Quilter CEO confident new focus will deliver more shareholder value

British wealth manager Quilter, which separated from Old Mutual in 2018, says it expects to create more value for its shareholders after finalising the sale of its life insurance unit.

Despite mass outflows of clients’ funds and a 15% rise in costs in the first half of 2019, CEO Paul Feeney said Quilter’s transition to an advice-led wealth management firm will see it return more value to shareholders in the coming years than it did in its first year as a separately listed entity.

Quilter listed on the JSE and the London Stock Exchange in June 2018. More  than 60% of its shareholders are South African institutional investors. The company announced the sale of its life and pensions division, Quilter Life Assurance, to UK life insurance consolidator ReAssure for £425m cash on Monday, the same day it released its financial results.

“The sale of the life insurance business will make us a simpler more focused wealth management business. We are already in [the] final stages of our UK wealth platform going live. Going forward, we will now be focusing purely on the faster-growing wealth management business,” said Feeney.

Feeney said after the sale, the company was aiming to return higher shareholder value than the 6%-8% it delivered in its first year when special dividends paid in September are included.

Avior Capital Market’s head of research, Warwick Bam, said focusing on wealth management and giving advice would help Quilter better serve UK consumers following the introduction of the pension freedoms reforms in 2015. However, in the short-term, the company was likely to continue feeling the pains of internal changes and of various macroeconomic issues, including declining investor confidence as Brexit uncertainty dragged on, said Bam.

“[The year] 2019 is likely to be a challenging year for Quilter. However, the long-term demand for advice and defined contribution retirement products will support Quilter’s business model for the next decade,” he said.

Like most of its UK competitors, Quilter did not escape the negative effects of the Brexit uncertainty in the six months ended June. It recorded only £6bn in new business sales compared to £7.9bn in the first half of 2018, as investors continued to sit on their discretionary funds. Quilter’s net client cash flows declined to £0.3bn, which was only a tenth of the £3bn recorded in the first half of 2018.

The company experienced £600m in outflows from clients who followed a small group of investment managers who resigned from Quilter in 2018. It also lost £200m of investments when some institutional investors moved to other wealth managers. Feeney said he expected outflows to continue for another two to three quarters as some clients might still follow the managers who left.

“But those are exceptional outflows,” he said. Feeney said the company was happy that it managed to attract new business to the value of £6bn and increased assets under management and administration by 8% to £118.4bn.

While he does not expect the political environment to change investor sentiment anytime soon, Quilter was seeing opportunities.

“Uncertainty creates opportunities. There are new business opportunities that did not exist five months ago,” he said.

In the first half, the company reported a 5% increase in profit before tax of £115m. It posted a loss of £32m and a 0.9 pence headline loss per share, Feeney said this was due to a policyholder tax charge which the company will reverse once it’s claimed this from policyholders.

Bam said the policyholder tax was merely a disclosure issue and distorted certain earnings figures such as headline earnings, which are used to measure most SA companies’ performance. He said adjusted profit before tax accurately showed what the management team can control.

buthelezil@businesslive.co.za