TIDMHL.
RNS Number : 4306V
Hargreaves Lansdown PLC
07 August 2020
Hargreaves Lansdown plc
Results for the year ended 30 June 2020
Highlights:
-- Net new business of GBP7.7 billion
-- Strong growth in Assets Under Administration, up 5% to GBP104.0 billion
-- 1,412,000 active clients, an increase of 188,000 in the year
-- Profit before tax increase of 24% to GBP378.3 million
-- Total dividend up 31% at 54.9 pence per share
Year to Year to Change %
30 June 2020 30 June
2019
=================================== =========================== ====================== =========
Net new business inflows GBP7.7bn GBP7.3bn +5%
=================================== =========================== ====================== =========
Total assets under administration GBP104.0bn GBP99.3bn +5%
=================================== =========================== ====================== =========
Revenue GBP550.9m GBP480.5m +15%
=================================== =========================== ====================== =========
Underlying profit before
tax* GBP339.5m GBP305.8m +11%
=================================== =========================== ====================== =========
Profit before tax GBP378.3m GBP305.8m +24%
=================================== =========================== ====================== =========
Diluted earnings per share 65.9p 52.0p +27%
=================================== =========================== ====================== =========
Ordinary dividend per share 37.5p 33.7p +11%
=================================== =========================== ====================== =========
Total dividend per share 54.9p 42.0p +31%
=================================== =========================== ====================== =========
*Underlying profit before tax excludes a one-off gain of
GBP38.8m on the disposal of Funds Library
Chris Hill, Chief Executive Officer, commented:
We have delivered a strong performance, despite an external
environment of persistent challenge.
The benefits of putting our clients at the heart of everything
we do, combined with our investment in the scalability, diversity
and resilience of HL's business model, have been demonstrated
through a record 188,000 net new clients, bringing total active
clients to over 1.4 million and GBP7.7 billion of net new business,
also a record.
At the same time we have completed significant strategic
initiatives including launching our new Wealth Shortlist and Fund
Finder, as well as completing further work to enhance governance,
scalability and resilience in our service to clients.
Our priority has remained our colleagues and clients throughout
this challenging period and I am proud of how we have responded. We
have not furloughed our employees, enacted any redundancy
programmes or sought any Government assistance.
The acute challenges of this year have reinforced the importance
of resilience for us all and we will continue to have a key role in
helping our clients build resilience into their savings and
investments to enable themselves to be confident to manage through
difficult periods and events.
Our focus on clients, the trusted relationships we have with
them and the investment we have made to broaden and strengthen our
proposition, means that we are strongly positioned to help our
clients navigate through these unprecedented times. It also
provides us with confidence in our ability to deliver sustainable
and attractive growth and returns beyond the immediate period of
uncertainty.
About us:
Hargreaves Lansdown is the UK's largest direct to investor
investment service administering GBP104.0 billion of investments
for over 1,412,000 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)7989 672071 +44(0)7970 066634
Nick Cosgrove / Anita Scott Philip Johnson, Chief Financial
Officer
Brunswick +44(0)207 404 5959
Analysts' presentation
Hargreaves Lansdown will be hosting an investor and analyst
presentation at 10:00am on 7 August 2020 following the release of
the results for the year ended 30 June 2020. To access the
presentation call 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 performance measure
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 2020. These measures
are listed along with the calculations to derive them and an
explanation of why we use them on page 30 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
Growth through challenge and change
2020 has been a significant year for Hargreaves Lansdown and I
am pleased at how we have continued to execute our strategy and
provide support for our clients in an external environment of
persistent challenge.
In hard times there are challenges for all of us as individuals,
clients and colleagues. I would like to take this opportunity to
thank our clients for their resilience and continued support and my
colleagues for their hard work, commitment and ingenuity in
managing the tremendous change that COVID-19 has brought in the
midst of our busiest time of year. Despite the personal upheaval we
have all experienced, it has been inspiring to see the support we
have provided to our clients and it is through their performance
that we have been able to deliver strong outcomes for all our
stakeholders.
The first half of the year was characterised by political
uncertainty around Brexit and Trade Wars. At the time, we were
confident that any certainty provided by the election result would
improve investor confidence and lead to a strong performance
through the second half. Our thinking was confirmed over the rest
of the year where, despite the unforeseen ongoing pandemic and the
significant challenge this has brought to the world, HL has
delivered a performance of great strength.
The benefits of putting our clients at the heart of everything
we do combined with our investment in the scalability, diversity
and resilience of HL's business model, have been demonstrated in
its response to the COVID-19 crisis. At the same time we have
completed significant strategic initiatives including launching our
new Wealth Shortlist, delivering our first multi-channel
advertising campaign as well as completing further work to enhance
governance, scalability and resilience in our service to
clients.
Building resilience over the long term
I believe that the acute challenges of this year have reinforced
the importance of resilience for us all. Clients must have
confidence in HL's ability to remain secure and provide the best
service to them. But clients must also build resilience into their
savings and investments to enable themselves to be confident to
manage through difficult periods and events.
At Hargreaves Lansdown we have a very strong purpose: to empower
our clients to save and invest with confidence over the long-term;
and this is supported by a culture and values that are focused on
helping our clients in the right ways to deliver the best outcomes
for them. We recognise how complex the UK wealth landscape has
become and the challenge this brings to serve clients. Financial
requirements are becoming increasingly complicated: as people live
longer, as long-term saving obligations move from companies to
individuals and the low interest rate environment persists with
added volatility and uncertainty; people need support.
The tools, knowledge and insight that we provide as part of our
service, equip and empower our clients to manage their savings and
investments. Diversification is a key part of building resilience
into a portfolio and our proposition offers clients the opportunity
to save and invest across a spectrum of asset classes, including in
cash with Active Savings.
HL's role as a lifelong partner for clients is growing and we
will continue to develop our proposition, capabilities and digital
technology to provide an experience for clients that is appropriate
to their evolving lifetime savings and investment needs. Our
connectivity with our clients means we can evolve to meet their
needs, especially as the external environment continues to change
rapidly.
Our Response to COVID-19
This culture and focus on our clients guided our swift response
to the COVID-19 pandemic. Our immediate priorities were ensuring
the safety and well-being of colleagues whilst maintaining the core
services that our clients rely on. This included moving the
majority of colleagues to work from home whilst swiftly
implementing effective social distancing across three sites for
those colleagues who needed to be in the office.
It is through the investment we have made in our service and
technology over the past few years that we were able to ensure both
the resilience and scalability of HL over this period and to react
to the situation with agility. As a result we were able to continue
to deliver the service that our clients needed during this time and
manage the record volumes of client activity. We also provided
critical insight and information on matters that they were
concerned about.
In keeping with our own expectations of our role in the
community in which we live we also provided support to our local
community. More detail on our response to COVID-19 for key
stakeholders will be outlined in the Corporate Social
Responsibility section of our 2020 Report and Financial Statements
.
Keeping close to clients
Our client service and client outcome based strategy is
underpinned by an unrelenting focus on understanding our clients'
needs, a critical part of which comes from using the insight that
we get from their interactions with us. As we act on this insight,
and provide a service that serves to retain clients, we build a
lifelong relationship that further enhances our ability to tailor
their engagement and our service in the most appropriate ways for
them.
This focus was key to our service response to COVID-19 as
mentioned above. We used the intelligence provided through our
phone and email contact together with observing the activity on the
mobile and web platforms to study carefully what clients needed and
we reacted as a result. We maintained the Helpdesk phone lines
throughout and put additional measures in place to increase our
email response rate in line with client contact. We also introduced
new measures to support our vulnerable clients including increased
information on fraud risk and a specific phone line to provide them
with further support.
We made proactive decisions to stop and then swiftly to adjust
our marketing to ensure that the messages were appropriate, and
paused other initiatives such as the Wealth Shortlist so that our
clients were getting the right focus and attention when they needed
it most. As the crisis developed we concentrated on what content
clients were engaging with online and identified where they needed
insight. The top 10 articles our research team posted were read up
to three times as much as the top 10 last year with over double the
number of non-client visitors to the website using these
resources.
We recognise that, through the intensive scale of client
interaction on our mobile and online platforms, and through calls
and emails to the Helpdesk, we gain huge insight and understanding.
This allows us to focus on what savers and investors specifically
need and then work to deliver this. Across the year, digital visits
increased by 41% from 177 million (FY19) to 249 million in FY20. We
received unprecedented volumes of emails into the Helpdesk between
April and June alone and have continued to see consistently high
volumes of calls throughout this time.
We have also developed our digital and mobile capability in
response to changes in how clients want to interact with us. The
popularity of our mobile app continues to significantly grow and
represents an increasingly important feature for our clients. Of
the 1.2 million clients who logged in online, 43% did so through
the app whilst 33% of online client initiated share trades came via
the apps, more than double last year. Developing digital
capabilities further remains a priority for us and it is important
that we remain agile and are continually anticipating and
responding to changes.
Developing our proposition
We recognise the need to constantly develop and improve our
offering to ensure we are delivering what our clients need. At the
same time, as a leading financial services company we have a
responsibility to play a key part in setting industry standards. As
such it was essential that we learnt from the experience
surrounding the Woodford issue last year.
We undertook significant work to review the governance framework
relating to the investment processes across the business and
conducted extensive research with our clients. Changes were
implemented and incorporated in the launch of the Wealth Shortlist
in June 2020. This new list incorporates new functionality, search
tools and a more structured view of our research to provide clients
with all the key information they need to make investment
decisions, in a transparent and easy to use format.
The extensive research included interactions with over 8,000
clients, with surveys, face to face interviews and a deep dive into
the additional insights we have gained in how clients use our
platform. The end result directly reflects what our clients told us
about how they use the list and what they wanted to see.
As part of this process, we also launched new fund tools and
updates which make navigating the funds available through our
platform more transparent and easier than ever before.
These changes have been underpinned by changes to governance
processes to raise the level of rigour and challenge to decisions
that we make. These developments will ensure that not only our
Wealth Shortlist and Fund Finder tool, but also future investment
propositions and wider developments, will also have a robust,
thorough and transparent governance structure behind them. We
recognise how evolving the role of governance provides additional
rigour and challenge to our decisions and results in better
outcomes.
Executing our strategy
We welcomed a record 188,000 net new clients during the year,
bringing total active clients to over 1.4 million and supported
GBP7.7 billion of net new business, another record.
The importance of our own resilience and diversification is
demonstrated in our growth with the volume of client driven share
deals up 96% and revenue from share dealing up 94% and Active
Savings now used by 66,000 clients with GBP2.2 billion of AUA.
Through the market volatility of early 2020, we have maintained
our position as the market leader with our share of the direct to
consumer platform market at 41.1%(1) , and seen a significant
increase in our share of the execution only stockbroking market
rising to 39.5%(2) .
In the lead up to tax year end we delivered our first
multi-channel advertising campaign 'Switch your Money ON'. This was
an opportunity to deliver a creative proposition with both
immediacy and the long-term potential to deliver other HL messages,
whilst building the HL brand. Over 12 million of our target
audience viewed advertisements in the period, including adverts
seen over 304 million times. We focused on reinforcing our position
as a leading ISA provider as we approached tax year end,
highlighting our scale and service credentials and this approach
delivered significant results with both brand awareness and
consideration.
Compared to a few years ago, we are now seeing more clients who,
on average, are joining HL at younger ages and the way they
interact has shifted with more interest in mobile and access to new
asset classes through our Active Savings products. Client needs
adapt and evolve over time depending on knowledge, experience and
circumstances and our agility in adapting and responding is driven
by our proposition and service.
In order to rise to this challenge, we recognise the importance
of continuing to develop more digital and connected technology. We
continue to invest into our range of capabilities because these are
what enable us to develop and deliver a broad proposition, offering
not only choice and flexibility but solutions across a diverse
range of asset classes. These solutions are supported by an
evolving set of tools, expertise and service that enable clients to
engage, giving them confidence to take control and be resilient in
managing their savings and investments for the long term. In
return, these clients concentrate their investments and cash
savings with us, and work to their financial goals over their
lifetimes, continuing to save their annual allowances and investing
for the long term.
In February, we completed the sale of FundsLibrary, our data
management and digital services business, to Broadridge Financial
Solutions Inc. The decision to sell reflected our view that, as a
business to business service, it was no longer core to our overall
strategy, and the proceeds received from this will be used to
enhance the total dividend payment for this year.
Conclusion and outlook
Over the next few years, the wealth industry will continue to
develop in response to the changing requirements and challenges
that people have in saving and investing alongside the pressing
demands of everyday life. With our scale, insight and deep
understanding of client needs we will continue to be at the
forefront of responding to change and evolving our proposition to
the benefit of clients. We are already seeing an evolution of our
service supporting clients from younger ages and across broader
investment and savings options. As we continue to evolve our
proposition to reflect changing client needs, that trend will
continue to grow in importance.
The Financial Conduct Authority has acknowledged the importance
of people's engagement with managing their financial futures and,
after the past few years of significant regulatory change, there
has been a growing focus on steering future regulation to one based
upon outcomes. We are supportive of this regulatory direction of
travel and will continue to work with the Financial Conduct
Authority as the industry evolves to design and deliver these
outcomes responsibly.
The experience of this year has reinforced the importance of our
service-focused strategy and demonstrated its effectiveness with a
very strong performance delivered through a range of difficult
conditions. This gives us confidence to look ahead and invest in
addressing the significant market opportunity. We will maintain our
focus on skills, capabilities and technologies as this is critical
in developing the lifelong client relationships which help drive
future growth. Our scale and strong market position, together with
a robust balance sheet and cash flows will enable us to continue
delivering value to all of our stakeholders over the long term.
In the near term the UK economy faces a period of uncertainty as
we work through the many issues arising from COVID-19. Unemployment
levels have increased significantly whilst economic growth has
decreased. The government has borrowed vast amounts to help the
economy and society but the road to recovery could be a long one
with various tax implications along the way.
The impact on our clients and the wider investment community as
a result is difficult to call. Interest rates are at all-time lows,
which makes cash savings unappealing, but market uncertainty and
volatility can equally deter people from investing and access to
liquidity is a key part of building financial resilience. However,
our focus on clients, the trusted relationships we have with them
and the investment we have made to broaden and strengthen our
proposition, means Hargreaves Lansdown is strongly positioned to
help our clients navigate through these difficult times. We are
clear in the structural growth opportunity, clear in our strategy
and business model and these provide us with confidence in our
ability to deliver sustainable and attractive growth and returns
beyond the immediate uncertainties.
Chris Hill
Chief Executive Officer
6 August 2020
1 Source: Platforum UK D2C Market Overview (July 2020).
2 Source: Compeer Limited XO Quarterly Benchmarking Report
Quarter 1 2020.
Operating and Financial Review
Assets Under Administration (AUA) and Net New Business (NNB)
Year ended Year ended
30 June 2020 30 June 2019
GBPbn GBPbn
============================ ======================= =====================
Opening AUA 99.3 91.6
Underlying net new business 7.7 7.3
Market movement & other (3.0) 0.4
Closing AUA 104.0 99.3
============================ ======================= =====================
The diversified nature of Hargreaves Lansdown, the breadth of
our product offering and provision of high quality services
tailored to the needs of our clients has allowed us to deliver a
record year for NNB inflows. This has been achieved against a
backdrop of uncertainty around UK politics and Brexit in the first
half and the unprecedented issues relating to the COVID-19 in the
second half. The Group's relentless focus on client service has
been core to our success as a business and positions us well for
the structural growth opportunity in the UK savings and investments
market.
NNB for the year totalled GBP7.7 billion (2019:GBP7.3bn) driven
by increased client numbers, continued wealth consolidation onto
our platform and strong trading through the COVID-19 period. The
first half of the year saw difficult external market conditions,
with concerns over global trade wars, Brexit and the UK general
election all weighing on investor confidence. The first half
benefited from new business from direct books totalling GBP0.9
billion.
Following the general election, we saw an increase in client
confidence, engagement and activity levels. As the world became
disrupted by COVID-19, the benefits of our investments over the
past few years became clear. Whilst being focused on colleague
welfare throughout, we remained open for business through the
crucial tax year end period. We were able to cope with a surge in
net new clients, NNB and record activity levels. An ISA focused
advertising campaign helped drive significant new ISA clients and
our stockbroking capabilities helped attract many new younger
clients who were particularly engaged with share dealing.
During the year to 30 June 2020, we introduced 188,000 (2019:
133,000) net new clients to our services and grew our active client
base by 15% to 1,412,000.
This increased client 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 92.8% and 92.1% respectively. The client retention rate
is quoted on our historic measure where we define active clients as
those with over GBP100 on the platform. We note that other
providers quote this measure with active clients defined as those
with over 1 pence on their platform. For comparative purposes, the
HL client retention rate on this basis would have been 95.7% (2019:
96.1%, 2018: 95.8%). Our increased focus on digital marketing has
been key in winning new and engaging with existing clients,
ensuring we become integral to their lives in terms of saving and
investing for the future.
Total AUA increased by 5% to GBP104.0 billion as at 30 June 2020
(GBP99.3 bn as at 30 June 2019). This was driven by GBP7.7 billion
of NNB offset by negative market movement of GBP3.0 billion.
Financial performance
Income Statement
Year ended Year ended
30 June 2020 30 June 2019
GBPm GBPm
================================ ============= ===============
Revenue 550.9 480.5
Operating costs (214.9) (179.4)
Fair value gains on derivatives 1.7 2.2
Finance income 2.8 2.8
Finance costs (1.0) (0.3)
================================ ============= ===============
Underlying profit before tax 339.5 305.8
Gain on disposal 38.8 -
================================ ============= ===============
Profit before tax 378.3 305.8
Tax (65.1) (58.2)
================================ ============= ===============
Profit after tax 313.2 247.6
================================ ============= ===============
2020 profit before tax grew by 24% to GBP378.3 million. This
included a gain on disposal of GBP38.8 million relating to
FundsLibrary Limited, which if removed, would give an 11% increase
in underlying profit before tax. The increase was driven by
continued NNB-driven revenue growth and strong share dealing
volumes in the second half of the year.
Revenue
Revenue for the year was GBP550.9 million, up 15% (2019:
GBP480.5m), driven by higher asset levels and record share dealing
volumes seen in the second half of the year. This more than offset
a fall in annual management charges on the HL Funds which fell in
line with their lower average asset values seen this year. This
strong revenue result in a period of difficult external conditions
clearly shows the benefit of the Group's diversified market-leading
presence across our range of chosen asset classes. Our market share
of the UK execution only market continued to grow, hitting a new
high of 39.5% (as measured by Compeer's XO Quarterly Benchmarking
Report Q1 2020).
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 2020 Year ended 30 June 2019
============================================== ==============================================
Revenue Average Revenue Revenue Average Revenue
GBPm AUA GBPbn margin bps GBPm AUA GBPbn margin bps
Funds 1 210.6 52.3 7 40 206.2 50.6 7 41
Shares 2 148.5 34.3 43 86.2 31.4 27
Cash 3 91.1 12.3 74 73.2 10.2 72
HL Funds 4 63.6 8.7 7 73 68.3 9.2 7 74
Other 5 37.1 1.7 6 - 46.6 0.5 6 -
Double-count(7) - (8.6) 7 - - (9.1) 7 -
================ ========= ============ ===================== ========= ============ =====================
Total 550.9 100.6 7 - 480.5 92.8 7 -
================ ========= ============ ===================== ========= ============ =====================
1 Platform fees and renewal commission.
2 Stockbroking commission and equity holding charges.
3 Net interest earned on client money.
4 Annual management charge on HL Funds, i.e. excluding the
platform fee, which is included in revenue on Funds.
5 Advisory fees, 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 2% to GBP210.6 million (2019:
GBP206.2m) due to AUA growth primarily from net new business. Funds
remain our largest client asset class at 52% of average AUA (2019:
55%), and the revenue margin earned on these this year was 40bps
(2019: 41bps). As anticipated the fund margin was slightly impacted
as we waived the platform fee throughout the period on holdings in
the Woodford Equity Income Fund and on the Woodford Income Focus
Fund during its suspension from October 2019 to February 2020. The
revenue impact from the waivers is estimated at GBP2.6 million and
had it not been incurred the margin would have been 41bps. Revenue
margins on Funds have been broadly stable following the completion
of RDR in 2014 and we expect them to remain at similar levels over
the next 12 months. Funds AUA at the end of 2020 was GBP51.7
billion (2019: GBP53.8bn).
Revenue on Shares increased by 72% to GBP148.5 million (2019:
GBP86.2m) and the revenue margin was 43bps (2019: 27bps), ahead of
our expected range of 35bps to 40 bps given at the trading update
on 14 May 2020. This margin is primarily a result of the ratio of
dealing volumes to average AUA, and whilst the first half saw AUA
increase faster than dealing volumes and the subsequent revenues,
the situation in the second half changed dramatically. Post the
General Election result in December 2019 and into the COVID-19
period, dealing volumes increased to record levels on our platform
at a time when the average AUA was impacted by significant market
falls. This resulted in the second half margin being unusually high
at 61bps compared to 26bps in the first half, giving an overall
margin of 43bps. Total client driven deal volumes increased 95% to
8.2 million (2019: 4.2m). March to June recorded volumes of 1.1
million to 1.3 million deals per month compared to a monthly
average of 0.37 million for the same months in the past three
years.
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 (2019: 34%). Given recent
experience, it is difficult to know what the margin of Shares might
be over the next 12 months given it is primarily driven by actual
dealing volume levels. However, our current expectation is that it
will be in the range of 30 to 50bps. Shares AUA at the end of 2020
was GBP36.4 billion (2019: GBP33.7bn).
Revenue on Cash increased by 24% to GBP91.1 million (2019:
GBP73.2m) as a result of increased cash levels combined with a
slight increase in the interest margin to 74bps (2019: 72bps). This
is in line with our communicated expectations of between 70bps and
75bps given at the trading update announced on 14 May 2020. Cash
accounts for 12% of the average AUA (2019: 11%). At the start of
the year the Bank of England base rate was 0.75% but then emergency
rate cuts of 0.50% and then a further 0.15% in March 2020 took us
to an all-time low of 0.10%. 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 2021 financial year will be in the range of 40bps to 50bps,
although given how the yield curve took a couple of months to
reflect the cuts in base rate 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 2020 was GBP13.6 billion (2019: GBP10.7bn).
HL Funds consist of 10 Multi-Manager funds, on which the
management fee is 75bps per annum, and three Select equity funds,
on which the management fee is 60bps. Revenue from these funds has
fallen by 7% this year to GBP63.6 million (2019: GBP68.3m) due to
modest net outflows as we have not actively marketed the
Multi-Manager funds whilst the Woodford Equity Income Fund has been
suspended combined with their lower market valuations resulting
from COVID-19. 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 73bps (2019: 74bps). Note that
the platform fees on these assets are included in the Funds line
and hence total average AUA of GBP100.6 billion (2019: GBP92.8bn)
excludes HL Funds AUM to avoid double-counting. HL Funds AUM at the
end of 2020 was GBP8.0 billion (2019: GBP9.4bn).
Other revenues are made up of advisory fees, our Funds Library
data services, Active Savings and ancillary services such as
annuity broking, distribution of Venture Capital Trusts and the
Hargreaves Lansdown Currency and Market Services. These revenues
are primarily transactional and not impacted by market growth. They
declined by 20% in the year mainly because of the disposal of our
subsidiary business, FundsLibrary Limited, on 28 February 2020, the
removal of various fees such as exit charges and a fall in advisor
fees as a result of COVID-19.
Assets held within Active Savings on the platform and the
related revenue are not broken out into a separate category in the
previous table. As highlighted before, we believe it is
strategically imperative to capture the scale advantage of being a
first mover. Consequently our focus remains 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. In addition we have been
developing the proposition further and we will be launching a Cash
ISA offering soon. This will initially be made available to
existing Active Savings clients before we market it more widely. In
the coming months we will also add the ability for clients to
transfer existing Cash ISAs that they hold elsewhere into Active
Savings, which provides a significant opportunity given that UK
Cash ISAs total approximately GBP270 billion. As at 30 June 2020,
Active Savings AUA was GBP2.2 billion. The associated revenue is
included in the category "Other", such that the total revenue
reconciles back to the income statement.
Year ended Year ended
30 June 2020 30 June 2019
GBPm GBPm
====================== ================= ================
Recurring revenue 404.3 387.3
Transactional revenue 140.1 84.3
Other income 6.5 8.9
Total revenue 550.9 480.5
====================== ================= ================
The Group's revenues are largely recurring in nature, as shown
in the table above. The proportion of recurring revenue has
decreased to 73% (2019: 81%) as the transactional stockbroking
commission increased significantly in the second half of the year,
whilst at the same time lower market values and a reduction in the
base rate of interest impacted recurring revenue streams.
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 4% to
GBP404.3 million (2019: GBP387.3m) 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 increased by 66% to
GBP140.1 million (2019: GBP84.3m) with a 95% increase in client
driven equity deal volumes being the key driver.
Other revenue is derived from the provision of funds data
services and research to external parties through Funds Library.
This was down 27% from GBP8.9 million to GBP6.5 million as the
subsidiary company FundsLibrary Limited was sold on 28 February
2020.
Operating costs
Year ended Year ended
30 June 2020 30 June 2019
GBPm GBPm
================================================ ================= ==================
Staff costs 101.2 97.2
Marketing and distribution costs 23.9 12.7
Depreciation, amortisation and financial costs 17.6 12.4
Other costs 58.5 50.3
================================================ ================= ==================
201.2 172.6
Total FSCS levy 13.7 6.8
================================================ ================= ==================
Total operating costs 214.9 179.4
================================================ ================= ==================
Operating costs increased by 20% to GBP214.9 million (2019:
GBP179.4m) to support higher client activity levels, maintain
client service and invest in the significant growth opportunities
we see ahead for Hargreaves Lansdown. In addition there was a
significant increase in regulatory fees relating to the Financial
Services Compensation Scheme (FSCS). The growth rate in costs,
excluding the FSCS levy, was 17% for the year
Over the past three years we have deliberately invested into our
service, marketing capabilities technology, scalability and
efficiency as 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 in 2020 by record NNB, record levels of net new clients,
increased market shares, attractive client retention rates, the
continued development of our product set and growth capabilities
and the resilience of our platform through COVID-19.
Key drivers of the cost growth were marketing and distribution,
particularly in the second half. These rose by GBP11.2 million this
year as we capitalised on the opportunity to accelerate new client
acquisition and invested in our brand awareness campaign. At
current revenue margins and activity levels, the GBP7.7 billion of
NNB this generated is equivalent to cGBP40 million of future annual
revenues. Activity based costs also rose by GBP6.9 million. These
are primarily dealing costs linked to the additional GBP60 million
of Shares revenue and debit card fees linked to elevated levels of
cash paid onto the platform.
Looking forward we would anticipate that costs will grow broadly
in line with the growth of client numbers. Cost growth in 2020 was
marginally ahead of this due to the unusual marketing opportunity
to acquire new clients and exceptional dealing volume costs.
Staff costs remain our largest expense and rose by 4% to
GBP101.2 million (2019: GBP97.2m). Average staff numbers increased
by 2% from 1,574 in 2019 to 1,599 in 2020 with the key increases
being on the Helpdesk and in Operations, in line with higher client
activity levels. 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 increased by 88% to GBP23.9
million (2019: GBP12.7m). In the first half of the year, spend
focused on targeted marketing campaigns for the likes of Active
Savings and engagement with existing and target clients around
Brexit and the general election. Investor confidence and
engagement, however, were low and hence spend was largely held back
until the second half when there was a significant increase in
client engagement post the general election and the decision on
Brexit. This provided a better backdrop for marketing spend and
also coincided with the build up to the all-important tax year end
period where the UK tends to see significant activity amongst
retail investors. In addition, February saw the launch of a brand
marketing campaign centred on London and the South-East. The
campaign, "Switch your money on", was particularly aimed at the ISA
market along with overall brand awareness. This together with our
digital marketing expertise, resulted in substantial net new
clients of 138,000 for the second half and a total for the year of
188,000.
Depreciation, amortisation and financial costs increased by
GBP5.2 million to GBP17.6 million. The adoption of IFRS 16 "Leases"
meant operating leases relating to the offices of Group companies
were brought on to the balance sheet as right of use assets which
are now depreciated. The impact of this accounting change was an
additional GBP3.0 million of depreciation in the year. In addition,
bank charges increased by GBP1.5 million as there were
significantly more debit card transactions as clients added money
to their accounts.
Total capitalised expenditure was GBP15.9 million this year
(2019: GBP17.1m). 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 GBP8.2 million to GBP58.5 million (2019:
GBP50.3m). 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 GBP6.9 million or 101% to GBP13.7 million. This was
caused by a combination of a GBP1.5 million interim levy relating
to last year, which was only raised in December 2019, plus a
significant increase in the amounts being raised in both the life
distribution and investment intermediation categories. Much of our
revenue falls into these two categories and with our revenue growth
being above the wider market we bear a higher proportion of the
amounts being raised. 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. At present we anticipate that this levy
will continue at a similar level.
Profit before tax
Year ended Year ended
30 June 30 June
2020 2019
GBPm GBPm
============================== ============ ============
Operating profit 337.7 303.3
Finance income 2.8 2.8
Finance costs (1.0) (0.3)
============================== ============ ============
Underlying profit before tax 339.5 305.8
Gain on disposal 38.8 -
============================== ============ ============
Profit before tax 378.3 305.8
Tax (65.1) (58.2)
============================== ============ ============
Profit after tax 313.2 247.6
============================== ============ ============
The Group's profit before tax grew by 24% to GBP378.4 million
(2019: GBP305.8m) due to strong trading and a GBP38.8 million gain
from the disposal of FundsLibrary. The Board believes it is
important to present an underlying result excluding this disposal
gain to assist investors with their understanding of the Group's
trading performance. On this basis, underlying profit before tax
grew 11% to GBP339.5 million. Profits after tax grew by 26% to
GBP313.2 million as the effective rate of corporation tax rate
decreased to 17.2% (2019: 19.0%).
Tax
The effective tax rate for the year was 17.2% (2019: 19.0%).
This was below the standard rate of UK corporation tax as the gain
on disposal of FundsLibrary was exempt as it met the conditions of
the Substantial Shareholder Exemption. 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
2020 2019
GBPm GBPm
========================================== =============== ===============
Profit after tax 313.2 247.6
========================================== =============== ===============
Diluted share capital (million) 474.8 475.8
========================================== =============== ===============
Diluted EPS (pence per share) 65.9 52.0
========================================== =============== ===============
Underlying diluted EPS (pence per share) 57.8 52.0
========================================== =============== ===============
Diluted EPS increased by 27% from 52.0 pence to 65.9 pence,
reflecting the Group's growth in profit after tax. The Group's
Basic EPS was 66.1 pence compared with 52.1 pence in 2019. By
removing the profit on disposal of FundsLibrary we arrive at an
underlying diluted EPS which has increased by 11% from 52.0 pence
to 57.8 pence.
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 2020 was
GBP462.8 million (2019: GBP394.0m). Cash generated through trading
and the disposal of FundsLibrary Limited more than offset the
payments of the 2019 final dividend and the 2020 interim dividend.
This includes cash on longer-term deposit and is before funding the
2020 final dividend of GBP125 million and special dividend of GBP82
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 30 June
2020 2019
GBPm GBPm
=================================================== =============== ===============
Shareholder funds 558 458
Less: goodwill, intangibles and other deductions (32) (24)
=================================================== =============== ===============
Tangible capital 526 434
Less: provision for dividend (207) (150)
=================================================== =============== ===============
Qualifying regulatory capital 319 284
Less: estimated capital requirement (180) (186)
=================================================== =============== ===============
Estimated surplus 139 98
=================================================== =============== ===============
Total attributable shareholders' equity, as at 30 June 2020,
made up of share capital, share premium, retained earnings and
other reserves increased to GBP558.3 million (2019: GBP457.8m) as
continued profitability more than offset payment of the 2019 final
and special dividends and the 2020 interim dividend. Having made
appropriate deductions as shown in the table above, surplus capital
amounts to GBP139 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 2020 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)
2020 2019
========================== =========== ===========
Interim dividend paid 11.2p 10.3p
Final dividend declared 26.3p 23.4p
========================== =========== ===========
Total ordinary dividend 37.5p 33.7p
Special dividend 17.4p 8.3p
========================== =========== ===========
Total dividend 54.9p 42.0p
========================== =========== ===========
When applying this policy in 2020, the Board has chosen to treat
the gain on disposal as distinct from the underlying trading
performance of the Group. The Group's total dividend of 54.9 pence
per share is therefore made up of the following components:
- A total ordinary dividend of 37.5 pence per share (2019:
33.7p), 11% ahead of last year. This is in line with underlying EPS
growth and maintains the ordinary dividend payout ratio at 65% of
underlying EPS.
- A special dividend of 17.4 pence per share (2019: 8.3p) made
up of two parts.
Firstly, the Board has considered the Group's capital and cash
position in light of its stated dividend policy and is recommending
9.2 pence of the special dividend is paid from the underlying
earnings of the Group. In effect, this results in 46.7 pence of the
total dividend per share being generated from underlying earnings
and results in a total dividend payout ratio from underlying
earnings of 81%, in line with previous periods.
Secondly, the Board consider the Group to have a robust capital
and liquidity position with sufficient resources to fund its
current growth and investment requirements. As a result, it has
concluded that the gain on disposal of FundsLibrary should be
distributed to shareholders and this makes up 8.2 pence of the
special dividend.
This results in a total special dividend of 17.4 pence per share
and a total 2020 dividend for the year of 54.9 pence per share
(2019: 42.0p).
Subject to shareholder approval of the final dividend at the
2020 AGM, the final and special dividends will be paid on 16
October 2020 to all shareholders on the register at the close of
business on 25 September 2020.
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.
Philip Johnson
Chief Financial Officer
6 August 2020
SECTION 1: RESULTS FOR THE YEAR
Consolidated Income Statement for the year ended 30 June
2020
Year ended
Year ended 30 June
30 June 2020 2019
Note GBPm GBPm
Revenue 550.9 480.5
Fair value gains on derivatives 1.7 2.2
Operating costs 1.3 (214.9) (179.4)
Operating profit 337.7 303.3
Finance income 1.5 2.8 2.8
Finance costs (1.0) (0.3)
Other gains 4.1 38.8 -
Profit before tax 378.3 305.8
Tax 1.7 (65.1) (58.2)
Profit for the financial
year 313.2 247.6
Attributable to:
Owners of the parent 313.1 247.4
Non-controlling interest 0.1 0.2
313.2 247.6
Earnings per share
Basic earnings per share
(pence) 1.8 66.1 52.1
Diluted earnings per share
(pence) 1.8 65.9 52.0
Underlying basic earnings
per share (pence) 1.8 57.9 52.1
Underlying diluted earnings
per share (pence) 1.8 57.8 52.0
--------------------------------- ----------- ------------ ---------------- --------------
The results relate entirely to continuing operations.
Consolidated Statement of Comprehensive Income for the year
ended 30 June 2020
Year ended Year ended
30 June 30 June
2020 2019
GBPm GBPm
Profit for the financial year 313.2 247.6
Total comprehensive income for the financial year 313.2 247.6
Attributable to:
Owners of the parent 313.1 247.4
Non-controlling interest 0.1 0.2
313.2 247.6
--------------------------------------------------- ----------- ------------
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 2020 30 June 2019
GBPm GBPm
Revenue:
Recurring Revenue
Platform Fees 234.4 228.2
Fund Management Fees 63.6 68.3
Ongoing Adviser Fees 10.2 11.5
Interest earned on client money 91.2 73.5
Renewal commission 4.9 5.8
Transactional Revenue
Fees on stockbroking transactions 127.3 67.1
Initial adviser charges 8.6 9.1
Other transactional income 4.2 8.1
Other Revenue
Other revenue 6.5 8.9
----------------------------------- ---------------- ----------------
Revenue 550.9 480.5
----------------------------------- ---------------- ----------------
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, Fund and
Share accounts and Active Savings, providing services for
individuals and corporates. It is considered that segmental
reporting does not provide a clearer or more accurate view of the
reporting within the Group. Given that only one segment exists, no
additional information is presented in relation to it, as it is
disclosed throughout these financial statements.
The Group does not rely on any individual customer and so no
additional customer information is reported.
1.3 Operating costs
Operating profit has been arrived at after Year ended Year ended
charging: 30 June 2020 30 June 2019
GBPm GBPm
Depreciation of owned plant and equipment 8.4 5.4
Amortisation of other intangible assets 5.2 4.6
Marketing and distribution costs 23.9 12.7
Operating lease rentals payable - property 0.1 3.4
Office running costs - excluding operating
lease rentals payable 4.3 3.4
FSCS costs 13.7 6.8
Other operating costs 58.1 45.9
Staff costs 101.2 97.2
-------------------------------------------- --------------- ---------------
Operating costs 214.9 179.4
-------------------------------------------- --------------- ---------------
1.4 Staff costs
Year ended Year ended
30 June 30 June
2020 2019
The average monthly number of employees of the No. No.
Group (including executive Directors) was:
Operating and support functions 1,175 1,163
Administrative functions 424 411
1,599 1,574
------------------------------------------------ ----------- -----------
Their aggregate remuneration comprised: GBPm GBPm
Wages and salaries 84.9 79.8
Social security costs 6.8 8.5
Share-based payment expenses 3.6 3.8
Other pension costs 10.0 9.7
------------------------------------------------ ----------- -----------
Staff costs 105.3 101.8
------------------------------------------------ ----------- -----------
Capitalised in the year (4.1) (4.6)
Staff costs as a deduction to operating profit 101.2 97.2
------------------------------------------------ ----------- -----------
1.5 Finance income
Year ended Year ended
30 June 30 June
2020 2019
GBPm GBPm
Interest on bank deposits 2.8 2.8
2.8 2.8
-------------------------------------------------- --------------- -----------
1.6 Finance costs
Year ended Year ended
30 June 30 June
2020 2019
GBPm GBPm
Commitment fees 0.3 0.3
Interest incurred on lease payables 0.7 -
1.0 0.3
------------------------------------- ------------- -----------
1.7 Tax
Year ended Year ended
30 June 2020 30 June
2019
GBPm GBPm
Current tax: on profits for the year 64.9 58.4
Current tax: adjustments in respect of prior
years 0.3 0.1
Deferred tax (note 2.4) 0.4 (0.2)
Deferred tax: adjustments in respect of prior
years (note 2.4) (0.5) (0.1)
65.1 58.2
----------------------------------------------- -------------- ------------
Corporation tax is calculated at 19% of the estimated assessable
profit for the year to 30 June 2020 (2019: 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 2020 30 June 2019
GBPm GBPm
Deferred tax relating to share-based payments 0.7 0.6
Current tax relating to share-based payments (0.9) (1.0)
----------------------------------------------- -------------- ---------------
(0.2) (0.4)
----------------------------------------------- -------------- ---------------
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. Following the enactment of Finance Act 2020 the standard
UK corporation tax rate will now remain at 19% rather than reducing
to 17%. Accordingly, the Group's profits for this accounting year
are taxed at 19%. Deferred tax has been recognised at 19%, being
the rate expected to be in force at the time of the reversal of the
temporary difference. This is an increase from the rate of 17% used
in the prior year. 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 2020.
Factors affecting future tax charge
Any increase or decrease to the share price of Hargreaves
Lansdown plc will impact the amount of tax deduction available in
future years on the value of shares acquired by staff under share
incentive schemes.
The charge for the year can be reconciled to the profit per the
income statement as follows:
Year ended Year ended
30 June 2020 30 June 2019
GBPm GBPm
Profit before tax 378.3 305.8
---------------------------------------------- -------------- ----------------
Tax at the standard UK corporate tax rate of
19.75% (2019: 20.00%) 71.9 58.1
Non-taxable income - (0.1)
Non-taxable gain on disposal of subsidiary (7.4) -
Items not allowable for tax 0.7 -
Adjustments in respect of prior years 0.1 -
Impact of the change in tax rate (0.2) 0.2
Tax expense for the year 65.1 58.2
---------------------------------------------- -------------- ----------------
Effective tax rate 17.2% 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 2020 (2019: nil).
Year ended Year ended
30 June 30 June
2020 2019
GBPm GBPm
Earnings
Earnings for the purposes of basic and diluted
EPS - net profit attributable to equity holders
of the parent company 313.1 247.4
------------------------------------------------------ --------------- ---------------
Number of shares
Weighted average number of ordinary shares 474,318,625 474,318,625
Weighted average number of shares held by HL
EBT (527,322) (125,270)
Weighted average number of shares held by HL
EBT that have vested unconditionally with employees 44,555 382,065
------------------------------------------------------ --------------- ---------------
Weighted average number of ordinary shares for
the purposes of basic EPS 473,835,858 474,575,420
Weighted average number of dilutive share options
held by HL EBT that have not vested unconditionally
with employees 989,475 1,189,428
Weighted average number of ordinary shares for
the purposes of diluted EPS 474,825,333 475,764,848
------------------------------------------------------ --------------- ---------------
Earnings per share Pence Pence
Basic EPS 66.1 52.1
Diluted EPS 65.9 52.0
Underlying basic EPS(1) 57.9 52.1
Underlying diluted EPS(1) 57.8 52.0
------------------------------------------------------ --------------- ---------------
1 Underlying earnings are defined as the net profit attributable
to equity holders of the parent company allowing for deduction of
one off items. For the year ended 30 June 2020 the one-off items
deducted are the gains on disposal of FundsLibrary Limited and the
related costs.
SECTION 2: ASSETS & LIABILITIES
Consolidated Statement of Financial Position as at 30 June
2020
At 30 June At 30 June
2020 2019
Note GBPm GBPm
ASSETS
Non-current assets
Goodwill 1.3 1.3
Other intangible assets 28.0 23.0
Property, plant and equipment 33.2 16.0
Deferred tax assets 2.4 3.1 3.8
65.6 44.1
Current assets
Investments 2.1 0.6 1.1
Trade and other receivables 2.2 973.2 748.6
Cash and cash equivalents 2.3 235.9 179.3
Derivative financial instruments 0.1 0.1
Current tax assets 0.7 -
1,210.5 929.1
Total assets 1,276.1 973.2
LIABILITIES
Current liabilities
Trade and other payables 2.5 696.7 485.7
Derivative financial instruments 0.1 -
Current tax liabilities - 27.5
696.8 513.2
Net current assets 513.7 415.9
Non-current liabilities
Provisions 0.8 0.7
Non-current liabilities 2.5 1.0 -
Non-current lease liabilities 19.9 -
Total liabilities 718.5 513.9
Net assets 557.6 459.3
EQUITY
Share capital 1.9 1.9
Shares held by EBT reserve (6.4) (3.4)
EBT reserve (1.9) 1.5
Retained earnings 564.6 457.9
Total equity, attributable to the owners
of the parent 558.3 457.9
Non-controlling interest (0.7) 1.4
Total equity 557.6 459.3
2.1 Investments
Year ended Year ended
30 June 2020 30 June 2019
GBPm GBPm
At beginning of year 1.1 1.5
Purchases - -
Disposals (0.5) (0.4)
------------------------------------------------- -------------- ---------------
At end of year 0.6 1.1
------------------------------------------------- -------------- ---------------
Comprising:
Current asset investment - UK listed securities
valued at quoted market price 0.6 1.1
------------------------------------------------- -------------- ---------------
GBP0.6million (2019: GBP1.1 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 2020 30 June 2019
GBPm GBPm
Financial assets
Trade receivables 663.8 461.4
Term Deposits 230.0 215.0
Accrued income 64.6 59.1
Other receivables 2.6 4.5
------------------------ -------------- ---------------
961.0 740.0
Non-financial assets
Prepayments 12.2 8.6
------------------------ -------------- ---------------
973.2 748.6
---------------------- -------------- ---------------
In accordance with market practice, certain balances with
clients, Stock Exchange member firms and other counterparties
totalling GBP642.0 million (2019: GBP429.3 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 GBP865.8 million
(2019: GBP524.8 million) and the gross amount offset in the
statement of financial position with trade payables is GBP223.8
million (2019: GBP95.5 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.
Given the short-term nature of the Group's receivables and the
expectation of the Group in relation to its counterparties, there
has been no material expected credit loss recognised in the
period.
The Group does not have any contract assets in respect of its
revenue contracts with customers (2019: nil).
2.3 Cash and cash equivalents
Year ended Year ended
30 June 30 June
2020 2019
GBPm GBPm
Cash and cash equivalents
Group cash and cash equivalent
balances 232.8 179.0
Restricted cash - balances held
by EBT 3.1 0.3
235.9 179.3
--------------------------------- -------------- --------------
At 30 June 2020, 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 GBP7,506 million (2019:
GBP5,398 million). In addition, there were pension trust and
currency service cash accounts held on behalf of clients not
governed by the client money rules of GBP6,254 million (2019:
GBP5,424 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%, 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 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
Charge to income (0.2) 0.3 (0.1) -
Charge to equity - (1.2) 0.5 (0.7)
------------------------------- ------------- ------------ ----------------- ---------
At 30 June 2020 0.1 2.4 0.6 3.1
------------------------------- ------------- ------------ ----------------- ---------
Deferred tax expected to be recovered or settled:
Within 1 year after reporting
date 0.1 1.4 0.5 2.0
> 1 year after reporting
date - 1.0 0.1 1.1
------------------------------- ------------- ------------ ----------------- ---------
0.1 2.4 0.6 3.1
------------------------------- ------------- ------------ ----------------- ---------
2.5 Trade and other payables
Year ended Year ended
30 June 2020 30 June 2019
GBPm GBPm
Financial liabilities
Trade payables 637.1 433.9
Accruals 22.3 23.8
Current lease liabilities 3.3 -
Other payables 26.3 19.6
----------------------------- -------------- -----------------
689.0 477.3
Non-financial liabilities
Deferred income 0.4 1.1
Social security and other
taxes 7.3 7.3
----------------------------- -------------- -----------------
696.7 485.7
Year ended Year ended
30 June 2020 30 June 2019
GBPm GBPm
Non-current financial
liabilities
Other payables 1.0 -
---------------------- -------------- -----------------
1.0 -
In accordance with market practice, certain balances with
clients, Stock Exchange member firms and other counterparties
totalling GBP634.8 million (2019: GBP425.6 million) are included in
trade payables, similar to 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 receipts from clients, where
cash is received in advance for certain services. The decrease in
the current year is in relation to the sale of FundsLibrary
Limited, which was responsible for the majority of the deferred
income balance.
2.6 Long term liabilities
Year ended Year ended
30 June 30 June
2020 2019
GBPm GBPm
Cash and cash equivalents
Lease liabilities longer than 19.9 -
12 months
------------------------------ -------------- --------------
SECTION 3: EQUITY
Consolidated Statement of Changes in Equity for the year ended
30 June 2020
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 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 - - (7.3) - (7.3) - (7.3)
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
Impact of change
in accounting policy
for adoption of IFRS
16 - - - (3.5) (3.5) - (3.5)
Revised balance as
at 1 July 2019 1.9 (3.4) 1.5 454.4 454.4 1.4 455.8
Total comprehensive
income - - - 313.1 313.1 0.1 313.2
Change to non-controlling
interest - - - - - (2.2) (2.2)
Employee Benefit
Trust
Shares sold in the
year - 11.9 - - 11.9 - 11.9
Shares acquired in
the year - (14.8) - - (14.8) - (14.8)
EBT share sale - - (6.2) - (6.2) - (6.2)
Reserve transfer
on exercise of share
options - - 2.8 (2.8) - - -
Employee share option
scheme
Share-based payments
expense - - - 3.6 3.6 - 3.6
Current tax effect
of share-based payments - - - 0.9 0.9 - 0.9
Deferred tax effect
of share-based payments - - - (1.3) (1.3) - (1.3)
Dividend paid (Note
3.2) - - - (203.3) (203.3) - (203.3)
At 30 June 2020 1.9 (6.3) (1.9) 564.6 558.3 (0.7) 557.6
--------------------------- --------- --------- ------------ ---------- ---------- ------------- --------
3.1 Share capital
Year ended Year ended
30 June 2020 30 June 2019
GBPm GBPm
Authorised: 525,000,000 (2019: 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 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 HL 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 7.5% shareholding in Hargreaves Lansdown
Savings Limited, which is a subsidiary of the Company.
3.2 Dividends
Amounts recognised as distributions to equity holders in the
year:
Year ended Year ended
30 June 2020 30 June
2019
GBPm GBPm
2019 final dividend of 23.4p (second interim
dividend 2018: 22.1p) per share 110.9 104.7
2019 special dividend of 8.3p (2018: 7.7p) per
share 39.3 37.0
2020 interim dividend of 11.2p (2019: 10.3p)
per share 53.1 48.8
------------------------------------------------ -------------- ------------
Total dividends paid during the year 203.3 190.5
------------------------------------------------ -------------- ------------
After the end of the reporting period, the Directors declared a
final ordinary dividend of 26.3 pence per share and a special
dividend of 17.4 pence per share payable on 16 October 2020 to
shareholders on the register on 25 September 2020. 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
2020 final dividend of 26.3p (2019 final dividend:
23.4p) per share 124.6
2020 special dividend of 17.4p (2019 special
dividend: 8.3p) per share 82.4
----------------------------------------------------- ---------
Total dividend 207.0
----------------------------------------------------- ---------
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 2020 30 June
2019
No. of shares No. of shares
Number of shares held by the Hargreaves Lansdown
EBT 571,856 387,684
Representing % of called-up share capital 0.12% 0.08%
-------------------------------------------------- ----------------- -----------------
SECTION 4: CONSOLIDATED STATEMENT OF CASH FLOWS
Consolidated Statement of Cash Flows for the year ended 30 June
2020
Year ended
30 June Year ended
2020 30 June 2019
Note GBPm GBPm
Net cash from operating activities
Profit for the year after tax 313.2 247.6
Adjustments for:
Income tax expense 65.1 58.2
Gain on disposal of subsidiary (38.8) -
Depreciation of plant and equipment 8.4 5.4
Amortisation of intangible
assets 5.2 4.6
Share-based payment expense 3.6 3.9
Interest accrued on lease liabilities 0.7 -
Increase in provisions 0.1 -
Operating cash flows before
movements in working capital 357.5 319.7
Increase / (decrease) in receivables (209.6) (128.4)
(Decrease) / increase in payables 208.9 121.0
Increase in derivative liabilities 0.1 -
Cash generated from operations 356.9 312.3
Income tax paid (91.5) (50.8)
Net cash generated from operating
activities 265.4 261.5
Investing activities
(Increase) / decrease in short-term
deposits (15.0) 7.0
Proceeds on disposal of investment 0.5 0.4
Purchase of property, plant
and equipment (5.8) (7.6)
Purchase of intangible assets (10.1) (9.5)
Proceeds on disposal of subsidiary 38.2 -
Net cash generated from / (used
in) investing activities 7.8 (9.7)
Financing activities
Purchase of own shares in EBT (14.8) (15.0)
Proceeds on sale of own shares
in EBT 5.8 7.7
Payment of principal in relation
to lease liabilities (4.3)
Dividends paid to owners of
the parent (203.3) (190.5)
Net cash used in financing
activities (216.6) (197.8)
Net increase / (decrease) in
cash and cash equivalents 56.6 54.0
Cash and cash equivalents at
beginning of year 2.3 179.3 125.3
Cash and cash equivalents at
end of year 2.3 235.9 179.3
The adoption of IFRS 16 and adjustments made in relation to the
adoption of that standard have had no impact on cash flows. As a
result the value of current lease liabilities included in other
payables does not impact the change in payables in the current
period.
4.1 Disposal of subsidiary
On 28 February 2020 the group disposed of its interest in
FundsLibrary Limited (FundsLibrary) to Broadridge Financial
Solutions Inc. The group held 78% of the total share capital of
FundsLibrary Limited and received GBP48.8m for its holding. As part
of the half-year report dated 31 December 2019, the assets of
FundsLibrary Limited were shown as held for sale on the balance
sheet. The carrying amount of the assets and liabilities of
FundsLibrary Limited at the date of disposal were as follows:
Year ended
30 June
2020
GBPm
Tangible fixed assets 0.7
Intangible assets 0.1
Cash 9.3
Trade receivables 3.6
Current liabilities (2.4)
Non-current liabilities (0.5)
--------------------------------------------------- -----------
Net assets disposed of 10.8
Non-controlling interest (2.1)
Net assets controlled by Group 8.7
--------------------------------------------------- -----------
Total consideration received by Group 48.8
Costs to sell (1.3)
Gain on disposal included in Consolidated Income
Statement 38.8
--------------------------------------------------- -----------
Total Consideration Year ended
30 June
2020
GBPm
Satisfied by:
Cash and cash equivalents 48.8
------------------------------------------------------ -----------
Net cash flow arising on disposal
Consideration received in cash and cash equivalents 48.8
Less: cash and cash equivalents disposed of 9.3
Less: cash paid in relation to costs to sell 1.3
------------------------------------------------------ -----------
38.2
----------------------------------------------------- -----------
The results of FundsLibrary which have been included in the
profit for the year, were as follows:
Year ended
30 June
2020
GBPm
Revenue 6.5
Expenses (4.7)
Profit before tax 1.8
Attributable tax expense (0.3)
-------------------------------------------------------- -----------
Net profit attributable to FundsLibrary (attributable
to the Owners of the Company) 1.5
Net profit attributable to non-controlling interest 0.3
Net profit attributable to owners of the parent 1.2
-------------------------------------------------------- -----------
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.
These results do not represent the audited full final statements
of the Group
Going concern
The Group maintains ongoing forecasts that indicate continued
profitability in the 2020 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 2020 and 30 June 2019, 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 2020 and 30 June 2019, 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
2020 2019
GBPm GBPm
Short-term employee benefits 10.3 5.9
Post-employment benefits 0.2 0.1
Share-based payments 2.2 2.3
----------------------------- -------------- ---------------
12.7 8.3
----------------------------- -------------- ---------------
In addition to the amounts above, four key management personnel
(2019: eight) received gains of GBP0.6 million (2019: GBP1.6
million) as a result of exercising share options. During the year,
awards were made under the executive option schemes for 9 key
management personnel (2019: 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
2020 2019
GBPm GBPm
Short-term employee benefits 4.7 1.4
Share-based payments 0.6 0.9
----------------------------- ------------------ ---------------
5.3 2.3
----------------------------- ------------------ ---------------
In addition to the amounts above, Directors of the Company
received gains of GBP0.2 million relating to the exercise of share
options
(2019: GBP0.2 million).
Year ended Year ended
30 June 30 June
2020 2019
GBPm GBPm
Emoluments of the highest paid Director 2.7(1) 0.6(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
6 August 2020
Executive Directors
Chris Hill
Philip Johnson
Non-Executive Directors
Deanna Oppenheimer
Fiona Clutterbuck
Shirley Garrood
Dan Olley
Roger Perkin
Stephen Robertson
John Troiano
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.
T he 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 2019/20 activity
impact indicators
--------------------------------------------------------- ----------------------------------------------------------- ------------------------- -----------------------------------------------------------
Risk that
HL * Erosion of shareholder value * The Executive team and Board discuss strategy in the * NNB v forecast * Launched additional Segregated Mandate capability in
does not context of propositional design and service HL Fund Managers
provide enhancement on a regular basis
the * Negative impact on achievement of AUA and client * Net Promoter Score
proposition number strategic targets * Continued development of Active Savings proposition
and * Dedicated proposition/client experience team
services * Client Retention
required to * Negative impact on our reputation as an innovative * Launch of Wealth shortlist
achieve market leader * Client testing workshops
HL's * Service rating
strategy
and * Product governance process
purpose. * Complaints
* An operational plan is in place prioritising
development * Risk Events
--------------------------------------------------------- ----------------------------------------------------------- ------------------------- -----------------------------------------------------------
Technology
Risk Potential Mitigations Key risk 2019/20 activity
impact indicators
---------------------------------------- ----------------------------------------------------------- ---------------------------------- ------------------------------------------------------
Risk that HL
fails to * Inability to maintain operational * IT Architecture Plan * System availability * Continued development and evolution of our core
manage architecture
and maintain
existing * efficiency * Rolling internal and external monitoring of IT * Status of critical projects
technological environment * Platform security improvements
architecture,
environments * Increased costs * Core system monitoring
or * Operational Plan, including prioritisation of IT
components. development
* 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 2019/20 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 * Response to the COVID-19 pandemic
an adverse visors
impact on HL's
reputation.
------------------------------------ --------------------------------------------------- ----------------------- ----------------------------------------------------
Legal and regulatory risks
Regulation
Risk Potential Mitigations Key risk 2019/20 activity
impact indicators
------------------------------------------------------------ ----------------------------------------------------------- --------------------------------------------------- ------------------------------------------------------------
Risk that
required * Regulatory breaches * Compliance Plan * Volume of new outputs from regulatory bodies * Ongoing CASS environment review and improvement
regulatory activities
change is
not * Increased regulatory scrutiny, censure or fines * Group Operating Plan * Number of regulatory change projects
implemented * Projects completed: SMCR and PSD2
to
regulatory * Missed opportunities to achieve competitive advantage * Change Committee meets monthly to review and * Number of regulatory breaches
expectations challenge progress of regulatory change projects * Reprioritisation of change portfolio within Operating
or designed to ensure business readiness Plan
requirements
.
* The Compliance function performs horizon checking to * Set up of combined assurance framework
ensure the Group has timely visibility of future
regulatory change
* Established Crisis Management committee to oversee
response to COVID-19
* Dialogue with the FCA
------------------------------------------------------------ ----------------------------------------------------------- --------------------------------------------------- ------------------------------------------------------------
Conduct risks
Client Outcomes
Risk Potential Mitigations Key risk 2019/20 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 fail * Reputational damage * Senior Management meet monthly to oversee and drive * Employee surveys * Leadership group restructured and developed
to support client experience, people and culture related
and activity
encourage * Regulatory scrutiny * Client Survey results * Establishment of a Corporate & Social Responsibility
appropriate programme
client * Regular Conduct Risk MI, discussed at the Product
focused * Negative impact on the achievement of our growth Governance Committee * Colleague Retention
conduct by targets * Established a business led diversity, inclusion and
all wellbeing programme of activity
colleagues, * Complaints
leading to
poor * Updated Performance Development
conduct. * Colleague attrition rate
* model
------------------------------------------------------- ---------------------------------------------------------- ------------------------------- -----------------------------------------------------------
Operational risks
Operational delivery
Risk Potential Mitigations Key risk 2019/20 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
------------------------------------------------------ ------------------------------------------------------------ -------------------------------- --------------------------------------------------------
Financial crime and data
protection
Risk Potential impact Mitigations Key risk 2019/20 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 2019/20 activity
indicators
------------------------------------ ----------------------------------------------------------- --------------------- ----------------------------------------------------
Risk that HL
fails to * Reduced AUA and AUM * The Group's business model comprises both recurring * Interest rates * Ongoing discussion in the Executive Committee
respond platform revenue and transaction-based revenue
effectively
to relevant * Negative impact on HL revenue * FTSE 100
market or * A high proportion of the Assets Under Administration
environmental are held within tax-advantaged wrappers, meaning
changes there is a lower risk of withdrawal
leading
to the
inability * Finance Executive Committee, Treasury Committee &
to attract Finance Reporting
or retain
clients
in line with * The Group has established a COVID-19 working group
strategic focused on mitigating business and client impacts
expectations, from the pandemic.
or a negative
impact on
revenue, * Liquidity policy and associated controls oversight
resulting in
erosion of
shareholder
value
------------------------------------ ----------------------------------------------------------- --------------------- ----------------------------------------------------
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.
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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).
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Operating Profits after deducting Provides a measure of profitability
profit operating costs but the of the core operating activities and
margin impact of finance income excludes non-core items.
and other gains or losses
divided by revenue.
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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
(%) fees, management fees hence it is of higher quality.
and interest earned on
client money divided by
the total Vantage revenue.
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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.
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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.
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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.
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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.
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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.
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Underlying Profit before tax excluding Provides the best measure for comparison
profit other gains outside of of profit before tax between financial
before the normal course of business. years.
tax
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Underlying Profit after tax adjusted The calculation of earnings per share
earnings for the existence other using unadjusted profit after tax includes
gains outside of the normal gains from transactions that are no
course of business, such repeated annually or that may not indicate
as the disposal of subsidiaries. the true performance of the business.
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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.
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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.
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Underlying Underlying earnings divided The calculation of basic earnings per
basic earnings by the weighted average share using unadjusted profit after
per share number of ordinary shares tax includes those gains that are not
for the purposes of basic consistent from year to year
EPS
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Underlying Underlying earnings divided The calculation of diluted earnings
diluted by the weighted average per share using unadjusted profit after
earnings number of ordinary shares tax includes those gains that are not
per share for the purposes of diluted consistent from year to year
EPS
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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 KKABPFBKDKFK
(END) Dow Jones Newswires
August 07, 2020 02:00 ET (06:00 GMT)
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