Quilter PLC

National Storage Mechanism | Additional information RNS Number : 7103V Quilter PLC 11 August 2020 Statement of Directors' responsibilities in respect of the interim financial statements For the six month period ended 30 June 2020 Each of the Directors of Quilter plc confirms to the best of his or her knowledge and belief that: �� The condensed set of consolidated financial statements, which comprises the consolidated income statement and statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of financial position, consolidated statement of cash flows and the related explanatory notes, has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union and gives a true and fair view of the assets, liabilities, financial position and profits of the Group for the period ended 30 June 2020. These interim financials have been prepared and published in compliance with the acceptable accounting frameworks of the London Stock Exchange ("LSE"), where the company has its primary listing. �� The interim management report includes a fair review of the information required by: a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the Group's 2019 Annual Report, that could have a material effect on the financial position or performance of the enterprise in the first six months of the current financial year. As per provision C1 of the UK Corporate Governance Code, the results for the six months ended 30 June 2020 taken as a whole, present a fair, balanced and understandable position of the Company's prospects. Quilter plc is listed as a primary listing on the LSE and a secondary listing on the Johannesburg Stock Exchange ("JSE"). Paul Feeney Mark Satchel Chief Executive Officer Chief Financial Officer 10 August 2020 10 August 2020 Independent review report to Quilter plc Report on the condensed consolidated interim financial statements Our conclusion We have reviewed Quilter plc's condensed consolidated interim financial statements (the "interim financial statements") in the interim results of Quilter plc for the 6 month period ended 30 June 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. What we have reviewed The interim financial statements comprise: �� the consolidated statement of financial position as at 30 June 2020; �� the consolidated income statement and consolidated statement of comprehensive income for the period then ended; �� the consolidated statement of cash flows for the period then ended; �� the consolidated statement of changes in equity for the period then ended; and �� the explanatory notes to the interim financial statements. The interim financial statements included in the interim results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Responsibilities for the interim financial statements and the review Our responsibilities and those of the directors The interim results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. Our responsibility is to express a conclusion on the interim financial statements in the interim results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What a review of interim financial statements involves We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. We have read the other information contained in the interim results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements. PricewaterhouseCoopers LLP Chartered Accountants London 10 August 2020 Consolidated income statement For the six month period ended 30 June 2020 ��m Notes Six months 2020 Six months 2019 Full year 2019 Income Fee income and other income from service activities 6(d) 428 450 936 Investment return (1,547) 5,043 6,866 Other income 11 21 22 Total income (1,108) 5,514 7,824 Expenses Insurance contract claims and changes in liabilities - - (1) Change in investment contract liabilities 16 1,254 (4,348) (5,810) Fee and commission expenses, and other acquisition costs (203) (190) (294) Change in third party interest in consolidated funds 428 (586) (917) Other operating and administrative expenses (355) (344) (740) Finance costs (8) (8) (17) Total expenses 1,116 (5,476) (7,779) Profit before tax from continuing operations 8 38 45 Tax credit/(expense) attributable to policyholder returns 7(a) 38 (78) (98) Profit/(loss) before tax attributable to equity holders from continuing operations 46 (40) (53) Income tax credit/(expense) 7(a) 36 (70) (66) Less: tax (credit)/expense attributable to policyholder returns (38) 78 98 Tax (expense)/credit attributable to equity holders (2) 8 32 Profit/(loss) after tax from continuing operations 44 (32) (21) (Loss)/profit after tax from discontinued operations 4(b) (1) 15 167 Profit/(loss) after tax 43 (17) 146 Attributable to: Equity holders of Quilter plc 43 (17) 146 Earnings per ordinary share on profit attributable to ordinary shareholders of Quilter plc Basic From continuing operations (pence) 8(b) 2.5 (1.7) (1.1) From discontinued operations (pence) 4(b) (0.1) 0.8 9.1 Basic earnings per ordinary share (pence) 8(b) 2.4 (0.9) 8.0 Diluted From continuing operations (pence) 8(b) 2.4 (1.7) (1.1) From discontinued operations (pence) 4(b) (0.1) 0.8 8.9 Diluted earnings per ordinary share (pence) 8(b) 2.3 (0.9) 7.8 The attached notes form an integral part of these condensed consolidated interim financial statements. Consolidated statement of comprehensive income For the six month period ended 30 June 2020 ��m Note Six months 2020 Six months 2019 Full year 2019 Profit/(loss) after tax 43 (17) 146 Exchange gains/(losses) on translation of foreign operations 1 - (1) Items that may be reclassified subsequently to income statement 1 - (1) Measurement movements on defined benefit plans - - (7) Tax on amounts related to defined benefit pension plans - - 1 Items that will not be reclassified subsequently to income statement - - (6) Total other comprehensive income/(expense), net of tax 1 - (7) Total comprehensive income/(expense) 44 (17) 139 Attributable to: Continuing operations 45 (32) (28) Discontinued operations 4(c) (1) 15 167 Equity holders of Quilter plc 44 (17) 139 The attached notes form an integral part of these condensed consolidated interim financial statements. Consolidated statement of changes in equity For the six month period ended 30 June 2020 ��m Notes Share capital Share premium Capital redemption reserve Merger reserve Share-based payments reserve Other reserves Retained earnings Total share- holders' equity Balance at 1 January 2019 133 58 - 588 34 1 1,191 2,005 Adjustment on initial application of IFRS 16 (net of tax) - - - - - - (5) (5) Balance at 1 January 2019 - restated 133 58 - 588 34 1 1,186 2,000 Loss for the period - - - - - - (17) (17) Total comprehensive expense - - - - - - (17) (17) Dividends 9 - - - - - - (61) (61) Movement in own shares - - - - - - (1) (1) Equity share-based payment transactions - - - - 5 - 8 13 Total transactions with the owners of the Company - - - - 5 - (54) (49) Balance at 30 June 2019 133 58 - 588 39 1 1,115 1,934 Profit for the period - - - - - - 163 163 Other comprehensive expense - - - - - - (7) (7) Total comprehensive income - - - - - - 156 156 Dividends 9 - - - - - - (31) (31) Release of merger reserve - - - (439) - - 439 - Movement in own shares - - - - - - (1) (1) Equity share-based payment transactions - - - - 6 - 7 13 Total transactions with the owners of the Company - - - (439) 6 - 414 (19) Balance at 31 December 2019 133 58 - 149 45 1 1,685 2,071 Profit for the period - - - - - - 43 43 Other comprehensive income - - - - - - 1 1 Total comprehensive income - - - - - - 44 44 Dividends 9 - - - - - - (64) (64) Shares repurchased in the buyback programme1 15 (3) - 3 - - - (56) (56) Movement in own shares - - - - - - (43) (43) Equity share-based payment transactions - - - - (3) - 16 13 Total transactions with the owners of the Company (3) - 3 - (3) - (147) (150) Balance at 30 June 2020 130 58 3 149 42 1 1,582 1,965 1On 11 March 2020 the Company announced a share buyback programme to purchase shares up to a maximum value of ��375 million, in order to reduce the share capital of the Company. The programme commenced on 11 March 2020 and will continue into 2021. As part of Tranche 1 of the programme, which completed in June 2020, the Company has acquired 43,217,594 shares for a total consideration of ��50 million, and incurred additional costs of ��2 million. Tranche 2 of the programme commenced in June 2020. As part of the second tranche a further 2,769,270 shares have been purchased for ��4 million up to 30 June 2020. The shares from both tranches, which have a nominal value of ��3 million, have subsequently been cancelled, giving rise to a capital redemption reserve of the same value as required by the Companies Act 2006. The attached notes form an integral part of these condensed consolidated interim financial statements. Consolidated statement of financial position At 30 June 2020 ��m Notes 30 June 2020 30 June 2019 31 December 2019 Assets Goodwill and intangible assets 10 578 587 592 Property, plant and equipment 135 89 143 Investments in associated undertakings 1 2 1 Contract costs 435 477 455 Loans and advances 235 220 217 Financial investments 11 57,872 56,423 59,345 Deferred tax assets 45 32 43 Current tax receivable 40 16 13 Trade, other receivables and other assets1 566 1,398 424 Derivative assets 12 24 32 Cash and cash equivalents 14 2,467 1,944 2,473 Assets of operations classified as held for sale - 12,317 - Total assets 62,386 73,529 63,738 Equity and liabilities Equity Ordinary Share capital 130 133 133 Ordinary Share premium reserve 58 58 58 Capital redemption reserve 3 - - Merger reserve 149 588 149 Share-based payments reserve 42 39 45 Other reserves 1 1 1 Retained earnings 1,582 1,115 1,685 Total equity 1,965 1,934 2,071 Liabilities Investment contract liabilities 16 52,267 50,286 52,455 Third-party interests in consolidated funds 6,582 6,972 7,675 Provisions 17 88 45 64 Deferred tax liabilities 50 91 88 Current tax payable 4 4 6 Borrowings and lease liabilities 330 280 335 Trade, other payables and other liabilities 843 1,720 836 Contract liabilities and deferred revenue 185 192 191 Derivative liabilities 72 24 17 Liabilities of operations classified as held for sale - 11,981 - Total liabilities 60,421 71,595 61,667 Total equity and liabilities 62,386 73,529 63,738 1The Group's contract assets are included within Trade, other receivables and other assets, having previously been shown separately in the statement of financial position. Approved by the Board on 10 August 2020. Paul Feeney Mark Satchel Chief Executive Officer Chief Financial Officer The attached notes form an integral part of these condensed consolidated interim financial statements. Consolidated statement of cash flows For the six month period ended 30 June 2020 The cash flows presented in this statement cover all the Group's activities (continuing and discontinued operations and cash that is held for sale) and includes flows from both policyholder and shareholder activities. All cash and cash equivalents are available for use by the Group except for cash and cash equivalents in consolidated funds. ��m Notes Six months 2020 Six months 2019�� Full Year 2019 Cash flows from operating activities Profit before tax from continuing operations 8 38 45 (Loss)/profit before tax from discontinued operations 4(b) (1) 76 256 Non-cash movements in profit before tax 1,005 (647) (2,268) Net changes in working capital (34) (92) (39) Taxation paid (32) (10) (37) Total net cash from/(used in) operating activities 946 (635) (2,043) Cash flows from investing activities Net (acquisitions)/disposals of financial investments (739) 707 2,260 Acquisition of property, plant and equipment (17) (4) (8) Acquisition of intangible assets (3) (4) (5) Acquisition of interests in subsidiaries1 (16) (61) (87) Net (payments)/proceeds from the disposal of interests in subsidiaries (2) - 78 Total net cash (used in)/from investing activities (777) 638 2,238 Cash flows from financing activities Dividends paid to ordinary equity holders of the Company (64) (61) (92) Finance costs on external borrowings (5) (5) (10) Payment of interest on lease liabilities (1) (1) (3) Payment of principal lease liabilities (7) (7) (13) Repurchase of shares (41) - - Repurchase and cancellation of shares (54) - - Total net cash used in financing activities (172) (74) (118) Net (decrease)/increase in cash and cash equivalents (3) (71) 77 Cash and cash equivalents at the beginning of the year 2,473 2,395 2,395 Effects of exchange rate changes on cash and cash equivalents (3) 1 1 Cash and cash equivalents at end of the year 14 2,467 2,325 2,473 1The acquisition of interests in subsidiaries balance includes ��16 million of contingent consideration payments relating to historical acquisitions (30 June 2019: ��5 million; 31 December 2019: ��21 million). The attached notes form an integral part of these condensed consolidated interim financial statements. Basis of preparation and significant accounting policies General information Quilter plc (the "Company"), a public limited company incorporated and domiciled in the United Kingdom ("UK"), together with its subsidiaries (collectively, the "Group") offers investment and wealth management services, long-term savings and financial advice through its subsidiaries and associates primarily in the UK with a presence in a number of cross-border markets. The address of the registered office is Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ. 1: Basis of preparation The results for the six months ended 30 June 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board, as adopted by the European Union ('EU'), and are unaudited but have been reviewed by the Auditor, PricewaterhouseCoopers LLP. These condensed consolidated interim financial statements ("interim financial statements") of Quilter plc for the six months ended 30 June 2020 do not constitute statutory accounts as defined by section 434 of the Companies Act 2006. Comparative financial information for full year 2019 have been taken from the Group's 2019 Annual Report, which has been filed with the Registrar of Companies and was prepared in accordance with International Financial Reporting Standards ("IFRS"), as endorsed by the EU. KPMG (the Group's Statutory Auditor at the time) provided an unqualified report that did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. These interim financial statements do not include all of the information required for a complete set of IFRS compliant financial statements. Selected notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the publication of the Group's 2019 Annual Report. The Board believes that the Alternative Performance Measures ("APMs") provided, such as adjusted profit, are also useful for both management and investors. Any seasonal or cyclical factors, to the extent that they materially impact the Group's results, are described in the Financial Review. There have been no changes in the Group's significant accounting policies during the period. All accounting policies for recognition, measurement, consolidation and presentation are as outlined in the Group's 2019 Annual Report. These interim financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments, and are presented in pounds sterling, which is the currency of the primary economic environment in which the Group operates. Going concern The Directors have considered the resilience of the Group, taking into account its current financial position, the principal risks facing the business and the effectiveness of any mitigating strategies. An assessment of the impact of COVID-19 on the going concern for the Group has been completed, concluding that the Group can withstand a severe but plausible downside scenario for at least the next 12 months. This assessment was based on the most recent management approved three-year profit forecasts, and incorporated scenarios that reflected the impact of significant decreases in equity market levels and net client cash flows. As a result, the Directors believe that the Group is well placed to manage its business risks in the context of the current economic outlook and has sufficient financial resources to continue in business for a period of at least 12 months from the date of approval of these interim financial statements. Therefore, the Group continues to adopt the going concern basis in preparing the interim financial statements. Critical accounting estimates and judgements In preparing these interim financial statements, management has made judgements and estimates in applying the Group's significant accounting policies affecting the reported amounts of assets and liabilities and income and expense reported at the date of the financial statements. The Group Audit Committee reviews these areas of judgement and estimates and the appropriateness of significant accounting policies adopted in the preparation of these interim financial statements. In addition to the critical accounting judgements disclosed in note 1 of the Group's 2019 Annual Report (which have remained critical for the six months ended June 2020) and in light of the COVID-19 pandemic, management have further considered the following areas of judgement: Area Critical accounting judgements Related notes Recognition of provisions and contingent liabilities in respect of Lighthouse defined benefit pension advice The FCA has notified the Group of a skilled person report requirement for Lighthouse pension transfer advice. Complaints were received in early 2020 in relation to British Steel defined benefit ("DB") pension transfer advice provided by Lighthouse before its acquisition by the Group in June 2019. Management has applied judgement in order to determine whether a provision can be reasonably estimated in relation to the cases and whether redress is probable, and therefore whether a provision can be recognised for Lighthouse DB pension transfers. A contingent liability is disclosed where amounts cannot be measured reliably. 4(a), 17 Recognition of insurance recovery asset in respect of Lighthouse defined benefit pension advice For Lighthouse DB pension transfer advice provided, management has applied judgement in order to determine whether an asset can be reasonably estimated, and the measurement of such asset, in relation to an insurance recovery under Lighthouse's professional indemnity policies ("PI Policies"). Under the PI Policies, Lighthouse is entitled to be indemnified for a "Claim" (and defence costs) in respect of legal liabilities arising in connection with Lighthouse's DB pension transfer advice activities, however, at the current time the insurers have not confirmed coverage for legal liabilities. 4(a) Trigger of potential impairment of goodwill Management has applied judgement in determining that the COVID-19 pandemic's impact on global markets and, in particular, the impact on the Group's future Assets under Management and Administration ("AuMA") and revenues, represents a potential trigger for impairment of goodwill. As a result, the Group's goodwill and intangible assets have been tested for impairment at 30 June 2020. 10 Similarly, the Group's critical accounting estimates have remained consistent with those disclosed in note 1 of the Group's 2019 Annual Report and, in addition and as a result of COVID-19, the following critical accounting judgements have been applied in the first half of 2020: Area Critical accounting estimates Related notes Provision for cost of Lighthouse defined benefit pension advice An estimation of the provision required for the British Steel DB pension transfer redress was determined based upon a sample of cases which was considered representative of the broader population to form a reasonable estimate. The estimation per case is based upon FCA guidelines and modelling performed, and factors including pension transfer value, discount rate, and retail price indexation. The sample was then extrapolated to the entire population of British Steel DB cases that were advised on by Lighthouse advisers. The proportion of cases to be upheld and therefore which requires redress payments to be made was estimated based upon a review performed on a sample of Lighthouse DB pension transfers by an independent and suitably qualified regulatory consulting company. 17 Valuation of goodwill and intangible assets The valuation of goodwill and intangible assets that are recognised as the result of business combinations involves the use of valuation models. As a result of the impact of COVID-19 on global markets and, in particular, on the Group's future levels of AuMA on which the majority of the Group's revenues are based, management have assessed the goodwill and intangible assets for impairment using the latest forecast cash flows. Significant estimates include equity stock market levels and the impact on 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. 10 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 worldwide stock market movements, related movements in foreign exchange rates and net client cash flow, together with estimates of expenses and other charges. The business plan, adjusted for known and estimated tax sensitivities, is used to determine the extent to which deferred tax assets are recognised. In general the Group assesses recoverability based on estimated taxable profits over a 3 year planning horizon. Where credible longer term profit forecasts are available (e.g. for the life insurance companies) the specific entity may assess recoverability over a longer period, subject to a higher level of sensitivity testing. As a result of the impact of COVID-19 on global markets and, in particular, on the Group's expected future levels of AuMA, management have reassessed the sensitivity on the recoverability of deferred tax assets based on the latest forecast cash flows. 3 2: New standards, amendments to standards, and interpretations adopted by the Group There have been no new standards or interpretations which became effective 1 January 2020. Amendments to standards: The following amendments to the accounting standards, issued by the International Accounting Standards Board ("IASB") and endorsed by the EU, have been adopted by the Group from 1 January 2020 with no material impact on the Group's consolidated results, financial position or disclosures: �� Amendments to References to the Conceptual Framework in IFRS Standards �� Amendments to IFRS 3 Business Combinations - Definition of a Business �� Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Definition of Material �� Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures - Interest Rate Benchmark Reform 3: Significant changes in the current reporting period On 11 March 2020, COVID-19 was recognised by the World Health Organisation as a global pandemic. COVID-19 has caused widespread uncertainty and has impacted global supply chains, global market growth and potentially employee availability in the future. The Group has been adversely impacted by falls in equity market levels, adverse investor sentiment affecting revenue and increased operational risks. The Group has implemented revised operating plans in response to the challenges arising from COVID-19, including 98% of the Group's staff now working remotely and the accelerated delivery of IT and remote telephony solutions allowing Quilter to maintain high client service levels and to support customers and advisers. The Group has reviewed its financial budgets and operating plans in response to the challenges arising from COVID-19 and the unpredictable operating outlook. The Group is operationally resilient and remains focused on completing its principal projects. A significant level of the Group's revenues are derived from its assets under management and administration ("AuMA") and, given the uncertainty in both markets and customers, lower expected levels of AuMA will lead to lower revenues. The Group has therefore updated its expected cash flows accordingly. The Group is undertaking a number of management actions to reduce expenses and has acknowledged that future operating margin outcomes will likely be below previous target guidance provided by management. The Group has no plans to take advantage of any of the government backed support schemes. The material impact that the COVID-19 pandemic has had on global equity markets and the effect this has on the Group's AuMA and revenue has resulted in management considering that an indication of potential impairment of the Group's goodwill has occurred. Consequently, at 30 June 2020, an impairment assessment has been performed utilising market levels and future assumptions considered relevant in a post-COVID-19 market context. While no impairment of the Group's goodwill is required, a reduction in the surplus compared to 31 December 2019 is evident. The most significant impact is seen within the Group's Advice and Wealth Management segment, where AuMA is more correlated to equity market movements and is the key driver for future cash flows. A sensitivity analysis has been performed on the impairment model, which concludes that further significant changes would be required to key assumptions before an impairment is required. Full details are included in note 10. In addition to the goodwill impairment assessment, as a result of the COVID-19 impacts to the Group's expected future AuMA and cash flows described above, the Group has also reassessed the surplus in the recoverable amount of the Group's deferred tax assets over the taxable profits contained in the latest three-year forecast. There has been no impact on the current value of the deferred tax assets. Sensitivity analysis demonstrates that the Group's deferred tax assets remain recoverable after a decrease in profitability over that future three-year period of up to 10%. There have been no major changes to the Group's capital and financial risk management as a result of COVID-19. Full capital and financial risk management disclosures are included within note 36 of the Group's 2019 Annual Report. Detailed discussion of the Group's performance and financial position to 30 June 2020 are included in the Financial Review. Notes to the condensed consolidated interim financial statements for the six month period ended 30 June 2020 4: Acquisitions and discontinued operations 4(a): Business acquisitions There have been no acquisitions during the period ended 30 June 2020. Charles Derby Group Limited acquisition on 14 February 2019 The purchase price of ��31 million has been allocated based on the fair value of net assets acquired at the date of acquisition, determined in accordance with IFRS 3 Business Combinations. These allocations are now final and consistent with those disclosed in note 5(a) of the Group's 2019 Annual Report. The Group has recognised goodwill of ��23 million in relation to this acquisition. Lighthouse Group plc ("Lighthouse") acquisition on 12 June 2019 The estimated fair value of net assets acquired in Lighthouse of ��13 million as disclosed in note 5(a) of the Group's 2019 Annual Report included a provision of ��12 million in respect of pension transfer advice provided to certain Lighthouse clients between 2016 and 2018, prior to the Group's acquisition of Lighthouse in June 2019. As a result of an investigation by the FCA into DB pension transfer advice provided to British Steel employees by Lighthouse, and an additional number of complaints received during 2020, the Group has increased its scope for the provision to include all British Steel customers, rather than only those who have raised a complaint, and performed a detailed case review (further details of which are included in note 17). This resulted in an increase to the provision at acquisition of a further ��12 million, which brought the provision balance to ��24 million. Management have taken a prudent view with regards to insurance recoveries against the provision made while discussions with Lighthouse's insurers remain ongoing. Accordingly, an insurance recovery asset of ��3 million related to the provision has been recognised at 30 June 2020, representing management's assessment of the fair value on a best estimate basis. A further review of the tax treatment has resulted in recognition of a deferred tax asset of ��2 million. The impact upon the fair value of net assets acquired as a result of the British Steel DB pension transfer advice provision, insurance recovery asset and deferred tax asset at acquisition is a net liability of ��19 million. The estimated fair value of net assets acquired in Lighthouse is assessed as ��6 million and the Group has recognised goodwill of ��40 million in relation to this acquisition. 4(b): Discontinued operations - income statement The Group's discontinued operations principally relate to the QLA business that was disposed of on 31 December 2019 and the associated profit on sale. ��m Notes Six months 2020 Six months 2019 (restated��) Full year 2019 Income Gross earned premiums - 76 145 Premiums ceded to reinsurers - (43) (86) Net earned premiums - 33 59 Fee income and other income from service activities1 - 95 164 Investment return1 - 1,004 1,386 Total income - 1,132 1,609 Expenses Claims and benefits paid - (46) (98) Reinsurance recoveries - 33 72 Net insurance claims and benefits incurred - (13) (26) Change in reinsurance assets and liabilities - 78 121 Change in insurance contract liabilities - (91) (134) Change in investment contract liabilities - (991) (1,364) Fee and commission expenses, and other acquisition costs - (23) (45) Other operating and administrative expenses - (16) (8) Total expenses - (1,056) (1,456) (Loss)/profit on sale of operations before tax2 (1) - 103 (Loss)/profit before tax from discontinued operations (1) 76 256 Tax expense attributable to policyholder returns 7(a) - (59) (76) (Loss)/profit before tax attributable to equity holders from discontinued operations (1) 17 180 Income tax expense 7(a) - (61) (89) Less: tax expense attributable to policyholder returns - 59 76 Tax expense attributable to equity holders - (2) (13) (Loss)/profit after tax from discontinued operations (1) 15 167 Attributable to: Equity holders of Quilter plc (1) 15 167 Earnings per ordinary share on profit attributable to ordinary shareholders of Quilter plc Basic - from discontinued operations (pence) 8(b) (0.1) 0.8 9.1 Diluted - from discontinued operations (pence) 8(b) (0.1) 0.8 8.9 1In the period ended 30 June 2019, the Group made a restatement to reallocate ��50 million from "Investment return" to "Fee income and other income from service activities" in order to correctly classify the revenue recognised and conform with the Group's presentation policy. 2An additional ��1 million of transaction and separation costs relating to the historical sale of the QLA and Single Strategy businesses have been recognised in the six months ended 30 June 2020. 4(c): Discontinued operations - Statement of comprehensive income ��m Six months 2020 Six months 2019 Full year 2019 (Loss)/profit after tax (1) 15 167 Total comprehensive (expense)/income for the period from discontinued operations (1) 15 167 4(d): Discontinued operations - Net cash flows ��m Six months 2020 Six months 2019 Full year 2019 Total net cash flows used in operating activities - (1,424) (3,789) Total net cash (used in)/from investing activities (9) 1,381 3,765 Total net cash used in financing activities - (90) (130) Net decrease in cash and cash equivalents (9) (133) (154) 5: Alternative performance measures ("APMs") 5(a): Adjusted profit and reconciliation to profit after tax Basis of preparation of adjusted profit Adjusted profit is one of the Group's Alternative Performance Measures and reflects the Directors' view of the underlying performance of the Group. It is used for management decision making and internal performance management and is the profit measure presented in the Group's segmental reporting. Adjusted profit is a non-GAAP measure which adjusts the IFRS profit for specified items as detailed in note 5(b). The definition of adjusted profit is the same as in the last annual financial statements. ��m Six months 2020 Six months 2019 Full year 2019 Notes Continuing operations Discontinued operations Total Continuing operations Discontinued operations�� Total Continuing operations Discontinued operations�� Total Advice and Wealth Management 41 - 41 50 - 50 103 - 103 Wealth Platforms 47 - 47 56 26 82 112 53 165 Head Office (17) - (17) (17) - (17) (33) - (33) Adjusted profit before tax 71 - 71 89 26 115 182 53 235 Reallocation of QLA costs - - - - - - (26) 26 - Adjusted profit before tax after reallocation 6(b) 71 - 71 89 26 115 156 79 235 Reconciliation to IFRS profit: Goodwill impairment and impact of acquisition accounting 5(b)(i) (23) - (23) (26) - (26) (54) - (54) Profit on business disposals 4(b) - (1) (1) - - - - 103 103 Business transformation costs 5(b)(ii) (39) - (39) (35) - (35) (77) - (77) Managed Separation costs 5(b)(iii) - - - (2) - (2) (6) - (6) Finance costs 5(b)(iv) (5) - (5) (5) - (5) (10) - (10) Policyholder tax adjustments 5(b)(v) 47 - 47 (61) (15) (76) (62) (12) (74) Customer remediation 5(b)(vi) (5) - (5) - 6 6 - 10 10 Total adjusting items before tax (25) (1) (26) (129) (9) (138) (209) 101 (108) Profit/(loss) before tax attributable to equity holders 46 (1) 45 (40) 17 (23) (53) 180 127 Tax attributable to policyholder returns 7(a) (38) - (38) 78 59 137 98 76 174 Income tax credit/(expense) 7(a),(b) 36 - 36 (70) (61) (131) (66) (89) (155) Profit/(loss) after tax 44 (1) 43 (32) 15 (17) (21) 167 146 1Discontinued operations includes the results of the Quilter Life Assurance ("QLA") business in 2019. 5(b): Adjusting items In determining adjusted profit before tax, certain adjustments are made to IFRS profit before tax to reflect the underlying performance of the Group. These are detailed below. 5(b)(i): Goodwill impairment and impact of acquisition accounting The recognition of goodwill and other acquired intangibles is created on the acquisition of a business and represents the premium paid over the fair value of the Group's share of the identifiable assets and liabilities acquired at the date of acquisition (as recognised under IFRS 3 Business Combinations). The Group excludes any impairment of goodwill from adjusted profit as well as the amortisation and impairment of acquired other intangible assets, any acquisition costs and finance costs related to the discounting of contingent consideration. The effect of these adjustments to determine adjusted profit are summarised below. All adjustments are in respect of continuing operations. ��m Note Six months 2020 Six months 2019 Full year 2019 Amortisation of other acquired intangible assets 10(a) 23 22 45 Acquisition related (income)/costs1 (1) 3 6 Unwinding of discount on contingent consideration 1 1 3 Total goodwill impairment and impact of acquisition accounting 23 26 54 1Acquisition related (income)/costs in the six months to 30 June 2020 include a ��(1) million acceleration of discounting unwind following the settlement of a loan receivable from TA Associates that related to deferred consideration arising from the sale of the Single Strategy Asset Management business. Other acquisition costs include items such as transaction costs or deferred incentives arising on the acquisition of businesses. 5(b)(ii): Business transformation costs Business transformation costs include four items: costs associated with the UK Platform Transformation Programme, build out costs incurred within Quilter Investors as a result of the sale of the Single Strategy business, Optimisation Programme costs, and restructuring costs incurred as a result of the sale of Quilter Life Assurance. All items are within the Group's continuing operations. For the period ended 30 June 2020, these costs totalled ��39 million (30 June 2019: ��35 million, 31 December 2019: ��77 million) in aggregate, the principal components of which are described below: UK Platform Transformation Programme - 30 June 2020: ��20 million, 30 June 2019: ��30 million, 31 December 2019: ��57 million Following the soft launch last year, the programme completed a successful initial migration in February, with c.80% of Quilter Investment Platform assets expected to be migrated by the end of 2020, with completion of the project expected to be in early 2021. The total costs associated with extending the programme in this way are expected to be around ��200 million, representing an increase of ��15 million on previous guidance. Quilter Investors' build out costs - 30 June 2020: ��(1) million, 30 June 2019: ��nil, 31 December 2019: ��(1) million As part of the Group's strategy to separate from Old Mutual plc in 2018, the Group incurred build out costs to develop Quilter Investors as a separate business distinct from the Single Strategy business, which was subsequently sold on 29 June 2018. The build was substantially completed in 2019 and costs are now therefore minimal. Optimisation Programme costs - 30 June 2020: ��19 million, 30 June 2019: ��5 million, 31 December 2019: ��18 million The Group is continuing its phased, multi-year Optimisation Programme, targeting a 4 percentage point uplift in the Group's operating margin by 2021. Phase 1 is aiming to unify and simplify the Group through a number of efficiency initiatives that will deliver improvements in operational performance, incurring ��19 million of costs in the period ended 30 June 2020. Restructuring costs following disposal of Quilter Life Assurance - 30 June 2020: ��nil, 30 June 2019: ��nil, 31 December 2019: ��3 million As a result of the disposal of QLA on 31 December 2019, the Group recognised ��3 million as an adjusting item principally in respect of redundancy costs. The Group expects to incur further restructuring costs during the following 18 months, including the cost of decommissioning IT systems, as the Transitional Service Agreement with ReAssure (the acquirer) runs off and the remaining Quilter business is restructured following the disposal. 5(b)(iii): Managed Separation costs One-off costs related to the Managed Separation from Old Mutual plc have been excluded from adjusted profit on the basis that they are not representative of the operating activity of the Group. During 2019 costs incurred primarily related to post-listing rebranding. These costs are not expected to persist in the long term as they relate to a fundamental restructuring of the Group. For the period ended 30 June 2020 these costs were ��nil (30 June 2019: ��2 million, 31 December 2019: ��6 million). 5(b)(iv): Finance costs The nature of much of the Group's operations means that, for management's decision-making and internal performance management, the effects of interest costs on external borrowings are removed when calculating adjusted profit. For the period ended 30 June 2020 finance costs were ��5 million (30 June 2019: ��5 million, 31 December 2019: ��10 million). 5(b)(v): Policyholder tax adjustments For the period ended 30 June 2020 the total of policyholder tax adjustments to adjusted profit is ��47 million (30 June 2019: ��(76) million, 31 December 2019: ��(74) million) relating to both continuing and discontinued operations, as shown in note 7(c). Adjustments to policyholder tax are made to remove distortions arising from market volatility that can, in turn, lead to volatility in the policyholder tax charge between periods. The recognition of the income received from policyholders (which is included within the Group's income) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding tax expense, creating volatility to the Group's IFRS profit/(loss) before tax attributable to equity holders. For a further explanation of the impact of markets on the policyholder tax charge see note 7(a). Adjustments are also made to remove policyholder tax distortions from other non-operating adjusting items. 5(b)(vi): Customer remediation A provision of ��24 million for potential redress payable and related costs was established within the fair value of the Lighthouse assets and liabilities acquired at June 2019 in relation to advice provided to British Steel pension members. The methodology employed to assess the probable redress payable uses assumptions and estimation techniques which are consistent with principles under the FCA's FG17/9 "Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers". A further ��5 million (30 June 2019: ��nil) increase in the provision has been recognised in the income statement in the six months ended 30 June 2020, reflecting the impact of post-acquisition market and discount rate movements. There has been no impact on the income statement in the six months ended 30 June 2020 related to the associated insurance asset recoverable balance. This has been excluded from adjusted profit on the basis that the costs are not representative of the operating activity of the Group. Further details are provided in note 17. Within QLA (disposed of on 31 December 2019), a voluntary customer remediation provision was established in 2017 following product reviews and consistent with recommendations from the Financial Conduct Authority's ("FCA") thematic review and the FCA's guidance FG16/8 Fair treatment of long-standing customers in the life assurance sector. During 2019, ��10 million (��6 million at 30 June 2019) of the provision was released (as detailed in note 17). 5(c): Reconciliation of IFRS income and expenses to 'Total net fee revenue' and '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 fee, Total net fee revenue and Expenses as part of the Group's adjusted profit for continuing operations. Allocations are determined by management and aim to show the sources of profit (net of relevant directly attributable expenses). These allocations remain consistent from period to period to ensure comparability. ��m Six months 2020 Net mgmt fees1 Other revenue1 Total net fee revenue1 Expenses Adjusted profit before tax Consol. of funds2 IFRS income statement3 Income Fee income and other income from service activities 324 97 421 - 421 7 428 Investment return - (1,249) (1,249) - (1,249) (298) (1,547) Other income - - - 9 9 2 11 Total income 324 (1,152) (828) 9 (819) (289) (1,108) Expenses Change in investment contract liabilities - 1,254 1,254 - 1,254 - 1,254 Fee and commission expenses, and other acquisition costs (35) (38) (73) - (73) (130) (203) Change in third party interest in consolidated funds - - - - - 428 428 Other operating and administrative expenses (7) - (7) (339) (346) (9) (355) Finance costs (2) (2) (6) (8) - (8) Total expenses (42) 1,214 1,172 (345) 827 289 1,116 Tax credit attributable to policyholder returns 38 - 38 - 38 - 38 Profit/(loss) before tax attributable to equity holders from continuing operations 320 62 382 (336) 46 - 46 Adjusting items: Goodwill impairment and impact of acquisition accounting - - - 23 23 Business transformation costs - - - 39 39 Finance costs - - - 5 5 Customer remediation - - - 5 5 Policyholder tax adjustments (47) - (47) - (47) Adjusting items (47) - (47) 72 25 Total Group - continuing operations 273 62 335 (264) 71 ��m Six months 2019 Net mgmt fees1 Other revenue1 Total net fee revenue1 Expenses Adjusted profit before tax Consol. of funds2 IFRS income statement3 Income Fee income and other income from service activities4 353 89 442 - 442 8 450 Investment return4 18 4,362 4,380 - 4,380 663 5,043 Other income - 2 2 - 2 19 21 Total income 371 4,453 4,824 - 4,824 690 5,514 Expenses Change in investment contract liabilities - (4,348) (4,348) - (4,348) - (4,348) Fee and commission expenses, and other acquisition costs (61) (39) (100) - (100) (90) (190) Change in third party interest in consolidated funds - - - - - (586) (586) Other operating and administrative expenses (9) - (9) (321) (330) (14) (344) Finance costs - (2) (2) (6) (8) - (8) Total expenses (70) (4,389) (4,459) (327) (4,786) (690) (5,476) Tax (expense)/credit attributable to policyholder returns (78) - (78) - (78) - (78) Profit/(loss) before tax attributable to equity holders from continuing operations 223 64 287 (327) (40) - (40) Adjusting items: Goodwill impairment and impact of acquisition accounting - - - 26 26 Business transformation costs - - - 35 35 Managed Separation costs - - - 2 2 Finance costs - - - 5 5 Policyholder tax adjustments 61 - 61 - 61 Adjusting items 61 - 61 68 129 Total Group - continuing operations 284 64 348 (259) 89 In the Group's 2019 Annual Report, the reconciliation for full year 2019 included the results of the QLA business within adjusted profit before tax. QLA is now excluded from this reconciliation for comparability with the current period following its disposal on 31 December 2019, which now presents continuing operations only. ��m Full year 2019 Net mgmt fees1 Other revenue1 Total net fee revenue1 Expenses Adjusted profit before tax Consol. of funds2 IFRS income statement3 Income Fee income and other income from service activities 689 230 919 - 919 17 936 Investment return 40 5,795 5,835 - 5,835 1,031 6,866 Other income - 1 1 - 1 21 22 Total income 729 6,026 6,755 - 6,755 1,069 7,824 Expenses Insurance contract claims and changes in liabilities - (1) (1) - (1) - (1) Change in investment contract liabilities - (5,810) (5,810) - (5,810) - (5,810) Fee and commission expenses, and other acquisition costs (100) (77) (177) - (177) (117) (294) Change in third party interest in consolidated funds - - - - - (917) (917) Other operating and administrative expenses (14) (1) (15) (690) (705) (35) (740) Finance costs - (4) (4) (13) (17) - (17) Total expenses (114) (5,893) (6,007) (703) (6,710) (1,069) (7,779) Tax (expense)/credit attributable to policyholder returns (98) - (98) - (98) - (98) Profit/(loss) before tax attributable to equity holders from continuing operations 517 133 650 (703) (53) - (53) Adjusting items: Goodwill impairment and impact of acquisition accounting - - - 54 54 Business transformation costs - - - 77 77 Managed Separation costs - - - 6 6 Finance costs - - - 10 10 Policyholder tax adjustments 62 - 62 - 62 Adjusting items 62 - 62 147 209 Adjusted profit before tax after reallocation 579 133 712 (556) 156 Reallocation of QLA costs - - - 26 26 Total Group - continuing operations 579 133 712 (530) 182 1"Net Management Fees", "Other revenue" and "Total net fee revenue" are commented on within the Financial Review. 2Consolidation of funds shows the grossing up impact to the Group's consolidated income statement as a result of the consolidation of funds requirements, as described in note 4(a) of the Group's 2019 Annual Report. This grossing up is excluded from the Group's adjusted profit. 3The IFRS income statement column in the table above, down to "Total before adjusting items", reconciles to each line of the Group's consolidated income statement down to "Profit/(loss) before tax attributable to equity holders". 4In the period ended 30 June 2019, within discontinued operations, the Group has made a restatement to reallocate ��50 million from "Investment return" to "Fee income and other income from service activities" in order to correctly classify the revenue recognised and conform with Group presentation policy. 6: Segmental information 6(a): Segmental presentation The Group's operating segments comprise Advice and Wealth Management and Wealth Platforms, which is consistent with the way in which the Group is structured and managed. For all reporting periods, these segments have been classified as continuing operations in the income statement. Head Office includes certain revenues and central costs that are not allocated to the segments. There have been no changes to the basis of segmentation for the periods in these condensed consolidated interim financial statements. Adjusted profit is an Alternative Performance Measure ("APM") reported to the Group's management and Board. Management and the Board use additional APMs to assess the performance of each of the segments, including net client cash flows, assets under management and administration, revenue and operating margin. Consistent with internal reporting, assets, liabilities, income and expenses that are not directly attributable to a particular segment are allocated between segments where appropriate. The Group accounts for inter-segment income and transfers as if the transactions were with third parties at current market prices. Intra-group recharges in respect of operating and administration expenses within businesses disclosed as discontinued operations are not adjusted for potential future changes to the level of those costs resulting from the disposal of those businesses. The segmental information in this note reflects the adjusted and IFRS profit measures and the assets and liabilities for each operating segment as provided to management and the Board. Income is further segmented into the geographic location of our businesses in note 6(d). 6(b)(i): Adjusted profit statement - segmental information for the six month period ended 30 June 2020 This reconciliation presents the Group's continuing operations split by operating segment, reconciling the IFRS income statement to pre-tax adjusted profit and to the Group's consolidated income statement on a line by line basis, to 'Profit/(loss) before tax attributable to equity holders' (for continuing operations only). ��m Operating segments Notes Advice and Wealth Management Wealth Platforms Head Office Consolidation adjustments1 Consolidated income statement Income Fee income and other income from service activities 225 199 - 4 428 Investment return 3 (1,254) 1 (297) (1,547) Other income - 63 3 (55) 11 Segmental income 228 (992) 4 (348) (1,108) Expenses Change in investment contract liabilities - 1,254 - - 1,254 Fee and commission expenses, and other acquisition costs (24) (52) - (127) (203) Change in third party interest in consolidated funds - - - 428 428 Other operating and administrative expenses (191) (173) (38) 47 (355) Finance costs (1) (2) (5) - (8) Segmental expenses (216) 1,027 (43) 348 1,116 Profit/(loss) before tax from continuing operations 12 35 (39) - 8 Tax attributable to policyholder returns - 38 - - 38 Profit/(loss) before tax attributable to equity holders from continuing operations 12 73 (39) - 46 Adjusted for non-operating items: Goodwill impairment and impact of acquisition accounting 5(b)(i) 24 - (1) - 23 Business transformation costs 5(b)(ii) - 21 18 - 39 Finance costs 5(b)(iv) - - 5 - 5 Policyholder tax adjustments 5(b)(v) - (47) - - (47) Customer remediation 5(b)(vi) 5 - - - 5 Adjusting items before tax 29 (26) 22 - 25 Adjusted profit/(loss) before tax - continuing operations 41 47 (17) - 71 1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds. 6(b)(ii): Adjusted profit statement - segmental information for the six months ended 30 June 2019 ��m Operating segments Notes Advice and Wealth Management Wealth Platforms Head Office Consolidation adjustments1 Consolidated income statement Income Fee income and other income from service activities 246 198 - 6 450 Investment return 5 4,373 2 663 5,043 Other income 2 66 3 (50) 21 Segmental income 253 4,637 5 619 5,514 Expenses Change in investment contract liabilities - (4,348) - - (4,348) Fee and commission expenses, and other acquisition costs (47) (56) - (87) (190) Change in third party interest in consolidated funds - - - (586) (586) Other operating and administrative expenses (179) (190) (29) 54 (344) Finance costs (2) (1) (5) - (8) Segmental expenses (228) (4,595) (34) (619) (5,476) Profit/(loss) before tax from continuing operations 25 42 (29) - 38 Tax attributable to policyholder returns - (78) - - (78) Profit/(loss) before tax attributable to equity holders from continuing operations 25 (36) (29) - (40) Adjusted for non-operating items: Goodwill impairment and impact of acquisition accounting 5(b)(i) 25 1 - - 26 Business transformation costs 5(b)(ii) - 30 5 - 35 Managed Separation costs 5(b)(iii) - - 2 - 2 Finance costs 5(b)(iv) - - 5 - 5 Policyholder tax adjustments 5(b)(v) - 61 - - 61 Adjusting items before tax 25 92 12 - 129 Adjusted profit/(loss) before tax - continuing operations 50 56 (17) - 89 1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds. 6(b)(iii): Adjusted profit statement - segmental information for the year ended 31 December 2019 In the Group's 2019 Annual Report, the reconciliation for full year 2019 included the results of the QLA business within adjusted profit before tax. QLA is now excluded from this reconciliation for comparability with the current period following its disposal on 31 December 2019, which now presents continuing operations only. ��m Operating segments Notes Advice and Wealth Management Wealth Platforms Head Office Reallocation of QLA costs1 Consolidation adjustments2 Consolidated income statement Income Fee income and other income from service activities 486 438 - - 12 936 Investment return 10 5,823 3 - 1,030 6,866 Other income 1 160 6 - (145) 22 Segmental income 497 6,421 9 - 897 7,824 Expenses Insurance contract claims and changes in liabilities - (1) - - - (1) Change in investment contract liabilities - (5,810) - - - (5,810) Fee and commission expenses, and other acquisition costs (73) (110) - - (111) (294) Change in third party interest in consolidated funds - - - - (917) (917) Other operating and administrative expenses (368) (409) (68) (26) 131 (740) Finance costs (4) (3) (10) - - (17) Segmental expenses (445) (6,333) (78) (26) (897) (7,779) Profit/(loss) before tax from continuing operations 52 88 (69) (26) - 45 Tax attributable to policyholder returns - (98) - - - (98) Profit/(loss) before tax attributable to equity holders from continuing operations 52 (10) (69) (26) - (53) Adjusted for non-operating items: Goodwill impairment and impact of acquisition accounting 5(b)(i) 52 1 1 - - 54 Business transformation costs 5(b)(ii) (1) 58 20 - - 77 Managed Separation costs 5(b)(iii) - 1 5 - - 6 Finance costs 5(b)(iv) - - 10 - - 10 Policyholder tax adjustments 5(b)(v) - 62 - - - 62 Adjusting items before tax 51 122 36 - - 209 Adjusted profit/(loss) before tax after reallocation1 103 112 (33) (26) - 156 Reallocation of QLA costs1 - - - 26 - 26 Adjusted profit/(loss) before tax - continuing operations 103 112 (33) - - 182 1Reallocation of QLA costs includes ��26 million of costs previously reported as part of the QLA business which have been reclassified from discontinued to continuing operations as these costs did not transfer to ReAssure on disposal at 31 December 2019, as reported in the Group's 2019 Annual Report. 2Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds. 6(c)(i): Statement of financial position - segmental information at 30 June 2020 ��m Notes Advice & Wealth Management Wealth Platforms Head Office Consolidation Adjustments1 Total Assets Goodwill and intangible assets 10 444 134 - - 578 Property, plant and equipment 27 107 1 - 135 Investments in associated undertakings - - 1 - 1 Contract costs - 435 - - 435 Loans and advances 32 203 - - 235 Financial investments 11 - 51,974 - 5,898 57,872 Deferred tax assets 13 21 11 - 45 Current tax receivable - 33 7 - 40 Trade, other receivables and other assets 258 237 6 65 566 Derivative assets - - - 12 12 Cash and cash equivalents 14 399 721 590 757 2,467 Inter-segment funding - assets 3 12 - (15) - Total assets 1,176 53,877 616 6,717 62,386 Liabilities Investment contract liabilities 16 - 52,267 - - 52,267 Third-party interests in consolidated funds - - - 6,582 6,582 Provisions 17 56 22 10 - 88 Deferred tax liabilities 38 12 - - 50 Current tax payable/(receivable)2 8 (7) 3 - 4 Borrowings and lease liabilities 24 107 199 - 330 Trade, other payables and other liabilities 300 438 23 82 843 Contract liabilities and deferred revenue - 185 - - 185 Derivative liabilities - - - 72 72 Inter-segment funding - liabilities - - 15 (15) - Total liabilities 426 53,024 250 6,721 60,421 Total equity 1,965 Total equity and liabilities 62,386 1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds. 2Current tax payable/(receivable) includes Group relief payable and receivable that net to ��nil on a consolidated basis but may appear as a receivable within individual segments. 6(c)(ii): Statement of financial position - segmental information at 30 June 2019 ��m Notes Advice & Wealth Management Wealth Platforms Head Office Discontinued Operations Consolidation Adjustments1 Total Assets Goodwill and intangible assets 10 453 134 - - - 587 Property, plant and equipment 33 54 3 - (1) 89 Investments in associated undertakings - - 2 - - 2 Contract costs - 477 - - - 477 Loans and advances 27 186 7 - - 220 Financial investments 11 1 50,001 - - 6,421 56,423 Deferred tax assets 8 15 9 - - 32 Current tax receivable - 16 - - - 16 Trade, other receivables and other assets2 790 386 13 - 209 1,398 Derivative assets - - - - 24 24 Cash and cash equivalents 14 392 608 398 - 546 1,944 Assets of operations classified as held for sale3 - - - 12,324 (7) 12,317 Inter-segment funding - assets - 12 - - (12) - Total assets 1,704 51,889 432 12,324 7,180 73,529 Liabilities Investment contract liabilities 16 - 50,286 - - - 50,286 Third-party interests in consolidated funds - - - - 6,972 6,972 Provisions 17 19 20 6 - - 45 Deferred tax liabilities 42 49 - - - 91 Current tax payable/(receivable)4 11 4 (11) - - 4 Borrowings 28 50 203 - (1) 280 Trade, other payables and other liabilities 895 599 23 - 203 1,720 Contract Liabilities 1 191 - - - 192 Derivative liabilities - 1 - - 23 24 Liabilities of operations classified as held for sale3 - - - 11,988 (7) 11,981 Inter-segment funding - liabilities - - 12 - (12) - Total liabilities 996 51,200 233 11,988 7,178 71,595 Total equity 1,934 Total equity and liabilities 73,529 1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds. 2The Group's contract assets are included within Trade, other receivables and other assets, having previously been shown separately in the statement of financial position. 3Held for sale balances relate to the QLA business which was subsequently sold on 31 December 2019. 4Current tax payable/(receivable) includes Group relief payable and receivable that net to ��nil on a consolidated basis but may appear as a receivable within individual segments. 6(c)(iii): Statement of financial position - segmental information at 31 December 2019 ��m Notes Advice & Wealth Management Wealth Platforms Head Office Consolidation Adjustments1 Total Assets Goodwill and intangible assets 10 458 134 - - 592 Property, plant and equipment 30 111 2 - 143 Investments in associated undertakings - - 1 - 1 Contract costs - 455 - - 455 Loans and advances 31 180 6 - 217 Financial investments 11 1 52,249 - 7,095 59,345 Deferred tax assets 11 22 10 - 43 Current tax receivable - - 13 - 13 Trade, other receivables and other assets 207 177 3 37 424 Derivative assets - - - 32 32 Cash and cash equivalents 14 383 725 838 527 2,473 Inter-segment funding - assets - 12 - (12) - Total assets 1,121 54,065 873 7,679 63,738 Liabilities Investment contract liabilities 16 - 52,455 - - 52,455 Third-party interests in consolidated funds - - - 7,675 7,675 Provisions 17 28 26 10 - 64 Deferred tax liabilities 38 50 - - 88 Current tax payable/(receivable)2 1 (7) 12 - 6 Borrowings 26 108 201 - 335 Trade, other payables and other liabilities 322 477 37 - 836 Contract liabilities and deferred revenue 1 190 - - 191 Derivative liabilities - - - 17 17 Inter-segment funding - liabilities - - 12 (12) - Total liabilities 416 53,299 272 7,680 61,667 Total equity 2,071 Total equity and liabilities 63,738 1Consolidation adjustments comprise the elimination of inter-segment transactions and the consolidation of investment funds. 2Current tax payable/(receivable) includes Group relief payable and receivable that net to ��nil on a consolidated basis but may appear as a receivable within individual segments. 6(d): Geographic segmental information This note analyses the Group's total income, split by geographic location of our businesses (UK and International) and further analyses the Group's fee income and other income from service activities, based on the type of fees earned. The Group also earns an immaterial amount of income through operations based in the Republic of Ireland and the Channel Islands. ��m ��m UK International UK Six months 2020 Advice and Wealth Management Wealth Platforms Head Office Wealth Platforms Consolidation adjustments Total continuing operations Discontinued operations Premium based fees 56 - - 35 - 91 - Fund based fees1 169 82 - 47 - 298 - Retrocessions received, intragroup - 1 - 2 (3) - - Fixed fees - 1 - 14 - 15 - Surrender charges - - - 6 - 6 - Other fee and commission income - 11 - - 7 18 - Fee income and other income from service activities 225 95 - 104 4 428 - Investment return 3 (919) 1 (335) (297) (1,547) - Other income - 78 3 (1) (69) 11 - Total income 228 (746) 4 (232) (362) (1,108) - UK International UK Six months 2019 (restated��) Advice and Wealth Management Wealth Platforms Head Office Wealth Platforms Consolidation adjustments Total continuing operations Discontinued operations Gross earned premiums - - - 1 - 1 76 Premiums ceded to reinsurers - - - (1) - (1) (43) Net earned premiums - - - - - - 33 Premium based fees 45 - - 36 - 81 6 Fund based fees1 201 86 - 51 - 338 33 Retrocessions received, intragroup - 1 - 1 (2) - 5 Fixed fees - 1 - 14 - 15 1 Surrender charges - - - 8 - 8 - Other fee and commission income2 - - - - 8 8 50 Fee income and other income from service activities2 246 88 - 110 6 450 95 Investment return2 5 2,748 2 1,625 663 5,043 1,004 Other income 2 82 3 - (66) 21 - Total income 253 2,918 5 1,735 603 5,514 1,132 UK International UK Full year 2019 Advice and Wealth Management Wealth Platforms Head Office Wealth Platforms Consolidation adjustments Total continuing operations Discontinued operations Gross earned premiums - - - 1 - 1 145 Premiums ceded to reinsurers - - - (1) - (1) (86) Net earned premiums - - - - - - 59 Premium based fees 103 - - 72 - 175 11 Fund based fees1 383 175 - 101 - 659 65 Retrocessions received, intragroup - 2 - 2 (4) - 10 Fixed fees - 3 - 28 - 31 2 Surrender charges - - - 16 - 16 1 Other fee and commission income - 39 - - 16 55 75 Fee income and other income from service activities 486 219 - 219 12 936 164 Investment return 10 3,825 3 1,998 1,030 6,866 1,386 Other income 1 161 6 (1) (145) 22 - Total income 497 4,205 9 2,216 897 7,824 1,609 1Income from fiduciary activities is included within fund based fees. 2In the six month period ended 30 June 2019 the Group has made a restatement to reallocate ��50 million from "Investment return" to "Fee income and other income from service activities", within discontinued operations, to correctly classify the revenue recognised and conform with the Group's presentation policy. 7: Tax 7(a): Tax charged to the income statement ��m Note Six months 2020 Six months 2019 Full year 2019 Current tax United Kingdom 1 15 33 International 2 2 5 Adjustments to current tax in respect of prior periods - - (11) Total current tax charge 3 17 27 Deferred tax Origination and reversal of temporary differences (38) 51 40 Effect on deferred tax of changes in tax rates (1) 2 2 Adjustments to deferred tax in respect of prior periods - - (3) Total deferred tax (credit)/charge (39) 53 39 Total tax (credited)/charged to income statement - continuing operations (36) 70 66 Total tax charged to income statement - discontinued operations 4(b) - 61 89 Total tax (credited)/charged to income statement (36) 131 155 Attributable to policyholder returns - continuing operations (38) 78 98 Attributable to equity holders - continuing operations 2 (8) (32) Total tax (credited)/charged to income statement - continuing operations (36) 70 66 Attributable to policyholder returns - discontinued operations 4(b) - 59 76 Attributable to equity holders - discontinued operations - 2 13 Total tax charged to income statement - discontinued operations - 61 89 Total tax (credited)/charged to income statement (36) 131 155 Policyholder tax Certain products are subject to tax on policyholders' investment returns. This "policyholder tax" is an element of total tax expense. To make the tax expense more meaningful, tax attributable to policyholder returns and tax attributable to equity holders' profits are shown separately in the income statement. The tax attributable to policyholder returns is the amount payable in the year plus the movement of amounts expected to be payable in future years. The remainder of the tax expense is attributed to shareholders as tax attributable to equity holders. The Group's income tax credit on continuing operations was ��(36) million for the year ended 30 June 2020, compared to an expense of ��70 million for the prior year. This income tax (credit)/ expense can vary significantly period on period as a result of market volatility and the impact this has on policyholder tax. The recognition of the income received from policyholders (which is included within the Group's income) to fund the policyholder tax liability can vary in timing to the recognition of the corresponding policyholder tax expense, creating volatility to the Group's IFRS profit before tax attributable to equity holders. An adjustment is made to adjusted profit to remove these distortions, as explained further in note 5(b)(v). Significant market volatility during the period ended 30 June 2020 resulted in investment losses of ��175 million on products subject to policyholder tax. The loss is a component of the total "investment return" loss of ��(1,547) million shown in the income statement. The impact of the ��175 million investment return loss is the primary reason for the ��(38) million tax credit attributable to policyholder returns in respect of the continuing business for the period ended 30 June 2020 (30 June 2019: ��78 million charge in respect of continuing operations and ��59 million charge in respect of discontinued operations). 7(b): Reconciliation of total income tax expense The income tax charged to profit or loss differs from the amount that would apply if all of the Group's profits from the different tax jurisdictions had been taxed at the UK standard corporation tax rate. The difference in the effective rate is explained below: ��m Note Six months 2020 Six months 2019 Full year 2019 Profit before tax from continuing operations 8 38 45 Tax at UK standard rate of 19% (2019: 19%) 1 7 9 Different tax rate or basis on overseas operations (3) (3) (6) Untaxed and low taxed income (4) (1) 1 Disallowable expenses 2 1 3 Adjustments to current tax in respect of prior years - - (11) Net movement on deferred tax assets not recognised - (1) (11) Effect on deferred tax of changes in tax rates (1) 2 2 Adjustments to deferred tax in respect of prior years - - (3) Income tax attributable to policyholder returns (31) 65 82 Total tax (credited)/charged to income statement - continuing operations (36) 70 66 Total tax charged to income statement - discontinued operations 4(b) - 61 89 Total tax (credited)/charged to income statement (36) 131 155 7(c): Reconciliation of income tax expense in the income statement to income tax on adjusted profit ��m Notes Six months 2020 Six months 2019 Full year 2019 Income tax (credit)/expense on continuing operations1 (36) 70 66 Tax on adjusting items Goodwill impairment and impact of acquisition accounting - 4 8 Business transformation costs 8 7 14 Managed Separation costs - - 1 Finance costs 1 1 2 Customer remediation 1 - - Tax adjusting items Policyholder tax adjustments 5(b)(v) 47 (61) (62) Other shareholder tax adjustments2 (5) 9 24 Tax on adjusting items - continuing operations 52 (40) (13) Less: tax attributable to policyholder returns within adjusted profit - continuing operations3 (9) (17) (36) Tax charged on adjusted profit - continuing operations 7 13 17 Reversal of income tax expense on the reallocation of QLA costs - - 5 Tax charged on adjusted profit - continuing operations before the reallocation of QLA costs 7 13 22 Income tax expense on discontinued operations1 4(b) - 61 89 Tax on adjusting items Customer remediation - (1) (2) Tax adjusting items Policyholder tax adjustments 5(b)(v) - (15) (12) Other shareholder tax adjustments2 - (1) (3) Tax on adjusting items - discontinued operations - (17) (17) Less: Tax attributable to policyholder returns within adjusted profit - discontinued operations3 - (44) (64) Tax charged on adjusted profit - discontinued operations - - 8 Reversal of income tax credit on the reallocation of QLA costs - - (5) Tax charged on adjusted profit - discontinued operations before the reallocation of QLA costs - - 3 Tax charged on total adjusted profit 7 13 25 1Includes both tax attributable to policyholders and shareholders, in compliance with IFRS reporting. 2Other shareholder tax adjustments comprise the reallocation of adjustments from policyholder tax as explained in note 5(b)(v). 3Adjusted profit treats policyholder tax as a pre-tax charge (this includes policyholder tax under IFRS and the policyholder tax adjustments) and are therefore removed from tax charge on adjusted profit. 8: Earnings per share The Group calculates earnings per share ("EPS") on a number of different bases. IFRS requires the calculation of basic and diluted EPS, Adjusted EPS reflects earnings that are consistent with the Group's adjusted profit measure before and after the reallocation of QLA costs, and Headline earnings per share ("HEPS") is a requirement of the Johannesburg Stock Exchange. The Group's EPS (in aggregate, including both continuing and discontinued operations) on these different bases are summarised below. Basic EPS is calculated by dividing profit after tax attributable to ordinary equity shareholders of the parent by the weighted average number of Ordinary Shares in issue during the period. The weighted average number of shares excludes Quilter plc shares held within Employee Benefit Trusts ("EBTs") to satisfy the Group's obligations under employee share awards, and Quilter plc shares held in consolidated funds ("Own shares"). Own shares are deducted for the purpose of calculating both basic and diluted EPS. Diluted EPS recognises the dilutive impact of shares awarded and options granted to employees under share-based payment arrangements, to the extent they have value, in the calculation of the weighted average number of shares, as if the relevant shares were in issue for the full period. The Group is also required to calculate HEPS in accordance with the Johannesburg Stock Exchange Limited ("JSE") Listing Requirements, determined by reference to the South African Institute of Chartered Accountants' circular 02/2015 Headline Earnings. Disclosure of HEPS is not a requirement of IFRS, but it is a commonly used measure of earnings in South Africa. Pence Source of guidance Notes Six months 2020 Six months 2019 Full year 2019 Basic earnings per share IFRS 8(b) 2.4 (0.9) 8.0 Diluted earnings per share IFRS 8(b) 2.3 (0.9) 7.8 Adjusted basic earnings per share Group policy 8(b) 3.6 5.6 11.4 Adjusted diluted earnings per share Group policy 8(b) 3.5 5.5 11.3 Headline basic earnings per share (net of tax) JSE Listing Requirements 8(c) 2.4 (0.9) 2.3 Headline diluted earnings per share (net of tax) JSE Listing Requirements 8(c) 2.4 (0.9) 2.3 8(a): Weighted average number of Ordinary Shares The table below summarises the calculation of the weighted average number of Ordinary Shares for the purposes of calculating basic and diluted earnings per share for each profit measure (IFRS, adjusted and headline profit): Millions Six months 2020 Six months 2019 Full year 2019 Weighted average number of Ordinary Shares 1,879 1,902 1,902 Treasury shares including those held in EBTs (78) (68) (67) Basic weighted average number of Ordinary Shares 1,801 1,834 1,835 Adjustment for dilutive share awards and options 36 18 28 Diluted weighted average number of Ordinary Shares 1,837 1,852 1,863 8(b): Basic and diluted EPS (IFRS and adjusted profit) ��m Six months 2020 Six months 2019 Full year 2019 Notes Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total Profit/(loss) after tax 44 (1) 43 (32) 15 (17) (21) 167 146 Total adjusting items before tax 5(a) 25 1 26 129 9 138 209 (101) 108 Tax on adjusting items 7(c) (52) - (52) 40 17 57 13 17 30 Less: Policyholder tax adjustments 7(c) 47 - 47 (61) (15) (76) (62) (12) (74) Adjusted profit after tax after reallocation 64 - 64 76 26 102 139 71 210 Reversal of: Reallocation of QLA costs1 - - - - - - 26 (26) - Income tax on reallocation of QLA costs - - - - - - (5) 5 - Adjusted profit after tax 64 - 64 76 26 102 160 50 210 1Reallocation of QLA costs includes ��26 million of costs previously reported as part of the QLA business which have been reclassified from discontinued to continuing operations as these costs did not transfer to ReAssure on disposal at 31 December 2019, as reported in the Group's 2019 Annual Report. Six months 2020 Six months 2019 Full year 2019 Post-tax profit measure used Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total Pence Pence Pence Pence Pence Pence Pence Pence Pence Basic EPS IFRS profit 2.5 (0.1) 2.4 (1.7) 0.8 (0.9) (1.1) 9.1 8.0 Diluted EPS IFRS profit 2.4 (0.1) 2.3 (1.7) 0.8 (0.9) (1.1) 8.9 7.8 Adjusted basic EPS Adjusted profit 3.6 - 3.6 4.1 1.5 5.6 8.7 2.7 11.4 Adjusted diluted EPS Adjusted profit 3.5 - 3.5 4.1 1.4 5.5 8.6 2.7 11.3 Adjusted basic EPS after reallocation1 Adjusted profit after reallocation N/A N/A N/A N/A N/A N/A 7.5 3.9 11.4 Adjusted diluted EPS after reallocation1 Adjusted profit after reallocation N/A N/A N/A N/A N/A N/A 7.5 3.8 11.3 1Reallocation of QLA costs includes ��26 million of costs previously reported as part of the QLA business which have been reclassified from discontinued to continuing operations as these costs did not transfer to ReAssure on disposal at 31 December 2019, as reported in the Group's 2019 Annual Report. 8(c): Headline earnings per share + + ��m Six months 2020 Six months 2019 Full year 2019 Gross Net of tax Gross Net of tax Gross Net of tax Profit/(loss) attributable to ordinary equity holders 43 (17) 146 Adjusting items: Less: profit on business disposals 1 1 - - (103) (103) Headline earnings 44 (17) 43 Headline basic EPS (pence) 2.4 (0.9) 2.3 Headline diluted EPS (pence) 2.4 (0.9) 2.3 9: Dividends ��m Payment date Six months 2020 Six months 2019 Full year 2019 2018 Final dividend paid - 3.3p per ordinary share 20 May 2019 - 61 61 2019 Interim dividend paid - 1.7p per ordinary share 20 September 2019 - - 31 2019 Final dividend paid - 3.5p per ordinary share 18 May 2020 64 - - Dividends paid to ordinary shareholders 64 61 92 Final and interim dividends paid to ordinary shareholders are calculated using the number of shares in issue at the record date less own shares held in Employee Benefit Trusts. 10: Goodwill and intangible assets 10(a): Analysis of goodwill and intangible assets The table below shows the movements in cost and amortisation of goodwill and intangible assets. ��m Goodwill Software development costs Other intangible assets Total Gross amount 1 January 2019 314 100 380 794 Acquisitions through business combinations 52 - 36 88 Additions - 4 - 4 Transfer to non-current assets held for sale (30) - - (30) 30 June 2019 336 104 416 856 Acquisitions through business combinations 16 - 13 29 Additions - 1 - 1 Disposals - (4) (4) (8) Other movements1 (2) - 3 1 31 December 2019 350 101 428 879 Acquisitions through business combinations2 7 - - 7 Additions - 3 - 3 30 June 2020 357 104 428 889 Amortisation and other movements 1 January 2019 - (95) (149) (244) Amortisation charge for the period - (3) (22) (25) 30 June 2019 - (98) (171) (269) Amortisation charge for the period - 1 (23) (22) Disposals - 4 4 8 Other movements1 - - (4) (4) 31 December 2019 - (93) (194) (287) Amortisation charge for the period - (1) (23) (24) 30 June 2020 - (94) (217) (311) Carrying amount 30 June 2019 336 6 245 587 31 December 2019 350 8 234 592 30 June 2020 357 10 211 578 1During 2019, there was a gross up of fully amortised intangible assets in the Quilter Financial Planning and Quilter Cheviot businesses arising from previous business combinations. 2During the period ended 30 June 2020, there have been fair value adjustments of ��7 million made to the net assets acquired in Lighthouse, with a corresponding increase in goodwill. Refer to note 4(a) for further details. 10(b): Analysis of other intangible assets ��m 30 June 2020 30 June 2019 31 December 2019 Average estimated useful life Average period remaining Net carrying value Distribution channels 19 26 22 8 years 3 years Customer relationships 192 217 211 9 years 5 years Brand - 2 1 n/a n/a Total other intangible assets 211 245 234 Distribution channel assets are in relation to various Quilter Financial Planning businesses. Customer relationship assets are largely in relation to the Quilter Cheviot and Quilter Financial Planning businesses. The brand asset is in relation to the Quilter Cheviot business. 10(c): Allocation of goodwill to cash generating units ("CGUs") and impairment testing The Group's CGUs are based on the Advice and Wealth Management and Wealth Platforms operating segments. Goodwill is allocated to these CGUs as follows: ��m 30 June 2020 30 June 2019 31 December 2019 Goodwill (net carrying amount) Advice and Wealth Management 226 205 219 Wealth Platforms 131 131 131 Goodwill (as per the Statement of Financial Position) 357 336 350 Goodwill held for sale - 30 - Total Goodwill 357 366 350 Impairment review In accordance with the requirements of IAS 36 Impairment of Assets, goodwill in both the Advice and Wealth Management and Wealth Platforms CGUs is tested for impairment annually, or earlier if an indicator of impairment exists, by comparing the carrying value of the CGU to which the goodwill relates to the recoverable value of that CGU, being the higher of that CGU's value-in-use or fair value less costs to sell. If applicable, an impairment charge is recognised when the recoverable amount is less than the carrying value. Goodwill impairment indicators include sudden stock market falls, the absence of Net Client Cash Flows ("NCCF"), significant falls in profits and an increase in the discount rate. An indication of impairment has arisen during the period, given the significant adverse impact that the COVID-19 pandemic has had on global equity markets and the effect this has on the Group's AuMA and revenue. Consequently, the goodwill balance has been tested for impairment at 30 June 2020 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 impact on expected future cash flows, resulting from equity market falls relating to COVID-19, has reduced the surplus of the recoverable amount over the carrying value since 31 December 2019. The most significant impact is seen within the Advice and Wealth Management segment, where AuMA is more correlated to equity market movements and is the key driver for future cash flows. The following table details the separate percentage change required in each key assumption before the carrying value would exceed the recoverable amount, assuming all other variables remain the same. This highlights that further adverse movements to the key assumptions used in the CGU value-in-use calculation would be required before impairment is indicated. Advice and Wealth Management Wealth Platforms Reduction in forecast cash flows 31% 54% Increase in discount rate1 105% 234% 1Percentage increase required based on current discount rate of 9.7%. 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 which have a direct impact on the level of the Group's fee income, as demonstrated by the recent volatility resulting from COVID-19. Value-in-use methodology The value-in-use calculations for life assurance operations are determined as the sum of net tangible assets, the expected future cash flows arising from the in-force business, together with the expected cash flows from future new business derived from the business plans. Future cash flow elements allow for the cost of capital needed to support the business. The net tangible assets and future cash flows arising from the in-force business are derived from Solvency II ("SII") calculations. The value of in-force ("VIF") is calculated as the prospective value of future expected cash flows on all in-force policies at the valuation date on a policy-by-policy basis allowing for surrender or transfer payments, death claims, income withdrawals, maintenance expenses, fund-based fees, mortality charge and other policy charges. The underlying assumptions are based on the best estimate view for the future, which is largely based on recent business experience and any emerging trends. The unit fund growth rates (gross of investment charges) and the risk discount rates are set using the prescribed SII term-dependent risk-free interest rates. The SII calculations are adjusted for a risk margin using the prescribed SII rules. The value-in-use calculations for asset management operations are determined as the sum of net tangible assets and the expected cash flows from existing and expected future new business. The cash flows that have been used to determine the value-in-use of the CGUs are based on the most recent management approved three-year profit forecasts, which incorporate the impact of COVID-19 and anticipated equity market growth on the Group's future cash flows. These cash flows grow at different rates because of the different strategies of the CGUs. In cases where the CGUs have made significant acquisitions in the recent past, the cash flows are forecast to grow faster than the more mature businesses. Post the three-year forecasts, the growth rate used to determine the terminal value of the CGUs in the annual assessment approximates to the UK long-term growth rate of 0.6% (2019: 1.7%). Market share and market growth information are also used to inform the expected volumes of future new business. IAS 36 does not permit any cost savings linked to future restructuring activity to be included within the value-in-use calculation, unless an associated restructuring provision has also been recognised. Consequently, for the purpose of the value-in-use calculation, a number of planned cost savings (and the related implementation costs), primarily in relation to the Optimisation programme, have been removed from the future cash flows. The Group uses a single cost of capital of 9.7% (2019: 10.0%) to discount future expected business plan cash flows across its two CGUs because they are perceived to present a similar level of risk and are integrated. Capital is provided to the Group predominantly by shareholders with a small amount of debt. The cost of capital is the weighted average of the cost of equity (return required by shareholders) and the cost of debt (return required by bond and property lease holders). When assessing the systematic risk (i.e. beta value) within the calculation of the cost of equity, a triangulation approach is used that combines beta values obtained from historical data, a forward-looking view on the progression of beta values and the external views of investors. 11: Financial investments The table below analyses the investments and securities that the Group invests in, either on its own proprietary behalf (shareholder funds) or on behalf of third parties (policyholder funds). ��m 30 June 2020 30 June 2019 31 December 2019 Government and government-guaranteed securities 567 1,055 1,018 Other debt securities, preference shares and debentures 2,040 2,449 2,160 Equity securities 12,334 12,339 12,051 Pooled investments1 42,920 50,259 44,101 Short-term funds and securities treated as investments 11 25 15 Total financial investments 57,872 66,127 59,345 Less: financial investments classified as held for sale - (9,704) - Total financial investments net of held for sale 57,872 56,423 59,345 Recoverable within 12 months 57,871 65,987 59,344 Recoverable after 12 months 1 140 1 Total financial investments 57,872 66,127 59,345 1As at 30 June 2019, the Group has corrected the value of pooled investments which was previously stated as ��50,261 million. This has not changed the closing balance of total financial investments at 30 June 2019, which remains at ��66,127 million. The financial investments recoverability profile is based on the intention with which the financial assets are held. These assets are held to cover the liabilities for linked investment contracts, all of which can be withdrawn by policyholders on demand. 12: Categories of financial instruments The analysis of financial assets and liabilities into their categories as defined in IFRS 9 Financial Instruments is set out in the following tables. Assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IFRS 9, are reflected in the non-financial assets and liabilities category. For information about the methods and assumptions used in determining fair value please refer to note 13. The Group's exposure to various risks associated with financial instruments is discussed in the 2019 Annual Report. 30 June 2020 ��m Measurement basis Fair value Mandatorily at FVTPL Designated at FVTPL Amortised cost Non-financial assets and liabilities Total Assets Investments in associated undertakings1 - - - 1 1 Loans and advances 203 - 32 - 235 Financial investments 57,870 2 - - 57,872 Trade, other receivables and other assets - - 508 58 566 Derivative assets 12 - - - 12 Cash and cash equivalents 1,225 - 1,242 - 2,467 Total assets that include financial instruments 59,310 2 1,782 59 61,153 Total other non-financial assets - - - 1,233 1,233 Total assets 59,310 2 1,782 1,292 62,386 Liabilities Investment contract liabilities 52,267 - - - 52,267 Third-party interests in consolidation of funds 6,582 - - - 6,582 Borrowings and lease liabilities - - 330 - 330 Trade, other payables and other liabilities - - 738 105 843 Derivative liabilities 72 - - - 72 Total liabilities that include financial instruments 58,921 - 1,068 105 60,094 Total other non-financial liabilities - - - 327 327 Total liabilities 58,921 - 1,068 432 60,421 1Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted. 30 June 2019 ��m Measurement basis Fair value Mandatorily at FVTPL Designated at FVTPL Amortised cost Non-financial assets and liabilities Total Assets Investments in associated undertaking1 - - - 2 2 Loans and advances 186 - 34 - 220 Financial investments 56,421 2 - - 56,423 Trade, other receivables and other assets - - 1,354 44 1,398 Derivative financial instruments 24 - - - 24 Cash and cash equivalents 1,072 - 872 - 1,944 Total assets that include financial instruments 57,703 2 2,260 46 60,011 Total other non-financial assets - - - 1,201 1,201 Total assets net of held for sale 57,703 2 2,260 1,247 61,212 Total assets classified as held for sale 11,421 137 86 673 12,317 Total assets 69,124 139 2,346 1,920 73,529 Liabilities Investment contract liabilities 50,286 - - - 50,286 Third-party interest in consolidation of funds 6,972 - - - 6,972 Borrowings - - 280 - 280 Trade, other payables and other liabilities - - 1,587 133 1,720 Derivative financial instruments 24 - - - 24 Total liabilities that include financial instruments 57,282 - 1,867 133 59,282 Total other non-financial liabilities - - - 332 332 Total liabilities net of held for sale 57,282 - 1,867 465 59,614 Total liabilities classified as held for sale 11,040 - 125 816 11,981 Total liabilities 68,322 - 1,992 1,281 71,595 1Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted. 31 December 2019 ��m Measurement basis Fair value Mandatorily at FVTPL Designated at FVTPL Amortised cost Non-financial assets and liabilities Total Assets Investments in associated undertakings1 - - - 1 1 Loans and advances 180 - 37 - 217 Financial investments 59,343 2 - - 59,345 Trade, other receivables and other assets - - 373 51 424 Derivative assets 32 - - - 32 Cash and cash equivalents 1,159 - 1,314 - 2,473 Total assets that include financial instruments 60,714 2 1,724 52 62,492 Total other non-financial assets - - - 1,246 1,246 Total assets 60,714 2 1,724 1,298 63,738 Liabilities Investment contract liabilities 52,455 - - - 52,455 Third-party interests in consolidation of funds 7,675 - - - 7,675 Borrowings - - 335 - 335 Trade, other payables and other liabilities - - 730 106 836 Derivative liabilities 17 - - - 17 Total liabilities that include financial instruments 60,147 - 1,065 106 61,318 Total other non-financial liabilities - - - 349 349 Total liabilities 60,147 - 1,065 455 61,667 1Investments in associated undertakings classified as non-financial assets and liabilities are equity accounted. 13: Fair value methodology This section explains the judgements and estimates made in determining the fair values of financial instruments that are recognised and measured at fair value in the financial statements. Classifying financial instruments into the three levels of fair value hierarchy (see note 13(b)), prescribed under IFRS, provides an indication about the reliability of inputs used in determining fair value. 13(a): Determination of fair value The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market exit prices for assets and offer prices for liabilities, at the close of business on the reporting date, without any deduction for transaction costs: �� for units in unit trusts and shares in open-ended investment companies, fair value is determined by reference to published quoted prices representing exit values in an active market; �� for equity and debt securities not actively traded in organised markets and where the price cannot be retrieved, the fair value is determined by reference to similar instruments for which market observable prices exist; �� for assets that have been suspended from trading on an active market, the last published price is used. Many suspended assets are still regularly priced. At the reporting date all suspended assets are assessed for impairment; and �� where the assets are private company shares or within consolidated investment funds the valuation is based on the latest available set of audited financial statements where available, or if more recent, a statement of valuation provided by the private company's management. There have been no significant changes in the valuation techniques applied when valuing financial instruments. Where assets are valued by the Group, the general principles applied to those instruments measured at fair value are outlined below: Loans and advances Loans and advances include loans to policyholders, loans to brokers, and other secured and unsecured loans. Loans and advances to policyholders of investment linked contracts are measured at fair value. All other loans are stated at their amortised cost. Financial investments Financial investments include government and government-guaranteed securities, listed and unlisted debt securities, preference shares and debentures, listed and unlisted equity securities, listed and unlisted pooled investments (see below), short-term funds and securities treated as investments and certain other securities. Pooled investments represent the Group's holdings of shares/units in open-ended investment companies, unit trusts, mutual funds and similar investment vehicles. Pooled investments are recognised at fair value. The fair values of pooled investments are based on widely published prices that are regularly updated. Other financial investments that are measured at fair value use observable market prices where available. In the absence of observable market prices, these investments and securities are fair valued utilising various approaches including discounted cash flows, the application of an earnings before interest, tax, depreciation and amortisation multiple or any other relevant technique. Derivatives The fair value of derivatives is determined with reference to the exchange traded prices of the specific instruments. The fair value of the Group's over the counter forward foreign exchange contracts is determined by the underlying foreign currency exchange rates. Investment contract liabilities The fair value of the investment contract liabilities is determined with reference to the underlying funds that are held by the Group. Third-party interest in consolidated funds Third-party interests in consolidated funds are measured at the attributable net asset value of each fund. Borrowings and lease liabilities Borrowings and lease liabilities are stated at amortised cost. 13(b): Fair value hierarchy Fair values are determined according to the following hierarchy: Description of hierarchy Types of instruments classified in the respective levels Level 1 - quoted market prices: financial assets and liabilities with quoted prices for identical instruments in active markets. Listed equity securities, government securities and other listed debt securities and similar instruments that are actively traded, actively traded pooled investments, certain quoted derivative assets and liabilities, and investment contract liabilities directly linked to other Level 1 financial assets. Level 2 - valuation techniques using observable inputs: financial assets and liabilities with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial assets and liabilities valued using models where all significant inputs are observable. Unlisted equity and debt securities where the valuation is based on models involving no significant unobservable data. Over the counter ("OTC") derivatives, certain privately placed debt instruments and third-party interests in consolidated funds which meet the definition of Level 2 financial instruments. Level 3 - valuation techniques using significant unobservable inputs: financial assets and liabilities valued using valuation techniques where one or more significant inputs are unobservable. Unlisted equity and securities with significant unobservable inputs, securities where the market is not considered sufficiently active, including certain inactive pooled investments. The judgement as to whether a market is active may include, for example, consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer spreads. In inactive markets, obtaining assurance that the transaction price provides evidence of fair value or determining the adjustments to transaction prices that are necessary to measure the fair value of the asset or liability requires additional work during the valuation process. The majority of valuation techniques employ only observable data and so the reliability of the fair value measurement is high. However, certain financial assets and liabilities are valued on the basis of valuation techniques that feature one or more significant inputs that are unobservable and, for them, the derivation of fair value is more judgemental. A financial asset or liability in its entirety is classified as valued using significant unobservable inputs if a significant proportion of that asset or liability's carrying amount is driven by unobservable inputs. In this context, 'unobservable' means that there is little or no current market data available for which to determine the price at which an arm's length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Furthermore, in some cases the majority of the fair value derived from a valuation technique with significant unobservable data may be attributable to observable inputs. Consequently, the effect of uncertainty in determining unobservable inputs will generally be restricted to uncertainty about the overall fair value of the asset or liability being measured. 13(c): Transfer between fair value hierarchies The Group deems a transfer to have occurred between Level 1 and Level 2 or Level 3 when an active, traded primary market ceases to exist for that financial instrument. A transfer between Level 2 and Level 3 occurs when the majority of the significant inputs used to determine fair value of the instrument become unobservable. Transfers from Levels 3 or 2 to Level 1 are also possible when assets become actively priced. There were transfers of financial investments of ��nil from Level 1 to Level 2 during the year (30 June 2019: ��167 million, 31 December 2019: ��139 million). There were transfers of financial investments of ��nil from Level 2 to Level 1 during the year (30 June 2019: ��55 million, 31 December 2019: ��76 million). These movements are matched exactly by transfers of investment contract liabilities. See note 13(e) for the reconciliation of Level 3 financial instruments. 13(d): Financial assets and liabilities measured at fair value, classified according to fair value hierarchy The majority of the Group's financial assets are measured using quoted market prices for identical instruments in active markets (Level 1) and there have been no significant changes during the year. The linked assets are held to cover the liabilities for linked investment contracts (net of reinsurance). The difference between linked assets and linked liabilities is principally due to short-term timing differences between policyholder premiums being received and invested in advance of policies being issued, and tax liabilities within funds which are reflected within the Group's tax liabilities. Differences between assets and liabilities within the respective levels of the fair value hierarchy also arise due to the mix of underlying assets and liabilities within consolidated funds. In addition, third-party interests in consolidated funds are classified as Level 2. The table below presents a summary of the Group's financial assets and liabilities that are measured at fair value in the consolidated statement of financial position according to their IFRS 9 classification (see note 12 for full details). 30 June 2020 30 June 2019 31 December 2019 ��m % ��m % ��m % Financial assets measured at fair value Level 1 45,596 76.8% 55,561 80.2% 46,904 77.3% Level 2 11,254 19.0% 12,281 17.7% 12,095 19.9% Level 3 2,462 4.2% 1,421 2.1% 1,717 2.8% Total 59,312 100.0% 69,263 100.0% 60,716 100.0% Financial liabilities measured at fair value Level 1 49,405 83.8% 59,498 87.1% 50,315 83.6% Level 2 7,054 12.0% 7,403 10.8% 8,115 13.5% Level 3 2,462 4.2% 1,421 2.1% 1,717 2.9% Total 58,921 100.0% 68,322 100.0% 60,147 100.0% The tables below further analyse the Group's financial assets and liabilities measured at fair value by the fair value hierarchy described in note 13(b): ��m 30 June 2020 Level 1 Level 2 Level 3 Total Financial assets measured at fair value Mandatorily (fair value through profit or loss) 45,594 11,254 2,462 59,310 Loans and advances 203 - - 203 Financial investments 44,166 11,242 2,462 57,870 Cash and cash equivalents 1,225 - - 1,225 Derivative assets - 12 - 12 Designated (fair value through profit or loss) 2 - - 2 Financial investments 2 - - 2 Total assets measured at fair value 45,596 11,254 2,462 59,312 Financial liabilities measured at fair value Mandatorily (fair value through profit or loss) 49,405 7,054 2,462 58,921 Investment contract liabilities 49,405 400 2,462 52,267 Third-party interests in consolidated funds - 6,582 - 6,582 Derivative liabilities - 72 - 72 Total liabilities measured at fair value 49,405 7,054 2,462 58,921 ��m 30 June 2019 Level 1 Level 2 Level 3 Total Financial assets measured at fair value Mandatorily (fair value through profit or loss) 44,024 12,259 1,420 57,703 Loans and advances 186 - - 186 Financial investments 42,766 12,235 1,420 56,421 Cash and cash equivalents 1,072 - - 1,072 Derivative assets - 24 - 24 Designated (fair value through profit or loss) 2 - - 2 Financial investments 2 - - 2 Total assets net of held for sale 44,026 12,259 1,420 57,705 Total assets classified as held for sale 11,535 22 1 11,558 Total assets measured at fair value 55,561 12,281 1,421 69,263 Financial liabilities measured at fair value Mandatorily (fair value through profit or loss) 48,481 7,381 1,420 57,282 Investment contract liabilities 48,481 385 1,420 50,286 Third-party interests in consolidated funds - 6,972 - 6,972 Derivative liabilities - 24 - 24 Total liabilities net of held for sale 48,481 7,381 1,420 57,282 Total liabilities classified as held for sale 11,017 22 1 11,040 Total liabilities measured at fair value 59,498 7,403 1,421 68,322 ��m 31 December 2019 Level 1 Level 2 Level 3 Total Financial assets measured at fair value Mandatorily (fair value through profit or loss) 46,902 12,095 1,717 60,714 Loans and advances 180 - - 180 Financial investments 45,563 12,063 1,717 59,343 Cash and cash equivalents 1,159 - - 1,159 Derivative assets - 32 - 32 Designated (fair value through profit or loss) 2 - - 2 Financial investments 2 - - 2 Total assets measured at fair value 46,904 12,095 1,717 60,716 Financial liabilities measured at fair value Mandatorily (fair value through profit or loss) 50,315 8,115 1,717 60,147 Investment contract liabilities 50,315 423 1,717 52,455 Third-party interests in consolidated funds - 7,675 - 7,675 Derivative liabilities - 17 - 17 Total liabilities measured at fair value 50,315 8,115 1,717 60,147 13(e): Level 3 fair value hierarchy disclosure All of the assets that are classified as Level 3 are held within linked policyholder funds. This means that all of the investment risk associated with these assets is borne by policyholders and that the value of these assets is exactly matched by a corresponding liability due to policyholders. The Group bears no risk from a change in the market value of these assets except to the extent that it has an impact on management fees earned. The table below reconciles the opening balance of Level 3 financial assets to the closing balance at each period end: ��m 30 June 2020 30 June 2019 31 December 2019 At beginning of the year1 1,717 1,154 1,154 Total net fair value (losses)/gains recognised in: - profit or loss (3) 68 (20) Purchases - 31 314 Sales (2) (3) (24) Transfers in 887 210 369 Transfers out (139) (36) (71) Foreign exchange and other 2 (3) (5) Total Level 3 financial assets 2,462 1,421 1,717 Unrealised fair value (losses)/gains relating to assets held at the period end recognised in: - profit or loss (3) 68 (20) 1The opening balance for 2019 includes a ��3m shareholder investment in an unlisted equity, the Charles Derby Group; this was not matched by a corresponding liability and therefore any changes in market value were recognised in the Group's income statement. Following the acquisition of the Charles Derby Group in 2019, the Group's investment is no longer held as a Level 3 financial investment, but instead as an investment in subsidiary which is eliminated on consolidation. Amounts shown as sales arise principally from the sale of private company shares, unlisted pooled investments and from distributions received in respect of holdings in property funds. Transfers into Level 3 assets in the current period total ��887 million (30 June 2019: ��210 million, 31 December 2019: ��369 million). This is due to a combination of stale priced assets that were previously shown within Level 2 and for which price updates have not been received for more than six months, and a significant increase in suspended funds previously showed within Level 1 predominately due to the COVID-19 pandemic, resulting in a number of property fund suspensions. Suspended funds are valued based on external valuation reports received from fund managers. Transfers out of Level 3 assets in the current period comprise ��139 million (30 June 2019: ��36 million, 31 December 2019: ��71 million) which is due to a combination of stale priced assets that were not previously being repriced and that have been transferred into Level 2 as they are now actively priced, and during 2020 a suspended fund has been wound up and cash returned to policyholders, resulting in the cash being placed in a cash fund within Level 1 assets. The table below analyses the type of Level 3 financial assets held: ��m 30 June 2020 30 June 2019 31 December 2019 Pooled investments 1,082 245 361 Unlisted and stale price pooled investments 175 129 133 Suspended funds 907 116 228 Private equity investments 1,380 1,176 1,356 Total Level 3 financial assets 2,462 1,421 1,717 All of the liabilities that are classified as Level 3 are investment contract liabilities which exactly match against the Level 3 assets held in linked policyholder funds. The table below reconciles the opening balance of Level 3 financial liabilities to the closing balance at each period end: ��m 30 June 2020 30 June 2019 31 December 2019 At beginning of the year 1,717 1,151 1,151 Total net fair value (losses)/gains recognised in: - profit or loss (3) 68 (20) Purchases - 31 314 Sales (2) (3) (24) Transfers in 887 210 369 Transfers out (139) (36) (71) Foreign exchange and other 2 - (2) Total Level 3 financial liabilities 2,462 1,421 1,717 Unrealised fair value (losses)/gains relating to liabilities held at the period end recognised in: - profit or loss (3) 68 (20) 13(f): Effect of changes in significant unobservable assumptions to reasonable possible alternatives Details of the valuation techniques applied to the different categories of financial instruments can be found in note 13(a) above, including the valuation techniques applied when significant unobservable assumptions are used to value Level 3 assets. The majority of the Group's Level 3 assets are held within private equity investments, where the valuation of these assets is performed on an asset-by-asset basis using a valuation methodology appropriate to the specific investment and in line with industry guidelines. Private equity investments are valued at the value disclosed in the latest available set of audited financial statements or, if more recent information is available, from investment managers or professional valuation experts at the value of the underlying assets of the private equity investment. For this reason, no reasonable alternative assumptions are applicable and management therefore performs a sensitivity test of an aggregate 10% change in the value of the financial asset or liability (30 June 2019: 10%, 31 December 2019: 10%), representing a reasonable possible alternative judgement in the context of the current macro-economic environment in which the Group operates. It is therefore considered that the impact of this sensitivity will be in the range of ��246 million to the reported fair value of Level 3 assets, both favourable and unfavourable (30 June 2019: ��142 million, 31 December 2019: ��172 million). As described in note 13(e), changes in the value of Level 3 assets held within linked policyholder funds are exactly matched by corresponding changes in the value of liabilities due to policyholders and therefore have no impact on the Group's net asset value or profit or loss, except to the extent that it has an impact on management fees earned. 13(g): Fair value hierarchy for assets and liabilities not measured at fair value Certain financial instruments of the Group are not carried at fair value. The carrying values of these are considered reasonable approximations of their respective fair values, as they are either short term in nature or are repriced to current market rates at frequent intervals. Their classification within the fair value hierarchy would be as follows: Trade, other receivables, and other assets Level 3 Trade, other payables, and other liabilities Level 3 Cash and cash equivalents (excluding money market funds) are held at amortised cost and therefore not carried at fair value. The cash and cash equivalents that are held at amortised cost would be classified as Level 1 in the fair value hierarchy. Loans and advances are financial assets held at amortised cost and therefore not carried at fair value, with the exception of policyholder loans which are categorised as FVTPL. The loans and advances that are held at amortised cost would be classified as Level 3 in the fair value hierarchy. Borrowed funds are financial liabilities held at amortised cost and therefore not carried at fair value. Borrowed funds relate to subordinated liabilities and would be classified as Level 2 in the fair value hierarchy. Lease liabilities valued under IFRS 16 are held at amortised cost and therefore not carried at fair value. They would be classified as Level 3 in the fair value hierarchy. 14: Analysis of cash and cash equivalents ��m 30 June 2020 30 June 2019 31 December 2019 Cash at bank 485 369 787 Money market funds 1,225 1,410 1,159 Cash and cash equivalents in consolidated funds 757 546 527 Total cash and cash equivalents per consolidated statement of cash flows 2,467 2,325 2,473 Less: cash within held for sale - 381 - Total cash and cash equivalents per statement of financial position 2,467 1,944 2,473 Management consider that cash and cash equivalents are materially available for use in the Group's day-to-day operations, except for amounts held in consolidated funds of ��757 million (30 June 2019: ��546 million, 31 December 2019: ��527 million). 15: Share capital Financial instruments issued are classified as equity when there is no contractual obligation to transfer cash, other financial assets or issue a variable number of own equity instruments. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax. The Parent Company's equity capital currently comprises 1,856,264,234 Ordinary Shares of 7p each with an aggregated nominal value of ��129,938,496 (30 June 2019 and 31 December 2019: 1,902,251,098 Ordinary Shares of 7p each with an aggregated nominal value of ��133,157,577). This note gives details of the Company's Ordinary Share capital and shows the movements during the period: ��m ��m Number of shares Nominal value Share premium At 1 January 2019 1,902,251,098 133 58 At 31 December 2019 1,902,251,098 133 58 Shares cancelled through share buyback programme1 (45,986,864) (3) - At 30 June 2020 1,856,264,234 130 58 1On 11 March 2020 the Company announced a share buyback programme to purchase shares, up to a maximum value of ��375 million, in order to reduce the share capital of the Company. The programme commenced on 11 March 2020 and will continue into 2021. As part of Tranche 1 of the programme, which completed in June 2020, the Company has acquired 43,217,594 shares for a total consideration of ��50 million, and incurred additional costs of ��2 million. Tranche 2 of the programme commenced in June 2020. As part of the second tranche a further 2,769,270 shares have been purchased for ��4 million up to 30 June 2020. The shares from both tranches, which have a nominal value of ��3 million, have subsequently been cancelled, giving rise to a capital redemption reserve of the same value as required by the Companies Act 2006. 16: Investment contract liabilities The following table provides a summary of the Group's investment contract liabilities: ��m 30 June 2020 30 June 2019 31 December 2019 Gross Re- insurance Net Gross Re- insurance Net Gross Re- insurance Net Carrying amount at 1 January 52,455 - 52,455 56,450 (1,671) 54,779 56,450 (1,671) 54,779 From continuing operations Fair value movements (1,668) - (1,668) 4,002 - 4,002 5,091 - 5,091 Investment income 414 - 414 346 - 346 719 - 719 Movements arising from investment return (1,254) - (1,254) 4,348 - 4,348 5,810 - 5,810 From discontinued operations Fair value movements - - - 1,078 (159) 919 1,427 (205) 1,222 Investment income - - - 72 - 72 142 - 142 Movements arising from investment return - - - 1,150 (159) 991 1,569 (205) 1,364 Contributions received 2,551 - 2,551 2,747 315 3,062 5,718 1,148 6,866 Maturities (40) - (40) (86) - (86) (166) - (166) Withdrawals and surrenders (1,590) - (1,590) (3,189) - (3,189) (7,419) - (7,419) Claims and benefits (25) - (25) (98) - (98) (205) - (205) Other movements - - - (1) (1) (2) 2 (1) 1 Change in liability (358) - (358) 4,871 155 5,026 5,309 942 6,251 Currency translation loss/(gain) 170 - 170 5 - 5 (121) - (121) Transfer to held for sale - - - (11,040) 1,516 (9,524) - - - Disposal of subsidiaries - - - - - - (9,183) 729 (8,454) Investment contract liabilities 52,267 - 52,267 50,286 - 50,286 52,455 - 52,455 For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. The benefits offered under the unit-linked investment contracts are based on the risk appetite of policyholders and the return on their selected investments and collective fund investments, whose underlying investments include equities, debt securities, property and derivatives. This investment mix is unique to individual policyholders. The maturity value of these financial liabilities is determined by the fair value of the linked assets at maturity date. There will be no difference between the carrying amount and the maturity amount at maturity date. The reinsurers' share of policyholder liabilities relating to investment contract liabilities reduced to ��nil in 2019 due to the disposal of QLA. For unit-linked business, the unit liabilities are determined as the value of units credited to policyholders. Since these liabilities are determined on a retrospective basis no assumptions for future experience are required. Assumptions for future experience are required for unit-linked business in assessing whether the total of the contract costs asset and contract liability is greater than the present value of future profits expected to arise on the relevant blocks of business (the "recoverability test"). If this is the case, then the contract costs asset is restricted to the recoverable amount. For linked contracts, the assumptions are on a best estimate basis. Following the sale of QLA (see note 4(b)) the Group no longer has any pure insurance contracts. Within the Group's International business, insurance contracts are unbundled. The insurance component does not give rise to any future liabilities and the deposit component is presented in investment contract liabilities. As a result, the Group no longer has any insurance liabilities or reinsurance assets. In the six months ended 30 June 2020 unbundled insurance premiums of ��1 million (30 June 2019: ��1 million, 31 December 2019: ��1 million) are offset by ��(1) million (30 June 2019: ��(1) million, 31 December 2019: ��(1) million) of premiums ceded to reinsurers. 17: Provisions ��m 30 June 2020 Compensation provisions Sale of QLA Sale of Single Strategy business Other Total Balance at beginning of the year 31 6 10 17 64 Additions from business combinations 12 - - - 12 Charge to income statement 8 - - - 8 Utilised during the period (3) (2) (1) - (6) Unused amounts reversed (1) - (1) - (2) Reclassification within Statement of Financial Position1 - - - 12 12 Balance at 30 June 2020 47 4 8 29 88 ��m 30 June 2019 Compensation provisions Sale of QLA Sale of Single Strategy business Other Total Balance at beginning of the period 54 - 20 20 94 Adjustment on initial application of IFRS 16 - - - (5) (5) Additions from business combinations 1 - - 1 2 Charge to income statement2 1 - - - 1 Utilised during the period (15) - (5) (1) (21) Unused amounts reversed (6) - - - (6) Transfer to liabilities held for sale (19) - - (1) (20) Balance at 30 June 2019 16 - 15 14 45 ��m 31 December 2019 Compensation provisions Sale of QLA Sale of Single Strategy business Other Total Balance at beginning of the year 54 - 20 20 94 Adjustment on initial application of IFRS 16 - - - (5) (5) Additions from business combinations 14 - - 1 15 Charge to income statement2 9 6 1 7 23 Utilised during the year (19) - (11) (1) (31) Unused amounts reversed (13) - - (4) (17) Disposals (11) - - (1) (12) Reclassification within Statement of Financial Position (3) - - - (3) Balance at 31 December 2019 31 6 10 17 64 1Clawback provision was disclosed on a net basis in 2019. In 2020 the balance has been reclassified, with the liability due to product providers on indemnity commission disclosed within provisions and the recoverable amount from brokers disclosed within receivables. 2Part of the charge to income statement in 2019 is included within the discontinued operations income statement. Compensation provisions Compensation provisions total ��47 million (30 June 2019: ��16 million, 31 December 2019: ��31 million), and are comprised of the following: Lighthouse pension transfer advice provision of ��29 million (30 June 2019: ��nil, 31 December 2019: ��12 million) A provision for pension transfer advice has been established within the fair value of the Lighthouse assets and liabilities acquired. As at 31 December 2019, the provision related to approximately 30 complaints received in the first quarter of 2020 on advice provided by Lighthouse in respect of pension transfers for British Steel pension scheme members, prior to the Group's acquisition of Lighthouse in June 2019. All the complaints received related to transfers before that date. During the first half of 2020, the FCA reported the results of their thematic review into the general market of pension transfers, which included British Steel pension transfers. The FCA review determined that the percentage of unsuitable files for British Steel transfers was higher than those for other pension schemes in the general industry. The FCA review included a sample of British Steel pension transfer advice provided by Lighthouse. Additionally, approximately 30 further complaints have been received from British Steel pension scheme members subsequent to the publication of the Group's 2019 Annual Report. As such, the Group has extended the provision to include consideration of the full population of 266 British Steel transfers on which Lighthouse advisers provided advice and the relevant customer proceeded to make a transfer in order to determine a more reliable approximation of the estimated redress payable. The Group has performed a detailed redress file review of a sample of British Steel cases, deemed to be representative of the overall population. The sample was divided into transfers pre and post June 2017, when the Trustees of the British Steel pension fund changed the basis on which transfer values were calculated. The estimated redress per client as a proportion of the transfer value of the pensions was determined and extrapolated to the overall population of cases where advice was provided, and that advice was then acted upon. The methodology employed to assess the probable redress payable uses assumptions and estimation techniques which are consistent with principles under the FCA's FG17/9 "Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers". A provision of ��26 million (31 December 2019: ��9 million) has been calculated for the potential redress of all British Steel cases. Based upon additional information obtained, the balance at acquisition, and as reported at 31 December 2019, has been reassessed and increased from ��9 million to ��21 million. The final costs of redress for cases upheld will depend on specific calculations on a case-by-case basis, which are impacted by market movements and other parameters affecting the defined contribution scheme asset, and therefore exposed to volatility from this, and may vary from the amounts currently provided. An additional provision of ��3 million (31 December 2019: ��3 million) has been recognised in respect of the anticipated cost of legal and professional fees related to the cases and redress process, which includes the expected costs to review advice provided of a similar nature in relation to cases that management believe may have similar characteristics. The provision of ��24 million recognised within the fair value of net assets acquired impacts the goodwill balance recognised upon acquisition. The increase in the provision subsequent to acquisition of ��5 million has been recognised within expenses of the Group. The table below shows the change in this provision and how the amounts have been recognised: ��m Notes 31 December 2019 Change in H1 2020 30 June 2020 Client redress provision 9 17 26 Anticipated costs 3 - 3 Total Lighthouse pension transfer advice complaints provision 12 17 29 Recognised within fair value of acquired net assets 4(a) 12 12 24 Recognised within expenses 5(b)(vi) - 5 5 The recognition of the fair value of acquired assets has been further reduced by management's estimate of the fair value of the insurance recoverable of ��3 million and the deferred tax asset receivable of ��2 million (both described in note 4(a)), resulting in a net increase of ��19 million to the fair value of the acquired asset, of which ��7 million was recognised in the six months ending 30 June 2020 (31 December 2019: ��12 million). The key assumptions which have an impact upon the redress payable calculation are the discount rate, changes in market levels and proportion of cases where redress is estimated to be payable. For the purpose of the redress calculation, changes in the discount rate impact the valuation of the DB scheme at the reporting date, and market level changes, as modelled by movements in the FTSE Private Investors Income index, impact the valuation of the personal pension scheme for each client. The following table shows the change upon the provision balance at 30 June 2020 as a result of movements in the key assumptions: ��m 30 June 2020 Increase Decrease Change in discount rate of 0.25% (4) 6 Change in market levels of 5% (3) 5 Change in number of cases upheld of 10% 3 (3) Compensation provisions (other) of ��18 million (30 June 2019: ��16 million, 31 December 2019: ��19 million) Other compensation provisions of ��18 million are held within the Group's continuing operations and include amounts relating to the cost of correcting deficiencies in policy administration systems, including restatements and clawbacks, any associated litigation costs and the related costs to compensate previous or existing policyholders. This provision represents management's best estimate of expected outcomes based upon previous experience. Due to the nature of the provisions, the timing of the expected cash outflows is uncertain. Estimates are reviewed annually and adjusted as appropriate for new circumstances. Management estimate a provision sensitivity of +/-25% (��5 million). Provisions arising on the disposal of Quilter Life Assurance The QLA business was sold on 31 December 2019, resulting in a number of provisions totalling ��6 million being established in respect of the costs of disposing the business and the related costs of business separation. The costs of business separation arise from the process to separate QLA's infrastructure, which is complex and covers a wide range of areas including people, IT systems, data, contracts and facilities. A programme team has been established to ensure the transition of these areas to the acquirer. These provisions have been based on external quotations and estimations, and estimates of the time required for incremental resource costs to achieve the separation. The most significant element of the provision is the cost of migration of IT systems and data to the acquirer. Work will take place during 2020 and 2021. Calculation of the provision is based on management's best estimate of the work required, the time it is expected to take, the number and skills of the staff required and their cost, and the cost of related external IT services to support the work. In reaching these judgements and estimates, management have made use of their past experience of previous IT migrations following business disposals. Management estimate a provision sensitivity of +/-25% (��1.5 million). During the period ��2 million of the provision has been utilised. Sale of Single Strategy Asset Management business provision In 2018, a restructuring provision was recognised as a result of the sale of the Single Strategy Asset Management business to enable the remaining Quilter Investors business to function as a standalone operation going forward. The provision includes those costs directly related to replacing and restoring the operational capability that previously underpinned and supported both parts of the asset management business. Key parts of this capability had either been disposed of or disrupted as a consequence of the sale. The provision established for restructuring was ��19 million, of which ��5 million was utilised during 2018 and a further ��11 million utilised in 2019. During 2020, further utilisation of ��1 million has been incurred, and ��1 million has been reversed, and therefore ��1 million of the provision remains at 30 June 2020. Management estimate a provision sensitivity of +/-20% (��0.2 million). Additional provisions totalling ��6 million were also made in the year ended 31 December 2018 as a consequence of the sale of the Single Strategy Asset Management business. These were in relation to various sale related future commitments, the outcome of which was uncertain at the time of the sale and the most significant of which is in relation to the guarantee of revenues in future years. A further ��1 million was added to the provision during 2019, bringing the closing balance to ��7 million at 31 December 2019. There has been no movement in the balance during the current period. The provision considers sensitivities including potential scenarios which would result in a reduction in Group assets under management held in Merian (Single Strategy Asset Management business) funds, leading to a reduction in the management fees paid to Merian. The maximum potential exposure is ��30 million, arising between 2020 and 2022. Of the total ��7 million provision outstanding, ��4 million (2019: ��3 million) is estimated to be payable after one year. Other provisions Other provisions include amounts for the resolution of legal uncertainties and the settlement of other claims raised by contracting parties and indemnity commission provisions. Where material, provisions and accruals are discounted at discount rates specific to the risks inherent in the liability. The timing and final amounts of payments in respect of some of the provisions, particularly those in respect of litigation claims and similar actions against the Group, are uncertain and could result in adjustments to the amounts recorded. Included within the balance in 2020 is ��18 million clawback provisions in respect of amounts due to product providers on indemnity commission, within the Quilter Financial Planning business. At 30 June 2020, an associated balance of ��12 million recoverable from brokers is included within Trade, other receivables and other assets. At 30 June 2019 and 31 December 2019 the associated asset of ��12 million was offset within the provision balance. Management estimate a provision sensitivity of +/-20% (��6 million). Of the total ��29 million provision outstanding, ��19 million is estimated to be payable within one year (2019: ��17 million). 18: Contingent liabilities The Group, in the ordinary course of business, enters into transactions that expose it to tax, legal and business risks. The Group recognises a provision when it has a present obligation as a result of past events, it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made (see note 17). Possible obligations and known liabilities where no reliable estimate can be made or it is considered improbable that an outflow would result are reported as contingent liabilities in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Contingent liabilities - acquisitions and disposals The Group routinely monitors and assesses contingent liabilities arising from matters such as litigation, warranties and indemnities relating to past acquisitions and disposals. In May 2020, the Group received a requirement notice from the FCA in relation to Lighthouse DB pension transfer advice, requiring a report by a skilled person, under section 166(3)(a) of the Financial Services and Markets Act 2000 (FSMA). The review covers Lighthouse Advisory Services Limited only, and no other companies within the Group. The review covers the period from 1 April 2015 to 27 January 2020, which is the date that Lighthouse converted to the Quilter Financial Planning advice process for their Defined Benefit transfer activity. The review will cover British Steel DB pension transfer advice activity undertaken by Lighthouse, and a representative sample of other Lighthouse DB pension transfer advice activity. The skilled person will also calculate redress, following the FCA's FG17/9 "Guidance for firms on how to calculate redress for unsuitable defined benefit pension transfers" guidance. The skilled person will also review the redress methodology applied by Lighthouse to any complaints already upheld. The interim skilled person's report is expected in Q4 2020, with the final report to the FCA due in early 2021. For the British Steel cases, management currently consider that the likelihood of redress is probable on the majority of the cases. An estimate of the amount of redress payable has been made and is included within Provisions in note 17. For the non-British Steel cases, it is possible that further costs of redress may be incurred following the outcome of the skilled person review. At present, there is no indication of redress payable in relation to non-British Steel cases. Any further redress costs related to non-British Steel cases, and any differences between the provision and final payment to be made for British Steel cases, will be recognised as an expense or credit in the Income Statement, following the finalisation of the acquisition balance sheet of Lighthouse in June 2020. Tax The Revenue authorities in the principal jurisdictions in which the Group operates routinely review historical transactions undertaken and tax law interpretations made by the Group. The Group is committed to conducting its tax affairs in accordance with the tax legislation of the jurisdictions in which they operate. All interpretations made by management are made with reference to the specific facts and circumstances of the transaction and the relevant legislation. There are occasions where the Group's interpretation of tax law may be challenged by the Revenue authorities. The financial statements include provisions that reflect the Group's assessment of liabilities which might reasonably be expected to materialise as part of their review. The Board is satisfied that adequate provisions have been made to cater for the resolution of tax uncertainties and that the resources required to fund such potential settlements are sufficient. Due to the level of estimation required in determining tax provisions, amounts eventually payable may differ from the provision recognised. Complaints and disputes The Group is committed to treating customers fairly and supporting its customers in meeting their lifetime goals. The Group does from time to time receive complaints and claims, and enters into commercial disputes with service providers, in the normal course of business. The costs, including legal costs, of these issues as they arise can be significant and, where appropriate, provisions have been established under IAS 37. 19: Related party transactions In the normal course of business, the Group enters into transactions with related parties. Loans to related parties are conducted on an arm's length basis and are not material to the Group's results. There were no transactions with related parties during the current and prior year which had a material effect on the results or financial position of the Group. 20: Events after reporting date Interim dividend Subsequent to 30 June 2020, the Board has declared an interim dividend of 1.0 pence per ordinary share. This amounts to ��18 million in total, and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2020. The interim dividend will be paid on 21 September 2020 to shareholders on the UK and South African share registers. This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com. END IR FLFLATSIILII

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