TIDMHL.
RNS Number : 3308O
Hargreaves Lansdown PLC
29 January 2019
Hargreaves Lansdown plc
Interim results for the six months ended 31 December 2018
Hargreaves Lansdown plc ("HL" or "the Group") today announces
interim results for the six month period ended 31 December
2018.
Highlights
-- Net new business of GBP2.5 billion.
-- Assets under administration down 6% since 30 June 2018 to GBP85.9 billion.
-- 1,136,000 active clients, an increase of 45,000 since 30 June 2018.
-- Profit before tax increase of 4% to GBP153.4 million.
-- Interim dividend up 2% to 10.3 pence per share (H1 2018: 10.1p)
Chris Hill, Chief Executive Officer, commented:
"The diversified nature of Hargreaves Lansdown has enabled us to
continue growing despite a period of geopolitical uncertainty,
market volatility and weak investor confidence. We have a
significant long-term market opportunity and our recent investment
in service and developing our proposition are bringing real
benefits to the business and our clients, both in difficult times
such as the present and as and when conditions improve."
Financial highlights 6 months 6 months Change Year ended
ended 31 ended 31 % 30 June
December December 2018
2018 2017
(H1 2019) (H1 2018) (FY 2018)
=================================== ========== ========== ======= ===========
Net new business GBP2.53bn GBP3.34bn -24% GBP7.6bn
=================================== ========== ========== ======= ===========
Total assets under administration GBP85.9bn GBP86.1bn -0.2% GBP91.6bn
(AUA)
=================================== ========== ========== ======= ===========
Net revenue GBP236.4m GBP216.0m +9% GBP447.5m
=================================== ========== ========== ======= ===========
Profit before tax GBP153.4m GBP146.9m +4% GBP292.4m
=================================== ========== ========== ======= ===========
Diluted earnings per share 26.1p 25.0p +4% 49.6p
=================================== ========== ========== ======= ===========
Interim dividend per share 10.3p 10.1p +2% 10.1p
=================================== ========== ========== ======= ===========
* Net revenue is total revenue less commission payable / loyalty
bonus (see Glossary of alternative performance measures on page
24)
Contacts:
Hargreaves Lansdown
For media enquiries: For analyst enquiries:
Danny Cox, Head of Communications James Found, Head of Investor
Relations
+44(0)117 317 1638 +44(0)117 988 9898
Chris Hill, Chief Executive Officer Philip Johnson, Chief
Financial Officer
Analyst presentation
Hargreaves Lansdown will be hosting an analyst presentation at
9.00am on 29 January 2019 following the release of these results
for the half year ended 31 December 2018. Attendance is by
invitation only. A conference call facility will be in place with
the following participant dial-in numbers - UK (toll free) 0800 640
6441, UK (local) 020 3936 2999 and all other locations +44 20 3936
2999. The participant access code is 762014. Slides accompanying
the analyst presentation will be available at
www.hl.co.uk/investor-relations and an audio recording of the
analyst presentation will be available by close of business on the
day.
The Interim Results contain forward-looking statements which
have been made in good faith based on the information available to
us at the time of the approval of this report and should be treated
with caution due to the inherent risks and uncertainties, including
both economic and business risk factors some of which were set out
in the 2018 Annual Report, underlying such forward-looking
information.
Unless otherwise stated, all figures below refer to the six
months ended 31 December 2018 ("H1 2019"). Comparative figures are
for the six months ended 31 December 2017 ("H1 2018"). Certain
figures contained in this document, including financial
information, have been subject to rounding adjustments.
Accordingly, in certain instances the sum of the numbers in a
column or a row in tables contained in this document may not
conform exactly to the total figure given for that column or
row.
LEI Number: 2138008ZCE93ZDSESG90
Chief Executive's Statement
External market and opportunity
Geopolitical developments abroad and at home have resulted in a
year of significant uncertainty and volatility not only for
financial markets but also for our clients. Through this period,
Hargreaves Lansdown has continued to grow and has maintained its
focus on client service and developing our proposition.
The market opportunity for Hargreaves Lansdown remains
significant, extending across GBP1.0 trillion of addressable
investment assets within the private wealth market and up to GBP2.4
trillion when cash savings are also included. People need to take
charge of their money and manage it over a longer period and yet
savings and investments are becoming more complicated. Clients
therefore need help and want solutions more than ever before. They
want to feel valued and supported by their chosen financial service
providers, particularly during these uncertain times. Our
relentless client focus, combined with our scale, knowledge and
expertise uniquely positions us to provide the solutions required
and capitalise on this opportunity.
With this opportunity, and in order to serve the needs of our
clients, we continue to invest in our stated strategic agenda and
in continuous improvements to our service in order to maintain our
leading client and service proposition. Of course, we remain
cognisant of balancing our levels of investment and strategic
priorities at levels appropriate to the external environment and
client activity levels but, for now, it is business as usual.
Growth and service
We believe it is critical that we continue to invest in
opportunities for growth during difficult times if we are to
capitalise on our significant long-term market opportunity. This
ensures that we are as well placed as possible to take advantage of
better market conditions and improved confidence levels as and when
they arise, just as we saw following the Brexit referendum. We
remain focused on investment to support higher levels of client
activity, deepen our marketing skills, improve our technological
development capacity and broaden our offering, all whilst
maintaining compliance with regulatory change. Following a period
of elevated cost growth to position us for this market opportunity,
we are now moderating the rate of investment and remain watchful
about the rate we put new costs into the business whilst market
conditions remain challenging.
We have maintained a visible brand and marketing presence during
this period and retained the headcount resources to deliver the
levels of client service that we aspire to. We have also extended
our opportunities for growth should these conditions persist for
longer, for example through direct book transfers and the
development of our cash marketplace proposition, Active
Savings.
External market conditions have impacted investor confidence and
driven industry-wide net outflows over this short reporting period.
This includes our own UK measure of investor confidence, which is
at its lowest point since the index was launched in 1995. The
Investment Association has reported the worst period for industry
net retail fund outflows ever over the three months to November
2018. For Hargreaves Lansdown, whilst these conditions meant that
AUA fell 6% to GBP85.9 billion (30 June 2018: GBP91.6bn) due to
negative market movements of GBP8.2 billion, we were pleased to
welcome a further 45,000 net new clients, taking our total active
clients to 1,136,000, and deliver net new business inflows of
GBP2.5 billion. As discussed last year, we benefited from elevated
transfer levels and new clients following service issues at a
competitor platform in the comparative period of H1 2018.
This progress demonstrates that the investment we are making
continues to pay off and we believe positions us well for when
conditions improve. Whilst market share data is slow to emerge, we
believe we have continued to maintain our leading position in our
chosen areas. For example, it is pleasing to see that whilst
dealing volumes for the industry across the period have been
subdued, we have managed to increase our share of the execution
only stockbroking market to 31.9% (source: Compeer Q3 Benchmarking
Report).
We look to develop a lifelong relationship with all our clients,
and hence retention and satisfaction are key measures for us. The
client retention rate has remained very high at 93.5% during a
period where client numbers, transactions and contacts have all
increased. Investment into our Helpdesk and Operations teams
through increased training, use of technology and better management
techniques has helped to elevate client satisfaction levels.
Improved call answering, email response rates and quicker
completion of transfers are just some of the tangible benefits
coming through. Consistent focus on such client service measures
gives us greater insight into client expectations and service
levels and helps determine where we invest and deploy
resources.
Delivering value for clients
Our excellent client service needs to be matched with an
outstanding client offering. Back in December 2017 we soft launched
Active Savings, our cash management service. In the following
months we developed the proposition further, adding more banks and
improving the rates on offer. In September 2018, we increased the
level of marketing and promotional activity, believing it to be
strategically imperative to capture the scale advantage of being a
first mover for the long-term benefit of our clients, the banks on
the platform and our shareholders. We are therefore currently
focused on growing AUA. Our chosen route for achieving this in the
current low interest rate environment is via reducing our revenue
margins to ensure the rates offered on Active Savings are highly
competitive. This will attract the new clients and assets into the
service that we need to capitalise on this opportunity. We are
pleased with the growth we have seen in the last four months from a
standing start as a consequence of this approach. At a time when
investment products have not been favoured by consumers, having a
leading cash savings solution is a great benefit to clients and
diversifies our product offering. Rates on offer across the range
of maturity terms are now consistently top quartile, with several
products at the top of interest tables and, as at 31 December 2018,
AUA had grown to GBP385m across over 13,000 client accounts.
Whilst Active Savings has been gaining traction we have been
busy on the next stages of development. The ability to hold and
manage cash through our platform and receive a competitive rate of
interest, should prove very appealing during uncertain times for
investors and we will look to add an easy access account shortly.
We are also looking forward to welcoming new clients from Witan
Investment Services following their announcement to withdraw from
administering their retail Investment Trust Savings and ISA
Schemes. The deal could involve the transfer of up to 16,000 retail
clients, representing up to GBP420 million. This is the seventh
such transaction we have undertaken and once again demonstrates our
ability to provide the best solution for fund managers and the best
value for their clients.
Putting clients first is at the heart of our culture and it is
always pleasing when our proposition and service scores highly in
independent research. In November, Platforum issued their UK D2C
Investor Experience report which looks at the customer experience
of investing in 2018 and how it has evolved over the past year.
Hargreaves Lansdown scored top marks in all the online proposition
categories, for its mobile proposition, and customer service. Only
on pricing did we not score top marks, but we continue to offer an
excellent value proposition for our clients with fund discounts and
low costs to hold shares and investment trusts. In the coming
months, we are also expecting the final outcome from the Financial
Conduct Authority on their Investment Platform Market Study which
we hope will help deliver overall benefits to the consumer.
A year ago we rebranded our content and platform to create a
new, clean visual identity. This has enabled us to tailor our look,
feel and tone of voice when we interact with groups of clients.
Much work has been done in segmenting our clients so that we can
increasingly personalise content and guidance in communications to
them and this is now delivering improved conversion rates on
marketing campaigns. New names to our marketing list in the period
are higher than last year, driven by share related content through
third party online channels. Given the environment, converting
these leads is the next challenge but we won't hold back on
marketing despite investor uncertainty. It is times like these that
clients and potential new investors need clear and concise
communications giving them the confidence to make the right
investment decisions for their future benefit.
Many improvements to our service are born from listening to the
needs of different groups of clients and analysing their activity.
Our newly launched Wealth 50, a shortlist of our experts' favourite
funds, is a prime example of this. We spoke to over 6,000 existing
and potential clients, undertook 12 surveys, discussed with focus
groups and conducted a number of one-on-one and user-experience
sessions. Their insights guided us to replace the Wealth 150 with a
simpler more focused list of funds across a range of sectors and
its launch gave us the opportunity to renegotiate with the fund
managers who made our shortlist. Many of the funds on the list are
now available with even bigger discounts on their annual fund
charges. All such discounts are to the sole benefit of clients, and
not to Hargreaves Lansdown in any way. Since its launch, the Wealth
150 has outperformed its benchmark by 5.8% and sector by 11.8% and
clients will now save an average of 30% on a Wealth 50 fund's
annual ongoing charge because we have used our collective buying
power to secure them a better outcome. We believe that the total
cost of owning funds via Hargreaves Lansdown is now even more
competitive, particularly when compared to traditional advice
channels. Overall this creates a truly compelling value proposition
when combined with the excellence of our investment research,
breadth of our offering and service delivery.
Dividend
The Board believes the Group has sufficiently strong
profitability, liquidity and capital positions to execute its
strategy without financial constraints and to operate a sustainable
and progressive ordinary dividend policy. We remain confident in
our business model and the Board has declared a 2% rise in the
interim dividend to 10.3 pence per share. The Board remains
committed to paying special dividends when sufficient excess cash
and capital exist after taking account of the Group's growth,
investment and regulatory capital requirements at the time.
Outlook and Brexit
Brexit is on the horizon, and until certainty is reached, it
will continue to impact markets and consumer confidence. Financial
decision making becomes trickier and clients can become reluctant
to invest more in volatile markets and prefer to sit on the
side-lines. As we have done already, throughout the whole Brexit
process, we will keep clients updated on our views, potential
scenarios and impacts. We will also ensure that we have sufficient
resources in place in order to help clients at the critical
moments. For many clients, however, their investment goals are
long-term and they remain willing to invest and look to us for
guidance in such times. We will continue to deliver tailored
content that will help empower them with the confidence to make
appropriate investment decisions for their future.
The second half of our trading year is traditionally our
stronger half for new business, including as it does the tax
year-end, which acts as a natural incentive for clients to use tax
allowances. Investor sentiment and stock market levels are usually
key to the levels of new business but this year has the added
complication of Brexit. Such uncertainty during our busiest time of
year is clearly not helpful for predicting new flows and business
volumes, but we will be prepared operationally to deal with any
outcome. Our fundamental objective will be to ensure continuity of
service and a seamless client experience throughout the Brexit
process and, as ever, over the busy tax year-end.
Irrespective of this short term volatility in markets and the
impact on consumer confidence, the long-term growth and structural
opportunity in the UK savings market continues to excite us. We
believe our platform and investments position us well to capture
this growth and deliver long-term growth for our shareholders.
I would like to thank our clients for their continued support
and recommendation and I would also like to recognise my colleagues
for their hard work and commitment. All these improvements to our
client service and proposition would not be possible without the
immense contribution from our talented and diverse population of
employees. We continue to focus on attracting, developing and
retaining outstanding people, embedding our client driven culture,
improving employee well-being and providing training programmes to
ensure we have a strong talent pipeline of people who can deliver
our future strategic goals, thereby underpinning our future
growth.
Chris Hill
Chief Executive Officer
Financial Review
Assets Under Administration (AUA) and Net New Business (NNB)
Unaudited Unaudited Unaudited
3 months to 3 months to 6 months ended
30 September 2018 31 December 2018 31 December 2018
GBPbn GBPbn GBPbn
================= ================== ================= =================
Opening AUA 91.6 94.1 91.6
Net New Business 1.3 1.2 2.5
Market growth
& other 1.2 (9.4) (8.2)
Closing AUA 94.1 85.9 85.9
================= ================== ================= =================
The diversified nature of Hargreaves Lansdown, the breadth of
our product offering and the provision of high quality services
tailored to the needs of our clients has allowed us to deliver
continued net new business inflows against a backdrop of ongoing
uncertainty around Brexit, a significant decline in UK investor
confidence and net retail outflows across the market as a
whole.
Net new business for the first half totalled GBP2.5 billion.
This was driven by increased client numbers and continued wealth
consolidation onto our platform. In September we increased the
level of marketing and promotional activity in the Active Savings
service which brought in GBP281 million of net flows in the second
quarter helping to offset the slowdown in the core Vantage
proposition which has been increasingly impacted by falling
investor confidence. Unlike last year we have not seen the benefit
of elevated transfer levels and new clients following service
issues at a competitor platform. We introduced 45,000 net new
clients to our services in the six months to 31 December 2018 and
grew our active client base by a further 4% to 1,136,000.
Total AUA decreased by 6% to GBP85.9 billion as at 31 December
2018 (GBP91.6 bn as at 30 June 2018). This was driven by GBP2.5
billion of net new business (H1 2018: GBP3.3bn) being offset by
significant negative stock market movements impacting asset
values.
Income Statement
Unaudited Unaudited Audited
6 months ended 6 months ended Year to
31 December 31 December 30 June 2018
2018 2017 GBPm
GBPm GBPm
===================== ================= ================= ===============
Net revenue 236.4 216.0 447.5
Operating costs (85.1) (70.9) (158.7)
Fair value gains on
derivatives 1.1 1.1 2.3
Non-operating income 1.2 0.7 1.5
Finance costs (0.2) - (0.2)
===================== ================= ================= ===============
Profit before tax 153.4 146.9 292.4
Tax (29.3) (27.9) (55.7)
===================== ================= ================= ===============
Profit after tax 124.1 119.0 236.7
===================== ================= ================= ===============
Net revenue
Total net revenue for the period was up 9% to GBP236.4 million
(H1 2018: GBP216.0 million), driven by AUA that on average was up
9% and increased net interest on client money, following the base
rate increase to 0.75% on 2 August 2018. Net revenue growth was
slightly below the rate of AUA growth due to reduced margins on
shares due to reduced activity levels during the period, as
described more fully below.
The table below breaks down net revenue, average AUA and margins
earned across the main asset classes which our clients hold with
us:
6 months ended 6 months ended Year ended 30 June
31 December 2018 31 December 2017 2018
================= =============================== =============================== ===============================
Net Average Net Net Average Net Net Average Net
revenue AUA revenue revenue AUA revenue revenue AUA revenue
GBPm GBPbn margin GBPm GBPbn margin GBPm GBPbn margin
bps bps bps
================= ========= ========= ========= ========= ========= ========= ========= ========= =========
Funds(1) 103.2 50.1(7) 41 97.8 47.4(7) 41 198.0 48.4(7) 41
Shares(2) 42.1 30.8 27 42.9 27.3 31 89.6 28.3 32
Cash(3) 33.2 9.9 67 18.2 8.4 43 42.1 8.8 48
HL Funds(4) 34.7 9.3(7) 74 33.3 9.0(7) 74 67.2 9.1(7) 74
Other(5) 23.2 0.2(6) - 23.8 - - 50.6 - -
Double-count(7) - (9.3)(7) - - (9.0)(7) - - (9.1)(7) -
================= ========= ========= ========= ========= ========= ========= ========= ========= =========
Total 236.4 91.0(7) - 216.0 83.1(7) - 447.5 85.5(7) -
================= ========= ========= ========= ========= ========= ========= ========= ========= =========
1 Platform fees and renewal commission.
2 Stockbroking commission and equity holding charges.
3 Net interest earned on client money.
4 Annual management charge on HL Funds, i.e. excluding the
platform fee, which is included in revenue on Funds.
5 Advisory fees, Funds Library revenues, Active Savings and
ancillary services (e.g. annuity broking, distribution of VCTs and
HL Currency and Market Services).
6 Average cash held via Active Savings.
7 HL Funds AUM included in Funds AUA for platform fee and in HL
Funds for annual management charge. Total average AUA excludes HL
Fund AUM to avoid double-counting.
Net revenue on Funds increased by 6% to GBP103.2m (H1 2018:
GBP97.8m) due to AUA growth from net new business. Funds remain our
largest client asset class at 55% of average AUA (H1 2018: 57%),
and the net revenue margin earned on these in the period was in
line with our expectations at 41bps (H1 2018: 41bps). Net revenue
margins on Funds have been broadly stable following the completion
of the Retail Distribution Review and we continue to expect them to
remain at similar levels over the remainder of the financial
year.
Net revenue on Shares decreased by 2% to GBP42.1m (H1 2018:
GBP42.9m) and the net revenue margin of 27bps (H1 2018: 31bps) was
at the low end of our expected range of 27bps to 33bps. The
decrease in margin was primarily due to a slight fall in dealing
volumes compared to last year whilst the average AUA has increased
13%. We believe this is primarily due to the impact of lower
investor confidence and falling markets on the propensity to deal
for many clients. Shares account for 34% of the average AUA (H1
2018: 33%) and while we continue to see investor confidence
impacting dealing volumes we would expect the margin on Shares to
be at the lower end of the previous guidance range of 27-33bps for
the full year depending on actual dealing volume levels.
Net revenue on Cash increased by 82% to GBP33.2m (H1 2018:
GBP18.2m) as increased AUA levels were combined with an increase in
the net interest margin to 67bps (H1 2018 43bps). This was in line
with our communicated expectations at the start of the year that
margins would be within a 60bps to 70bps range for the period
following the Bank of England base rate increase from 0.50% to
0.75% in August 2018. The financial impact of this rate increase is
spread given that the majority of clients' SIPP money is placed on
rolling 13 month term deposits, meaning the full impact takes just
over a year to flow through. Cash accounts for 11% of average AUA
(H1 2018: 10%) and, assuming there are no further rate changes, we
anticipate the net interest margin on Cash for the 2019 financial
year will continue to be in the range of 60bps to 70bps.
HL Funds consist of ten Multi-Manager funds, on which the
management fee is 75bps per annum, and two Select equity funds, on
which the management fee is 60bps. Net revenue from HL Funds has
grown by 4% this year to GBP34.7m (H1 2018: GBP33.3m) as the
average AUA has been 3% higher. These fees are collected on a daily
basis whereas the Group calculates average AUM on a month end
basis, resulting in a headline margin for the period of 74bps (H1
2018: 74bps). Please note that the platform fees on these assets
are included in the Funds line and hence total average AUA of
GBP91.0 billion (H1 2018: GBP83.1bn) excludes HL Funds AUM to avoid
double-counting.
Assets held within Active Savings on the platform and the
related revenue are not yet broken out into a separate category in
the table above. In September 2018, we increased the level of
marketing and promotional activity for Active Savings, believing it
is strategically imperative to capture the scale advantage of being
a first mover. Consequently our focus is on growing AUA at present.
Our chosen route for achieving this in the current low interest
rate environment is via reducing our revenue margins to ensure the
rates offered on Active Savings are highly competitive. This will
attract the new clients and assets into the service that we need to
capitalise on the opportunity. As at 31 December 2018 the AUA was
GBP385 million. The associated revenue is not material but is
included within the category of "Other" such that the total net
revenue reconciles back to the income statement. Once Active
Savings grows to a material level in terms of revenue we shall
break it out separately in the table above.
Other revenues are made up of advisory fees, our FundsLibrary
data services, Active Savings and ancillary services such as
annuity broking, distribution of VCTs and the Hargreaves Lansdown
Currency and Market Services. These revenues are primarily
transactional and not impacted by market growth and declined by
3%.
Unaudited Unaudited Audited
6 months ended 6 months ended Year to
31 December 31 December 30 June 2018
2018 2017 GBPm
GBPm GBPm
====================== =================== ============================== ==============================
Net recurring revenue 190.3 167.7 344.9
Transactional revenue 41.8 44.3 94.0
Other revenue 4.3 4.0 8.6
Total net revenue 236.4 216.0 447.5
====================== =================== ============================== ==============================
The Group's revenues are largely recurring in nature, as shown
in the table above, with the proportion of net recurring revenues
increasing slightly to 80% in the period (H1 2018: 78%). Net
recurring revenue is primarily comprised of platform fees,
Hargreaves Lansdown fund management fees, interest on client money,
equity holding charges and advisory fees. This grew by 13% to
GBP190.3 million (H1 2018: GBP167.7 million) due to increased
average AUA from continued net new business and higher UK base
rates. Recurring revenues provide greater profit resilience and
hence we believe they are of higher quality than non-recurring
revenues.
Transactional revenue is primarily made up of stockbroking
commission and advisory event-driven fees. This declined by 6% to
GBP41.8 million (H1 2018: GBP44.3 million) with lower equity
dealing volumes being the key driver.
Other revenue is derived from the provision of funds data
services and research to external parties through FundsLibrary.
This was up 8% from GBP4.0 million to GBP4.3 million driven by new
Solvency II and MiFID II services.
Operating costs
Unaudited Unaudited Audited
6 months ended 6 months ended Year ended
31 December 31 December 30 June
2018 2017 2018
GBPm GBPm GBPm
=========================== ==================== ================= =============
Staff costs 49.5 41.8 87.4
Marketing and distribution
costs 6.0 6.9 16.3
Depreciation, amortisation
& financial costs 5.8 4.4 10.3
Other costs 23.5 18.1 41.2
=========================== ==================== ================= =============
84.8 71.2 155.2
Total FSCS levy 0.3 (0.3) 3.5
=========================== ==================== ================= =============
Total operating costs 85.1 70.9 158.7
=========================== ==================== ================= =============
As highlighted previously, we have consciously and significantly
increased our investment in people, digital marketing and
technology in the past two years as we believe the Group's focus on
client service is core to our success as a business and necessary
to position us to capture the structural growth opportunity in the
UK savings and investments market. This has been validated by net
new business flows, net new clients, increased market shares, high
client retention rates and continued development of our product set
and growth capabilities during this time.
During the first half of 2019, excluding the FSCS levy,
operating costs increased by 19% to GBP84.8 million versus GBP71.2
million in the comparable H1 2018 period. Compared to the more
recent run rate of the six months to 30 June 2018, however,
operating costs, excluding the FSCS levy, increased just 1% from
GBP84.0m.
Staff costs rose by 18% to GBP49.5 million (H1 2018: GBP41.8
million). Average staff numbers increased by 17% from 1,310 in H1
18 to 1,534 in H1 19 with the key increases being in Technology, on
the Helpdesk and in Operations, in line with higher client activity
levels and the expansion of our capabilities. Hargreaves Lansdown
is a growing business and higher client numbers and associated
activity levels will continue to require investment in our
servicing functions as we look forward. Technology and efficiency
programmes improve our scalability, thereby allowing us to invest
productivity gains into extending our proposition and our platform
functionality. We believe this reinvestment cycle underpins our
future growth.
Marketing and distribution costs decreased by 13% to GBP6.0
million (H1 2018: GBP6.9 million). Although we continued to invest
in our digital marketing presence and targeted marketing campaigns
for Active Savings, our Retirement Services and transfer mailing
cash back incentives, a change in the accounting for the latter has
led to a reduction in the overall charge. In line with IFRS 15
(Revenue from Contracts with Customers), cash incentives given to
clients are now considered to be a reduction in revenue, whereas
previously these incentives were considered a marketing cost. As a
result GBP1.3 million of cash incentive payments are no longer
charged as a cost and instead are being offset against revenue and
spread over a 12 month period, that being the minimum period for
which clients must remain on the platform following a cash
incentive payment. These costs will be deducted from other income
to maintain consistency with assets and margin disclosure data. In
the period to 31 December 2018 GBP0.3 million has been deducted
from other income.
Use of mobile and digital media remains a key strategic focus of
how we engage with existing and potential new clients. A year ago
we rebranded our content and platform to create a new, clean visual
identity, which has enabled us to tailor our look, feel and tone of
voice when interacting with groups of clients. Combining this with
our deeper understanding of our client segmentation has enabled us
to improve the effectiveness of our marketing spend as more
tailored content is now delivering better conversion rates on
marketing campaigns. More focused digital marketing is also helping
to grow our marketing list but converting them to clients in the
current environment is a challenge. We will continue to invest in
marketing despite investor uncertainty as communication at times
like these is valued by existing clients and will put us at the
forefront of the minds of potential new clients.
Depreciation, amortisation and financial costs increased by
GBP1.4 million as a result of higher capital spend in recent years,
primarily on our core in-house IT systems, hardware and software
for increased employee numbers and the Active Savings platform.
Total capitalised expenditure in the period was GBP6.5 million
(H1 2018: GBP6.0 million). This expenditure was primarily for
cyclical replacement of IT hardware, the continued project to
enhance the capacity and capability of our key administration
systems and the ongoing development of Active Savings.
Other costs rose by GBP5.4 million to GBP23.5 million (H1 2018:
GBP18.1 million). The key drivers of this were additional dealing
costs resulting from an increased proportion of overseas share
deals following the price reduction of this service in May 2018,
increased computer maintenance and office costs driven by higher
employee numbers, legal and professional costs and irrecoverable
VAT on non-staff expenses.
The Financial Services Compensation Scheme (FSCS) levy is
typically charged in the second half of the year so ordinarily
there is no charge in the first half, however, in November 2018 an
interim levy of GBP0.3 million was charged by the FSCS. In the
prior year we had over accrued for the levy which gave rise to a
credit of GBP0.3 million. The FSCS is the compensation fund of last
resort for customers of authorised financial services firms. All
authorised firms are required to contribute to the running of the
scheme and the levy reflects the cost of compensation payments paid
by the industry in proportion to the amount of each participant's
relevant eligible income. As usual, the second half of the year
will be impacted by the FSCS levy, which for last year resulted in
a final net charge of GBP3.5 million.
Profit before tax
Hargreaves Lansdown's success is built around the service we
provide to our clients. This drives net new business and new
clients, which are the key growth drivers of revenue and profits
that we can influence. This has allowed us consciously to increase
headcount to ensure we deliver the expected high service standards,
while dealing with record volumes of business and investing in
further growth opportunities. This investment is key to driving
future growth and ensuring we have a scalable operating platform
which we believe will be to the benefit of both clients and
shareholders across the market cycle. As a result, the Group has
grown profit before tax by 4% to GBP153.4 million (H1 2018:
GBP146.9 million) and maintained its operating margins at an
industry leading level of 64% (H1 2018: 68%), consistent with the
full year 2018 outcome of 65%.
Tax
The effective tax rate for the period was 19.1% (H1 2018:
19.0%), in line with the standard rate of UK corporation tax. The
Group's tax strategy is published on our website at
http://www.hl.co.uk
Earnings per share
Unaudited Unaudited Audited
6 months ended 6 months ended Year to
31 December 31 December 30 June 2018
2018 2017 GBPm
GBPm GBPm
================================ ================ ================ ==============
Operating profit 152.4 146.2 291.1
Finance income 1.2 0.7 1.5
Finance costs (0.2) - (0.2)
Other gains - - -
================================ ================ ================ ==============
Profit before tax 153.4 146.9 292.4
Tax (29.3) (27.9) (55.7)
================================ ================ ================ ==============
Profit after tax 124.1 119.0 236.7
================================ ================ ================ ==============
Weighted average number
of shares for the calculation
of diluted EPS 475.8 475.2 475.4
================================ ================ ================ ==============
Diluted EPS (pence
per share) 26.1 25.0 49.6
================================ ================ ================ ==============
Diluted EPS increased by 4% from 25.0 pence to 26.1 pence,
reflecting the Group's positive trading performance. The Group's
basic EPS was also 26.1 pence, compared with 25.0 pence in H1
2018.
Capital and liquidity management
Hargreaves Lansdown looks to create long-term value for
shareholders by balancing our desire to deliver profit growth,
capital appreciation and an attractive dividend stream to
shareholders with the need to maintain a market-leading offering
and high service standards for our clients.
The Group seeks to maintain a strong net cash position and a
robust balance sheet with sufficient capital and liquidity to fund
ongoing trading and future growth, in line with our strategy of
offering a lifelong, secure home for people's savings and
investments. The Group has a high conversion rate of operating
profits to cash and its net cash position at 31 December 2018 was
GBP321.8 million (H1 2018: GBP275.1 million) as cash generated
through trading offset the payments of the 2018 final and special
dividends. This includes cash on longer-term deposit and is before
funding the 2019 interim dividend of GBP48.8 million.
The Group has a Revolving Credit Facility agreement with
Barclays Bank to provide access to a further GBP75 million of
liquidity. This is currently undrawn and was put in place to
further strengthen the Group's liquidity position and increase our
cash management flexibility. The Group also funds a share purchase
programme to ensure we avoid any dilution from operating our
share-based compensation schemes.
Total attributable shareholders' equity, as at 31 December 2018,
made up of share capital, share premium, retained earnings and
other reserves increased to GBP385.5 million (H1 2018: GBP333.1
million) as continued profitability more than offset dividend
payments. Included within shareholders' equity are distributable
reserves of GBP384.3 million
The Group has five subsidiary companies authorised and regulated
by the Financial Conduct Authority. These firms have capital
resources at a level which satisfies both their regulatory capital
requirements and their working capital requirements and, as a
group, we maintain a robust balance sheet retaining a capital base
over and above regulatory capital requirements. Further disclosures
are published in the Pillar 3 document on the Group's website at
www.hl.co.uk.
Dividend
Hargreaves Lansdown has a progressive ordinary dividend policy.
The Board considers the dividend on a total basis, with the
intention of maintaining the ordinary payout ratio at around 65%
across the market cycle and looking to return excess cash to
shareholders in the form of a special dividend after the year-end.
Any such return will be determined according to market conditions
and after taking account of the Group's growth, investment and
regulatory capital requirements at the time. The Board is confident
that Hargreaves Lansdown has sufficiently strong financial,
liquidity and capital positions to execute its strategy without
constraints and can operate a sustainable and progressive ordinary
dividend policy going forward.
Given the Group's dividend policy, the Board has declared an
increased interim dividend of 10.3 pence per share (H1 2018:
10.1p). The interim dividend will be paid on 10 March 2019 to all
shareholders on the register at 15 February 2019.
Directors Responsibility Statement
The Directors confirm that this consolidated interim financial
information has been prepared in accordance with IAS 34 as adopted
by the European Union and that the interim report includes a fair
review of the information required by DTR 4.2.7R and DTR 4.2.8R,
namely:
-- 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 financial year; and
-- material related-party transactions in the first six months
and any material changes in the related party transactions
described in the last Annual Report.
The Directors of Hargreaves Lansdown plc are listed on page 25
of the Interim Report and Condensed Consolidated Financial
Statements 6 months ended 31 December 2018.
By order of the Board:
Philip Johnson
Chief Financial Officer
28 January 2019
Independent review report to Hargreaves Lansdown plc
Report on the Condensed Financial Statements for the six months
ended 31 December 2018
Our conclusion
We have reviewed Hargreaves Lansdown plc's condensed financial
statements (comprising Sections 1-5) for the six months ended 31
December 2018 (the "condensed financial statements") in the
"Interim Report and Condensed Financial Statements" for the six
months ended 31 December 2018 of Hargreaves Lansdown plc. Based on
our review, nothing has come to our attention that causes us to
believe that the condensed 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 Condensed Consolidated Statement of Financial Position as at 31 December 2018;
-- the Condensed Consolidated Statement of Comprehensive Income for the period then ended;
-- the Condensed Consolidated Statement of Cash Flows for the period then ended;
-- the Condensed Consolidated Statement of Changes in Equity for
the period then ended; and
-- the explanatory notes to the interim financial statements.
The condensed financial statements included in the "Interim
Report and Condensed Financial Statements" for the six months ended
31 December 2018 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 5.1 to the condensed 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 condensed financial statements and the
review
Our responsibilities and those of the directors
The condensed financial statements for the six months ended 31
December 2018 are the responsibility of, and have been approved by,
the directors. The directors are responsible for preparing the
condensed financial statements for the six months ended 31 December
2018 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 condensed
financial statements in the "Interim Report and Condensed Financial
Statements" for the six months ended 31 December 2018 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 condensed 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
Report and Condensed Financial Statements" for the six months ended
31 December 2018 and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
28 January 2019
Section 1: Results for the period
Condensed Consolidated Statement of Comprehensive Income
for the period ended 31 December 2018
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2018 2017 2018
Note GBPm GBPm GBPm
Revenue 1.1 236.5 216.1 447.6
Commission payable (0.1) (0.1) (0.1)
------------------------- ---- ------------ ------------ --------
Net revenue 236.4 216.0 447.5
Fair value gains on
derivatives 1.1 1.1 2.3
Operating costs 1.3 (85.1) (70.9) (158.7)
Operating profit 152.4 146.2 291.1
Finance income 1.4 1.2 0.7 1.5
Finance costs (0.2) - (0.2)
Profit before tax 153.4 146.9 292.4
Tax 1.5 (29.3) (27.9) (55.7)
Profit for the period 124.1 119.0 236.7
Attributable to:
Owners of the parent 124.0 118.8 236.3
Non-controlling interest 0.1 0.2 0.4
124.1 119.0 236.7
Earnings per share
(pence)
Basic earnings per
share 1.6 26.1 25.0 49.7
Diluted earnings per
share 26.1 25.0 49.6
The results relate entirely to continuing operations.
After the balance sheet date, the Directors declared an
ordinary interim dividend of 10.3 pence per share payable
on 10 March 2019 to shareholders on the register at 15 February
2019.
Unaudited Unaudited
6 months 6 months Audited
ended 31 ended 31 Year to
December December 30 June
2018 2017 2018
GBPm GBPm GBPm
Profit for the period 124.1 119.0 236.7
Total comprehensive income for the
financial period 124.1 119.0 236.7
Attributable to:
Owners of the parent 124.0 118.8 236.3
Non-controlling interest 0.1 0.2 0.4
124.1 119.0 236.7
1.1 Net Revenue
Net revenue represents fees receivable from financial services
provided to clients, net interest income on client money and
management fees charged to clients. It relates to services provided
in the UK and is stated net of value added tax. Commission payable
is received gross against recurring revenue received from clients
in relation to legacy fund holdings and is passed, in its entirety,
to clients. An analysis of the Group's revenue is as follows:
Unaudited Unaudited Audited
6 months 6 months Year
ended 31 ended to
December 31 December 30 June
2018 2017 2018
Revenue GBPm GBPm GBPm
Recurring revenue 190.4 167.8 345.0
Transactional revenue 41.8 44.3 94.0
Other revenue 4.3 4.0 8.6
Total revenue 236.5 216.1 447.6
Commission payable (0.1) (0.1) (0.1)
Net revenue 236.4 216.0 447.5
1.2 Segment information
Under IFRS 8, operating segments are required to be determined
based upon the Group's internal organisation and management
structure and the primary way in which the Chief Operating Decision
Maker (CODM) is provided with financial information. In the case of
the Group, the CODM is considered to be the Executive
Committee.
It is the view of the Board and of the Executive Committee that
there is only one segment, being the Group - a direct-to-investor
investment service administering investments in ISA, SIPP and Fund
& Share accounts, providing services for individuals and
corporates. It is considered that segmental reporting does not
provide a clearer or more accurate view of the reporting within the
Group. Given that only one segment exists, no additional
information is presented in relation to it, as it is disclosed
throughout these financial statements.
The Group does not rely on any individual customer and so no
additional customer information is reported.
1.3 Operating costs
Unaudited Unaudited Audited
6 months 6 months Year
ended 31 ended to
December 31 December 30 June
2018 2017 2018
Operating costs GBPm GBPm GBPm
Depreciation 2.5 2.1 4.4
Amortisation 2.3 1.4 3.4
Marketing and distribution
costs 6.0 6.9 16.3
Operating lease rentals
payable - property 1.8 1.4 2.9
Other costs 23.0 17.3 44.3
Staff costs 49.5 41.8 87.4
Operating costs 85.1 70.9 158.7
1.4 Finance income
Unaudited Unaudited
6 months 6 months Audited
ended 31 ended 31 Year to
December December 30 June
2018 2017 2018
GBPm GBPm GBPm
Interest on bank deposits 1.2 0.7 1.5
1.2 0.7 1.5
1.5 Tax
Unaudited Unaudited Audited
6 months 6 months Year
ended 31 ended 31 to
December December 30 June
2018 2017 2018
GBPm GBPm GBPm
The tax charge for the period is based on the prevailing
standard rate of tax for the year to 30 June 2019 of
19.00% (30 June 2018: 19.00%).
Current tax - on profits for
the period 29.1 26.9 56.0
Current tax - adjustments
in respect of prior years - - 0.2
Deferred tax 0.2 1.0 (0.4)
Deferred tax - adjustments
in respect of prior years - - (0.1)
------------------------------- --------- ------------ --------
29.3 27.9 55.7
------------------------------- --------- ------------ --------
In addition to the amount charged to the income statement,
certain tax amounts have been charged / (credited) directly to
equity as follows:
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2018 2017 2018
GBPm GBPm GBPm
Deferred tax relating to share-based
payments 0.6 (1.5) (1.6)
Current tax relating to share-based
payments (0.3) (0.8) (1.1)
0.3 (2.3) (2.7)
1.6 Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of ordinary shares in free issue during the period,
including ordinary shares held in the EBT reserve which have vested
unconditionally with employees.
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding by assuming
the conversion of all dilutive potential ordinary shares.
The weighted average number of anti-dilutive share options and
awards excluded from the calculation of diluted earnings per share
was nil as at 31 December 2018 (153,168 at 31 December 2017 and nil
at 30 June 2018).
Unaudited Unaudited
6 months 6 months Audited
ended 31 ended 31 Year to
December December 30 June
2018 2017 2018
Earnings (all from continuing GBPm GBPm GBPm
operations)
Earnings for the purposes of
basic and diluted EPS being net
profit attributable to equity
holders of the parent Company 124.0 118.8 236.3
---------------------------------------- ----------- ----------- -----------
Number of shares Number Number Number
Weighted average number of ordinary
shares
Weighted average number of shares
held by HL EBT 474,318,625 474,318,625 474,318,625
(145,347) (381,494) (328,053)
Weighted average number of share
options held by HL EBT which
have vested unconditionally with
employees 289,018 611,223 439,127
---------------------------------------- ----------- ----------- -----------
Weighted average number of shares
for the purposes of basic EPS 474,462,296 474,548,354 474,429,699
Weighted average number of dilutive
share options held by HL EBT
that have not vested unconditionally
with employees 1,327,508 668,003 984,793
---------------------------------------- ----------- ----------- -----------
Weighted average number of shares
for the purpose of diluted EPS 475,789,804 475,216,357 475,414,492
---------------------------------------- ----------- ----------- -----------
Earnings per share Pence Pence Pence
Basic EPS 26.1 25.0 49.7
Diluted EPS 26.1 25.0 49.6
---------------------------------------- ----------- ----------- -----------
Section 2: Assets & Liabilities
Condensed Consolidated Statement of Financial Position
for the period ended 31 December 2018
Unaudited Unaudited Audited
at 31 at 31 at 30
December December June
2018 2017 2018
Note GBPm GBPm GBPm
ASSETS:
Non-current assets
Goodwill 1.3 1.3 1.3
Other intangible assets 18.2 13.9 18.1
Property, plant and equipment 15.4 12.1 13.8
Deferred tax assets 3.3 2.6 4.1
38.2 29.9 37.3
Current assets
Trade and other receivables 2.3 626.0 573.0 627.2
Cash and cash equivalents 2.4 112.5 104.2 125.3
Investments 2.2 0.4 0.9 1.5
Derivative financial instruments 0.2 0.2 0.2
Current tax assets 0.8 - -
739.9 678.3 754.2
Total assets 778.1 708.2 791.5
----------------------------------- ---- --------- --------- -------
LIABILITIES:
Current liabilities
Trade and other payables 363.0 354.5 364.7
Derivative financial instruments 0.1 0.1 0.1
Current tax liabilities 28.5 19.9 20.8
391.6 374.5 385.6
---------------------------------- ---- --------- --------- -------
Net current assets 348.3 303.8 368.6
Non-current liabilities
Provisions 1.0 0.6 0.7
----------------------------------- ---- --------- --------- -------
Total liabilities 392.6 375.1 386.3
----------------------------------- ---- --------- --------- -------
Net assets 385.5 333.1 405.2
----------------------------------- ---- --------- --------- -------
EQUITY:
Share capital 3.1 1.9 1.9 1.9
Shares held by Employee Benefit
Trust reserve (4.6) (5.5) (3.5)
EBT reserve 5.6 7.3 6.2
Retained earnings 381.3 328.4 399.4
Total equity, attributable to the
owners of the parent 384.2 332.1 404.0
Non-controlling interest 1.3 1.0 1.2
Total equity 385.5 333.1 405.2
----------------------------------- ---- --------- --------- -------
2.1 Changes in capital expenditure since the last annual balance sheet date
Capital expenditure
During the six months ended 31 December 2018, the Group acquired
fixtures, fittings, plant, equipment and software assets and
internally generated intangibles with a cost of GBP6.5 million (H1
2018: GBP6.0 million, year to 30 June 2018: GBP16.1 million).
2.2 Investments
Audited
Unaudited Unaudited at
at 31 December at 31 December 30 June
2018 2017 2018
GBPm GBPm GBPm
At beginning of period 1.5 4.1 4.1
Sales (1.1) (3.2) (2.6)
Purchases - - -
At end of period 0.4 0.9 1.5
Comprising:
Current asset investment - UK
listed securities valued at quoted
market price 0.4 0.9 1.5
GBP0.4 million (31 December 2017: GBP0.9 million, 30 June 2018:
GBP1.5 million) of investments are classified as held at fair value
through profit and loss. There have been no reclassifications of
equity instruments upon adoption of IFRS 9.
2.3 Trade and other receivables
Unaudited Unaudited Audited
at 31 at 31 at
December December 30 June
2018 2017 2018
GBPm GBPm GBPm
Financial assets:
Trade receivables 355.2 343.5 348.5
Term deposits 210.0 175.0 222.0
Other receivables 4.9 3.5 4.2
570.1 522.0 574.7
Non-financial assets:
Accrued income 50.5 45.9 45.8
Prepayments 5.4 5.1 6.7
626.0 573.0 627.2
Trade and other receivables are measured at initial recognition
at amortised cost in accordance with IFRS 9. Assessment has been
made of the expected credit loss in relation to debtors, as
required under IFRS 9, this measure requires assessment of the past
default experience for debtors, grouped by type and with reference
to available information both historic and forward-looking. The
application of IFRS 9 in the period has been detailed further in
Note 5.1.
In accordance with market practice, certain balances with
clients, Stock Exchange member firms and other counterparties
totalling GBP331.3 million (31 December 2017: GBP326.2 million, 30
June 2018: GBP327.1 million) are included in trade receivables.
These balances are presented net where there is a legal right of
offset and the ability and intention to settle net. The gross
amount of trade receivables is GBP416.6 million and the gross
amount of offset in the balance sheet with trade payables is
GBP60.1 million. Other than counterparty balances trade receivables
primarily consist of fees and amounts owed by clients. There are no
balances where there is a legal right of offset but not a right of
offset in accordance with accounting standards, and no collateral
has been posted for the balances that have been offset.
2.4 Cash and cash equivalents
Unaudited Unaudited Audited
at 31 at 31 at
December December 30 June
2018 2017 2018
GBPm GBPm GBPm
Restricted cash - balances held
by Hargreaves Lansdown EBT 0.7 4.2 3.8
Group cash and cash equivalent
balances 111.8 100.0 121.5
112.5 104.2 125.3
Cash and cash equivalents comprise cash on hand and demand
deposits held by the Group that are readily convertible to a known
amount of cash. The carrying amount of these assets is
approximately equal to their fair value.
At 31 December 2018 segregated deposit amounts held by the Group
on behalf of clients in accordance with the client money rules of
the Financial Conduct Authority amounted to GBP10,426 million (31
December 2017: GBP8,719 million, 30 June 2018 GBP9,645 million). In
addition there were cash balances held on behalf of clients not
governed by the client money rules of GBP364.7 million (31 December
2017: GBP14.1 million, 30 June 2018: GBP22.5 million). The client
retains the beneficial interest in both these deposits and cash
accounts and accordingly they are not included in the balance sheet
of the Group.
2.5 Trade and other payables
Unaudited Unaudited Audited
at 31 at 31 at
December December 30 June
2018 2017 2018
GBPm GBPm GBPm
Financial liabilities:
Trade payables 327.8 322.5 327.4
Social security and other taxes 4.4 4.8 8.7
Other payables 17.9 18.6 14.1
350.1 345.9 350.2
Non-financial liabilities:
Accruals 12.5 8.1 13.6
Deferred income 0.4 0.5 0.9
363.0 354.5 364.7
In accordance with market practice, certain balances with
clients, Stock Exchange member firms and other counterparties
totalling GBP327.1 million (31 December 2017: GBP322.9 million, 30
June 2018: GBP324.6 million) are included in trade payables. As
stated in note 2.3, where we have a legal right of offset and the
ability and intention to settle net, trade payable balances have
been presented net.
Other payables principally comprise amounts owed to clients as a
loyalty bonus and to staff as a bonus. Accruals and deferred income
principally comprise amounts outstanding for trade purchases and
revenue received but not yet earned on group pension schemes where
an ongoing service is still being provided.
Section 3: Equity
Condensed Consolidated Statement of Changes in Equity
for the period ended 31 December 2018
Shares
held
Share by EBT EBT Retained Non-controlling Total
capital reserve reserve earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 July 2017 1.9 (7.0) 7.9 304.1 306.9 0.8 307.7
Total comprehensive
income - - - 118.8 118.8 0.2 119.0
Employee Benefit Trust:
Shares sold during
the period - 8.3 - - 8.3 - 8.3
Shares acquired in
the period - (6.8) - - (6.8) - (6.8)
EBT share sale - - (2.7) - (2.7) - (2.7)
Reserve transfer on
exercise of share options - - 2.1 (2.1) - - -
Employee share option
scheme:
Share-based payments
expense - - - 1.9 1.9 - 1.9
Current tax effect
of share-based payments - - - 0.8 0.8 - 0.8
Deferred tax effect
of share-based payments - - - 1.5 1.5 - 1.5
Dividend paid (note
3.2) - - - (96.6) (96.6) - (96.6)
---------------------------- --------- --------- --------- ---------- -------- ---------------- --------
At 31 December 2017 1.9 (5.5) 7.3 328.4 332.1 1.0 333.1
At 1 July 2018 1.9 (3.5) 6.2 399.4 404.0 1.2 405.2
Total comprehensive
income - - - 124.0 124.0 0.1 124.1
Employee Benefit Trust:
Shares sold during
the period - 5.0 - - 5.0 - 5.0
Shares acquired in
the period - (6.1) - - (6.1) - (6.1)
EBT share sale - - (2.7) - (2.7) - (2.7)
Reserve transfer on
exercise of share options - - 2.1 (2.1) - - -
Employee share option
scheme:
Share-based payments
expense - - - 2.0 2.0 - 2.0
Current tax effect
of share-based payments - - - 0.3 0.3 - 0.3
Deferred tax effect
of share-based payments - - - (0.6) (0.6) - (0.6)
Dividend paid (note
3.2) - - - (141.7) (141.7) - (141.7)
At 31 December 2018 1.9 (4.6) 5.6 381.3 384.2 1.3 385.5
The share premium account represents the difference between the
issue price and the nominal value of shares issued.
The shares held by the Employee Benefit Trust ("the EBT")
reserve represents the cost of shares in Hargreaves Lansdown plc
purchased in the market and held by the Hargreaves Lansdown plc EBT
to satisfy options under the Group's share option schemes.
The EBT reserve represents the cumulative gain on disposal of
investments held by the Hargreaves Lansdown EBT. The reserve is not
distributable by the Company as the assets and liabilities of the
EBT are subject to management by the Trustees in accordance with
the EBT trust deed.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group's equity
therein. Non-controlling interests consist of the minority's
proportion of the net fair value of the assets and liabilities
acquired at the date of the original business combination and the
non-controlling interest's change in equity since that date. The
non-controlling interest represents a 22% shareholding in Funds
Library Limited and a 7.5% shareholding in Hargreaves Lansdown
Savings Limited, both subsidiaries of the Company.
3.1 Share capital Audited
at
Unaudited Unaudited 30 June
at 31 December at 31 December 2018
2018 2017
GBPm GBPm GBPm
Issued and fully paid:
Ordinary shares of 0.4p 1.9 1.9 1.9
----------------------------------- --------------- -------------------- -----------
Shares Shares Shares
Issued and fully paid:
Number of ordinary shares of 0.4p 474,318,625 474,318,625 474,318,625
----------------------------------- --------------- -------------------- -----------
The Company has one class of ordinary shares which carry no
right to fixed income.
3.2 Dividends paid
Unaudited Unaudited Audited
at 31 at 31 at
December December 30 June
2018 2017 2018
GBPm GBPm GBPm
Amounts recognised as distributions to equity holders
in the period:
2018 Final dividend of 22.1p
per share (2017 - 20.4p) 104.7 96.6 96.7
2018 Special Dividend of 7.8p
per share (2017 - nil) 37.0
2018 First interim dividend of
10.1p per share - - 47.8
Total 141.7 96.6 144.5
The Hargreaves Lansdown Employee Benefit Trust, which held the
following number of ordinary shares in Hargreaves Lansdown plc at
the date shown, has agreed to waive all dividends.
Unaudited Unaudited Audited
at 31 at 31 at
December December 30 June
2018 2017 2018
Number of shares held by the
Hargreaves Lansdown Employee Benefit
Trust 428,335 551,958 413,604
Representing % of called-up share
capital 0.09% 0.12% 0.09%
Section 4
Condensed Consolidated Statement of Cash Flows
as at 31 December 2018
Audited
Unaudited Unaudited at
at 31 at 31 30 June
December December 2018
2018 2017
Note GBPm GBPm GBPm
Net cash from operating activities
Profit for the period after
tax 124.1 119.0 236.7
Adjustments for:
Income tax expense 29.3 27.9 55.7
Depreciation of plant and
equipment 2.5 2.1 4.4
Amortisation of intangible
assets 2.3 1.4 3.4
Share-based payment expense 2.0 1.9 3.6
Increase in provisions 0.3 - 0.1
Operating cash flows before
movements in working capital 160.5 152.3 303.9
(Increase)/decrease in receivables (10.8) 50.9 43.7
(Decrease)/increase in payables (1.7) (57.0) (46.9)
Cash generated from operations 148.0 146.2 300.7
Income tax paid (21.8) (27.8) (55.9)
Net cash generated from operating
activities 126.2 118.4 244.8
Investing activities
Decrease/(increase) in term
deposits 12.0 5.0 (42.0)
Proceeds on disposal of investments 1.1 3.2 2.6
Purchase of property, plant
and equipment (4.1) (2.6) (6.5)
Purchase of intangible assets (2.4) (3.4) (9.6)
Net cash from / (used in)
investing activities 6.6 2.2 (55.5)
Financing activities
Purchase of own shares in
EBT (6.1) (6.8) (8.6)
Proceeds on sale of own shares
in EBT 2.2 5.6 7.7
Dividends paid to owners of
the parent (141.7) (96.6) (144.5)
Dividends paid to non-controlling - - -
interests
Net cash used in financing
activities (145.6) (97.8) (145.4)
Net (decrease) in cash and
cash equivalents (12.8) 22.8 43.9
Cash and cash equivalents
at beginning of period 125.3 81.4 81.4
Cash and cash equivalents
at end of period 2.4 112.5 104.2 125.3
Section 5
Other Notes
as at 31 December 2018
5.1 Basis of preparation
The consolidated Interim Financial Statements of Hargreaves
Lansdown plc for the six months to 31 December 2018 have been
prepared using accounting policies in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union and in accordance with the International Accounting Standard
(IAS) 34 Interim Financial Reporting and the Disclosure Rules and
Transparency Rules of the United Kingdom's Financial Conduct
Authority. The Interim Financial Statements have been prepared on
the historical cost basis, except for the revaluation of certain
financial instruments, and are presented in pounds sterling which
is the currency of the primary economic environment in which the
Group operates.
The financial information contained in these Interim Financial
Statements does not constitute statutory accounts within the
meaning of Section 434 of the Companies Act 2006. However, the
information has been reviewed by the company's auditor,
PricewaterhouseCoopers LLP, and their report appears earlier in
this document. The financial information for the year ended 30 June
2018 has been derived from the audited financial statements of
Hargreaves Lansdown plc for that year, which have been reported on
by PricewaterhouseCoopers LLP and delivered to the Registrar of
Companies. Copies are available on-line at www.hl.co.uk. The
auditor's report on those accounts was not qualified, did not
include a reference to any matters to which the auditor drew
attention by the way of emphasis without qualifying the report and
did not contain statements under section 498 (2) or (3) of the
Companies Act 2006.
Going concern
Throughout the period, the Group was debt free, has continued to
generate significant cash and has considerable financial resources
enabling it to meet its day-to-day working capital
requirements.
The Directors have considered the resilience of the Group,
taking account of its current financial position, the principal
risks facing the business in severe but reasonable scenarios and
the effectiveness of any mitigating actions. As a consequence, the
Directors believe that the Group is well placed to manage its
business risks in the context of the current economic outlook and
have adequate financial resources to continue in operational
existence for a period of at least 12 months from the date of
approval of these interim financial statements. They therefore
continue to adopt the going concern basis in preparing the
consolidated interim financial statements.
Changes in accounting policy
In the period the Group has adopted two new accounting
standards. IFRS 9 Financial Instruments and IFRS 15 Revenue from
Contracts with Customers became applicable for financial years
commencing on or after 1 January 2018 and as a result were adopted
for the financial year 2019, from 1 July 2018. Neither standard has
had a material impact on the financial statements of the Group for
the period ended 31 December 2018.
IFRS 9 has led to changes in the way measurement and recognition
takes place for financial instruments. Management have undertaken
an assessment of the classification of financial instruments, using
an assessment of the contractual cash flows and the Group's
business model for managing the financial instruments, as required
by IFRS 9 and as highlighted by the below table:
Financial Instrument IAS 39 Classification IFRS 9 Classification
------------------------- ----------------------- -----------------------
Trade and other Loans & receivables Amortised cost
receivables
Equity investments Fair value through Fair value through
profit and loss profit and loss
Cash & cash equivalents Fair value through Amortised cost
profit and loss
Derivative financial Fair value through Fair value through
instruments profit and loss profit and loss
========================= ======================= =======================
Trade and other Amortised cost Amortised cost
payables
The Group classifies its financial assets as at amortised cost
only if both of the following criteria are met:
-- The asset is held within a business model whose objective is
to collect the contractual cash flows; and
-- The contractual terms give rise to cash flows that are solely
payments of principal and interest.
The Group has no financial instruments for which these changes
lead to an adjustment in recognition or carrying amount. As a
result the impact of IFRS 9 classification changes are
presentational in nature. IFRS 9 also introduced a new expected
loss model for impairment that requires the Group to account for
expected losses and changes in those expected losses at each
reporting date to reflect the change in credit risk since initial
adoption. The expected credit loss model has been applied and
consideration given to both historic information in relation to
default and all forward-looking information that may lead to an
increase in the expected loss incurred. Receivables are stated net
of impairment.
The implementation of IFRS 15 was conducted taking the modified
approach. Upon initial application of the standard we have taken
the practical expedient afforded to us under IFRS 15:20 to not
restate any matters in relation to completed contracts or contracts
that had been modified prior to the date of initial
application.
5.1 Basis of preparation (continued)
One area of impact from the implementation of these new
standards is in relation to client incentives. In line with IFRS
15, cash incentives paid to clients, who transferred to the
platform for at least 12 months, have been considered to be a
reduction in revenue earned from those clients, whereas previously
these incentives were considered an operating cost. These
incentives will now be recognised over a period of 12 months, being
the period over which the incentive must be earned. As a result,
the net impact to the Consolidated Income Statement is to increase
operating profit by GBP1.0 million after the application of the new
standard, IFRS 15, than previously would have been recognised under
IAS 18.
No significant or material judgements have been made with
regards to the application of IFRS 9 or IFRS 15.
IFRS 16 Leases will become applicable for the accounting period
commencing 1 July 2019 and as a result has no impact on the current
period accounts. The standard redefines the accounting for leases
and will lead to new assets and liabilities being recognised in the
Statement of Financial Position. It is considered likely that the
Group will take advantage of the practical expedients afforded to
it under IFRS 16 to not require a restatement of the prior period
figures. The current proposed adoption will see the Group recognise
material assets in the region of GBP21.0m and liabilities of
GBP20.0m, leading to an immaterial net impact on the balance sheet.
Key judgements have been made in relation to the appropriate
discount rate used in the application of IFRS 16, although none of
the judgements would lead to a material change in the amounts
recognised on adoption of the standard.
Other than the adoption of IFRS 9 and IFRS 15, the same
accounting policies, methods of computation and presentation have
been followed in the preparation of the Interim Financial
Statements for the six months ended 31 December 2018 as were
applied in the Audited Annual Financial Statements for the year
ended 30 June 2018.
Seasonality of operations
A high proportion of the Group's revenue is derived from the
value of assets under administration or management on the HL
platform or within HL funds. The values of these assets are
influenced predominantly by new business volumes, the stock market
and client withdrawals.
Revenues are not considered to be seasonal, with approximately
51% of revenues being earned in the second half of the financial
year, based on previous financial years. The Group revenue is,
however, sensitive to the impact of net new business inflows during
a particular period. Given the current uncertainty around the UK's
decision to leave the EU, there is a possibility of a decline in
net new business in the second half of the year, which could have a
subsequent impact on revenues over the following 12 months.
5.2 Material events after interim period-end
After the interim balance sheet date, an ordinary interim
dividend of 10.3 pence per share (H1 2018: interim dividend 10.1p)
amounting to a total dividend of GBP48.8 million (2018: GBP47.9
million) was declared by the plc Directors. These financial
statements do not reflect this dividend payable.
There have been no other material events after the end of the
interim period.
5.3 Principal risks and uncertainties
The principal risks and uncertainties which could impact the
Group for the remainder of the financial year are those detailed on
pages 24 to 31 of the Group's Annual Report and Financial
Statements 2018, a copy of which is available on the Group's
website, www.hl.co.uk. These remain the principal risks and
uncertainties for the second half of this financial year and
beyond; the key ones of which are listed below and they are
regularly considered by the Board.
Operational risks
-- Cybercrime, fraud or security breaches in respect of the
Group's information, data, software or information technology
systems.
-- Business continuity event.
-- Changing markets and increased competition.
Financial risks
-- Risk of a decline in earnings due to a decline in interest
rates or regulatory changes affecting interest income.
-- Fluctuations in the capital markets adversely affecting
trading activity and /or the value of the Group's assets under
administration.
The Group is exposed to interest rate risk, the risk of
sustaining losses from adverse movements in interest bearing
assets. These assets comprise cash, cash equivalents and term
deposits. At 31 December 2018 the value of such assets on the Group
balance sheet was GBP322.5 million (at 31 December 2017: GBP279.2
million). A 50bps (0.5%) move in interest rates, in isolation,
would therefore, not have a material direct impact on the Group
balance sheet or results. This exposure is continually monitored to
ensure that the Group is maximising its interest earning potential
within accepted liquidity and credit constraints. The Group has no
external borrowings and as such is not exposed to interest rate or
refinancing risk on borrowings.
As a source of revenue is based on the value of client cash
under administration, the Group also has an indirect exposure to
interest rate risk on cash balances held for clients. These
balances are disclosed in note 2.4 and are not on the Group balance
sheet.
5.4 Related party transactions
The Company has a related party relationship with its Directors
and members of the Executive Committee (the "key management
personnel"). There were no material changes to the related party
transactions during the financial period; transactions are
consistent in nature with the disclosure in note 5.6 to the 2018
Annual Report.
5.5 Financial instruments' fair value disclosure
The fair values of the Group's financial assets and liabilities
are not materially different from their carrying values. There have
been no transfers of assets or liabilities between levels of the
fair value hierarchy and there are no non-recurring fair value
measurements.
The following table provides an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1 to 3 based on the degree to which
fair value is observable:
Level Level 2 Level Total
1 Directly 3
Quoted observable Inputs
prices market inputs not based
for similar other than on observable
instruments Level 1 market
inputs data
GBPm GBPm GBPm
Unaudited at 31 December
2018
Financial assets at fair
value through profit or
loss 0.4 - - 0.4
Derivative financial assets - 0.2 - 0.2
Derivative financial liabilities - (0.1) - (0.1)
---------------------------------- ------------- --------------- --------------- ------
0.4 0.1 - 0.5
---------------------------------- ------------- --------------- --------------- ------
Unaudited at 31 December
2017
Financial assets at fair
value through profit or
loss 0.9 - - 0.9
Derivative financial assets - 0.2 - 0.2
Derivative financial liabilities - (0.1) - (0.1)
---------------------------------- ------------- --------------- --------------- ------
0.9 0.1 - 1.0
---------------------------------- ------------- --------------- --------------- ------
Audited at 30 June 2018
Financial assets at fair
value through profit or
loss 1.5 - - 1.5
Derivative financial assets - 0.2 - 0.2
Derivative financial liabilities - (0.1) - (0.1)
---------------------------------- ------------- --------------- --------------- ------
1.5 0.1 - 1.6
---------------------------------- ------------- --------------- --------------- ------
The fair value of financial instruments traded in active markets
is based on quoted market prices at the end of the reporting
period. Instruments included in Level 1 comprise primarily equity
investments and fund units entered into on a counter-party basis.
As such there is no recurring valuation of financial instruments
between reporting periods.
The fair value of financial instruments that are not traded in
an active market (for example, over-the-counter derivatives) is
determined by using valuation techniques. These valuation
techniques maximise the use of observable market data where it is
available and rely as little as possible on entity-specific
estimates. If all significant inputs required to fair value an
instrument are observable, the instrument is included in Level
2.
Glossary of Alternative Performance Measures
Within the Interim Report and Condensed Financial Statements
various Alternative Financial Performance Measures are referred to,
which are non-GAAP (Generally Accepted Accounting Practice)
measures. They are used in order to provide a better understanding
of the performance of the Group and the table below states those
which have been used, how they have been calculated and why they
have been used.
Measure Calculation Why we use this measure
Dividend Total dividend payable Dividend per share is pertinent information
per share relating to a financial to shareholders and investors and provides
(pence year divided by the total them with the ability to assess the
per share) number of shares eligible dividend yield of the Hargreaves Lansdown
to receive a dividend. plc shares.
Note ordinary shares held
in the Hargreaves Lansdown
Employee Benefit Trust
have agreed to waive all
dividends.
---------------------------------- ---------------------------------------------
Operating The costs as per the Income In light of the transitional period
Costs Statement excluding commission relating to the Retail Distribution
payable (i.e. the aggregate Review (see Net Revenue below) and
of staff costs, other operating the impact this had on commission payable
costs and FSCS costs). in the form of loyalty bonuses, this
measure of Operating Costs provides
a more useful comparative measure over
time.
---------------------------------- ---------------------------------------------
Operating Profits after deducting Provides a measure of profitability
profit operating costs but before of the core operating activities and
margin the impact of finance income excludes non-core items.
and other gains or losses
divided by revenue.
---------------------------------- ---------------------------------------------
Net new Represents subscriptions, Provides a measure of tracking the
business cash receipts, cash and success of gathering assets on to the
inflows stock transfers in less platform over time.
cash withdrawals, cash
and stock transfers out.
---------------------------------- ---------------------------------------------
Net revenue Total revenue less commission Because of the changes brought about
(GBP) payments which are primarily to the client charging structure by
loyalty bonuses paid to the Retail Distribution Review ("RDR")
(See Income Vantage clients. there was a transitional period (from
Statement 1 March 2014 to 1 April 2016). From
on page 1 March 2014 revenue was increased
11 for as Hargreaves Lansdown earned both
the reconciliation a new platform fee from clients and
of net the existing renewal commission from
revenue) the Fund Management Groups based on
the value of funds held by clients.
At the same time the loyalty bonus
paid to clients was significantly increased
on the pre-RDR funds to largely mitigate
the impact of the new platform fee.
In order to aid comparability during
the period of transition to 1 April
2016 the net revenue measure became
the most useful comparative measure
of revenue as it better reflected the
underlying income relating to funds
held by clients.
---------------------------------- ---------------------------------------------
Net recurring Net revenue that is received Provides a measure of the quality of
revenue every month depending on our earnings. We believe net recurring
the value of assets held revenue provides greater profit resilience
on the platform including and hence is of higher quality than
platform fees, management non-recurring revenue.
fees and interest earned
on client money.
---------------------------------- ---------------------------------------------
Percentage The total value of renewal Provides a measure of the quality of
of recurring commission (after deducting our earnings. We believe recurring
net revenue loyalty bonuses), platform revenue provides greater profit resilience
(bps) fees, management fees and and hence it is of higher quality than
interest earned on client non-recurring revenue.
money divided by the total
net revenue.
---------------------------------- ---------------------------------------------
Net revenue Total net revenue divided Provides the most comparable means
margin by the average value of of tracking, over time, the margin
(bps) assets under administration earned on the assets under administration
which includes the Portfolio and is used by management to assess
Management Services assets business performance.
under management held in
funds on which a platform
fee is charged.
---------------------------------- ---------------------------------------------
Net revenue Net revenue from cash (net Provides a means of tracking, over
margin interest earned on the time, the margin earned on cash held
from cash value of client money held by our clients.
(bps) on the platform divided
by the average value of
assets under administration
held as client money).
---------------------------------- ---------------------------------------------
Net revenue Net revenue derived from Provides the most comparable means
margin funds held by clients (platform of tracking, over time, the margin
from funds fees, initial commission earned on funds held by our clients.
(bps) less loyalty bonus) divided
by the average value of
assets under administration
held as funds, which includes
the Portfolio Management
Services assets under management
held in funds on which
a platform fee is charged.
---------------------------------- ---------------------------------------------
Net revenue Management fees derived Provides a means of tracking, over
margin from HL Funds (but excluding time, the margin earned on HL Funds.
from HL the platform fee) divided
Funds (bps) by the average value of
assets held in the HL Funds.
---------------------------------- ---------------------------------------------
Net revenue Net revenue from shares Provides a means of tracking, over
margin (stockbroking commissions, time, the margin earned on shares held
from shares management fees where shares by our clients.
(bps) are held in a SIPP or ISA,
less the cost of dealing
errors) divided by the
average value of assets
under administration held
as shares.
---------------------------------- ---------------------------------------------
Transactional Revenue that is non-recurring Such revenue is not as high quality
revenue in nature and dependent as recurring revenue but helps to show
on a client instruction the diversification of our revenue
such as a deal to buy or streams.
sell shares or take advice.
---------------------------------- ---------------------------------------------
General Information
EXECUTIVE DIRECTORS
Chris Hill
Philip Johnson
NON-EXECUTIVE DIRECTORS
Deanna Oppenheimer
Fiona Clutterbuck
Shirley Garrood
Roger Perkin
Stephen Robertson
Jayne Styles
COMPANY Secretary
Alison Zobel
INDEPENDENT AUDITOR
PricewaterhouseCoopers LLP, London
BROKERS
Barclays
Numis Securities Limited
REGISTRARS
Equiniti Limited
Registered Office
One College Square South
Anchor Road
Bristol
BS1 5HL
Registered number
02122142
WEBSITE
www.hl.co.uk
DIVIDEND CALENDAR
First dividend
(interim)
Ex-dividend date* 14 February
2019
Record date** 15 February
2019
Payment date 10 March 2019
* Shares bought on or after the ex-dividend date will not
qualify for the dividend.
** Shareholders must be on the Hargreaves Lansdown plc share
register on this date to receive the dividend
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 rns@lseg.com or visit www.rns.com.
END
IR VVLFLKFFFBBE
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January 29, 2019 02:00 ET (07:00 GMT)
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