workforce engagement under the Corporate Governance Code. During 2022 they attended the Employee Forum and gained valuable insights on employee views, including the impact for colleagues of the rising cost of living, the appointment of Quilter's new Chief Executive Officer, and organisational culture. Further insights on their work is set out in the Governance in action report on pages 62 to 63. # Considerations for the year ahead The economic outlook remains uncertain and we expect the challenging market conditions for wealth managers experienced in 2022 to persist in 2023. We have a clear long-term plan to transform the business and the Committee is focused on ensuring that the execution of that plan for the benefit of all stakeholders is appropriately reflected in the incentive arrangements and outcomes for the Executive Directors over the coming period. The Committee has decided that instead of setting the Executive Directors' profit target by reference to IFRS profit before tax (excluding amortisation, policyholder tax adjustments and other one-off items), the Committee will set the profit target by reference to Adjusted Profit from the 2023 financial year onwards but will retain – and disclose full details in the relevant year's Remuneration Report regarding the application of – an override to adjust the Adjusted Profit outcome if any below-the-line costs for Adjusted Profit purposes exceed the Board-approved business plan or include any exceptional items that the Committee concludes should be reflected in remuneration outcomes to reinforce the continued alignment of Executive Director and shareholder interests. The previous IFRS profit definition has been in place since the Company listed in 2018, at which point it was delivering the Platform Transformation Programme and reshaping the perimeter of the business, with material restructuring costs as a result, so was seen by the Committee as a way of reinforcing alignment with the interests of shareholders. Those programmes are now complete and the Committee, noting that the definition of IFRS profit for STI purposes is not a metric reported for any other aspect of business performance and is not commonly used in the market, has decided that it is now appropriate to adopt Adjusted Profit for STI purposes, which, in contrast, is a widely followed metric by market participants. Aligning profit for STI purposes to Adjusted Profit will support the Policy principles of Clarity, Simplicity and Predictability for all stakeholders. It will also align the profit basis used in both the Company's short and long-term incentive plans. The targets for the 2023 STI award are set out on page 101 and the targets for the 2023 STI award will be disclosed retrospectively in the 2023 Directors' Remuneration Report in line with normal practice, given commercial sensitivity. The Committee will also continue to monitor market practice and regulatory developments. The Committee considered the overall remuneration arrangements for the Executive Directors for 2023 in accordance with the Policy. Key points are as follows: - the Committee approved a 5% increase to the Chief Financial Officer's base salary, which was in line with the average increase of the wider workforce, and will be implemented at the 1 April 2023 salary review date. This was the first increase awarded to the Chief Financial Officer since appointment in 2019; - there will be no increase to the Chief Executive Officer's base salary at the 1 April 2023 review date; and - there will be no increase in fee for the Board Chair and there are currently no planned fee increases for Non-executive Directors for 2023. As part of the change of Board Chair during 2022, the Committee approved a revised Board Chair Fee of £350k, a 7% reduction on the prior incumbent. 88 Quilter Annual Report 2022 ## Directors’ Remuneration Policy ## (summary) Strategic Report The Policy is summarised below. The full details of the Policy are on The Committee continues to assess the Policy against the principles pages 119 to 131 of the 2021 Annual Report and Accounts, which of clarity, simplicity, risk management, predictability, proportionality can be found in the investor relations section of the Quilter website. and alignment to culture, as set out in the Corporate Governance The Policy was approved by shareholders at the 2022 AGM and it is Code 2018. intended that the Policy will apply for three years from that date. The key drivers of our Remuneration Policy: Alignment to culture · to align the interests of the Executive Directors, senior executives and employees with the long-term interests of shareholders and strategic objectives of the Company; · to incorporate incentives that are aligned with and support the Group’s business strategy, align executives to the creation of long-term shareholder value, and promote the long-term sustainable success of the Company for the benefit of all stakeholders, within a framework that is sufficiently Governance Report flexible to adapt as our strategy evolves; · to reinforce a strong performance culture, across a wide range of individual performance measures, including behaviours, risk management, customer outcomes and the development of the Company’s culture in line with its values over the short and long term; · to ensure that remuneration practices are consistent with and encourage the principles of gender neutrality, equality, inclusion and diversity; and · to align management and shareholder interests through building material share ownership over time. Clarity · to clearly communicate our Remuneration Policy and reward outcomes to all stakeholders. Simplicity · to ensure that our Remuneration Policy is transparent and easily understood; and · to operate simple and clear remuneration structures across the Company. Financial statements Other information Risk · to provide a balanced package between fixed and variable pay, and long and short-term elements, to align with the Company’s strategic goals and time horizons whilst encouraging prudent risk management; and · to ensure reward processes are compliant with applicable regulations, legislation and market practice, and are operated within the bounds of the Board’s risk appetite. Predictability · to set robust and stretching performance targets which reward exceptional performance; and · to set remuneration within the limits established under the Remuneration Policy. Proportionality · to attract, retain and motivate the Executive Directors and senior employees by providing total reward opportunities which, subject to individual and Group performance, are competitive within our defined markets both in terms of quantum and structure for the responsibilities of the role; and · to consider wider employee pay when determining that of our Executive Directors. How we create value for our stakeholders Our strategic Grow with Enhance Embed digital Be the priorities our clients efficiency responsible and advisers wealth manager How we align our incentive schemes Short-term Net flows as a % Adjusted profit Part of personal Diverse incentive of opening AuMA element of the representation scorecard, informed Customer outcomes Colleague by relevant KPIs engagement Long-term EPS growth Operating margin Operating margin Responsible incentive investing Relative TSR EPS growth Carbon intensity Relative TSR of own operations 89Quilter Annual Report 2022 Directors’ Remuneration Policy continued Remuneration Policy for Executive Directors The tables on the following pages summarise the key components of Executive Director remuneration arrangements, which form part of the Policy. | Elements Purpose and link | | | Operation Maximum | | | --- | --- | --- | --- | --- | | | | to strategy | | opportunity | | | Base | Attract and retain | Base salaries are normally paid in equal monthly instalments during | There are | | | Salary | talent with the calibre, | the year and reviewed annually with increases usually effective 1 April. | no prescribed | | | | personal skills and | In reviewing base salaries the Committee takes into account a number | maximum salary | | | | attributes to develop, | of factors, and considers the direct and indirect impacts of any base | levels, but any | | | | lead and deliver the | salary increases on total remuneration. | salary increases | | | | Group’s strategy. | | will normally | | | | | Individual and Company performance will be taken into account | be in line with | | | | | in determining any salary increases. | percentage | increases across Fixed elements of pay the wider employee population. Benefits To aid retention and To provide Executive Directors with a market competitive level of In line with other attract the best talent benefits. Benefits currently provided to Executive Directors are in line employees, there for the business, whilst with other Quilter employees and include private medical insurance, is no maximum ensuring the total life assurance and income protection. monetary level package is competitive for benefits as in the market. Executive Directors are eligible to participate in the UK all-employee this is dependent share plans on the same terms as other employees, including the on the individual’s Company’s Share Incentive Plan and Sharesave Plan. circumstances, market practice Any reasonable business-related expenses (including tax thereon and the cost to if determined to be a taxable benefit) can be reimbursed. the Company. Pension To provide a Executive Directors are eligible to receive employer contributions to the This is currently market-competitive Company’s pension plan (which is a defined contribution plan) or a cash 10% of base contribution that allowance in lieu of pension benefits, or a combination. Contributions salary. helps to attract and and/or a cash alternative are paid monthly. retain the best talent for the business. | Short-term | To align remuneration | Performance targets and weightings are normally reviewed and | The maximum | | --- | --- | --- | --- | | incentive | with performance | set annually by the Committee taking into account business plans | STI opportunity | | | against financial and | and the Company’s risk appetite. Pay-out levels are determined | is 200% of base | | | non-financial business | by the Committee following the year end, based on performance | salary. | | | plan targets and | against objectives. | | personal goals, within the Group’s risk Performance is usually measured based on a mix of financial, appetite and taking non-financial, strategic and personal targets. The splits between into consideration the performance measures and relative weighting of the targets the Company’s culture are reviewed by the Committee at the start of each year and set and values, on an out in the Annual Report on Remuneration. annual basis. STI pay-out for threshold performance is set at 25% of maximum, on-target performance is set at 50% of maximum and maximum is set at 100%. At least 50% of any STI awarded to an Executive Director is normally deferred in the form of conditional awards under the Share Reward Plan, which vests annually in equal annual instalments over a three-year period subject to the rules of the Share Reward Plan. Malus and clawback provisions apply to both cash and deferred portions of the STI awards as described in further detail in ‘Risk adjustments, malus and clawback’ on page 126 of the 2021 Annual Report and Accounts. 90 Quilter Annual Report 2022 Directors’ Remuneration Policy continued Strategic Report Elements Purpose and link Operation Maximum to strategy opportunity Long-term To incentivise and LTI awards are made under the Quilter plc Performance Share Plan An award over incentive reward Executive (“PSP”). Awards are normally granted annually as nil cost options, which Company shares Directors for achieving are subject to performance conditions. Awards normally vest after with a face value superior long-term three years, subject to the achievement of performance conditions of 200% of base business performance and continued employment. salary at the date that creates of grant. shareholder value and Performance is measured based on a mix of financial and non-financial maximises sustainable targets. The splits between the performance measures and relative Governance Report shareholder returns. weighting of the targets are reviewed by the Committee at the start of each performance period and set out in the Annual Report on Remuneration. The metrics and weighting are subject to periodic review and may be amended for future plan cycles. For each performance metric, a threshold and stretch level of performance is set. At threshold, 25% of maximum of the relevant element vests rising on a straight-line basis to 100% for attainment of levels of performance between threshold and maximum targets. LTI awards are subject to malus and clawback provisions as described in further detail in ‘Risk adjustments, malus and clawback’ on page 126 of the 2021 Annual Report and Accounts. Financial statements Other information Shareholding To align Executive The Group operates a mandatory shareholding policy under n/a requirement Directors’ interests which Executive Directors are required to build up and maintain a with those of shareholding in the Company with a value at least equal to 300% of shareholders. base salary. Executive Directors are expected to meet the requirement within five years of the Company’s Listing date or, for newly-appointed Executive Directors, within five years of appointment if later. At least 50% of any shares vesting under Quilter’s share plans (on a net-of-tax basis) are expected to be retained until the shareholding requirements are met. Vested and unvested (net of tax) awards under the Share Reward Plan are included in the calculation of a Director’s shareholding for this purpose. Vested awards no longer subject to performance conditions (net of tax) under the PSP are also included. Executive Directors are normally required to hold shares for at least two years following cessation of their appointment at the lower of the minimum shareholding requirement of 300% of base salary or the value of shares held at the point of departure (if the Executive Director is still in the five-year accumulation period). There are no changes to the composition of the STI scorecard in terms of metrics and weightings. However, the basis of the STI profit metric will change from IFRS profit before tax (excluding amortisation, policyholder tax adjustments and other one-off items) to Adjusted Profit from 2023 onwards. There are no other changes proposed to the application of any of the above elements of remuneration in 2023. 91Quilter Annual Report 2022 Directors’ Remuneration Policy continued Termination of office policy If the employment of an Executive Director is terminated, any compensation payable will be determined by reference to the terms of the service agreement in force at the time. As variable pay awards are not contractual, treatment of these awards is determined by the relevant plan rules. Bad leavers are not entitled to any payment. The Committee may structure any compensation payments beyond the contractual notice provisions in the contract in such a way as it deems appropriate as set out in the table below and taking into account the best interests of the Company. Policy element Details Notice · In certain cases, Executive Directors will not be required to work their Normally six months’ notice. notice period and may be put on garden leave or granted pay in lieu of all or part of their notice period (“PILON”). PILON may be paid monthly or in a lump sum depending on circumstances. · Holiday does not accrue when PILON is paid. During a period of garden leave, holiday that has accrued is deemed to have been taken during the garden leave. · Executive Directors will be subject to annual re-election at the AGM. Treatment of annual incentive awards · Delivered in line with normal Policy and timeline, including the Annual incentive awards will be made to good leavers (see below) application of deferral into shares. based on an overall assessment of corporate and personal performance and (normally) pro-rated for the period worked in the performance year of termination. 1 Treatment of unvested legacy LTI and · LTI awards continue to the normal vesting date for good leavers deferred annual incentive share awards unless (exceptionally) the Committee applies discretion to accelerate All awards lapse except for good leavers. the vesting to the termination date. In each case, the number of shares released shall be based on the achievement of performance conditions over the performance period (or curtailed performance period, if applicable). The number of shares that vest would typically be calculated on a pro rata basis, based on time served during the vesting period. · Deferred annual incentive share awards for good leavers1 continue to the normal vesting date unless the Committee applies discretion to accelerate the vesting to the termination date. · Any post-vesting retention periods on share awards for good leavers continue to apply as normal. Compensation for loss of office · Terms are subject to the signing of a settlement agreement. Settlement agreements may provide for, as appropriate: · Incidental costs related to the termination, such as legal fees for advice on the settlement agreement. · Provision of outplacement services. · Payment in lieu of accrued, but untaken, holiday entitlements. · Exit payments in relation to any legal obligation or damages arising from such obligation. · Settlement of any claim arising from the termination. · Continuation or payment in lieu of other incidental benefits. · In the case of redundancy, in line with the Company operated enhanced redundancy policy. 1 Subject to further adjustments which may be applied to discretionary good leavers. An executive will be treated as a good leaver under certain circumstances such as death, illness, injury, disability, redundancy, retirement, their employing company ceasing to be a Group Company or any other circumstances at the discretion of the Committee. 92 Quilter Annual Report 2022 Directors' Remuneration Policy continued # Illustration of the application of the Policy Our aim is to ensure that superior rewards are only paid for exceptional performance, with a substantial proportion of Executive Directors' remuneration payable in the form of variable, performance-related pay. The graphics below illustrate the Executive Directors' fixed remuneration and how much they could earn for target and maximum performance for 2023. In developing the scenarios, the following assumptions have been made: # Fixed remuneration Consists of expected 2023 base salary, which will include the 5% uplift for the Chief Financial Officer from 1 April 2023, plus the value of benefits in 2022 on a full-year basis (incorporating any pro-rated base salary uplift impacts) and a 10% pension contribution or allowance. # On-target Based on the value of fixed remuneration plus the potential value that the Executive Director could earn for on-target performance: - a short-term incentive element paying out at 50% of maximum; and - long-term incentive element paying out at 50% of maximum. The assumptions noted for 'on-target' performance are provided for illustration purposes only. # Maximum In addition to fixed remuneration, includes the potential value under the STI and LTI plans that the Executive Directors could earn for maximum performance. # Share price growth Assuming share price growth of 50% to the maximum long-term incentive outcome, total remuneration would be £3,516,500 for the Chief Executive Officer. Chief Executive Officer (£'000) ![img-23.jpeg](img-23.jpeg) ■ Fixed remuneration ■ Short-term incentive ■ Long-term incentive Chief Financial Officer (£'000) ![img-24.jpeg](img-24.jpeg) Quaker Annual Report 2022 93 Strategic Report Governance Report Financial statements Other information ## Annual Report on Remuneration | Audited | Application of the Policy in 2023 | | --- | --- | | Content within an ‘Audited’ tab indicates that all the information | Content within a shaded box reflects the implementation | | is audited. | approach for 2023. | The Report sets out how the Policy of the Company has been applied in 2022 and how the Committee intends to apply the Policy going forward. An advisory shareholder resolution to approve this Report will be proposed at the AGM. The table below sets out the single figure of remuneration for the full financial year 2022 together with 2021 comparator figures. Audited | | Base | | | | | | | | | Total | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | 1 | STI | LTI | 2 | Total | | | | | | salary | Benefits | | Pension | | | | | | Fixed | Variable | | | Executive Director | £’000 | | £’000 | £’000 | | £’000 | £’000 | | £’000 | £’000 | | £’000 | 2022 Steven Levin (appointed 1 November 2022) 95.8 1.5 9.6 89.0 5.5 201.4 106.9 94.5 Mark Satchel 450.0 7.1 45.0 417.5 254.8 1,174.4 502.1 672.3 3 Paul Feeney (stood down 31 October 2022) 562.5 8.1 56.3 466.0 382.2 1,475.1 626.9 848.2 2021 Paul Feeney 675.0 10.2 67.5 886.0 754.4 2,393.1 752.7 1,640.4 Mark Satchel 450.0 7.1 45.0 618.0 502.9 1,623.0 502.1 1,120.9 1 Pension includes contributions made under the Group defined contribution pension scheme plus, where applicable, amounts received as a pension allowance. 2 LTI is a vesting value determined as a result of the achievement of performance measures or targets relating to the performance period ending on 31 December of the relevant financial years. These relate to the PSP (see pages 99 to 101). The value of the 2020 LTI is calculated using the average share price over the final three-month period of the year ending 31 December 2022, which was £0.9625. The actual vesting date is 27 March 2023 and the actual value will be reflected in next year’s Report. The amount of this figure, which includes share dividend equivalents, attributable to share price depreciation is valued at £1,591 for Steven Levin, £73,638 for Mark Satchel and £110,457 for Paul Feeney as at 31 December 2022. The 2021 LTI value has been updated to reflect the share price on the actual vesting date, 12 May 2022, which was £1.2291, and the dividend equivalents issued before vesting of 15,863 additional shares for Paul Feeney and 10,574 additional shares for Mark Satchel. 3 Base salary, benefits, pension and STI amounts in the above table are for qualifying services during the year up until 31 October 2022 only. For the period between 1 November 2022 and 31 December 2022, Paul Feeney continued to support the Company through a period of handover and transition and, in line with the Policy, for this period he received fixed compensation of £125,357 as part of his contractual notice period, as well as an STI of £93,000 calculated in line with the 2022 bonus scorecard in operation for Executive Directors. Components of the single figure There were no increases to Executive Director base salaries at the 1 April 2022 review date. The Committee agreed for Mark Satchel to receive a 5% base salary increase, which is in line with the average increase for the wider workforce, at the 1 April 2023 review date. | Audited | | | Total base salary | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Annual base salary | | paid in 2022 for | | | Total base salary | | | | as at 1 April 2022 | | qualifying services | | effective 1 April 2023 | | | | Executive Director | | £’000 | | £’000 | | | £’000 | Steven Levin (appointed 1 November 2022) – 95.8 575.0 Mark Satchel 450.0 450.0 472.5 Paul Feeney (stood down 31 October 2022) 675.0 562.5 – Benefits Benefits include life assurance, private medical cover and income protection. Audited Life assurance Medical Income protection Name £’000 £’000 £’000 2022 Steven Levin (appointed 1 November 2022) 0.5 0.2 0.8 Mark Satchel 2.2 1.3 3.6 Paul Feeney (stood down 31 October 2022) 2.8 0.8 4.5 2021 Paul Feeney 3.5 1.1 5.6 Mark Satchel 2.3 1.1 3.7 Benefits for 2023 No changes to the approach. 94 Quilter Annual Report 2022 Annual Report on Remuneration continued Strategic Report Pension Pension includes contributions made under the Group defined contribution pension scheme and/or amounts received as cash in lieu of pension contributions due to the impact of HMRC limits, for qualifying services only. The pension provisions of Executive Director appointments are aligned to the pension arrangements of the wider workforce, which is currently set at 10% of base salary. | Audited | Cash in lieu | | Contribution | | | | | --- | --- | --- | --- | --- | --- | --- | | | of pension | | to pension | | | Total | | | contribution | | | scheme | contribution | | | Name | | £’000 | | £’000 | | £’000 | 2022 Steven Levin (appointed 1 November 2022) 8.9 0.7 9.6 Mark Satchel 41.0 4.0 45.0 Paul Feeney (stood down 31 October 2022) 56.3 – 56.3 2021 Governance Report Paul Feeney 67.5 – 67.5 Mark Satchel 41.3 3.7 45.0 Pension for 2023 No changes to the approach. 2022 STI awards For the purpose of determining the 2022 STI outcome, the Committee assessed the performance of the business and the individuals by reference to a balanced scorecard of IFRS Profit (35%), net flows as a percentage of opening AuMA (25%), Customer/Risk (20%) and Strategic Personal performance objectives (20%) in line with the Policy. The summary below reflects the Committee’s assessment of performance for the year ended 31 December 2022. Financial statements Other information Group financial achievement Audited Weighting as % of total STI Threshold Target Maximum Outcome as Group financial performance measures opportunity (25% of max) (50% of max) (100%) Outcome % of max IFRS profit before tax attributable to equity holders (excluding amortisation, policyholder tax adjustments and other one-off items) 35% £61m £76m £91m £76m 50% IFRS profit reconciliation In determining the outcome of the profit metric shown above, the Committee considered the impact of key business transformation costs on IFRS profit and approved a discretionary downward adjustment to the STI outcome profit, relative to the reported IFRS profit, to ensure it reflected a fair and reasonable outcome for the overall performance achieved. The adjustments are detailed in the schedule below, which provides a reconciliation between reported profit, the STI target and STI outcome. Audited 2022 profit reconciliation Reported profit STI target STI outcome Adjusted profit before tax (before financing costs) £134m £146m £134m Debt financing costs (£10m) (£10m) (£10m) Adjusted profit before tax (after financing costs) £124m £136m £124m 1 Business Transformation (£23m) (£31m) (£27m) 2 Contingency for further revenue and cost benefits (£5m) (£24m) (£24m) Platform Transformation Programme costs (“PTP”) – (£1m) – 3 Quilter Life Assurance & Quilter International restructuring costs (£3m) (£4m) (£4m) 4 Customer remediation £6m – £6m 5 Foreign exchange movements £4m – – IFRS profit before tax attributable to equity holders (excluding amortisation, policyholder tax adjustments and other one-off items) £103m £76m £76m 1 Final Optimisation costs were £4 million lower than plan. Business Simplification costs were lower than the plan expectation for the year due to the timing of delivery and costs are still expected to be incurred at a later date. As such, the Committee approved an adjustment to remove the benefit of below-target spend on Business Simplification. 2 As actual spend was lower than the original contingency budget, the Committee approved an adjustment to true-up the STI outcome to the target level and remove the benefit of lower actual costs. 3 The difference between actual and target spend is due to the timing of building exit costs; the Committee approved an adjustment to remove the benefit of lower actual spend during the period. 4 The customer remediation net benefit arises from £12 million of insurance recoveries on past redress costs related to historic pre-acquisition DB to DC pension transfer advice, offset by costs of £6 million related to voluntary customer remediation payments arising from the Quilter Investment Platform Final Plan Closure matter. 5 Relating to the South African Rand transactions to complete the B Share Scheme, with no benefit attributed to the performance scheme. 95Quilter Annual Report 2022 Annual Report on Remuneration continued Net flows as a percentage of opening AuMA Net flows as a percentage of opening AuMA represented an increased maximum of 25% of the total STI opportunity, up from 20% in 2021. This is aligned to the Group’s KPIs and is calculated by assessing the full year’s net flows, which is made up of gross inflows less gross outflows, divided by the opening AuMA as at 1 January 2022. The below table details the performance and outcome: Audited Weighting as % of total STI Threshold Target Maximum Outcome as Performance condition opportunity (25% of max) (50% of max) (100% of max) Outcome % of max Net flows £4.4bn £6.2bn £8.9bn £1.8bn Opening AuMA £111.8bn £111.8bn £111.8bn £111.8bn Net flows as a percentage of opening AuMA 25% 4% 6% 8% 2% 0% Group risk and customer performance achievement Key Group non-financial objectives represented a maximum of 20% of the total STI opportunity. The risk measure assesses the effectiveness of risk management at an overall corporate level for each of the Executive Directors by considering quantitative and qualitative indicators of tone at the top and risk culture, management of risk profile with framework tools, management against risk appetite, the understanding of risk in strategic and tactical decision making and regulatory relationships. For the Customer element of the scorecard, performance was assessed against key risk and performance indicators covering governance, customer contact, complaints, satisfaction, service, advice suitability and oversight and an assessment of value, as measured by the Company’s Customer Strategic Risk Appetite Principles (“SRAP”), as well as customer outcome and satisfaction indicators including net promoter and Trust Pilot scores, investment performance data and a qualitative assessment of evidence of broader customer focus. Audited Weighting as | Customer and Risk | | % of total STI | | | Outcome as | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Performance measures Executive Director | | opportunity Key achievements in the year | | | | % of max | | | Risk Management | Steven Levin | | 10% · Strong support of a risk aware culture, promoting speaking | | | | 60% | | Framework | (appointed | | | up and constructive engagement with second line. | | | | | Effectiveness | 1 November 2022) | | | · Sound understanding of risk profile and top risks across the | | | | business clearly reflected in governance forum discussions, with constructive engagement and challenge. Risk Management Mark Satchel 10% · Strong risk focus, including through Capital Management Forum 60% Framework and constructive engagement with second line. Effectiveness · Balanced focus on cost control with managing risks, ensuring risks fully identified and mitigating actions in place. · Capital and liquidity management strong and effective, ensuring Quilter’s financial position remains resilient and within risk appetite. · Consideration of risk factors embedded in business planning process and provided clear view of risks associated with plan. · Proactive and open engagement with regulators, particularly in relation to the Tier 2 debt refinancing. | Risk Management | Paul Feeney | 10% · Strong tone at the top, ensured effective discussions and | | 50% | | --- | --- | --- | --- | --- | | Framework | (stood down | | considerations on key risk issues. | | | Effectiveness | 31 October 2022) | | · Clear understanding of risk profile and challenged management | | team to ensure effectiveness of mitigating actions. · Balance between commercial drivers and broader associated risks could be strengthened in some decision making. | Customer Outcomes Steven Levin, | | 10% · The Committee considered performance against a 50:50 balance | | 79% | | --- | --- | --- | --- | --- | | | Mark Satchel and | | of customer SRAP measures and customer satisfaction and | | | | Paul Feeney | | delight measures. | | · Quilter’s Trustpilot score remained steady over 2022, ending the year at 4.2 with 78% of reviews being 4/5 stars and Quilter’s overall satisfaction score was at 82%. This performance compared favourably to peers. · Strong investment performance across our WealthSelect MPS range (8 portfolios 1st or 2nd quartile over 1 and 3 years), though the Cirilium Active range lagged industry benchmarks (5 portfolios 3rd or 4th quartile over 1 and 3 years). · Key propositional launches including WealthSelect Plus and the Climate Assets Growth fund. · Launch of the Quilter Family Office campaign. · Launch of the Quilter Customer App for the Quilter Investment Platform. · Further ESG integration into the advice process to support customer preferences on responsible investing. 96 Quilter Annual Report 2022 Annual Report on Remuneration continued Strategic Report Strategic personal performance – achievement Personal objectives represented a maximum of 20% of total STI opportunity. A performance commentary is given in the table below. Audited Weighting as | | % of total STI | | | | Outcome as | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Executive Director | opportunity Overview Key achievements in the year | | | | | % of max | | | Steven Levin | | 20% Priorities following | | · Timely reorganisation of the Quilter Executive Committee to | | | 75% | | (appointed | | | appointment were to | provide strong leadership and delivery against the Company’s | | | | | 1 November 2022) | | | become quickly | strategic priorities and transformation plans. | | | | | | | | established in the Group | · Strong start to the Group Chief Executive Officer role, with | | | | | | | | CEO role, build the right | early identification and grasp of pressing business issues, | | | | | | | | leadership capability at | focused on execution. | | | | | | | | the executive table and | · Effective early engagement with key stakeholders as Group | | | | | | | | start to drive forward the | Chief Executive Officer, including customers, shareholders, | | | | Governance Report key strategic priorities employees and regulators to ensure the Company is focused facing the business. on delivery for the benefit of all. · Diverse representation targets for females and ethnic minorities in senior leadership roles were underachieved, with 36% female representation against a target of 38% and 4% ethnic minority representation against a target of 5% at the end of 2022. | Mark Satchel 20% Objectives focused on | | · In conjunction with the Chief Executive Officer, responded | 75% | | --- | --- | --- | --- | | | delivery of financial KPIs | decisively to the rapidly changing macro-environment | | | | with a particular focus on | following Russia’s invasion of Ukraine by implementing strong | | | | expenses, conclusion of | cost discipline for 2022, accelerating the delivery of planned | | | | the general ledger | cost reductions and delivering costs well below plan. | | | | rationalisation | · Business Simplification initiatives generated annual run-rate | | | | programme, completion | savings of £23 million, more than double the original target | | Financial statements Other information | of return of capital and | and ahead of plan. | | --- | --- | | share buyback | · Led successful execution of the capital return of £328 million | | programmes, resolution | in surplus proceeds from the sale of Quilter International to | | of the Group Capital | shareholders by way of a B Share Scheme followed by a Share | | regime and preparation | Consolidation. | | of a new or rolling bond | · Led preparatory work for a new Tier 2 bond issue as part | | instrument ahead of the | of the Company’s debt refinancing plans. | | first call redemption on | · Provided strong and stable leadership during a period of | | the Company’s existing | exceptional market conditions and played an integral role | | Tier 2 bond in Q1 2023. | in supporting the transition of Group CEO and Group Chair. | · Diverse representation targets for females and ethnic minorities in senior leadership roles were underachieved, with 36% female representation against a target of 38% and 4% ethnic minority representation against a target of 5% at the end of 2022. | Paul Feeney | 20% Objectives focused on | | · Overall business performance was solid in difficult market | 55% | | --- | --- | --- | --- | --- | | (stood down | | overall delivery of the | conditions and good progress was made against strategic | | | 31 October 2022) | | Company’s business and | priorities. | | | | | operating plans, strategic | · Important uplift to our investment proposition with the | | | | | propositional | launch of Wealth Select Plus, including a full suite of | | | | | developments, | responsible and sustainable portfolios, as well as an improved | | | | | continuing to improve the | digital proposition with the launch of a Customer App for | | | | | control environment and | the Platform. | | | | | developing the | · RFP numbers fell short of business plan targets, reflecting | | | | | responsible wealth | a difficult environment for adviser recruitment and retention | | | | | manager strategy, whilst | amid consolidation in the industry, whilst Investment | | | | | achieving strong core | Manager numbers were in line with target. | | | | | business performance | · Demonstrated visible and responsible leadership against a | | | | | and creating value for | difficult backdrop in 2022, with particular focus on the wider | | | | | shareholders. | workforce including a one-off cost-of-living payment and | | improving the Company’s culture score to 7.4 out of 10 in line with the target set at the start of the year. · Diverse representation targets for females and ethnic minorities in senior leadership roles were underachieved, with 36% female representation against a target of 38% and 4% ethnic minority representation against a target of 5% at the end of 2022. 97Quilter Annual Report 2022 Annual Report on Remuneration continued As part of its performance assessment, the Committee considered whether the overall STI outcomes were appropriate in the context of overall business performance and individual strategic/personal objectives, and whether any exceptional risk events occurred which, in the Committee's opinion, may have materially affected the STI outcome. The Committee, jointly with the Board Risk Committee, also considered an annual risk report and the recommendations of the Chief Risk Officer in respect of the incidence and materiality of any risk issues arising during the year and an overall assessment of risk management relative to the Board's risk appetite and risk culture across the business. Following the identification of an unintended consequence relating to the application of a particular contractual term following account closure within the pension and bond products on the UK Platform, the Company decided to make voluntary remediation payments to customers impacted over the last 10 years. This resulted in total costs of £6 million for the remediation payments, which had the effect of reducing the Chief Executive's STI outcome by £14k (a reduction of 14% of the outcome) and the Chief Financial Officer's STI outcome by £63k (a reduction of 13% of the outcome). The Committee concluded that the 2022 financial impact of the additional costs was already appropriately reflected in the 2022 STI outcomes and a further explicit risk adjustment was not required. #### Deferral policy In line with our Policy, 50% of the Executive Directors' 2022 STI awards will be deferred into a conditional award of ordinary shares under the Share Reward Plan and will vest in equal annual instalments over a three-year period, subject to continued employment and malus and clawback provisions in accordance with the rules of the Share Reward Plan. | Exercise Director | Total | | Deferred bonus | | To be paid in cash | | | --- | --- | --- | --- | --- | --- | --- | | | £'000 | % of salary | £'000 | % of salary | £'000 | % of salary | | Steven Levin (appointed 1 November 2022) | 89.0 | 93% | 44.5 | 46% | 44.5 | 46% | | Mark Satchel | 417.5 | 93% | 208.8 | 46% | 208.8 | 46% | | Paul Feeney (stood down 31 October 2022) | 466.0 | 83% | 233.0 | 41% | 233.0 | 41% | #### STI for 2023 In line with our Policy, both Executive Directors are eligible to receive STI awards up to 200% of base salary. Performance will be based on a combination of Group financial targets as well as customer, risk, strategic and personal measures (including inclusion and diversity measures). From 2023, the profit component of the STI scorecard will be based on Adjusted Profit instead of IFRS profit (excluding amortisation, policyholder tax adjustments and other one-off items). Actual targets for 2023 have not been disclosed due to commercial sensitivity. These targets will be disclosed in the 2023 Report. No other changes to the scorecard metrics or weightings are proposed. 98 Quaker Annual Report 2022 Annual Report on Remuneration continued ### Vesting of 2020 LTI awards On 31 December 2022, the 2020 LTI awards granted under the PSP reached the end of their performance period. These awards will vest on 27 March 2023, with the vested shares subject to a further two-year post-vesting holding period. The performance conditions which applied to the 2020 LTI award and the performance achieved are set out below: | Audited | | | | | | | --- | --- | --- | --- | --- | --- | | Performance condition | Weighting | Threshold^{1} (25% vesting) | Maximum^{2} (100% vesting) | Performance Achieved^{3} | Weighted Percentage of Award Vesting | | EPS CAGR (2019-22)^{2} | 70% | 6%^{4} | 17%^{4} | 9.1% | 46.2% | | Relative TSR^{5} | 30% | Median | Upper quartile | 102 out of 157 companies^{5} | 0.0% | | **Award Outcome** | | | | | **32.4%** | $^{1}$Straight-line interpolation between points. $^{2}$The Committee adjusted the EPS CAGR performance condition to reflect the sales of Quilter Life Assurance and Quilter International. $^{3}$Adjusted EPS, pre-dividend excluding amortisation and goodwill. $^{4}$The Committee adjusted the EPS CAGR threshold and maximum targets from 5-15% to 6-17% to reflect an expectation of higher growth excluding discontinued operations. This had the effect of increasing the level of challenge in the targets, and reducing the outcome for the EPS metric for 2019-22 from 56% to 46%. $^{5}$Ranking relative to the constituents of the FTSE 250 excluding Investment Trusts. $^{6}$Quilter achieved TSR of -27% over the period compared to median TSR for the comparator group of -9% and upper quartile of 21%. To ensure that earnings growth could be fairly and consistently assessed and the outcome appropriately reflective of the underlying performance achieved, the Committee, supported by independent expert advice, considered the impact of the sale of Quilter Life Assurance, which completed on 31 December 2019, and the sale of Quilter International, which completed on 30 November 2021. The Committee decided to exclude Quilter Life Assurance and Quilter International profits, adjusted for stranded costs, from the base year of the Adjusted EPS CAGR calculation to ensure the earnings growth was measured on a like-for-like basis between the end year and the base year, which was consistent with the treatment applied to the 2018 and 2019 LTI awards at vesting. The Committee also fixed the share count in both years to neutralise the benefit of a reduction in share count over the period resulting from the share buyback programme funded by the proceeds from the sale of Quilter Life Assurance and the Share Consolidation following the capital return of surplus proceeds from the sale of Quilter International. Finally, the Committee reassessed the target CAGR range to reflect an expectation of higher growth excluding discontinued operations and concluded on increasing the EPS CAGR threshold and maximum targets from 5-15% to 6-17%. This had the effect of increasing the level of challenge in the targets and reducing the outcome for the EPS metric for 2019-22 from 56% to 46% of maximum. | Audited | | | | | --- | --- | --- | --- | | Performance condition | 2019 £m | 2022 £m | Outcome | | **Adjusted Profit (before tax)^{6}** | **235** | **134** | | | less Quilter Life Assurance profit | (53) | – | | | plus Quilter Life Assurance stranded costs | (12) | – | | | less Quilter International profit | (55) | – | | | plus Quilter International stranded costs | (10) | – | | | **Revised Adjusted Profit (before tax)** | **105** | **134** | | | **Revised Adjusted Profit (after tax)** | **89** | **115** | | | Weighted average number of shares (million)^{7} | 1,835 | 1,835 | | | Adjusted EPS (pence) | 4.8 | 6.3 | | | **Adjusted EPS CAGR (2019-22)** | | | **9.1%** | $^{1}$Pre-dividend excluding amortisation and goodwill. $^{2}$Share count in the measurement year has been adjusted to match the share count in the base year (1,835 million) to neutralise any benefit arising from a reduction in share count on the basis that the earnings of Quilter Life Assurance (the proceeds of which funded the share buyback programme) and the earnings of Quilter International (following which a Share Consolidation took place) have been excluded from the calculation. Strategic Report Gennissace Report Financial statements Other information Quilter Annual Report 2022 99 Annual Report on Remuneration continued The Committee considered whether the performance had been achieved within the Company’s agreed risk appetite and the impact of any risk events during the performance period and concluded that no further discretionary adjustment to the outcome was required. The Committee also considered whether the vesting of awards may give rise to any windfall gains for the Executive Directors and noted that the awards were granted at a share price of 123p, considerably higher than the likely vesting price, with the three-month average share price for the period to the end of 2022 being 96p. As a result of the 2020 LTI awards vesting at 32.4%, the Executive Director outcomes are as follows: Audited Share-settled | | | Number of | | dividend | % of Awards | | | Number of | Value of shares | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Executive Director | shares granted | | | | | | | | | 1 | | | | | equivalents | | | vesting | shares vesting | | vesting (£000) | | 2 Steven Levin (appointed 1 November 2022) 15,776 1,877 32.4% 5,720 5.5 Mark Satchel 730,223 86,870 32.4% 264,738 254.8 Paul Feeney (stood down 31 October 2022) 1,095,335 130,306 32.4% 397,108 382.2 1 Deemed value based on the average share price of the final three-month period ended 31 December 2022 of £0.9625, the actual value will be based on the share price when the awards vest on 27 March 2023. The amount of this figure, which includes share dividend equivalents, attributable to share price depreciation is valued at £1,591 for Steven Levin, £73,638 for Mark Satchel and £110,457 for Paul Feeney as at 31 December 2022. 2 Steven Levin’s awards are pro-rated for his qualifying services only, which are two months of the thirty-six month performance period. LTI awards granted in 2022 Executive Directors are eligible to participate in the PSP, which is an LTI plan. The awards granted in 2022 are subject to the following performance conditions: Audited | | | | Threshold | 1 | | Maximum | 1 | | --- | --- | --- | --- | --- | --- | --- | --- | | 2022 LTIP Performance Metrics Weighting % | | (25% vesting) | | | (100% vesting) | | | | Earnings per share · Cumulative Adjusted EPS 2022-24 (pre-dividend excluding | 40% 24.6p 37.0p | | | | | | | amortisation and goodwill) Operating margin · 2024 pre-tax Adjusted Profit divided by total net fee revenue 25% 27.5% 32.5% Total shareholder return · Ranking relative to the constituents of the FTSE 250 excluding 25% Median Upper quartile investment trusts of index of index 2 ESG · Carbon intensity of Quilter’s operations (tonnes of carbon 2.5% 2,050 1,650 dioxide (tCO2e) per full-time employee/contractor) · Responsible investing (Principles for Responsible Investment 7.5% 12 stars 20 stars 3 (“PRI”) aggregate modules rating) 1 Straight-line interpolation between threshold and maximum. 2 Given ESG is an emerging area of focus for the Committee, we will keep the approach to measuring ESG progress under review and may make adjustments to the metrics or weightings for future awards. 3 If the score for any module is less than 3 stars, it will not count towards the total. 100 Quilter Annual Report 2022 Annual Report on Remuneration continued Strategic Report At the end of the three-year performance period, the Committee will critically assess whether the formulaic vesting outcome produced by the criteria is justified. To do this, the Committee will look at several factors, including whether the result is reflective of underlying performance and has been achieved within the Company’s agreed risk appetite. If such considerations mean that the formulaic outcome of the vesting schedule is not felt to be justified, then the Committee can exercise downward discretion. The following LTI awards were granted in respect of the 2022 performance year: Audited | | | Share price | | Nil cost | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Executive | Basis of award | at the date | | options | Face value | | % vesting at | Performance | | | Director Form of award Date of award | (% of salary) | | | | | 1 | threshold | | period | | | | | of grant | awarded | of award | | | | | 2 Steven Levin Nil cost options 27 March 2022 200% £1.3765 209,872 £288,889 25% 2022–2024 Mark Satchel Nil cost options 27 March 2022 200% £1.3765 653,832 £900,000 25% 2022–2024 3 Paul Feeney Nil cost options 27 March 2022 200% £1.3765 980,748 £1,350,000 25% 2022–2024 Governance Report 1 The face value of the award figure is calculated by multiplying the number of shares awarded by the closing share price on the working day before the award was granted, of £1.3765. 2 Steven Levin’s awards were granted prior to being appointed Chief Executive Officer, his awards are pro-rated for his qualifying services only, which are twenty-six months of the thirty-six month performance period. 3 Upon vesting, Paul Feeney’s award will be pro-rated for the proportion of the vesting period served. LTI awards to be granted in 2023 The Committee intends to grant awards to the Executive Directors in March 2023 over nil cost options under the PSP with a face value at grant of 200% of base salary. | | | | Threshold | 1 | | Maximum | 1 | | --- | --- | --- | --- | --- | --- | --- | --- | | 2022 LTIP Performance Metrics Weighting % | | (25% vesting) | | | (100% vesting) | | | | Earnings per share · Cumulative Adjusted EPS 2023-25 (pre-dividend excluding | 40% 19p 28p | | | | | | | amortisation and goodwill) Financial statements Other information Operating margin · 2025 pre-tax Adjusted Profit divided by total net fee revenue 25% 23% 27% Total shareholder return · Ranking relative to the constituents of the FTSE 250 25% Median Upper quartile excluding investment trusts of index of index 2 ESG · Carbon intensity of Quilter’s operations (tonnes of carbon 2.5% 1,800 1,450 dioxide (tCO2e) per full-time employee/contractor) · Responsible investing (Principles for Responsible Investment 7.5% 12 stars 20 stars 3 (“PRI”) aggregate modules rating) 1 Straight-line interpolation between threshold and maximum. 2 Given ESG is an emerging area of focus for the Committee, we will keep the approach to measuring ESG progress under review and may make adjustments to the metrics or weightings for future awards. 3 If the score for any module is less than 3 stars, it will not count towards the total. The Committee may apply discretion to adjust the formulaic outcome upon vesting based on a review of the extent to which windfall gain considerations apply. No further changes are proposed for the approach. All-employee share plans In 2022, the Company invited all eligible UK employees, including Executive Directors, to enter the Save As You Earn (“SAYE”) scheme. The scheme allows participants to save up to a maximum of £500 across all savings contracts on a monthly basis for either a three or five-year term. At the end of the savings period, participants have the option to purchase Company shares at a discounted option price, which was set at the beginning of the scheme. This year’s scheme commenced on 1 July 2022 with an option price of 117 pence. In 2022, Steven Levin entered into a three-year savings contract, providing an option at maturity over 15,384 Quilter shares and Mark Satchel entered into a five-year savings contract, providing an option at maturity over 25,641 shares. Steven Levin and Mark Satchel also participated in the three-year 2019 SAYE scheme with an option price of 125 pence, which matured on 1 July 2022. The options under this scheme lapsed at the end of the six-month exercise period following maturity due to the prevailing share price being lower than the option price, and savings were returned to participants. 101Quilter Annual Report 2022 Annual Report on Remuneration continued Non-executive Director total remuneration The total remuneration for the services to Quilter Non-executive Directors is set out in the table below. Non-executive Directors are not entitled to any benefits, pension or pension equivalents, or awards under any of the equity plans. All Non-executive Directors have a service contract with a three-months’ notice period and an initial three-year term from appointment, subject to annual re-election at the AGM, as detailed in the Policy. As at 31 December 2022, the regular Non-executive Director fees were paid at the following rate: Fee as at 31 December Annual fees (Quilter Board) 2022 Chair £350,000 Basic annual fee £65,000 Additional fees: Senior Independent Director £20,000 Chairs of Board Audit, Board Risk, Board Remuneration and Board Technology and Operations Committee £25,000 Members of the above Board Committees £10,500 Members of the Board Corporate Governance and Nominations Committee £5,500 | Audited | | | Taxable | | | | | Taxable | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Fees for | | | | 1 | | | | | 1 | | | | | benefits | | | Fees for | | benefits | | | | | | 2022 | | 2022 | | | 2021 | | 2021 | | | Non-executive Director | | £’000 | | £’000 | | | £’000 | | £’000 | | Ruth Markland 182.0 2.6 126.0 – Neeta Atkar 41.2 0.3 – – 2 Tim Breedon 96.3 – 91.5 0.2 Tazim Essani 86.0 0.1 64.8 0.1 Moira Kilcoyne 100.5 20.7 100.5 – 3 Paul Matthews 86.0 7.1 86.0 3.2 4 George Reid 119.4 29.6 111.0 12.5 5 Chris Samuel 86.0 1.5 43.0 0.9 Former Non-executive Directors 6 Glyn Barker 36.2 1.4 – – Rosie Harris 37.0 7.8 111.0 7.6 Glyn Jones 137.1 – 375.0 – 1 Taxable benefits relate to travel and subsistence expenses, and tax thereon, which were required to carry out duties as a Non-executive Director. Taxable benefits were not disclosed in the prior year. Such expenses were significantly lower in the prior year due to the global pandemic restricting travel. They have been included in the table above in order to ensure comparability. 6 Glyn Barker attended Board Audit Committee meetings and he did not receive a fee. Where applicable, additional fees are paid for a Non-executive Director who also serves on a subsidiary company within the Group. The current subsidiary Board and Committee fees are listed below, and details of fees paid are disclosed in the financial statements of the relevant legal entity. Fee as at 31 December Subsidiary Board fees: 2022 Chair of Subsidiary Boards £80,000 Board Member of Quilter Financial Planning (“QFP”), Quilter Investors (“QI”), Quilter Cheviot (“QC”) £45,000 Members of the Subsidiary Board Committees £5,000 The following Non-executive Directors received additional fees for subsidiary appointments during 2022: 2 Tim Breedon is the Chair of Quilter Investors Limited. 3 Paul Matthews is a Director of Quilter Financial Planning Limited and is a member of its Audit Committee and Risk & Governance Committee. He was in receipt of a temporary uplift in his Quilter Financial Planning Limited fees from 1 January 2021 until 30 June 2022, which reflects the additional time commitment required in the business area. 4 George Reid is the Chair of the UK Platform business, which comprises Quilter Life and Pensions Limited and Quilter Investment Platform Limited. 5 Chris Samuel is the Chair of Quilter Financial Planning Limited. He was in receipt of a temporary uplift in his Quilter Financial Planning Limited fees from 1 January 2021 until 30 June 2022, which reflects the additional time commitment required in the business area. Further details on Non-executive Directors’ Board and Committee responsibilities and dates of appointment can be found on pages 52 to 58 of the Chair’s Introduction to Corporate Governance. 102 Quilter Annual Report 2022 Annual Report on Remuneration continued Strategic Report TSR performance graphic over the period since Admission 90 60 Jun 2018 Dec 2018 Jun 2019 Dec 2019 Jun 2020 Dec 2020 Jun 2021 Jun 2022Dec 2021 Governance Report The graph above shows the Company’s TSR performance versus the FTSE 250 excluding Investment Trusts over the period ended 31 December 2022. The FTSE 250 has been chosen as the Company is a member of that index. Group Chief Executive Officer pay The table below contains the Chief Executive Officer’s annual remuneration since the Company listed in 2018: Total remuneration Annual bonus as LTIP vesting as Financial year Name £’000 % of maximum % of maximum 2022 Steven Levin (appointed 1 November 2022) 201.4 46% 32.4% 2022 Paul Feeney (stood down 31 October 2022) 1,475.1 41% 32.4% 2021 Paul Feeney 2,393.1 66% 56.5% Financial statements Other information 2020 Paul Feeney 1,487.3 0% 48.7% 2019 Paul Feeney 1,896.3 79% n/a 2018 Paul Feeney 2,778.9 93% n/a Percentage change in Directors’ remuneration compared to the average employee The table below sets out the annual percentage change in salary or fee and STI between the Directors and average employee from 2019 to 2022. The annual change in salary is based on the salary of permanent UK employees as at 31 December, and the annual change in STI excludes employees that are not eligible for bonus. The annual increase in salary for the average employee reflects the inflationary environment and the strategic initiatives which have targeted efficiencies in workforce. The annual decrease of the average employee and Executive Directors’ STI in 2022 reflects the challenging market conditions we have been operating in, the negative market movements and lower revenues have impacted the financial metrics driving the STI outcomes for all employees, and resulted in the weighted outcome of the financial aspect of the Executive Directors’ scorecard being 50% lower than prior year. The annual changes in Non-executive Directors’ fees are driven by changes in commitments, the Chair of the Board fee change in 2022 is the only Board or Committee fee change since Listing. As Executive Directors’ benefits are aligned to other UK employees, the analysis of movement in average benefits was not considered practical or meaningful and therefore not included in the below comparison. Further detail of Executive Directors’ benefits can be found on page 94 of this Report. | | | | | Executive Directors Independent Non-executive Directors | | | | | | | | | | | | | | | | | 1 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Remuneration | Average | Steven | | Mark | | Paul | | | Ruth | | Tim | George | | | Moira | | Paul | Tazim | Chris | Neeta | | | outcome | employee | Levin | 2 | Satchel | Feeney | | 2 | Markland | | Breedon | | | Reid | Kilcoyne | | Matthews | | Essani | Samuel | Atkar | | 2021-2022 Salary/fees 4% n/a 0% 0% 15% 3% 5% 0% (7%) 33% 15% n/a STI (12%) n/a (32%) (37%) n/a n/a n/a n/a n/a n/a n/a n/a 2020-2021 Salary/fees 5% n/a 0% 0% 2% 122% (1%) 0% 24% n/a n/a n/a £ 3 STI 78% n/a 100% 100% n/a n/a n/a n/a n/a n/a n/a n/a 150 2019-2020 Salary/fees 5% n/a 0% 0% 6% n/a (2%) 0% 10% n/a n/a n/a 3 STI (49%) n/a (100%) (100%) n/a n/a n/a n/a n/a n/a n/a n/a 120 1 Non-executive Directors’ annual fee percentage changes have been updated to reflect the total actual fees received during the year for all plc and subsidiary commitments, previously the fees used to calculate the percentage change were based on plc Committee and Board appointments as at 31 December. Details of each Non-executive Directors’ Board and Committee appointments can be found on page 102 of this Report. 2 Steven Levin was appointed Chief Executive Officer on 1 November 2022, Paul Feeney stood down as Chief Executive Officer on 31 October 2022. The outcomes in the above table are calculated using the remuneration from the time served as an Executive Director only. 3 During 2020, on the recommendation of the Executive Directors, the Committee exercised its discretion to reduce the Executive Directors’ STI outcome to zero, which impacts the year-on-year percentage change in 2020 and 2021. 103Quilter Annual Report 2022 Dec 2022 Quilter FTSE 250 excluding Investment Trusts Annual Report on Remuneration continued ### Chief Executive Officer pay ratio The table below sets out the ratio between the Chief Executive Officer's total remuneration and the median, 25th and 75th percentile of the total remuneration of full-time equivalent UK employees paid during the year. #### Total remuneration | Year | Pay ratio | | | | | | All employees £ | | --- | --- | --- | --- | --- | --- | --- | --- | | | Method | 25th percentile | Median | 75th percentile | 25th percentile | Median | 75th percentile | | 2022 | Option A | 46:1 | 30:1 | 17:1 | 36,196 | 56,092 | 96,835 | | 2021 | Option A | 70:1 | 47:1 | 26:1 | 33,963 | 51,399 | 93,358 | | 2020 | Option A | 55:1 | 36:1 | 21:1 | 29,663 | 45,349 | 78,368 | | 2019 | Option B | 62:1 | 39:1 | 27:1 | 30,478 | 48,486 | 69,114 | #### Salary | Year | Pay ratio | | | | | | All employees £ | | --- | --- | --- | --- | --- | --- | --- | --- | | | Method | 25th percentile | Median | 75th percentile | 25th percentile | Median | 75th percentile | | 2022 | Option A | 23:1 | 16:1 | 9:1 | 28,359 | 42,456 | 70,000 | | 2021 | Option A | 27:1 | 18:1 | 11:1 | 25,000 | 37,600 | 63,325 | | 2020 | Option A | 28:1 | 19:1 | 11:1 | 24,000 | 36,350 | 61,000 | | 2019 | Option B | 28:1 | 18:1 | 14:1 | 24,333 | 37,001 | 48,667 | Total remuneration includes salary, benefits, pension, short-term incentives and any value vested from long-term incentives during the year. As some 2022 STI amounts across the wider workforce are subject to change until after the publication of this Report, the total remuneration may not be exact. However, any STI changes are expected to be minimal and it is unlikely the pay ratios will change significantly once the STI amounts are determined. The 2021 total remuneration ratios above have been updated to reflect the actual STI and LTI amounts paid. The Chief Executive Officer remuneration is based on the combined salary and total single figure for Paul Feeney and Steven Levin for their qualifying services during the year. Our Chief Executive Officers have a higher proportion of variable pay in total remuneration, which is the main factor driving the difference in the ratios between salary and total remuneration. From the three options disclosed in the regulations regarding the methodology to identify the employees at median, 25th and 75th percentiles for comparison between those and the Chief Executive Officer, we recognise that the most precise method, and therefore often referred to as the preferred method, is Option A, which calculates the single figure for each UK employee. We have adopted Option A from 2020 and intend to continue reporting under this method in future years. The year-on-year salary variances at each quartile reflect the lower Chief Executive Officer salary and strategic initiatives which have targeted efficiencies in our workforce in 2022, reduction and change in profile of our workforce following the launch of our new platform in early 2021 and the sale of Quilter Life Assurance at the end of 2019, in addition to the adoption of Option A methodology from 2020. The year-on-year total remuneration variances reflect the lower Chief Executive Officer variable compensation in 2022, which is largely due to the decreased 2022 share price of the LTI, in addition to the targeted efficiencies in our workforce, and the outer years are largely due to the recommendation of the Chief Executive Officer to receive zero STI for 2020 due to the impact of the COVID-19 pandemic on the business and its employees in 2020. The Committee continues to carefully consider the macroeconomic conditions on the Company's employees, in addition to application of the Policy, and apply discretion where necessary, to ensure all aspects of Executive Directors remuneration remain aligned to the wider workforce. The Committee therefore believes the median pay ratio is consistent with pay, reward and progression policies for the Company's UK employees taken as a whole. #### Gender pay gap The Company reported a median gender pay gap of 30% and a median bonus gap of 44% for 2022. The results reflect the under-representation of women in senior roles, which we recognise is a systemic issue facing the wealth management industry and will require ongoing, multi-year efforts to resolve. Further details regarding our gender pay gap figures can be found on page 30 of the Responsible Business Report. 104 Quilter Annual Report 2022 Annual Report on Remuneration continued ### Relative importance of spend on pay The following table sets out the profit, dividends and overall spend on pay in the years ended 31 December 2022 and 31 December 2021: | | 2022 | 2021 | % Change | | --- | --- | --- | --- | | Adjusted profit before tax^{1} (£m) | 134 | 138 | (3%) | | Dividends^{2} (£m) | 61 | 64 | (5%) | | Employee remuneration costs^{1,3} (£m) | 292 | 290 | 1% | $^{1}$On a continuing business basis and therefore excludes Quilter International in 2021 for the period before the sale completed on 30 November 2021, including Quilter International, adjusted profit before tax is £188 million and employee remuneration costs are £329 million in 2021. Adjusted profit before tax is included in the above table as the Company considers it an important Key Performance Indicator. $^{2}$In 2021, the Company paid an Interim Dividend of 1.2 pence and a Final Dividend of 2.8 pence on a continuing basis. Including Quilter International, the Company paid an Interim Dividend of 1.7 pence and a Final Dividend of 3.9 pence and a total dividend payment of £90 million. For the 2022 financial year, the Company paid an Interim Dividend of 1.2 pence, a capital distribution equal to the 20 pence in the form of a B Share Scheme and Share Consolidation, and recommend a Final Dividend of 3.3 pence. $^{3}$Employee remuneration costs represent the underlying employee costs within the adjusted profit view for Quilter, excluding the impact of one-off items. ### Executive Directors' shareholding and interests in Quilter share plans The table below shows the Executive Directors' interests, which include shares held by connected persons, in Company share plans which will vest in future years subject to performance and/or continued service at 31 December 2022 together with any additional interests in shares held beneficially by the Executive Directors outside of Group share schemes. The share price at 31 December 2022 was £0.9292. During the period 31 December 2022 to 8 March 2023, there were no exercises or dealings in the Company's share awards by the Directors. | Author | Scheme interests at 31 December 2022 | | | | | | --- | --- | --- | --- | --- | --- | | | Legally owned (shares) | Subject to SIP (shares) | Subject to SAYE (options) | Deferred ETI and other awards not subject to performance conditions (shares) | Subject to performance conditions under the LTIP (shares) | | Steven Levin (appointed 1 November 2022)^{1} | 414,555 | 1,418 | 29,784 | 224,494 | 878,130 | | Mark Satchel | 863,459 | 1,418 | 40,041 | 347,633 | 2,077,935 | | Paul Feeney (stood down 31 October 2022)^{1} | 1,382,336 | 709 | 24,000 | 496,835 | 3,116,905 | $^{1}$Steven Levin's scheme interests are unadjusted for qualifying services. $^{2}$The share interests for Paul Feeney are as at the day he stood down from the Board, 31 October 2022. Strategy Report Governance Report Financial statements Other information Quilter Annual Report 2022 105 Annual Report on Remuneration continued ### Executive Directors' shareholding requirements In line with the Policy, each Executive Director is required to acquire and maintain a shareholding equivalent to 300% of base salary (including shares beneficially held by the individual or his/her spouse), the net of tax value of unvested share interests within Company share plans which are not subject to performance conditions and 25% of the value of beneficially held shares purchased by the individual or his/her spouse since the post-cessation shareholding policy came into effect. As at 31 December 2022, neither Steven Levin or Mark Satchel satisfy the minimum shareholding requirement due, in part, to the material reduction in Quilter's share price over the past year compared to historic averages. Each Executive Director has up to five years from the date of their appointment to achieve the minimum, which is 1 November 2027 for Steven Levin and 13 March 2024 for Mark Satchel. As per our Policy, Paul Feeney will be subject to the post-cessation shareholding requirement to hold the value of his shares detailed below – less any shares he is obliged to sell or transfer when they vest as part of a Court Order relating to his divorce settlement – until 31 October 2024, which is two years following cessation of his directorship. The shares are held in a corporate sponsored nominee account and permission to deal will need to be granted by the Company Secretary. | Audited | | | | --- | --- | --- | | Name | Value* £'000 | Multiple of base salary | | Steven Levin (appointed 1 November 2022) | 514.5 | 93% | | Mark Satchel | 1,009.8 | 224% | | Paul Feeney (stood down 31 October 2022)^{1} | 1,584.6 | 235% | $^{1}$Includes the estimated net value of unvested share awards which are not subject to performance conditions. For the purposes of the minimum shareholding requirement, the calculation is based on the average share price of the final three-month period ended 31 December 2022 of £0.9625. The actual value will be based on the share price when the awards vest. $^{2}$The shareholding for Paul Feeney is calculated as at the day he stood down from the Board on 31 October 2022. ### Directors' personal holding and beneficial share interests As at 31 December 2022 and 31 December 2021, the Executive and Non-executive Directors held the following legal and beneficial interests in ordinary shares: | Audited | | | | --- | --- | --- | | Name | 31 December 2022^{1} | 31 December 2021^{1} | | Steven Levin | 415,973 | n/a | | Mark Satchel | 864,877 | 696,304 | | Moira Kilcoyne | 29,556 | 34,482 | | George Reid | 17,733 | 20,689 | | Ruth Markland | 100,000 | 20,689 | | Paul Matthews | 25,714 | 30,000 | | Tazim Essani | 12,428 | – | | Tim Breedon | 10,000 | – | | Chris Samuel | 18,028 | 20,000 | | Neeta Atkar | – | – | | **Former Directors** | | | | Glyn Jones^{2} | 685,714 | 800,000 | | Rosie Harris^{3} | 14,778 | 17,241 | | Paul Feeney^{4} | 1,383,045 | 1,171,207 | | Glyn Barker^{5} | 88,858 | – | $^{1}$2021 shareholdings are in 7 pence ordinary shares, 2022 shareholdings are in 8 1/6 pence ordinary shares following Share Consolidation on 23 May 2022. $^{2}$Steven Levin was appointed to the Board on 1 November 2022. $^{3}$The shareholdings for Glyn Jones and Rosie Harris who stood down from the Board on 12 May 2022 and 30 April 2022, respectively, are as at 23 May 2022 following the Share Consolidation. The 2022 shareholding for Paul Feeney is as at the day he stood down from the Board, 31 October 2022. The shareholding for Glyn Barker is as at the day he stood down from the Board, 31 November 2022. During the period 31 December 2022 to 8 March 2023, there were no other changes to the interests in shares held by the Directors as set out in the table above. 106 Quilter Annual Report 2022 Annual Report on Remuneration continued # **Audited** # **Payments within the year to past Directors** During 2022, there were no payments made to any past Directors. # **Departure arrangements for Paul Feeney** As detailed in the Company's market announcement on 10 October 2022, Paul Feeney will be treated as a Good Leaver under the Policy after stepping down as Chief Executive Officer on 31 October 2022. He will continue to receive his salary and benefits until the end of his six-month notice period and remained eligible for a 2022 STI award. He will remain eligible for the vesting of outstanding deferred share awards on the normal vesting dates, subject to the satisfaction of performance conditions and pro-rating for the proportion of the vesting periods served where applicable, the rules of the relevant share plans and additional post-termination conditions. He was entitled to a capped contribution of £60,000 + VAT toward legal fees and other related support. # **External directorships** The table below sets out external directorships held by the Executive Directors. | Executive Directors | External directorships held | Fees received and retained | | --- | --- | --- | | Steven Levin | None | - | | Mark Satchel | None | - | # **External advisers** During 2022, Deloitte provided advice covering application of the newly approved Policy, annual remuneration report and policy disclosures, market practice and incentive design. Deloitte also support the Group with risk advisory, tax compliance and consulting services. As part of the procurement and contracting process, appropriate safeguards were put in place to ensure no conflict of interest arises. The Committee appointed Deloitte in April 2021, and remain satisfied that the advice received is objective and independent, and the firm is a member of the Remuneration Consultants Group, whose voluntary Code of Conduct is designed to ensure objective and independent advice is given to Committees. The total fees paid in respect of remuneration advice during 2022 are as follows: | Name | Key areas of advice received | Total fees 2022 | | --- | --- | --- | | Deloitte | Policy review, application, disclosures, governance and market practice | £71,880 | # **Statement of shareholder voting** During the Company's AGM in May 2022, a resolution to approve the Report was proposed, and the proportion of votes from shareholders cast For was 96% and cast Against was 4%. Total votes Withheld were 122,580, which is 0.01% of issued share capital. A resolution to approve the new Policy was also proposed, and the proportion of votes from shareholders cast For was 96% and cast Against was 4%. Total votes Withheld were 127,420, which is 0.01% of issued share capital. The next resolution to approve the Policy will be in 2025 as the current Policy is intended to be in place for three years. The Company did not receive a significant percentage of votes Against the resolutions at the 2022 AGM or prior years. Strategic Report Government Report Financial statements Other information Quaker Annual Report 2022 107 # Directors' Report ## The Directors present their Report for the financial year ended 31 December 2022 ### **Cautionary statement** This Annual Report has been prepared for, and only for, the members of the Company, as a body, and no other persons. The Company, its Directors, employees, agents or advisers do not accept or assume responsibility to any other person to whom this document is shown or into whose hands it may come and any such responsibility or liability is expressly disclaimed. By their nature, the statements concerning the risks and uncertainties facing the Group in the Annual Report involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this Annual Report and the Company undertakes no obligation to update these forward-looking statements. Nothing in this Annual Report should be construed as a profit forecast. ### **Corporate governance statement** The information that fulfils the requirements of the corporate governance statement for the purposes of the FCA's DTRs can be found in the governance section of the Annual Report on pages 52 to 107 (all of which forms part of this Directors' Report) and in this Directors' Report. ### **Information included in the Strategic Report** The Company's Strategic Report is on pages 2 to 51 and includes the following information that would otherwise be required to be disclosed in this Directors' Report: | Subject matter | Page reference | | --- | --- | | Likely future developments in the business | 5-7 | | Events since the end of the financial year | 193 | | Engagement with employees | 33 | | Engagement with suppliers, customers and others | 22-35 | | Employment of disabled persons | 33 | | Greenhouse gas emissions, energy consumption and energy efficiency action | 31 | | Financial risks | 47 | ### **Information to be disclosed under Listing Rule 9.8.4R** | Subject matter | Page reference | | --- | --- | | Details of long-term incentive schemes | 99-101 | | Shareholder waivers of dividends | 108 | | Shareholder waivers of future dividends | 108 | ### **Financial instruments and risk management** The information relating to financial instruments and financial risk management objectives and policies can be found on pages 131 to 134, 161 to 162, and 186 to 193. ### **Branches** During 2022, in addition to its offices in the UK, the Group has operated branches in Jersey and the United Arab Emirates. ### **Profit and dividends** Statutory profit after tax from continuing operations for 2022 was £175 million (2021: £23 million). The Directors have recommended a Final Dividend for the financial year ended 31 December 2022 of 3.3 pence per Ordinary Share which will be paid out of distributable reserves, subject to approval by shareholders at the 2023 Annual General Meeting ("AGM"). Further information regarding the dividend, including key dates, can be found at plc.quilter.com/dividends. On 10 August 2022, the Board declared an Interim Dividend of 1.2 pence per Ordinary Share. The Interim Dividend was paid on 20 September 2022 to shareholders on the UK and South African share registers. Shares are held in the Quilter Employee Benefit Trust ("EBT") and the Equiniti Share Plans Trust ("ESPT") in connection with the operation of the Company's share plans. Dividend waivers are in place for those shares that have not been allocated to employees. ### **Directors** The names of the current Directors of the Company, along with their biographical details, are set out on pages 56 to 58 and are incorporated into this Report by reference. Changes to Directors during the year are set out below: | Name | Role | Effective date of appointment/resignation | | --- | --- | --- | | Rosie Harris | Non-executive Director | Resigned 30 April 2022 | | Glyn Jones | Non-executive Director | Resigned 12 May 2022 | | Glyn Barker | Non-executive Director | Appointed 1 June 2022 Resigned 11 November 2022 | | Neeta Atkar | Non-executive Director | Appointed 11 August 2022 | | Paul Feeney | Executive Director | Resigned 31 October 2022 | | Steven Levin | Executive Director | Appointed 1 November 2022 | Details of the Directors' interests in the share capital of the Company are set out in the Annual Report on Remuneration on pages 94 to 107. The powers given to the Directors are contained in the Company's Articles of Association and are subject to relevant legislation and, in certain circumstances, including in relation to the issuing or buying back by the Company of its shares, subject to authority being given to the Directors by shareholders in general meeting. The Articles of Association also govern the appointment and replacement of Directors. The Board has the power to appoint additional Directors or to fill a casual vacancy amongst Directors. Any such Director only holds office until the next AGM and may offer themselves for election. ### **Articles of Association** The Articles of Association may be amended in accordance with the provisions of the Companies Act 2006 by way of a special resolution of the Company's shareholders. The following information summarises certain provisions in the Articles of Association in force as at the date of this Report. 108 Quilter Annual Report 2022 Directors’ Report continued Strategic Report Share capital and control of the refusal together with its reasons for refusal. The Board must The Company has Ordinary Shares in issue with a nominal value provide the transferee with such further information about the of 8 1/6 pence each, representing 100% of the total issued share reasons for the refusal as the transferee may reasonably request. capital as at 31 December 2022 and as at 3 March 2023 (the latest Unless otherwise agreed by the Board in any particular case, the practicable date for inclusion in this report). Details regarding maximum number of persons who may be entered on the register changes in the Company’s share capital, including information as joint holders of a share is four. on the B Share Scheme and Share Consolidation implemented on 23 and 24 May 2022, can be found in note 25 of the financial Variation of rights statements on page 172. The rights attaching to the Ordinary If at any time the share capital is divided into different classes of Shares are set out in the Articles of Association and are shares, the rights attached to any class (unless otherwise provided summarised below. by the terms of issue) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of Voting rights of members three-fourths in nominal value of the issued shares of that class Governance Report On a show of hands, every member or authorised corporate or with the sanction of a special resolution of the holders of the representative present has one vote and every proxy present shares of that class. has one vote except if the proxy has been duly appointed by more than one member and has been instructed by (or exercises his Exercisability of rights under an employee share scheme discretion given by) one or more of those members to vote for the An EBT operates in connection with certain of the Group’s resolution and has been instructed by (or exercises his discretion employee share plans (“Plans”). The Trustee of the EBT may given by) one or more other of those members to vote against it, exercise all rights attaching to the shares in accordance with their in which case a proxy has one vote for and one vote against the fiduciary duties other than as specifically restricted in the relevant resolution. On a poll, every member present in person or by proxy Plan governing documents. The Trustee of the EBT has informed has one vote for every share of which he is a holder. In the case the Company that their normal policy is to abstain from voting in of joint holders, the vote of the person whose name stands first respect of the Quilter shares held in trust. The Trustee of the in the register of members and who tenders a vote is accepted Quilter Share Incentive Plan (“SIP”) will vote as directed by SIP to the exclusion of any votes tendered by any other joint holders. participants in respect of the allocated shares but the Trustee will not otherwise vote in respect of the unallocated shares held Financial statements Other information Unless the Board decides otherwise, a member shall not be in the SIP Trust. entitled to vote, either in person or by proxy, at any general meeting of the Company in respect of any share held by him unless all calls Purchase of own shares and other sums presently payable by him in respect of that share On 27 January 2022, Quilter completed the £375 million share have been paid. buyback programme (the “Programme”), first announced on 11 March 2020 to distribute to shareholders the net surplus Transfers proceeds arising from the sale of Quilter Life Assurance. Save as described below, the Ordinary Shares are freely transferable. In 2019 when the Board approved the sale of Quilter Life Assurance, the Board engaged with its major shareholders to A member may transfer all or any of his shares in any manner obtain their views on the use of the sale proceeds. Having also which is permitted by any applicable statutory provision and discussed the matter with the Group’s brokers, the Board agreed is from time to time approved by the Board. The Company shall to return the sale proceeds to shareholders by way of the maintain a record of uncertificated shares in accordance with Programme. In February 2020, we reconfirmed with our major the relevant statutory provisions. shareholders that they remained supportive of the launch of the Programme. A member may transfer all or any of his certificated shares by an instrument of transfer in any usual form, or in such other form as The Programme was executed using the authorities granted by the Board may approve. The instrument of transfer shall be signed shareholders at the AGMs held on 14 May 2020 and 13 May 2021, by or on behalf of the transferor and, except in the case of a fully to purchase up to 10% of the Company’s issued Ordinary Share paid share, by or on behalf of the transferee. The Board may, in its capital in the period beginning on the date of each AGM and up absolute discretion, refuse to register any instrument of transfer to the date of the following year’s AGM. A breakdown of the of any certificated share which is not fully paid up (but not so as to Programme is noted in the following table. prevent dealings in listed shares from taking place on an open and Number of Total Percentage proper basis) or on which the Company has a lien. The Board may | | | Ordinary Shares | | | consideration | | Average price | of the issued | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | also refuse to register any instrument of transfer of a certificated | Year | | | 1 | | | | | 2 | | | | | purchased | | | paid | paid per share | share capital | | share unless it is left at the registered office, or such other place 2020 118,282,047 £152,963,992 £1.2932 6.22% as the Board may decide, for registration, accompanied by the 2021 128,141,834 £195,593,129 £1.5264 7.18% certificate for the shares to be transferred and such other 2022 3 17,704,132 £26,437,862 £1.4933 1.07% evidence (if any) as the Board may reasonably require to prove 1 Nominal value 7 pence each. title of the intending transferor or his right to transfer shares; 2 Calculated based on the total number of shares in issue at the beginning of each and it is in respect of only one class of shares. If the Board refuses financial year. 3 In addition to the Programme, the Company purchased four additional shares to register a transfer of a certificated share it shall, as soon as on 12 May 2022 as part of the Share Consolidation, as explained overleaf. practicable and in any event within two months after the date on which the instrument was lodged, give to the transferee notice 109Quilter Annual Report 2022 Directors' Report continued Shares bought back on the Johannesburg Stock Exchange ("JSE") were purchased pursuant to contingent purchase contracts with each of (a) J.P. Morgan Equities South Africa Proprietary Limited and (b) Goldman Sachs International, which were approved by shareholders at the 2020 and 2021 AGMs. The contracts enabled the Company to buy back its shares on the JSE in similar fashion and subject to the same overall limits as on-market purchases on the London Stock Exchange. The shares acquired under the Programme were cancelled upon acquisition. Details of the impact on earnings per share and total shareholder return can be found on pages 37 and 15 respectively, and how these metrics are factored into remuneration decisions on pages 99 to 100. At the AGM held on 12 May 2022, shareholders passed resolutions to authorise the Company to purchase a maximum of 163,812,308 Ordinary Shares of 7 pence each, representing 10% of the Company's issued Ordinary Share capital as at 21 March 2022, which was the latest practicable date prior to publication of the Notice of AGM. Four Ordinary Shares with a nominal value of 7 pence each were purchased under these authorities for an average price of £1.2485 per share. The four shares were purchased prior to the Share Consolidation in order to ensure that the number of the Company's Ordinary Shares of 7 pence each was exactly divisible by the denominator in the Share Consolidation ratio (which was seven). The authorities granted at the AGM held on 12 May 2022 were updated at the General Meeting held later that day to approve a B Share Scheme and six for seven Share Consolidation, with the Company authorised to purchase up to 140,410,550 new Ordinary Shares of 8 1/6 pence nominal value each. The authorities granted at the General Meeting in respect of the new Ordinary Shares have not been used and will expire at the 2023 AGM. In accordance with institutional guidelines and the Company's established practices, the Directors are seeking renewal of the authorities for the purchase of shares at the 2023 AGM. Further information on the shares purchased during the year under review is in note 25 on page 172. **Return of Capital relating to the sale of Quilter International** At the General Meeting on 12 May 2022, shareholders passed resolutions to approve the return of £328m of the net proceeds of the sale of Quilter International as a return of capital through a B Share Scheme accompanied by a six for seven Share Consolidation, whilst retaining around £90m to fund planned business initiatives. The Company allotted and issued 1,638,123,081 B Shares and the Company's new Ordinary Shares of 8 1/6 pence each were admitted to trading on 23 May 2022. The B Shares were redeemed on 24 May 2022. Payments in respect of the proceeds of the B Share Scheme were dispatched to shareholders on or around 6 June 2022. For more information on the return of capital, please refer to the circular to shareholders that accompanied the Notice of the General Meeting held on 12 May 2022 available at plc.quilter.com/gm. #### Odd-lot Offer The Directors are seeking shareholder approval at the 2023 AGM together with requisite regulatory approvals to implement an Odd-lot Offer at any time within the next 18 months. This will enable the Company to purchase, at a 5% premium, the Ordinary Shares held by those shareholders who hold less than 200 Ordinary Shares in the Company and who do not choose to retain their shareholding. No Odd-lot Offer will be implemented unless and until such approvals have been obtained on terms satisfactory to the Directors. For more information on the Odd-lot Offer, please refer to the 2023 Notice of AGM available at plc.quilter.com/gm. #### Significant agreements (change of control) All the Company's share plans contain provisions relating to a change of control. In the event of a change of control, outstanding awards and options may be lapsed and replaced with equivalent awards over shares in the new company, subject to the Board Remuneration Committee's discretion. Alternatively, outstanding awards and options may vest and become exercisable on a change of control subject, where appropriate, to the assessment of performance at that time and pro-rating of awards. Exceptionally, the Board Remuneration Committee may exercise its discretion to waive pro-rating. Short-term incentive ("STI") awards may continue to be paid in respect of the full financial year pre and post change of control, or a pro-rated STI award may be paid in respect of the portion of the year that has elapsed at the point of change of control. On a change of control, including following a takeover bid, the Company is required to enter into negotiations in good faith with the lenders under the Group's Revolving Credit Facility in respect of any changes to its terms. If after such negotiations no agreement has been reached, the Revolving Credit Facility would be cancelled and existing drawdowns would become repayable. The Group is also party to a number of supplier agreements that may be terminated upon a change of control of the Company, including following a takeover bid. In many cases, whether this may apply depends on the identity or characteristics of the new controller. This may result in the provision of certain services and software licences being terminated early. #### Directors' indemnities Qualifying third-party indemnity provisions (as defined by section 234 of the Companies Act 2006) were in force during the course of the financial year ended 31 December 2022 for the benefit of the then Directors and, at the date of this Report, are in force for the benefit of the Directors in relation to certain losses and liabilities which they may incur (or have incurred) in connection with their duties, powers and office. In addition, the Company maintains Directors' and Officers' Liability Insurance which gives appropriate cover for legal action brought against its Directors. #### Donations Quilter does not make monetary donations or gifts in kind to political parties, elected officials or election candidates. Accordingly, no such donations were made in 2022. However, the Directors are seeking to renew the Company's and its subsidiaries' authority to make political donations not exceeding £50,000 in aggregate at the 2023 AGM. This is for the purposes of ensuring that neither the Company nor its subsidiaries inadvertently breach Part 14 of the Companies Act 2006 by virtue of the relevant definitions being widely drafted. Further information is available in the 2023 Notice of AGM. For information on our engagement with shareholders following the 2022 AGM, please refer to the Chair's statement on pages 3 to 4. 110 Quilter Annual Report 2022 Directors’ Report continued Strategic Report Major shareholders Directors’ responsibility statements As at 31 December 2022, the Company had been notified, in The Directors are responsible for preparing the Annual Report accordance with Rule 5 of the FCA’s DTRs, of the following holdings of the Parent Company and consolidated financial statements of voting rights in its Ordinary Share capital: in accordance with applicable law and regulations. Number of % interest in The Directors consider that the Annual Report and Accounts, taken | | voting rights | voting rights | | Nature of | | | --- | --- | --- | --- | --- | --- | | | attached to | attached to | | holding | as a whole, are fair, balanced and understandable and provides the | | Name of shareholder | | | 1 | | | | | Quilter shares | Quilter shares | | notified | | information necessary for shareholders to assess the Company’s 2 BlackRock Inc. 111,805,973 6.81% Direct and the Group’s position and performance, business model Coronation Asset and strategy. Management (Pty) Ltd 195,332,204 13.91% Direct Equiniti Trust (Jersey) Each of the Directors in office as at the date of this report, whose 3 | Limited | | 42,996,532 3.06% Direct | names are listed on pages 56 to 58, confirms that, to the best of his | | | --- | --- | --- | --- | --- | | | 2 | | or her knowledge: | Governance Report | | Ninety One UK Ltd | | 82,416,634 5.01% Indirect | | | · the consolidated financial statements, which have been prepared Norges Bank 44,285,747 3.15% Direct in accordance with International Financial Reporting Standards Old Mutual Limited 68,070,687 4.84% Indirect as endorsed by the UK, give a true and fair view of the assets, Public Investment liabilities, financial position and profit or loss of the Company Corporation of the and the Group; and Republic of South Africa 210,834,490 15.01% Direct · the Strategic Report and Directors’ Report include a fair review 1 The percentage of voting rights detailed above was calculated at the time of the of the development and performance of the business and the relevant disclosures made in accordance with Rule 5 of the FCA’s DTRs. 2 position of the Company and the Group, together with a The number of voting rights reflects the position at the time of notification, prior to the May 2022 Share Consolidation. description of the principal risks and uncertainties that they face. 3 These shares are held by Equiniti Trust (Jersey) Limited in its capacity as Trustee of the Quilter EBT. For further information on the comprehensive process followed by the Board in order to reach these conclusions please refer As at 3 March 2023, the latest practicable date for inclusion in this to the Board Audit Committee Report on pages 69 to 74. Report, the following voting rights had been notified, in accordance Financial statements Other information with Rule 5 of the FCA’s DTRs: Disclosure of information to external auditors Number of % interest in Each person who is a Director of the Company as at the date voting rights voting rights Nature of of approval of this Report confirms that: | | | attached to | attached to | | holding | | | --- | --- | --- | --- | --- | --- | --- | | Name of shareholder | | | | 1 | | | | | | Quilter shares | Quilter shares | | notified | a) so far as the Director is aware, there is no relevant audit | | | 2 | | | | | information of which the Company’s external auditors are | | BlackRock Inc. | | 111,805,973 6.81% Direct | | | | | unaware; and Coronation Asset Management (Pty) b) the Director has taken all the steps that he or she ought to Limited 181,651,900 12.93% Direct have taken as a Director in order to make him/herself aware of any relevant audit information and to establish that the Company’s Equiniti Trust (Jersey) 3 external auditors are aware of that information. Limited 42,996,532 3.06% Direct 2 Ninety One UK Ltd 82,416,634 5.01% Indirect Independent auditors Norges Bank 44,285,747 3.15% Direct The Directors are recommending the reappointment of Old Mutual Limited 68,070,687 4.84% Indirect PricewaterhouseCoopers LLP as the Company’s statutory auditor Public Investment at the 2023 AGM. Corporation of the Republic of South Africa 210,834,490 15.01% Direct AGM 1 The percentage of voting rights detailed above was calculated at the time of the The Quilter plc 2023 AGM will be held at Senator House, relevant disclosures made in accordance with Rule 5 of the FCA’s DTRs. 2 85 Queen Victoria Street, London EC4V 4AB on Thursday 18 May The number of voting rights reflects the position at the time of notification, prior to the May 2022 Share Consolidation. 2023 at 11:00am (UK time). Details of the business to be transacted 3 These shares are held by Equiniti Trust (Jersey) Limited in its capacity as Trustee of the at the 2023 AGM, along with details of how you can ask questions Quilter EBT. and join the meeting, are included in the Quilter plc 2023 Notice of AGM which can be found on our GM Hub at plc.quilter.com/gm. Information provided to the Company by major shareholders pursuant to the FCA’s DTRs is published via a Regulatory Information By order of the Board Service and is available at plc.quilter.com/investor-relations. Clare Barrett Company Secretary 8 March 2023 111Quilter Annual Report 2022 ## Index to the consolidated financial statements For the year ended 31 December 2022 Contents | Group Consolidated Financial Statements | 161 19: Categories of financial instruments | | | --- | --- | --- | | 113 Statement of Directors’ responsibilities | 162 20: Fair value methodology | | | 114 Auditors’ report | 168 21: Structured entities | | | 121 Consolidated income statement | 169 22: Trade, other receivables and other assets | | | 122 Consolidated statement of comprehensive income | 169 23: Contract costs | | | 123 Consolidated statement of changes in equity | 170 24: Cash and cash equivalents | | | 124 Consolidated statement of financial position | 172 25: Share capital, capital redemption reserve | | | 125 Consolidated statement of cash flows | | and merger reserve | 172 26: Share-based payments | Basis of Preparation and Significant Accounting Policies | | 175 27: Investment contract liabilities | | --- | --- | --- | | 126 1: Basis of preparation | | 176 28: Provisions | | 127 2: New standards and amendments to standards, and | | 179 29: Tax assets and liabilities | | | interpretations adopted by the Group | 181 30: Borrowings and lease liabilities | | 127 3: Future standards, amendments to standards, and | | 182 31: Trade, other payables and other liabilities | | | interpretations not early-adopted in these financial statements | 182 32: Contract liabilities | | 128 4: Significant changes in the year | | 182 33: Post-employment benefits | | 128 5: Significant accounting policies | | 185 34: Master netting or similar arrangements | 185 35: Contingent liabilities | Notes to the Consolidated Financial Statements | 186 36: Commitments | | --- | --- | | 140 6: Business combinations | 186 37: Capital and financial risk management | | 142 7: Alternative performance measures (“APMs”) | 193 38: Fiduciary activities | | 147 8: Segmental information | 193 39: Related party transactions | | 150 9: Details of revenue | 193 40: Events after the reporting date | 151 10: Details of expenses 153 11: Tax Appendix 155 12: Earnings per share 194 A: Related undertakings 156 13: Dividends | 157 14: Goodwill and intangible assets | Financial Statements of the Company | | --- | --- | | 159 15: Property, plant and equipment | 196 Financial statements | | 160 16: Loans and advances | 198 Notes to the Company financial statements | 160 17: Financial investments 161 18: Derivative financial instruments – assets and liabilities 112 Quilter Annual Report 2022 ## Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements Strategic Report Governance Report The Directors are responsible for preparing the Annual Report and Responsibility statement of the Directors in respect the Group and Parent Company financial statements in accordance of the Annual Report and financial statements with applicable law and regulations. We confirm that to the best of our knowledge: · the financial statements, prepared in accordance with the applicable Company law requires the Directors to prepare Group and Parent sets of accounting standards, give a true and fair view of the assets, Company financial statements for each financial year. Under that law, the liabilities, financial position and profit or loss of the Parent Company Directors have prepared the Group financial statements in accordance and the undertakings included in the consolidation taken as a with UK-adopted international accounting standards and the Parent whole;and Company financial statements in accordance with UK Accounting · the Strategic Report includes a fair review of the development and Standards. Additionally, the Financial Conduct Authority’s Disclosure performance of the business and the position of the Parent Company Guidance and Transparency Rules require the Directors to prepare the and the undertakings included in the consolidation taken as a whole, Group financial statements in accordance with international financial together with a description of the principal risks and uncertainties reporting standards as adopted by the United Kingdom. that they face. Under company law, the Directors must not approve the financial We consider that the Annual Report, taken as a whole, is fair, balanced statements unless they are satisfied that they give a true and fair view and understandable and provides the information necessary for of the state of affairs of the Group and Parent Company and of the profit shareholders to assess the Group’s position and performance, or loss of the Group for that period. In preparing the financial statements, business model and strategy. the Directors are required to: · select suitable accounting policies and then apply them consistently; Signed on behalf of the Board · state whether, for the Group, applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; · state whether, for the Parent Company, applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; Steven Levin Mark Satchel · make judgements and estimates that are reasonable and prudent; and Chief Executive Officer Chief Financial Officer · prepare the financial statements on the going concern basis unless it 8 March 2023 Financial statements is inappropriate to presume that the Group and Parent Company will continue in business. The Directors are also responsible for safeguarding the assets of the Group and Parent Company and hence for taking reasonable steps for the prevention and detection of fraud and irregularities. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006. The Directors are responsible for the maintenance and integrity of the Other information Parent Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Quilter Annual Report 2022 113 # Independent auditors' report to the members of Quilter plc Report on the audit of the financial statements Opinion In our opinion: - Quilter plc's Group financial statements and Company financial statements (the "financial statements") give a true and fair view of the state of the Group's and of the Company's affairs as at 31 December 2022 and of the Group's profit and the Group's cash flows for the year then ended; - the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards as applied in accordance with the provisions of the Companies Act 2006; - the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, including FRS 101 "Reduced Disclosure Framework", and applicable law); and - the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated statement of financial position and Company statement of financial position as at 31 December 2022; the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated statement of changes in equity, the Consolidated statement of cash flows and the Company statement of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Board Audit Committee. Basic for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided. Other than those disclosed in note 10 to the Group's financial statements, we have provided no non-audit services to the Company or its controlled undertakings in the period under audit. Our audit approach Context We were appointed as auditors by the Directors on 19 May 2020, therefore this is our third year of involvement. In planning for our audit of the Quilter plc Group ("the Group") for the current year, we met with the Board Audit Committee and members of management across the business, to discuss and understand significant changes during the year, and to understand their perspectives on associated business risks. We used this insight, in addition to our experience from the previous year's audit approach, when forming our views regarding the business updates, as part of developing our audit plan and when scoping and performing our audit procedures. Overview Audit scope - At 31 December 2022, the Group comprised two operating segments together with head office activities, each of which contain several reporting components. We conducted audit testing over twelve components in total, which we selected based on their financial significance to the consolidated results. - Five components were subject to an audit of their complete financial information. - Specific audit procedures were also performed on certain balances and transactions in respect of a further seven components. - Taken together, the procedures we performed over the five significant components provided us with coverage of over 78% of total revenue and 63% of adjusted profit. - We have also considered the potential impact of climate change related factors in our audit, including challenging management on its assessment of how climate change related risks and opportunities impact the financial statements. Key audit matters - Compensation provisions (Group) - Goodwill impairment assessment (Group) - Impairment assessment of investments in subsidiaries (parent) Materiality - Overall Group materiality: £6,092,352 (2021: £6,769,500) based on 1% of total revenue excluding investment return. - Overall Company materiality: £27,595,520 (2021: £32,490,000) based on 1% of total assets. - Performance materiality: £4,569,264 (2021: £5,077,000) (Group) and £20,698,140 (2021: £24,367,500) (Company). The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Key audit matters Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Sale of Quilter International (Group), which was a key audit matter last year, is no longer included because of the sale occurring in 2021 having no direct bearing on the 2022 audit. Otherwise, the key audit matters below are consistent with last year. 114 Quilter Annual Report 2022 ## Independent auditors’ report to the members of Quilter plc Strategic Report Governance Report Key audit matter How our audit addressed the key audit matter Compensation provisions (Group) We assessed the Group’s accounting policy for the recognition of redress provisions Refer to page 71 of the Board Audit Committee Report to ensure it was in line with the requirements of IAS 37. and note 28 to the Group’s financial statements. We tested the key assumptions and data used in the Group’s calculations that included The Group holds a number of provisions, including initial transfer values, unsuitability assessments and redress percentages to underlying relating to customer redress. These relate to a number supporting evidence from pension schemes and recent settlement experience. Where of cases across different parts of the Group. suitability assessments and redress calculations had been completed for specific cases, we agreed the data in the Group’s calculations with that provided by management’s expert, The positions are evolving and there is judgement whose competency and objectivity we also reviewed. and complexity in calculating a redress estimate, in particular for those related to unsuitable defined No material differences were identified from our testing. benefit to defined contribution pension transfer advice. Goodwill impairment assessment (Group) Refer to page 71 of the Board Audit Committee Report We checked that the cash flow forecasts used by management in the assessment of goodwill and note 14 to the Group’s financial statements. impairment were consistent with the approved three-year Business Plan. The goodwill balance of £306 million (2021: £306 We evaluated the historical accuracy of the cash flow forecasts, including a comparison million) is subject to an annual impairment review. No of the current year actual results with the 2022 figures included in the prior year forecast. impairment charge has been recorded by management against the goodwill balance in the current year. For certain key assumptions which underpinned the forecast performance, such as growth of assets under management in the Business Plan period, we corroborated these against Judgement is used to determine the appropriate external market data where available. level at which to perform the impairment assessment. Management analyses discounted cash flows at the We challenged management on the inclusion of certain cash flows where these looked operating segment level to calculate the value-in-use to include future enhancements (such as revenues from new products) or future for each operating segment as opposed to an individual restructuring activity. Financial statements cash generating unit (“CGU”). We found that the forecasts have been completed on a basis consistent with prior years This has not been determined to be a significant audit and were an appropriate basis upon which management could base their conclusions. risk due to the large amount of headroom available in the model. However, this has been an area of audit We considered the appropriateness of performing the impairment assessment at the focus due to the inherent subjectivity in the operating segment level. This included consideration of how the financial information of assumptions used within the model. the business is presented to the Chief Operating Decision Maker. We determined that the performance of the impairment review on an operating segment level remains appropriate. We engaged our internal valuation experts to independently calculate a reasonable range for both the discount rate and long-term growth rate assumptions used within the value-in-use calculations. We found the discount rate assumption to be more conservative than our expected range, while the long-term growth rate was slightly above our expected amount. However, sensitivity analyses and reperformance of the calculation using our Other information independent assumptions confirms that no impairment would be required. We obtained and understood management’s sensitivity calculations over the impairment assessment, as well as performing further sensitivity scenarios ourselves. We determined that the impairment assessment was not highly sensitive to any of the key assumptions, being the discount rate and the forecast growth (including the long-term growth rate) of cash flows. For each operating segment we calculated the degree to which these assumptions would need to move before an impairment was triggered. We considered the likelihood of such a movement and concurred with management’s conclusion that an impairment was not required. Quilter Annual Report 2022 115 ## Independent auditors’ report to the members of Quilter plc Key audit matter How our audit addressed the key audit matter Impairment assessment of investments The impairment assessment leveraged management’s calculations for the Group goodwill in subsidiaries (parent) impairment assessment referred to above. Refer to note 4 to the Parent Company financial statements. The key judgement used by management in their impairment assessment is the underlying assumption that the Company’s investments in Quilter Holdings Limited and Quilter The Company holds investments in subsidiaries Investors represents the lowest level at which largely independent cash inflows are of £2,150 million (2021: £2,130 million). Whilst these generated. This assumption allows headroom to be transferred between subsidiary entities. eliminate on consolidation in the Group financial statements, they are recorded in the Company financial We challenged management over this assumption on the basis that the Business Plan is statements. Management have performed an prepared at a more disaggregated level and requested management to provide us with impairment assessment, utilising consistent further analyses to demonstrate the significant degree of integration between the methodology to that described in the impairment of businesses included in their defined cash generating unit. We have corroborated the goodwill key audit matter above, and have concluded explanations we received through discussion with the relevant component audit teams that an impairment reversal of £20m was required. and review of historical relevant correspondence with the regulator identifying some of the interdependencies. We have determined the impairment assessment over the investments in subsidiaries to be a significant risk in For non-trading subsidiaries the fair value less costs to sell is deemed by management light of the identified impairment as well as the Group to be represented by their net asset position. market capitalisation being lower than the Company equity value at the balance sheet date. Due to the net asset position of one such component increasing within the year an impairment reversal has been recognised accordingly. We have agreed the accuracy of this calculation and corroborated the net asset position to the unaudited year-end trial balance. Overall we are satisfied that there is sufficient evidence to support the basis of management’s impairment assessment and therefore concur with the reversal of impairment that has been recognised. How we tailored the audit scope The impact of climate risk on our audit We tailored the scope of our audit to ensure that we performed enough As part of our audit, we made enquiries of management to understand work to be able to give an opinion on the financial statements as a whole, the process management adopted to assess the extent of the potential taking into account the structure of the Group and the Company, the impact of climate risk on the Group’s financial statements and support accounting processes and controls, and the industry in which they operate. the disclosures made within the Annual Report. In addition to enquiries with management, we also challenged the completeness of Quilter plc has two operating segments – High Net Worth and Affluent. management’s climate risk assessment by comparing the consistency of Within these segments there are several reporting units, of which five management’s climate impact assessment with internal climate plans and are considered financially significant due to their contribution to Group board minutes, including whether the time horizons management have revenues, and were subject to an audit of their complete financial used take account of all relevant aspects of climate change such as information. In addition, a further seven reporting entities were in scope transition risks. for specific audit procedures, as these components contributed either towards a significant risk area, or a significant proportion of certain financial statement line items. Together with the procedures performed at the Group level, including auditing the consolidation and financial statement disclosures, taxation, and goodwill impairment assessment, this gave us the evidence we needed for our opinion on the financial statements as a whole. Almost all of the Group’s trading is based in the UK resulting in all of the audit procedures being performed locally by the UK audit team. Of the twelve components we have performed audit procedures over, none of these components was based outside the UK. We applied materiality of £380,830,443 to the classification of unit-linked assets and liabilities in the consolidated statement of financial position, the related line items in the consolidated income statement and related notes, determined with reference to a benchmark of total unit linked assets, of which it represents 1%. This materiality was applied solely for our work on matters for which a misstatement is likely only to lead to a reclassification between line items, in accordance with FRC Practice Note 20 The audit of Insurers in the United Kingdom. The Group contains several regulated trading entities and is a regulated insurance group itself. Some activities are outsourced to third party providers across the Group, such as investment and platform administration. In respect of the outsourced service providers we were able to gain appropriate audit evidence through a combination of evaluating the providers’ published assurance reports on internal control and performing substantive procedures. 116 Quilter Annual Report 2022 # Independent auditors' report to the members of Quilter plc ## Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: | | Financial statements - Group | Financial statements - Company | | --- | --- | --- | | **Overall materiality** | £6,092,352 (2021: £6,769,500) | £27,595,520 (2021: £32,490,000) | | **How we determined it** | 1% of total revenue excluding investment return | 1% of total assets | | **Rationale for benchmark applied** | Based on the performance metrics used in the Annual Report, total revenue is considered to be one of the primary measures used by shareholders in assessing performance of the Group and is a generally accepted auditing benchmark. | A benchmark of total assets has been used as the Company's primary purpose is to act as a holding company with investments in the Group's subsidiaries, not to generate operating profits and therefore a profit-based measure was not considered appropriate. | For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was £1,381,382 to £5,540,596. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to £4,569,264 (2021: £5,077,000) for the Group financial statements and £20,698,140 (2021: £24,367,500) for the Company's financial statements. In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate. We agreed with the Board Audit Committee that we would report to them misstatements identified during our audit above £500,000 (Group audit) (2021: £500,000) and £1,379,876 (Company audit) (2021: £1,624,500) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. ## Conclusions relating to going concern Our evaluation of the Directors' assessment of the Group's and the Company's ability to continue to adopt the going concern basis of accounting included: - Obtained the Directors' updated going concern assessment and challenged the rationale for assumptions on growth of assets under management/administration and asset returns using our knowledge of Quilter's business performance, and corroborating to external market evidence where available. Our assessment included reviewing management's stress testing and scenario analyses. - Obtained management's estimated Solvency capital position and evaluated this for consistency of available information and against management's own target capital ratios. We found that the Group maintained internal targets for its Group Solvency Capital Requirement (SCR) ratio, and is forecast to remain compliant with all external regulatory capital requirements for the period covered by the going concern assessment, and - Confirmed compliance with the debt covenants of the Group's borrowings, and the forecast continued compliance for the duration of the period covered by the going concern assessment. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's and the Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group's and the Company's ability to continue as a going concern. In relation to the Directors' reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors' statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 117 ## Independent auditors’ report to the members of Quilter plc Reporting on other information Corporate governance statement The other information comprises all of the information in the Annual The Listing Rules require us to review the Directors’ statements in relation Report other than the financial statements and our auditors’ report to going concern, longer-term viability and that part of the corporate thereon. The Directors are responsible for the other information, which governance statement relating to the Company’s compliance with the includes reporting based on the Task Force on Climate-related Financial provisions of the UK Corporate Governance Code specified for our review. Disclosures (“TCFD”) recommendations. Our opinion on the financial Our additional responsibilities with respect to the corporate governance statements does not cover the other information and, accordingly, we do statement as other information are described in the Reporting on other not express an audit opinion or, except to the extent otherwise explicitly information section of this report. stated in this report, any form of assurance thereon. Based on the work undertaken as part of our audit, we have concluded In connection with our audit of the financial statements, our responsibility that each of the following elements of the corporate governance is to read the other information and, in doing so, consider whether the statement is materially consistent with the financial statements and other information is materially inconsistent with the financial statements our knowledge obtained during the audit, and we have nothing material or our knowledge obtained in the audit, or otherwise appears to be to add or draw attention to in relation to: materially misstated. If we identify an apparent material inconsistency · The Directors’ confirmation that they have carried out a robust or material misstatement, we are required to perform procedures to assessment of the emerging and principal risks; conclude whether there is a material misstatement of the financial · The disclosures in the Annual Report that describe those principal risks, statements or a material misstatement of the other information. If, based what procedures are in place to identify emerging risks and an on the work we have performed, we conclude that there is a material explanation of how these are being managed or mitigated; misstatement of this other information, we are required to report that · The Directors’ statement in the financial statements about whether fact. We have nothing to report based on these responsibilities. they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material With respect to the Strategic Report and Directors’ Report, we also uncertainties to the Group’s and Company’s ability to continue to do so considered whether the disclosures required by the UK Companies Act over a period of at least twelve months from the date of approval of the 2006 have been included. financial statements; · The Directors’ explanation as to their assessment of the Group’s and Based on our work undertaken in the course of the audit, the Companies Company’s prospects, the period this assessment covers and why the Act 2006 requires us also to report certain opinions and matters as period is appropriate; and described below. · The Directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation Strategic Report and Directors’ Report and meet its liabilities as they fall due over the period of its assessment, In our opinion, based on the work undertaken in the course of the audit, including any related disclosures drawing attention to any necessary the information given in the Strategic Report and Directors’ Report for the qualifications or assumptions. year ended 31 December 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. Our review of the Directors’ statement regarding the longer-term viability of the Group and Company was substantially less in scope than an audit In light of the knowledge and understanding of the Group and Company and only consisted of making inquiries and considering the Directors’ and their environment obtained in the course of the audit, we did not process supporting their statement; checking that the statement is in identify any material misstatements in the Strategic Report and alignment with the relevant provisions of the UK Corporate Governance Directors’ Report. Code; and considering whether the statement is consistent with the financial statements and our knowledge and understanding of the Group Directors’ remuneration and Company and their environment obtained in the course of the audit. In our opinion, the part of the Annual Report on Remuneration to be audited has been properly prepared in accordance with the Companies In addition, based on the work undertaken as part of our audit, Act 2006. we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit: · The Directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy; · The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and · The section of the Annual Report describing the work of the Board Audit Committee. We have nothing to report in respect of our responsibility to report when the Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors. 118 Quilter Annual Report 2022 ## Independent auditors’ report to the members of Quilter plc Strategic Report Governance Report Responsibilities for the financial statements and the audit · Reviewing Board minutes as well as relevant meeting minutes, including Responsibilities of the Directors for the financial statements those of the Board Audit Committee, Board Remuneration Committee, As explained more fully in the Statement of Directors’ responsibilities, the the Board Technology and Operations Committee and the Board Directors are responsible for the preparation of the financial statements Risk Committee. in accordance with the applicable framework and for being satisfied that · Reviewing data regarding policyholder complaints, the Group’s they give a true and fair view. The Directors are also responsible for such and Company’s register of litigation and claims, internal audit reports, internal control as they determine is necessary to enable the preparation compliance reports in so far as they related to non-compliance with of financial statements that are free from material misstatement, whether laws and regulations and fraud. due to fraud or error. · Challenging assumptions made by management in accounting estimates and judgements, in particular in relation to the impairment In preparing the financial statements, the Directors are responsible for assessments of goodwill and investments in subsidiaries, and the assessing the Group’s and the Company’s ability to continue as a going valuation of the DB to DC conduct provisions described in the related concern, disclosing, as applicable, matters related to going concern and key audit matters. using the going concern basis of accounting unless the Directors either · Identifying and testing journal entries, in particular any journal entries intend to liquidate the Group or the Company or to cease operations, posted with unusual account combinations, such as a credit to revenue or have no realistic alternative but to do so. and a debit to the statement of financial position (other than to expected accounts), which may be indicative of the overstatement Auditors’ responsibilities for the audit of the financial or manipulation of revenue. statements · Designing audit procedures to incorporate unpredictability around Our objectives are to obtain reasonable assurance about whether the nature, timing or extent of our testing. the financial statements as a whole are free from material misstatement, · Detailed testing over the classification of costs allocated to business whether due to fraud or error, and to issue an auditors’ report that transformation costs, which are considered as one-off and added back includes our opinion. Reasonable assurance is a high level of assurance, to calculate the adjusted profit measure, in order to identify any but is not a guarantee that an audit conducted in accordance with ISAs inappropriate classification which could be indicative of a material (UK) will always detect a material misstatement when it exists. manipulation of the adjusted profit measure. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to There are inherent limitations in the audit procedures described above. influence the economic decisions of users taken on the basis of these We are less likely to become aware of instances of non-compliance with Financial statements financial statements. laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not Irregularities, including fraud, are instances of non-compliance with laws detecting a material misstatement due to fraud is higher than the risk and regulations. We design procedures in line with our responsibilities, of not detecting one resulting from error, as fraud may involve deliberate outlined above, to detect material misstatements in respect of concealment by, for example, forgery or intentional misrepresentations, irregularities, including fraud. The extent to which our procedures are or through collusion. capable of detecting irregularities, including fraud, is detailed below. Our audit testing might include testing complete populations of certain Based on our understanding of the Group and industry, we identified that transactions and balances, possibly using data auditing techniques. the principal risks of non-compliance with laws and regulations related However, it typically involves selecting a limited number of items for to breaches of UK regulatory principles, such as those governed by the testing, rather than testing complete populations. We will often seek Prudential Regulation Authority (PRA) and the Financial Conduct Authority to target particular items for testing based on their size or risk (FCA), and unsuitable or prohibited business practices, and we considered characteristics. In other cases, we will use audit sampling to enable the extent to which non-compliance might have a material effect on the us to draw a conclusion about the population from which the sample is selected. Other information financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006 and listing rules. We evaluated management’s incentives and A further description of our responsibilities for the audit opportunities for fraudulent manipulation of the financial statements of the financial statements is located on the FRC’s website at: (including the risk of override of controls), and determined that the principal www.frc.org.uk/auditorsresponsibilities. This description forms risks were related to posting inappropriate journal entries to either inflate part of our auditors’ report. revenue or reduce expenditure of the Group and the Company, and management bias in accounting estimates and judgemental areas of the Use of this report financial statements, such as provisions. The group engagement team This report, including the opinions, has been prepared for and only for the shared this risk assessment with the component auditors so that they Company’s members as a body in accordance with Chapter 3 of Part 16 could include appropriate audit procedures in response to such risks in of the Companies Act 2006 and for no other purpose. We do not, in giving their work. Audit procedures performed by the group engagement team these opinions, accept or assume responsibility for any other purpose or and/or component auditors included: to any other person to whom this report is shown or into whose hands it · Discussions with the Board, management, internal audit, management may come save where expressly agreed by our prior consent in writing. involved in the risk and compliance functions and the Group and Company’s legal function, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud. · Reviewing correspondence between the Group, the PRA, the FCA and HMRC in relation to compliance with laws and regulations. · Assessment of matters reported on the Group’s whistleblowing register including the quality and results of management’s investigation of such matters. Quilter Annual Report 2022 119 ## Independent auditors’ report to the members of Quilter plc ## Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: · we have not obtained all the information and explanations we require for our audit; or · adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or · certain disclosures of Directors’ remuneration specified by law are not made; or · the Company financial statements and the part of the Annual Report on Remuneration to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Appointment Following the recommendation of the Board Audit Committee, we were appointed by the Directors on 19 May 2020 to audit the financial statements for the year ended 31 December 2020 and subsequent financial periods. The period of total uninterrupted engagement is three years, covering the years ended 31 December 2020 to 31 December 2022. ## Other matter As required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS. Mark Pugh (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 8 March 2023 120 Quilter Annual Report 2022 ## Consolidated income statement For the year ended 31 December 2022 Strategic Report Governance Report | | Year ended | | Year ended | | | --- | --- | --- | --- | --- | | | 31 December | | 31 December | | | | | 2022 | | 2021 | | Notes | | £m | | £m | Income Fee income and other income from service activities 9(a) 5 81 666 Investment return 9(b) (4 , 6 4 9) 4 , 0 02 Other income 28 18 Total income (4, 0 4 0) 4,686 Expenses Change in investment contract liabilities 27 4 , 3 18 (3 , 293) Fee and commission expenses, and other acquisition costs 10(a) (54) (61) Change in third-party interests in consolidated funds 438 (599) Other operating and administrative expenses 10(b) (58 4) (63 6) Finance costs 10(e) (13) (14) Total expenses 4 ,1 0 5 (4 ,6 0 3) Profit on sale of subsidiary 6(a) – 2 Profit before tax from continuing operations 65 85 Tax credit/(expense) attributable to policyholder returns 11(a) 13 4 (7 3) Profit before tax attributable to equity holders from continuing operations 19 9 12 Income tax credit/(expense) 11(a) 11 0 (62) Less: tax (credit)/expense attributable to policyholder returns (13 4) 73 Tax (expense)/credit attributable to equity holders (24) 11 Profit after tax from continuing operations 17 5 23 Profit after tax from discontinued operations 6(b) – 13 1 Financial statements Profit after tax 17 5 15 4 Attributable to: Equity holders of Quilter plc 17 5 15 4 Earnings per Ordinary Share on profit attributable to Ordinary Shareholders of Quilter plc Basic | From continuing operations (pence) | 12(b) 12 . 2 1. 4 | | --- | --- | | From discontinued operations (pence) | 6(b) – 8 .0 | | Basic earnings per Ordinary Share (pence) | 12(b) 12 . 2 9. 4 | Diluted | From continuing operations (pence) | 12(b) 12 . 0 1. 4 | Other information | | --- | --- | --- | | From discontinued operations (pence) | 6(b) – 7. 8 | | | Diluted earnings per Ordinary Share (pence) | 12(b) 12 . 0 9. 2 | | The notes on pages 126 to 195 form an integral part of these consolidated financial statements. Quilter Annual Report 2022 121 ## Consolidated statement of comprehensive income For the year ended 31 December 2022 | | Year ended | | Year ended | | | --- | --- | --- | --- | --- | | | 31 December | | 31 December | | | | | 2022 | | 2021 | | Note | | £m | | £m | Profit after tax 17 5 15 4 Exchange losses on translation of foreign operations – (1) Items that may be reclassified subsequently to income statement – (1) Total other comprehensive income, net of tax – (1) Total comprehensive income 17 5 153 Attributable to: Continuing operations 17 5 22 Discontinued operations 6(b) – 13 1 Equity holders of Quilter plc 17 5 153 The notes on pages 126 to 195 form an integral part of these consolidated financial statements. 122 Quilter Annual Report 2022 ## Consolidated statement of changes in equity For the year ended 31 December 2022 Strategic Report Governance Report | | | | Ordinary | | | | | | | | | | | | | | | | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Ordinary | | | Share | | | | Capital | | | | Share-based | | | | | | | | share- | | | | Share | premium | | | | redemption | | | Merger | | | payments | | | Other | Retained | | holders’ | | | | | capital | reserve | | B shares | | | reserve | | reserve | | | reserve | | reserves | | earnings | | | equity | | 31 December 2022 Notes | | £m | | £m | | £m | | | £m | | £m | | | £m | | £m | | £m | | £m | Balance at 1 January 2022 116 58 – 17 25 42 (1) 1, 4 8 2 1,7 3 9 Profit after tax – – – – – – – 17 5 175 Total comprehensive income – – – – – – – 17 5 17 5 Dividends 13 – – – – – – – (78) (78) Ordinary Shares repurchased 1 in the buyback programme 25 (1) – – 1 – – – – – 2 Issue of B shares 25(a,c) – – 328 – (25) – – (3 03) – 2 Redemption of B shares 25(a) – – (328) 328 – – – (328) (328) Exchange rate movement 3 (ZAR/GBP) – – – – – – – (4) (4) Movement in own shares – – – – – – – 22 22 Equity share-based payment transactions 26(e) – – – – – 1 – 23 24 Aggregate tax effects of items recognised directly in equity – – – – – (2) – – (2) Total transactions with the ownersof the Company (1) – – 329 (25) (1) – (668) (36 6) Balance at 31 December 2022 11 5 58 – 346 – 41 (1) 989 1, 5 4 8 | | | | Ordinary | | | | | | | | | | | | | | | | | Total | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Ordinary | | | Share | | | | Capital | | | | Share-based | | | | | | | | share- | | | | | Share | premium | | | | redemption | | | Merger | | | payments | | | Other | Retained | | holders’ | | Financial statements | | | | capital | reserve | | B shares | | | reserve | | reserve | | | reserve | | reserves | | earnings | | | equity | | | 31 December 2021 Notes | | £m | | £m | | £m | | | £m | | £m | | | £m | | £m | | £m | | £m | | Balance at 1 January 2021 12 5 58 – 8 149 42 1 1, 49 5 1,87 8 Profit after tax – – – – – – – 15 4 15 4 Other comprehensive income – – – – – – (1) – (1) Total comprehensive income – – – – – – (1) 15 4 15 3 Dividends 13 – – – – – – – (8 9) (89) Ordinary Shares repurchased 1 in the buyback programme 25 (9) – – 9 – – – (20 4) (20 4) Release of merger reserve 25(c) – – – – (1 24) – – 12 4 – Movement in own shares – – – – – – – (20) (20) Equity share-based payment transactions 26(e) – – – – – (1) – 21 20 Other information Aggregate tax effects of items recognised directly in equity – – – – – 1 – – 1 Total transactions with the owners of the Company (9) – – 9 (12 4) – – (16 8) (2 92) Transfer to retained earnings – – – – – – (1) 1 – Balance at 31 December 2021 116 58 – 17 25 42 (1) 1,4 8 2 1,7 3 9 1 On 11 March 2020, the Company announced a share buyback programme to purchase Ordinary Shares up to a maximum value of £375 million, in order to return the net surplus proceeds to shareholders arising from the sale of Quilter Life Assurance which had the impact of reducing the share capital of the Company. During the year ending 31 December 2022, the Company acquired 17.7 million shares (31 December 2021: 128.1 million) for a total consideration of £26 million (31 December 2021: £1 97 million) and incurred additional costs of £1 million (31 December 2021: £3 million). The shares, which have a nominal value of £1 million (31 December 2021: £9 million), were subsequently cancelled, giving rise to a capital redemption reserve of the same value as required by the Companies Act 2006. The share buyback was completed in January 2022. 2 On 9 March 2022, the Company announced a capital return of £328 million from the net surplus proceeds arising from the sale of Quilter International by way of a B Share Scheme accompanied by a Share Consolidation. Refer to note 4 for further details of the capital return and Share Consolidation. Following the issue and redemption of the B preference shares as part of the B Share Scheme, the Company transferred £328 million from retained earnings to the capital redemption reserve, as required under the provisions of sections 688 and 733 of the Companies Act 2006, being an amount equal to the nominal value of the B shares redeemed in the year. The increase in the capital redemption reserve results from the UK company law requirement to maintain the company’s capital when shares are redeemed out of the company’s distributable profits. 3 The South African Rand value of the proposed capital return for shares registered on the Johannesburg Stock Exchange was set on 9 March 2022. The impact of exchange rate movements between the year-end Market Announcement on 9 March 2022 and the redemption of the B shares on 24 May 2022 on the pound sterling equivalent of payments to JSE shareholders in South African Rand is recognised directly in equity. Additionally, the impact of exchange rate movements between the announcement date of dividends payable and the payment date on the pound sterling equivalent of payments to JSE shareholders in South African Rand is recognised directly in equity. The Group held cash in South African Rand equal to the expected cash outflows and therefore was economically hedged for the outflows. The notes on pages 126 to 195 form an integral part of these consolidated financial statements. Quilter Annual Report 2022 123 ## Consolidated statement of financial position At 31 December 2022 | | 31 December | | 31 December | | | --- | --- | --- | --- | --- | | | | 2022 | | 2021 | | Notes | | £m | | £m | Assets Goodwill and intangible assets 14 413 457 Property, plant and equipment 15 11 2 13 1 Investments in associated undertakings 1 2 | Contract costs | 23 10 9 | | --- | --- | | Loans and advances | 16 34 29 | | Financial investments | 17 4 3 , 617 47, 56 5 | | Deferred tax assets | 29(a) 94 88 | | Current tax receivable | 29(c) 10 – | | Trade, other receivables and other assets | 22 303 381 | | Derivative assets | 18 40 14 | | Cash and cash equivalents | 24 1, 7 8 2 2,06 4 | | Assets held for sale | 6(e) 1 – | Total assets 4 6 , 4 17 5 0 , 74 0 Equity and liabilities Equity | Ordinary Share capital | 25(a) 115 11 6 | | --- | --- | | Ordinary Share premium reserve | 25 58 58 | | Capital redemption reserve | 25(b) 346 17 | | Merger reserve | 25(c) – 25 | | Share-based payments reserve | 26 41 42 | Other reserves (1) (1) Retained earnings 989 1, 4 8 2 Total equity 1, 5 4 8 1,7 3 9 Liabilities Investment contract liabilities 27 38, 1 86 41, 0 71 Third-party interests in consolidated funds 5, 843 6, 898 | Provisions | 28 69 93 | | --- | --- | | Deferred tax liabilities | 29(b) 24 13 9 | | Current tax payable | 29(c) 1 2 | | Borrowings and lease liabilities | 30 29 0 299 | | Trade, other payables and other liabilities | 31 436 4 84 | | Derivative liabilities | 18 20 15 | Total liabilities 44,869 49, 0 01 Total equity and liabilities 4 6 , 4 17 5 0 , 74 0 The financial statements on pages 121 to 195 were approved by the Board of Directors on 8 March 2023 and signed on its behalf by Steven Levin Mark Satchel Chief Executive Officer Chief Financial Officer The attached notes on pages 126 to 195 form an integral part of these consolidated financial statements. 124 Quilter Annual Report 2022 ## Consolidated statement of cash flows For the year ended 31 December 2022 Strategic Report Governance Report The cash flows presented in this statement cover all the Group’s activities (continuing and discontinued operations) and include flows from both policyholder and shareholder activities. All cash and cash equivalents are available for general use by the Group for the purposes of the disclosures required under IAS 7 Statement of Cash Flows except for cash and cash equivalents in consolidated funds (as shown in note 24). Cash flows for discontinued operations are shown separately in note 6(d). | | Year ended | | Year ended | | | --- | --- | --- | --- | --- | | | 31 December | | 31 December | | | | | 2022 | | 2021 | | Notes | | £m | | £m | Cash flows from operating activities Cash flows from operating activities 1, 6 9 8 3 ,1 0 3 Taxation paid (2 2) (10) Total net cash flows from operating activities 24(b) 1,6 76 3,0 93 Cash flows from investing activities Net acquisitions of financial investments (1,494) (2 , 839) Acquisition of property, plant and equipment 15 (3) (13) 1 Acquisition of interests in subsidiaries 6(f) (5) (7) Net proceeds from the disposal of interests in subsidiaries – 2 18 Total net cash flows from investing activities (1, 5 0 2) (2,6 41) Cash flows from financing activities | Dividends paid to equity holders of the Company | | 13 (78) (89) | | --- | --- | --- | | Finance costs on external borrowings | 10(e) (9) (9) | | | Payment of interest on lease liabilities | 30(b) (3) (2) | | | Payment of principal of lease liabilities | 30(b) (11) (10) | | 2 Redemption of B shares (328) – 3 Repurchase and cancellation of Ordinary Shares (28) (19 7) Financial statements 4 Exchange rate movements paid to shareholders (4) – Total net cash flows from financing activities (4 61) (307) Net (decrease)/increase in cash and cash equivalents (287) 14 5 Cash and cash equivalents at the beginning of the year 2,06 4 1, 9 21 Effect of exchange rate changes on cash and cash equivalents 5 (2) Cash and cash equivalents at end of the year 24(a) 1,7 8 2 2 ,06 4 1 The acquisition of interests in subsidiaries outflow of £5 million results from contingent consideration payments relating to historical acquisitions (31 December 2021: £7 million). 2 On 9 March 2022, the Company announced a capital return of £328 million from the net surplus proceeds arising from the sale of Quilter International by way of a B Share Scheme accompanied by a Share Consolidation. Please refer to note 4 for further details of the capital return and Share Consolidation. 3 The repurchase and cancellation of Ordinary Shares outflow relates to the cash movements associated with the share buyback programme. Further details are included within the consolidated statement of changes in equity. 4 The exchange rate movements paid to shareholders relate to foreign exchange gains that have arisen on the capital return and dividend payments to JSE shareholders. Further details are included within the consolidated statement of changes in equity. Other information The notes on pages 126 to 195 form an integral part of these consolidated financial statements. Quilter Annual Report 2022 125 ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 General information 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. Quilter plc is listed on the London and Johannesburg Stock Exchanges. The address of the registered office is Senator House, 85 Queen Victoria Street, London, EC4V 4AB. 1: Basis of preparation The consolidated financial statements of Quilter plc for the year ended 31 December 2022 have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. These 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. The separate financial statements of the Company are on pages 196 to 203. The Company financial statements are prepared in accordance with the Group’s accounting policies, other than for investments in subsidiaries, which are stated at cost less impairments in accordance with IAS 27 Separate Financial Statements. Going concern The Directors have considered the resilience of the Group, its current financial position, the principal risks facing the business and the effectiveness of any mitigating strategies which are or could be applied. This included an assessment of capital and liquidity over a three-year planning period. As part of the going concern assessment, the Group took into consideration the current position of the UK economy including the impact of inflation and increases in the cost of living. The Group also took into consideration risks related to climate change. Based on the assessment, the Directors believe that both the Group and Quilter plc as the Parent Company, have sufficient financial resources to continue in business for a period of at least 12 months from the date of approval of these financial statements and continue to adopt the going concern basis in preparing the Group and Parent Company financial statements. Further information is contained in the viability statement and going concern section of the Annual Report. Basis of consolidation The Group’s consolidated financial statements incorporate the assets, liabilities and the results of the Company and its subsidiaries. Subsidiaries are those entities, including investment funds, controlled by the Group. More information on how the Group assesses whether it has control over an entity is provided in accounting policy 5(a). Subsidiaries are consolidated from the date the Group obtains control and are excluded from consolidation from the date the Group loses control. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with Group policies. All intercompany transactions, balances and unrealised surpluses and deficits on transactions between Group companies are eliminated on consolidation. Liquidity analysis of the statement of financial position The Group’s statement of financial position is in order of liquidity as is permitted by IAS 1 Presentation of Financial Statements. For each asset and liability line item, those amounts expected to be recovered or settled more than 12 months after the reporting date are disclosed separately in the notes to 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 assets and liabilities at the date of the financial statements. The Board Audit Committee reviews these areas of judgement and estimates and the appropriateness of significant accounting policies adopted in the preparation of these financial statements. Critical accounting judgements The Group’s critical accounting judgements are detailed below and are those that management makes when applying the significant accounting policies and that have the most effect on the net profit and net assets recognised in the Group’s financial statements. Recognition of provisions following the sale of Quilter International Management exercised significant judgement in determining the accounting treatment for a number of provisions related to business activities to separate the business from the Group in respect of the sale of Quilter International. Significant judgement was required to assess whether the costs were directly attributable and incremental to the sale and whether a legal or constructive obligation existed in order to recognise the provisions. See note 28 for further details. 126 Quilter Annual Report 2022 Quilter plc (the “Parent Company”), a public limited company incorporated in England and Wales and domiciled in the United Kingdom (“UK”), together # Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued ## 1: Basis of preparation continued ### Critical accounting judgements continued #### Recognition of insurance recovery asset in respect of Lighthouse defined benefit pension advice For Lighthouse defined benefit ("DB") to defined contribution ("DC") pension transfer advice provided, management has previously applied judgement in order to determine whether an asset can be reasonably estimated, and in respect of the measurement of such an asset, in relation to an insurance recovery under Lighthouse's professional indemnity policies ("PI Policies"). During 2022, the insurer's confirmed coverage up to the PI Policies' limit of indemnity of £15 million for these legal liabilities. These obligations to the Group were settled in full during 2022. As a result the recognition and measurement of an insurance asset is no longer considered a critical accounting judgement. #### Critical accounting estimates The Group's critical accounting estimates 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 standards and guidance to make predictions about future actions and events. Actual results may differ from those estimates. #### Provision for the cost of defined benefit pension advice An estimate was determined for unsuitable pension advice related to schemes other than those concluded as part of the skilled person review, using a methodology which takes account of recent experience of redress payments calculated by an independent expert and applying a proportion of transfer value to determine redress payable as an indicative provision. The calculations are based upon FCA guidelines and modelling performed, and factors including pension transfer value, date of retirement, discount rate and inflation rate assumptions. #### 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 flows, 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 the recoverability of shareholder assets based on estimated taxable profits over a three-year planning horizon and assesses policyholder assets based on estimated investment growth over the medium term. Management has reassessed the sensitivity of the recoverability of deferred tax assets based on the latest forecast cash flows. See note 29 for further details. #### 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 14). These forecasts take account of the climate-related risks and other responsible business considerations. Management does not consider that the use of these estimates has a significant risk of causing a material adjustment to the carrying amount of the assets within the next financial year. ## 2: New standards, amendments to standards, and interpretations adopted by the Group There were no new standards or interpretations which became effective from 1 January 2022. The following amendments to accounting standards became applicable for the current reporting year, with no material impact on the Group's consolidated results, financial position or disclosures: | Adopted by the Group from | Amendments to standards | | --- | --- | | 1 January 2022 | Amendments to IAS 16 Property, Plant and Equipment – Proceeds before Intended Use | | 1 January 2022 | Annual Improvements 2018-2020 Cycle | | 1 January 2022 | Amendments to IFRS 3 References to the Conceptual Framework | | 1 January 2022 | Amendments to IAS 37 Onerous Contracts – Cost of Fulfilling a Contract | ## 3: Future standards, amendments to standards, and interpretations not early-adopted in these financial statements Certain new standards, interpretations and amendments to existing standards have been published by the International Accounting Standards Board ("IASB") that are mandatory for the Group's annual accounting periods beginning on or after 1 January 2022. The Group has not early adopted these standards, interpretations and amendments, nor does the Group expect these to have a material impact on the Group's consolidated financial statements. ### – IFRS 17 Insurance contracts The IASB issued IFRS 17 Insurance Contracts in May 2017 and Amendments to IFRS 17 in June 2020. IFRS 17 will replace its interim predecessor, IFRS 4 Insurance Contracts. IFRS 17 is a comprehensive standard which provides a single accounting model for all insurance contracts. IFRS 17 will replace a wide range of different accounting practices previously permitted, improving transparency and enabling investors and regulators to understand and compare the financial position and performance of an insurer, irrespective of where they are based geographically. The standard, including the June 2020 amendments, was endorsed by the UK Endorsement Board in May 2022. The effective date of IFRS 17 is 1 January 2023. Following disposals of Quilter Life Assurance ("QLA") and Quilter International in 2019 and 2021, the Group has assessed its remaining contracts with policyholders. On the basis of this assessment, it was determined that there are no contracts that will be accounted for under IFRS 17. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 127 ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued 128 Quilter Annual Report 2022 4: Significant changes in the year Capital return, Share Consolidation and changes to comparative amounts On 12 May 2022, shareholder approval was received at the General Meeting, for a capital return of £328 million (20 pence per share) to shareholders of Quilter plc by way of a B Share Scheme. The capital return represented the net surplus proceeds from the sale of Quilter International after retaining funds for planned Business Simplification and selected revenue enhancing investments. The B shares were created out of the Company’s merger reserve, which had a balance of £1,687 million prior to the share creation. To maintain comparability of shareholder metrics before and after the capital return, the scheme was accompanied by a Share Consolidation (see note 25(a)). The weighted average number of shares used to calculate the comparative EPS metrics has not been adjusted for the impact of the Share Consolidation due to the associated reduction in resources as a result of the return of capital. The capital return reduced the Group’s IFRS net assets and Solvency II own funds by £328 million, comprised of £331 million cash paid upon redemption of the B shares, offset by a foreign exchange gain of £3 million on South African Rand held between the date the capital return was announced and the redemption of the B shares for the JSE portion of the capital return. 5: Significant accounting policies The Group’s significant accounting policies are described below. There have been no changes to the Group’s significant accounting policies as a result of changes in accounting standards during the year. The accounting policies disclosed in these notes have been consistently applied throughout the current and prior financial year. 5(a): Group accounting Subsidiaries Subsidiary undertakings are those entities (investees) controlled by the Group. The Group controls an investee if, and only if, the Group has all of the following three elements of control: · power over the investee; · exposure or rights to variable returns from its involvement with the investee; and · the ability to affect those returns through its power over the investee. For operating entities, this usually arises with a shareholding in the entity of 50% or more. The Group also consolidates certain of its interests in open-ended investment companies (“OEICs”), unit trusts, mutual funds and similar investment vehicles (collectively “investment funds”). Where, as is often the case with investment funds, voting or similar rights are not the dominant factor in deciding who controls the investee, other factors are considered in the control assessment. These are described in more detail below. The Group continually assesses any changes to facts and circumstances to determine, in the context of the three elements of control listed above, whether it still controls the investee and is therefore required to consolidate it. Associates Associates are entities over which the Group has significant influence, but not control or joint control, through its participation in the entity’s financial and operating policy decisions. Significant influence is generally demonstrated by the Group holding between 20% and 50% of the voting rights. Voting rights are not the only consideration, all other relevant factors, contractual or otherwise, are assessed in determining whether the Group has the ability to exercise significant influence. The results, assets and liabilities of associates, other than those that are measured at FVTPL (see below) are incorporated into these consolidated financial statements using the equity method of accounting from the date that significant influence commences until the date it ends. Under this method, the cost of the investment in an associate together with the Group’s share of that entity’s post-acquisition changes to shareholders’ funds is included as an asset in the consolidated statement of financial position. The cost includes goodwill recognised on acquisition. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of the associate until the date on which significant influence ceases. Where a Group entity transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associate. Unrealised losses are eliminated in the same way but only to the extent that there is no evidence of impairment. Investments in associates that are held with a view to subsequent resale are accounted for as non-current assets held for sale. Where the Group has an investment in an associate, a portion of which is held by, or is held indirectly through a unit trust or similar entity, including through unit-linked funds, that portion of the investment is measured at F VTPL. The Group has classified one entity, 360 Dot Net Limited, as an associate in the current and prior year. ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 129 5: Significant accounting policies continued 5(a): Group accounting continued Investment funds The Group invests in a wide range of investment funds such as OEICs and unit trusts generally in respect of its unit-linked investment contracts where investments are made to match the investment choices of its clients. For some of these funds, it also acts as fund manager. These funds invest predominantly in equities, bonds, cash and cash equivalents. The Group holds interests in these investment funds mainly through the receipt of fund management fees, in the case where the Group acts as fund manager, which provide a variable return based on the value of the funds under management and other criteria, and in the case of third-party funds where fund performance has an impact on fund-based fees within unit-linked investment contracts and other similar client investment products. Where the Group acts as fund manager, it may also hold investments in the underlying funds, through acquiring units or shares. Where these investments are held in unit-linked funds, the Group has a secondary exposure to variable returns through the management fees that it deducts from unit-linked policyholders’ account balances. The Group’s percentage ownership can fluctuate from day-to-day according to the Group’s participation in them as clients’ underlying investment choices change. When assessing the control of investment funds, the Group considers the purpose and design of the fund, the scope of its decision-making authority, including its ability to direct relevant activities and to govern the operations of a fund so as to obtain variable returns from that fund and its ability to use its power to affect these returns, both from the perspective of an investor and an asset manager. In addition, the Group assesses rights held by other parties including substantive removal (“kick-out”) rights that may affect the Group’s ability to direct relevant activities. On consolidation, the interests of parties other than the Group are classified as a liability in the Group’s statement of financial position and are described as “third-party interests in consolidated funds”. Such interests are not recorded as non-controlling interests (“NCIs”) as they meet the liability classification requirement set out in IAS 32 Financial Instruments: Presentation. These liabilities are regarded as current, as they are repayable on demand, although it is not expected that they will be settled in a short time period. Business combinations The Group is required to use the acquisition method of accounting for business combinations. Business combinations are accounted for at the date that control is achieved (the acquisition date). The cost of a business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Deferred and contingent consideration relating to acquisitions is recognised as a liability on the date of acquisition. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition date. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts. Where provisional amounts are reported, these are adjusted during the measurement period which extends up to a maximum of 12 months from the acquisition date. Additional assets or liabilities may also be recognised during this period, to reflect any new information obtained about the facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date. Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets of the acquired entity at the date of acquisition. Other acquisition-related costs, not forming part of the cost of acquisition, are expensed as incurred. Upon disposal, the Group derecognises a subsidiary or disposal group on the date on which control passes. The consolidated income statement includes the results of a subsidiary or disposal group up to the date of disposal. The difference between the proceeds from the disposal of a subsidiary undertaking and its carrying amount as at the date of disposal, including the cumulative amount of any related exchange differences that are recognised in the foreign currency translation reserve, is recognised in the consolidated income statement as the gain or loss on disposal of the subsidiary undertaking. Common control combinations Merger accounting is used by the Group for common control combinations, which are transactions between entities that are ultimately controlled by the same party or parties. This method treats the merged entities as if they had been combined throughout the current and comparative accounting periods. Merger accounting principles for these combinations result in the recognition of a merger reserve in the consolidated statement of financial position, being the difference between the nominal value of any new shares issued by the Parent Company for the acquisition of the shares of the subsidiary and the subsidiary’s Net Asset Value. Such transactions attract merger relief under section 612 of the Companies Act 2006. 5(b): Fair value measurement The Group uses fair value to measure the majority of its assets and liabilities. Fair value is a market-based measure and is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For a financial instrument, the best evidence of fair value at initial recognition is normally the transaction price, which represents the fair value of the consideration given or received. Where observable market prices in an active market, such as bid or offer (ask) prices are unavailable, fair value is measured using valuation techniques based on the assumptions that market participants would use when pricing the asset or liability. If an asset or a liability measured at fair value has a bid or an offer price, the price within the bid-offer spread that is most representative of fair value is used as the basis of the fair value measurement. ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued 130 Quilter Annual Report 2022 5: Significant accounting policies continued 5(b): Fair value measurement continued The quality of the fair value measurement for financial instruments is disclosed by way of the fair value hierarchy, whereby Level 1 represents a quoted market price for identical financial assets and liabilities, Level 2 financial assets and liabilities are valued using inputs other than quoted prices in active markets included in Level 1, either directly or indirectly and Level 3 whereby financial assets and liabilities are valued using valuation techniques where one or more significant inputs are unobservable. Classifying financial instruments into the three levels outlined above provides an indication about the reliability of inputs used in determining fair value. More information is provided in note 20. 5(c): Product classification The Group’s life assurance contracts included in the Affluent segment are categorised as investment contracts, in accordance with the classification criteria set out in the paragraph below. Investment contracts Investment contracts do not meet the IFRS definition of an insurance contract as they do not transfer significant insurance risk from the policyholder to the insurer. Unit-linked investment contracts are separated into two components, being an investment management services component and a financial liability. The financial liability component is designated at fair value through profit or loss (“FV TPL”) as it is managed on a fair value basis, and its value is directly linked to the market value of the underlying portfolio of assets. The Group does not directly benefit economically from returns from the assets held to match policyholder liabilities, apart from secondary exposure to future annual management fees that the Group expects to receive over the life of the policy. 5(d): Fee income and other income from service activities Fee income and other income from service activities represent the fair value of services provided, net of value added tax. Revenue is only recognised to the extent that management is satisfied that it is highly probable that no significant reversal of the revenue recognised will be required when uncertainties are resolved. In circumstances where refunds are expected on a portion of the income, including indemnity commission on policies sold, an estimate of the reduction of revenue is made and charged to the income statement at the point of sale, based upon assumptions determined from historical experience. Premium-based fees This relates to non-refundable fees taken on receipt of clients’ investments and recognised on receipt over the life of the contract, in line with the performance obligation associated with the contract in respect of the administration of the underlying client records and client benefits. Where fees are received, either at inception or over an initial period for services not yet provided, the income is deferred and recognised as contract liabilities on the statement of financial position and released to the income statement as services are provided over the lifetime of the contract (see note 32 for further information). In addition, this also includes fees in respect of advice provided to clients when the advice has been provided to the client and the financial adviser’s performance obligation has been fully delivered. Accordingly, fee income is recognised at the inception of the financial product sold. Fund-based fees This is periodic fee income based on the market valuation of the Group’s investment contracts. It is calculated and recognised on a daily basis in line with the provision of investment management services. This also includes fee income within consolidated funds’ income statements. Fixed fees This is periodic fee income which is fixed in value according to underlying contract terms and relates to the provision of services and transactional dealing fees. It is recognised on provision of the transaction or service. Surrender fees Surrender fee income relates to client charges received on the surrender of a contract, which is based on the value of the policy and recognised on surrender of the policy. Other fee and commission income This includes charges taken from unit-linked funds to meet future policyholder tax liabilities. Depending on the nature of the tax liability, the charges are either recognised at the point a transaction occurs on the unit-linked fund, or annually. ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 131 5: Significant accounting policies continued 5(e): Investment return Investment return comprises two elements (a) investment income and (b) realised and unrealised gains and losses on investments held at FVTPL. Investment income Investment income includes dividends on equity securities which are recorded as revenue on the ex-dividend date and interest income which is recognised using the effective interest rate method which allocates interest and other finance costs at a constant rate over the expected life of the financial instrument. Realised and unrealised gains and losses A gain or loss on a financial investment is only realised on disposal or transfer and represents the difference between the proceeds received, net of transaction costs, and its original cost (or amortised cost). Unrealised gains or losses, arising on investments which have not been disposed or transferred, represent the difference between carrying value at the year end and the carrying value at the previous year end or purchase value (if this occurs during the year), less the reversal of previously recognised unrealised gains or losses in respect of disposals made during the year. Gains and losses resulting from changes in both market value and foreign exchange rates on investments classified at FVTPL are recognised in the income statement in the period in which they occur. 5(f): Deferred acquisition costs and contract costs Investment contracts Incremental costs, including fee and commission expenses, that are directly attributable to securing either unit-linked investment contracts or other asset management services are deferred and recognised as contract costs. Contract costs are linked to the contractual right to benefit from providing investment management services. These are therefore amortised through the income statement consistent with the transfer to the customer of the services to which the contract relates. 5(g): Investment contract liabilities The Group’s investment contracts are unit-linked contracts. At inception, investment contract liabilities for unit-linked business are classified as financial liabilities and measured at FVTPL. For these contracts, the fair value liability is equal to the total value of units allocated to the policyholders, based on the bid price of the underlying assets in the fund. The FV TPL classification reflects the fact that the matching investment portfolio that backs the unit-linked liabilities, is managed, and its performance evaluated, on a fair value basis. Contributions received on investment contracts are treated as policyholder deposits and credited directly to investment contract liabilities on the statement of financial position, as opposed to being reported as revenue in the income statement. Withdrawals paid out to policyholders on investment contracts are treated as a reduction to policyholder deposits, reducing the investment contract liabilities on the statement of financial position, as opposed to being recognised as expenses in the income statement. This practice is known as deposit accounting. 5(h): Financial instruments (other than derivatives) Financial instruments cover a wide range of financial assets, including financial investments, trade receivables and cash and cash equivalents and certain financial liabilities, including investment contract liabilities, trade payables, and borrowings. Derivatives, which are also financial instruments, are covered by accounting policy 5(j). Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes party to the contractual provisions of the instrument. The Group derecognises a financial asset when the contractual rights to receive cash flows have expired or been forfeited by the Group. A financial liability is derecognised when the liability is extinguished. The Group assesses the objective of a business model in which an asset is held at a portfolio level because this best represents the way the business is managed and information is reported to management. The assessment considers the stated portfolio policies and objectives. The Group determines its strategy in holding the financial asset, particularly considering whether the Group earns contractual interest revenue, for example to match the duration of financial assets to the duration of liabilities that are funding those assets or to realise cash flows through the sale of the assets. The frequency, volume and timing of sales in prior periods may be reviewed, along with the reasons for such sales and expectations about future sales activity. These factors enable management to determine which financial assets should be measured at FVTPL. Initial measurement A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition. ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued 5: Significant accounting policies continued 5(h): Financial instruments (other than derivatives) continued Subsequent measurement The classification of financial assets depends on (i) the purpose for which they were acquired, (ii) the business model in which the financial asset is managed, and (iii) its contractual cash flow characteristics. Two categories are applicable to the Group’s financial assets: FV TPL and amortised cost. This classification determines the subsequent measurement basis. The following accounting policies apply to the subsequent measurement of financial assets. Measurement basis Accounting policies FVTPL These financial assets are subsequently measured at fair value. Net gains and losses, including interest and dividend income, are recognised in profit or loss. Amortised cost These financial assets are subsequently measured at amortised cost using the effective interest rate method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairments are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Amortised cost A financial asset is measured at amortised cost if it meets both of the following conditions and unless recognised as FVTPL on initial recognition applying the Fair Value Option (see below): · the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and · the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates. For the purposes of this assessment, principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin. All other financial assets that are not measured at amortised cost are classified and measured at FVTPL. Financial investments Derivative financial assets (which arise as a result of the consolidation of funds, as described in note 5(a)) are classified and measured at FV TPL. In addition, on initial recognition, the Group may irrevocably designate a financial asset at F VTPL that otherwise meets the requirements to be measured at amortised cost, if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise (the Fair Value Option). The Group’s interests in pooled investment funds, equity securities and debt securities are mandatorily at FVTPL, as they are part of groups of financial assets which are managed and whose performance is evaluated on a fair value basis. These investments are recognised at fair value initially and subsequently, with changes in fair value recognised in investment return in the income statement. Fixed-term deposits with a maturity profile exceeding three months are categorised as financial investments and are measured at amortised cost. The Group recognises purchases and sales of financial investments on trade date, which is the date that the Group commits to purchase or sell the assets. The costs associated with investment transactions are included within expenses in the income statement. Loans and advances Loans are recognised when cash is advanced to borrowers. Loans to brokers are stated at amortised cost using the effective interest rate method, except for loans at below-market interest rates which are measured at fair value. Loans stated at amortised cost are subject to the impairment requirements outlined below. Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits, money market collective investment funds and other short-term deposits with an original maturity of three months or less. Cash and cash equivalents held within money market collective investment funds are classified as FVTPL. All other cash and cash equivalents are classified as amortised cost which means they are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method and are subject to the impairment requirements outlined below. The carrying amount of cash and cash equivalents, other than money market collective investment funds which are measured at fair value, approximates to their fair value. 132 Quilter Annual Report 2022 Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. At inception, investment contract liabilities for unit-linked business are recognised as financial liabilities and measured at FVTPL. Other financial liabilities, including the Group’s borrowings and trade payables, are measured at amortised cost using the effective interest method. Trade payables and receivables Trade payables and receivables are classified at amortised cost. Due to their short-term nature, their carrying amount is considered to be the same as their fair value. ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued Strategic Report Governance Report 5: Significant accounting policies continued 5(h): Financial instruments (other than derivatives) continued Investments in subsidiaries Parent Company investments in subsidiary undertakings are initially stated at cost. Subsequently, investments in subsidiary undertakings are stated at cost less any provision for impairment. An investment in a subsidiary is deemed to be impaired when its carrying amount is greater than its estimated recoverable amount, and there is evidence to suggest that the impairment occurred subsequent to the initial recognition of the asset in the financial statements. All impairments are recognised in the Parent Company income statement as they occur. Impairment of financial assets The expected loss accounting model for credit losses applies to financial assets measured at amortised cost, but not to financial assets at FVTPL. Financial assets at amortised cost include trade receivables, cash and cash equivalents (excluding money market collective investment funds which are measured at fair value), fixed-term deposits and certain loans and advances. Credit loss allowances are measured on each reporting date according to a three-stage expected credit loss (“ECL”) impairment model: Performing financial assets: Stage 1 From initial recognition of a financial asset to the date on which an asset has experienced a significant increase in credit risk relative to its initial recognition, a stage 1 loss allowance is recognised equal to the credit losses expected to result from its default occurring over the earlier of the next 12 months or its maturity date (“12-month ECL”). Stage 2 Following a significant increase in credit risk relative to the initial recognition of the financial asset, a stage 2 loss allowance is recognised equal to the credit losses expected from all possible default events over the remaining lifetime of the asset (“Lifetime ECL”). The assessment of whether there has been a significant increase in credit risk requires considerable judgement, based on the lifetime probability of default (“PD”). Stage 1 and 2 allowances are held against performing loans. The main difference between stage 1 and stage 2 allowances is the time Financial statements horizon. Stage 1 allowances are estimated using the PD with a maximum period of 12 months, while stage 2 allowances are estimated using the PD over the remaining lifetime of the asset. Impaired financial assets: Stage 3 When a financial asset is considered to be credit-impaired, the allowance for credit losses (“ACL”) continues to represent lifetime expected credit losses. However, interest income is calculated based on the amortised cost of the asset, net of the loss allowance, rather than its gross carrying amount. Application of the impairment model The Group applies the ECL model to all financial assets that are measured at amortised cost: · Trade receivables, to which the simplified approach prescribed by IFRS 9 is applied. This approach requires the recognition of a Lifetime ECL allowance on day one and thereafter. · Loans, cash and cash equivalents, and fixed-term deposits at amortised cost, to which the general three-stage model (described above) is applied, whereby a 12-month ECL is recognised initially and the balance is monitored for significant increases in credit risk which would trigger the recognition Other information of a Lifetime ECL allowance. ECLs are a probability-weighted estimate of credit losses. ECLs for financial assets that are not credit-impaired at the reporting date are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due in accordance with the contract and the cash flows that the Group expects to receive). ECLs for financial assets that are credit-impaired at the reporting date are measured as the difference between the gross carrying amount and the present value of estimated future cash flows. ECLs are discounted at the effective interest rate of the financial asset. The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. The measurement of ECLs considers information about past events and current conditions, as well as supportable information about future events and economic conditions. The Group has implemented its impairment methodology for estimating the ACL, taking into account forward-looking information in determining the appropriate level of allowance. In addition, it has identified indicators and set up procedures for monitoring for significant increases in credit risk. Credit-impaired financial assets At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes events such as significant financial difficulty of the borrower or issuer, a breach of contract such as a default or past due event or the restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider. The assumption that the credit risk for balances over 30 days significantly increases has been rebutted on the basis that some balances will exceed 30 days in the normal course of the settlement cycle, and therefore, there is no increase in the credit risk. Quilter Annual Report 2022 133 ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued 5: Significant accounting policies continued 5(i): Contract assets Contract assets are not classified as financial assets. Due to their short-term nature, their carrying amount is considered to be the same as their fair value. The expected loss accounting model for credit losses applies to contract assets. The Group applies the ECL model to contract assets, which are measured at amortised cost. The simplified approach prescribed by IFRS 9 is applied to contract assets. This approach requires the recognition of a Lifetime ECL allowance on day one and thereafter. 5(j): Derivatives The only derivatives recognised in the Group’s statement of financial position arise as a result of the consolidation of funds (described in note 5(a)). Management determines the classification of derivatives at initial recognition and classifies derivatives as mandatorily at F VTPL. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. 5(k): Employee benefits Pension obligations The Group operates two types of pension plans which have been established for eligible employees of the Group: · Defined contribution schemes where the Group makes contributions to members’ pension plans but has no further payment obligations once the contributions have been paid. · Defined benefit plans which provide pension payments upon retirement to members as defined by the plan rules. The Group has funded these liabilities by ring-fencing assets in trustee-administered funds. Defined contribution pension obligations Under a defined contribution plan, the Group’s legal or constructive obligation is limited to the amount it agrees to contribute to a pension fund and there is no obligation to pay further contributions if the fund does not hold sufficient assets to pay benefits. Contributions in respect of defined contribution schemes for current service are expensed in the income statement as staff costs and other employee-related costs when incurred. Defined benefit pension obligations A defined benefit pension plan typically defines the amount of pension benefit that an employee will receive on retirement. For these plans, the Group’s defined benefit obligation is calculated by independent actuaries using the projected unit credit method, which measures the pension obligation as the present value of estimated future cash outflows. The discount rate used is determined based on the yields for investment grade corporate bonds that have maturity dates approximating to the terms of the Group’s obligations. Plan assets are measured at their fair value at the reporting date. The net surplus or deficit of the defined benefit plan is recognised as an asset or liability in the statement of financial position and represents the present value of the defined benefit obligation at the end of the reporting period less the fair value of the plan assets. An asset is recognised only where there is an unconditional right to future benefits. The current and past service cost curtailments and settlements are charged to other expenses in the income statement. Remeasurements which comprise gains and losses as a result of experience adjustments and changes in actuarial assumptions, the actual return on plan assets (excluding interest) and the effect of the asset ceiling are recognised immediately in other comprehensive income in the period in which they occur. Remeasurements are not reclassified to the income statement in subsequent periods. Administration costs (other than the costs of managing plan assets) are recognised in the income statement when the service is provided. When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by employees, or the gain or loss on curtailment, is recognised immediately in the income statement when the plan amendment or curtailment occurs. 134 Quilter Annual Report 2022 5(h): Financial instruments (other than derivatives) continued Presentation of impairment Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Write-offs Loans and debt securities are written off (either partially or in full) when there is no realistic prospect of the amount being recovered. This is generally the case when the Group concludes that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 135 5: Significant accounting policies continued 5(k): Employee benefits continued Employee share-based payments The Group operates a number of share incentive plans for its employees. These involve an award of shares or options in the Group (equity-settled share-based payments). The Group has not granted awards under cash-settled plans in the current or prior year. The Group’s incentive plans have conditions attached before the employee becomes entitled to the award. These can be performance and/or service conditions (vesting conditions) or conditions that are often wholly within the control of the employee, for example where the employee has to provide funding during the vesting period, which is then used to exercise share options (non-vesting condition). Performance conditions may be market-based or non-market-based. Market-based performance conditions are those related to an entity’s equity, such as achieving a specified share price or target based on a comparison of the entity’s share price with an index of share prices. Non-market performance conditions are those related to an entity’s profit or revenue targets, an example of which would be Earnings per Share (“EPS”). Market-based performance conditions and non-vesting conditions are taken into account when estimating the fair value of the share or option awards at the measurement date. The fair value of the share awards or options is not adjusted to take into account non-market performance features. These are taken into consideration by adjusting the number of equity instruments in the share-based payment measurement and this adjustment is made each period until the equity instruments vest. The fair value of share-based payment awards granted is recognised as an expense in the income statement over the vesting period which accords with the period for which related services are provided by the employee. A corresponding increase in equity is recognised for equity-settled plans. For equity-settled plans, the fair value is determined at grant date and not subsequently remeasured. At each period end, the Group reassesses the number of equity instruments expected to vest and recognises any difference between the revised and original estimate in the income statement with a corresponding adjustment to the share-based payments reserve in equity. At the time the equity instruments vest, the amount recognised in the share-based payments reserve in respect of those equity instruments is transferred to retained earnings. 5(l): Tax Current tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to income tax payable in respect of previous years. In the UK, a change in tax law is substantively enacted when it has been accepted by the House of Commons. Current tax is charged or credited to the income statement, except when it relates to items recognised directly in equity or in other comprehensive income. Deferred tax Deferred tax represents the tax on profits or losses which are required by law to be taxed in a different year to the year in which they impact the Group’s financial statements. Deferred tax is calculated according to the statement of financial position method, based on temporary differences between the tax base of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. Deferred tax is charged or credited to the income statement, except when it relates to items recognised directly in equity or in other comprehensive income. In certain circumstances, as permitted by accounting standards, deferred tax balances are not recognised. In particular, where the liability relates to the initial recognition of goodwill, or transactions that are not a business combination and at the time of their occurrence affect neither accounting nor taxable profit. Note 29 includes further detail of circumstances in which the Group does not recognise temporary differences. Policyholder tax Certain products are subject to tax on the policyholder investment returns. This ‘policyholder tax’ is an element of the Group’s total tax expense. To make the tax expense more meaningful, tax attributable to policyholder returns and tax attributable to equity holders’ profits is shown separately. 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’ profits. ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued 136 Quilter Annual Report 2022 5: Significant accounting policies continued 5(m): Goodwill and intangible assets The recognition of goodwill arises 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. Intangible assets include intangible assets initially recognised as part of a business combination, purchased assets and internally generated assets, such as software development costs related to amounts recognised for in-house systems development. Goodwill and goodwill impairment Goodwill arising on the Group’s investments in subsidiaries is shown as a separate asset, while that on associates, where it arises, is included within the carrying value of those investments. Goodwill is recognised as an asset at cost at the date when control is achieved (the acquisition date) and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not amortised but is subject to annual impairment reviews. Goodwill is allocated to one or more groups of cash-generating units (“CGUs”) expected to benefit from the synergies of the combination, where the CGU represents the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill is reviewed for impairment at least annually as a matter of course even if there is no indication of impairment, and whenever an event or change in circumstances occurs which indicates a potential impairment. For impairment testing, the carrying value of goodwill is compared to the recoverable amount. The recoverable amount is the higher of value-in-use and the fair value less costs of disposal. Any impairment loss is recognised immediately in profit or loss and is not subsequently reversed. On disposal of an operation within a group of CGUs to which goodwill has been allocated, the goodwill associated with that operation is included in the carrying amount of the operation when determining the gain or loss on disposal. It is measured based on the relative values of the operation disposed of and the portion of the CGU retained. Intangible assets acquired as part of a business combination Intangible assets acquired as part of a business combination are recognised where they are separately identifiable and can be measured reliably. Acquired intangible assets consist primarily of contractual relationships such as customer relationships and distribution channels. Such items are capitalised at their fair value, represented by the estimated net present value of the future cash flows from the relevant relationships acquired at the date of acquisition. Brands and similar items acquired as part of a business combination are capitalised at their fair value based on a ‘relief from royalty’ valuation methodology. Subsequent to initial recognition, acquired intangible assets are measured at cost less amortisation and any recognised impairment losses. Amortisation is recognised at rates calculated to write off the cost or valuation less estimated residual value, using a straight-line method over their estimated useful lives as set out below: · Distribution channels 8 years · Customer relationships 7-10 years · Brands 5 years The economic lives are determined by considering relevant factors such as usage of the asset, product life cycles, potential obsolescence, competitive position and stability of the industry. The amortisation period is re-evaluated at the end of each financial year. Internally developed software There are a number of factors taken into account when considering whether internally developed software meets the recognition criteria in IAS 38 Intangible Assets. Where, for example, a third-party provider retains ownership of the software, this will not meet the control criterion in the standard (i.e. the power to obtain benefits from the asset) and the costs will be expensed as incurred. Where it is capitalised, internally developed software is held at cost less accumulated amortisation and impairment losses. Such software is recognised in the statement of financial position if, and only if, it is probable that the relevant future economic benefits attributable to the software will flow to the Group and its cost can be measured reliably. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of the relevant software, which range between three and five years, depending on the nature and use of the software. Research and development Costs incurred in the research phase are expensed, whereas costs incurred in the development phase are capitalised, subject to meeting specific criteria, as set out in the relevant accounting standards and guidance. In particular, for the costs to be capitalised, it is a requirement that future economic benefits can be identified as resulting from the development expenditure. Amortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of the relevant software, which range from three to five years, depending on the nature and use of the software. Subsequent expenditure Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 137 5: Significant accounting policies continued 5(m): Goodwill and intangible assets continued Impairment testing for intangible assets For intangible assets with finite lives, impairment charges are recognised where evidence of impairment is observed. Indicators of impairment can be based on external factors, such as significant adverse changes to the asset as part of the overall business environment and internal factors, such as worse than expected performance reflected in the Group’s three-year Business Plan. If an indication of impairment exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is calculated as the higher of fair value less costs to sell and value-in-use. If the recoverable amount of an intangible asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense in the income statement immediately. Where an intangible asset is not yet available for use, it is subject to an annual impairment test by comparing the carrying value with the recoverable amount. The recoverable amount is estimated by considering the ability of the asset to generate sufficient future economic benefits to recover the carrying value. 5(n): Property, plant and equipment Aside from right-of-use assets, property, plant and equipment consist principally of computer equipment and fixtures and fittings and are stated at cost less accumulated depreciation and any recognised impairment losses. Cost includes the original purchase price of the asset and the costs of bringing the asset to its working condition for its intended use. Depreciation is charged to profit or loss on a straight-line basis to write down the cost of the asset to its residual value over its estimated useful life. The following maximum useful lives are applied: · Property leased by the Group – length of the lease · Plant and equipment – 5 to 10 years Leased plant and equipment is never depreciated over a period longer than the term of the lease. Management determines useful lives and residual values for assets when they are acquired, based on experience of similar assets and taking into account other relevant factors such as any expected changes in technology. The Group assesses and, where appropriate, adjusts the useful life, residual value and depreciation method for property plant and equipment on an annual basis. Items of property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. Where the carrying amount of an asset is greater than its estimated recoverable amount, which represents the higher of the asset’s fair value less costs of disposal and value-in-use, it is written down immediately to its recoverable amount and an impairment loss is recognised in the income statement. Impaired non-financial assets, except goodwill, are reviewed for possible reversal of the impairment at each reporting date. On derecognition of an item of equipment, any gain or loss on disposal, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is included in profit or loss at the date of the disposal. Items of property and equipment that are not owned by the Group but are held under lease arrangements are accounted for in accordance with the accounting policy on leases. 5(o): Leases Under IFRS 16, the Group assesses whether a contract is or contains a lease at inception of the contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess where a contract conveys the right to control the use of an identified asset, the Group assesses whether: · the contract involves the use of an identified asset which may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; · the Group has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of use; and · the Group has the right to direct the use of the asset. For lessee contracts, the right-of-use asset is initially measured at cost, which comprises the initial amount of lease liability, adjusted for any lease payments made at or before the commencement date, and any initial direct costs incurred. Adjustments are also made, where appropriate, to recognise provisions for property restoration costs and lease incentives received such as rent-free periods. The lease liability is initially measured at the present value of the lease payments that are unpaid at the commencement date, discounted using the asset-specific incremental borrowing rates. Subsequent to lease commencement, the Group measures the right-of-use asset using a cost model, whereby the asset is held at cost less accumulated depreciation and any accumulated impairment. Depreciation is charged to the income statement on a straight-line basis to write down the cost of the right-of-use asset to its residual value over its estimated useful life which is dependent on the length of the lease. In addition, the carrying amount of the right-of-use asset may be adjusted for certain remeasurements of the lease liability. The lease liability is subsequently measured at amortised cost using the effective interest method and also reflects any lease modifications or reassessments. The Group presents its right-of-use assets within “Property, plant and equipment” and lease liabilities within “Borrowings and lease liabilities” in the statement of financial position. The Group currently has material lease commitments of varying durations for the rental of a number of office buildings. The Group’s future lease cash outflows are not materially exposed to variable lease payments, low value or short-term leases, residual value guarantees or restrictions imposed by a lease contract or sale and leaseback transactions. ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued 5: Significant accounting policies continued 5(o): Leases continued Subleases Where the Group sublets a leased asset to a third party, it accounts for its interest in the sublease separately from the head lease. In determining whether a sublease is a finance or operating lease, the Group assesses whether the sublease has transferred substantially all the risk and rewards of the right-of-use asset arising from the head lease to the sublessee. Where the sublease does transfer substantially all the risk and rewards of the right-of-use asset to the sublessee, the Group derecognises the right-of-use asset and a net investment in finance leases is recognised. The net investment in finance lease is calculated as the present value of the future lease payments receivable under the sublease. Any difference between the initial value of the net investment in finance leases and the right-of-use asset derecognised is recognised immediately in the income statement. Interest is calculated on the net investment in finance lease using the discount rate and is recognised in the income statement as finance income. Where the sublease does not transfer substantially all the risk and rewards of the right-of-use asset to the sublessee, the Group continues to recognise the right-of-use asset. The sublease is accounted for as an operating lease with the lease payments received recognised as other income in the income statement. Lease incentives granted are recognised as part of the rental income and are spread over the lease term. The Group had no material subleases at 31 December 2022 (2021: none). 5(q): Provisions and contingent liabilities Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more probable than not that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date. Where the effect of the time value of money is material, provisions are discounted and represent the present value of the expected expenditure. Provisions are not recognised for future operating costs or losses. The Group recognises specific provisions where they arise for the situations outlined below: · Client compensation and related costs, when the Group compensates clients in the context of providing fair customer outcomes. · Onerous contracts, when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting the obligations under the contract. · Corporate restructuring, only if the Group has approved a detailed formal plan and raised a valid expectation among those parties directly affected, that the plan will be carried out either by having commenced implementation or by publicly announcing the plan’s main features. Such provisions include the direct expenditure arising from the restructuring, such as employee termination payments but not those costs associated with the ongoing activities of the Group. · Legal uncertainties and the settlement of other claims. · Property provisions, where the Group has an obligation to restore a property to its original condition at the end of the lease. Contingent liabilities are possible obligations of the Group of which the timing and amount are subject to significant uncertainty. Contingent liabilities are not recognised in the consolidated statement of financial position, unless they are assumed by the Group as part of a business combination. They are, however, disclosed, unless they are considered to be remote. If a contingent liability becomes probable and the amount can be reliably measured it is no longer treated as contingent and it is recognised as a liability. Contingent assets, which are possible benefits to the Group, are only disclosed if it is probable that the Group will receive the benefit. If such a benefit becomes virtually certain, it is no longer considered contingent and is recognised on the consolidated statement of financial position as an asset. 138 Quilter Annual Report 2022 5(p): Assets and liabilities held for sale and discontinued operations Assets (and disposal groups) are classified as held for sale if their carrying amount is expected to be recovered by means of a sale rather than through continuing use. This condition is regarded as having been met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year of the date of classification. Assets and liabilities held for sale are presented separately in the consolidated statement of financial position. Assets and liabilities (and disposal groups) classified as held for sale are measured at the lower of their carrying amount and their fair value less costs to sell. No depreciation or amortisation is charged on a non-current asset while classified as held for sale or while part of a disposal group classified as held for sale. The Group classifies areas of the business as discontinued operations where they have been disposed of or are classified as held for sale at the year end, which either represent a separate major line of business or geographical area or are part of a plan to dispose of one or are subsidiaries acquired exclusively with a view to resale. When an asset (or disposal group) ceases to be classified as held for sale, the individual assets and liabilities cease to be shown separately in the statement of financial position at the end of the year in which the classification changes. Comparatives are not restated. If the line of business was previously presented as a discontinued operation and subsequently ceases to be classified as held for sale, profit and loss and cash flows of the comparative period are restated to show that line of business as a continuing operation. ## Basis of preparation and significant accounting policies For the year ended 31 December 2022 continued Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 139 5: Significant accounting policies continued 5(r): Foreign currency translation The Group’s presentation currency is pounds sterling. The functional currency of the Group’s foreign operations is the currency of the primary economic environment in which these entities operate. The Parent Company functional currency is pounds sterling. Income statements and cash flows of foreign entities are translated into the Group’s presentation currency at average exchange rates for the year and their statements of financial position are translated at the year-end exchange rates. Exchange rate differences arising from the translation of the net investment in foreign subsidiaries are recognised in other comprehensive income and taken to the currency translation reserve which forms part of other reserves within equity. To the extent that these gains and losses are effectively hedged, the cumulative effect of such gains and losses arising on the hedging instruments are also included in that component of shareholders’ equity. On disposal of a foreign entity, exchange differences are transferred out of this reserve to the income statement as part of the gain or loss on sale. Foreign currency transactions are converted into the relevant functional currency at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the relevant functional currency at exchange rates prevailing at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into the functional currency at the exchange rates prevailing at the dates the fair values were determined. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are converted into the functional currency at the rate of exchange at the time of the initial recognition of the asset and liability and are not subsequently retranslated. Exchange gains and losses on the translation and settlement during the year of foreign currency assets and liabilities are recognised in profit or loss. Exchange differences for non-monetary items are recognised in the statement of other comprehensive income when the changes in the fair value of the non-monetary item are recognised in the statement of other comprehensive income, and in profit or loss if the changes in fair value of the non-monetary item are recognised in profit or loss. 5(s): Share capital Equity instruments Shares are classified as equity instruments when there is no contractual obligation to deliver cash or other assets to another entity on terms that may be unfavourable. The value of the Company’s share capital consists of the number of Ordinary Shares in issue multiplied by their nominal value. The difference between the proceeds received on the issue of the shares and the nominal value of the shares issued is recorded in share premium. Share issue costs Incremental external costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds of the issue and disclosed where material. Dividends Dividends are distributions of profit to holders of the Group’s share capital and as a result are recognised as a deduction in equity. Dividends payable to holders of equity instruments are recognised in the period in which they are authorised or approved. Interim dividends payable to holders of the Group’s Ordinary Share capital are announced with the half-year results and authorised by the Directors of the Parent Company. The final dividend is announced with the Annual Report and typically requires shareholder approval at the Annual General Meeting. For this reason, it is not included as a liability in the annual financial statements for the year to which the final dividend relates. Shares held by trusts Shares in the Parent Company that are held by the Employee Benefit Trust (“EBT”) are treated as “Own shares”. The EBT purchases shares in the Parent Company for delivery to employees under employee incentive plans. Purchased shares are recognised as a deduction from equity at the price paid for them. 5(t): Earnings per share Basic earnings per share are calculated by dividing the profit attributable to the Ordinary Shareholders of the Parent Company by the weighted average number of Ordinary Shares in issue during the year, excluding Ordinary Shares held within employee benefit trusts (“EBTs”) and shares held in consolidated funds (“Own shares”). Own shares are deducted for the purpose of calculating both basic and diluted EPS. Diluted earnings per share 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, and are calculated by increasing the weighted average number of Ordinary Shares outstanding to assume conversion of all dilutive potential Ordinary Shares, notably those related to employee share schemes. 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 1/2021 Headline Earnings. Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used measure of earnings in South Africa. # Notes to the consolidated financial statements For the year ended 31 December 2022 ## 6. Business combinations ### 6(a): Business disposals #### Year ended 31 December 2022 There have been no material disposals of businesses during the year ended 31 December 2022. #### Year ended 31 December 2021 On 30 November 2021, the Group completed the sale of Quilter International to Utmost Group for consideration of £481 million. The Group recognised a profit on disposal of £89 million. Provisions established in respect of this disposal are shown in note 28. Separation, migration and decommissioning expenses of £19 million incurred as a result of the disposal were included within Other operating and administrative expenses in the discontinued operations income statement for 2021. #### Profit on sale of operations | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | | Quilter International and Single Strategy business | Quilter International and Single Strategy business^{1} | | **Quilter International** | | | | Consideration received | - | 481 | | Less: transaction costs | - | (17) | | Net proceeds from sale | - | 464 | | Carrying value of net assets disposed of | - | (324) | | Goodwill allocated and disposed of | - | (50) | | Recycling of foreign currency translation reserve | - | (1) | | Profit on sale of Quilter International | - | 89 | | Change in accrued expenses in relation to the Single Strategy business (sold in 2018) | - | 1 | | **Profit on sale of operations before tax** | - | **90** | | Separation, migration and decommissioning costs | - | (19) | | **Profit on disposal after separation, migration and decommissioning costs** | - | **71** | $^{1}$In 2021, the Group also sold Lighthouse Carwood Limited generating a profit of £2 million which is not reflected in the table above as the former subsidiary's activities did not represent a major line of business and therefore is regarded as being part of the Group's continuing operations. 140 Quilter Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 6. Business combinations continued ### 6(b): Discontinued operations – income statement In the prior year, the Group's discontinued operations principally related to Quilter International, the sale of which completed on 30 November 2021. | | Notes | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | --- | | **Income** | | | | | Gross earned premiums | | – | 1 | | Premiums ceded to reinsurers | | – | (1) | | Fee income and other income from service activities | 160 | – | 169 | | Investment return | 900 | – | 1,816 | | Other income | | – | 1 | | **Total income** | | – | **1,986** | | **Expenses** | | | | | Change in investment contract liabilities | 27 | – | (1,818) | | Fee and commission expenses, and other acquisition costs | | – | (72) | | Other operating and administrative expenses | | – | (55) | | **Total expenses** | | – | **(1,945)** | | Profit on sale of operations before tax | 160 | – | 90 | | **Profit before tax attributable to equity holders from discontinued operations** | | – | **131** | | **Profit after tax from discontinued operations** | | – | **131** | | Attributable to | | | | | **Equity holders of Quilter plc** | | – | **131** | | **Earnings per Ordinary Share on profit attributable to Ordinary Shareholders of Quilter plc** | | | | | **Basic** – from discontinued operations (pence) | 1280 | – | **8.0** | | **Diluted** – from discontinued operations (pence) | 1280 | – | **7.8** | ### 6(c): Discontinued operations – statement of comprehensive income | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | Profit after tax | – | 131 | | **Total comprehensive income from discontinued operations** | – | **131** | ### 6(d): Discontinued operations – net cash flows | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | Total net cash flows from operating activities | – | 276 | | Total net cash flows from investing activities | – | (411) | | Total net cash flows from financing activities | – | (2) | | **Net decrease in cash and cash equivalents** | – | **(137)** | ### 6(e): Assets and liabilities held for sale Assets classified as held for sale at 31 December 2022 relate to a leasehold interest in an office property which is vacant for which the Group is actively seeking a buyer. There were no assets or liabilities classified as held for sale at 31 December 2021. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 141 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 6. Business combinations continued ### 6(f): Business acquisitions There have been no material acquisitions of businesses during the year ended 31 December 2022 or the year ended 31 December 2021. #### Contingent consideration arising from historical business acquisitions: The table below details the movements in the contingent consideration balance during the current and prior year arising from the business acquisitions in previous years. | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | Opening balance | 5 | 16 | | Payments | (5) | (7) | | Financing interest charge | - | 1 | | Unused amounts reversed and other movements | - | (5) | | **Closing balance** | **-** | **5** | Contingent consideration represents the Group's best estimate of the amount payable in relation to each acquisition discounted to net present value. The basis used for each acquisition varies but includes payments based on a percentage of the level of assets under administration, funds under management and levels of ongoing fee income at future dates. ## 7. Alternative performance measures ("APMs") ### 7(a): Adjusted profit before tax and reconciliation to profit after tax #### Basis of preparation of adjusted profit before tax Adjusted profit before tax is one of the Group's alternative performance measures and represents the Group's IFRS profit, adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature, as detailed in note 7(b). Adjusted profit before tax does not provide a complete picture of the Group's financial performance, which is disclosed in the IFRS income statement, but is instead intended to provide additional comparability and understanding of the financial results. | | Notes | Year ended 31 December 2022 £m | Year ended 31 December 2021 | | | | --- | --- | --- | --- | --- | --- | | | | | Continuing operations £m | Discontinued operations^{1} £m | Total £m | | Affluent | | 105 | 111 | 50 | 161 | | High Net Worth | | 45 | 56 | - | 56 | | Head Office | | (16) | (29) | - | (29) | | **Adjusted profit before tax** | | **134** | **138** | **50** | **188** | | Reallocation of Quilter international costs | | - | (10) | 10 | - | | **Adjusted profit before tax after reallocation** | (b) | **134** | **128** | **60** | **188** | | Adjusting items: | | | | | | | Impact of acquisition and disposal-related accounting | 7(b)(i) | (42) | (41) | - | (41) | | Profit on business disposals^{2} | 6(i) | - | 2 | 90 | 92 | | Business transformation costs | 7(b)(ii) | (30) | (51) | (19) | (70) | | Managed separation costs | 7(b)(iii) | - | (2) | - | (2) | | Finance costs | 7(b)(iv) | (10) | (10) | - | (10) | | Policyholder tax adjustments | 7(b)(v) | 138 | (7) | - | (7) | | Voluntary customer repayments | 7(b)(vi) | (6) | - | - | - | | Other adjusting items | 7(b)(vii) | (1) | - | - | - | | Exchange rate gain (ZAR/GBP) | 7(b)(viii) | 4 | - | - | - | | Customer remediation | 7(b)(ix) | 12 | (7) | - | (7) | | **Total adjusting items before tax** | | **65** | **(116)** | **71** | **(45)** | | **Profit before tax attributable to equity holders** | | **199** | **12** | **131** | **143** | | Tax attributable to policyholder returns | 11(a) | (134) | 73 | - | 73 | | Income tax credit/(expense) | 11(a)(i) | 110 | (62) | - | (62) | | **Profit after tax^{3}** | | **175** | **23** | **131** | **154** | $^{1}$ 2021 discontinued operations include the results of Quilter International. $^{2}$ In 2021, the discontinued operations profit on business disposals of £90 million resulted from the disposal of Quilter International. The £2 million continuing operations profit on business disposals resulted from the disposal of Lighthouse Carwood Limited. See note 6(a) for details. $^{3}$ IFRS profit after tax. 142 Quilter Annual Report 2022 ## Notes to the consolidated financial statements For the year ended 31 December 2022 continued Strategic Report Governance Report 7: Alternative performance measures (“APMs”) continued 7(b): Adjusting items In determining adjusted profit before tax, the Group’s IFRS profit before tax is adjusted for specific items that management considers to be outside of the Group’s normal operations or one-off in nature. These are detailed below. 7(b)(i): Impact of acquisition and disposal-related accounting Goodwill and other acquired intangibles are recognised on the acquisition of a business and represent the premium paid over the fair value of the Group’s share of the identifiable assets and liabilities acquired at the date of acquisition (as recognised under IFRS 3 Business Combinations). The Group excludes any impairment of goodwill from adjusted profit as well as the amortisation and impairment of acquired intangible assets, any acquisition costs, finance costs related to the discounting of contingent consideration and incidental items relating to past disposals. The effect of these adjustments to determine adjusted profit are summarised below. All adjustments are in respect of continuing operations. | | Year ended | | Year ended | | | --- | --- | --- | --- | --- | | | 31 December | | 31 December | | | | | 2022 | | 2021 | | Note | | £m | | £m | Amortisation of other acquired intangible assets 14 42 45 Fair value gains on revaluation of contingent consideration – (5) Unwinding of discount on contingent consideration – 1 Total impact of acquisition and disposal-related accounting 42 41 7(b)(ii): Business transformation costs Business transformation costs include four key items: costs associated with the UK Platform Transformation Programme, Optimisation programme costs, Business Simplification costs and business separation costs following disposal of Quilter International. For the year ended 31 December 2022, these costs totalled £30 million (31 December 2021: £70 million) in aggregate, the principal components of which are described below: UK Platform Transformation Programme – 31 December 2022: £nil, 31 December 2021: £28 million Financial statements The Platform Transformation Programme concluded in 2021 with lifetime costs of £202 million. No further costs were incurred in 2022. Optimisation programme costs – 31 December 2022: £6 million, 31 December 2021: £22 million The Optimisation programme commenced in 2018 to provide closer business integration, create central support, rationalise technology and reduce third-party spend. The programme has now achieved its target of delivering annualised run-rate cost savings of £65 million with total implementation costs since inception of £87 million. This programme concluded during 2022. Business Simplification costs – 31 December 2022: £17 million, 31 December 2021: £nil The Business Simplification programme is anticipated to reduce operating costs by £45 million on a run-rate basis, with implementation costs expected to be £55 million. The Group continues to simplify its structures and organisation to support the two business segments. To date, the programme has delivered £23 million of annualised run-rate cost savings with an implementation cost of £17 million. Restructuring costs following the disposal of Quilter Life Assurance – 31 December 2022: £3 million, 31 December 2021: £1 million Following the sale of Quilter Life Assurance in 2019, the Group entered into a Transitional Service Agreement with the buyer, ReAssure. During the year Other information ended 31 December 2022, the Group recognised £3 million for property exit costs following the conclusion of the Transitional Service Agreement. Business separation costs following disposal of Quilter International – 31 December 2022: £nil, 31 December 2021: £19 million The costs of business separation arise from the process to separate Quilter International’s infrastructure, which is complex and covers a wide range of areas including people, IT systems, data and contracts facilities. A programme team has been established to ensure the transformation of these areas to the acquirer. These provisions have been based on external quotations and estimations, together with estimates of the time required for incremental resource costs to achieve the separation. The costs are predominantly expected to occur over a three-year period. The Group has provided for the future restructuring costs arising due to the sale of Quilter International to Utmost Group on 30 November 2021, including the cost of migrating IT systems and data to the acquirer, as the Transitional Service Agreement with Utmost Group (the acquirer) runs off and the remaining Quilter business is restructured following the disposal. Investment in business costs – 31 December 2022: £4 million, 31 December 2021: £nil Investment in business costs of £4 million were incurred in 2022 as the Group continues to enable and support advisers and clients and improve productivity through better utilisation of technology. 7(b)(iii): Managed separation costs For the year ended 31 December 2022, no managed separation costs were incurred (31 December 2021: £2 million). In prior periods, these one-off costs related to the Group’s separation from Old Mutual and were excluded from adjusted profit because they related to a fundamental restructuring of the Group and were not representative of the operating activity of the Group. No further costs associated with managed separation are anticipated. Quilter Annual Report 2022 143 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 7. Alternative performance measures ("APMs") continued ### 7(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 year ended 31 December 2022, finance costs were £10 million (31 December 2021: £10 million). ### 7(b)(v): Policyholder tax adjustments For the year ended 31 December 2022, the total amount of policyholder tax adjustments to adjusted profit is £138 million charge (31 December 2021: £7 million credit). 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 in the Group's IFRS profit or loss before tax attributable to equity holders. Note 11(a) provides further information on the impact of markets on the policyholder tax charge. Adjustments are also made to remove policyholder tax distortions from other non-operating adjusting items. ### 7(b)(vi): Voluntary customer repayment For the year ended 31 December 2022, these costs were £6 million (31 December 2021: £nil) and relate to a change in business policy. The voluntary repayments represent amounts to be paid to customers relating to revenue previously recognised in respect of Final Plan Closure receipts. ### 7(b)(vii): Other adjusting items For the year ended 31 December 2022, these costs were £1 million (31 December 2021: £nil) and relate to the impairment of an indemnification asset. ### 7(b)(viii): Exchange rate gain (ZAR/GBP) For the year ended 31 December 2022, income of £4 million was received (31 December 2021: £nil) and related to a foreign exchange gain on cash held in South African Rand in preparation for the capital return and final dividend payments in May 2022. Cash was converted to South African Rand upon announcement of the details of the capital return and dividend payment to provide an economic hedge for the Group. The foreign exchange gain is fully offset by an equal amount taken directly to retained earnings. See note 4 for further detail. ### 7(b)(ix): Customer remediation **Lighthouse pension transfer advice provision – 31 December 2022: net income £12 million, 31 December 2021: net expenses £7 million** In 2022, insurance proceeds in relation to claims in respect of legal liabilities arising in connection with Lighthouse's DB to DC pension transfer advice cases have been received, contributing £12 million to the Group's profit before tax. These have been excluded from adjusted profit on the basis that the advice activities to which the charge and benefit relate took place prior to the Group's acquisition of the business. The provision for the redress of British Steel Pension Scheme cases and other DB to DC pension transfer cases, excluding the impact of payments made, has decreased by a further £4 million in the year, which has been recognised in the income statement as a reduction of expenses (31 December 2021: £7 million expense). This decrease reflects the impact of the final redress calculations performed compared with the provision estimated, as part of the ongoing skilled person review, and an estimate for further customer redress following the skilled person's recommendation of a review of additional cases. During the year, £4 million of additional legal, consulting, and other costs were incurred. Further details of the provision are provided in note 28. ### 7(c): IFRS profit before tax from continuing operations (excluding amortisation, policyholder tax adjustments and other one-off items) For remuneration purposes, the Group uses IFRS profit before tax from continuing operations adjusted for specific items that management considers to be outside of the Group's normal operations or one-off in nature, as shown below. For further details refer to the Remuneration Report (page 95) and KPIs (page 14). | | Notes | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | --- | | **IFRS profit before tax attributable to equity holders (excluding amortisation, policyholder tax adjustments and other one-off items)** | | 103 | 68 | | Adjusted for the following: | | | | | Reallocation of Quilter International costs | | – | (10) | | Profit on business disposals | 6(a) | – | 2 | | Impact of acquisition and disposal-related accounting | 7(b)(i) | (42) | (41) | | Policyholder tax adjustments | 7(b)(ii) | 138 | (7) | | **Profit before tax attributable to equity holders** | | **199** | **12** | 144 Quilter Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued 7. Alternative performance measures ("APMs") continued ## 7(1): 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 210 and 211 and form the Group's adjusted profit before tax for continuing operations. The IFRS income statement column in the table below, down to "Profit 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. | Year ended 31 December 2022 | Net mgmt. fees/£m | Other revenue/£m | Total net fee revenue/£m | Operating expenses/£m | Adjusted profit before tax £m | Consol. of funds/£m | Consolidated income statement £m | | --- | --- | --- | --- | --- | --- | --- | --- | | **Income** | | | | | | | | | Fee income and other income from service activities | 548 | 95 | 643 | - | 643 | (62) | 581 | | Investment return | - | (4,292) | (4,292) | - | (4,292) | (357) | (4,649) | | Other income | - | 5 | 5 | 21 | 26 | 2 | 28 | | **Total income** | **548** | **(4,192)** | **(3,644)** | **21** | **(3,623)** | **(417)** | **(4,040)** | | **Expenses** | | | | | | | | | Change in investment contract liabilities | - | 4,318 | 4,318 | - | 4,318 | - | 4,318 | | Fee and commission expenses, and other acquisition costs | (46) | 1 | (45) | - | (45) | (9) | (54) | | Change in third-party interests in consolidated funds | - | - | - | - | - | 438 | 438 | | Other operating and administrative expenses | (15) | - | (15) | (557) | (572) | (12) | (584) | | Finance costs | - | - | - | (13) | (13) | - | (13) | | **Total expenses** | **(61)** | **4,319** | **4,258** | **(570)** | **3,688** | **417** | **4,105** | | Tax credit attributable to policyholder returns | 134 | - | 134 | - | 134 | - | 134 | | **Profit before tax attributable to equity holders from continuing operations** | **621** | **127** | **748** | **(549)** | **199** | **-** | **199** | | Adjusting items: | | | | | | | | | Impact of acquisition and disposal-related accounting | - | - | - | 42 | 42 | | | | Business transformation costs | - | - | - | 30 | 30 | | | | Voluntary customer repayments | - | - | - | 6 | 6 | | | | Other adjusting items | - | - | - | 1 | 1 | | | | Finance costs | - | - | - | 10 | 10 | | | | Exchange rate gain (ZAR/GBP) | - | (4) | (4) | - | (4) | | | | Customer remediation | - | - | - | (12) | (12) | | | | Policyholder tax adjustments | (138) | - | (138) | - | (138) | | | | **Adjusting items** | **(138)** | **(4)** | **(142)** | **77** | **(65)** | | | | **Adjusted profit before tax – continuing operations** | **483** | **123** | **606** | **(472)** | **134** | | | "The APMs 'Net Management Fees', 'Other revenue', 'Total net fee revenue' and 'Operating expenses' are commented on within the Financial review. "Consolidation of funds shows the grossing up impact to the Group's consolidated income statement as a result of the consolidation of funds requirements, as described within note 5(a). This grossing up is excluded from the Group's adjusted profit. Strategic Report Governance Report Financial statements Other information Quaker Annual Report 2022 145 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 7. Alternative performance measures ("APMs") continued ### 7(d): Reconciliation of IFRS income and expenses to "Total net fee revenue" and "Operating expenses" within adjusted profit continued | Year ended 31 December 2021 | Net mgmt. fees^{1} £m | Other revenue^{2} £m | Total net fee revenue^{3} £m | Operating expenses^{4} £m | Adjusted profit before tax £m | Consol. of funds^{5} £m | Consolidated income statement £m | | --- | --- | --- | --- | --- | --- | --- | --- | | **Income** | | | | | | | | | Fee income and other income from service activities | 633 | 111 | 744 | - | 744 | (78) | 666 | | Investment return | - | 3,294 | 3,294 | - | 3,294 | 708 | 4,002 | | Other income | - | 1 | 1 | 15 | 16 | 2 | 18 | | **Total income** | **633** | **3,406** | **4,039** | **15** | **4,054** | **632** | **4,686** | | **Expenses** | | | | | | | | | Change in investment contract liabilities | - | (3,293) | (3,293) | - | (3,293) | - | (3,293) | | Fee and commission expenses, and other acquisition costs | (52) | 4 | (48) | - | (48) | (13) | (61) | | Change in third-party interests in consolidated funds | - | - | - | - | - | (599) | (599) | | Other operating and administrative expenses | (15) | 1 | (14) | (602) | (616) | (20) | (636) | | Finance costs | - | - | - | (14) | (14) | - | (14) | | **Total expenses** | **(67)** | **(3,288)** | **(3,355)** | **(616)** | **(3,971)** | **(632)** | **(4,603)** | | Profit on business disposal | - | 2 | 2 | - | 2 | - | 2 | | Tax expense attributable to policyholder returns | (73) | - | (73) | - | (73) | - | (73) | | **Profit before tax attributable to equity holders from continuing operations** | **493** | **120** | **613** | **(601)** | **12** | **-** | **12** | | Adjusting items: | | | | | | | | | Impact of acquisition and disposal-related accounting | - | - | - | 41 | 41 | | | | Profit on business disposal | - | (2) | (2) | - | (2) | | | | Business transformation costs | - | - | - | 51 | 51 | | | | Managed separation costs | - | - | - | 2 | 2 | | | | Finance costs | - | - | - | 10 | 10 | | | | Customer remediation | - | - | - | 7 | 7 | | | | Policyholder tax adjustments | 7 | - | 7 | - | 7 | | | | **Adjusting items** | **7** | **(2)** | **5** | **111** | **116** | | | | Adjusted profit before tax after reallocation | 500 | 118 | 618 | (490) | 128 | | | | Reallocation of Quilter International costs^{6} | - | - | - | 10 | 10 | | | | **Adjusted profit before tax – continuing operations** | **500** | **118** | **618** | **(480)** | **138** | | | $^{1}$The APMs "Net Management Fees", "Other revenue", "Total net fee revenue" and "Operating expenses" are commented on within the financial review. $^{2}$Consolidation of funds shows the grossing up impact to the Group's consolidated income statement as a result of the consolidation of funds requirements, as described within note 5(a). This grossing up is excluded from the Group's adjusted profit. $^{3}$$^{1}$$_{1}$ million of Other operating and administrative expenses previously reported in Quilter International are presented within continuing operations, as costs of this nature did not transfer to Uninsist Group (the acquirer) on disposal. 146 Quilter Annual Report 2022 ## Notes to the consolidated financial statements For the year ended 31 December 2022 continued Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 147 8: Segmental information 8(a): Segmental presentation The Group’s operating segments comprise High Net Worth and Affluent, which is consistent with the manner in which the Group is structured and managed. For all reporting periods, these segments have been classified as continuing operations in the consolidated 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 before tax is an APM reported to the Group’s management and Board. Management and the Board use additional performance indicators to assess the performance of each of the segments, including net client cash flows, assets under management and administration, total net fee revenue and operating margin. Consistent with internal reporting, income and expenses that are not directly attributable to a particular segment are allocated between segments where appropriate. The Group accounts for inter-segment income and transfers as if the transactions were with third parties at current market prices. Intra-group recharges in respect of operating and administration expenses within businesses disclosed as discontinued operations are not adjusted for potential future changes to the level of remaining costs following the disposal of those businesses. The segmental information in this note reflects the adjusted and IFRS profit measures for each operating segment as provided to management and the Board. Income is analysed in further detail for each operating segment in note 9. Continuing operations: High Net Worth This segment comprises Quilter Cheviot and Quilter Private Client Advisers. Quilter Cheviot provides discretionary investment management predominantly in the United Kingdom with bespoke investment portfolios tailored to the individual needs of High Net Worth clients, charities, companies and institutions through a network of branches in London and the regions. Investment management services are also provided by operations in the Channel Islands and the Republic of Ireland. Quilter Private Client Advisers provide financial advice for protection, mortgages, savings, investments and pensions predominantly to High Net Worth clients. Affluent This segment is comprised of Quilter Investment Platform, Quilter Investors and Quilter Financial Planning. Quilter Investment Platform is a leading investment platform provider of advice-based wealth management products and services in the UK, which serves a largely Affluent client base through advised multi-channel distribution. Quilter Investors is a leading provider of investment solutions in the UK multi-asset market. It develops and manages investment solutions in the form of funds for the Group and third-party clients. It has several fund ranges which vary in breadth of underlying asset class. Quilter Financial Planning is a restricted and independent financial adviser network including Quilter Financial Advisers and Lighthouse, providing mortgage and financial planning advice and financial solutions for both individuals and businesses through a network of intermediaries. It operates across all markets, from wealth management and retirement planning advice through to dealing with property wealth and personal and business protection needs. Head Office In addition to the Group’s two operating segments, Head Office comprises the investment return on centrally held assets, central support function expenses, central core structural borrowings and certain tax balances. Discontinued operations Quilter International is excluded from the segmental information for the year ended 31 December 2021 as it was sold on 30 November 2021. See note 6 for further details. Quilter International was Quilter’s cross-border business, focusing on High Net Worth and Affluent local clients and expatriates in the UK, Asia, the Middle East, Europe and Latin America. # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 8. Segmental information continued ### 8(b)(i): Adjusted profit statement – segmental information for the year ended 31 December 2022 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. | | Notes | Operating segments | | Head Office £m | Consolidation adjustments^{1} £m | Consolidated income statement £m | | --- | --- | --- | --- | --- | --- | --- | | | | Affluent £m | High Net Worth £m | | | | | **Income** | | | | | | | | Fee income and other income from service activities | | 441 | 202 | - | (62) | 581 | | Investment return | | (4,307) | 9 | 8 | (359) | (4,649) | | Other income | | 112 | 3 | 5 | (92) | 28 | | **Segmental income** | | **(3,754)** | **214** | **13** | **(513)** | **(4,040)** | | **Expenses** | | | | | | | | Change in investment contract liabilities | | 4,318 | - | - | - | 4,318 | | Fee and commission expenses, and other acquisition costs | | (46) | - | - | (8) | (54) | | Change in third-party interests in consolidated funds | | - | - | - | 438 | 438 | | Other operating and administrative expenses | | (410) | (202) | (53) | 81 | (584) | | Finance costs | | (3) | - | (12) | 2 | (13) | | **Segmental expenses** | | **3,859** | **(202)** | **(65)** | **513** | **4,105** | | **Profit/(loss) before tax from continuing operations** | | **105** | **12** | **(52)** | **-** | **65** | | Tax credit attributable to policyholder returns | | 134 | - | - | - | 134 | | **Profit/(loss) before tax attributable to equity holders from continuing operations** | | **239** | **12** | **(52)** | **-** | **199** | | **Adjusted for non-operating items:** | | | | | | | | Impact of acquisition and disposal-related accounting | 7(b)(i) | 10 | 32 | - | - | 42 | | Business transformation costs | 7(b)(ii) | - | - | 30 | - | 30 | | Finance costs | 7(b)(iii) | - | - | 10 | - | 10 | | Policyholder tax adjustments | 7(b)(iv) | (138) | - | - | - | (138) | | Voluntary customer repayments | 7(b)(v) | 6 | - | - | - | 6 | | Other adjusting items | 7(b)(vi) | - | 1 | - | - | 1 | | Exchange rate gain (ZAR/GBP) | 7(b)(vii) | - | - | (4) | - | (4) | | Customer remediation | 7(b)(viii) | (12) | - | - | - | (12) | | Adjusting items before tax | | (134) | 33 | 36 | - | (65) | | **Adjusted profit/(loss) before tax – continuing operations** | | **105** | **45** | **(16)** | **-** | **134** | $^{1}$Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds. 148 Quibou Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 8. Segmental information continued ### 8(b)(ii): Adjusted profit statement – segmental information for the year ended 31 December 2021 | | Notes | Operating segments | | Head Of tax £m | Reallocation of Quilter International costs* £m | Consolidation adjustments* £m | Consolidated income statement £m | | --- | --- | --- | --- | --- | --- | --- | --- | | | | At least £m | High Net Worth £m | | | | | | **Income** | | | | | | | | | Fee income and other income from service activities | | 532 | 213 | – | – | (79) | 666 | | Investment return | | 3,293 | – | 1 | – | 708 | 4,002 | | Other income | | 110 | – | – | – | (92) | 18 | | **Segmental income** | | **3,935** | **213** | **1** | **–** | **537** | **4,686** | | **Expenses** | | | | | | | | | Change in investment contract liabilities | | (3,293) | – | – | – | – | (3,293) | | Fee and commission expenses, and other acquisition costs | | (48) | – | – | – | (13) | (61) | | Change in third party interests in consolidated funds | | – | – | – | – | (599) | (599) | | Other operating and administrative expenses | | (463) | (187) | (51) | (10) | 75 | (636) | | Finance costs | | (4) | – | (10) | – | – | (14) | | **Segmental expenses** | | **(3,808)** | **(187)** | **(61)** | **(10)** | **(537)** | **(4,603)** | | Profit on sale of subsidiary | | 2 | – | – | – | – | 2 | | **Profit/(loss) before tax from continuing operations** | | **129** | **26** | **(60)** | **(10)** | **–** | **85** | | Tax expense attributable to policyholder returns | | (73) | – | – | – | – | (73) | | **Profit/(loss) before tax attributable to equity holders from continuing operations** | | **56** | **26** | **(60)** | **(10)** | **–** | **12** | | **Adjusted for non-operating items:** | | | | | | | | | Impact of acquisition and disposal related accounting | 70(b) | 11 | 30 | – | – | – | 41 | | Net profit on business disposals and acquisitions | | (2) | – | – | – | – | (2) | | Business transformation costs | 70(b) | 32 | – | 19 | – | – | 51 | | Managed separation costs | 70(b) | – | – | 2 | – | – | 2 | | Finance costs | 70(b) | – | – | 10 | – | – | 10 | | Policyholder tax adjustments | 70(b) | 7 | – | – | – | – | 7 | | Customer remediation | 70(b) | 7 | – | – | – | – | 7 | | Adjusting items before tax | | 55 | 30 | 31 | – | – | 116 | | **Adjusted profit/(loss) before tax after reallocation** | | **111** | **56** | **(29)** | **(10)** | **–** | **128** | | Reallocation of Quilter International costs | 6(b) | – | – | – | 10 | – | 10 | | **Adjusted profit/(loss) before tax – continuing operations** | | **111** | **56** | **(29)** | **–** | **–** | **138** | *£10 million of Other operating and administrative expenses previously reported in Quilter International are presented within continuing operations, as costs of this nature did not transfer to Uimost Group (the acquirer) on disposal. *Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 149 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 9. Details of revenue This note gives further detail on the items appearing in the revenue section of the income statement. ### 9(a): Breakdown of income This note analyses the Group's income into further detail based on the types of fees earned and split by operating segment, which is aligned to the Group's client base. | Year ended 31 December 2022 | Affluent £m | High Net Worth £m | Head Office £m | Consolidation adjustments £m | Total continuing operations £m | | --- | --- | --- | --- | --- | --- | | Premium-based fees | 75 | 21 | - | - | 96 | | Fund-based fees^{1} | 356 | 181 | - | (62) | 475 | | Fixed fees | 2 | - | - | - | 2 | | Other fee and commission income | 8 | - | - | - | 8 | | **Fee income and other income from service activities** | **441** | **202** | **-** | **(62)** | **581** | | Investment return | (4,307) | 9 | 8 | (359) | (4,649) | | Other income | 112 | 3 | 5 | (92) | 28 | | **Total income** | **(3,754)** | **214** | **13** | **(513)** | **(4,040)** | | Year ended 31 December 2021 | Alluent £m | High Net Worth £m | Head Office £m | Consolidation adjustments £m | Total continuing operations £m | Discontinued operations £m | | --- | --- | --- | --- | --- | --- | --- | | Premium-based fees | 87 | 24 | - | - | 111 | 45 | | Fund-based fees^{1} | 376 | 189 | - | (79) | 486 | 81 | | Retrocessors received, intra-group | - | - | - | - | - | 6 | | Fixed fees | 2 | - | - | - | 2 | 26 | | Exit fees | - | - | - | - | - | 11 | | Other fee and commission income | 67 | - | - | - | 67 | - | | **Fee income and other income from service activities** | **532** | **213** | **-** | **(79)** | **666** | **169** | | Investment return | 3,293 | - | 1 | 708 | 4,002 | 1,816 | | Other income | 110 | - | - | (92) | 18 | 1 | | **Total income** | **3,935** | **213** | **1** | **537** | **4,686** | **1,986** | $^{1}$Income from fiduciary activities is included within fund-based fees. ### 9(b): Investment return This note analyses the investment return from the Group's investing activities. | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | Interest and similar income | | | | Loans and advances | - | 1 | | Investments and securities | 70 | 69 | | Cash and cash equivalents | 24 | - | | **Total interest and similar income** | **94** | **70** | | Dividend income | 217 | 225 | | Foreign currency gains and losses | 1 | 1 | | Total (losses)/gains on financial instruments mandatorily recognised at fair value through profit or loss | (4,961) | 3,706 | | **Net investment (loss)/income – continuing operations** | **(4,649)** | **4,002** | | **Net investment income – discontinued operations** | **-** | **1,816** | | **Total net investment (loss)/income** | **(4,649)** | **5,818** | 150 Quibs Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 10: Details of expenses This note provides further details in respect of the items appearing in the expenses section of the income statement. ### 10(a): Fee and commission expenses, and other acquisition costs This note analyses the fee and commission expenses and other acquisition costs. | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | Fee and commission expense | 9 | 13 | | Renewal commission – investment contracts | 29 | 30 | | Retrocessions paid | 17 | 21 | | Changes in contract costs | (1) | (3) | | **Fee and commission expenses, and other acquisition costs – continuing operations** | **54** | **61** | | **Fee and commission expenses, and other acquisition costs – discontinued operations** | **–** | **72** | | **Total fee and commission expenses, and other acquisition costs** | **54** | **133** | ### 10(b): Other operating and administrative expenses This note provides further details in respect of the items included within other operating and administrative expenses section of the income statement. | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | Staff costs | 197 | 341 | | Depreciation charge on right-of-use assets | 9 | 10 | | Depreciation charge on other plant and equipment | 6 | 6 | | Impairment of right-of-use assets | 3 | – | | Impairment of other plant and equipment | 4 | – | | Amortisation of software development costs | 2 | 2 | | Amortisation of other intangible assets | 42 | 45 | | Administration and other expenses | 221 | 232 | | **Other operating and administrative expenses – continuing operations** | **584** | **636** | | **Other operating and administrative expenses – discontinued operations** | **–** | **55** | | **Total other operating and administrative expenses** | **584** | **691** | Administration and other expenses include business transformation costs for the year ended 31 December 2022 of £30 million (2021: £70 million), as detailed in note 7(b)(i), as well as general operating expenses such as IT-related costs, premises and marketing. ### 10(c): Staff costs and other employee-related costs #### 10(c)(i): Staff costs | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | Salaries | 171 | 207 | | Bonus and incentive remuneration | 45 | 61 | | Social security costs | 28 | 27 | | Retirement obligations – defined contribution plans | 18 | 17 | | Share-based payments – equity-settled | 24 | 19 | | Other | 11 | 10 | | **Staff costs – continuing operations** | **297** | **341** | | **Staff costs – discontinued operations** | **–** | **19** | | **Total staff costs** | **297** | **360** | Strategic Report Governance Report Financial statements Other information Quaker Annual Report 2022 151 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 10. Details of expenses continued ### 10(c)(ii): Employee numbers | | Year ended 31 December 2022 Number | Year ended 31 December 2021 Number | | --- | --- | --- | | **The average number of persons employed by the Group was:** | | | | Affluent | 2,071 | 2,207 | | High Net Worth | 914 | 917 | | Head Office | 69 | 80 | | **Continuing operations** | **3,054** | **3,204** | | **Discontinued operations** | **–** | **645** | | **Total average number of employees during the year** | **3,054** | **3,849** | The monthly average number of persons employed by the Group is based on permanent employees and fixed-term contractors. ### 10(d): Auditors' remuneration Included in other operating and administrative expenses are fees paid to the Group's auditors. These can be categorised as follows: | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | Fees payable for audit services | | | | Group and Parent Company | 1.3 | 1.5 | | Subsidiaries | 2.1 | 2.2 | | Total fees for audit services | 3.4 | 3.7 | | Fees for audit-related assurance services | 1.2 | 0.8 | | Fees for non-audit services | 0.2 | 0.5 | | **Total Group auditors' remuneration – continuing operations** | **4.8** | **5.0** | | **Total Group auditors' remuneration – discontinued operations** | **–** | **0.3** | | **Total Group auditors' remuneration^{1}** | **4.8** | **5.3** | $^{1}$ All fees are presented net of VAT ### 10(e): Finance costs This note analyses the interest costs on our borrowings and similar charges, all of which are valued at amortised cost. Finance costs comprise: | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | Term loans and other external debt | 1 | 1 | | Subordinated debt securities (Tier 2 bond) | 9 | 9 | | **Interest payable on borrowed funds** | **10** | **10** | | Interest expense on lease liabilities | 3 | 3 | | Other | – | 1 | | **Total finance costs** | **13** | **14** | Finance costs represent the cost of interest and finance charges on the Group's borrowings from a number of relationship banks. More details regarding borrowed funds, including the interest rates payable, are shown in note 30. These costs are excluded from adjusted profit within the "Finance costs" adjusting item. Within other finance costs above n.£nil (2021: £1 million) relating to the impact of unwinding the discount rate on contingent consideration payable as a result of certain past acquisitions. These costs are excluded from adjusted profit within the "Impact of acquisition and disposal-related accounting" adjusting item as shown in note 7(b)(i). 152 Quibou Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 11: Tax ### 11(a): Tax charged to the income statement | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | **Current tax** | | | | United Kingdom | 12 | 36 | | Overseas tax | 1 | 1 | | **Total current tax charge** | **13** | **37** | | **Deferred tax** | | | | Origination and reversal of temporary differences | (120) | 36 | | Effect on deferred tax of changes in tax rates | (1) | (12) | | Adjustments to deferred tax in respect of prior periods | (2) | 1 | | **Total deferred tax (credit)/charge** | **(123)** | **25** | | **Total tax (credited)/charged to income statement – continuing operations** | **(110)** | **62** | | **Total tax (credited)/charged to income statement** | **(110)** | **62** | | Attributable to policyholder returns – continuing operations | (134) | 73 | | Attributable to equity holders – continuing operations | 24 | (11) | | **Total tax (credited)/charged to income statement** | **(110)** | **62** | #### 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 £110 million for the year ended 31 December 2022, compared to a charge of £62 million for the prior year. This income tax credit can vary significantly year-on-year as a result of market volatility and the impact this has on policyholder tax. The recognition of the income received from policyholders to fund the policyholder tax liability (which is included within the Group's income) can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility in 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 7(b)(v). Market movements during the year ended 31 December 2022 resulted in investment losses of £587 million on products subject to policyholder tax. The loss is a component of the total "investment return" loss of £4,649 million shown in the income statement. The impact of the £587 million investment return loss is the primary reason for the £134 million tax credit attributable to policyholder returns in respect of the continuing operations for the year ended 31 December 2022 (31 December 2021: £73 million expense in respect of continuing operations and £nil expense in respect of discontinued operations). #### UK Corporation Tax rate The main rate of Corporation Tax is 19% for the financial year 2022 (2021: 19%). The Corporation Tax rate will increase from 19% to 25%, effective from 1 April 2023. This change was substantively enacted in 2021 and the new rate has been used in recognising the Company's deferred tax assets and liabilities for reversals expected to take place on or after 1 April 2023. The Company has recognised deferred tax assets as disclosed in note 29. The Company considers that future years' profits will be sufficient to utilise the tax asset carried forward. Strategic Report Governance Report Financial statements Other information Quaker Annual Report 2022 153 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 11. Tax continued ### 11(b): Reconciliation of total income tax expense The income tax credited or charged to profit or loss differs from the amount that would apply if all of the Group's profits from all the countries in which the Group operates had been taxed at the UK standard Corporation Tax rate. The difference in the effective rate is explained below. | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | **Profit before tax from continuing operations** | **65** | **85** | | Tax at UK standard rate of 19% (2021: 19%) | 12 | 16 | | Different tax rate or basis on overseas operations | – | 1 | | Untaxed and low taxed income | (6) | – | | Expenses not deductible for tax purposes | 1 | – | | Net movements on unrecognised deferred tax assets | (6) | (4) | | Effect on deferred tax of changes in tax rates | (1) | (12) | | Adjustments to deferred tax in respect of prior years | (2) | 1 | | Income tax attributable to policyholder returns (net of tax relief) | (108) | 60 | | **Total tax (credited)/charged to income statement – continuing operations** | **(110)** | **62** | | **Total tax (credited)/charged to income statement** | **(110)** | **62** | ### 11(c): Reconciliation of income tax credit or expense in the income statement to income tax on adjusted profit | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | **Income tax (credit)/expense on continuing operations^{1}** | **(110)** | **62** | | **Tax on adjusting items** | | | | Impact of acquisition and disposal-related accounting | 8 | 4 | | Business transformation costs | 5 | 10 | | Finance costs | 2 | 2 | | Exchange rate gain (ZAR/GBP) | (1) | – | | Customer remediation | – | 1 | | **Tax adjusting items** | | | | Policyholder tax adjustments | 138 | (7) | | Other shareholder tax adjustments^{2} | (19) | 7 | | **Tax on adjusting items – continuing operations** | **133** | **17** | | Less: tax attributable to policyholder returns within adjusted profit – continuing operations^{3} | (4) | (66) | | **Tax charged on adjusted profit – continuing operations** | **19** | **13** | | **Tax charged on total adjusted profit** | **19** | **13** | $^{1}$ Includes both tax attributable to policyholders and equity holders, in compliance with IFRS. $^{2}$ Other shareholder tax adjustments comprise the reallocation of adjustments from policyholder tax as explained in note 7(b)(i) and shareholder tax adjustments for one-off items in line with the Group's adjusted profit policy. $^{3}$ Adjusted profit treats policyholder tax as a pre-tax expense (this includes policyholder tax under IFRS and the policyholder tax adjustments) and is therefore removed from the tax charge on adjusted profit. 154 Quibou Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 12: 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 and Headline earnings per share ("HEPS") is a requirement of the Johannesburg Stock Exchange. The bases for calculation of the Group's EPS (in aggregate, including both continuing and discontinued operations) is disclosed in note 5(1). | | Framework | Notes | Year ended 31 December 2022 Pence | Year ended 31 December 2021 Pence | | --- | --- | --- | --- | --- | | Basic earnings per share | IFRS | 12(b) | 12.2 | 9.4 | | Diluted basic earnings per share | IFRS | 12(b) | 12.0 | 9.2 | | Adjusted basic earnings per share | Group policy | 12(b) | 8.0 | 10.7 | | Adjusted diluted earnings per share | Group policy | 12(b) | 7.9 | 10.4 | | Headline basic earnings per share (net of tax) | JSE Listing Requirements | 12(c) | 11.7 | 3.9 | | Headline diluted earnings per share (net of tax) | JSE Listing Requirements | 12(c) | 11.5 | 3.8 | ## 12(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). Details of the impact on the number of shares from the Quilter share buyback scheme are detailed in note 25. | | Year ended 31 December 2022 Million | Year ended 31 December 2021 Million | | --- | --- | --- | | Weighted average number of Ordinary Shares | 1,496 | 1,721 | | Own shares including those held in consolidated funds and EBTs | (58) | (77) | | **Basic weighted average number of Ordinary Shares** | **1,438** | **1,644** | | Adjustment for dilutive share awards and options | 20 | 39 | | **Diluted weighted average number of Ordinary Shares** | **1,458** | **1,683** | ## 12(b): Basic and diluted EPS (IFRS and adjusted profit) | | Notes | Year ended 31 December 2022 | | | Year ended 31 December 2021 | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Continuing operations £m | Discontinued operations £m | Total £m | Continuing operations £m | Discontinued operations £m | Total £m | | Profit after tax | | 175 | - | 175 | 23 | 131 | 154 | | Total adjusting items before tax | 7(b) | (65) | - | (65) | 116 | (71) | 45 | | Tax on adjusting items | 11(b) | (133) | - | (133) | (17) | - | (17) | | Less: Policyholder tax adjustments | 11(b) | 138 | - | 138 | (7) | - | (7) | | **Adjusted profit after tax after reallocation** | | **115** | **-** | **115** | **115** | **60** | **175** | | Reversal of: | | | | | | | | | Reallocation of Quilter International costs | | - | - | - | 10 | (10) | - | | **Adjusted profit after tax** | | **115** | **-** | **115** | **125** | **50** | **175** | Reallocation of Quilter International costs relate to costs that were previously reported as part of Quilter International which were presented within continuing operations in the prior year (31 December 2021: £10 million) as these did not transfer to Utmost Group (the acquirer) on disposal. There were no such costs in the year ended 31 December 2022. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 155 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 12. Earnings per share continued ### 12(b). Basic and diluted EPS (IFRS and adjusted profit) continued | | Post-tax profit measure used | Year ended 31 December 2022 | | | Year ended 31 December 2021 | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Continuing operations Pence | Discontinued operations Pence | Total Pence | Continuing operations Pence | Discontinued operations Pence | Total Pence | | Basic EPS | IFRS profit | 12.2 | – | 12.2 | 1.4 | 8.0 | 9.4 | | Diluted EPS | IFRS profit | 12.0 | – | 12.0 | 1.4 | 7.8 | 9.2 | | Adjusted basic EPS | Adjusted profit | 8.0 | – | 8.0 | 7.6 | 3.1 | 10.7 | | Adjusted diluted EPS | Adjusted profit | 7.9 | – | 7.9 | 7.4 | 3.0 | 10.4 | ### 12(c): Headline earnings per share | | Note | Year ended 31 December 2022 | | Year ended 31 December 2021 | | | --- | --- | --- | --- | --- | --- | | | | Gross £m | Net of tax £m | Gross £m | Net of tax £m | | **Profit attributable to equity holders** | | | **175** | | **154** | | Adjusted for: | | | | | | | Profit on business disposals | See | – | – | (90) | (90) | | Impairment loss on property, plant and equipment^{1} | | – | (7) | – | – | | **Headline earnings** | | | **168** | | **64** | | **Headline basic EPS (pence)** | | | **11.7** | | **3.9** | | **Headline diluted EPS (pence)** | | | **11.5** | | **3.8** | $^{1}$ Of the impairment, £3 million relates to right-of-use asset and £4 million relates to plant and equipment. ## 13. Dividends | | Payment date | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | --- | | 2020 Final dividend paid – 3.6p per Ordinary Share | 17 May 2021 | – | 61 | | 2021 Interim dividend paid – 1.7p per Ordinary Share | 20 September 2021 | – | 28 | | 2021 Final dividend paid – 3.9p per Ordinary Share | 16 May 2022 | 62 | – | | 2022 Interim dividend paid – 1.2p per Ordinary Share | 20 September 2022 | 16 | – | | **Dividends paid to Ordinary Shareholders** | | **78** | **89** | Subsequent to the year ended 31 December 2022, the Directors proposed a final dividend for 2022 of 3.3 pence per Ordinary Share amounting to £45 million in total. Subject to approval by shareholders at the Annual General Meeting, the dividend will be paid on 22 May 2023. 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 22 May 2023 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. 156 Quitline Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 14: Goodwill and intangible assets ### 14(a): Analysis of goodwill and intangible assets The table below shows the movements in cost and amortisation of goodwill and intangible assets. | | Goodwill £m | Software development costs £m | Other intangible assets £m | Total £m | | --- | --- | --- | --- | --- | | **Gross amount** | | | | | | 1 January 2021^{1} | 356 | 95 | 429 | 880 | | Disposal of interests in subsidiaries | (50) | – | (4) | (54) | | Disposals^{1} | – | (65) | – | (65) | | 31 December 2021^{1} | 306 | 30 | 425 | 761 | | **31 December 2022** | **306** | **30** | **425** | **761** | ### Amortisation and impairment losses | 1 January 2021^{1} | – | (85) | (239) | (324) | | --- | --- | --- | --- | --- | | Amortisation charge for the year | – | (2) | (45) | (47) | | Disposal of interests in subsidiaries | – | – | 2 | 2 | | Disposals^{1} | – | 65 | – | 65 | | 31 December 2021^{1} | – | (22) | (282) | (304) | | Amortisation charge for the year | – | (2) | (42) | (44) | | **31 December 2022** | **–** | **(24)** | **(324)** | **(348)** | ### Carrying amount | 31 December 2021 | 306 | 8 | 143 | 457 | | --- | --- | --- | --- | --- | | **31 December 2022** | **306** | **6** | **101** | **413** | $^{1}$Following the completion of a number of strategic projects, including IT projects, the Group reviewed the fixed asset register. Assets related to software development costs with a cost of £10 million and an accumulated amortisation of £10 million (net book value: £nd) that had been fully amortised prior to January 2021 and that are no longer held by the Group or no longer in use have been removed from the register and are not recognised in the gross amount of software development costs as at 31 December 2022. Figures for prior periods have been restated to ensure comparability. $^{2}$Disposals of £65 million in the year ended 31 December 2021 relate to the write-off of fully amortised software in respect of the Platform Transformation Programme and following the final migration of client assets in February 2021, with all Quilter Investment Platform assets now live on the new platform. ### 14(b): Analysis of other intangible assets | | 31 December 2022 £m | 31 December 2021 £m | Average estimated useful life | Average period remaining | | --- | --- | --- | --- | --- | | **Net carrying value** | | | | | | Distribution channels – Quilter Financial Planning | 4 | 9 | 8 years | 2 years | | Customer relationships | | | | | | Quilter Cheviot | 59 | 86 | 10 years | 2 years | | Quilter Financial Planning | 22 | 27 | 8 years | 4 years | | Quilter Private Client Advisers | 14 | 18 | 8 years | 4 years | | Other | 2 | 3 | 7 years | 1 year | | **Total other intangible assets** | **101** | **143** | | | ### 14(c): Allocation of goodwill to cash-generating units (“CGUs”) and impairment testing Goodwill is monitored by management at the level of the Group’s two operating segments: Affluent and High Net Worth, as disclosed in note 8(a). Both operating segments represent a group of CGUs. The allocation of goodwill to these segments was based on their individual value-in-use calculations relative to the combined total. | | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | **Goodwill (net carrying amount)** | | | | Affluent | 223 | 223 | | High Net Worth | 83 | 83 | | **Total goodwill** | **306** | **306** | $^{1}$The prior year figures have been re-presented to correct a minor classification difference between the two segments. The amount attributable to Affluent has decreased by £2 million from the amount originally presented with a corresponding increase in High Net Worth. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 157 ## Notes to the consolidated financial statements For the year ended 31 December 2022 continued 158 Quilter Annual Report 2022 14: Goodwill and intangible assets continued 14(c): Allocation of goodwill to cash-generating units (“CGUs”) and impairment testing continued Impairment review In accordance with the requirements of IAS 36 Impairment of Assets, goodwill in both the Affluent and High Net Worth CGU groups is tested for impairment annually, or earlier if an indicator of impairment exists, by comparing the carrying value of the CGU group to which the goodwill relates to the recoverable value of that CGU group, being the higher of that CGU group’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 positive Net Client Cash Flows (“NCCF”), significant falls in profits and significant increases in the discount rate. The goodwill balance has been tested for impairment at 31 December 2022 and continues to demonstrate a surplus of the recoverable amount over the carrying value of the CGUs. As a result, no impairment is required. The following table shows the percentage change required in each key assumption before the carrying value would exceed the recoverable amount, assuming all other variables remain the same. This highlights that further adverse movements in the key assumptions used in the CGU value-in-use calculation would be required before an impairment would need to be recognised. Affluent High Net Worth Reduction in forecast cash flows 17% 47% Percentage point increase in the discount rate 5% 20% 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. 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 forecasts 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 are determined as the sum of net tangible assets and the expected cash flows from existing and expected future new business derived from the Business Plans. Future cash flow elements allow for the cost of capital needed to support the 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 are contained in the Group’s Business Plan. These profit forecasts incorporate anticipated equity market growth on the Group’s future cash flows, and take into account climate-related risks and other responsible business considerations. 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 forecast period, the growth rate used to determine the terminal value of the CGUs in the annual assessment was 2.0% (2021: 2.0%), which is lower than the UK long-term growth rate. Market share and market growth information is 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 Business Simplification programme, have been removed from the future cash flows. The Group uses a single cost of capital of 11.4% (2021: 9.5%) to discount expected future cash flows across its two groups of CGUs because they are considered to present a similar level of risk. Capital is provided to the Group predominantly by shareholders with a relatively small amount of debt financing. 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 bondholders and owners of properties leased by the Group). When assessing the systematic risk (i.e. the 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. # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 15: Property, plant and equipment | | Right-of-use assets £m | Plant and equipment £m | Total £m | | --- | --- | --- | --- | | **Gross amount** | | | | | 1 January 2021^{1} | 166 | 83 | 249 | | Additions^{2} | 14 | 13 | 27 | | Disposal of interests in subsidiaries | (32) | (16) | (48) | | Disposals | (16) | (2) | (18) | | 31 December 2021^{1} | 132 | 78 | 210 | | Additions | 2 | 3 | 5 | | Disposals^{3} | (3) | (5) | (8) | | Transfer to non-current assets held for sale^{4} | - | (1) | (1) | | **31 December 2022** | **131** | **75** | **206** | ### Accumulated depreciation and impairment losses | 1 January 2021^{1} | (65) | (42) | (107) | | --- | --- | --- | --- | | Depreciation charge for the year | (10) | (6) | (16) | | Disposal of interests in subsidiaries | 21 | 16 | 37 | | Disposals | 5 | 2 | 7 | | 31 December 2021^{1} | (49) | (30) | (79) | | Depreciation charge for the year | (9) | (6) | (15) | | Impairment losses^{4} | (3) | (4) | (7) | | Disposals^{3} | 2 | 5 | 7 | | **31 December 2022** | **(59)** | **(35)** | **(94)** | ### Carrying value | 31 December 2021 | 83 | 48 | 131 | | --- | --- | --- | --- | | **31 December 2022** | **72** | **40** | **112** | $^{1}$Following the completion of a number of strategic projects, the Group reviewed the fixed asset register. Assets related to plant and equipment with a cost of £37 million and an accumulated depreciation of £37 million (net book value: £18) that had been fully depreciated prior to January 2021 and that are no longer held by the Group or no longer in use have been removed from the register and are not recognised in the gross amount of plant and equipment costs as at 31 December 2022. Figures for prior periods have been restated to ensure comparability. $^{2}$The majority of additions in the year ended 31 December 2021 relate to the lease for Quilter House, the Group's main Southampton property, and the recognition of revised dispositions provisions on properties in the lease portfolio. $^{3}$Following a review of the fixed asset register, the Group recognised the disposal of certain fully depreciated assets related to plant and equipment with a cost of £5 million and an accumulated depreciation of £5 million (net book value: £18) in the year. There were no proceeds arising from the recognition of the disposal and therefore no gain or loss has been recognised in the income statement. There were also several disposals in 2022 relating to right-of-use assets, which resulted in an immaterial loss being recognised in the income statement. $^{4}$Plant and equipment transferred to non-current assets held for sale relates to the proposed sale of a leasehold interest in an office property, following the vacation of the building by staff and the active marketing of the property in August 2022. $^{5}$The impairment of the right-of-use assets and plant and equipment relates to the write-down of assets relating to office premises no longer occupied by the Group. Quilter staff vacated The Point, an office property in Southampton in May 2022, and the Pinnacle, an office in Manchester, in December 2022. In the financial statement for 2021, leasehold improvements were shown separately from other plant and equipment. These categories both of which are mainly related to the Group's office premises have now been combined for 2022 reporting. The 2021 figures have been re-presented with the two categories combined to ensure comparability. The carrying value of right-of-use assets at 31 December 2022 relate to £72 million of property leases (31 December 2021: £83 million). Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 159 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 16: Loans and advances This note analyses the loans and advances the Group has made. The carrying amounts of loans and advances were as follows: | | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | Loans to advisers and brokers | 34 | 29 | | **Total net loans and advances** | **34** | **29** | | To be recovered within 12 months | 11 | 7 | | To be recovered after 12 months | 23 | 22 | | **Total net loans and advances** | **34** | **29** | Loans to advisers are made on individually negotiated commercial terms. The loan agreement with the adviser details the dates on which the repayments of the loan are to be made. Where an adviser is due commission payments from Quilter, these commission payments are offset against the loan repayments due from the adviser. In certain circumstances, the loan agreement period may be extended where agreed by both Quilter and the adviser. Should the adviser terminate their terms of business agreement with Quilter, the loan balance becomes immediately repayable in full. The carrying amount of loans to advisers measured at amortised cost approximates to their fair value which is measured as the principal amount receivable under the loan agreements. The remaining loans are stated at fair value. ## 17: 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). | | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | Government and government-guaranteed securities | 225 | 849 | | Other debt securities, preference shares and debentures | 1,609 | 1,662 | | Equity securities | 6,225 | 7,251 | | Pooled investments | 35,557 | 38,002 | | Short-term funds and securities treated as investments | 1 | 1 | | **Total financial investments** | **43,617** | **47,565** | | Recoverable within 12 months | 43,617 | 47,565 | | **Total financial investments** | **43,617** | **47,565** | 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. 160 Quilter Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 18: Derivative financial instruments – assets and liabilities The Group has limited involvement with derivative instruments and does not use them for the purposes of speculation. In past periods, derivative instruments have been used to manage well-defined foreign exchange risks arising out of the normal course of business. The Group does not anticipate any material adverse effect on its financial position resulting from its involvement in these types of contracts, nor does it anticipate non-performance by counterparties. The Group only deals with highly rated counterparties. The derivatives included within the statement of financial position 31 December 2022 and 31 December 2021 relate to instruments included as a consequence of the consolidation of investment funds. ## 19: 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, refer to note 20. The Group's exposure to various risks associated with financial instruments is discussed in note 37. ### 31 December 2022 | Measurements | Fair value | | Amortised cost £m | Non-financial assets and liabilities £m | Total £m | | --- | --- | --- | --- | --- | --- | | | Mandatedly at FVTPL £m | Designated at FVTPL £m | | | | | **Assets** | | | | | | | Investments in associated undertakings^{1} | - | - | - | 1 | 1 | | Loans and advances | - | - | 34 | - | 34 | | Financial investments | 43,617 | - | - | - | 43,617 | | Trade, other receivables and other assets | - | - | 261 | 42 | 303 | | Derivative assets | 40 | - | - | - | 40 | | Cash and cash equivalents | 1,112 | - | 670 | - | 1,782 | | Total assets that include financial instruments | 44,769 | - | 965 | 43 | 45,777 | | Total other non-financial assets | - | - | - | 640 | 640 | | **Total assets** | **44,769** | **-** | **965** | **683** | **46,417** | | **Liabilities** | | | | | | | Investment contract liabilities | - | 38,186 | - | - | 38,186 | | Third-party interests in consolidated funds | 5,843 | - | - | - | 5,843 | | Borrowings and lease liabilities | - | - | 290 | - | 290 | | Trade, other payables and other liabilities | - | - | 358 | 78 | 436 | | Derivative liabilities | 20 | - | - | - | 20 | | Total liabilities that include financial instruments | 5,863 | 38,186 | 648 | 78 | 44,775 | | Total other non-financial liabilities | - | - | - | 94 | 94 | | **Total liabilities** | **5,863** | **38,186** | **648** | **172** | **44,869** | $^{1}$Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted. Strategic Report Governance Report Financial statements Other information Quaker Annual Report 2022 161 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 19. Categories of financial instruments continued ### 31 December 2021 | Measurement basis | Fair value | | Amortised cost £m | Non-financial assets and liabilities £m | Total £m | | --- | --- | --- | --- | --- | --- | | | Mandatorily at FVTPL £m | Designated at FVTPL £m | | | | | **Assets** | | | | | | | Investments in associated undertakings^{1} | - | - | - | 2 | 2 | | Loans and advances | - | - | 29 | - | 29 | | Financial investments | 47,564 | - | - | 1 | 47,565 | | Trade, other receivables and other assets | - | - | 325 | 56 | 381 | | Derivative assets | 14 | - | - | - | 14 | | Cash and cash equivalents | 1,216 | - | 848 | - | 2,064 | | Total assets that include financial instruments | 48,794 | - | 1,202 | 59 | 50,055 | | Total other non-financial assets | - | - | - | 685 | 685 | | **Total assets** | **48,794** | **-** | **1,202** | **744** | **50,740** | | **Liabilities** | | | | | | | Investment contract liabilities | - | 41,071 | - | - | 41,071 | | Third-party interests in consolidated funds | 6,898 | - | - | - | 6,898 | | Borrowings and lease liabilities | - | - | 299 | - | 299 | | Trade, other payables and other liabilities | - | - | 370 | 114 | 484 | | Derivative liabilities | 15 | - | - | - | 15 | | Total liabilities that include financial instruments | 6,913 | 41,071 | 669 | 114 | 48,767 | | Total other non-financial liabilities | - | - | - | 234 | 234 | | **Total liabilities** | **6,913** | **41,071** | **669** | **348** | **49,001** | $^{1}$Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted. ## 20. 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 the fair value hierarchy (see note 20(b)), prescribed under IFRS, provides an indication about the reliability of inputs used in determining fair value. ## 20(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, financial statements for the fund or a statement of valuation provided by the management of the private company or fund. 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 certain loans to brokers at below-market interest rates which are measured at fair value. All other loans to brokers are stated at 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. 162 Quibou Annual Report 2022 ## Notes to the consolidated financial statements For the year ended 31 December 2022 continued Strategic Report Governance Report 20: Fair value methodology continued 20(a): Determination of fair value continued 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 over-the-counter forward foreign exchange contracts is determined by reference to the relevant 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 interests in consolidated funds Third-party interests in consolidated funds are measured at the attributable net asset value of each fund. 20(b): Fair value hierarchy Fair values are determined according to the following hierarchy: Description of hierarchy Types of instrument s classified in the respective levels Level 1 – quoted market prices: financial assets and liabilities Listed equity securities, government securities and other listed debt with quoted prices for identical instruments in active markets. securities and similar instruments that are actively traded, actively traded pooled investments, certain quoted derivative assets and Financial statements liabilities and investment contract liabilities directly linked to other Level 1 financial assets. Level 2 – valuation techniques using observable inputs: financial assets Unlisted equity and debt securities where the valuation is based on models and liabilities with quoted prices for similar instruments in active markets involving no significant unobservable data. or quoted prices for identical or similar instruments in inactive markets Over-the-counter (“OTC”) derivatives, certain privately placed debt and financial assets and liabilities valued using models where all instruments and third-party interests in consolidated funds which meet significant inputs are observable. the definition of Level 2 financial instruments. Level 3 – valuation techniques using significant unobservable inputs: Unlisted equity and securities with significant unobservable inputs, financial assets and liabilities valued using valuation techniques where securities where the market is not considered sufficiently active, one or more significant inputs are unobservable. 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 Other information 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. 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 from 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. 20(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 the 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 no transfers of financial investments from Level 1 to Level 2 during the year (31 December 2021: £16 million). There were no transfers of financial investments from Level 2 to Level 1 during the year (31 December 2021: £85 million). The movement in 2021 related to assets held by the Quilter International business and these movements were matched closely by transfers of investment contract liabilities. See note 20(e) for the reconciliation of Level 3 financial instruments. Quilter Annual Report 2022 163 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 20. Fair value methodology continued ### 20(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 19 for further details). | | 31 December 2022 | | 31 December 2021 | | | --- | --- | --- | --- | --- | | | £m | % | £m | % | | **Financial assets measured at fair value** | | | | | | Level 1 | 38,452 | 85.9% | 41,996 | 86.0% | | Level 2 | 6,288 | 14.0% | 6,771 | 13.9% | | Level 3 | 29 | 0.1% | 27 | 0.1% | | **Total** | **44,769** | **100.0%** | **48,794** | **100.0%** | | **Financial liabilities measured at fair value** | | | | | | Level 1 | 38,161 | 86.6% | 41,047 | 85.5% | | Level 2 | 5,863 | 13.3% | 6,913 | 14.4% | | Level 3 | 25 | 0.1% | 24 | 0.1% | | **Total** | **44,049** | **100.0%** | **47,984** | **100.0%** | The tables below further analyse the Group's financial assets and liabilities measured at fair value by the fair value hierarchy described in note 20(b). | 31 December 2022 | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | | --- | --- | --- | --- | --- | | **Financial assets measured at fair value** | | | | | | Mandatorily (fair value through profit or loss) | 38,452 | 6,288 | 29 | 44,769 | | Financial investments | 37,340 | 6,248 | 29 | 43,617 | | Cash and cash equivalents | 1,112 | - | - | 1,112 | | Derivative assets | - | 40 | - | 40 | | **Total assets measured at fair value** | **38,452** | **6,288** | **29** | **44,769** | | **Financial liabilities measured at fair value** | | | | | | Mandatorily (fair value through profit or loss) | - | 5,863 | - | 5,863 | | Third-party interests in consolidated funds | - | 5,843 | - | 5,843 | | Derivative liabilities | - | 20 | - | 20 | | Designated (fair value through profit or loss) | 38,161 | - | 25 | 38,186 | | Investment contract liabilities | 38,161 | - | 25 | 38,186 | | **Total liabilities measured at fair value** | **38,161** | **5,863** | **25** | **44,049** | 164 Quibou Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 20: Fair value methodology continued ### 20(d): Financial assets and liabilities measured at fair value, classified according to fair value hierarchy continued | 31 December 2021 | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | | --- | --- | --- | --- | --- | | **Financial assets measured at fair value** | | | | | | Mandatorily (fair value through profit or loss) | 41,996 | 6,771 | 27 | 48,794 | | Financial investments | 40,780 | 6,757 | 27 | 47,564 | | Cash and cash equivalents | 1,216 | – | – | 1,216 | | Derivative assets | – | 14 | – | 14 | | **Total assets measured at fair value** | **41,996** | **6,771** | **27** | **48,794** | | **Financial liabilities measured at fair value** | | | | | | Mandatorily (fair value through profit or loss) | – | 6,913 | – | 6,913 | | Third-party interests in consolidated funds | – | 6,898 | – | 6,898 | | Derivative liabilities | – | 15 | – | 15 | | Designated (fair value through profit or loss) | 41,047 | – | 24 | 41,071 | | Investment contract liabilities | 41,047 | – | 24 | 41,071 | | **Total liabilities measured at fair value** | **41,047** | **6,913** | **24** | **47,984** | ## 20(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. Level 3 assets also include investments within consolidated funds. 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 fund management fee income. Any changes in market value are matched by a corresponding Level 2 liability within third-party interests in consolidated funds. The table below reconciles the opening balance of Level 3 financial assets to the closing balance at each year end: | | 2022 £m | 2021 £m | | --- | --- | --- | | At beginning of the year | 27 | 1,822 | | Fair value losses charged to the income statement | (5) | (3) | | Purchases | – | – | | Sales | (2) | – | | Transfers in | 125 | 8 | | Transfers out | (116) | (393) | | Disposal of subsidiaries^{1} | – | (1,406) | | Foreign exchange and other movements | – | (1) | | **Total Level 3 financial assets at the end of the year** | **29** | **27** | | Unrealised fair value losses charged to the income statement relating to assets held at the year end | (9) | (4) | $^{1}$During the year to 31 December 2021, Level 3 assets decreased by £1,406 million following the sale of Quilter International to Utmost Group. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 165 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 20. Fair value methodology continued ### 20(c). Level 3 fair value hierarchy disclosure continued 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 £125 million (31 December 2021: £8 million). This is mainly due to suspended funds previously shown within Level 1. Suspended funds are valued based on external valuation reports received from fund managers. Transfers out of Level 3 assets in the current year of £116 million (31 December 2021: £393 million) result from a transfer to Level 1 assets relating to assets that are now being actively repriced (that were previously stale) and where fund suspensions have been lifted. The table below analyses the type of Level 3 financial assets held: | | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | Pooled investments | 29 | 26 | | Unlisted and stale price pooled investments | - | 1 | | Suspended funds | 29 | 25 | | Private equity investments | - | 1 | | **Total Level 3 financial assets** | **29** | **27** | As at 31 December 2022, the Group did not hold any private equity investments. As at 31 December 2021, Level 3 assets included £1 million of private equity investments, all within consolidated funds. The table below reconciles the opening balance of Level 3 financial liabilities to the closing balance at each year end: | | 2022 £m | 2021 £m | | --- | --- | --- | | At beginning of the year | 24 | 1,820 | | Fair value losses charged to the income statement | (2) | (3) | | Transfers in | 119 | 5 | | Transfers out | (116) | (391) | | Disposal of subsidiaries^{1} | - | (1,406) | | Foreign exchange and other movements | - | (1) | | **Total Level 3 financial liabilities at the end of the year** | **25** | **24** | | Unrealised fair value losses charged to the income statement relating to liabilities held at the year end | (5) | (4) | $^{1}$During the year to 31 December 2021, Level 3 liabilities decreased by £1,406 million following the sale of Quilter International to Utmost Group. 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. 166 Quilter Annual Report 2022 ## Notes to the consolidated financial statements For the year ended 31 December 2022 continued Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 167 20: Fair value methodology continued 20(f): Effect of changes in significant unobservable assumptions to reasonable alternatives Details of the valuation techniques applied to the different categories of financial instruments can be found in note 20(a) above, including the valuation techniques applied when significant unobservable assumptions are used to value Level 3 assets. 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 Level 3 assets and liabilities, no reasonable alternative assumptions are applicable and the Group therefore performs a sensitivity test of an aggregate 10% change in the value of the financial asset or liability (31 December 2021: 10%), representing a reasonable alternative judgement in the context of the current macroeconomic environment in which the Group operates. It is therefore considered that the impact of this sensitivity will be in the range of £3 million to the reported fair value of Level 3 assets, both favourable and unfavourable (31 December 2021: £2 million). As described in note 20(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. 20(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: Financial assets within Trade, other receivables, and other assets Level 3 Financial liabilities within 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. The loans and advances not carried at fair value 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 1 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. # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 21: Structured entities Structured entities are defined as entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. The Group has interests in both consolidated and unconsolidated structured entities. ## 21(a): Group's involvement in structured entities The Group invests in collective investment vehicles, including open-ended investment companies ("OEICs") and unit trusts, in order to match unit-linked investment contract liabilities. This means that all of the investment risk associated with these assets is borne by policyholders and any change in the value of these assets is closely matched by a corresponding change in liability due to policyholders. As the Group earns management fees based on the market value of unit-linked assets, any change in asset values will increase or decrease the Group's revenues. The Group has not provided any non-contractual support to any consolidated or unconsolidated structured entities during 2021 or 2022. As at 31 December 2021 and 31 December 2022, the Group has no obligation or intention to provide financial support to structured entities that could expose the Group to a loss. In addition, shareholder funds are also invested in collective investment vehicles, principally in respect of money market funds as an alternative to bank deposits. The Group's holdings in collective investment vehicles are subject to the terms and conditions of the respective investment vehicles' offering documentation and are susceptible to market price risk arising from uncertainties about the future values of those investment vehicles. All of the investment vehicles in the investment portfolios are managed by portfolio managers who are compensated by the respective investment vehicles for their services. Such compensation generally consists of an asset-based fee and a performance-based incentive fee and is reflected in the valuation of the investment vehicles. These structured entities are not consolidated where the Group determines that it does not have control. ## 21(b): Interests in unconsolidated structured entities The Group invests in unconsolidated structured entities as part of its normal investment and trading activities. The Group's total interest in unconsolidated structured entities is classified as financial investments held mandatorily at fair value through profit or loss. The table below provides a summary of the carrying value of the Group's interests in unconsolidated structured entities: | | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | Financial investments* | 31,300 | 33,712 | | Cash and cash equivalents | 1,112 | 1,216 | | **Total Group interest in unconsolidated structured entities** | **32,412** | **34,928** | *In this disclosure note, financial investments held by unconsolidated structured entities for 2021 have been re-presented to exclude cash and cash equivalents. The Group's maximum exposure to loss with regard to the Group's interests in unconsolidated structured entities presented above, before consideration of the reduction in unit-linked liabilities, is the carrying amount of the Group's investments (31 December 2022: £32,412 million; 31 December 2021: £34,928 million). The majority of the exposure relates to unit-linked products and therefore any movement in the Group's investment will be offset by a corresponding movement in investment contract liabilities. Once the Group has disposed of its shares or units in a fund, it ceases to be exposed to any risk from that fund. The Group's holdings in the above unconsolidated structured entities are less than 50% and as such the net asset value of these structured entities is significantly higher than the carrying value of the Group's interest. ## 21(c): Consolidation considerations for structured entities managed by the Group The Group acts as the fund manager for a number of investment funds. Determining whether the Group controls such an investment fund usually focuses on the assessment of decision-making rights as fund manager, the investor's rights to remove the fund manager and the aggregate economic interests of the Group in the fund in the form of the interest held and exposure to variable returns. In most instances, the Group's decision-making authority, in its capacity as fund manager, with regard to these funds is regarded to be well-defined. Discretion is exercised when decisions regarding the relevant activities of these funds are being made. For funds managed by the Group, where the investors have the right to remove the Group as fund manager without cause, the fees earned by the Group are considered to be market related. These agreements include only terms, conditions or amounts that are customarily present in arrangements for similar services and levels of skill negotiated on an arm's length basis. The Group has concluded that it acts as agent on behalf of the investors in such cases. The Group is considered to be acting as principal where the Group is the fund manager and is able to make the investment decisions on behalf of the unit holders and earn a variable fee, and there are no kick out rights that would remove the Group as fund manager. There have been no changes in facts or circumstances which have changed the Group's conclusion on its approach to the consolidation of funds. ## 21(d): Other interests in unconsolidated structured entities At the current and prior reporting date, the Group held units in each of the investment funds it managed. 168 Quibby Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 22: Trade, other receivables and other assets This note analyses total trade, other receivables and other assets. | | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | Outstanding settlements | 141 | 181 | | Other receivables | 65 | 103 | | Accrued interest | 4 | 1 | | Accrued income | 46 | 40 | | Other accruals and prepayments | 29 | 36 | | Contract assets | 11 | 11 | | Management fees | 7 | 9 | | **Total trade, other receivables and other assets** | **303** | **381** | | To be settled within 12 months | 302 | 381 | | To be settled after 12 months | 1 | - | | **Total trade, other receivables and other assets** | **303** | **381** | Other receivables mainly relate to trade debtors, tax debtors and other debtors. There have been no non-performing receivables or material impairments in the year that require disclosure. Information about the Group's expected credit losses on trade receivables is included in note 37(b). None of the receivables reflected above have been subject to the renegotiation of terms. ## 23: Contract costs Contract costs (on investment contracts and asset management contracts) relate to costs that the Group incurs to obtain new business. These acquisition costs are capitalised in the statement of financial position and are amortised through the income statement over the life of the contracts. The table below analyses the movements in these balances relating to investment and asset management contracts. | | Investment contracts £m | Asset management £m | Total £m | | --- | --- | --- | --- | | 1 January 2021 | 411 | 2 | 413 | | New business | 2 | 1 | 3 | | Amortisation | - | - | - | | Continuing operations movement | 2 | 1 | 3 | | New business | 24 | - | 24 | | Amortisation | (45) | - | (45) | | Discontinued operations movement | (21) | - | (21) | | Disposal of subsidiaries | (383) | - | (383) | | Foreign exchange | (3) | - | (3) | | 31 December 2021 | 6 | 3 | 9 | | New business | 2 | 1 | 3 | | Amortisation | (1) | (1) | (2) | | Continuing operations movement | 1 | - | 1 | | **31 December 2022** | **7** | **3** | **10** | Strategic Report Governance Report Financial statements Other information Quaker Annual Report 2022 169 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 24: Cash and cash equivalents ### 24(a): Analysis of cash and cash equivalents | | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | Cash at bank | 406 | 559 | | Money market funds | 1,112 | 1,216 | | Cash and cash equivalents in consolidated funds | 264 | 289 | | **Total cash and cash equivalents per statement of cash flows** | **1,782** | **2,064** | The Group's management does not consider that the cash and cash equivalents balance arising due to consolidation of funds of £264 million (2021: £289 million) is available for use in the Group's day-to-day operations. The remainder of the Group's cash and cash equivalents balance of £1,518 million (2021: £1,775 million) is considered to be available for general use by the Group for the purposes of the disclosures required under IAS 7 Statement of Cash Flows. This balance includes policyholder cash as well as cash and cash equivalents held by regulated subsidiaries to meet their capital and liquidity requirements. ### 24(b): Analysis of net cash flows from operating activities: | | Notes | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | --- | | **Cash flows from operating activities** | | | | | Profit before tax from continuing operations | | 65 | 85 | | Profit before tax from discontinued operations | 600 | - | 131 | | | | 65 | 216 | | **Adjustments for** | | | | | Depreciation and impairment of property, plant and equipment | 15 | 22 | 16 | | Movement on contract costs | 23 | (1) | 18 | | Movement on contract liabilities and fee income receivable | | - | 10 | | Amortisation and impairment of intangibles | 14 | 44 | 47 | | Fair value and other movements in financial assets | | 4,410 | (5,102) | | Fair value movements in investment contract liabilities | 27 | (4,878) | 4,467 | | Other changes in investment contract liabilities | | 1,993 | 3,454 | | Profit on sale of subsidiaries | 604 | - | (91) | | Other movements | | 32 | 32 | | | | 1,622 | 2,851 | | **Net changes in working capital** | | | | | (Increase)/decrease in net derivatives position | | (21) | 24 | | (Increase)/decrease in loans and advances | 16 | (5) | 15 | | (Decrease)/increase in provisions | 28 | (24) | 17 | | Movement in other assets/liabilities^{1} | | 61 | (20) | | | | 11 | 36 | | Taxation paid | | (22) | (10) | | **Net cash flows from operating activities** | | **1,676** | **3,093** | $^{1}$Working capital changes in respect of other assets and liabilities primarily relate to consolidated funds. 170 Quibbs Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued 24. Cash and cash equivalents continued 24(c): Cash flows from financing activities is further analysed below: | 31 December 2022 | Liabilities | Equity* | | | --- | --- | --- | --- | | | Borrowings and lease liabilities £m | Changes in equity £m | Total £m | | Note 30 | | | | | **Opening balance at 1 January 2022** | **299** | **1,739** | **2,038** | | Cash flows from financing activities | | | | | Liability related: | | | | | Finance costs on external borrowings | (9) | - | (9) | | Equity related: | | | | | Dividends paid to equity holders of the Company | - | (78) | (78) | | Redemption of B shares | - | (328) | (328) | | Exchange rate movements paid to shareholders | - | (4) | (4) | | Repurchase and cancellation of Ordinary Shares | - | (28) | (28) | | Payment of lease liabilities | (14) | - | (14) | | **Cash flows from financing activities** | **(23)** | **(438)** | **(461)** | | **Other changes** | | | | | External debt interest accrual | 9 | - | 9 | | Changes in lease liabilities | 5 | - | 5 | | Liability related | 14 | - | 14 | | Equity related | - | 247 | 247 | | **31 December 2022** | **290** | **1,548** | **1,838** | | 31 December 2021 | Liabilities | Equity* | | | --- | --- | --- | --- | | | Borrowings and lease liabilities £m | Changes in equity £m | Total £m | | Note 30 | | | | | Opening balance at 1 January 2021 | **319** | **1,878** | **2,197** | | Cash flows from financing activities | | | | | Liability related: | | | | | Finance costs on external borrowings | (9) | - | (9) | | Equity related: | | | | | Dividends paid to equity holders of the Company | - | (89) | (89) | | Repurchase and cancellation of Ordinary Shares | - | (197) | (197) | | Payment of lease liabilities | (12) | - | (12) | | **Cash flows from financing activities** | **(21)** | **(286)** | **(307)** | | **Other changes** | | | | | External debt interest accrual | 9 | - | 9 | | Changes in lease liabilities | (8) | - | (8) | | Liability related | 1 | - | 1 | | Equity related | - | 147 | 147 | | **31 December 2021** | **299** | **1,739** | **2,038** | *Full details of changes in equity are shown in the statement of changes in equity. Strategic Report Governance Report Financial statements Other information Quaker Annual Report 2022 171 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 25: Share capital, capital redemption reserve and merger 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. At 31 December 2022, the Company's equity capital comprises 1,404,105,498 Ordinary Shares of 8 1/6 pence each with an aggregated nominal value of £114,668,616 (31 December 2021: 1,655,827,217 Ordinary Shares of 7 pence each with an aggregated nominal value of £115,907,905). All Ordinary Shares have been called up and fully paid. This note gives details of the Company's share capital, shows the movements during the year and also gives details of the merger reserve release of £124 million in the prior year and £25 million in the current year. | | Number of Ordinary Shares | Nominal value of Ordinary Shares £m | Ordinary Share premium £m | | --- | --- | --- | --- | | At 1 January 2021 | 1,783,969,051 | 125 | 58 | | Shares cancelled through share buyback programme | (128,141,834) | (9) | - | | At 31 December 2021 | 1,655,827,217 | 116 | 58 | | Shares cancelled through share buyback programme | (17,704,132) | (1) | - | | Share Consolidation (including shares cancelled) | (234,017,587) | - | - | | **At 31 December 2022** | **1,404,105,498** | **115** | **58** | *To effect the Share Consolidation, four Ordinary Shares were cancelled so that the total Ordinary Shares were exactly divisible by seven. ## 25(a): Share capital 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 return the net surplus proceeds to shareholders arising from the sale of Quilter Life Assurance which had the impact of reducing the share capital of the Company. The programme completed in January 2022. On 9 March 2022, the Company announced a capital return of £328 million, equivalent to 20 pence per share, from the net surplus proceeds arising from the sale of Quilter International by way of a B Share Scheme. Following the return of capital, a Share Consolidation was completed so that comparability between the market price for Quilter plc's Ordinary Shares before and after the implementation of the B Share Scheme was maintained. New Ordinary Shares were issued for existing Ordinary Shares in a ratio of six new shares of 8 1/6 pence each for seven existing shares of 7 pence each resulting in a reduction in the numbers of shares by 234,017,587. At 31 December 2022, there is one class of share capital being the Ordinary Shares of 8 1/6 pence each. All shares issued carry equal voting rights. The holders of the Company's Ordinary Shares are entitled to receive dividends as declared and are entitled to one vote per share at shareholder meetings of the Company. ## 25(b): Capital redemption reserve Following the issue and redemption of the B preference shares as part of the B Share Scheme, the Company transferred £328 million from retained earnings to the capital redemption reserve, as required under the provisions of sections 688 and 733 of the Companies Act 2006, being an amount equal to the nominal value of the B shares redeemed in the year. The increase in the capital redemption reserve results from the UK company law requirement to maintain the company's capital when shares are redeemed out of the company's distributable profits. ## 25(c): Merger reserve During the year ended 31 December 2021, a dividend was paid by Quilter Perimeter Holdings Limited up to its parent Quilter plc. The resulting decrease in Quilter Perimeter Holdings Limited's net asset value gave rise to a £124 million impairment of Quilter plc's investment in Quilter Perimeter Holdings Limited and an associated release of the merger reserve reducing it to £25 million. In 2022, the remaining balance of the merger reserve recognised in the Group's statement of financial position was released in the creation of the B preference shares (the remainder of the B shares were created from retained earnings). ## 26: Share-based payments During the year ended 31 December 2022, the Group participated in a number of share-based payment arrangements. This note describes the nature of the plans and how the share options and awards are valued. ## 26(a): Description of share-based payment arrangements The Group operates the following share-based payment schemes with awards over Quilter plc shares: the Quilter plc Performance Share Plan, the Quilter plc Share Reward Plan, the Quilter plc Share Incentive Plan, the Quilter plc Sharesave Plan, and the Charles Derby Group Performance Share Plan. 172 Quilter Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 26: Share-based payments continued ### 26(a): Description of share-based payment arrangements continued | Scheme | Description of award | | | | | | Vesting conditions | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Restricted shares | Conditional shares | Options | Other | Dividend entitlement^{1} | Contractual life (years) | Typical service (years) | Performance (measure) | | Quilter plc Performance Share Plan | - | - | - | - | - | Up to 10 | 3 | AP EPS CAGR and Relative Total Shareholder Return | | Quilter plc Performance Share Plan | - | - | - | - | - | Not less than 3 | 3 | Conduct, Risk & Compliance Underpins | | Quilter plc Share Reward Plan | - | - | - | - | - | Typically, 3 | 3 | - | | Quilter plc Share Incentive Plan | - | - | - | - | - | Not less than 3 | 2 | - | | Quilter plc Sharesave Plan^{2} | - | - | - | - | - | 3½ - 5½ | 3 & 5 | - | | Charles Derby Group Performance Share Plan | - | - | - | - | - | Up to 10 | 5 | AP EPS CAGR | $^{1}$ Participants are entitled to actual dividends for the Share Incentive Plan. For all other schemes, participants are entitled to dividend equivalents. $^{2}$ Adjusted profit compound annual growth rate ("CAGR"). $^{3}$ The Quilter plc Sharesave Plan is linked to a savings plan. ### 26(b): Reconciliation of movements in options The movement in options outstanding under the Performance Share Plans and Sharesave Plan arrangements during the year is detailed below. | Options over Ordinary Shares (London Stock Exchange) | Year ended 31 December 2022 | | Year ended 31 December 2021 | | | --- | --- | --- | --- | --- | | | Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | | **Outstanding at beginning of the year** | 27,188,566 | £0.62 | 24,898,095 | £0.54 | | Granted during the year | 8,639,650 | £0.83 | 6,315,110 | £0.86 | | Forfeited during the year | (7,803,514) | £0.13 | (1,544,730) | £0.38 | | Exercised during the year | (8,094,488) | £0.92 | (1,609,808) | £0.27 | | Expired during the year | (441,038) | £1.27 | (220,391) | £1.25 | | Canceled during the year | (3,090,346) | £1.26 | (649,710) | £1.27 | | **Outstanding at end of the year** | **16,398,830** | **£0.67** | **27,188,566** | **£0.62** | | **Exercisable at end of the year** | - | - | - | - | The weighted average fair value of options at the measurement date for options granted during the year ended 31 December 2022 is £0.59, (2021: £0.68). The weighted average share price at the dates of exercise for options exercised during the year was £1.14 (2021: £1.62). The options outstanding at 31 December 2022 have exercise prices of £nil for the Quilter plc Performance Share Plan, and between £1.17 and £1.31 for the Quilter plc Sharesave Plan, with a weighted average remaining contractual life of 1.8 years. At 31 December 2021, the exercise price was £nil for both the Quilter plc Performance Share Plan and Charles Derby Group Performance Share Plan, and between £1.25 and £1.31 for the Quilter plc Sharesave Plan, with a weighted average remaining contractual life of 1.3 years. See note 4 for details of the capital return, Share Consolidation and impact on shareholder metrics. ### 26(c): Measurements and assumptions In determining the fair value of equity-settled share-based awards and the related charge to the income statement, the Group makes assumptions about future events and market conditions. Specifically, management makes estimates of the likely number of shares that will vest and the fair value of each award granted which is valued and 'locked in' at the grant date. The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted. The estimate of fair value of share options granted is measured using either a Black-Scholes option pricing model or a Monte Carlo simulation. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 173 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 26. Share-based payments continued ### 26(c): Measurements and assumptions continued The inputs used in the measurement of fair values at the grant date for awards granted during 2022 were as follows: | Scheme | Weighted average share price £ | Weighted average exercise price £ | Weighted average expected volatility | Weighted average expected life (years) | Weighted average risk-free interest rate | Weighted average expected dividend yield | Expected for features per annum | | --- | --- | --- | --- | --- | --- | --- | --- | | Quilter plc Performance Share Plan – Share Options (Nil cost options) | 1.38 | 0.00 | 29% | 3.0 | 1.5% | 0.0% | 0% | | Quilter plc Performance Share Plan – Conditional Shares | 1.36 | 0.00 | 30% | 3.0 | 1.5% | 0.0% | 4% | | Quilter plc Share Reward Plan – Conditional Shares | 1.37 | 0.00 | 30% | 2.0 | 1.4% | 0.0% | 4% | | Quilter plc Sharesave Plan | 1.43 | 1.17 | 30% | 3.4 | 1.4% | 3.1% | 5% | The expected volatility used was based on the historical volatility of the share price over the period for which trading history is available. The risk-free interest rate was based on the yields available on UK Government bonds as at the date of grant. The bonds chosen were those with a similar remaining term to the expected life of the share awards. ### 26(d): Share grants The following table summarises the fair value of Conditional Shares granted by the Group during the year: | Instruments granted during the year | Year ended 31 December 2022 | | Year ended 31 December 2021 | | | --- | --- | --- | --- | --- | | | Number granted | Weighted average fair value | Number granted | Weighted average fair value | | Quilter plc Performance Share Plan – Conditional Shares | 4,258,062 | £1.38 | 3,854,809 | £1.64 | | Quilter plc Share Reward Plan – Conditional Shares | 11,204,853 | £1.37 | 4,243,273 | £1.64 | ### 26(e): Financial impact The share-based payment reserve of £41 million (31 December 2021: £42 million) represents the cumulative expense of the Group for the unsettled portion of equity awarded schemes. The total expense recognised in the year arising from equity compensation plans was as follows: | | Year ended 31 December 2022 £m | Year ended 31 December 2021 £m | | --- | --- | --- | | Expense arising from equity-settled share and share option plans – continuing operations | 24 | 19 | | Expense arising from equity-settled share and share option plans – discontinued operations | — | 1 | | **Total expense arising from share and share option plans** | **24** | **20** | 174 Quilter Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 27. Investment contract liabilities The following table provides a summary of the Group's investment contract liabilities: | | 2022 £m | 2021 £m | | --- | --- | --- | | **Carrying amount at 1 January** | **41,071** | **57,407** | | From continuing operations | | | | Fair value movements | (4,878) | 2,821 | | Investment income | 560 | 472 | | Movements arising from investment return | (4,318) | 3,293 | | From discontinued operations | | | | Fair value movements | - | 1,646 | | Investment income | - | 172 | | Movements arising from investment return | - | 1,818 | | Contributions received | 4,408 | 6,837 | | Withdrawals and surrenders^{1} | (2,759) | (3,866) | | Claims and benefits | (219) | (162) | | Other movements | 3 | 1 | | **Change in liability** | **(2,885)** | **7,921** | | Currency translation gain | - | (199) | | Disposal of subsidiaries | - | (24,058) | | **Investment contract liabilities at end of the year** | **38,186** | **41,071** | $^{1}$ Includes amounts previously presented as maturities of £406 million for the year to 31 December 2021. 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. 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. Strategic Report Governance Report Financial statements Other information Quaker Annual Report 2022 175 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 28: Provisions | 31 December 2022 | Compensation provisions £m | Sale of subsidiaries £m | Property provisions £m | Clawback and other provisions £m | Total £m | | --- | --- | --- | --- | --- | --- | | Balance at beginning of the year | 41 | 22 | 9 | 21 | 93 | | Charge to income statement | 22 | - | 4 | 3 | 29 | | Utilised during the year | (28) | (7) | (1) | (2) | (38) | | Unused amounts reversed | (12) | - | - | (4) | (16) | | Reclassification within the statement of financial position^{1} | - | - | - | 1 | 1 | | **Balance at 31 December 2022** | **23** | **15** | **12** | **19** | **69** | | 31 December 2021 | Compensation provisions £m | Sale of subsidiaries £m | Property provisions £m | Clawback and other provisions £m | Total £m | | --- | --- | --- | --- | --- | --- | | Balance at beginning of the year | 42 | 10 | - | 25 | 77 | | Charge to income statement^{1} | 23 | 17 | 7 | 2 | 49 | | Utilised during the year | (12) | (4) | - | (4) | (20) | | Unused amounts reversed | (10) | (1) | - | (5) | (16) | | Disposals^{2} | (2) | - | - | - | (2) | | Reclassification within the statement of financial position^{3} | - | - | 2 | 3 | 5 | | **Balance at 31 December 2021** | **41** | **22** | **9** | **21** | **93** | $^{1}$Part of the charge to the income statement in 2021 was included within the discontinued operations income statement. $^{2}$The balance within 'Disposals' relates to the provision balance within Quiter International at completion of the sale of the business on 30 November 2021. $^{3}$Clawback and other provisions related to the balancing premium payable for the bulk annuity purchased for the Quiter Chevot Limited Retirement Benefits scheme were reclassified during the year to 31 December 2022 from accruals reflecting the uncertainty of the amounts to be settled. $^{4}$During the year to 31 December 2021, property provisions related to dispositions and other provisions related to historical license agreements were reclassified from lease liabilities and accruals respectively reflecting the uncertainty of the amounts to be settled. ## Compensation provisions Compensation provisions total £23 million (31 December 2021: £41 million) and the net reduction of £18 million during the year is due to additional charges to the income statement of £22 million, compensation payments made during the period of £28 million and the £12 million release of unused amounts during 2022 following further review work completed during the year. Compensation provisions are comprised of the following: ### Lighthouse pension transfer advice provision of £5 million (31 December 2021: £29 million) #### Lighthouse pension transfer advice provided to British Steel members of £4 million (31 December 2021: £21 million) A total provision of £4 million (31 December 2021: £21 million) remains for the redress of British Steel Pension Scheme cases, including anticipated costs associated with the redress activity. This is comprised of two parts: (a) Client redress provision of £3 million (31 December 2021: £19 million), comprised of £23 million (31 December 2021: £23 million) redress payable, less payments made to customers of £20 million, of which £16 million was paid in 2022 (31 December 2021: £4 million). (b) Anticipated costs associated with redress activity of £1 million (31 December 2021: £2 million), comprised of £7 million costs payable (31 December 2021: £4 million), less payments made of £4 million during 2022 and £2 million during 2021. 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. During the year to 31 December 2022, the skilled person completed their review of all British Steel Pension Scheme cases within the initial scope of the review, reflecting the outcome on suitability of the DB to DC pension transfer advice review for each case, and all remaining offers were made to customers who received unsuitable DB to DC pension transfer advice which caused them to sustain a loss. Certain customers who have been included in the skilled person review work already undertaken have referred their case to the Financial Ombudsman Service, relating to cases where: (i) relevant DB to DC pension transfer advice was found to be suitable by the skilled person, or (ii) where relevant DB to DC pension transfer advice was found to be unsuitable by the skilled person, but the customer disagrees with the way in which their redress offer has been calculated by the skilled person. The Financial Ombudsman Service may uphold some or all of the challenges made. In November 2022, the FCA published a policy statement containing the final rules for a redress scheme for former members of the British Steel Pension Scheme who received unsuitable advice (the 'BSPS Redress Scheme'). The BSPS Redress Scheme will cover those persons who received advice between 26 May 2016 and 29 March 2018 to transfer out of the British Steel Pension Scheme. The final rules for the BSPS Redress Scheme set out how advisers must determine whether they gave unsuitable advice and whether they must pay redress. The Group may therefore face further costs of redress as a result of the BSPS Redress Scheme. The BSPS Redress Scheme will not cover individuals that have accepted redress for that advice, referred the matter to the Financial Ombudsman Service or received a final outcome following a suitability assessment of their case conducted through a skilled person review. Therefore, based on the final rules of the BSPS Redress Scheme, this process will not include Lighthouse cases that have already been reviewed by the skilled person where the customer received a final outcome. The Group is currently considering whether, based on the final rules for the BSPS Redress Scheme, there are any Lighthouse cases relating to British Steel Pension Scheme members that were subject to the skilled person review that may fall within the scope of the BSPS Redress Scheme. 176 Quiter Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 28. Provisions continued An asset of £3 million representing an insurance recoverable in respect of British Steel pension transfer advice was included in the fair value of the acquired net assets of Lighthouse and presented on the statement of financial position as at 31 December 2021. During 2022, the insurer's confirmed coverage and the Group received £15 million cash. ### Lighthouse pension transfer advice provided to members of other schemes of £1 million (31 December 2021: £8 million) During 2021, the skilled person review identified unsuitable DB to DC pension advice provided by Lighthouse advisers for pension schemes other than the British Steel Pension Scheme. The initial scope of the review concluded in 2022, with £3 million paid to customers and the remaining provision released to the income statement. Subject to FCA confirmation, we anticipate that the skilled person review will conclude during 2023. In the second half of 2022, the skilled person recommended a potential review of a further sample of Lighthouse DB to DC pension transfer advice cases not relating to the British Steel Pension Scheme. In December 2022, the FCA confirmed to the Group that it agreed with the skilled person's recommendation. The FCA also confirmed that, given the cooperation of the Group in relation to the skilled person review and established past business review methodology and consistent with the recommendation made by the skilled person, this further sample should be reviewed under a Group managed past business review process with the current skilled person acting as expert. The FCA also agreed with the skilled person that the further sample should be selected on a risk-based approach and has set out to the Group the key risk factors to be used in determining the sample. The review of this sample may uncover some additional cases where customer redress is required. Until the relevant sample has been reviewed, uncertainty exists as to the number of cases where this will be required and the value of total redress which may be payable. A provision for redress relating to the review of this further sample of cases of £1 million has been established at 31 December 2022. ### Compensation provisions (other) of £18 million (31 December 2021: £12 million) Other compensation provisions of £18 million 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 the timing of outflows is that the majority of the balance is expected to be settled within 12 months. A provision of £7 million, included within the balance, has been recognised at 31 December 2022 (31 December 2021: £6 million) relating to potentially unsuitable DB to DC pension transfer advice provided by advisers, including advice provided prior to Quilter's acquisition of the relevant advice businesses. Of this balance, £2 million (31 December 2021: £2 million) has been recognised for potentially unsuitable DB to DC pension transfer advice provided to British Steel Pension Scheme members by Quilter Financial Planning firms other than Lighthouse. This provision was recognised following the receipt of a 'Dear CEO' letter from the FCA in December 2021, and subsequent establishment of the BSPS Redress Scheme. These British Steel Pension Scheme cases have yet to be reviewed for suitability and an estimate of the provision has been made based upon the Group's experience of the Lighthouse skilled person review. A provision of £4 million, included within the balance, related to Final Plan Closure ('FPC') receipts previously recognised as revenue since 2013 for distributions the Group received from investments for clients who had previously closed their accounts. FPC receipts represent distributions, including tax gross ups where relevant, and rebates received after a customer has left the Quilter platform, which the Terms and Conditions of the pension and insured bonds legally entitled the Group to retain. A review this year has led to a change in business policy, and Quilter have made the decision to voluntarily return these amounts to those impacted clients backdated to inception, with an appropriate interest rate applied to the balances owed. A provision of £6 million was initially recognised, and payments of £2 million have been made to clients during the year. The remaining provision outstanding of £4 million is expected to be payable within one year. The Group estimates a reasonably possible change of +/- £4 million from the £18 million balance, based upon a review of the cases and the range of potential outcomes for the customer redress payments. ## Sale of subsidiaries Sale of subsidiaries provisions total £15 million at 31 December 2022 (31 December 2021: £22 million), and include the following: ### Provisions arising on the disposal of Quilter International of £11 million (31 December 2021: £16 million) Quilter International was sold on 30 November 2021, resulting in provisions totalling £17 million being established in respect of costs related to the disposal including the costs of business separation and data migration activities. The costs of business separation arise from the process required to separate Quilter International's infrastructure, which is complex and covers a wide range of areas including people, IT systems, data, and contracts facilities. A programme team has been established to ensure the transition of these areas to the acquirer. These provisions have been based on external quotations and estimations, together with estimates of the incremental time and resource costs required to achieve the separation, which is expected to occur over a two-year period. The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. Calculation of the provision is based on management's best estimate of the work required, the time it is expected to take, the number and skills of the staff required and their cost, and the cost of related external IT services to support the work. In reaching these judgements and estimates, management has made use of its past experience of previous IT migrations following business disposals, including the migration of QLA. The Group estimates a provision sensitivity of +/-25% (£3 million), based upon a review of the range of time periods expected to complete the work required. The provision is expected to be fully utilised over three years from the sale, with £8 million forecast to be paid within one year. During the year, £6 million (2021: £1 million) of the provision has been utilised. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 177 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 28. Provisions continued ### Sale of Single Strategy Asset Management business provision of £4 million (31 December 2021: £4 million) In 2018, a restructuring provision was recognised as a result of the sale of the Single Strategy Asset Management business (now known as Jupiter Investment Management ("Jupiter")) to enable the remaining Quilter Investors business to function as a standalone operation going forward. The remaining provision relates 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. In 2021, £2 million was settled relating to the 2020 measurement year. The balance has been adjusted for the latest estimate for the 2022 measurement year, which is the final measurement year required in the sale agreement. The expected range of payments based upon the latest information received from Jupiter and the Group's reasonable expectations of ALM invested within Jupiter funds during the 2022 assessment period is between £4 million and £5 million. The provision outstanding is estimated to be payable within one year, with expected final settlement due in the first half of 2023. Once finalised and settled, this will be the final amount payable under this arrangement with Jupiter. ### Provisions arising on the disposal of Quilter Life Assurance of £nil (31 December 2021: £1 million) Quilter Life Assurance was sold in 2019, resulting in provisions totalling £6 million being established in respect of the costs of disposing the business and the related costs of business separation. During the year, £1 million of the provision has been utilised. These were the final costs incurred to complete and close the project. ### Property provisions Property provisions represent the discounted value of expected future costs of reinstating leased property to its original condition at the end of the lease term, and any onerous commitments which may arise in cases where a leased property is no longer being fully utilised by the Group. The estimate is based upon property location, size of property and an estimate of the charge per square foot. Property provisions are utilised or released when the reinstatement obligations have been fulfilled. The associated asset for the property provisions relating to the cost of reinstating property is included within "Property, plant and equipment". Of the £12 million provision outstanding, £3 million (2021: £1 million) is estimated to be payable within one year. The majority of the balance relates to leased property which has a lease term maturity of more than five years. ### 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 and now includes the balancing premium payable for the bulk annuity purchased for the Quilter Cheviot Limited Retirement Benefits scheme. Where material, provisions are discounted at discount rates specific to the risks inherent in the liability. The timing and final amounts of payments, 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 at 31 December 2022 is £14 million (31 December 2021: £16 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. Reductions to the provision result from the payment of cash to product providers as refunds or the recognition of revenue where a portion is assessed as no longer payable. The provision has been assessed at the reporting date and adjusted for the latest cancellation information available. At 31 December 2022, an associated balance of £8 million recoverable from brokers is included within "Trade, other receivables and other assets" (31 December 2021: £9 million). The Group estimates a reasonably possible change of +/- £3 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 £19 million provision outstanding, £8 million is estimated to be payable within one year (31 December 2021: £13 million). 178 Quilter Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 29: Tax assets and liabilities Deferred tax is calculated on all temporary differences at the tax rate applicable in the country in which the differences arise. ### Deferred tax summary | | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | Deferred tax assets | 94 | 88 | | Less: deferred tax liabilities | (24) | (139) | | **Net deferred tax asset/(liability)** | **70** | **(51)** | The main rate of Corporation Tax is 19% for the financial year 2022 (2021: 19%). The Corporation Tax rate will increase from 19% to 25%, effective from 1 April 2023. This change was substantively enacted in 2021 and the new rate has been used in recognising the Company's deferred tax assets and liabilities for reversals expected to take place on or after 1 April 2023. ## 29(a): Deferred tax assets Deferred tax assets are recognised for tax losses carried forward only to the extent that the realisation of the related tax benefit is probable. Realisation of the tax benefit is considered to be probable where on the basis of all available evidence, it is more likely than not that there will be suitable taxable profits against which the loss can be relieved. The movements on recognised deferred tax assets are explained below: | 31 December 2022 | At beginning of the year £m | Income statement (charge)/ credit £m | Charged to equity £m | At end of the year £m | | --- | --- | --- | --- | --- | | Tax losses carried forward | 24 | (8) | – | 16 | | Accelerated depreciation | 20 | 1 | – | 21 | | Accrued interest expense and other temporary differences | 41 | (10) | – | 31 | | Share-based payments | 9 | – | (2) | 7 | | Deferred expenses and excess expenses^{1} | 6 | 44 | – | 50 | | Netted against deferred tax liabilities | (12) | (19) | – | (31) | | **Deferred tax assets** | **88** | **8** | **(2)** | **94** | | 31 December 2021 | At beginning of the year £m | Income statement (charge)/ credit £m | Charged to equity £m | At end of the year £m | | --- | --- | --- | --- | --- | | Tax losses carried forward | 15 | 9 | – | 24 | | Accelerated depreciation | 19 | 1 | – | 20 | | Accrued interest expense and other temporary differences | 41 | – | – | 41 | | Share-based payments | 9 | – | – | 9 | | Deferred expenses and excess expenses^{1} | 6 | – | – | 6 | | Provisions | 1 | (1) | – | – | | Netted against deferred tax liabilities | (13) | 1 | – | (12) | | **Deferred tax assets** | **78** | **10** | **–** | **88** | $^{1}$For the year ended 31 December 2022, the £50 million includes deferred expenses of £5 million (2021: £6 million) and excess expenses of £45 million (2021: £m). The recognition of deferred tax assets is subject to the estimation of future taxable profits based on the Group's Business Plan. The Business Plan takes into account estimated levels of assets under management and administration, which are subject to a large number of factors including global stock market movements and related movements in foreign exchange rates, together with estimates of net client cash flow, expenses and other charges. The Business Plan also takes into account climate-related risks. 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 of deferred tax assets based on estimated taxable profits over a three-year planning horizon. Deferred tax assets have been recognised to the extent they are supported by the Group's Business Plan. The sensitivity of these deferred tax assets is such that any decrease in profitability over the three-year planning period would result in a reduction in the value of these assets. Strategic Report Governance Report Financial statements Other information Quaker Annual Report 2022 179 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 29. Tax assets and liabilities continued ### 29(a): Deferred tax assets continued #### Unrecognised deferred tax assets The amounts for which no deferred tax asset has been recognised consist of: | | 31 December 2022 | | 31 December 2021 | | | --- | --- | --- | --- | --- | | | Gross amount | Tax | Gross amount | Tax | | Pre-April 2017 UK tax losses | 244 | 61 | 252 | 63 | | Post-April 2017 UK tax losses | 91 | 23 | 106 | 26 | | Capital losses | 347 | 87 | 347 | 87 | | **Total unrelieved tax losses** | **682** | **171** | **705** | **176** | | Other timing differences | – | – | 3 | 1 | | **Total unrecognised deferred tax assets^{1}** | **682** | **171** | **708** | **177** | $^{1}$None of the unrecognised deferred tax assets have a net expiry date in tax law. #### Movements in unrecognised deferred tax assets Under UK tax law, UK brought forward non-capital tax losses that arose after 1 April 2017 ("Post-April 2017 UK tax losses") may be offset against current year UK taxable profits arising in any company within Group, subject to a restriction of 50% of profits each year. Consequently, as described above and in note 11, the recognition of deferred tax assets on Post-April 2017 UK tax losses is assessed by reference to the Group's Business Plan. The Group may in the future recognise additional deferred tax assets in respect of the unrecognised portion of the Post-April 2017 UK tax losses, as the Group progresses through the Business Plan period. The recognition of deferred tax assets on these losses is expected to remain a critical accounting estimate as described in these financial statements for the foreseeable future. All other non-capital UK tax losses within the Group ("Pre-April 2017 UK tax losses") can only be used against taxable profits arising in the same company as the loss. It is therefore less likely that a deferred tax asset will be recognised in the foreseeable future in respect of the currently unrecognised portion of these tax losses. Capital losses are in Quilter Life & Pensions Limited. There is currently insufficient evidence to forecast future chargeable gains in that company on which to justify recognition of a deferred tax asset for any of these losses. ### 29(b): Deferred tax liabilities The movement on deferred tax liabilities is as follows: | 31 December 2022 | At beginning of the year £m | Income statement (credit)/charge £m | Acquisition/disposal of subsidiaries £m | At end of the year £m | | --- | --- | --- | --- | --- | | Other acquired intangibles | 32 | (8) | – | 24 | | Other temporary differences | – | 1 | – | 1 | | Investment gains | 120 | (90) | – | 30 | | Netted against deferred tax assets | (13) | (18) | – | (31) | | **Deferred tax liabilities** | **139** | **(115)** | **–** | **24** | | 31 December 2021 | At beginning of the year £m | Income statement (credit)/charge £m | Acquisition/disposal of subsidiaries £m | At end of the year £m | | --- | --- | --- | --- | --- | | Other acquired intangibles | 36 | (4) | – | 32 | | Other temporary differences | 2 | – | (2) | – | | Investment gains | 81 | 39 | – | 120 | | Netted against deferred tax assets | (13) | – | – | (13) | | **Deferred tax liabilities** | **106** | **35** | **(2)** | **139** | #### Movements in deferred tax liabilities Deferred tax liabilities in relation to investment gains and losses have decreased by £90 million (2021: £39 million increase) due to market movements in the year, as disclosed in note 11. ### 29(c): Current tax receivables and payables Current tax receivables and current tax payables at 31 December 2022 were £10 million (2021: £nil) and £1 million (2021: £2 million), respectively. 180 Quilter Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 30: Borrowings and lease liabilities The following table analyses the Group's borrowings and lease liabilities: | | Notes | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | --- | | Subordinated debt: fixed rate loan at 4.478% | 30(a) | 200 | 199 | | Lease liabilities | 30(b) | 90 | 100 | | **Total borrowings and lease liabilities** | | **290** | **299** | ### 30(a): Borrowings Borrowed funds are repayable on demand and categorised in terms of IFRS 9 Financial Instruments as "Financial liabilities at amortised cost". The carrying value of the Group's borrowings is considered to be materially in line with the fair value. All amounts outstanding at 31 December 2022 are payable to a number of relationship banks. On 28 February 2018, the Group issued a £200 million subordinated debt security in the form of a 10-year Tier 2 bond with a one-time issuer call option after five years to J.P. Morgan Securities plc, paying a semi-annual coupon of 4.478% (the "Tier 2 Bond"). The Tier 2 bond was remarketed and sold to the secondary market in full on 13 April 2018. At 31 December 2022, the Tier 2 bond was listed and regulated under the terms of the London Stock Exchange. At the reporting date, the Tier 2 bond was due to mature in 2028 with the option to redeem in 2023. Refer to note 40 for details of the £200,000,000 8.625% Fixed Rate Reset Subordinated Notes issued in January 2023. In addition, the Group has entered into a £125 million revolving credit facility which remains undrawn and is being held for contingent funding purposes. ### 30(b): Lease liabilities The Group has entered into commercial non-cancellable leases on certain property, plant and equipment where it is not in the best interest of the Group to purchase these assets. Such leases have varying terms, escalation clauses and renewal rights. Termination options are included in a number of property leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group's operations. The majority of termination options held are exercisable only by the Group and not by the respective lessor. As at 31 December 2022, future undiscounted cash outflows of £nil (2021: £nil) have been included in the lease liability which will occur beyond termination option dates on none (2021: none) of the Group's principal property leases. The lease term is reassessed if an option is exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee. During the year, certain lease terms were reassessed to reflect the expectation that termination options will now be exercised. The financial effect of this reassessment was a change of £nil in recognised lease liabilities and right-of-use assets, for the year (2021: £11 million decrease). These are the only significant property leases where the term is modelled up to a termination option date. Lease liabilities represent the obligation to pay lease rentals as required by IFRS 16 and are categorised as financial liabilities at amortised cost. | | 2022 £m | 2021 £m | | --- | --- | --- | | Opening balance at 1 January | 100 | 120 | | Additions | 1 | 13 | | Disposals and adjustments to lease liabilities | - | (12) | | Interest charge for the year | 3 | 4 | | Red classification to provisions | - | (2) | | Payment for the interest portion of lease liabilities | (3) | (2) | | Payment for the principal portion of lease liabilities | (11) | (10) | | Disposal of interests in subsidiary | - | (11) | | **Closing balance at 31 December** | **90** | **100** | | To be settled within 12 months | 9 | 10 | | To be settled after 12 months | 81 | 90 | | **Total lease liabilities** | **90** | **100** | | **Maturity analysis - undiscounted** | | | | Within one year | 11 | 13 | | One to five years | 37 | 40 | | More than five years | 60 | 67 | | **Total lease liabilities - undiscounted** | **108** | **120** | Quaker Annual Report 2022 181 Strategic Report Governance Report Financial statements Other information # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 31: Trade, other payables and other liabilities | | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | Amounts payable to policyholders | 51 | 46 | | Outstanding settlements | 201 | 185 | | Accruals and deferred income | 83 | 123 | | Trade creditors | 32 | 33 | | Deferred consideration | – | 5 | | Other liabilities | 69 | 92 | | **Total trade, other payables and other liabilities** | **436** | **484** | | To be settled within 12 months | 436 | 484 | | To be settled after 12 months | – | – | | **Total trade, other payables and other liabilities** | **436** | **484** | ## 32: Contract liabilities Contract liabilities relate to non-refundable front-end fee income, comprising fees received at inception or receivable over an initial period for services not yet provided. The income is deferred through the creation of a contract liability on the statement of financial position and released to income as the services are provided. Equal service provision is assumed over the lifetime of the contract and, as such, the contract liability is amortised on a linear basis over the expected life of the contract, adjusted for expected persistency. The contract liability principally comprises fee income already received in cash. The table below analyses the movements in contract liabilities. All contract liabilities for the year ended 2021 relate to discontinued operations. | | Total £m | | --- | --- | | 1 January 2021 | 379 | | Fees and commission income deferred | 41 | | Amortisation | (40) | | Foreign exchange | (4) | | Discontinued operations movements | (3) | | Disposal of subsidiaries – sale of Quilter International | (376) | | 31 December 2021 | – | | **31 December 2022** | **–** | ## 33: Post-employment benefits The Group operates a number of defined contribution and defined benefit pension schemes in the UK, the Channel Islands and Ireland. ### Defined contribution pension schemes The Group's defined contribution schemes require contributions to be made to funds held in trust, separate from the assets of the Group. Participants receive either a monthly pension supplement to their salaries or contributions to personal pension plans. For the defined contribution schemes, the Group pays contributions to separately administered pension schemes. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised in current service cost in the income statement as staff costs and other employee-related costs when they are due. ### Defined benefit schemes The Group operates two defined benefit schemes: The Quilter Cheviot Limited Retirement Benefits Scheme and the Quilter Cheviot Channel Islands Retirement Benefits Scheme which are both closed to new members. The assets of these schemes are held in separate trustee administered funds. Pension costs and contributions relating to defined benefit schemes are assessed in accordance with the advice of qualified actuaries. Actuarial advice confirms that the current level of contributions payable to each pension scheme, together with existing assets, are adequate to secure members' benefits over the remaining service lives of participating employees. The Group's policy is to fund at least the amounts sufficient to meet minimum funding requirements under applicable employee benefit and tax regulations. The schemes are reviewed at least on a triennial basis or in accordance with local practice and regulations. In the intervening years, the actuary reviews the continuing appropriateness of the assumptions applied. In 2019, the Trustees of the Quilter Cheviot Limited Retirement Benefits scheme purchased a bulk annuity from Aviva to de-risk the defined benefit pension scheme obligation. This investment strategy was intended to equally match the assets and liabilities of the scheme. This covers all remaining insured scheme benefits following previous bulk annuity transactions in 2013, 2014 and 2015. ### IAS 19 Employee Benefits disclosures This note gives full IAS 19 Employee Benefits disclosures for the above schemes. 182 Quilter Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 33. Post-employment benefits continued ### 33(a): Liability for defined benefit obligations The IAS 19 value of the assets and the scheme obligations are as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | **Changes in retirement benefit obligations** | | | | Total IAS 19 retirement benefit obligation at 1 January | (41) | (41) | | Interest cost on benefit obligation | (1) | (1) | | Effect of changes in actuarial assumptions | 15 | – | | Benefits paid | 2 | 1 | | **Total IAS 19 retirement benefit obligations at 31 December** | **(25)** | **(41)** | | **Change in plan assets** | | | | Total IAS 19 fair value of scheme assets at 1 January | 42 | 42 | | Actual return on plan assets | (14) | 1 | | Benefits paid | (2) | (1) | | **Total IAS 19 fair value of scheme assets at 31 December** | **26** | **42** | | **Net IAS 19 asset recognised in statement of financial position** | | | | Funded status of plan | 1 | 1 | | Unrecognised assets | (1) | (1) | | **Net IAS 19 amount recognised in statement of financial position as at 31 December** | **–** | **–** | Contributions for the year to the defined benefit schemes totalled £nil (2021: £nil), and £1 million was accrued at 31 December 2022 (2021: £1 million). The Group expects to contribute £nil million in the next financial year (the year to 31 December 2023), based upon the current funded status and the expected return assumption for the next financial year. | | 2022 £m | 2021 £m | | --- | --- | --- | | **Changes in the asset ceiling** | | | | Opening unrecognised asset due to asset ceiling at 1 January | 1 | 1 | | **Closing unrecognised asset due to the asset ceiling at 31 December** | **1** | **1** | ### 33(b): Income and expenses recognised in the income statement The total pension charge to staff costs for all of the Group's defined benefit schemes for 2022 was £nil (2021: £nil). Actuarial gains and losses and the effect of the limit to the pension asset under IAS 19 Employee Benefits have been reported in other comprehensive income. The cumulative amount of actuarial losses recognised in other comprehensive income is £33 million (2021: £33 million). ### Assumptions used in the defined benefit schemes The expected long-term rate of return on assets represents the Group's best estimate of the long-term return on the scheme assets and is generally estimated by computing a weighted average return of the underlying long-term expected returns on the different asset classes, based on the target asset allocations. The expected long-term return on assets is a long-term assumption that is generally expected to remain the same from one year to the next unless there is a significant change in the target asset allocation, the fees and expenses paid by the plan or market conditions. The Group, in consultation with its independent investment consultants and actuaries, determines the asset allocation targets based on its assessment of business and financial conditions, demographic and actuarial data, funding characteristics and related risk factors. Other relevant factors, including industry practices, long-term historical and prospective capital market returns, were also considered. The scheme return objectives provide long-term measures for monitoring the investment performance against growth in the pension obligations. The overall allocation is expected to help protect the plan's funded status while generating sufficiently stable real returns (net of inflation) to help cover current and future benefit payments. Strategic Report Governance Report Financial statements Other information Quaker Annual Report 2022 183 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 33. Post-employment benefits continued ### 33(b): Income and expenses recognised in the income statement continued Both the equity and fixed income portions of the asset allocation use a combination of active and passive investment strategies and different investment styles. The fixed income asset allocation consists of longer duration fixed income securities in order to help reduce plan exposure to interest rate variation and to better correlate assets with obligations. The longer duration fixed income allocation is expected to help stabilise plan contributions over the long run. The weighted average duration of the defined benefit obligation is 13 years, based upon actual cash flows. The following table presents the principal actuarial assumptions at the end of the reporting year: | | 31 December 2022 % | 31 December 2021 % | | --- | --- | --- | | Discount rate | 5.0 | 1.8 | | Rate of increase in defined benefit funds | 3.6 | 3.7 | | Inflation | 3.1 | 3.3 | The mortality assumptions used give the following life expectancy at 65: | | Mortality table | Life expectancy at 65 for male member currently | | Life expectancy at 65 for female member currently | | | --- | --- | --- | --- | --- | --- | | | | Aged 65 | Aged 40 | Aged 65 | Aged 40 | | **31 December 2022** | **S3PA Light** | **23.60** | **25.60** | **25.10** | **27.20** | | 31 December 2021 | S3PA Light | 23.60 | 25.50 | 25.10 | 27.10 | Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, inflation rate and rate of mortality. The sensitivities regarding the principal assumptions used to measure the defined benefit obligations are described below. Reasonably possible changes at the reporting date to one of the principal actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation as follows: | | 31 December 2022 | | 31 December 2021 | | | --- | --- | --- | --- | --- | | | Increase £m | Decrease £m | Increase £m | Decrease £m | | Discount rate (0.1% movement) | (0.3) | 0.3 | (0.7) | 0.8 | | Inflation rate (0.1% movement) | 0.2 | (0.2) | 0.3 | (0.3) | | Rate of mortality (increase by one year) | 0.7 | N/A | 1.6 | N/A | ### 33(c): Scheme assets allocation Scheme assets are stated at their fair values. Information on the composition of scheme assets is provided below: | | 31 December 2022 % | 31 December 2021 % | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | --- | --- | | Equity securities | 4 | 7 | 1 | 3 | | Debt securities | 96 | 93 | 25 | 39 | | **Total IAS 19 fair value of scheme assets** | **100** | **100** | **26** | **42** | Equity securities have a quoted market price. Debt securities, which comprise the value of the bulk annuity policy, do not have a quoted market price. The bulk annuity policy, where assets are matched to the value of liabilities, is included at values provided by the actuary in accordance with relevant guidelines. 184 Quibbs Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 34: Master netting and similar agreements The Group offsets financial assets and liabilities in the statement of financial position when it has a legally enforceable right to do so and intends to settle on a net basis simultaneously. Currently, the only such offsetting within the Group relates to bank accounts, where in some circumstances a bank account that is overdrawn is offset against a bank account that is not. The following tables present information on the potential effect of offsetting arrangements after taking into consideration these types of agreements. | | Gross amounts £m | Amounts offset in the statement of financial position £m | Net amounts reported in the statement of financial position £m | | --- | --- | --- | --- | | **31 December 2022** | | | | | **Financial assets** | | | | | Cash and cash equivalents | 1,844 | (62) | 1,782 | | **Financial liabilities** | | | | | Trade, other payables and other liabilities – amounts owed to banks | 62 | (62) | - | | | Gross amounts £m | Amounts offset in the statement of financial position £m | Net amounts reported in the statement of financial position £m | | --- | --- | --- | --- | | **31 December 2021** | | | | | **Financial assets** | | | | | Cash and cash equivalents | 2,146 | (82) | 2,064 | | **Financial liabilities** | | | | | Trade, other payables and other liabilities – amounts owed to banks | 82 | (82) | - | ## 35: Contingent liabilities The Group, in the ordinary course of business, enters into transactions that expose it to tax, legal, regulatory 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 28). 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. The Group routinely monitors and assesses contingent liabilities arising from matters such as business reviews, litigation, warranties and indemnities relating to past acquisitions and disposals. ## Contingent liabilities – pension transfer advice redress The skilled person review covered British Steel Pension Scheme DB to DC pension transfer advice activity undertaken by Lighthouse advisers, and a representative sample of other Lighthouse DB to DC pension transfer advice activity in the relevant period. The skilled person review is largely complete, and the skilled person has recommended a potential review of a further sample of Lighthouse DB to DC pension transfer cases not relating to the British Steel Pension Scheme, and this further sample will be reviewed under a Group-managed past business review process with the skilled person acting as reviewer, as agreed with the FCA. Details of provisions for redress payable and payments made are included within Provisions as set out in note 28. Until the review has finalised, uncertainty exists as to the number of cases where this will be required and the value of total redress which will be payable. Subject to FCA confirmation, we anticipate that the skilled person review will conclude during 2023. Customers have the legal right to challenge the result of the skilled person review in respect of their case via a complaint to the Financial Ombudsman Service. Certain customers have made such complaints. The skilled person is independent from the Group and has run a robust process, which has been overseen by the FCA. The Group does not consider any of the complaints to have merit and so the provision does not include any amounts in relation to such complaints. In particular, there is no provision for obligations that may arise in the event that any complaints to the Financial Ombudsman Service over the outcome of the skilled person review in respect of particular customers are upheld. During 2020, the Group was also informed by the FCA that it is conducting an enforcement investigation into Lighthouse in respect of whether Lighthouse has breached certain FCA requirements in connection with advising on and arranging DB to DC pension transfers in the period from 1 April 2015 to 30 April 2019. This investigation is now at an advanced stage and the Group's current view is that it is likely to conclude before the end of the first half of the Group's current financial year on 30 June 2023. However, as the outcome of the enforcement investigation remains unknown, the provision does not include any potential regulatory fines or penalties that could be imposed on Lighthouse in connection with DB to DC pension transfers prior to the Group's acquisition of Lighthouse. It is possible that further material costs of redress, regulatory fines or penalties may be incurred in relation to the skilled person review, additional past business review and the BSPS Redress Scheme. Further customer redress costs may also be incurred for other potential unsuitable pension transfer advice provided across the Group. Any further redress costs, and any differences between the provision and final payment to be made for any unsuitable DB to DC pension transfer cases, will be recognised as an expense or credit in the income statement. Strategic Report Governance Report Financial statements Other information Quaker Annual Report 2022 185 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 35: Contingent liabilities continued ### Tax The tax authorities in the countries 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 countries in which it operates. All interpretations made by the Group 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 tax 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 Group is satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the resources available 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. ### Complaints, disputes and regulations The Group is committed to treating customers fairly and supporting its customers in meeting their lifetime goals. During the normal course of business, from time to time, the Group receives complaints and claims from customers including, but not limited to, complaints to the Financial Ombudsman Service and legal proceedings related thereto, enters into commercial disputes with service providers, and is subject to discussions and reviews with regulators. The costs, including legal costs, of these issues as they arise can be significant and, where appropriate, provisions have been established in accordance with IAS 37. ## 36: Commitments The Group has contractual commitments in respect of funding arrangements which will be payable in future periods. These commitments are not recognised in the Group's statement of financial position. ## 37: Capital and financial risk management ### 37(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 the regulatory requirements applicable to Group entities. 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 £1,548 million (31 December 2021: £1,739 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. ### 37(a)(i): Regulatory capital (unaudited) The Group is subject to Solvency II group supervision by the Prudential Regulation Authority. The Group is required to measure and monitor its capital resources under the Solvency II regulatory regime. The Group's UK life insurance undertaking is 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 £820 million at 31 December 2022 (31 December 2021: £1,030 million), representing a Solvency II ratio of 230% (31 December 2021: 275%) calculated under the standard formula. The Solvency II regulatory position for the year ended 31 December 2022 allows for the impact of the recommended final dividend payment of £45 million (31 December 2021: £62 million). 186 Quibbs Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 37. Capital and financial risk management continued ### 37(a): Capital management continued The Solvency II results for the year ended 31 December 2022 (unaudited estimate) and 31 December 2021 were as follows: | | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | Own funds | 1,451 | 1,617 | | Solvency capital requirement | 631 | 587 | | Solvency II surplus | 820 | 1,030 | | **Solvency II coverage ratio** | **230%** | **275%** | $^{1}$ Filing of annual regulatory reporting forms due by 19 May 2023. $^{2}$As reported in the Group Solvency and Financial Condition Report for the year ended 31 December 2021. 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. | Group own funds | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | Tier 1^{1} | 1,249 | 1,412 | | Tier 2^{2} | 202 | 205 | | **Total Group Solvency II own funds** | **1,451** | **1,617** | $^{1}$ All Tier 1 capital is unrestricted for timing purposes. $^{2}$ Comprises 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 UK life insurance undertaking is 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 countries in which they operate. In addition, the Group's asset management and advice businesses are subject to group supervision by the FCA under the UK Investment Firms Prudential Regime ("IFPR"). The capital requirements for the Group and its regulated subsidiaries are reported and monitored through regular Capital Management Forum meetings. Throughout 2022, the Group has complied with the regulatory 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. ### 37(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. | | 31 December 2022 £m | 31 December 2021 £m | | --- | --- | --- | | Total external borrowings of the Company | 200 | 199 | | Less: cash and cash equivalents of the Company | (126) | (503) | | Total net external borrowings of the Company | 74 | (304) | | Total shareholders' equity of the Group | 1,548 | 1,739 | | Tier 2 bond | 200 | 199 | | **Total Group equity (including Tier 2 bond)** | **1,748** | **1,938** | | **Ratio of Company net external borrowings to Group equity** | **0.042** | **-0.157** | The Group has complied with the covenant since the facility was created in 2018. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 187 ## Notes to the consolidated financial statements For the year ended 31 December 2022 continued 37: Capital and financial risk management continued 37(a): Capital management continued 37(a)(iii): Own Risk and Solvency Assessment (“ORSA”) and Internal Capital Adequacy and Risk Assessment (“ICARA”) 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, an entity-level ORSA process is performed for Quilter Life & Pensions Limited. The ICARA process is similar to the ORSA process and is performed at entity level for certain UK investment firms within the Group. A Group ICARA report is also produced annually and summarises the analysis, insights and conclusions from the underlying risk and capital management processes in respect of the IFPR prudential consolidation Group. The ICARA reports are 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 risk profile outside the usual reporting cycle. The conclusions of the ORSA and ICARA processes are reviewed by management and the Board throughout the year. 37(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 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 by ensuring that 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 Group has in respect of the exposures; and · any second order risks that may arise where the Group has collateral against the credit risk exposure. The credit risk exposures of the Group are monitored regularly to ensure that counterparties remain creditworthy, that there is appropriate diversification of counterparties and that exposures are within approved limits. At 31 December 2022, the Group’s material credit exposures were to financial institutions (primarily through the investment of shareholder funds), corporate entities (including external fund managers) and individuals (primarily through fund management trade settlement activities). There is no direct exposure to non-UK sovereign debt 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. 188 Quilter Annual Report 2022 # Notes to the consolidated financial statements For the year ended 31 December 2022 continued ## 37. Capital and financial risk management continued ### 37(b): Credit risk continued #### 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 consolidated financial statements. Loans and advances subject to 12-month expected credit losses are £34 million (31 December 2021: £29 million) and other receivables subject to lifetime expected credit losses are £204 million (31 December 2021: £252 million). Those balances 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. | 31 December 2022 | Credit rating relating to cash and cash equivalents that are neither past due nor impaired | | | | | | Carrying value | | --- | --- | --- | --- | --- | --- | --- | --- | | | AAA | AA | A | B | +BBB | Not rated | | | Cash at amortised cost, subject to 12-month ECL | - | 13 | 388 | 5 | - | 264 | 670 | | Money market funds at FVTPL | 1,112 | - | - | - | - | - | 1,112 | | **Total cash and cash equivalents** | **1,112** | **13** | **388** | **5** | **-** | **264** | **1,782** | | 31 December 2021 | Credit rating relating to cash and cash equivalents that are neither past due nor impaired | | | | | | Carrying value | | --- | --- | --- | --- | --- | --- | --- | --- | | | AAA | AA | A | B | +BBB | Not rated | | | Cash at amortised cost, subject to 12-month ECL | - | 105 | 451 | - | 3 | 289 | 848 | | Money market funds at FVTPL | 1,216 | - | - | - | - | - | 1,216 | | **Total cash and cash equivalents** | **1,216** | **105** | **451** | **-** | **3** | **289** | **2,064** | *Cash included in the consolidation of funds is not rated (see note 24(a)). #### Impairment allowance Assets that are measured and classified at amortised cost are monitored for any expected credit losses ("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 2021 | (0.8) | | Change due to change in counterparty balance | (0.4) | | 31 December 2021 | **(1.2)** | | Change due to change in counterparty balance | 0.1 | | **31 December 2022** | **(1.1)** | Strategic Report Governance Report Financial statements Other information Quaker Annual Report 2022 189 ## Notes to the consolidated financial statements For the year ended 31 December 2022 continued 37: Capital and financial risk management continued 37(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 recognises that climate change can contribute to market risk. 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. 37(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 unitised or other funds within the Group at the time when these funds are launched. The seed capital is then withdrawn from the funds as policyholders and customers 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. outsourced service provider and 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 by or on behalf of customers. 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. | | 31 December | | 31 December | | | --- | --- | --- | --- | --- | | | | 2022 | | 2021 | | Impac t on profit after tax and shareholders ’ equit y | | £m | | £m | Impact of 10% increase in equity and property prices 30 34 Impact of 10% decrease in equity and property prices (30) (34) 37(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 is 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 duration 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 clients’ investment funds, resulting in a fall in fund-based revenues. Conversely, a reduction in interest rates would cause a rise in the value of investments in fixed income securities within clients’ investment 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 income statement and statement of financial position to interest rates are summarised below. 190 Quilter Annual Report 2022 ## Notes to the consolidated financial statements For the year ended 31 December 2022 continued Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 191 37: Capital and financial risk management continued 37(c): Market risk continued 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. Impac t on profit after tax and shareholders ’ equit y Year ended 31 December 2022 £m Year ended 31 December 2021 £m Impact of 1% increase in interest rates 7 11 Impact of 1% decrease in interest rates (7) – 37(c)(iii): Currency translation risk Currency translation 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 pounds sterling, which accounts for the majority of the Group’s transactions. The Group has minor exposure to Euros, through the Group’s Irish subsidiary and to the South African Rand, due to the listing on the Johannesburg Stock Exchange and the payment of a proportion of shareholder dividends in Rand. During 2022, the Group had limited exposure to foreign exchange risk in respect of other currencies due its non-UK operations and foreign currency transactions. 37(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 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 sufficient liquidity to cover its minimum liquidity requirement, with an appropriate buffer set in line with the Group Risk Appetite Statement. Throughout the ongoing Ukraine crisis and market volatility during 2022, Quilter plc and its subsidiaries have operated above their individual liquidity targets and there were no material liquidity stresses identified over this period. 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 17. The Group has a £125 million five-year Revolving Credit Facility with a five-bank club that provides a form of contingency liquidity for the Group. No drawdown on this facility has been made since inception. 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. Further details, together with information on the Group’s borrowed funds, are given in note 30. The Group does not have material liquidity exposure to special purpose entities or investment funds. ## Notes to the consolidated financial statements For the year ended 31 December 2022 continued 192 Quilter Annual Report 2022 37: Capital and financial risk management continued 37(e): Insurance risk 37(e)(i): Overview The definition of insurance risk set out in the policy covers risks arising under Quilter’s unit-linked investment contracts which do not meet the IFRS definition of insurance contracts. The Group’s Enterprise Risk Management Framework defines insurance risk as the risk of a reduction in Solvency II own funds from adverse experience or change in assumptions relating to claims, policyholder behaviour, mortality, longevity or expenses, resulting in an adverse impact to earnings or reduced solvency. The Group has implemented an insurance risk policy which sets out the Group’s requirements for the management, measurement, monitoring and reporting of insurance risks. The Group has implemented the Technical Provisions Standard to support the insurance risk policy. 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. · Analysis and monitoring of experience relative to the assumptions used to determine technical provisions. Persistency Persistency risk is the risk that the level of surrenders or withdrawals on products offered by Quilter Life & Pensions Limited occur at levels that are different to the levels assumed in the 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 assumed in the determination of technical provisions. Expense levels are monitored on a quarterly basis 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. Mortality Mortality risk is not material as the Group does not provide material mortality insurance on its products and mortality benefits are reinsured. 37(e)(ii): Sensitivity analysis Sensitivity analysis has been performed by applying the following parameters to the statement of financial position and income statement for 2021 and 2022. 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 within the unit-linked business. 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 £6 million after tax (2021: £6 million). 37(f): Operational risk Operational risk is the risk of loss arising from inadequate or failed internal processes, or from personnel and systems, or from external events, resulting in an adverse impact to earnings or reduced solvency. 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), people and HR processes, product development and management processes, legal risks (e.g. risk of inadequate legal contracts with third parties), change delivery risks (including poorly managed responses to regulatory change), physical and certain transitional financial risks arising 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 has primary responsibility for the identification, measurement, assessment, management and monitoring of risks, and the escalation and reporting on issues to Executive Management. The Group’s Executive Management has responsibility for implementing the Group Operational Risk Framework and for the development and implementation of action plans designed to manage risk levels within acceptable tolerances and to resolve issues identified. ## Notes to the consolidated financial statements For the year ended 31 December 2022 continued Strategic Report Governance Report 38: Fiduciary activities The Group provides custody, trustee, corporate administration and investment management and advisory services to external parties that involve the Group making allocation, purchase and sales decisions in relation to a wide range of financial instruments. Those assets that are held in a fiduciary capacity are not included in these financial statements. Some of these arrangements involve the Group accepting targets for benchmark levels of returns for the assets under the Group’s care. These services give rise to the risk that the Group may be accused of misadministration or underperformance. Certain Quilter investment firms hold client money and other assets on behalf of clients and related activities are subject to the rules set out in the FCA’s Client Assets Sourcebook (“CASS”). The Group is not beneficially entitled to those assets and therefore neither the assets nor the related amounts due to clients are recognised on the Group balance sheet. 39: 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 year or the prior year which had a material effect on the results or financial position of the Group. 39(a): Transactions with key management personnel, remuneration and other compensation Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Group. Details of the compensation paid to the Board of Directors as well as their shareholdings in the Company are disclosed in the Directors’ Remuneration Report. 39(a)(i): Key management personnel compensation Financial statements | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £’000 | | £’000 | Salaries and other short-term employee benefits 5,739 7,627 Post-employment benefits 25 43 Share-based payments 3,372 2,987 Total compensation of key management personnel 9,136 10,657 39(a)(ii): Key management personnel transactions Key management personnel and members of their close family have undertaken transactions with the Group in the normal course of business. The Group’s products are available to all employees of the Group on preferential staff terms, the impact of which is immaterial to the Group’s financial statements. During the year ended 31 December 2022, key management personnel and their close family members contributed £2 million Other information (2021: £1 million) to Group pensions and investments (in both internal and external funds). The total value of investments in Group pensions and investment products by key management personnel serving at any point during the year and their close family members was £12 million at the end of the year (2021: £12 million). Qualifying third-party indemnity provisions (as defined by section 234 of the Companies Act 2006) were in force during the course of the year ended 31 December 2022 for the benefit of the then Directors and, at the date of this report, are in force for the benefit of the Directors in relation to certain losses and liabilities which they may incur (or have incurred) in connection with their duties, powers and office. In addition, the Company maintains Directors’ and Officers’ Liability Insurance which provides appropriate cover for legal action that may be brought against its Directors and Officers. 39(b): Associates In the current and prior year, IT services were provided by 360 Dot Net Limited, an associate of the Group. The relevant transactions had no material impact on the Group’s financial statements. 39(c): Other related parties Details of the Group’s staff pension schemes are provided in note 33. Transactions made between the Group and the Group’s staff pension schemes are made in the normal course of business. 40: Events after the reporting date Note 13 provides information on the Group’s final dividend in respect of 2022. In January 2023, the Company issued the £200,000,000 8.625% Fixed Rate Reset Subordinated Notes (due April 2033) and received net cash proceeds of £197 million. The Notes are now listed and regulated under the terms of the London Stock Exchange. On 28 February 2023, the Company repaid the existing £200,000,000 4.478% Fixed Rate Reset Subordinated Notes (due February 2028). Quilter Annual Report 2022 193 37: Capital and financial risk management continued 37(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 having a maturity of less than three months. Although these liabilities are payable on demand, the Group does not expect that all liabilities will be settled within a short time period. ## Appendix For the year ended 31 December 2022 Appendix A: Related undertakings The Companies Act 2006 requires disclosure of certain information about the Group’s related undertakings which is set out in this note. Related undertakings comprise subsidiaries, joint ventures, associates and other significant holdings. Significant holdings are where the Group either has a shareholding greater than or equal to 20% of the nominal value of any share class, or a book value greater than 20% of the Group’s assets. The definition of a subsidiary undertaking in accordance with the Companies Act 2006 is different from the definition under IFRS. As a result, the related undertakings included within the list below may not be the same as the undertakings consolidated in the Group IFRS financial statements. Refer to accounting policies note 5(a) Group Accounting for further detail on the principles of consolidation. The Group’s related undertakings along with the country of incorporation, the registered address, the classes of shares held and the effective percentage of equity owned at 31 December 2022 are disclosed below. Quilter plc is the ultimate parent of the Group. Company name Share class % Held Company name Share class % Held United Kingdom Quilter Private Client Advisers Limited Ordinary 100 Senator House, 85 Queen Victoria Street, London, EC4V 4AB Quilter UK Holding Limited Ordinary 100 Blueprint Distribution Limited Ordinary 100 Quilter Wealth Limited Ordinary 100 Blueprint Financial Services Limited Ordinary 100 Quilter Perimeter Holdings Limited Ordinary 100 Blueprint Organisation Limited Ordinary 100 Violet No.2 Limited Ordinary 100 Caerus Capital Group Limited Ordinary 100 Quilter House, Portland Terrace, Southampton, SO14 7EJ Caerus Holdings Limited Ordinary 100 IFA Services Holdings Company Limited Ordinary A 95 Caerus Wealth Limited Ordinary 100 Ordinary B 100 Caerus Wealth Solutions Limited Ordinary 100 Riverside House, The Waterfront, Newcastle upon Tyne, NE15 8NY Charles Derby Group Limited Ordinary 100 Quilter Financial Planning Solutions Limited Ordinary 100 Charles Derby Private Clients Limited Ordinary 100 Think Synergy Limited Ordinary 100 Charles Derby Wealth Management Limited Ordinary 100 C/O Teneo Restructuring Limited, 156 Great Charles Street, Queensway, Cheviot Capital (Nominees) Limited Ordinary 100 Birmingham, West Midlands, B3 3HN Charles Jacques Limited (in liquidation Falcon Financial Advice Limited Ordinary 100 since 4 October 2021) Ordinary 100 Forward Thinking Wealth Management Limited Ordinary 100 Commsale 2000 Limited (in liquidation | Lighthouse Advisory Services Limited Ordinary 100 | since 21 September 2022) Ordinary 100 | | --- | --- | | Lighthouse Benefits Limited Ordinary 100 | IFA Holding Company Limited (in liquidation | | Lighthouse Corporate Services Ltd Ordinary 100 | since 21 September 2022) Ordinary 100 | Intrinsic Cirilium Investment Company Limited Lighthouse Financial Advice Limited Ordinary 100 (in liquidation since 21 September 2022) Ordinary 100 Lighthouse Group Limited Ordinary 100 Premier Planning Limited (in liquidation Lighthouse Support Services Limited Ordinary 100 since 19 March 2018) Ordinary 100 Lighthouse Wealth Management Limited Ordinary 100 Prescient Financial Intelligence Limited LighthouseWealth Limited Ordinary 100 (in liquidation since 4 October 2021) Ordinary 100 The Falcon Group Limited (in liquidation LighthouseXpress Limited Ordinary 100 since 10 November 2022) Ordinary 100 Luceo Asset Management Limited Ordinary 100 C/O Addleshaw Goddard LLP, 19 Canning Street, Edinburgh, Scotland, EH3 8EH Quilter Perimeter Limited Ordinary 100 Financial Services Advice & Support Limited Ordinary 100 Quilter Perimeter (GGP) Limited Ordinary 100 Ireland Quilter Perimeter UK Limited Ordinary 100 Hambleden House, 19-26 Lower Pembroke Street, Dublin 2, D02 WV96 Quilpep Nominees Limited Ordinary 100 Pembroke Quilter (Ireland) Nominees Limited Ordinary 100 Quilter Cheviot Europe Limited Ordinary 100 Quilter Business Services Limited Ordinary 100 Isle of Man Quilter Cheviot Holdings Limited Ordinary 100 33-37 Athol Street, Douglas, IM1 1LB Quilter Cheviot Limited Ordinary 100 Quilter Perimeter (IOM) Limited Ordinary 100 Quilter CoSec Services Limited Ordinary 100 Third Floor, St George’s Court, Upper Hill Street, Douglas, IM1 1EE Quilter Financial Advisers Limited Ordinary 100 Quilter Insurance Company Limited Ordinary 100 Quilter Financial Limited Ordinary A 100 Jersey 3rd Floor, Windward House, La Route de la Liberation, St Helier, JE1 1QJ Quilter Financial Planning Limited Ordinary 100 C.I.P.M. Nominees Limited Ordinary 100 Quilter Financial Services Limited Ordinary 100 QGCI Nominees Limited Ordinary 100 Quilter Holdings Limited Ordinary 100 Quilter Cheviot International Limited Ordinary 100 Quilter Investment Platform Limited Ordinary 100 Germany Quilter Investment Platform Nominees Limited Ordinary 100 Wiesenhüttenstraße 11, 60329 Frankfurt am Main Quilter Investors Limited Ordinary 100 Old Mutual Europe GmbH (in liquidation 100 since 1 September 2022) Ordinary Quilter Investors Portfolio Management Limited Ordinary 100 Skandia Retail Europe Holding GmbH (in liquidation Quilter Life & Pensions Limited Ordinary 100 since 1 September 2022) Ordinary 100 Quilter Mortgage Planning Limited Ordinary 100 United Kingdom – associate Quilter Nominees Limited Ordinary 100 12-14 Upper Marlborough Road, St Albans, Hertfordshire, AL1 3UR Quilter Pension Trustees Limited Ordinary 100 360 Dot Net Limited Ordinary A 17.5 194 Quilter Annual Report 2022 ## Appendix For the year ended 31 December 2022 continued Strategic Report Governance Report Appendix A: Related undertakings continued Fund name Share class % Held Quilter Investors Emerging Markets Equity Growth Fund A 64 The Quilter Foundation (registered charity no. 1175555) is an independent Quilter Investors Emerging Markets Equity Growth Fund A 64 charity. The Quilter Foundation’s sole member, Quilter Holdings Limited Quilter Investors Emerging Markets Equity Income Fund A 63 appoints the trustees of the charity. Quilter Investors Europe (ex UK) Equity Fund A 60 Quilter Investors Europe (ex UK) Equity Growth Fund A 61 In addition, the following funds are consolidated and constitute related undertakings, as described in note 5(a). Quilter Investors Europe (ex UK) Equity Income Fund A 63 Quilter Investors Global Dynamic Equity Fund A 55 Some of the funds in the table below are subfunds of umbrella funds. The Quilter Investors Global Equity Absolute Return Fund A 62 following umbrella funds are operated or represented by Quilter entities: Quilter Investors Global Equity Value Fund A&B 64 Quilter Investors Balanced OEIC, Quilter Investors Charity Authorised Quilter Investors Investment Grade Corporate 50 Investment Funds, Quilter Investors Cirilium OEIC, Quilter Investors ICAV, Bond Fund A&B Quilter Investors Multi-Asset OEIC, Quilter Investors OEIC, Quilter Investors Quilter Investors Japanese Equity Fund A 60 Portfolio OEIC, Quilter Investors Series I and Quilter Investors Trust. Quilter Investors Monthly Income & Growth Portfolio A&B 46 Share Class Quilter Investors Monthly Income Portfolio A&B 46 A Accumulation Quilter Investors Natural Resources Equity Fund A 54 B Income Quilter Investors North American Equity Fund A 63 Quilter Investors Precious Metals Equity Fund A 59 Quilter Investors Sterling Corporate Bond Fund A&B 50 Fund name Share class % Held United Kingdom Quilter Investors Sterling Diversified Bond Fund A&B 59 Senator House, 85 Queen Victoria Street, London, EC4V 4AB Quilter Investors Timber Equity Fund A 64 Quilter Investors Absolute Return Bond Fund A 63 Quilter Investors UK Equity Fund A 62 Quilter Investors Asia Pacific (ex Japan) Equity Fund A 62 Quilter Investors UK Equity 2 Fund A 100 Quilter Investors Asia Pacific (ex Japan) Large-Cap Quilter Investors UK Equity Growth Fund A 55 Equity Fund A 59 Quilter Investors UK Equity Income Fund A 63 Financial statements Quilter Investors Asia Pacific Fund A 64 Quilter Investors UK Equity Large-Cap Income Fund A&B 57 Quilter Investors Bond 1 Fund B 63 Quilter Investors UK Equity Mid-Cap Growth Fund A 55 Quilter Investors Bond 3 Fund B 97 Quilter Investors UK Equity Opportunities Fund A 58 Quilter Investors Cirilium Adventurous Passive Portfolio A 45 Quilter Investors US Equity Growth Fund A 41 Quilter Investors Cirilium Adventurous Portfolio A 38 Quilter Investors US Equity Income Fund A 59 Quilter Investors Cirilium Balanced Passive Portfolio A 42 Quilter Investors US Equity Small/Mid-Cap Fund A 52 Quilter Investors Cirilium Conservative Passive Portfolio A 33 Quilter Investors Cirilium Conservative Portfolio A 32 Quilter Investors Cirilium Dynamic Passive Portfolio A 41 Quilter Investors Cirilium Moderate Passive Portfolio A 42 Quilter Investors Corporate Bond Fund A 60 Quilter Investors Creation Balanced Portfolio A 30 Other information Quilter Investors Creation Dynamic Portfolio A 31 Quilter Investors Creation Moderate Portfolio A 29 Quilter Investors Diversified Bond Fund A 60 Quilter Investors Emerging Markets Equity Fund A 64 Quilter Annual Report 2022 195 ## Company statement of financial position At 31 December 2022 | | 31 December | | 31 December | | | --- | --- | --- | --- | --- | | | | 2022 | | 2021 | | Notes | | £m | | £m | Assets | Investments in subsidiary undertakings | 4 2,150 2,130 | | --- | --- | | Loans and advances | 5 462 453 | | Deferred tax assets | 6 4 6 | Current tax assets 12 7 Other receivables and other assets 7 27 32 Cash and cash equivalents 8 126 503 Total assets 2,781 3,131 Equity and liabilities Equity Ordinary Share capital 115 116 Ordinary Share premium reserve 58 58 Capital redemption reserve 346 17 Merger reserve 9 1,359 1,687 Share -based payments reserve 41 42 Retained earnings (including profit/(loss) for the financial year of £81 million (2021: £319 million)) 637 966 Total equity 2,556 2,886 Liabilities | Provisions | 10 4 4 | | --- | --- | | Borrowings | 11 203 202 | | Other payables | 12 18 39 | Total liabilities 225 245 Total equity and liabilities 2,781 3,131 Approved by the Board of Quilter plc on 7 March 2023. Steven Levin Mark Satchel Chief Executive Officer Chief Financial Officer Company registered number: 06404270 196 Quilter Annual Report 2022 ## Company statement of changes in equity For the year ended 31 December 2022 Strategic Report Governance Report | | | | | | | | | | | | | | | | | | Share- | | | | | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Ordinary | | | Ordinary | | | | | | Capital | | | | | | | based | | | | | | share- | | | | Share | | | Share | | | | redemption | | | | Merger | | | payments | | | | Retained | | holders’ | | | | | capital | 4 | premium | | 4 | B shares | | | reserves | | 4 | reserve | | 4 | | reserve | | 4 | earnings | | | equity | | 31 December 2022 Note | | £m | | | £m | | | £m | | | £m | | | £m | | | | £m | | | £m | | £m | Balance at 1 January 2022 116 58 – 17 1,687 42 966 2,886 Profit for the year – – – – – – 81 81 Total comprehensive income – – – – – – 81 81 5 Dividends – – – – – – (78) (78) Ordinary Shares purchased in the 1 buyback programme (1) – – 1 – – – – 2 Issue of B shares – – 328 – (328) – – – 2 Redemption of B shares 9 – – (328) 328 – – (328) (328) 3 Exchange rate movement (ZAR/GBP) – – – – – – (4) (4) Equity share-based payments – – – – – (1) – (1) Total transactions with the owners of the Company (1) – – 329 (328) (1) (410) (411) Balance at 31 December 2022 115 58 – 346 1,359 41 637 2,556 | | | | | | | | | | | | | | Share- | | | | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Ordinary | | Ordinary | | | | | Capital | | | | | based | | | | | share- | | | | Share | | Share | | | redemption | | | Merger | | payments | | | Retained | | holders’ | | | | | capital | premium | | B shares | | | reserve | | reserve | | | reserve | | earnings | | | equity | | 31 December 2021 Note | | £m | | £m | | £m | | | £m | | £m | | | £m | | £m | | £m | Balance at 1 January 2021 125 58 – 8 1,811 42 816 2,860 Profit for the year – – – – – – 319 319 Total comprehensive income – – – – – – 319 319 Financial statements Dividends – – – – – – (89) (89) Release of merger reserve 9 – – – – (124) – 124 – Ordinary Shares purchased in the buyback 1 programme (9) – – 9 – – (204) (204) Total transactions with the owners of the Company (9) – – 9 (124) – (169) (293) Balance at 31 December 2021 116 58 – 17 1,687 42 966 2,886 1 On 11 March 2020, the Company announced a share buyback programme to purchase Ordinary Shares up to a maximum value of £375 million, in order to return the net surplus proceeds to shareholders arising from the sale of Quilter Life Assurance which had the impact of reducing the share capital of the Company. During the year ending 31 December 2022, the Company acquired 17.7 million shares (31 December 2021: 128.1 million) for a total consideration of £26 million (31 December 2021: £197 million) and incurred additional costs of £1 million (31 December 2021: £3 million). The shares, which have a nominal value of £1 million (31 December 2021: £9 million), were subsequently cancelled, giving rise to a capital redemption reserve of the same value as required by the Companies Act 2006. The share buyback was completed in January 2022. 2 On 9 March 2022, the Company announced a capital return of £328 million from the net surplus proceeds arising from the sale of Quilter International by way of a B Share Scheme accompanied by a Share Consolidation. Refer to note 4 on the consolidated financial statements for further details of the capital return and Share Consolidation. Following the issue and redemption of the B preference shares as part of the B Share Scheme, the Company transferred £328 million from retained earnings to the capital Other information redemption reserve, as required under the provisions of sections 688 and 733 of the Companies Act 2006, being an amount equal to the nominal value of the B shares redeemed in the year. The increase in the capital redemption reserve results from the UK company law requirement to maintain the Company’s capital when shares are redeemed out of the Company’s distributable profits. 3 The South African Rand value of the proposed capital return for shares registered on the Johannesburg Stock Exchange was set on 9 March 2022. The impact of exchange rate movements between the year-end Market Announcement on 9 March 2022 and the redemption of the B shares on 24 May 2022 on the pound sterling equivalent of payments to JSE shareholders in South African Rand is recognised directly in equity. Additionally, the impact of exchange rate movements between the announcement date of dividends payable and the payment date on the pound sterling equivalent of payments to JSE shareholders in South African Rand is recognised directly in equity. The Company held cash in South African Rand equal to the expected cash outflows and therefore was economically hedged for the outflows. 4 Please refer to the SOCIE of the Group financial statements for further information. 5 Details of dividends proposed and paid during the year are disclosed in the notes to the financial statements of the Group. Quilter Annual Report 2022 197 # Notes to the financial statements of the Company For the year ended 31 December 2022 ## 1: General information Quilter plc (the "Company") is a public limited company incorporated in England and Wales and domiciled in the United Kingdom with registration number 06404270. The Company's Registered Office is Senator House, 85 Queen Victoria Street, London EC4V 4AB. ## 2: Basis of preparation The financial statements of Quilter plc for the year ended 31 December 2022 have been prepared in accordance with Financial Reporting Standard 101, 'Reduced Disclosure Framework' ('FRS 101'). The financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of certain financial instruments which have been recognised at fair value through profit or loss, and in accordance with the Companies Act 2006. The accounting policies adopted are the same as those set out in note 1 to the Group financial statements with the exceptions noted below. These accounting policies have been applied consistently. ## First-time application of FRS 101 The Company has transitioned to FRS 101 for the first time in 2022 for the purposes of preparing the Parent Company financial statements. In the prior year, the Parent Company financial statements were prepared in accordance with international accounting standards. No material adjustments have been required to the prior year in respect of the change in reporting approach. The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in the critical accounting estimates and judgements section below. The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements, in accordance with FRS 101: - Paragraphs 45(b) and 46 to 52 of IFRS 2, 'Share-based payment' (details of the number and weighted average exercise prices of share options, and how the fair value of goods or services received was determined). - IFRS 7, 'Financial instruments: Disclosures'. - Paragraphs 91 to 99 of IFRS 13, 'Fair value measurement' (disclosure of valuation techniques and inputs used for fair value measurement of assets and liabilities). - Paragraph 38 of IAS 1, 'Presentation of financial statements' – comparative information requirements in respect of: - paragraph 79(a)(iv) of IAS 1 (reconciliation of shares outstanding); - paragraph 73(d) of IAS 16, 'Property, plant and equipment' (reconciliation of carrying amount); and - paragraph 118(e) of IAS 38, 'Intangible assets' (reconciliations between the carrying amount at the beginning and end of the period). - The following paragraphs of IAS 1, 'Presentation of financial statements': - 10(d) (statement of cash flows); - 16 (statement of compliance with all IFRS); - 38A (requirement for minimum of two primary statements, including cash flow statements); - 388.0 (additional comparative information); - 111 (statement of cash flows information); and - 134-136 (capital management disclosures). - IAS 7, 'Statement of cash flows'. - Paragraphs 30 and 31 of IAS 8, 'Accounting policies, changes in accounting estimates and errors' (requirement for the disclosure of information when an entity has not applied a new IFRS that has been issued but is not yet effective). - Paragraph 17 of IAS 24, 'Related party disclosures' (key management compensation). - The requirements in IAS 24, 'Related party disclosures', to disclose related party transactions entered into between two or more members of a group. - The requirements of the second sentence of paragraph 110 and paragraphs 118, 119(a) to (c), 120 to 127 and 129 of IFRS 15 Revenue from Contracts with Customers. The Company has taken advantage of the exemption in section 40B of the Companies Act 2006 not to present its own income statement in these financial statements. ## Critical accounting estimates and judgements The preparation of financial statements requires management to exercise judgement in applying accounting policies and make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. Critical accounting estimates and judgements are those that involve the most complex or subjective assessments and assumptions. Management uses its knowledge of current facts and circumstances and applies estimation and assumption setting techniques that are aligned with relevant accounting guidance to make predictions about future actions and events. Actual results may differ significantly from those estimates. 198 Quilter Annual Report 2022 ## Notes to the financial statements of the Company For the year ended 31 December 2022 continued Strategic Report Governance Report 2: Basis of preparation continued Critical accounting estimates and judgements continued The areas where judgements and estimates have the most significant effect on the amounts recognised in these financial statements are summarised below: Area Critical accounting judgements Note Investments in subsidiaries – Management has applied judgement in its impairment assessment in respect of determining the 4 measurement cash-generating unit (“CGU”), which is the level at which largely independent cash inflows occur. The Company’s investments in Quilter Holdings Limited and Quilter Investors Limited each contain cash flows generated from within the Affluent segment and management has taken the judgement that aggregating cash flows from these investments represents the lowest level at which largely independent cash inflows are generated. Other principal estimates The Company’s assessment of its investment in subsidiaries for impairment uses the latest cash flow forecasts from the Group’s three-year Business Plan to calculate the recoverable value of its trading subsidiaries. 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 14 of the Group financial statements). Management does not believe that the use of these estimates has a significant risk of causing a material adjustment to the carrying amount of the assets within the next financial year. 3: Capital and financial risk management The material risks faced by the Company are described below. 3(a): Operational risk Operational risk is the risk of loss arising from inadequate or failed internal processes, or from personnel and systems, or from external events, resulting in an adverse impact to earnings or reduced solvency. Operational risk includes all risks resulting from operational activities, excluding the risks detailed below and excluding strategic risks and risks resulting from being part of a wider group of companies. Financial statements Operational risk includes the effects of failure of administration processes, IT and Information Security maintenance and development processes, people and HR processes, legal risks, poorly managed responses to regulatory change, change and physical and certain transitional financial risks arising from climate change, risks relating to the relationship with third-party suppliers and outsourcers, and the consequences of financial crime and business interruption events. 3(b): 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 Company is exposed to credit and counterparty risk primarily arising from the investment of its shareholder funds. Sources of credit risk are managed in line with the requirements of the Credit Risk Policy that ensures cash is placed with highly rated counterparties and is appropriately diversified. Credit risk exposures of the Company are monitored regularly to ensure that counterparties remain creditworthy, that there is appropriate diversification of counterparties and that exposures are within approved limits. Other information 3(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 business depending on the types of financial assets and liabilities held. The Company recognises that climate change can contribute to market risk. The Company is subject to material risk in the following areas: Interest rate risk Interest rate risk is defined as the risk of a deviation of the actual interest rates from the expected interest rates, resulting in the potential for a negative impact on earnings or capital and/or reduced solvency. An exposure exists as a result of four intercompany loans (see note 5) that are linked to an underlying variable interest rate, and so the value of these interest payments will vary if the underlying interest rate changes. The Company also has subordinated debt (see note 11) that has a fixed interest rate, where the present value of the loan would vary in the event of a change in interest rates. Note 15 contains information on changes to debt financing after the reporting date. 3(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. TheCompany manages liquidity on a daily basis through maintaining adequate high-quality liquidity assets and banking facilities, regularly monitoring forecast and actual cash flows, matching the maturity profiles of financial assets and liabilities and monitoring a number of key risk indicators to help in the identification of a liquidity stress. The Company maintains and manages its local liquidity requirements according to its business needs, within the overall liquidity framework established by the Company. Quilter Annual Report 2022 199 ## Notes to the financial statements of the Company For the year ended 31 December 2022 continued 3: Capital and financial risk management continued 3(e): Sensitivity tests Sensitivity analysis has been performed by applying the following parameters to the statement of financial position and income statement as at the reporting date. Interest rate sensitivity The impact of an increase and decrease in market interest rate of 1% is assessed (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). A decrease in interest rate of 1% would have decreased profit and shareholders’ equity by £4 million (2021: increase £1 million) after tax; an equal change in the opposite direction would have increased profit by £4 million (2021: increase £6 million) after tax. 4: Investments in subsidiary undertakings Investments in subsidiaries are stated at cost, less impairment in value. All shares held are Ordinary Shares. | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £m | | £m | Balance at the beginning of the year 2,130 2,254 Investment in subsidiary undertaking in relation to share-based payments (1) – Reversal of impairment/(impairment) of subsidiary undertakings 21 (124) Balance at the end of the year 2,150 2,130 Investment in subsidiary undertakings in relation to share-based payments Quilter plc grants rights to its equity instruments to employees of its subsidiaries under various share-based payment arrangements. In so doing, the subsidiaries receive services from employees that are paid for by Quilter plc, thereby increasing/(decreasing) the investment that Quilter plc holds in those subsidiaries. Quilter plc recognises the equity-settled share-based payment in equity, with a corresponding increase/(decrease) in its investment in the subsidiaries. The amount recognised as an additional investment is based on the grant date fair value of the share options granted, and is recognised by Quilter plc over the vesting period of the respective share schemes. A decrease to the investment in subsidiary undertakings is recognised when each share award vests, and shares are delivered to the employees. During 2022, the Company marginally decreased its investments in subsidiaries in relation to share-based payments as listed below. In 2021, its investments in relation to share-based payments marginally increased. | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £m | | £m | Quilter Business Services Limited (2) – Quilter Cheviot Limited – 2 Quilter Financial Planning Limited – (2) Quilter Investors Limited – 1 Other subsidiaries 1 (1) Total investments in subsidiaries (1) – Impairments of investments in subsidiary undertakings In accordance with the requirements of IAS 36 Impairment of Assets, the investments in subsidiaries are tested annually for impairment by comparing the carrying value of the underlying investments to the recoverable value, being the higher of the 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. On 31 December 2021, the Company received a dividend from its subsidiary, Quilter Perimeter Holdings Limited. This resulted in a reduction in the net asset value of Quilter Perimeter Holdings Limited and gave rise to an impairment of £124 million of the Company’s investment in Quilter Perimeter Holdings Limited. 2022 impairment to investment in subsidiary During 2022, the net asset value of Quilter Perimeter Holdings Limited and its subsidiaries increased, leading to the partial reversal of a previous impairment, of £21 million. The Company does not consider the £21 million arising on reversal of impairment to be distributable. 200 Quilter Annual Report 2022 ## Notes to the financial statements of the Company For the year ended 31 December 2022 continued Strategic Report Governance Report 5: Loans and advances This note analyses the loans and advances the Company has made. The carrying amounts of loans and advances were as follows: | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £m | | £m | Loans to subsidiary undertakings 462 453 Total net loans and advances 462 453 All loans are held at amortised cost and repayable on demand. The loans to subsidiary undertakings are with Quilter Holdings Limited and are charged at base rate plus 0.5% and 10%, Quilter Perimeter Holdings Limited, which is charged at base rate plus 0.5%, and the Employee Benefit Trust, which attracts no interest. Given the profitability and net assets of these subsidiaries, the credit risk associated with these loans is considered minimal. There have been no non-performing loans, loans subject to renegotiations or material impairments on loans and advances recognised in the financial year. 6: Deferred tax assets/liabilities The following are the deferred tax balances recognised by the Company and the movements thereon, during the current and prior year. Closing deferred Tax losses tax asset £m £m Assets/(liabilities) at 1 January 2021 – – Income statement (charge)/credit 6 6 Assets/(liabilities) at 31 December 2021 6 6 Income statement (charge)/credit (2) (2) Assets/(liabilities) at 31 December 2022 4 4 Deferred tax assets or liabilities are recognised to the extent that temporary differences are expected to reverse in the foreseeable future. The timing of reversals are estimated based on the Company’s annual Business Plan. Deferred tax assets are recognised to the extent that they are supported by the Company’s Business Plan or where appropriate the Group’s Business Plan. Financial statements Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable, being where, on the basis of all available evidence, it is considered more likely than not that there will be suitable taxable profits against which the reversal of the deferred tax asset can be deducted. Sensitivity analysis demonstrates headroom in the recoverable amount of the deferred tax asset over the taxable profits contained within the three-year planning horizon. The impacts of a 20% decrease in profitability have been assessed and do not give rise to concerns over recoverability. Sensitivity analysis shows a 20% reduction in Group future taxable profits will necessitate a £3 million write down in the value of the current deferred tax asset. The main rate of Corporation Tax is 19% for the financial year 2022. The rate will increase to 25% with effect from 1 April 2023. This change having been substantively enacted has been used in recognising the Company’s deferred tax assets and liabilities for reversals expected to take place on or after 1April 2023. Other information Unrecognised deferred tax assets The amounts for which no deferred tax asset has been recognised comprises: 31 December 2022 31 December 2021 Gross amount Tax Gross amount Tax £m £m £m £m Pre-April 2017 UK tax losses 16 4 16 4 Post-April 2017 UK tax losses 67 17 57 14 Total unrecognised deferred tax assets 83 21 73 18 A deferred tax asset has not been recognised as there is sufficient uncertainty to the extent it is probable there will be future taxable profits to utilise the relevant losses. Unrecognised losses are available to carry forward with no expiry date, subject only to the continuation of the business. Quilter Annual Report 2022 201 ## Notes to the financial statements of the Company For the year ended 31 December 2022 continued 7: Other receivables and other assets The note analyses total other receivables and other assets. | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £m | | £m | Due from subsidiary undertakings 27 32 Total other receivables and other assets 27 32 All amounts due from Group companies are unsecured, interest-free and settled on demand. The Directors consider that the carrying amount of other receivables approximate their fair value. 8: Cash and cash equivalents | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £m | | £m | Cash at bank 11 21 Money market funds 115 482 Total cash and cash equivalents per the statement of financial position 126 503 All cash and cash equivalents are current, and recognised at amortised cost, apart from money market investments which are recognised mandatorily at FV TPL. Investments in money market funds are classified as cash and cash equivalents. Management holds these investment funds for short-term liquidity purposes. The funds are highly liquid, have a strong credit rating and a very low risk of reduction in value. 9: Merger reserve 2021 Merger reserve On 31 December 2021, there was a dividend payment made from Quilter Perimeter Holdings Limited to the Company. This reduced the net asset value of Quilter Perimeter Holdings Limited, giving rise to a £124 million impairment in the Company’s investment in its subsidiary, and an associated release of the merger reserve. 2022 Merger reserve On 9 March 2022, the Company announced a capital return of £328 million from the net surplus proceeds arising from the sale of Quilter International, by way of a B Share Scheme accompanied by a Share Consolidation. Note 4 on the consolidated financial statements contains further information on the capital return. These transactions attracted merger relief under section 612 of the Companies Act 2006. 10: Provisions | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £m | | £m | Balance at beginning of the year 4 7 Jupiter guarantee of revenue payment – (2) Reassessment of provision – (1) Total provisions 4 4 Revenue warranty in relation to the sale of the Single Strategy Asset Management business In 2018, a restructuring provision was recognised as a result of the sale of the Single Strategy Asset Management business (now known as Jupiter Investment Management (“Jupiter”)) to enable the remaining Quilter Investors business to function as a standalone operation going forward. The remaining provision relates 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. The balance decreased to £4 million during 2021 as a result of the settlement of £2 million related to the 2020 measurement year. The balance has been adjusted for the final calculations relating to the 2021 measurement year and for the latest estimate for the 2022 measurement year. The expected range of payments based upon the latest information received from Jupiter and the Group’s reasonable expectations of the assets under management invested within Jupiter funds during the 2022 assessment period is between £4 million and £5 million. The provision outstanding is estimated to be payable within one year, with expected final settlement due in the first half of 2023. 202 Quilter Annual Report 2022 ## Notes to the financial statements of the Company For the year ended 31 December 2022 continued Strategic Report Governance Report 11: Borrowings | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £m | | £m | Subordinated debt 1 Subordinated loan at 4.478% 200 199 Funding – intercompany payables 3 3 Total borrowings 203 202 1 Commenced on 28 February 2018 and used for general corporate purposes. Amounts borrowed are held at amortised cost. On 28 February 2018, the Company issued a £200 million subordinated debt security in the form of a 10-year Tier 2 bond with a one-time issuer call option after five years to J.P. Morgan Securities plc, paying a semi-annual coupon of 4.478% (the “Tier 2 Bond”). The bond is held at amortised cost of £200 million at 31 December 2022 (2021: £199 million). The bond was remarketed and sold to the secondary market in full on 13 April 2018. The Bond was listed and regulated under the terms of the London Stock Exchange. Note 40 to the Group financial statements contains information on changes to debt financing after the reporting date. In addition, the Company has entered into a £125 million revolving credit facility which remains undrawn and is being held for contingent funding purposes across the Group. 12: Other payables | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2022 | | 2021 | | | £m | | £m | Due to subsidiary undertakings 15 9 Accruals 3 30 Financial statements Total other payables 18 39 In 2021, other payables included an accrual for committed share purchases to complete the final tranche of the share buyback programme of £26 million; the tranche completed in January 2022. All amounts are current and short term i.e. repayable within one year. Amounts due to subsidiary undertakings are unsecured, repayable on demand and usually settled quarterly. 13: Related party transactions Key management personnel transactions Key management personnel and members of their close family have undertaken transactions with the Group in the normal course of business. The Directors and key management personnel of the Company are considered to be the same as for the Group. See note 39 of the Group financial Other information statements for further information. Other related party transactions There were no other related party transactions to disclose in the year ended 31 December 2022 and 31 December 2021 other than those referenced in note 39 of the Group financial statements. 14: Loan covenants Under the terms of the revolving credit facility, the Company is required to comply with certain financial covenants. Please refer to note 37(a) to the Group financial statements for further information. Quilter Annual Report 2022 203 ## Other information Contents 205 Shareholder information 209 Alternative Performance Measures 212 Glossary 204 Quilter Annual Report 2022 # Shareholder information ## Information for all shareholders ### 2023 key dates The key dates for shareholders are: | 18 April 2023 | Last day for shares to trade cum dividend in South Africa | | --- | --- | | 19 April 2023 | Shares start trading ex-dividend in South Africa | | 20 April 2023 | Shares start trading ex-dividend in the UK | | 21 April 2023 | Final Dividend record date – shareholders on the register are eligible for the Final Dividend | | 18 May 2023 | AGM at 11.00am (UK time) | | 22 May 2023 | Final Dividend payment date | | 8 August 2023 | Publication of 2023 half year results, including any interim Dividend details | Dates may be subject to change. Please check our website at plc.quilter.com for further information. ### Dividends #### Dividend information This year the Directors are recommending the payment of a final Dividend of 3.3 pence per share. #### Dividend policy The Quilter Board targets a dividend pay-out ratio of 50% to 70% of post-tax, post-interest adjusted profit. We expect to pay an interim and a Final Dividend each financial year. It is expected that the Final and Interim Dividends will be paid in the approximate proportions of one-third (Interim dividend) and two-thirds (Final Dividend) of the total dividends payable in respect of a financial year, taking into account the underlying cash generation, cash resources, capital position, distributable reserves and market conditions at the time. All key dividend dates such as ex-dividend date, record date and payment date will be published on our website as soon as they are announced. ## Dividends paid by cheque – shareholders on the UK share register Quilter only pays dividends to shareholders on the UK share register by direct credit. We stopped paying dividend payments by cheque in September 2022. Paying dividends by direct credit straight into your bank or building society account rather than by cheque is a safer, quicker and easier way for shareholders to receive their dividends while the reduction in printing, paper and postage supports our environmental objectives. There is no fee charged by Quilter or our Registrar, Equiniti, for the direct credit service. If you have not yet provided your bank details, it is important that you take action as soon as possible so that you continue to receive your dividend payments. You can do this: ### Online You can provide and maintain your UK bank or building society account details via Shareview. Please visit www.shareview.co.uk for details on how to register. ### Telephone You can provide your UK bank or building society account details by telephoning Equiniti. ### Post You can download a Bank Mandate Form from plc.quilter.com. Alternatively, please telephone Equiniti using the contact details on page 208 and they will send a form to you for completion. If you have any questions, please contact Equiniti using the contact details on page 208. Strategic Report Governance Report Financial statements Other information ## Return of Capital to shareholders following the sale of Quilter International Following approval by shareholders at a General Meeting held on Thursday 12 May 2022, Quilter returned £328 million of the net proceeds arising from the sale of Quilter International to shareholders by way of a B Share Scheme and Share Consolidation. The B Share Scheme was implemented through the issue of new redeemable B shares to shareholders on Monday 23 May 2022, which Quilter subsequently redeemed for cash on Tuesday 24 May 2022. Through the B Share Scheme, shareholders on our UK share register received 20 pence per old Ordinary Share. This equated to a return of 401.33300 South African cents per old Ordinary Share for shareholders on our South African share register, using an exchange rate of 20.06665 South African cents to one pence, the average rate achieved on 7 and 8 March 2022. The Share Consolidation completed on Monday 23 May 2022 and resulted in each shareholder receiving six new Ordinary Shares of 8 1/6 pence each for every seven old Ordinary Shares of 7 pence each that they held on the record date of Friday 20 May 2022. If you have not received your B Share Scheme payment or your new share certificate following the Share Consolidation, please contact Equiniti using the contact details on page 208. ### Donation to The Quilter Foundation **£102,000** donated on behalf of shareholders The fractional share entitlements arising from the Share Consolidation were aggregated and sold in the market on behalf of shareholders. As the proceeds from the sale of any fractional entitlement were less than £3.00 per shareholder, the Board decided to donate the aggregated proceeds to The Quilter Foundation. More information on The Quilter Foundation and its impact, achievements and focus can be found on our website at plc.quilter.com. Quilter Annual Report 2022 205 Shareholder information continued Asking a question ## Quilter 2023 AGM You can, if you wish, submit any questions you may have on the business of the meeting to the Board ahead of the AGM by emailing AGM key dates the Company Secretary at companysecretary@quilter.com by The key AGM dates for shareholders are: 5:00pm (UK time) on Friday 12 May 2023. If you do not plan to attend the AGM in person, this will enable you to have your 12 May 2023 Written shareholder questions to be questions answered before you vote your shares. The questions By no later than 5:00pm received by the Company Secretary and answers will be published on our GM Hub at plc.quilter.com/gm (UK time) in advance of the voting deadline. If you submit a question after this 16 May 2023 Proxy Forms to be received by our time, we will respond to you as soon as possible. By no later than 11:00am Registrar* and requests to join the (UK time) AGM by telephone to be received If you attend the AGM in person or join the meeting by telephone, by the Company Secretary you will also have the opportunity to ask a question on the day. 18 May 2023 AGM to be held 11:00am (UK time) Joining the meeting by telephone *Voting deadlines may vary depending on how you hold your shares. If you hold Shareholders can join the meeting by telephone. You will be able your shares via a CSDP, broker or nominee, please contact them to confirm their voting deadline. to listen to the meeting and also have the opportunity to ask the Board any questions relating to the business of the meeting. Please More information about your AGM note that shareholders joining by telephone will not be able to vote Our Company Secretary, Clare Barrett, sets out information on on the day. We recommend that shareholders appoint the Chair of the AGM arrangements and how you can have your say in more the meeting as their proxy and register a voting instruction ahead detail on pages 4 and 5 of the 2023 Notice of AGM. of the meeting. How to join the AGM by telephone Attending the AGM If you would like to join the AGM by telephone, We are pleased to invite you to Quilter plc’s 2023 AGM to be held please contact the Company Secretary at at 11:00am (UK time) on Thursday 18 May 2023 at Senator House, companysecretary@quilter.com to request your 85 Queen Victoria Street, London EC4V 4AB. We look forward to individual secure dial in details. Requests must be welcoming you to our meeting and value the opportunity to engage received no later than 11:00am (UK time) on with our shareholders to review our performance and to answer Tuesday 16 May 2023. The telephone line will open shortly questions on the business of the meeting. before 11:00am (UK time) on the day of the meeting. St Paul’s Voting results and AGM information available Princes Street to shareholders Cheapside St Paul’s Cathedral The final voting results are expected to be released to the St Paul’s Churchyard London Stock Exchange and Johannesburg Stock Exchange on Thursday 18 May 2023 as soon as practical after the AGM and will Cannon Street Bank Mansion House be published on our GM Hub at plc.quilter.com/gm. We will also A201 Queen Victoria Street make available the Chair’s statement. Please ensure you check the GM Hub regularly for up to date information about our Blackfriars Senator House City of London School Upper Thames Street Cannon AGM arrangements. Street River Thames Blackfriars Bridge Millennium Bridge Tate Modern Southwark Bridge Shakespeare’s Globe How to get there Senator House is within walking distance of the following train and underground stations: · Bank (Central, DLR, Northern and Waterloo & City lines) · Blackfriars (Southeastern Railway, Thameslink and Circle and District lines) · Cannon Street (Southeastern Railway and Circle and District lines) · Mansion House (Circle and District lines) · St Paul’s (Central line) The venue can also be accessed via bus routes 4, 11, 15, 17, 26, 76, 388 and 521. 206 Quilter Annual Report 2022 Shareholder information continued ## Information for UK shareholders ### Managing your shares and staying in touch You do not have to receive paper shareholder documentation. Many shareholders choose to receive their communications electronically. Equiniti provide a free, convenient online service, Shareview, where you can access your shareholding quickly and easily. If you have not already done so, you can register for Shareview by visiting www.shareview.co.uk. All you need is your Quilter Shareholder Reference Number, which can be found on your share certificate or dividend confirmation. We will email you a notification when any shareholder statements are available and when we announce our full and half year results. You can also use Shareview to submit a voting instruction for any general meetings and to find out when any dividends are due. ### Keeping your personal information up to date It is important that you keep the personal information we hold up to date. That way correspondence advising you of any changes that might affect your shareholding reaches you and any dividends are paid to you promptly. You can do this online at www.shareview.co.uk, via the Quilter Shareholder Helpline or by post. Contact details are overleaf. ### Fraud warning Shareholders should be wary of any unsolicited calls or documents offering unsolicited investment advice and offers to buy shares at a discounted price. Fraudsters can use persuasive and high-pressure tactics to lure shareholders into scams. You are advised not to give out any personal details or to hand over any money without ensuring that the organisation is authorised by the UK Financial Conduct Authority ("FCA") and doing further research. If you are unsure, or think you may have been targeted, you should report the organisation to the FCA using the share fraud reporting form available at www.fca.org.uk/scams. You can also report suspected share fraud through the FCA Helpline on +44 (0)800 111 6766 or through Action Fraud on +44 (0)800 123 2442. ## Useful information ### Quilter plc share register Quilter plc listed on the London and Johannesburg Stock Exchanges on 25 June 2018. Quilter plc has a premium listing on the London Stock Exchange and a secondary listing on the Johannesburg Stock Exchange. The shares track under the QLT ticker. ### New Ordinary Shares nominal value Following the Share Consolidation, which was implemented on Monday 23 May 2022, each shareholder received six new Ordinary Shares of 8 1/6 pence each for every seven old Ordinary Shares of 7 pence each that they held on the record date of Friday 20 May 2022. The nominal value of the new Ordinary Shares is 8 1/6 pence each. ### Historical shareholder information If you had shares in Old Mutual plc and have any questions about your holding or any undlaimed dividends, you should contact our Registrars using the contact details on page 208. Please have your Shareholder Reference Number to hand. ## Information for African shareholders ### Managing your shares and staying in touch You can go online to manage your shareholding at https://investorcentre.jseinvestorservices.co.za. This enables you to view your holding, check your dividend history and update how you want us to communicate with you. Quilter would like to send you information about your shares by text message or email. We will text you a notification when your biannual shareholder statement is available, when we announce our results, when you can vote at any general meetings, and when any dividends are due. If you have not already done so, you can quickly and easily register your mobile phone and email address with us as follows: ### Online Go to https://investorcentre.jseinvestorservices.co.za and register for electronic communications by following the instructions on screen. All you need is your postcode and Shareholder Reference Number which can be found on your share certificate. ### By email Write to investor@jseinvestorservices.co.za. Please include your email address and mobile phone number and state that these should be used for all future communications. ### By telephone Call your Quilter Shareholder Helpline number provided overleaf and ask for your email and mobile number to be recorded. ### Dividends For your security, Quilter will only pay your dividends to the bank account currently registered with our Registrar, JSE Investor Services. To register your bank details please contact JSE Investor Services using the contact details overleaf. ### Dividend currency All dividends will be declared in pounds sterling for shareholders on the UK register and Rand for shareholders on the South African register. The foreign exchange rate is determined the day before the Directors declare the dividend. ### Did you know? You do not need to hold a paper share certificate. By holding your shares electronically you can buy and sell shares more easily and protect your holding to help prevent fraud. You can find out more by contacting JSE Investor Services using the contact details overleaf. Strategic Report Governance Report Financial statements Other information Quilter Annual Report 2022 207 Shareholder information continued # Contact information Contact our UK Registrar, Equiniti If you have a question about your shareholding, please contact Equiniti. Post Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA Online https://help.shareview.co.uk Telephone +44 (0)333 207 5953* *Lines are open Monday to Friday between 08:30 and 17:30 (UK time), excluding public holidays in England and Wales. Contact our African Registrars Shareholders on the South Africa Register Post JSE Investor Services (Pty) Limited PO Box 10462, Johannesburg, 2000, South Africa Email investorenquiries@jseinvestorservices.co.za Telephone 086 140 0110/086 154 6566 (calling from South Africa) +27 11 029 0251/+27 11 715 3000 (calling from overseas) Shareholders in Namibia Post Transfer Secretaries (PTY) Limited PO Box 2401 Windhoek, Namibia Email ts@nsx.com.na Telephone +264 (0)61 227 647 Shareholders in Malawi Post National Bank of Malawi plc Legal Department PO Box 945 Blantyre, Malawi Email legal@natbankmw.com Telephone +265 (0)182 0622/+265 (0)182 0054 Shareholders in Zimbabwe Post Corpserve Registrars (PVT) Ltd PO Box 2208 Harare, Zimbabwe Email corpserve@escrowgroup.org Telephone +263 (0)242 751 559/+263 (0)242 751 561 208 Quaker Annual Report 2022 ## Alternative Performance Measures Strategic Report Governance Report Financial statements We assess our financial performance using a variety of alternative performance measures (“APMs”). APMs are not defined under IFRS, but we use them to provide further insight into the financial performance, financial position and cash flows of the Group and the way it is managed. APMs should be read together with the Group’s consolidated financial statements, which include the Group’s income statement, statement of financial position and statement of cash flows, which are presented on pages 121 to 125. Further details of APMs used by the Group in its Financial review are provided below. APM Definition Adjusted profit before tax Adjusted profit before tax represents the Group’s IFRS profit, adjusted for specific items that management consider to be outside of the Group’s normal operations or one-off in nature, as detailed on page 142 in the consolidated financial statements. The exclusion of certain adjusting items may result in adjusted profit before tax being materially higher or lower than the IFRS profit after tax. Adjusted profit before tax does not provide a complete picture of the Group’s financial performance, which is disclosed in the IFRS income statement, but is instead intended to provide additional comparability and understanding of the financial results. Adjusted profit before tax is presented for the continuing Group (excluding Quilter International), for discontinued operations (Quilter International), and for the total Group for continuing and discontinued operations. A detailed reconciliation of the adjusted profit before tax metrics presented, and how these reconcile to IFRS, is provided on page 40 of the Financial review. Adjusted profit before tax is referred to throughout the Chief Executive Officer’s statement and Financial review, with comparison to the prior year explained on page 37. A reconciliation from each line item on the IFRS income statement to adjusted profit before tax is provided in note 7(d) to the consolidated financial statements on page 145. Adjusted profit after tax Adjusted profit after tax represents the post-tax equivalent of the adjusted profit before tax measure, as defined above. Adjusted profit before tax Adjusted profit before tax after reallocation reflects adjusted profit before tax including certain costs after reallocation within continuing operations relating to Quilter International that did not transfer to Utmost Group on completion of the sale, as detailed above. A reconciliation from each line item on the IFRS income statement to adjusted profit before tax after reallocation is provided in note 7(d) to the consolidated financial statements on page 145. IFRS profit before tax IFRS profit before tax attributable to equity holders represents the profit after policyholder tax (‘tax attributable to equity attributable to policyholder returns’) but before shareholder tax (‘tax attributable to equity holders’). holders Other information The tax charge for the Group’s UK life insurance entity, Quilter Life & Pensions Limited, comprises policyholder tax and shareholder tax. Policyholder tax is regarded economically as a pre-tax cost to the Group, in that it is based on the return on assets held by the Group’s life insurance entity to match against related unit-linked liabilities in respect of clients’ policies, and for which the Company charges fees to clients. As such, policyholder tax can be a charge or credit in any period depending on underlying market movements on those assets held to cover linked liabilities. Shareholder tax is the remaining tax after deducting policyholder tax and is more reflective of the profitability of the entity. This metric is included on the face of the Group’s income statement on page 40 and is included in the adjusted profit before tax to IFRS profit after tax reconciliation in note 7(a) to the consolidated financial statements. 209Quilter Annual Report 2022 Alternative Performance Measures continued APM Definition IFRS profit before tax from This profit metric is calculated using the Group’s IFRS profit before tax, from continuing operations continuing operations and is adjusted to exclude amortisation of intangible assets, policyholder tax adjustments, business (excluding amortisation, disposal impacts and other one-off items as disclosed in the reconciliation in the Group’s Annual policyholder tax Report. This metric is used as the basis for remuneration, which is explained in the Remuneration adjustments, business report in the Group’s Annual Report. disposal impacts and other one-off items) Revenue margin (bps) Revenue margin represents net management fees, divided by average AuMA. Management use this APM as it represents the Group’s ability to earn revenue from AuMA. Revenue margin by segment and for the Group is explained on page 37 of the Financial review. Operating margin Operating margin represents adjusted profit before tax divided by total net fee revenue. Management use this APM as this is an efficiency measure that reflects the percentage of total net fee revenue that becomes adjusted profit before tax. Operating margin is referred to in the Chief Executive Officer’s statement and Financial review, with comparison to the prior year explained in the adjusted profit section on page 37. Gross flows Gross flows are the gross client cash inflows received from customers during the period and represent our ability to increase AuMA and revenue. Gross flows are referred to in the Financial review on page 36. Net flows Net flows is the difference between money received from and returned to customers during the relevant period for the Group or for the business indicated. This measure is a lead indicator of total net fee revenue. Net flows is referred to throughout this document, with a separate section in the Financial review on page 36. Assets under AuMA represents the total market value of all financial assets managed and administered on behalf Management and of customers. Administration (“AuMA”) AuMA is referred to throughout this document, with a separate section in the Financial review on page 37. Average AuMA Average AuMA represents the average total market value of all financial assets managed and administered on behalf of customers. Average AuMA is calculated using a 7-point average (half year) and 13-point average (full year) of monthly closing AuMA. Total net fee revenue Total net fee revenue represents revenue earned from net management fees and other revenue listed below and is a key input into the Group’s operating margin. Further information on total net fee revenue is provided on page 38 of the Financial review and note 7(d) in the consolidated financial statements. Net management fees Net management fees consist of revenue generated from AuMA, fixed fee revenues including charges for policyholder tax contributions, less trail commissions payable. Net management fees are presented net of trail commission payable as trail commission is a variable cost directly linked to revenue, which is a treatment and presentation commonly used across our industry. Net management fees are a part of total net fee revenue and is a key input into the Group’s operating margin. Further information on net management fees is provided on page 38 and note 7(d) in the consolidated financial statements. Other revenue Other revenue represents revenue not directly linked to AuMA (e.g. encashment charges, closed book unit-linked policies, non-linked Protect policies, adviser initial fees and adviser fees linked to AuMA in Quilter Financial Planning (recurring fees). Other revenue is a part of total net fee revenue, which is included in the calculation of the Group’s operating margin. Further information on other revenue is provided on page 38 and note 7(d) in the consolidated financial statements. 210 Quilter Annual Report 2022 Alternative Performance Measures continued Strategic Report Governance Report Financial statements APM Definition Operating expenses Operating expenses represent the costs for the Group, which are incurred to earn total net fee revenue and excludes the impact of specific items that management considers to be outside of the Group’s normal operations or one-off in nature. Operating expenses are included in the calculation of adjusted profit before tax and impact the Group’s operating margin. A reconciliation of operating expenses to the applicable IFRS line items is included in note 7(a) to the consolidated financial statements, and the adjusting items excluded from operating expenses are explained in note 7(b). Operating expenses are explained on page 38 of the Financial review. Cash generation Cash generation is calculated by removing non-cash generative items from adjusted profit before tax, such as deferrals required under IFRS to spread fee income and acquisition costs over the lives of the underlying contracts with customers. It is stated after deducting an allowance for net cash required to support the capital requirements generated by new business offset by a release of capital from the in-force book. Cash generation is explained on page 41 of the Financial review. Asset retention The asset retention rate measures our ability to retain assets from delivering good customer outcomes and investment performance. Asset retention reflects the annualised gross outflows of the AuMA during the period as a percentage of opening AuMA. Asset retention is calculated as: 1 - (annualised gross outflow divided by opening AuMA). Asset retention is provided for the Group on page 37. Net inflows/opening This measure is calculated as total net flows annualised (as described above) divided by opening AuMA AuMA presented as a percentage. This metric is provided on page 37. Gross flows per adviser Gross flows per adviser is a measure of the value created by our Quilter distribution channel and is an indicator of the success of our multi-channel business model. Gross flows per adviser is calculated as gross flows generated by the Quilter channel through the Quilter Investment Platform, Quilter Investors or Quilter Cheviot (annualised) per average Restricted Financial Planner in both segments. Gross flows per adviser is provided on page 37. Return on Equity (“RoE”) Return on equity calculates how many pounds of profit the Group generates from continuing operations with each pound of shareholder equity. This measure is calculated as adjusted profit after tax divided by average equity. Equity is adjusted for the impact of discontinued operations, if applicable. Return on equity is provided on page 37. Adjusted diluted Adjusted diluted earnings per share represents the adjusted profit earnings per share, calculated Other information earnings per share as adjusted profit after tax divided by the weighted average number of shares. Refer to page 155 and note 12 in the consolidated financial statements. A continuing and discontinued view of diluted earnings per share has also been presented, and the calculation of all EPS metrics, is shown in note 12 to the consolidated financial statements. Headline earnings The Group is required to calculate headline earnings per share in accordance with the Johannesburg per share Stock Exchange Limited Listing Requirements, determined by reference to the South African Institute of Chartered Accountants’ circular 1/2021 Headline Earnings. This is calculated on a basic and diluted basis. For details of the calculation, refer to note 12 of the consolidated financial statements. 211Quilter Annual Report 2022 ## Glossary Term Definition Affluent Customers with up to £500,000 of investable assets AuA Assets under administration, which unless stated otherwise, reflects gross AuA before intra-group eliminations AuM Assets under management, which unless stated otherwise, reflects gross AuM before intra-group eliminations AuMA Assets under management and administration – for more details see Alternative Performance Measures on page 210 | Brexit | The exit of the United Kingdom from the European Union, officially announced on 29 March 2017 | | --- | --- | | CAGR | Compound annual growth rate | | Company | Quilter plc | | COVID-19 | Coronavirus disease 2019 | | FCA | The UK Financial Conduct Authority | | GHG | Greenhouse gas | | Group | Quilter plc and its subsidiaries | | High Net Worth | Customers with over £250,000 of investable assets | | ICAAP | Internal Capital Adequacy Assessment Process | | IFAs | Independent Financial Advisers, meaning advisers who provide advice on an independent basis, | based on a comprehensive analysis of the whole market and free from any restriction IFRS The International Financial Reporting Standards as adopted by the United Kingdom Investment manager (IM) Individual who provides investment advice and investment management services to private clients of Quilter Cheviot in line with individual circumstances and investment objectives | IPO | Initial Public Offering | | --- | --- | | ISA | Individual Savings Accounts | | JSE | Johannesburg Stock Exchange | | Lighthouse | Lighthouse Group plc was acquired on 12 June 2019. The Company changed its name | to Lighthouse Group Limited on 19 February 2021 Listing Reference to Quilter plc listing on the London and Johannesburg Stock Exchanges on 25 June 2018 LSE London Stock Exchange Managed Separation Refers to the Managed Separation of Quilter plc from the Old Mutual Group ORSA Own Risk and Solvency Assessment Own funds Capital resources determined on the basis of the Solvency II balance sheet PCA Private Client Advisers – refers to Quilter Private Client Advisers PRA Prudential Regulation Authority Productivity Also referred to as ‘gross flows per adviser’. For definition, see Alternative Performance Measures on page 211. PTP Platform Transformation Programme Quilter Quilter plc Quilter Group The group of companies that are ultimately owned by Quilter plc QLA Quilter Life Assurance – sold to ReAssure on 31 December 2019 Restricted Financial Advisers who advise on a defined range of products and investment solutions, including investment Planners (RFPs) solutions offered by the Group and by third parties that have been pre-researched by the Group Scope 1, 2 & 3 GHG emissions Greenhouse gas emissions are categorised into three groups or ‘scopes’ by the most widely-used international accounting tool, the Greenhouse Gas (GHG) Protocol. Scope 1 and 2 cover direct emissions sources (e.g., fuel used in company vehicles and purchased electricity), Scope 3 emissions cover all indirect emissions due to the activities of an organisation. SCR Solvency Capital Requirement, the regulatory capital requirement under the Solvency II Directive SMCR Senior Managers and Certification Regime Standard Formula The regulatory formula used to determine capital requirements for insurance entities under Solvency II. This formula broadly represents the potential loss of own funds calibrated to a 1-in-200 likelihood level. 212 Quilter Annual Report 2022 Produced by Gather Gather.london This document is printed on GalerieArt, a paper containing fibre ® sourced from well-managed forests, responsible FSC certified forests and other controlled sources. The pulp used in this product is bleached, using an elemental chlorine free (ECF) process. ® Printed in the UK by PurePrint Group, a CarbonNeutral company, certificated to Environmental Management System ISO14001 and ® holder of FSC chain of custody certification. Quilter plc Registered office: Senator House 85 Queen Victoria Street London EC4V 4AB Registered number: 06404270. Registered in England and Wales. plc.quilter.com