TIDMHL.
RNS Number : 3170I
Hargreaves Lansdown PLC
08 August 2019
Hargreaves Lansdown plc
Results for the year ended 30 June 2019
Highlights:
-- Net new business of GBP7.3 billion
-- Strong growth in Assets Under Administration, up 8% to GBP99.3 billion
-- 1,224,000 active clients, an increase of 133,000 in the year
-- Profit before tax increase of 5% to GBP305.8 million
-- Total dividend up 5% at 42.0 pence per share
Year to Year to Change %
30 June 2019 30 June
2018
=================================== =========================== ====================== =========
Net new business inflows GBP7.3bn GBP7.6bn (4%)
=================================== =========================== ====================== =========
Total assets under administration GBP99.3bn GBP91.6bn +8%
=================================== =========================== ====================== =========
Revenue GBP480.5m GBP447.5m +7%
=================================== =========================== ====================== =========
Profit before tax GBP305.8m GBP292.4m +5%
=================================== =========================== ====================== =========
Diluted earnings per share 52.0p 49.6p +5%
=================================== =========================== ====================== =========
Ordinary dividend per share 33.7p 32.2p +5%
=================================== =========================== ====================== =========
Total dividend per share 42.0p 40.0p +5%
=================================== =========================== ====================== =========
Chris Hill, Chief Executive Officer, commented:
"We are pleased with the underlying strength and resilience of
our business and our increase in market share. We continue to focus
on our clients' evolving needs and where we see opportunities for
growth. We now have a record 1,224,000 clients and Assets Under
Administration (AUA) of GBP100 billion.
The second half of the financial year was particularly strong,
supported by our best ever tax year end with clients continuing to
use their ISA and SIPP allowances. Our Active Savings launched with
a full tranche of term deposits and through considerable momentum,
now has over GBP1bn AUA. Our HL Select Global Growth Shares fund
now has over GBP350 million Assets Under Management and is our most
successful Select fund launch to date.
I have apologised to all clients who have been impacted by the
recent problems around the Woodford Equity Income Fund, because we
all share their disappointment and frustration. In these difficult
times we recognise the financial and personal impact the gating of
the fund has had on them. Our priority is to support them, keep
them informed and ensure that the fund reopens as soon as is
practicable.
We recognise that there are industry headwinds, but we continue
to execute our strategy and remain on track. We are confident that
we are well placed to help our clients prosper, whilst continuing
to deliver strong and sustainable returns for shareholders."
About us:
Hargreaves Lansdown is the UK's largest direct to investor
investment service administering GBP99.3 billion of investments for
over 1,224,000 clients. Our purpose is to empower people to save
and invest with confidence. We aim to provide a lifelong, secure
home for people's savings and investments that offers great value,
an incredible service and makes their financial life easy.
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
Analysts' presentation
Hargreaves Lansdown will be hosting an investor and analyst
presentation at 09:00am on 8 August 2019 following the release of
the results for the year ended 30 June 2019. To attend the
presentation contact james.found@hl.co.uk. Slides accompanying the
analyst presentation will be available this morning 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.
Alternative financial performance measures
Included in this announcement are various alternative
performance measures used by the Company in the course of
explaining the results for the year to 30 June 2019. These measures
are listed along with the calculations to derive them and an
explanation of why we use them on page 28 in the Glossary of
Alternative Financial Performance Measures. A reconciliation to
profit before tax is given in the Operating and Financial Review
section.
Forward-looking statements
This document has been prepared to provide additional
information to shareholders to assess the current position and
future potential of the Hargreaves Lansdown Group ("the Group"). It
should not be relied on by any other party for any other purpose.
This document contains forward-looking statements that involve
risks and uncertainties. The Group's actual results may differ
materially from the results discussed in the forward-looking
statements as a result of various economic factors or the business
risks, some of which are set out in this document.
Chief Executive's Review
Continued execution of our strategy
2019 saw Hargreaves Lansdown continue to execute our strategy.
We delivered strong growth, increased market share and maintained
our focus on clients' evolving needs and the service we
provide.
Net new business was GBP7.3 billion and we welcomed a further
133,000 net new clients. We now have a record 1,224,000 clients. I
am also pleased to report that AUA exceeded GBP100 billion for the
first time in July 2019. We take great pride in what we do and I am
confident that we are well positioned for the future.
This growth came despite external challenges, including
uncertainty over Brexit and the wider macro-economic outlook.
Investor confidence was understandably volatile in the UK market
overall and, by our own measures, it hit record lows in the second
half of 2018 with the Investment Association reporting the worst
quarter ever for net retail fund outflows in Q4 2018.
Our growth and the resilience of net new business reflects the
execution of our strategy and our relentless focus on putting the
client at the centre of all that we do. The second half of our
financial year was particularly strong, driven by a number of
ongoing diversification initiatives that broaden our accessible
market and by improved marketing effectiveness. This contributed to
our best ever tax year end as clients continued to use their ISA
and SIPP allowances.
We continue to develop new and innovative products and services
where there is client need. Our new Active Savings service has
gained considerable momentum and made a significant contribution to
growth. Its AUA went above GBP1 billion in early July. We launched
the HL Select Global Growth Shares fund in May 2019, with GBP298
million placed ahead of the launch. We were also delighted to
welcome new clients from Witan, JP Morgan and Baillie Gifford
during the year, continuing our successful history as a provider of
choice for organisations wishing to transfer direct books. These
books contributed GBP1.2 billion.
Due to this growth and our diversification initiatives, we have
continued to add market share. We have grown our share of the
direct to consumer platform market to 40.5%(1) and increased our
share of the execution only stockbroking market to 34.1%(2) .
I would like to thank our clients for their continued loyalty
and support. Our relationship with them is based on a desire to
help them to save and invest with confidence and build for their
long-term prosperity and our strong retention rate of 93.6% is a
demonstration of our strong service performance.
The hard work of colleagues is behind all that has been achieved
and I would also like to thank them for their dedication and
resilience throughout the year.
Serving our clients
We have a significant opportunity in an evolving and growing
market. Societal changes such as improving life expectancy, the
transfer of long-term savings from companies to individuals, and a
prolonged low interest rate environment offering minimal risk-free
returns all require that individuals and families build their own
wealth and capital. This is against a backdrop of ever-shifting
regulatory and tax environments. In this complicated world, our
clients need support more than ever.
Our business grows as we add clients then deepen our
relationship with them. We aim to develop this throughout their
financial lives as they save and invest to accumulate before moving
into a decumulation phase in retirement. By providing the service
and solutions that they need, when they need them, engaging with
them at the right times and communicating in the ways they prefer,
we optimise the value that we can bring to them.
We have worked hard this year on the areas that our clients tell
us cause them inconvenience, such as transfers, where we have
reacted by facilitating higher numbers of online transactions and a
reduction in overall completion times. We have improved our
Helpdesk service by responding to high volume call drivers,
providing new training to managers and through deployment of
technology tools. We have also maintained our marketing efforts
through quieter periods of client activity. It is through uncertain
times that clients seek knowledge, information and our insight more
than ever.
Given all of the hard work and resource we put into service, I
was delighted that Hargreaves Lansdown received top marks from
Platforum in its November 2018 UK D2C Investor Experience report
for customer service, as well as for our online and mobile
propositions. We also won the Boring Money Best Customer Service
award, sponsored by The Times and The Sunday Times. We have
achieved records in our internal measures for client satisfaction
with our Helpdesk and improved our performance in Operations,
whilst at the same time improving efficiency.
At the heart of our business is an extensive and complex
technology infrastructure. We ensure that the monitoring and
maintenance of our systems is thorough and rigorous to ensure that
client information is always safe and secure and our hardware,
software and client portals enable a smooth and efficient
experience. This year we have delivered a number of key projects
that have improved our ability to handle electronic trading volumes
and to make our back office systems and websites work faster. We
also completed changes to the way our clients log into the
platform, making the process simpler and safer. Throughout all of
these changes, platform uptime has been maintained and we have made
enhancements to capacity and responsiveness of core
applications.
Investing for the future
A key part of maintaining a lifelong relationship with clients
is to provide a home for their assets not only throughout their
lifetime, but through the market cycle. To that end, we continue to
invest in our proposition. Our research told us that clients wanted
to manage their cash savings as well as their investments all in
one place with simple switching and easy execution. We therefore
"soft" launched our cash management service, Active Savings, in
December 2017 and spent some time to get the proposition right,
adding more banks and making sure that the rates on offer were the
best they could be.
We launched with a full tranche of term deposits and a focus on
growing AUA in September 2018. In order to achieve this and
establish a leading presence in this market, we have reduced our
revenue margins to make sure that the rates we can offer on the
platform are competitive. We followed this up by introducing Easy
Access in January 2019. We have been pleased with the growth that
we've seen this year which has taken us to almost GBP1 billion of
AUA as at 30 June 2019. Our rates continue to be among the best
available to the 28,000 clients who have opened accounts and we are
committed to maintaining top quartile rates.
Through the uncertainties of 2018, clients indicated a desire to
invest in global funds and this continued into early 2019. We
therefore launched the HL Select Global Growth Shares fund in May
2019.
This now has over GBP350 million of AUM, our most successful
Select fund launch yet. It is a high conviction fund that will
typically hold shares in 30-40 companies and is actively managed by
our experienced team in Bristol. We are committed to transparency
and engagement with fund holders, so for all our HL Select funds we
publish every shareholding once dealt, as well as the complete
portfolio breakdown and regular updates on performance.
As Hargreaves Lansdown grows, it is paramount that we invest so
that we continue to provide the very best service to our clients
and develop capabilities to maximise the significant long-term
market opportunity. By continually developing our people,
technology and marketing capabilities we believe we will nurture
the trust, engagement and ease of doing business that is critical
to our success.
The Wealth 50
Behavioural economics suggest that when people are presented
with a wide or unfamiliar choice, for example about financial
planning, this can result in them not making any decision at all.
One tool that people can use when making investment decisions is
'best buy' lists. In their Investment Platforms Market Study, the
FCA found that 'best buy' lists and/or model portfolios help
investors pick independent well-performing funds.
We are committed to a favourite funds list as one of many tools
which are important for our clients.
At Hargreaves Lansdown, we have had a favourite funds list since
October 2003. This is now known as the Wealth 50 following its
relaunch in January 2019. This was as a result of feedback from
6,500 current and potential investors who told us they wanted a
shorter, more focused list with the ability to filter by objective,
risk, yield and cost.
The process of selecting and reviewing the Wealth 50
constituents is a rigorous one driven by our 14 person investment
research team. They devote thousands of working hours every year to
conducting quantitative and qualitative analysis of fund managers
and the funds. This process helps identify managers who have added
value over the long-term through repeatable skill rather than
market movements or thematic biases.
This research has resulted in the selection of funds which have
on average outperformed both their relevant benchmark index and
their sector average after charges, by 5.8% and 11.8% respectively
over the period they have been on our favourite funds list.
It is important to note that Hargreaves Lansdown is paid
directly by our clients, not by fund managers. Our fee income is
calculated as a percentage of the clients' assets held on our
platform, and we earn the same fee regardless of the funds our
clients hold.
We use the combined buying power of our 1.2 million clients to
get the lowest cost we can for each fund, as a lower price delivers
better investment returns. These discounts are passed in full to
our clients. In 2018, we saved our clients GBP61 million of fund
management costs as a result of the terms we have negotiated on
their behalf and the Wealth 50 relaunch has enabled us to deliver a
further GBP7 million of discounts to clients.
Woodford Equity Income
The nature of active fund management portfolios means that there
will be periods of outperformance and underperformance by all
managers. There are a limited number of individuals who deliver
outperformance over their peers and benchmarks over the long term,
and investors who own these managers' portfolios benefit from these
outcomes.
We have followed Neil Woodford's career from 1999, when he was
at Invesco Perpetual, and supported the launch of his new venture
in 2014. For the first two and a half years from launch, the
Woodford Equity Income fund was among the top performers in the
sector, but at the end of 2016 the fund started to underperform. We
had seen the fund manager display similar periods of
underperformance in 1999, but then bouncing back strongly to 2003
and again underperforming in 2009, rallying strongly to 2016.
We believed there was a reasonable expectation that the fund
would do the same again. As a result, the research process
concluded that the Woodford Equity Income Fund should be kept on
our favourite funds list.
As I detailed in my submission to the Treasury Select Committee,
we began an active dialogue with Woodford in November 2017 over the
proportion of small and unquoted assets in the Woodford Equity
Income fund.
During the course of 2018, redemptions from the fund began to
increase. This meant the manager sold stocks where he had the least
conviction to meet demands for investor cash. This in turn meant
the unquoted portion of the portfolio was not reduced as quickly as
we had desired.
On 3 June, the authorised corporate director, Link Asset
Services, decided to suspend dealing in the Woodford Equity Income
Fund. We responded quickly and decisively. We immediately removed
the fund from the Wealth 50, communicated the suspension to clients
and dealt with all calls and emails received since in a timely and
orderly manner. We waived our platform administration fee on direct
holdings in this fund and we believe that Woodford Investment
Management should suspend collecting its fees whilst their
investors cannot access their cash. This is the right thing for
them to do.
Since these announcements, Hargreaves Lansdown's own business
flows and service levels have held up well. We have actively
engaged with external stakeholders, including Link, Woodford
Investment Management, and the regulator as well as the financial
press which followed the story closely, keeping them informed. Our
priority remains to support our clients and pressing for the
Woodford Equity Income Fund to reopen as soon as is practicable,
whilst protecting the interests of all investors.
I am determined that we learn from events such as these. I have
apologised to all clients who have been impacted by the recent
problems because we all share their disappointment and frustration.
In these difficult times we recognise the financial and personal
impact the gating of the fund has had on them. Philip and I,
together with the unanimous support of the Board, have therefore
decided that we will not take a bonus award for 2019.
Our aim remains to provide the best possible service and choices
to allow people to manage their investments simply and effectively.
The shortcomings of one fund should not detract from the benefits
of favourite fund lists like the Wealth 50. We are confident in the
robustness of how we analyse, research and compile our favourite
fund list with a focus on ensuring best value for clients.
Nonetheless, we recognise that there will be learnings and
improvements we can make from reviewing this event and we will
ensure we apply these to benefit our clients in the future.
The regulatory environment
The FCA's final Investment Platforms Market Study report was
published in March 2019. The FCA confirmed its view that the
platform market is mainly working well. There is not excessive
profitability, consumers who pay more get more and that platforms
help consumers make informed investment decisions. There are no
material barriers to entry in the market and whilst the cost of
customer acquisition is a barrier to expansion, making transfers
between platforms easier should be an appropriate solution.
We welcome the proposed remedies which are reflective of our own
core value of putting the client first. The FCA cited the need to
make transfers easier and Hargreaves Lansdown is already at the
forefront of this, chairing the industry's STAR working group. We
anticipate that the study's focus on switching will enable a faster
and more straightforward process.
We also believe helping clients to compare and contrast platform
services and fees and making it easier for them to switch between
providers, will lead to healthier competition. This should promote
greater engagement among clients across the entire industry. We
look forward to working with the FCA on the outcomes from this
study.
Conclusion and outlook
I am pleased with the performance and progress we have made
throughout a very challenging 2019. We recognise that there are
industry headwinds and that the environment continues to be
difficult and we remain vigilant to these conditions. However, we
are confident in the underlying strength of our business and that
we are well placed to help our clients prosper whilst continuing to
deliver strong and sustainable returns for shareholders.
Chris Hill
Chief Executive Officer
7 August 2019
1 Source: Platforum UK D2C Market Update (July 2019)
2 Source: Compeer Limited XO Quarterly Benchmarking Report
Quarter 1 2019
Operating and Financial Review
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
another robust year for NNB and growth in AUA. We believe the
Group's focus on client service is core to our success as a
business and positions us well for the structural growth
opportunity in the UK savings and investments market.
Assets Under Administration (AUA) and Net New Business (NNB)
Year ended Year ended
30 June 2019 30 June 2018
GBPbn GBPbn
============================ ======================= =====================
Opening AUA 91.6 79.2
Underlying net new business 7.3 7.6
Market growth & other 0.4 5.9
Founder transfers(1) - (1.1)
============================ ======================= =====================
Closing AUA 99.3 91.6
============================ ======================= =====================
(1.) Underlying net new business excludes the transfer off the
Vantage platform of GBP902 million of Hargreaves Lansdown plc
shares and the withdrawal of GBP188 million of Hargreaves Lansdown
plc placing proceeds that were held by a founder.
NNB for the year totalled GBP7.3 billion despite the backdrop of
low investor confidence, record industry retail fund outflows for
part of the year and the continued Brexit and political
uncertainty. This was driven by increased client numbers and
continued wealth consolidation onto our platform. We also benefited
from new business from direct books totalling GBP1.2 billion. We
remain in discussions with other fund groups but have no further
deals to announce at present.
During the year to 30 June 2019 we introduced 133,000 net new
clients to our services and grew our active client base a further
12% to 1,224,000. This increased population underpins future growth
as clients add new money to their accounts, particularly through
the use of annual tax free allowances in the SIPP and ISA products.
Over a period of time, clients also typically consolidate their
investments through transfers onto our platform. This growth was
supported by our continued high retention rates.
Our focus on service and the value our clients place on our
offering is evidenced by client and asset retention rates remaining
strong at 93.6% and 93.1% respectively. Our increased focus on
digital marketing has been key in winning new clients and engaging
with existing ones, ensuring we become integral to their lives in
terms of saving and investing for the future.
Total AUA increased by 8% to GBP99.3 billion as at 30 June 2019
(GBP91.6 billion as at 30 June 2018). This was driven by GBP7.3
billion of NNB and positive market movement which added a further
GBP0.4 billion.
Financial performance
Income Statement
Year ended Year ended
30 June 2019 30 June 2018
GBPm GBPm
================================ ============= ================
Revenue 480.5 447.5
Operating costs (179.4) (158.7)
Fair value gains on derivatives 2.2 2.3
Finance income 2.8 1.5
Finance costs (0.3) (0.2)
Profit before tax 305.8 292.4
Tax (58.2) (55.7)
================================ ============= ================
Profit after tax 247.6 236.7
================================ ============= ================
2019 profit before tax grew by 5% to GBP305.8 million. This was
due to revenues increasing on the back of continued NNB-driven
growth, despite challenging external conditions at various points
during 2019 and costs growing in line with client numbers, as
signalled last year.
Revenue
Total revenue for the year was GBP480.5 million, up 7% (2018:
GBP447.5 million), driven by higher asset levels and improved
margins on client cash. This more than offset a fall in
stockbroking commissions from reduced client share dealing activity
due to unsettled market conditions and a loss of investor
confidence particularly around Brexit and political events. The
proportion of recurring revenue has increased to 81% (2018: 77%) as
the transactional stockbroking commissions have declined. In line
with the wider industry our share dealing volumes fell, however,
our market share of the UK execution only market continued to
increase to 34.1%(1) .
1 Source: Compeer Limited XO Quarterly Benchmarking Report
Quarter 1 2019
The table below breaks down revenue, average AUA and margins
earned across the main asset classes which our clients hold with
us.
Year ended 30 June 2019 Year ended 30 June 2018
======================================== ========================================
Revenue Average Revenue Revenue Average Revenue
GBPm AUA GBPbn margin bps GBPm AUA GBPbn margin bps
Funds1 206.2 50.67 41 198.0 48.47 41
Shares2 86.2 31.4 27 89.6 28.3 32
Cash3 73.2 10.2 72 42.1 8.8 48
HL Funds4 68.3 9.27 74 67.2 9.17 74
Other5 46.6 0.56 - 50.6 - -
Double-count(7) - (9.1)7 - - (9.1)7 -
================ ========= ============ =============== ========= ============ ===============
Total 480.5 92.87 - 447.5 85.57 -
================ ========= ============ =============== ========= ============ ===============
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, FundsLibrary revenues, Active Savings and
ancillary services (e.g. annuity broking, distribution of VCTs and
Hargreaves Lansdown 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.
Revenue on Funds increased by 4% to GBP206.2 million (2018:
GBP198.0m) due to AUA growth primarily from net new business. Funds
remain our largest client asset class at 55% of average AUA (2018:
56%), and the revenue margin earned on these this year was 41bps
(2018: 41bps). Revenue margins on Funds have been broadly stable
following the completion of RDR and we continue to expect them to
remain at similar levels over the next 12 months. However, this
guidance may be slightly impacted, depending on how long the
current suspension on dealing in the Woodford Equity Income Fund
lasts. The suspension commenced in June 2019 and we took the
decision to waive our platform fee where clients directly held this
fund. The loss of revenue is estimated at GBP360,000 per month and
Link Asset Services, the fund's Authorised Corporate Director, has
confirmed that trading will likely be suspended until early
December. Funds AUA at the end of 2019 was GBP53.8 billion (2018:
GBP51.0bn).
Revenue on Shares decreased by 4% to GBP86.2 million (2018:
GBP89.6m) and the revenue margin was 27bps (2018: 32bps), within
our expected range of 27bps to 33 bps. The impact of lower client
driven equity dealing volumes, down 5% on the prior year, has only
been partly offset by a growth in management fees. Management fees
for shares charged in the SIPP and Stocks and Share ISA accounts
are capped once holdings are above GBP44,444 in a SIPP and
GBP10,000 in an ISA. This causes some dilution to the margin over
time as clients grow their portfolio of shares. Shares account for
34% of the average AUA (2018: 34%). We expect the margin on Shares
to be centred around 29bps over the next 12 months, with a range
around this depending on actual dealing volume levels. Shares AUA
at the end of 2019 was GBP33.7 billion (2018: GBP31.0bn).
Revenue on Cash increased by 74% to GBP73.2 million (2018:
GBP42.1m) as a result of increased cash levels combined with an
increase in the interest margin to 72bps (2018: 48bps). This was
slightly ahead of our communicated expectations at the Interim
results announced in January 2019, that margins would be within a
60bps to 70bps range. This was due to the yield curve anticipating
further interest rate rises that have so far not materialised. Cash
accounts for 11% of the average AUA (2018: 10%). At the start of
the year the Bank of England base rate was 0.50% before being
increased to 0.75% in August 2018. With the majority of clients'
SIPP money placed on rolling 13 month term deposits, and non-SIPP
money on terms of up to 95 days, the full impact of the rate rise
takes over a year to flow through. We anticipate the cash interest
margin for the 2020 financial year will be in the range of 70bps to
80bps, although given the yield curve has fallen back recently we
expect margins in the first half of the year to be higher than the
second half as higher rate deposits roll off and are replaced at a
lower rate. Cash AUA at the end of 2019 was GBP10.7 billion (2018:
GBP9.6bn).
HL Funds consist of 10 Multi-Manager funds, on which the
management fee is 75bps per annum, and three Select equity funds,
the most recent of which launched in May 2019, where the management
fee is 60bps. Revenue from these funds has grown by 2% this year to
GBP68.3 million (2018: GBP67.2m) thanks to a slightly higher
average value of the funds across the year. 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 (2018: 74bps). Recent growth in the HL Multi-Manager funds
has been subdued and we expect this to remain a feature of 2020
flows, especially given a number of these funds have holdings in
the Woodford Equity Income Fund. Note that the platform fees on
these assets are included in the Funds line and hence total average
AUA of GBP92.8 billion (2018: GBP85.5bn) excludes HL Funds AUM to
avoid double-counting. HL Funds AUM at the end of 2019 was GBP9.4
billion (2018: GBP9.6bn).
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 has been and continues to be
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 new clients and assets into
the service that we need to capitalise on the opportunity. As at 30
June 2019, the AUA was GBP986 million. The associated revenue is
included in the category of "Other" such that the total revenue
reconciles back to the income statement.
Other revenues are made up of advisory fees, our Funds Library
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 largely
transactional and declined by 8%. Early in the year we stopped
taking box profits on the buying and selling of units of our own
funds leading to a reduction in revenue of GBP1.3 million. In
addition, following the implementation of IFRS 15 (Revenue from
Contracts with Customers), cash incentives given to clients that
were previously shown as marketing costs are now considered to be a
reduction in revenue and the charge was GBP1.1 million in the
year.
Year ended Year ended
30 June 2019 30 June 2018
GBPm GBPm
====================== =============== ==============
Recurring revenue 387.3 344.9
Transactional revenue 84.3 94.0
Other income 8.9 8.6
Total revenue 480.5 447.5
====================== =============== ==============
The Group's revenues are largely recurring in nature, as shown
in the table above, with the proportion of recurring revenues
increasing to 81% (2018: 77%). Recurring revenue is primarily
comprised of platform fees, Hargreaves Lansdown fund management
fees, interest on client money, equity holding charges and ongoing
advisory fees. It grew by 12% to GBP387.3 million (2018: GBP344.9m)
due to increased average AUA from continued net new business and
higher interest rates earned on client money. 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 10% to
GBP84.3 million (2018: GBP94.0m) with a 5% decrease in client
driven equity deal volumes being the key driver. The removal of box
profits and the implementation of IFRS 15 were also factors in the
revenue reduction.
Other revenue is derived from the provision of funds data
services and research to external parties through Funds Library.
This was up 3% from GBP8.6 million to GBP8.9 million, driven by new
MiFID II services and some targeted price increases which more than
offset some lost contracts.
Operating costs
Year ended Year ended
30 June 2019 30 June 2018
GBPm GBPm
Staff costs 97.2 87.4
Marketing and distribution costs 12.7 16.3
Depreciation, amortisation and financial
costs 12.4 10.3
Other costs 50.3 41.2
========================================== ============== ==================
172.6 155.2
Total FSCS levy 6.8 3.5
========================================== ============== ==================
Total operating costs 179.4 158.7
========================================== ============== ==================
Operating costs increased by 13% to GBP179.4 million (2018:
GBP158.7m) to support higher client activity levels, maintain
client service and invest in the significant growth opportunities
we see ahead for Hargreaves Lansdown.
As highlighted previously, we consciously and significantly
increased our investment in people, digital marketing and
technology during the 2017 and 2018 financial years as we believe
the Group's focus on client service is core to our success and
necessary to capture the structural growth opportunity in the UK
savings and investments market. This investment 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 the period. Having
gone through this period of investment catch up the growth rate in
costs, excluding the FSCS levy, has slowed to 11% for the year with
cost growth of just 5% in the second half of the year versus the
equivalent period in 2018. Looking forward we would anticipate that
costs will grow more in line with the growth of client numbers.
Staff costs remain our largest expense and rose by 11% to
GBP97.2 million (2018: GBP87.4m). Average staff numbers increased
by 13% from 1,398 in 2018 to 1,574 in 2019 with the key increases
being in Technology, on the Helpdesk and in Operations, in line
with higher client activity levels, and Marketing. 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 22% to GBP12.7
million (2018: GBP16.3m). 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,
GBP2.0 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 year to
30 June 2019, GBP1.1 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. We have
worked hard at gaining a deeper understanding of our client
segmentation and have invested in our use of data analytics and the
addition of specialist content writers. Although there is much more
to do, we are already seeing improved effectiveness on our
marketing spend as more tailored content is now delivering better
conversion rates on marketing campaigns. 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
GBP2.1 million to GBP12.4 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 was GBP17.1 million this year
(2018: GBP16.1m). This expenditure was from cyclical replacement of
IT hardware, the continuing project to enhance the capacity and
capability of our key administration systems and the ongoing
development of the Active Savings platform.
Other costs rose by GBP9.1 million to GBP50.3 million (2018:
GBP41.2m). The key drivers of this were increased computer
maintenance and office costs driven by higher employee numbers and
additional office space, increased professional fees and
irrecoverable VAT on non-staff expenses.
The Financial Services Compensation Scheme (FSCS) levy rebased
upwards by GBP3.3 million or 94% to GBP6.8 million. This was caused
by a combination of a restructure of the fee blocks leading to
pension and product providers like us bearing a higher proportion
of the amounts being raised and our fee growth being above the
wider market. 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.
Profit before tax
Year ended Year ended
30 June 30 June 2018
2019 GBPm
GBPm
Operating profit 303.3 291.1
Finance income 2.8 1.5
Finance costs (0.3) (0.2)
=================== =============== ===============
Profit before tax 305.8 292.4
Tax (58.2) (55.7)
=================== =============== ===============
Profit after tax 247.6 236.7
=================== =============== ===============
The Group has grown profit before tax by 5% to GBP305.8 million
(2018: GBP292.4m) and profits after tax also grew by 5% to GBP247.6
million as the headline statutory corporation tax rate remained
unchanged at 19.0%.
Tax
The effective tax rate for the year was 19.0% (2018: 19.0%), in
line with the standard rate of UK corporation tax. The Group's tax
strategy is published on our website at www.hl.co.uk.
Earnings per share
Year ended Year ended
30 June 30 June 2018
2019 GBPm
GBPm
Profit after tax 247.6 236.7
================================== ====== =================
Diluted share capital (million) 475.8 475.4
================================== ====== =================
Diluted EPS (pence per share) 52.0 49.6
================================== ====== =================
Diluted EPS increased by 5% from 49.6 pence to 52.0 pence,
reflecting the Group's growth in profit after tax. The Group's
Basic EPS was 52.1 pence compared with 49.7 pence in 2018.
Liquidity and capital 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 30 June 2019 was
GBP394.0 million (2018: GBP343.5m) as cash generated through
trading offset the payments of the 2018 final dividend and the 2019
interim dividend. This includes cash on longer-term deposit and is
before funding the 2019 final dividend of GBP110.9 million and
special dividend of GBP39.3 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.
The healthy net cash position provides both a source of
competitive advantage and support to our client offering. It
provides security to our clients, giving them confidence to manage
their money through us over many years, and allows us to provide
them with an excellent service, for example through using surplus
liquidity to allow same day switching between products that have
mismatched settlement dates.
Capital
Year ended Year ended
30 June 2019 30 June 2018
GBPm GBPm
Shareholder funds 458 404
Less: goodwill, intangibles and other deductions (24) (24)
==================================================== ======= ===============
Tangible capital 434 380
Less: provision for dividend (150) (142)
==================================================== ======= ===============
Qualifying regulatory capital 284 238
Less: estimated capital requirement (186) (159)
==================================================== ======= ===============
Estimated surplus 98 79
==================================================== ======= ===============
Total attributable shareholders' equity, as at 30 June 2019,
made up of share capital, share premium, retained earnings and
other reserves increased to GBP457.8 million (2018: GBP404.0m) as
continued profitability more than offset payment of the 2018 final
and special dividends and the 2019 interim dividend. Having made
appropriate deductions as shown in the table above, surplus capital
amounts to GBP98 million.
The Group has three subsidiary companies authorised and
regulated by the FCA and one subsidiary authorised by the FCA under
the Payment Services Regulations 2017. 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 policy and 2019 declarations
Hargreaves Lansdown has a progressive ordinary dividend policy.
The Board considers the dividend on a total basis, with the
intention of maintaining the ordinary dividend 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.
Dividend (pence per share)
2019 2018
========================== =========== ===========
Interim dividend paid 10.3p 10.1p
Final dividend declared 23.4p 22.1p
========================== =========== ===========
Total ordinary dividend 33.7p 32.2p
Special dividend 8.3p 7.8p
========================== =========== ===========
Total dividend 42.0p 40.0p
========================== =========== ===========
Reflecting this policy, the Board has declared a 2019 total
ordinary dividend of 33.7 pence per share (2018: 32.2p), 5% ahead
of last year. This is in line with EPS growth and maintains the
ordinary dividend payout ratio at 65%. In addition, the Board has
declared a special dividend of 8.3 pence per share (2018: 7.8p).
The 2019 total dividend of 42.0 pence per share (2018: 40.0p) is up
5% and results in a total dividend payout ratio of 80.6% (2018:
80.6%). Subject to shareholder approval of the final dividend at
the 2019 AGM, the final and special dividends will be paid on 18
October 2019 to all shareholders on the register at the close of
business on 27 September 2019.
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. The Board
remains committed to paying special dividends in future years
should sufficient excess cash and capital exist after taking
account of market conditions and the Group's growth, investment and
regulatory capital requirements at the time.
Assessment Process Viability Statement
In accordance with provision C.2.2 of the UK Corporate
Governance Code, the Directors have assessed the viability of the
Group over the three year period to June 2022 and confirm that they
have a reasonable expectation that the Group will continue to
operate and meet its liabilities up to this date. The Directors'
assessment has been made with reference to the Group's current
position and strategy, the Board's risk appetite, the Group's
financial forecasts and the Group's principal risks and
uncertainties, as detailed in the Strategic report.
The Board considers that a time horizon of three years is an
appropriate period over which to assess its viability and
prospects, and to plan the execution of its strategy. This
assessment period is consistent with the Group's current strategic
forecast and ICAAP and it also matches the timescale over which
most changes to major regulations and the external landscape that
affect our business typically take place.
The strategic forecast is approved annually by the Board and
regularly updated as appropriate. It considers the Group's
profitability, cash flows, dividend payments, capital requirements
and other key variables such as exposure to principal risks. It is
also subjected to stress tests and scenario analysis, such as
fluctuations in markets, increased competition and disruption to
business, to ensure the business has sufficient flexibility to
withstand these impacts by making adjustments to its plans within
the normal course of business.
Philip Johnson
Chief Financial Officer
7 August 2019
SECTION 1: RESULTS FOR THE YEAR
Consolidated Income Statement for the year ended 30 June
2019
Year ended Year ended
30 June 2019 30 June
2018
Note GBPm GBPm
Revenue 480.5 447.5
Fair value gains on derivatives 2.2 2.3
Operating costs 1.3 (179.4) (158.7)
--------------------------------- ----- -------------- ------------
Operating profit 303.3 291.1
Finance income 1.5 2.8 1.5
Finance costs (0.3) (0.2)
--------------------------------- ----- -------------- ------------
Profit before tax 305.8 292.4
Tax 1.7 (58.2) (55.7)
--------------------------------- ----- -------------- ------------
Profit for the financial
year 247.6 236.7
--------------------------------- ----- -------------- ------------
Attributable to:
Owners of the parent 247.4 236.3
Non-controlling interest 0.2 0.4
--------------------------------- ----- -------------- ------------
247.6 236.7
--------------------------------- ----- -------------- ------------
Earnings per share
Basic earnings per share
(pence) 1.8 52.1 49.7
Diluted earnings per share
(pence) 1.8 52.0 49.6
--------------------------------- ----- -------------- ------------
The results relate entirely to continuing operations.
Consolidated Statement of Comprehensive Income for the year
ended 30 June 2019
Year ended Year ended
30 June 30 June
2019 2018
GBPm GBPm
Profit for the financial year 247.6 236.7
--------------------------------------------------- ----------- ------------
Total comprehensive income for the financial year 247.6 236.7
--------------------------------------------------- ----------- ------------
Attributable to:
Owners of the parent 247.4 236.3
Non-controlling interest 0.2 0.4
--------------------------------------------------- ----------- ------------
247.6 236.7
--------------------------------------------------- ----------- ------------
1.1 Revenue
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.
Year ended Year ended
30 June 2019 30 June 2018
GBPm GBPm
Revenue:
Recurring revenue 387.3 344.9
Transactional revenue 84.3 94.0
Other revenue 8.9 8.6
----------------------- ---------------- ----------------
Revenue 480.5 447.5
----------------------- ---------------- ----------------
1.2 Segmental reporting
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.
The Group operates in more than one geographic location, having
opened an office in Warsaw, Poland, within the year. The activities
of this office are not material to the group, with the purpose of
the office being to provide support to the IT and development
teams, based in the UK. Given that all revenue is within the group
the impact on the P&L is GBPnil (2018: GBPnil). As such no
information of the separate geographic elements is presented.
1.3 Operating costs
Operating profit has been arrived at after Year ended Year ended
charging: 30 June 2019 30 June 2018
GBPm GBPm
Depreciation of owned plant and equipment 5.4 4.4
Amortisation of other intangible assets 4.6 3.4
Marketing and distribution costs 12.7 16.3
Operating lease rentals payable - property 3.4 2.9
Office running costs - excluding operating
lease rentals payable 3.4 3.3
FSCS costs 6.8 3.5
Other operating costs 45.9 37.5
Staff costs 97.2 87.4
-------------------------------------------------- --------------- ---------------
Operating costs 179.4 158.7
-------------------------------------------------- --------------- ---------------
1.4 Staff costs
Year ended Year ended
30 June 30 June
2019 2018
The average monthly number of employees of the No. No.
Group (including executive Directors) was:
Operating and support functions 1,163 1,006
Administrative functions 411 392
------------------------------------------------- ----------- ------------
1,574 1,398
------------------------------------------------- ----------- ------------
Their aggregate remuneration comprised: GBPm GBPm
Wages and salaries 79.8 71.2
Social security costs 8.5 7.8
Share-based payment expenses 3.8 3.6
Other pension costs 9.7 8.1
------------------------------------------------- ----------- ------------
Staff costs 101.8 90.7
------------------------------------------------- ----------- ------------
Capitalised in the year (4.6) (3.3)
------------------------------------------------- ----------- ------------
Staff costs as a deduction to operating profit 97.2 87.4
------------------------------------------------- ----------- ------------
1.5 Finance income
Year ended Year ended
30 June 2019 30 June
2018
GBPm GBPm
Interest on bank deposits 2.8 1.5
--------------------------- ---------------- -----------
2.8 1.5
--------------------------- ---------------- -----------
1.6 Finance costs
Year ended Year ended
30 June 2019 30 June
2018
GBPm GBPm
Commitment fees 0.3 0.2
----------------- ---------------- -----------
0.3 0.2
----------------- ---------------- -----------
1.7 Tax
Year ended Year ended
30 June 2019 30 June
2018
GBPm GBPm
Current tax: on profits for the year 58.4 56.0
Current tax: adjustments in respect of prior
years 0.1 0.2
Deferred tax (note 2.4) (0.2) (0.4)
Deferred tax: adjustments in respect of prior
years (note 2.4) (0.1) (0.1)
Deferred tax: adjustments due to changes in - -
tax rates
----------------------------------------------- -------------- ------------
58.2 55.7
----------------------------------------------- -------------- ------------
Corporation tax is calculated at 19% of the estimated assessable
profit for the year to 30 June 2019 (2018: 19%).
In addition to the amount charged to the income statement,
certain tax amounts have been charged or (credited) directly to
equity as follows:
Year ended Year ended
30 June 2019 30 June 2018
GBPm GBPm
Deferred tax relating to share-based payments 0.6 (1.6)
Current tax relating to share-based payments (1.0) (1.1)
----------------------------------------------- -------------- ---------------
(0.4) (2.7)
----------------------------------------------- -------------- ---------------
Factors affecting tax charge for the year
It is expected that the ongoing effective tax rate will remain
at a rate approximating to the standard UK corporation tax rate in
the medium term except for the impact of deferred tax arising from
the timing of exercising of share options which is not under our
control. The standard UK corporation tax rate was reduced to 19%
(from 20%) on 1 April 2019 and accordingly the Group's profits for
this accounting year are taxed at an effective rate of 19%.
Deferred tax has been recognised at 19% or 17%, being the rates
expected to be in force at the time of the reversal of the
temporary difference. A deferred tax asset in respect of future
share option deductions has been recognised based on the Company's
share price as at 30 June 2019.
Factors affecting future tax charge
Any increase or decrease to the Parent Company's share price
will impact the amount of tax deduction available in future years
on the value of shares acquired by staff under share incentive
schemes. The Finance Act 2015 was enacted on 18 November 2015 and
has reduced the standard rate of UK corporation tax to 19% from 1
April 2017 and to 18% from 1 April 2020. A planned reduction in the
rate to 17% from 2020, was enacted on 1 April 2018.
The charge for the year can be reconciled to the profit per the
income statement as follows:
Year ended Year ended
30 June 2019 30 June 2018
GBPm GBPm
Profit before tax 305.8 292.4
---------------------------------------------- -------------- ----------------
Tax at the standard UK corporate tax rate of
19.75% (2018: 20.00%) 58.1 55.6
Non-taxable income (0.1) (0.2)
Items not allowable for tax - 0.1
Adjustments in respect of prior years - 0.2
Impact of the change in tax rate 0.2 -
Tax expense for the year 58.2 55.7
---------------------------------------------- -------------- ----------------
Effective tax rate 19.0% 19.0%
---------------------------------------------- -------------- ----------------
1.8 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 year,
including ordinary shares held in the Hargreaves Lansdown Employee
Benefit Trust (EBT) reserve that have vested unconditionally with
employees.
Diluted earnings per share is calculated adjusting the weighted
average number of ordinary shares outstanding to assume 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 at 30 June 2019 (2018: nil).
Year ended Year ended
30 June 30 June
2019 2018
GBPm GBPm
Earnings
Earnings for the purposes of basic and diluted
EPS - net profit attributable to equity holders
of the parent company 247.4 236.3
------------------------------------------------------ --------------- ---------------
Number of shares
Weighted average number of ordinary shares 474,318,625 474,318,625
Weighted average number of shares held by HL
EBT (125,270) (328,053)
Weighted average number of shares held by HL
EBT that have vested unconditionally with employees 382,065 439,127
------------------------------------------------------ --------------- ---------------
Weighted average number of ordinary shares for
the purposes of basic EPS 474,575,420 474,429,699
Weighted average number of dilutive share options
held by HL EBT that have not vested unconditionally
with employees 1,189,428 984,793
Weighted average number of ordinary shares for
the purposes of diluted EPS 475,764,848 475,414,492
------------------------------------------------------ --------------- ---------------
Earnings per share Pence Pence
Basic EPS 52.1 49.7
Diluted EPS 52.0 49.6
------------------------------------------------------ --------------- ---------------
SECTION 2: ASSETS & LIABILITIES
Consolidated Statement of Financial Position as at 30 June
2019
At 30 June At 30 June
2019 2018
Note GBPm GBPm
ASSETS
Non-current assets
Goodwill 1.3 1.3
Other intangible assets 23.0 18.1
Property, plant and equipment 16.0 13.8
Deferred tax assets 2.4 3.8 4.1
------------------------------------ ----- ----------- ------------
44.1 37.3
----------------------------------- ----- ----------- ------------
Current assets
Investments 2.1 1.1 1.5
Trade and other receivables 2.2 748.6 627.2
Cash and cash equivalents 2.3 179.3 125.3
Derivative financial instruments 0.1 0.2
------------------------------------ ----- ----------- ------------
929.1 754.2
----------------------------------- ----- ----------- ------------
Total assets 973.2 791.5
------------------------------------ ----- ----------- ------------
LIABILITIES
Current liabilities
Trade and other payables 2.5 485.7 364.7
Derivative financial instruments - 0.1
Current tax liabilities 27.5 20.8
------------------------------------ ----- ----------- ------------
513.2 385.6
----------------------------------- ----- ----------- ------------
Net current assets 415.9 368.6
------------------------------------ ----- ----------- ------------
Non-current liabilities
Provisions 0.7 0.7
------------------------------------ ----- ----------- ------------
Total liabilities 513.9 386.3
------------------------------------ ----- ----------- ------------
Net assets 459.3 405.2
------------------------------------ ----- ----------- ------------
EQUITY
Share capital 1.9 1.9
Shares held by EBT reserve (3.4) (3.5)
EBT reserve 1.5 6.2
Retained earnings 457.9 399.4
------------------------------------ ----- ----------- ------------
Total equity, attributable to
the owners of the parent 457.9 404.0
Non-controlling interest 1.4 1.2
------------------------------------ ----- ----------- ------------
Total equity 459.3 405.2
------------------------------------ ----- ----------- ------------
2.1 Investments
Year ended Year ended
30 June 2019 30 June 2018
GBPm GBPm
At beginning of year 1.5 4.1
Purchases - -
Disposals (0.4) (2.6)
------------------------------------------------- -------------- ---------------
At end of year 1.1 1.5
------------------------------------------------- -------------- ---------------
Comprising:
Current asset investment - UK listed securities
valued at quoted market price 1.1 1.5
------------------------------------------------- -------------- ---------------
GBP1.1 million (2018: GBP1.5 million) of investments are
classified as held at fair value through profit and loss, being
deal-related short-term investments.
2.2 Trade and other receivables
Year ended Year ended
30 June 2019 30 June 2018
GBPm GBPm
Financial assets
Trade receivables 461.4 348.5
Term Deposits 215.0 222.0
Other receivables 4.5 4.2
------------------------ -------------- ---------------
680.9 574.7
Non-financial assets
Accrued income 59.1 45.8
Prepayments 8.6 6.7
------------------------ -------------- ---------------
748.6 627.2
---------------------- -------------- ---------------
In accordance with market practice, certain balances with
clients, Stock Exchange member firms and other counterparties
totalling GBP429.3 million (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 GBP524.8 million
(2018: GBP417.3 million) and the gross amount offset in the
statement of financial position with trade payables is GBP95.5
million (2018: GBP90.2 million). Other than counterparty balances,
trade receivables primarily consist of fees and amounts owed by
clients and renewal commission owed by fund management groups.
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.
2.3 Cash and cash equivalents
Year ended Year ended
30 June 30 June
2019 2018
GBPm GBPm
Cash and cash equivalents
Group cash and cash equivalent
balances 179.0 121.5
Restricted cash - balances held
by EBT 0.3 3.8
179.3 125.3
--------------------------------- -------------- --------------
At 30 June 2019, 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 GBP5,398 million (2018:
GBP9,645 million). In addition there were currency service cash
accounts held on behalf of clients not governed by the client money
rules of GBP28.7 million (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 statement
of financial position of the Group.
Restricted cash balances relate to the balances held within the
HL Employee Benefit Trust. These are strictly held for the purpose
of purchasing shares to satisfy options under the Group's share
option schemes.
2.4 Deferred tax assets
Deferred tax assets arise because of temporary timing
differences only. The following are the major deferred tax assets
recognised and movements thereon during the current and prior
reporting years. Deferred tax has been recognised at 19% or 17%,
being the rate expected to be in force at the time of the reversal
of the temporary difference.
Other deductible
Fixed assets Share-based temporary
tax relief payments differences Total
GBPm GBPm GBPm GBPm
At 1 July 2017 (0.1) 1.8 0.3 2.0
Charge to income 0.2 0.4 (0.1) 0.5
Charge to equity - 1.6 - 1.6
------------------------------- ------------- ------------ ----------------- ---------
At 30 June 2018 0.1 3.8 0.2 4.1
Charge to income 0.2 0.1 - 0.3
Charge to equity - (0.6) - (0.6)
------------------------------- ------------- ------------ ----------------- ---------
At 30 June 2019 0.3 3.3 0.2 3.8
------------------------------- ------------- ------------ ----------------- ---------
Deferred tax expected to be recovered or settled:
Within 1 year after reporting
date 0.1 0.4 0.1 0.6
> 1 year after reporting
date 0.2 2.9 0.1 3.2
------------------------------- ------------- ------------ ----------------- ---------
0.3 3.3 0.2 3.8
------------------------------- ------------- ------------ ----------------- ---------
2.5 Trade and other payables
Year ended Year ended
30 June 2019 30 June 2018
GBPm GBPm
Financial liabilities
Trade payables 433.9 327.4
Social security and other
taxes 7.3 8.7
Other payables 19.6 14.1
----------------------------- -------------- -----------------
460.8 350.2
Non-financial liabilities
Accruals 23.8 13.6
Deferred income 1.1 0.9
----------------------------- -------------- -----------------
485.7 364.7
--------------------------- -------------- -----------------
In accordance with market practice, certain balances with
clients, Stock Exchange member firms and other counterparties
totalling GBP425.6 million (2018: GBP324.6 million) are included in
trade payables, similarly with the treatment of trade receivables.
As stated in Note 2.2 above, 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 staff as a
bonus and rebates due to the regulated funds operated by the Group.
Accruals and deferred income principally comprise amounts
outstanding for trade purchases and revenue received but not yet
earned on corporate pension schemes, where an ongoing service is
still being provided.
SECTION 3: EQUITY
Consolidated Statement of Changes in Equity for the year ended
30 June 2019
Attributable to the owners of the
Parent
Shares
held Non-
Share by EBT Retained controlling Total
capital reserve EBT 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 - - - 236.3 236.3 0.4 236.7
Employee Benefit
Trust
Shares sold in the
year - 12.1 - - 12.1 - 12.1
Shares acquired in
the year - (8.6) - - (8.6) - (8.6)
EBT share sale - - (4.4) - (4.4) - (4.4)
Reserve transfer
on exercise of share
options - - 2.7 (2.7) - - -
Employee share option
scheme
Share-based payments
expense - - - 3.5 3.5 - 3.5
Current tax effect
of share-based payments - - - 1.1 1.1 - 1.1
Deferred tax effect
of share-based payments - - - 1.6 1.6 - 1.6
Dividend paid (Note
3.2) - - - (144.5) (144.5) - (144.5)
-------------------------- --------- --------- ------------ ---------- ---------- ------------- --------
At 30 June 2018 1.9 (3.5) 6.2 399.4 404.0 1.2 405.2
Total comprehensive
income - - - 247.4 247.4 0.2 247.6
Employee Benefit
Trust
Shares sold in the
year - 15.1 - - 15.1 - 15.1
Shares acquired in
the year - (15.0) - - (15.0) - (15.0)
EBT share sale - - (7.4) - (7.4) - (7.4)
Reserve transfer
on exercise of share
options - - 2.6 (2.6) - - -
Employee share option
scheme
Share-based payments
expense - - - 3.8 3.8 - 3.8
Current tax effect
of share-based payments - - - 1.0 1.0 - 1.0
Deferred tax effect
of share-based payments - - - (0.6) (0.6) - (0.6)
Dividend paid (Note
3.2) - - - (190.5) (190.5) - (190.5)
-------------------------- --------- --------- ------------ ---------- ---------- ------------- --------
At 30 June 2019 1.9 (3.4) 1.5 457.9 457.9 1.4 459.3
-------------------------- --------- --------- ------------ ---------- ---------- ------------- --------
3.1 Share capital
Year ended Year ended
30 June 2019 30 June 2018
GBPm GBPm
Authorised: 525,000,000 (2018: 525,000,000)
ordinary shares of 0.4p each 2.1 2.1
Issued and fully paid: ordinary shares of 0.4p
each 1.9 1.9
-------------------------------------------------- --------------- --------------
Shares Shares
Issued and fully paid: number of ordinary shares
of 0.4p each 474,318,625 474,318,625
-------------------------------------------------- --------------- --------------
The Company has one class of ordinary shares which carry no
right to fixed income.
The Shares held by 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 Library
Information Services Limited and a 7.5% shareholding in Hargreaves
Lansdown Savings Limited, which are both subsidiaries of the
Company.
3.2 Dividends
Amounts recognised as distributions to equity holders in the
year:
Year ended Year ended
30 June 2019 30 June
2018
GBPm GBPm
2018 final dividend of 22.1p (second interim
dividend 2017: 20.4p) per share 104.7 96.7
2018 special dividend of 7.8p (2017: nil) per 37.0 -
share
2019 interim dividend of 10.3p (2018: 10.1p)
per share 48.8 47.8
----------------------------------------------- -------------- ------------
Total dividends paid during the year 190.5 144.5
----------------------------------------------- -------------- ------------
After the end of the reporting period, the Directors declared a
final ordinary dividend of 23.4 pence per share and a special
dividend of 8.3 pence per share payable on 18 October 2019 to
shareholders on the register on 27 September 2019. Dividends are
required to be recognised in the financial statements when paid,
and accordingly the declared dividend amounts are not recognised in
these financial statements, but will be included in the 2020
financial statements as follows:
GBPm
2019 final dividend of 23.4p (2018 final dividend:
22.1p) per share 110.9
2019 special dividend of 8.3p (2018 special
dividend: 7.8p) per share 39.3
----------------------------------------------------- ---------
Total dividend 150.2
----------------------------------------------------- ---------
The payment of these dividends will not have any tax
consequences for the Group.
Under an arrangement dated 30 June 1997 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.
Year ended Year ended
30 June 2019 30 June
2018
No. of shares No. of shares
Number of shares held by the Hargreaves Lansdown
EBT 387,684 413,604
Representing % of called-up share capital 0.08% 0.09%
-------------------------------------------------- ----------------- -----------------
SECTION 4: CONSOLIDATED STATEMENT OF CASH FLOWS
Consolidated Statement of Cash Flows for the year ended 30 June
2019
Year ended Year ended
30 June 2019 30 June 2018
Note GBPm GBPm
Net cash from operating activities
Profit for the year after tax 247.6 236.7
Adjustments for:
Income tax expense 58.2 55.7
Depreciation of plant and equipment 5.4 4.4
Amortisation of intangible
assets 4.6 3.4
Share-based payment expense 3.9 3.6
Increase in provisions - 0.1
----------------- ------------------
Operating cash flows before
movements in working capital 319.7 303.9
Increase / (decrease) in receivables (128.4) 43.7
(Decrease) / increase in payables 121.0 (46.9)
----------------- ------------------
Cash generated from operations 312.3 300.7
Income tax paid (50.8) (55.9)
---------------------------------------- -------- ----------------- ------------------
Net cash generated from operating
activities 261.5 244.8
---------------------------------------- -------- ----------------- ------------------
Investing activities
(Increase) / decrease in short-term
deposits 7.0 (42.0)
Proceeds on disposal of investment 0.4 2.6
Purchase of property, plant
and equipment (7.6) (6.5)
Purchase of intangible assets (9.5) (9.6)
---------------------------------------- -------- ----------------- ------------------
Net cash used in investing
activities (9.7) (55.5)
---------------------------------------- -------- ----------------- ------------------
Financing activities
Purchase of own shares in EBT (15.0) (8.6)
Proceeds on sale of own shares
in EBT 7.7 7.7
Dividends paid to owners of
the parent (190.5) (144.5)
---------------------------------------- -------- ----------------- ------------------
Net cash used in financing
activities (197.8) (145.4)
---------------------------------------- -------- ----------------- ------------------
Net increase / (decrease) in
cash and cash equivalents 54.0 43.9
Cash and cash equivalents at
beginning of year 2.3 125.3 81.4
---------------------------------------- -------- ----------------- ------------------
Cash and cash equivalents at
end of year 2.3 179.3 125.3
---------------------------------------- -------- ----------------- ------------------
Section 5: OTHER NOTES
5.1 General information
Hargreaves Lansdown plc (the Company and ultimate parent of the
Group) is a company incorporated and domiciled in the United
Kingdom under the Companies Act 2006 whose shares are publicly
traded on the London Stock Exchange. The address of the registered
office is One College Square South, Anchor Road, Bristol, BS1 5HL,
United Kingdom. The nature of the Group's operations and its
principal activities are set out in the Operating and Financial
Review.
These financial statements are presented in millions of pounds
sterling (GBPm) which is the currency of the primary economic
environment in which the Group operates.
Basis of preparation
The consolidated financial statements of Hargreaves Lansdown plc
have been prepared in accordance with International Financial
Reporting Standards (IFRS) and IFRS Interpretation Committee (IFRS
IC) interpretations as adopted by the European Union (EU), and with
those parts of the Companies Act 2006 applicable to companies
reporting under IFRS.
The preparation of financial statements in conformity with IFRSs
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Company's accounting policies.
Going concern
The Group maintains ongoing forecasts that indicate continued
profitability in the 2019 financial year. Stress test scenarios are
undertaken, the outcomes of which show that the Group has adequate
capital resources for the foreseeable future even in adverse
economic conditions. The Group's business is highly cash generative
with a low working capital requirement; indeed, the forecast cash
flows show that the Group will remain highly liquid in the
forthcoming financial year. The Directors therefore believe that
the Group is well placed to manage its business risks successfully
despite the current uncertain economic outlook. After making
enquiries, the Directors' expectation is that the Group will have
adequate resources to continue in operational existence for a
period of at least 12 months from the date of approval of the Group
Financial statements. Accordingly, they continue to adopt the going
concern basis in preparing this preliminary results statement.
5.2 Related Party Transactions
The Company has a related party relationship with its
subsidiaries, and with its Directors and members of the Executive
Committee (the "key management personnel"). Transactions between
the Company and its key management personnel are disclosed below.
Details of transactions between the Company and other related
parties are also disclosed below.
Trading transactions
The Company entered into the following transactions with
Directors within the Hargreaves Lansdown Group and related parties
who are not members of the Group:
During the years ended 30 June 2019 and 30 June 2018, the
Company has been party to a lease with P K Hargreaves, a
significant shareholder and former director, for rental of the old
head office premises at Kendal House. A ten-year lease was signed
on 6 April 2011 for a rental of part of the building, to be used
for disaster recovery purposes at a market rate rent of GBP0.1
million per annum. No amount was outstanding at either year
end.
During the years ended 30 June 2019 and 30 June 2018, the Group
has provided a range of investment services in the normal course of
business to shareholders on normal third-party business terms.
Directors and staff are eligible for a slight discount on some of
the services provided.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group,
being those personnel who were either a member of the Board of a
Group company or a member of the Executive Committee during the
relevant year shown below, is set out below in aggregate for each
of the categories specified in IAS 24 Related Party
Disclosures.
Year ended Year ended
30 June 30 June
2019 2018
GBPm GBPm
Short-term employee benefits 5.9 9.0
Post-employment benefits 0.1 0.2
Share-based payments 2.3 1.7
----------------------------- -------------- ---------------
8.3 10.9
----------------------------- -------------- ---------------
In addition to the amounts above, eight key management personnel
(2018: eight) received gains of GBP1.6 million (2018: GBP1.9
million) as a result of exercising share options. During the year,
awards were made under the executive option schemes for 10 key
management personnel (2018: 10).
Included within the previous table are the following amounts
paid to Directors of the Company who served during the relevant
year. Full details of Directors' remuneration, including numbers of
shares exercised, are shown in the Directors' remuneration
report.
Year ended Year ended
30 June 30 June
2019 2018
GBPm GBPm
Short-term employee benefits 1.4 4.0
Share-based payments 0.9 0.5
----------------------------- ------------------ ---------------
2.3 4.5
----------------------------- ------------------ ---------------
In addition to the amounts above, Directors of the Company
received gains of GBP0.2 million relating to the exercise of share
options
(2018: GBP0.2 million).
Year ended Year ended
30 June 30 June
2019 2018
GBPm GBPm
Emoluments of the highest paid Director 0.6(1) 2.4(1)
------------------------------------------------------- ------------------ ----------------
No. No.
Number of Directors who exercised share options
during the year 1 1
Number of Directors who were members of money purchase
pension schemes 1 1
------------------------------------------------------- ------------------ ----------------
1 The highest paid Director was the Chief Executive Officer and
full details of his emoluments can be found in the audited
'Remuneration payable' table in the Directors' remuneration
report.
Any amounts outstanding with related parties are unsecured and
will be settled in cash. No guarantees have been given or received
in respect of amounts outstanding. No provisions have been made for
doubtful debts in respect of the amounts owed by the related
parties.
Section 6: STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and parent company financial statements in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union. Under company law the directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
group and parent company and of the profit or loss of the group and
parent company for that period. In preparing the financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable IFRSs as adopted by the European
Union have been followed for the Group financial statements and
IFRSs as adopted by the European Union have been followed for the
company financial statements, subject to any material departures
disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and parent
company will continue in business.
The Directors are also responsible for safeguarding the assets
of the Group and parent company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
parent company's transactions and disclose with reasonable accuracy
at any time the financial position of the group and parent company
and enable them to ensure that the financial statements and the
Directors' Remuneration Report comply with the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the
IAS Regulation.
The Directors are responsible for the maintenance and integrity
of the parent company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group and
parent company's position and performance, business model and
strategy.
Each of the Directors, whose names and functions are listed
below confirm that, to the best of their knowledge:
-- the parent company financial statements, which have been
prepared in accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and profit of the company;
-- the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group; and
-- the Directors' Report includes a fair review of the
development and performance of the business and the position of the
group and parent company, together with a description of the
principal risks and uncertainties that it faces.
By order of the Board
Philip Johnson
Chief Financial Officer
7 August 2019
Executive Directors
Chris Hill
Philip Johnson
Non-Executive Directors
Deanna Oppenheimer
Fiona Clutterbuck
Shirley Garrood
Daniel Olley
Roger Perkin
Stephen Robertson
Jayne Styles
Section 7: PRINCIPAL RISKS AND UNCERTAINTIES
Managing the risks to Hargreaves Lansdown is fundamental to
delivering the incredible levels of service our clients expect and
generating returns for shareholders. The Board has performed a
robust assessment of the principal risks facing the Group through a
process of continual review, including those that would threaten
its business model, future performance, solvency and liquidity. In
making such an assessment the Board considers the likelihood of
each risk materialising in the short and longer term.
The principal risks and uncertainties faced by the Group are
detailed below, along with actions taken to mitigate and manage
them. The principal risks are categorised into strategic risks,
operational risks and financial risks as per our risk
framework.
Strategic risks
Propositions and services
Risk Potential Mitigations Key risk 2018/19 activity
impact indicators
--------------------------------------------------------- ----------------------------------------------------------- ------------------------- ------------------------------------------------
Risk that
HL * Erosion of shareholder value * The Executive team and Board discuss strategy in the * NNB v forecast * Launched Segregated Mandate
does not context of propositional design and service
provide enhancement on a regular basis
the * Negative impact on achievement of AUA and client * Net Promoter Score * capability in HL Fund Managers
proposition number strategic targets
and * Dedicated proposition/client experience team
services * Client Retention * Development of Active Savings proposition
required to * Negative impact on our reputation as an innovative
achieve market leader * Client testing workshops
HL's * Service rating * Launch of Global Equity Fund
strategy
and * Product governance process
purpose. * Complaints * Launch of Wealth 50
* An operational plan is in place prioritising
development * Risk Events
--------------------------------------------------------- ----------------------------------------------------------- ------------------------- ------------------------------------------------
Technology
Risk Potential Mitigations Key risk 2018/19 activity
impact indicators
---------------------------------------- ----------------------------------------------------------- ---------------------------------- ------------------------------------------------------
Risk that HL
fails to * Inability to maintain operational * IT Architecture Plan * System availability * Continued development and evolution of our core
effectively architecture
manage and
maintain * efficiency * Rolling internal and external monitoring of IT * Status of critical projects
existing environment * Platform security improvements
technological
architecture, * Increased costs * Core system monitoring
environments * Operational Plan, including prioritisation of IT
or development
components. * Poor client outcomes * System patching status
* Integration of the development capacity from HL Tech
* Reputational damage in Poland
---------------------------------------- ----------------------------------------------------------- ---------------------------------- ------------------------------------------------------
Reputational
Risk Potential impact Mitigations Key risk 2018/19 activity
indicators
------------------------------------ --------------------------------------------------- ----------------------- ----------------------------------------------------
The risk that
negative * Reduced AUA and AUM * Reputational risk is embedded within all the * NNB * Management of the Woodford Equity Income Fund
publicity, principal risks and uncertainties, and is co suspension, engagement with clients and exter
public nsidered nal
perception * Negative impact on HL revenue within the relevant mitigations and controls * Client attrition stakeholders
or
uncontrollable
events have * Erosion of shareholder value * PR function, including access to external ad * NPS
an adverse visors
impact on HL's
reputation.
------------------------------------ --------------------------------------------------- ----------------------- ----------------------------------------------------
Legal and regulatory risks
Regulation
Risk Potential Mitigations Key risk 2018/19 activity
impact indicators
------------------------------------------------------------ ----------------------------------------------------------- --------------------------------------------------- ------------------------------------------------------
Risk that
required * Regulatory breaches * Compliance Plan * Risk Indicators * Delivery of CSDR changes
regulatory
change
is not * Increased regulatory scrutiny, censure or fines * Group Operating Plan * Volume of new outputs from regulatory bodies * Ongoing CASS environment review and improvement
implemented activities
to
regulatory * Missed opportunities to achieve competitive advantage * Change Committee meets monthly to review and * Number of regulatory change projects
expectations challenge progress of regulatory change projects * Projects ongoing: SMCR and PSD2
or designed to ensure business readiness
requirements
.
* The Compliance function performs horizon checking to
ensure the Group has timely visibility of future
regulatory change
* Dialogue with the FCA
------------------------------------------------------------ ----------------------------------------------------------- --------------------------------------------------- ------------------------------------------------------
Conduct risks
Client Outcomes
Risk Potential Mitigations Key risk 2018/19 activity
impact indicators
------------------------------------------------------- ---------------------------------------------------------- ------------------------------- -----------------------------------------------------------
Risk that
HL's * Poor client outcomes * Business plans linked to Colleague Surveys * Glassdoor rating * Quarterly 'Town hall' Communications sessions
culture
and the HL
Values * Reputational damage * Senior Management meet monthly to oversee and drive * Employee surveys * Leadership group restructured and developed
fail to client experience, people and culture related
support activity
and * Regulatory scrutiny * Client Survey results * Establishment of a Corporate & Social Responsibility
encourage programme
appropriate * Regular Conduct Risk MI, discussed at the Product
client * Negative impact on the achievement of our growth Governance Committee * Colleague Retention
focused targets * Established a business led diversity, inclusion and
conduct by wellbeing programme of activity
all * Complaints
colleagues,
leading to * Updated Performance Development
poor * Colleague attrition rate
conduct.
* model
------------------------------------------------------- ---------------------------------------------------------- ------------------------------- -----------------------------------------------------------
Operational risks
Operational delivery
Risk Potential Mitigations Key risk 2018/19 activity
impact indicators
------------------------------------------------------ ------------------------------------------------------------ -------------------------------- --------------------------------------------------------
Risk that
HL * Incorrect or inefficient delivery of activities * Group Risk Management Framework * Risk events * Embedding of a Process Framework model
fails to
design
or * Regulatory or policy breaches * Ongoing first line of defence monitoring of controls, * Best Execution monitoring * Process improvements across operational functions
implement control testing and self-assessment leading to a significant reduction in errors,
appropriate complaints and breaches
policies, * Poor client outcomes * Third Party breaches
processes * Process manuals and process mapping
or
technology. * Financial losses including compensation * Complaints
* Operational MI
* Reputational damage * Helpdesk call quality
* Control focus at key governance forums, including;
CASS Committee, Operations Risk & Control Committee,
Executive Risk Committee, Risk Committee * Employee retention rates
------------------------------------------------------ ------------------------------------------------------------ -------------------------------- --------------------------------------------------------
Business continuity
Risk Potential impact Mitigations Key risk 2018/19 activity
indicators
------------------------------------------------------- ---------------------------------------------------------- ------------------------------------ -----------------------------------------------
Risk that
HL * Potential impact * Business Continuity and Disaster Recovery plans * Performance of BCP & DR tests * Enhancements to Business Impact Analyses
fails to tested regularly
manage
the * Inability to manage extreme or unexpected events * Review of our Third Party DR site
resilience * Dual hosting of all critical servers,
of telecommunications and applications
operational * Operational errors
functions.
* Separate business continuity/disaster recovery site
* Poor client outcomes available 24/7
* Regulatory scrutiny
* Reputational damage
------------------------------------------------------- ---------------------------------------------------------- ------------------------------------ -----------------------------------------------
Financial crime and data
protection
Risk Potential impact Mitigations Key risk 2018/19 activity
indicators
----------------------------------------------------- ------------------------------------------------------------- ----------------------------------------------------- -----------------------------------------------------
Risk that
HL * Loss of data * Dedicated Chief Information Security Officer and team, * Fraud monitoring * A programme of training and awareness
fails to and a Security Operations Centre focused on the
design detection, containment, and remediation of
or * Poor client outcomes (including fraud) information security threats * Cyber threat assessment * Expansion of the Security Operations Centre
implement
appropriate
frameworks, * Negative impact on confidence in HL * Dedicated Information Security, Anti Money Laundering * Time taken to address security vulnerabilities * Continuous cycle of cyber control improvements
including and Client Protection teams in place
policies,
processes * Diminish the integrity of the financial system
or * Formal policies and procedures and a robust, rolling
technology, risk-based programme of penetration and vulnerability
to counter testing in place
HL being
used
to further
financial
crime.
----------------------------------------------------- ------------------------------------------------------------- ----------------------------------------------------- -----------------------------------------------------
Financial risks
Performance of markets
Risk Potential impact Mitigations Key risk 2018/19 activity
indicators
------------------------------------ ----------------------------------------------------------- --------------------- ----------------------------------------------------
Fluctuations
in capital * Reduced AUA and AUM * The Group's business model comprises both recurring * Interest rates * Ongoing discussion in the Executive Committee
markets may platform revenue and transaction-based revenue
adversely
affect * Negative impact on HL revenue * FTSE 100
trading * A high proportion of the Assets Under Administration
activity are held within tax-advantaged wrappers, meaning
and/or there is a lower risk of withdrawal
the value of
the Group's
Assets * The Group has established a specific
Under Brexit-preparation workstream focused mitigating
Administration business and client impacts
or management,
from which
we derive
revenues.
These
fluctuations
can result
from
macro-economic
or political
concerns,
such as Brexit
for example.
------------------------------------ ----------------------------------------------------------- --------------------- ----------------------------------------------------
Glossary of Alternative Financial Performance Measures
Within the Announcement 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 The total dividend per Provides a measure of the level of profits
pay-out share divided by the basic paid out to shareholders and the level
ratio (%) Earnings Per Share (EPS) retained in the business.
for a financial year.
---------------------------------- ---------------------------------------------
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 (see Note 3.2
to the consolidated financial
statements).
---------------------------------- ---------------------------------------------
Operating Profits after deducting Provides a measure of profitability
margin operating costs but the of the core operating activities and
impact of finance income excludes non-core items.
and other gains or losses
divided by revenue.
---------------------------------- ---------------------------------------------
Percentage The total value of renewal Provides a measure of the quality of
of recurring commission (after deducting our earnings. We believe recurring revenue
revenue loyalty bonuses), platform provides greater profit resilience and
(bps) fees, management fees hence it is of higher quality.
and interest earned on
client money divided by
the total Vantage revenue.
---------------------------------- ---------------------------------------------
Revenue Total revenue divided Provides the most comparable means of
margin by the average value of tracking, over time, the margin earned
(bps) assets under administration on the assets under administration and
which includes the Portfolio is used by management to assess business
Management Services assets performance.
under management held
in funds on which a platform
fee is charged.
---------------------------------- ---------------------------------------------
Revenue Revenue from cash (net Provides a means of tracking, over time,
margin interest earned on the the margin earned on cash held by our
from cash value of client money clients.
(bps) held on the Vantage platform
divided by the average
value of assets under
administration held as
client money.
---------------------------------- ---------------------------------------------
Revenue Revenue derived from funds Provides the most comparable means of
margin held by clients (platform tracking, over time, the margin earned
from funds fees, initial commission 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.
---------------------------------- ---------------------------------------------
Revenue Management fees derived Provides a means of tracking, over time,
margin from HL Funds (but excluding 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.
---------------------------------- ---------------------------------------------
Revenue Revenue from shares (stockbroking Provides a means of tracking, over time,
margin commissions, management the margin earned on shares held by
from shares fees where shares are our clients.
(bps) held in a SIPP or ISA,
less the cost of dealing
errors) divided by the
average value of assets
under administration held
as shares.
---------------------------------- ---------------------------------------------
Recurring Revenue that is received We believe recurring revenue provides
revenue every month depending greater profit resilience and hence
on the value of assets is of higher quality than non-recurring
held on the platform, revenue.
including platform fee,
management fees and interest
earned on client money.
---------------------------------- ---------------------------------------------
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 streams.
such as a deal to buy
or sell shares or take
advice.
---------------------------------- ---------------------------------------------
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
FR CKODPABKDQFK
(END) Dow Jones Newswires
August 08, 2019 02:00 ET (06:00 GMT)
Hargreaves Lansdown (LSE:HL.)
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