Quilter’s aggressive cost control has helped it deliver higher profits in the first six months of the year, even as assets slumped below the £100bn ($121bn, €118bn) mark.
Despite a difficult market backdrop, the wealth manager attracted £1.4bn in net inflows, though this was down from £2bn in H1 2021.
But its assets under management and administration (AUMA) lurched to £98.7bn by the end of June, a 12% decline from the £111.8bn it posted at the end of December 2021.
Adverse market conditions wiped £14.5bn off its total assets. While net money coming into the Quilter Investment Platform and high net worth segments was positive, at £1.6bn and £500m respectively, it represented a lower portion of opening AUMA at 4% and 3%, reflecting an industrywide slowdown in new clients in the second quarter.
This made shareholders skittish, with Quilter’s shares plunging 5% lower by midday, making it the biggest faller in the FTSE 250.
Chief executive Paul Feeney said: “Operating conditions in the first six months of 2022 have been challenging. Global equity markets have experienced one of the worst periods of negative performance in recent years and traditional 60:40 multi-asset portfolios have had their largest negative year-to-date return on record.”
Operating margin targets could be missed
While revenue was broadly flat due to the decline in assets, Quilter still managed to deliver a 9% increase in pre-tax profits to £61m.
Tight cost control helped cushion the blow from the pressures of rising inflation. Operating expenses fell by £6m over the period, taking its cost base to £242m. The cost of running the business was also £8m lower at £112m compared to £120m a year ago, in part due to lower FSCS levies.
As a result, it saw an improved operating margin of 20% (H1 2021: 18%). However, Feeney warned that if markets remain at their current low levels, this would create revenue headwinds, which would weigh on operating margin for the year and potentially cause it to miss future targets.
“Our focus remains on managing our business towards the targets set out at our Capital Markets Day last November, although an absence of an improvement in market levels and investor sentiment over the remainder of this year and 2023 may impact on the timing of delivery,” he said.
“My priorities continue to be growth in the IFA and Quilter adviser franchises, cost discipline to deliver a right-sized cost base for the new streamlined Quilter, investing for future growth through initiatives such as hybrid advice, and embedding ESG into the services we provide for clients and tools we provide for advisers”.
No word on takeover rumours
The interim update did not address the rumours of a series of takeover bids for Quilter. Natwest and private equity giants CVC, Bain Capital and BC Partners have been named as potential suitors vying for the wealth manager.
Quilter has been the subject of takeover rumours even prior to its spin-out from parent Old Mutual in 2018. Since then, it has been battling rising costs, chiefly related to re-platforming, prompting the firm to axe hundreds of jobs.
In an analyst note last week, Goldman Sachs said post-re-platforming and the sale of its life back book and Quilter International, the company was finally on an even peg in terms of the structure of its business to UK-focused wealth management peers like St James’s Place.
But it expressed doubts that this business model “has yet to be tested”, adding that its ambitious 2025 targets “appear optimistic in the current challenging market environment”.
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