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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hargreaves Lansdown Plc | LSE:HL. | London | Ordinary Share | GB00B1VZ0M25 | ORD 0.4P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.60 | 0.08% | 748.40 | 748.00 | 748.80 | 756.60 | 742.00 | 755.00 | 239,179 | 14:03:22 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Security Brokers & Dealers | 735.1M | 323.8M | 0.6833 | 10.99 | 3.56B |
From Apr 2019 to Apr 2024
TIDMHL.
RNS Number : 9801N
Hargreaves Lansdown PLC
15 August 2017
Hargreaves Lansdown plc
Results for the year ended 30 June 2017
Highlights:
Hot Features
Premium
-- Net new business of GBP6.9 billion
-- Strong growth in Assets Under Administration, up 28% to GBP79.2 billion
-- 954,000 active clients, an increase of 118,000 in the year
-- Profit before tax increase of 21% to GBP265.8 million
-- Ordinary dividend up 20% at 29.0 pence per share
Year to Year Change
30 June to %
2017 30 June
2016
==================== ====================== ================= =======
Net new business
inflows GBP6.9bn GBP6.0bn +15%
==================== ====================== ================= =======
Total assets under
administration GBP79.2bn GBP61.7bn +28%
==================== ====================== ================= =======
Net revenue* GBP385.6m GBP326.5m +18%
==================== ====================== ================= =======
Profit before tax GBP265.8m GBP218.9m +21%
==================== ====================== ================= =======
Diluted earnings
per share 44.6p 37.3p +20%
==================== ====================== ================= =======
Ordinary dividend
per share 29.0p 24.1p +20%
==================== ====================== ================= =======
Total dividend per
share 29.0p 34.0p -15%
==================== ====================== ================= =======
Chris Hill, Chief Executive Officer, commented:
"We have had a good year for gathering new clients and assets as a result of our relentless focus on the exceptional service we provide. Key to this has been understanding the needs of our clients and expanding our range of solutions and services to help them. There are considerable challenges for people in the current saving and investment environment but there are also opportunities, and Hargreaves Lansdown is ideally placed to help people make their investment decisions with confidence."
About us:
Hargreaves Lansdown is the UK's largest direct to investor investment service administering GBP79 billion of investments for over 950,000 clients. Our purpose is to empower people to save and invest with confidence. We aim to provide a lifelong, secure home for people's savings and investments that offers great value, an incredible service and makes their financial life easy.
Contacts:
Hargreaves Lansdown
For media enquiries: For analyst enquiries:
Danny Cox, Head of Communications James Found, Head of Investor Relations
+44(0)117 317 1638 +44(0)117 988 9898
Chris Hill, Chief Executive Officer Philip Johnson, Chief Financial Officer
Analysts' presentation
Hargreaves Lansdown will be hosting an investor and analyst presentation at 9.00am on 15 August 2017 following the release of the results for the year ended 30 June 2017. To attend the presentation contact james.found@hl.co.uk. Slides accompanying the analyst presentation will be available this morning at www.hl.co.uk/investor-relations and an audio recording of the analyst presentation will be available by close of business on the day.
*Alternative financial performance measures
Included in this announcement are various alternative performance measures used by the Company in the course of explaining the results for the year to 30 June 2017. These measures are listed along with the calculations to derive them and an explanation of why we use them on page 22 in the Glossary of Alternative Financial Performance Measures. An explanation of why we use these adjusted measures is given in the Operating and Financial Review section along with a reconciliation to profit before tax.
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
Clients at the heart of how we operate
I am delighted to introduce my first Chief Executive's review. I am proud to be leading a business that has clients at the heart of how it operates. We are a market leader, looking after the wealth of nearly a million individuals; a huge responsibility at a time when people need more help than ever in managing their savings and investments. We take this responsibility very seriously. Our expertise and client service are well respected and I believe the strength and scale of our business means we can continue to develop its offering to the benefit of all our stakeholders in the future.
2017 highlights
It was a busy year at Hargreaves Lansdown, providing us with a strong foundation on which to build future growth. We have broadened our offering, adding products such as the Lifetime ISA and two new HL Select Funds, launched our new mobile apps, increased our digital marketing presence and continued to grow our execution-only stockbroking market share. We added record net new business ("NNB") of GBP6.9 billion, introduced 118,000 net new active clients to our services and grew our active client base by a further 14% to 954,000. All achieved while maintaining our client service at the high standards to which we aspire to.
The importance of offering a wide range of services to clients was made clear during 2017. Brexit proved a drag on investor confidence and NNB in the first part of the year, although we still increased our market share and grew assets faster than the UK D2C platform market. However, we also saw a significant uplift in client share trading and associated revenues which carried on throughout the year. This resulted in our execution only stockbroking market share increasing from 26.9% to 30.1%(1) , reflecting our competitive charges and user-friendly proposition.
In the second half of the year, improved investor confidence allied with bringing selected fund launches such as CF Woodford Income Focus, the increased ISA allowance and targeted transfer campaigns saw NNB accelerate. Strong flows and supportive markets saw Assets Under Administration (AUA) increase 28% to GBP79.2 billion. This drove revenue growth of 18% and, despite selective investment to support both higher client activity levels and our growth ambitions, we increased Profit Before Tax by 21% to GBP265.8 million. It was disappointing that we had to announce on 4 August that we could not pay a special dividend for the 2017 financial year from these profits, but we have had a very strong year and are well positioned to deliver future value for our shareholders.
Developing our client offering
We continually look to enhance the offering that we provide to clients, and 2017 was no exception. Having identified that clients wanted to trade shares more, we also established that for some people, their levels of confidence in doing so were low. Consequently we developed two equity funds: the HL Select UK Growth Shares fund and HL Select UK Income Shares fund. The innovation was to increase the communication and engagement with participating clients, allowing them to gain insight into the management of a share portfolio. As at the end of the year, GBP525 million was invested in these funds. We were also one of the first to launch the Lifetime ISA (LISA). Having been uncertain as to demand for this, we surveyed our clients, determined there was real interest and went live just after midnight on 6 April 2017. We now have 14,550 LISA clients with GBP36 million of invested assets, with half of these clients being new to the business. I am always impressed at how Hargreaves Lansdown listens to its clients and pulls together to provide solutions that help.
Our desire to bring market leading propositions to our clients is critical to our ongoing success. We remain excited by the potential of Active Savings, our upcoming cash management service and we are targeting a live proposition which is ready to launch around the end of the year. This has taken longer to launch than originally anticipated due to the significant technology development required. This is essential as we are determined that Active Savings must deliver the same levels of client service as our existing offering. This year we took the tough decision to drop our plans to set up a peer-to-peer lending platform. Peer-to-peer is an interesting area and we can see the attraction to selected investors; however, the market size remains relatively small compared to the other exciting opportunities we have in front of us.
We have seen a significant increase in client activity this year. The number of calls, applications, transfers, trades and other client instructions have all increased and we have continued to invest in the resources to maintain client satisfaction with their experience. Our IT is scalable and has coped well with the events of the last year, including the general election. Our client and asset retention levels remain high at 94.7% and 93.2% respectively and it is pleasing that our Net Promoter Score(SM 2) is at an all-time high. We continue to strive to provide an incredible level of client service in all that we do.
Expanding our digital footprint is a key strategic drive: we received 138.4 million digital visits for the year to June 17 (up 31% on last year). An important enhancement this year was the launch of our new mobile app in February. Mobile functionality is no longer an optional extra, it is essential for people who want to manage their investments. The app has been well received and we are getting great feedback from users. We have now had over 486,000 downloads, and the additional functionality that enables clients to place cash with us has resulted in GBP72 million being added to the Vantage platform. The introduction of Touch ID as a means to login has also seen a change in client behaviour with more frequent engagement with their investments. As a result, we now see more digital contact from mobile devices and app visits than through our traditional desktop site.
With all of this in mind, I want to recognise the hard work and commitment of my colleagues throughout the business and thank them. They have strived this year to deliver incredible service to clients in the face of significant increases in activity and have also managed to develop the range and extent of the services we provide.
Delivering our strategy
As the new Chief Executive, my challenge is to drive the next phase of Hargreaves Lansdown's growth. Our vision is to be a household name and the best place for savers and investors in the UK. This means investment in our people, marketing and technology as Hargreaves Lansdown continues to grow and add clients. During the year, we deepened our people focus with work on leadership and development, our reward structure, culture and succession planning. We have worked hard to build on feedback from our colleague survey and improve engagement. We have also commenced a broader initiative to bring our values, the enthusiasm for client service and pride in working for Hargreaves Lansdown to the heart of how people work here.
We have a leading brand and reputation in marketing. In 2017, we have particularly been looking at how we use digital marketing and client segmentation to improve the effectiveness of spend across our channels. We believe these are sources of competitive advantage and will continue to invest in these where we can see the benefit come through. We have also reviewed our marketing team and restructured it to focus more actively in these areas, concluding that we will expand it to embrace the opportunities that new technology brings.
Effective investment in technology is also key. In February, we took the decision to set up HL Tech in Warsaw, Poland to leverage the considerable IT development talent located there. Our aim is to have 50 developers up and running during 2018, enabling us to push forward with improvements and developments to our services at a faster pace. Equally, businesses must ensure that they have resources allocated to, and continually adapting their response to cyber attack, and we continue to invest heavily here. Ensuring the security of our clients' assets is the most important thing we do.
Looking forward
I am pleased that we have delivered strong 2017 results in an environment where the UK has many challenges. Global politics are unsettled, our position with Europe in a state of flux and markets continue to be uncertain. Unfortunately, this state of affairs is set to continue for a while yet. At the same time, society is going through long term changes in demographics meaning that people are older for longer. Pension arrangements are moving from defined benefit to defined contributions where individuals must take responsibility for managing their financial future, and over a longer period. People are not making sufficient provision for this so the country has a long-term savings gap of an estimated GBP314 billion(3) .
At a time where people need to be taking greater involvement with their finances, pensions and savings are increasingly more complicated. The advent of pension freedoms, the challenges of drawdown, the complexity of lifetime and annual allowance pension caps, new dividend and savings tax structures and six different forms of ISA have all made it more difficult. People need help.
Our purpose is to empower people to save and invest with confidence. We achieve this by continuing to place our clients at the centre of what we do: offering them great value, incredible service, making it easy and efficient for them to manage their savings and investments in a secure environment, and establishing a lifelong relationship with them as a partner. 44% of UK investors now claim to deal with their investments themselves, up from 29% in late 2013(4) . This is the significant opportunity for Hargreaves Lansdown. We might have a 38% share of the execution-only UK D2C platform market but in the wider accessible investment market of over GBP1.1 trillion, in which we already operate, we have a much smaller share and an even smaller share of the relevant GBP2.4 trillion savings and investment pool. Our scale combined with our expertise and capabilities places us in pole position to be able to provide this help.
Chris Hill
Chief Executive Officer
14 August 2017
1 Source: Compeer Limited XO Quarterly Benchmarking Report Quarter 2 2016 and Quarter 2 2017
2 Net Promoter, NPS and the NPS-related emoticons are registered service marks and Net Promoter Score and Net Promoter Systems are service marks of Bain & Company Inc., Satmetrix Systems, Inc. and Fred Reichheld
3 "Mind the Gap" (Aviva and Deloitte, September 16)
4 Source: Platforum UK D2C Guide (July 2017)
Operating and Financial Review
In the current period, consideration has been given to the nature of the operating segments previously disclosed and it is the view of the Board and of the Executive Committee that there is in fact only one segment, being the Group. The disclosure provided below, whereby the whole business is reported as one unit, reflects how the Group is managed in practice and we intend to report on this basis going forward.
Assets Under Administration (AUA) and Net New Business (NNB)
Year ended Year ended
30 June 30 June
2017 2016
GBPbn GBPbn
================= ========== ==========
Opening AUA 61.7 55.2
Net new business 6.9 6.0
Market growth
& other 10.6 0.5
Closing AUA 79.2 61.7
================= ========== ==========
The diversified nature of Hargreaves Lansdown, the breadth of our product offering and the provision of high quality services tailored to the needs of our clients has allowed us to deliver another strong year for NNB and significant growth in AUA. We believe the Group's focus on client service is core to our success as a business and positions us well for the structural growth opportunity in the UK savings and investments market.
Net new business for the year totalled GBP6.9 billion. This was a strong result given first half NNB was held back during a period of low investor confidence after the UK's vote to leave the European Union on 23 June 2016. However, with hindsight, these flows were a good outcome against the wider environment as we maintained our platform market share and increased our stockbroking market share over this period.
The second half of the year is typically our busiest as the tax year end is an important driver of new business. This year was no exception, with NNB rebounding to new highs. This was driven by a recovery in investor confidence ahead of the tax year end and a number of self-help initiatives. These included new products such as the latest Woodford fund launch, two new HL Select UK funds, and the introduction of the Lifetime ISA and the increased ISA allowance from 6 April 2017. The Group's flows have also benefited from its increased digital marketing presence, including the launch of our new mobile app, and ongoing transfer activity as our clients continue to consolidate their wealth onto our platform. We introduced 118,000 net new clients to our services in the year to 30 June 2017 and grew our active client base by a further 14% to 954,000.
Total AUA increased by 28% to GBP79.2 billion as at 30 June 2017 (GBP61.7 billion as at 30 June 2016). This was driven by GBP6.9 billion of NNB and higher market levels which added a further GBP10.6 billion. This result was supported by our continued high retention rates. Our focus on service and the value our clients place on our offering is evidenced in these, with client and asset retention rates remaining strong at 94.7% and 93.2% respectively.
The value of assets managed by Hargreaves Lansdown in our range of Multi-Manager Funds and Select Funds increased by 40% to GBP8.8 billion as at 30 June 2017 (2016: GBP6.3 billion). The growth in assets consisted of net new business of GBP1.2 billion (2016: GBP0.8 billion), combined with a stock market increase of GBP1.3 billion (2016: decrease of GBP0.1 billion). During the year we successfully launched two of our own equity funds, HL Select UK Growth Shares and HL Select UK Income Shares, which had GBP525 million of AUM by 30 June 2017. Performance of our range has remained good, with 65% of client assets above median after fees over the past three years.
Financial performance
Income Statement
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
================= ========== ==========
Net revenue 385.6 326.5
Operating costs (126.7) (108.2)
Fair value gains
on derivatives 2.2 -
Non-operating
income 4.7 0.6
================= ========== ==========
Profit before
tax 265.8 218.9
Tax (53.8) (41.6)
================= ========== ==========
Profit after
tax 212.0 177.3
================= ========== ==========
Net revenue
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
================== ========== ==========
Net recurring
revenue 296.9 255.3
Transactional
revenue 81.2 65.0
Other income 7.5 6.2
Total net revenue 385.6 326.5
================== ========== ==========
Total net revenue for the year was GBP385.6 million, up 18% (2016: GBP326.5 million), driven by higher asset levels and increased client share dealing activity. Within this, the proportion of recurring revenue remained stable at 77% (2016: 78%).
Net recurring revenue is primarily comprised of platform fees, Hargreaves Lansdown fund management fees, interest on client money, equity holding charges and advisory fees. This grew by 16% to GBP296.9 million (2016: GBP255.3 million) due to increased average AUA from higher market levels and continued NNB, partially offset by the impact of falling interest rates and a flatter yield curve.
Transactional revenue is primarily made up of stockbroking commission and advisory event-driven fees. This grew by 25% to GBP81.2 million (2016: GBP65.0 million) from increased deal volumes post the EU Referendum, which then remained at similar levels throughout the year. Due to the timing of the EU Referendum in June 2016, the Group profited from this effect throughout the whole of the financial year, but the annualised benefit is now complete following its anniversary in June 2017.
Other revenue is derived from the provision of funds data services and research to external parties through Funds Library. This was up 21% from GBP6.2 million to GBP7.5 million driven by new Solvency II services and additional contract wins.
Net Revenue Margins
Year ended 30 June Year ended 30
2017 June 2016
Net revenue Average Margin Net revenue Average Margin
GBPm AUA bps GBPm AUA bps
GBPbn GBPbn
Funds1 169.2 40.96 41 147.2 33.3 44
Shares2 76.3 23.3 33 57.8 19.3 30
Cash3 36.6 7.5 49 31.2 5.5 56
HL Funds4 56.5 7.76 73 44.1 5.9 75
Other5 47.0 - - 46.2 - -
Double-count(6) - (7.7)6 - - (5.9) -
Total 385.6 71.76 - 326.5 58.1 -
================ =========== ======= ========== =========== ======= ======
1 Platform fees and renewal commission (net of loyalty bonuses paid to clients).
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. This is included in revenue on Funds.
5 Advisory fees, Funds Library revenues and ancillary services (e.g. annuity broking, distribution of VCTs and Hargreaves Lansdown Currency and Market Services).
6 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.
The table breaks down net revenue, average AUA and margins earned across the main asset classes which our clients hold with us.
Funds remain our largest client asset class at 57% of average AUA (2016: 57%), and the net revenue margin earned on these this year was 41bps (2016: 44bps). The reduction relates to the previously flagged transition phase of the Retail Distribution Review whereby from 1 April 2016 no renewal income from funds held by clients can be retained by the Group. This effect is now complete. Although client fund portfolios benefit from scale discounts, we expect fund margins to remain at similar levels over the next 12 months.
The net revenue margin on Shares was 33bps (2016: 30bps). The increase in margin has been caused by higher equity dealing volumes, up 32% on the prior year. There are caps in place on management fees charged in the SIPP and Stocks and Share ISA accounts once holdings are above GBP44,444 in the SIPP and GBP10,000 in the ISA. This causes some dilution to the margin over time as clients grow their portfolio of shares. We expect the margin on Shares to be centred around 30bps over the next 12 months, with a range around this depending on actual dealing volume levels.
Cash balances grew strongly over the year as we saw a significant increase in cash transfers into SIPPs and ISAs during the year. The new mobile app has also added functionality allowing debit card cash contributions which has proved popular with clients. The net revenue margin on cash this year was 49bps (2016: 56bps). This is in line with our expectations due to the reduction in the Bank of England base rate from 0.50% to 0.25% in early August 2016 and the consequent flattening of the yield curve during the year. The impact of this rate reduction takes time to flow through given that the majority of clients' SIPP money is placed on rolling 13 month term deposits. Assuming no further rate changes, we anticipate the cash interest margin for the 2018 financial year will be in the range of 35bps to 45bps.
HL Funds consist of ten Multi-Manager funds, on which the management fee is 75bps per annum, and two Select equity funds, on which the management fee is 60bps. Net revenue from these funds has grown strongly this year due to investment outperformance, rising markets and the successful launch of the HL Select funds. Due to the new HL Select funds, the blended net revenue margin has reduced slightly to 73bps (2016: 75bps). Please note that the platform fees on these assets are included in the Funds line and hence total average AUA of GBP71.7billion (2016: GBP58.1bn) excludes HL Funds AUM to avoid double-counting.
Operating costs
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
=========================== ==================== ============
Staff costs 68.6 60.2
Marketing and distribution
costs 14.3 11.2
Depreciation,
amortisation &
financial costs 9.0 6.1
Other costs 30.6 25.2
=========================== ==================== ============
122.5 102.7
Total FSCS levy 4.2 5.5
Total operating
costs 126.7 108.2
=========================== ==================== ============
Operating costs increased by 17% to GBP126.7 million (2016: GBP108.2 million) to support higher client activity levels, maintain client service and invest in growth.
Staff costs remain our largest expense and rose by 14% to GBP68.6 million (2016: GBP60.2 million) due to an 8% increase in average staff numbers and higher variable compensation costs, reflecting strong performance in the financial year. The changes in staff numbers are in line with our commitment to delivering a high level of service to our growing client base, which increased in size by 14% this year, and capturing the significant growth opportunities we see ahead for Hargreaves Lansdown.
Marketing and distribution costs increased by 28% to GBP14.3 million (2016: GBP11.2 million) as we drove NNB in the second half of the year via conscious investment in our digital marketing presence and various marketing opportunities. These primarily related to the tax yearend, our new mobile app, the Lifetime ISA, the HL Select UK Income Shares fund and the CF Woodford Income Focus fund launches, all of which boosted flows and new client acquisition. Use of mobile and digital media is a key strategic focus for Hargreaves Lansdown and we expect to continue increasing our investment in marketing and digital opportunities during 2018.
Depreciation, amortisation and financial costs increased by GBP2.9 million as a result of higher capital spend in recent years, primarily on our core in-house IT systems. In addition, GBP0.8m was written off fixtures and fittings following a refurbishment of the head office. Following our decision in June 2017 not to proceed with launching a P2P lending platform, we also wrote off GBP1.2 million of previously capitalised costs.
Total capitalised expenditure was GBP13.1 million this year (2016: GBP6.6 million). This expenditure was from cyclical replacement of IT hardware, the continued project to enhance the capacity and capability of our key administration systems, the ongoing development of Active Savings and a refurbishment of our head office environment.
Other costs rose by GBP5.4 million to GBP30.6 million (2016: GBP25.2 million). The key drivers of this were additional dealing costs resulting from higher share dealing transaction volumes, increased professional fees and irrecoverable VAT on non-staff expenses. Office running costs are included within this line and decreased from GBP4.8 million to GBP4.2 million due to rebates received on previous years' business rates.
The Financial Services Compensation Scheme (FSCS) levy decreased by 24% to GBP4.2 million. This amount benefited from GBP1.3 million of rebate received this year relating to the previous year's charge. The FSCS is the compensation fund of last resort for customers of authorised financial services firms. All authorised firms are required to contribute to the running of the scheme and the levy reflects the cost of compensation payments paid by the industry in proportion to the amount of each participant's relevant eligible income.
Profit before tax
Hargreaves Lansdown's success is built around the service we provide to our clients. We look to balance the challenge of delivering our service standards in a fast growing business with our desire to both maintain our scalable operating platform and invest in further growth opportunities. 2017 was a good year for operating leverage as revenue growth more than covered the additional servicing and activity-related costs we needed to put into the business. As a result, we were able to maintain our operating margin at an industry leading 68% (2016: 67%). We believe this attractive operating margin allows us considerable flexibility to balance our client service and shareholder obligations across the market cycle.
Profit before tax grew 21% to GBP265.8 million (2016: GBP218.9 million) on the back of this strong operating performance and the GBP3.7 million realised gain on our legacy investment in Euroclear plc.
Tax
The effective tax rate for the year was 20.2% (2016: 19.0%), slightly above the standard rate of UK corporation tax due to prior year adjustments. The Group's tax strategy is published on our website at http://www.hl.co.uk
Earnings per share
Year Year
ended ended
30 June 30 June
2017 2016
GBPm GBPm
==================== ========== ==========
Operating profit 261.1 218.3
Finance income 1.2 0.6
Other gains 3.5 -
==================== ========== ==========
Profit before
tax 265.8 218.9
Tax (53.8) (41.6)
==================== ========== ==========
Profit after tax 212.0 177.3
==================== ========== ==========
Diluted share
capital (million) 474.7 474.7
==================== ========== ==========
Diluted EPS (pence
per share) 44.6 37.3
==================== ========== ==========
Diluted EPS increased by 20% from 37.3 pence to 44.6 pence, reflecting the Group's strong trading performance and a one-off gain of GBP3.7 million on the disposal of the full holding in Euroclear plc. The Group's basic EPS was 44.7 pence, compared with 37.4 pence in 2016.
Liquidity and capital management
Hargreaves Lansdown is regulated by the Financial Conduct Authority (FCA). On 3 August 2017, the FCA notified the Group that it intends to reassess its regulatory capital requirements given the Group's strong recent growth in scale and complexity. In response, the Board decided it must clarify its dividend policy and how it would be applied in the 2017 results. This was announced to the market on 4 August. As the Group had not received the formal written assessment from the FCA as at 14 August, the date of this report, the impact below is based on estimates calculated using the methodology verbally communicated on 3 August.
Liquidity
The Group has a high conversion rate of operating profits to cash, which is primarily used to fund our growth requirements and dividends to shareholders. The Group's net cash position at 30 June 2017 was GBP255.8 million (2016: GBP208.2 million) as cash generated through trading offset the payments of the 2016 second interim and special dividends and the 2017 interim dividend. This includes cash on longer-term deposit and is before funding the 2017 final dividend of GBP96.6 million. The Group also funds a share purchase programme to ensure we avoid any dilution from operating our share-based compensation schemes.
Our healthy net cash position has been made even healthier after the FCA's recent intervention and the Board believes this 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 incredible service, for example through using surplus liquidity to allow same day switching between products that have mismatched settlement dates.
Capital
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 to fund ongoing trading and future growth, in line with our strategy of offering a lifelong, secure home for people's savings and investments. Following the FCA's notification, the Board concluded it needed to retain an additional GBP50 million of capital and hence, as previously announced, the Group has not paid a special dividend for the financial year ended 30 June 2017.
Capital GBPm ============================== =========== Shareholder funds 307 Less: goodwill, intangibles and other deductions (19) ============================== =========== Tangible capital 288 Less: provision for dividend (97) ============================== =========== Qualifying regulatory capital 191 Less: estimated capital requirement (133) ============================== =========== Estimated surplus 58 ============================== ===========
Total attributable shareholders' equity at 30 June 2017 was GBP306.0 million (2016: GBP253.7 million), as the Group's continued profit growth was partially offset by dividend payments of GBP164.5 million during the year. The Board considers the impact of prospective dividends when managing capital against its regulatory risk appetite levels and the decision not to pay a special dividend for the 2017 financial year maintains this at a healthy surplus over our estimated requirements. Further disclosures are published in the Pillar 3 document on the Group's website at www.hl.co.uk.
Clarification of dividend policy and 2017 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. 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) 2017 2016 ======================= =========== =========== First interim 8.6p 7.8p dividend paid 20.4p 16.3p Final/second interim dividend declared ======================= =========== =========== Total ordinary dividend 29.0p 24.1p Special dividend - 9.9p ======================= =========== =========== Total dividend 29.0p 34.0p ======================= =========== ===========
Reflecting this policy and our communications on 4 August, the Board has declared a 2017 total ordinary dividend of 29.0 pence per share (2016: 24.1p), 20% ahead of last year. This is in line with EPS growth and maintains the ordinary dividend payout ratio at 65%. The 2017 total dividend of 29.0 pence per share (2016 34.0p) is down by 15% due to the decision not to pay a special dividend this year. Subject to shareholder approval at the 2017 AGM, the final dividend will be paid on 20 October 2017 to all shareholders on the register at the close of business on 29 September 2017.
The Board is confident that Hargreaves Lansdown has sufficiently strong financial, liquidity and capital positions to execute its strategy without further constraints and to operate a sustainable and progressive ordinary dividend policy going forward. The Board remains committed to paying special dividends in future years when sufficient excess cash and capital exist after taking account of the Group's growth, investment and prospective regulatory capital requirements at the time.
Viability statement
In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have assessed the viability of the Group over the three year period to June 2020 and confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities up to this date. The Directors' assessment has been made with reference to the Group's current position and strategy, the Board's risk appetite, the Group's financial forecasts and the Group' s principal risks and uncertainties, as detailed in the Strategic report.
The Board considers that a time horizon of three years is an appropriate period over which to assess its viability and prospects, and to plan the execution of its strategy. This assessment period is consistent with the Group's current strategic forecast and ICAAP. The strategic forecast is approved annually by the Board and regularly updated as appropriate. It considers the Group's profitability, cash flows, dividend payments, regulatory capital requirements and other key variables such as exposure to principal risks. It is also subjected to stress tests and scenario analysis, such as fluctuations in markets, increased competition and disruption to business, to ensure the business has sufficient flexibility to withstand these impacts by making adjustments to its plans within the normal course of business.
Philip Johnson
Chief Financial Officer
14 August 2017
SECTION 1: RESULTS FOR THE YEAR
Consolidated Income Statement for the year ended 30 June 2017
Year ended Year ended
30 June 30 June
2017 2016
Note GBPm GBPm
Revenue 385.7 388.3
Commission payable (0.1) (61.8)
-------------------------- ----- ----------- -----------
Net revenue 1.1 385.6 326.5
Fair value gains 2.2 -
on derivatives
Operating costs 1.3 (126.7) (108.2)
Operating profit 261.1 218.3
Finance income 1.5 1.2 0.6
Other gains 1.6 3.5 -
Profit before tax 265.8 218.9
Tax 1.7 (53.8) (41.6)
Profit for the financial
year 212.0 177.3
Attributable to:
Owners of the parent 211.7 176.9
Non-controlling interest 0.3 0.4
212.0 177.3
Earnings per share
Basic earnings per
share (pence) 1.8 44.7 37.4
Diluted earnings
per share (pence) 1.8 44.6 37.3
-------------------------- ----- ----------- -----------
The results relate entirely to continuing operations.
Consolidated Statement of Comprehensive Income for the year ended 30 June 2017
Year Year
ended ended
30 June 30 June
2017 2016
GBPm GBPm
Profit for the financial year 212.0 177.3
Total comprehensive income for the financial
year 212.0 177.3
Attributable to:
Owners of the parent 211.7 176.9
Non-controlling interest 0.3 0.4
212.0 177.3
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 30 June
2017 2016
GBPm GBPm
Revenue:
Revenue from services 349.1 357.1
Interest earned on client money 36.6 31.2
Total revenue 385.7 388.3
Commission payable (0.1) (61.8)
--------------------------------- ------------ -----------
Net revenue 385.6 326.5
--------------------------------- ------------ -----------
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.
In the current period, consideration has been given to the nature of the operating segments previously disclosed and it is the view of the Board and of the Executive Committee that there is in fact only one segment, being the Group - a direct-to-investor investment service administering investments in ISA, SIPP and Fund & Share accounts, providing services for individuals and corporates. It was considered that segmental reporting, as previously presented, did 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 operate in more than one location and as a result, no geographical segments are reported.
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 Year ended Year ended
at after charging: 30 June 30 June
2017 2016
GBPm GBPm
Depreciation of owned plant and
equipment 3.8 3.5
Amortisation of other intangible
assets 2.3 1.7
Marketing and distribution costs 14.3 11.2
Operating lease rentals payable
- property 2.5 2.4
Other operating costs 35.2 29.2
Staff costs (See note 1.4) 68.6 60.2
----------------------------------- ----------- -----------
Operating costs 126.7 108.2
----------------------------------- ----------- -----------
1.4 Staff costs
Year ended Year ended
30 June 30 June
2017 2016
The average monthly number of employees No. No.
of the Group (including executive Directors)
was:
Operating and support functions 709 660
Administrative functions 334 309
1,043 969
----------------------------------------------- ----------- -----------
Their aggregate remuneration comprised: GBPm GBPm
Wages and salaries 55.3 49.3
Social security costs 6.6 5.9
Share-based payment expenses 4.1 2.5
Other pension costs 5.3 4.8
----------------------------------------------- ----------- -----------
Staff costs 71.3 62.5
----------------------------------------------- ----------- -----------
Capitalised in the year (2.7) (2.3)
Staff costs as a deduction to operating
profit 68.6 60.2
----------------------------------------------- ----------- -----------
1.5 Finance income
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
Interest on bank deposits 1.0 0.5
Dividends from equity investment 0.2 0.1
1.2 0.6
---------------------------------- ----------- -----------
1.6 Other gains
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
Gain on disposals of available-for-sale
investment 3.7 -
Gain on disposal of subsidiary 0.1
(Loss on disposal of office equipment) (0.3)
3.5 -
----------------------------------------- ----------- -----------
In April 2017, the Group entered into an agreement to sell 6,030 shares in Euroclear plc, its entire holding, for EUR750 per share - see note 2.1 for further details. A disposal of shares in a subsidiary company also took place in the year.
In addition, the Group has disposed of a number of items of office equipment in the period, for no proceeds, leading to a loss.
1.7 Tax
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
Current tax: on profits for the year 52.4 40.8
Current tax: adjustments in respect
of prior years 1.6 (0.5)
Deferred tax (note 2.4) (0.4) 0.2
Deferred tax: adjustments in respect
of prior years (note 2.4) 0.1 1.1
Deferred tax: adjustments due to 0.1 -
changes in tax rates
-------------------------------------- ----------- -----------
53.8 41.6
-------------------------------------- ----------- -----------
Corporation tax is calculated at 19.75% of the estimated assessable profit for the year to 30 June 2017 (2016: 20.00%).
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 30 June
2017 2016
GBPm GBPm
Deferred tax relating to share-based
payments 0.9 2.0
Current tax relating to share-based
payments (1.5) (3.2)
-------------------------------------- ----------- -----------
(0.6) (1.2)
-------------------------------------- ----------- -----------
Factors affecting tax charge for the year
It is expected that the ongoing effective tax rate will remain at a rate approximating to the standard UK corporation tax rate in the medium term except for the impact of deferred tax arising from the timing of exercising of share options which is not under our control. The standard UK corporation tax rate was reduced to 19% (from 20%) on 1 April 2017 and accordingly the Group's profits for this accounting year are taxed at an effective rate of 19.6%. Deferred tax has been recognised at 19% or 17%, being the rates expected to be in force at the time of the reversal of the temporary difference. A deferred tax asset in respect of future share option deductions has been recognised based on the Company's share price as at 30 June 2017.
Factors affecting future tax charge
Any increase or decrease to the Parent Company's share price will impact the amount of tax deduction available in future years on the value of shares acquired by staff under share incentive schemes. The Finance Act 2015 was enacted on 18 November 2015 and has reduced the standard rate of UK corporation tax to 19% from 1 April 2017 and to 18% from 1 April 2020. A planned reduction in the rate to 17% from 2020, was enacted on 1 April 2017.
The charge for the year can be reconciled to the profit per the income statement as follows:
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
Profit before tax 265.8 218.9
Tax at the standard UK corporate
tax rate of 19.75% (2016: 20.00%) 52.5 43.8
Non-taxable income (0.7) (2.8)
Items not allowable for tax 0.2 -
Adjustments in respect of prior
years 1.7 0.6
Impact of the change in tax rate 0.1 -
Tax expense for the year 53.8 41.7
------------------------------------ ----------- -----------
Effective tax rate 20.2% 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 1,213,461 at 30 June 2017 (2016: 1,285,073).
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
Earnings
Earnings for the purposes of basic
and diluted EPS - net profit attributable
to equity holders of the parent company 211.7 176.9
-------------------------------------------------- ------------ ------------
Number of shares
Weighted average number of ordinary
shares 474,318,625 474,318,625
Weighted average number of shares
held by HL EBT (926,356) (1,976,360)
Weighted average number of shares
held by HL EBT that have vested unconditionally
with employees 1,010,585 559,604
-------------------------------------------------- ------------ ------------
Weighted average number of ordinary
shares for the purposes of basic EPS 474,402,854 472,901,869
Weighted average number of dilutive
share options held by HL EBT that
have not vested unconditionally with
employees 562,587 1,818,222
Weighted average number of ordinary
shares for the purposes of diluted
EPS 474,965,441 474,720,091
-------------------------------------------------- ------------ ------------
Earnings per share Pence Pence
Basic EPS 44.7 37.4
Diluted EPS 44.6 37.3
-------------------------------------------------- ------------ ------------
SECTION 2: ASSETS & LIABILITIES
Consolidated Statement of Financial Position as at 30 June 2017
At 30 At 30
June 2017 June 2016
Note GBPm GBPm
ASSETS
Non-current assets
Goodwill 1.3 1.3
Other intangible assets 11.9 7.1
Property, plant and equipment 11.7 11.1
Deferred tax assets 2.4 2.0 2.7
26.9 22.2
Current assets
Trade and other receivables 2.2 628.8 617.0
Cash and cash equivalents 2.3 81.4 211.4
Investments 2.1 4.1 1.0
Derivative financial instruments 0.3 -
714.6 829.4
Total assets 741.5 851.6
LIABILITIES
Current liabilities
Trade and other payables 2.5 411.5 581.7
Derivative financial instruments 0.2 -
Current tax liabilities 21.5 15.2
433.2 596.9
Net current assets 281.4 232.5
Non-current liabilities
Provisions 0.6 0.5
Total liabilities 433.8 597.4
Net assets 307.7 254.2
EQUITY
Share capital 1.9 1.9
Shares held by EBT reserve (7.0) (14.9)
EBT reserve 7.9 12.0
Retained earnings 304.1 254.7
Total equity, attributable to the owners
of the parent 306.9 253.7
Non-controlling interest 0.8 0.5
Total equity 307.7 254.2
2.1 Investments
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
At beginning of year 1.0 0.9
Purchases 3.4 0.1
Disposals (0.3) -
-------------------------------------- ----------- -----------
At end of year 4.1 1.0
-------------------------------------- ----------- ----------- Comprising: Current asset investment - UK listed securities valued at quoted market price 4.1 0.7 Current asset investment - unlisted securities valued at cost - 0.3 -------------------------------------- ----------- -----------
GBP4.1 million (2016: GBP0.7 million) of investments are classified as held at fair value through profit and loss, being deal-related short-term investments and holdings in the HL multi-manager funds as a result of the daily box position.
At 30 June 2017 GBPnil (2016: GBP0.3 million) are classified as available-for-sale. During the year, the investment previously held as available-for-sale, was sold for GBP4.0 million. This led to a gain of GBP3.7 million, with the investment previously having been held at cost, which has been recognised in the consolidated income statement in the year (see Note 1.6).
2.2 Trade and other receivables
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
Financial assets
Trade receivables 401.1 576.4
Term Deposits 180.0 -
Other receivables 1.5 0.6
------------------------ ----------- -----------
582.6 577.0
Non-financial assets
Accrued income 40.0 33.5
Prepayments 6.2 6.5
------------------------ ----------- -----------
628.8 617.0
---------------------- ----------- -----------
In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties totalling GBP378.6 million (2016: GBP560.9 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 GBP483.4 million (2016: 718.0 million) and the gross amount offset in the statement of financial position with trade payables is GBP104.8 million (2016: 157.2 million). Other than counterparty balances, trade receivables primarily consist of fees and amounts owed by clients and renewal commission owed by fund management groups. There are no balances where there is a legal right of offset but not a right of offset in accordance with accounting standards, and no collateral has been posted for the balances that have been offset.
2.3 Cash and cash equivalents
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
Cash and cash equivalents
Restricted cash - balances
held by EBT 5.5 3.2
Group cash and cash equivalent
balances 75.9 208.2
---------------------------------- ----------- -----------
81.4 211.4
-------------------------------- ----------- -----------
At 30 June 2017, 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 GBP8,243 million (2016: GBP6,953 million). In addition there were currency service cash accounts held on behalf of clients not governed by the client money rules of GBP13.4 million (2016: GBP18.0 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.
2.4 Deferred tax assets
Deferred tax assets arise because of temporary timing differences only. The following are the major deferred tax assets recognised and movements thereon during the current and prior reporting years. Deferred tax has been recognised at 19% or 17%, being the rate expected to be in force at the time of the reversal of the temporary difference.
Other deductible
Accelerated Share-based temporary
tax depreciation payments differences Total
GBPm GBPm GBPm GBPm
At 1 July 2015 0.2 4.7 1.2 6.1
Charge to income - (0.3) (1.1) (1.4)
Charge to equity - (2.0) - (2.0)
-------------------------- ------------------ ------------ ----------------- ------
At 30 June 2016 0.2 2.4 0.1 2.7
Charge to income (0.3) 0.3 0.2 0.2
Charge to equity - (0.9) - (0.9)
-------------------------- ------------------ ------------ ----------------- ------
At 30 June 2017 (0.1) 1.8 0.3 2.0
-------------------------- ------------------ ------------ ----------------- ------
Deferred tax expected to be recovered or settled:
Within 1 year after
reporting date (0.1) 1.0 0.3 1.2
> 1 year after reporting
date - 0.8 - 0.8
-------------------------- ------------------ ------------ ----------------- ------
(0.1) 1.8 0.3 2.0
-------------------------- ------------------ ------------ ----------------- ------
2.5 Trade and other payables
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
Financial liabilities
Trade payables 375.5 556.8
Social security and
other taxes 8.0 7.3
Other payables 13.1 3.9
----------------------------- ----------- -----------
396.6 568.0
Non-financial liabilities
Accruals 14.3 13.4
Deferred income 0.6 0.3
----------------------------- ----------- -----------
411.5 581.7
In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties totalling GBP374.9 million (2016: GBP555.5 million) are included in trade payables, similarly with the treatment of trade receivables. As stated in Note 2.2 above, where we have a legal right of offset and the ability and intention to settle net, trade payable balances have been presented net.
Other payables principally comprise amounts owed to staff as a bonus and rebates due to the regulated funds operated by the Group. Accruals and deferred income principally comprise amounts outstanding for trade purchases and revenue received but not yet earned on corporate pension schemes, where an ongoing service is still being provided.
SECTION 3: EQUITY
Consolidated Statement of Changes in Equity for the year ended 30 June 2017
Attributable to the owners
of the Parent
Shares
held Non-
Share by EBT EBT Retained controlling Total
capital reserve reserve earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 July 2015 1.9 (13.1) 12.7 235.0 236.5 0.5 237.0
Total comprehensive
income - - - 176.9 176.9 0.4 177.3
Employee Benefit
Trust
Shares sold
in the year - 14.1 - - 14.1 - 14.1
Shares acquired
in the year - (15.9) - - (15.9) - (15.9)
EBT share sale - - (3.4) - (3.4) - (3.4)
Reserve transfer
on exercise
of share options 2.7 (2.7) - - -
Employee share
option scheme
Share-based
payments expense - - - 2.5 2.5 - 2.5
Current tax
effect of share-based
payments - - - 3.2 3.2 - 3.2
Deferred tax
effect of share-based
payments - - - (2.0) (2.0) - (2.0)
Dividend paid
(Note 3.2) - - - (158.2) (158.2) (0.4) (158.6)
------------------------ --------- --------- --------- ---------- -------- ------------- --------
At 30 June 2016 1.9 (14.9) 12.0 254.7 253.7 0.5 254.2
Total comprehensive
income - - - 211.7 211.7 0.3 212.0
Employee Benefit
Trust
Shares sold
in the year - 10.8 - - 10.8 - 10.8 Shares acquired in the year - (2.9) - - (2.9) - (2.9) EBT share sale - - (6.6) - (6.6) - (6.6) Reserve transfer on exercise of share options 2.5 (2.5) - - - Employee share option scheme Share-based payments expense - - - 4.1 4.1 - 4.1 Current tax effect of share-based payments - - - 1.5 1.5 - 1.5 Deferred tax effect of share-based payments - - - (0.9) (0.9) - (0.9) Dividend paid (Note 3.2) - - - (164.5) (164.5) - (164.5) At 30 June 2017 1.9 (7.0) 7.9 304.1 306.9 0.8 307.7 ------------------------ --------- --------- --------- ---------- -------- ------------- --------
3.1 Share capital
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
Authorised: 525,000,000 (2016: 525,000,000)
ordinary shares of 0.4p each 2.1 2.1
Issued and fully paid: ordinary
shares of 0.4p each 1.9 1.9
--------------------------------------------- ------------ ------------
Shares Shares
Issued and fully paid: number of
ordinary shares of 0.4p each 474,318,625 474,318,625
--------------------------------------------- ------------ ------------
The Company has one class of ordinary shares which carry no right to fixed income.
The Shares held by the EBT reserve represents the cost of shares in Hargreaves Lansdown plc purchased in the market and held by the Hargreaves Lansdown plc EBT to satisfy options under the Group's share option schemes.
The EBT reserve represents the cumulative gain on disposal of investments held by the Hargreaves Lansdown EBT. The reserve is not distributable by the Company as the assets and liabilities of the EBT are subject to management by the Trustees in accordance with the EBT trust deed.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the minority's proportion of the net fair value of the assets and liabilities acquired at the date of the original business combination and the non-controlling interest's change in equity since that date. The non-controlling interest represents a 22% shareholding in Library Information Services Limited and a 7.5% shareholding in Hargreaves Lansdown Savings Limited, which are both subsidiaries of the Company.
3.2 Dividends
Amounts recognised as distributions to equity holders in the year:
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
2016 second interim dividend of 16.3p
(2015: 14.3p) per share 77.0 67.5
2016 special dividend of 9.9p (2015:
11.4p) per share 46.8 53.9
2017 first interim dividend of 8.6p
(2016: 7.8p) per share 40.7 36.8
--------------------------------------- ----------- -----------
Total dividends paid during the year 164.5 158.2
--------------------------------------- ----------- -----------
After the end of the reporting period, the Directors declared a final ordinary dividend of 20.4 pence per share payable on 20 October 2017 to shareholders on the register on 29 September 2017. 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 2018 financial statements as follows:
GBPm
2017 final dividend of 20.4p (2016
Second interim dividend: 16.3p) per
share 96.6
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 30 June
2017 2016
No. of No. of
shares shares
Number of shares held by the Hargreaves
Lansdown EBT 917,011 1,776,305
Representing % of called-up share
capital 0.18% 0.37%
----------------------------------------- ----------- -----------
SECTION 4: CONSOLIDATED STATEMENT OF CASH FLOWS
Consolidated Statement of Cash Flows for the year ended 30 June 2017
Year ended Year ended
30 June 30 June
2017 2016
Note GBPm GBPm
Net cash from operating
activities
Profit for the year
after tax 212.0 177.3
Adjustments for:
Investment revenues (1.2) (0.6)
Income tax expense 53.8 41.6
Gains on disposal of (3.5) -
investments
Depreciation of plant
and equipment 3.8 3.5
Amortisation of intangible
assets 2.3 1.7
Impairment of intangible 1.2 -
assets
Share-based payment
expense 4.1 2.5
Increase in provisions 0.1 0.3
Operating cash flows
before movements in
working capital 272.6 226.3
Increase / (decrease)
in receivables 168.2 (205.3)
(Decrease) / increase
in payables (170.2) 184.4
Net movements on derivative (0.1) -
settlement
----------- -----------
Cash generated from
operations 270.5 205.4
Income tax paid (44.7) (40.8)
Net cash generated from
operating activities 225.8 164.6
Investing activities
Increase in short-term (180.0) -
deposits
Interest received 1.0 0.5
Dividends received from
investments 0.2 0.2
Proceeds on disposal 2.7 -
of investment
Purchase of property,
plant and equipment (4.7) (2.6)
Purchase of intangible
assets (8.4) (4.1)
Purchase of investments (3.4) (0.1)
Net cash used in investing
activities (192.6) (6.1)
Financing activities
Purchase of own shares
in EBT (2.9) (15.9)
Proceeds on sale of
own shares in EBT 4.2 10.7
Dividends paid to owners
of the parent (164.5) (158.2)
Dividends paid to non-controlling
interests - (0.4)
Net cash used in financing
activities (163.2) (163.8)
Net decrease in cash
and cash equivalents (130.0) (5.3)
Cash and cash equivalents
at beginning of year 2.3 211.4 216.7
Cash and cash equivalents
at end of year 2.3 81.4 211.4
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.
In the current period the Group has adopted a new format for the financial statements. This has been done to allow users to better understand the primary statements and the related balances that make them up. We have also simplified our reporting of revenue and operating costs to ensure that the information provided is pertinent and indicates the balances of most importance, whilst ensuring conformity with IFRS. In order to do this, we have aligned the notes to the financial statements with the relevant primary statements, where there is an associated accounting policy, it is clearly denoted by a box presented at the beginning of the note.
Going concern
The Group maintains on-going forecasts that indicate continued profitability in the 2017 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 2017 and 30 June 2016, the Company has been party to a lease with P K Hargreaves, a Director until 14 April 2015, 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.
On 12 October 2016, the Company sold 7.5% of the ordinary share capital it held in its subsidiary undertaking Hargreaves Lansdown Savings Limited (HLS). The shares were sold to Stuart Louden, the Group Savings Director and currently the only other shareholder, who is an employee of Hargreaves Lansdown Asset Management Limited. The price paid per share was GBP1,000. As there is no readily available market for these shares the Directors had to assess a valuation based on the risks and rewards of the parties involved, given the uncertainty of establishing a new start up entity and its future potential. As a result HLS was valued at GBP1 million and the Directors of the Company therefore, deemed GBP1,000 per share to be a fair price in the circumstances. The total amount paid was GBP75,000 and this was settled immediately in cash. Following the share sale the Company now holds 92.5% of the ordinary share capital in HLS and Stuart Louden holds 7.5%. The transaction was completed in order to provide incentive to Stuart Louden to successfully develop the business of HLS into a profitable company. In addition, the Company has granted Stuart Louden an option to purchase a further 2.5% of the ordinary share capital at a price of GBP500,000. This purchase option may be exercised at any time prior to 31 August 2021 provided that at the time of exercise Stuart Louden is an employee of a Hargreaves Lansdown Group company and he has not at any time given notice to terminate such employment. The options have no value at current beyond what was paid and as such do not appear in the Share Based Payments note in note 1.10
During the years ended 30 June 2017 and 30 June 2016, 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
2017 2016
GBPm GBPm
============================= ============= ==============================
Short-term employee benefits 7.7 6.4
Post-employment benefits 0.1 0.3
Termination benefits - 0.3
Share-based payments 2.0 1.2
============================= ============= ==============================
9.8 8.2
============================= ============= ==============================
In addition to the amounts above, seven key management personnel (2016: seven) received gains of GBP1.2 million (2016: GBP6.7 million) as a result of exercising share options. During the year, no awards were made under the long-term incentive schemes for key management personnel (2016: nine).
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
2017 2016
GBPm GBPm
============================= ================ ================
Short-term employee benefits 3.7 2.8
Post-employment benefits - -
Termination benefits - -
Share-based payments 1.1 0.5
============================= ================ ================
4.8 3.3
============================= ================ ================
In addition to the amounts above, Directors of the Company received gains of GBP0.6 million relating to the exercise of share options
(2016: GBP0.4 million).
Year ended Year ended
30 June 30 June
2017 2016
GBPm GBPm
======================================== ================ ================
Emoluments of the highest paid Director 1.7(1) 2.0(1)
======================================== ================ ================
No. No.
Number of Directors who exercised
share options during the year 2(2) 1
Number of Directors who were members
of money purchase pension schemes 2(2) 2
======================================== ================ ================
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.
2 This includes the former Chief Executive Officer in the period up to the date of his resignation.
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 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 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 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.
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 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
14 August 2017
Executive Directors
Chris Hill
Philip Johnson
Non-Executive Directors
Christopher Barling
Mike Evans
Shirley Garrood
Stephen Robertson
Jayne Styles
Section 7: PRINCIPAL RISKS AND UNCERTAINTIES
Managing the risks to Hargreaves Lansdown is fundamental to delivering the incredible levels of service our clients expect and generating returns for shareholders. The Board has performed a robust assessment of the principal risks facing the Group through a process of continual review, including those that would threaten its business model, future performance, solvency and liquidity. In making such an assessment the Board considers the likelihood of each risk materialising in the short and longer term.
The principal risks and uncertainties faced by the Group are detailed below, along with actions taken to mitigate and manage them. The principal risks are categorised into strategic risks, operational risks and financial risks as per our risk framework.
Strategic & emerging risks
====================================================== ==========================
Risk Potential impact Mitigations
========================= =========================== ==========================
Future strategic -- Negative impact -- The Board reviews
change on AUM, shareholder the strategy in
Hargreaves Lansdown returns and client the context of providing
fails to provide number targets. our clients with
innovative propositions -- Reputational the services and
and services damage as a result propositions they
to our clients. of the under performance. need.
-- Steering groups
are set up for all
new services or
client offerings
to ensure they are
delivered to time,
quality and costs
requirements.
========================= =========================== ==========================
Future regulatory -- Non-compliance -- The Group Steering
change with regulation. Board ensure all
Managing implementation -- Missed opportunities regulatory projects
of regulatory to achieve competitive are properly prioritised
change has been advantage through and delivered.
a major element the approach to -- The Compliance
of the emerging implementation. function performs
risks in recent horizon checking
years. to ensure the Group
has timely visibility
of future regulatory
change. Director
of Risk and Compliance
maintains reporting
on future regulatory
change.
========================= =========================== ==========================
Change in regulatory -- Capital requirement -- Attendance at
capital levels figure materially industry events.
A revised regime larger than the -- Ongoing communication
could have a figure under the with the FCA.
material impact current ICAAP regime.
on both Hargreaves
Lansdown and
the industry.
========================= =========================== ==========================
Operational risks
======================================================= =============================
Risk Potential impact Mitigations
========================= ============================ =============================
Continued geo-political -- Negative impact -- The Executive
and economic on consumer confidence and the Board track
uncertainty and desire to hold/ and discuss emerging
Both nationally buy investments risks to ensure
and internationally preferring to keep appropriate responses
we are in a period funds as cash savings. are in place.
of substantial
geo-political
and economic
instability.
========================= ============================ =============================
Conduct -- Reputational -- Strong client-centric
The risk that damage resulting culture.
Hargreaves Lansdown from poor levels -- Formal policy
fails to deliver of customer service. in place with ongoing
fair outcomes -- Negative impact review at Group
for clients. on AUM, shareholder and departmental
returns and client level.
number targets. -- Conduct Risk
Management Information
is discussed at
the Risk Committee
as part of the wider
Risk Management
Information.
========================= ============================ =============================
Regulatory -- Reputational -- Independent Compliance,
The risk that damage resulting Risk and Internal
the Group fails from poor levels Audit functions.
to meet regulatory of customer service. -- Strong compliance
obligations, -- Negative impact culture geared towards
leading to reputational on AUM, shareholder client outcomes
damage, monetary returns and client and regulatory compliance.
fines or the number targets.
withdrawal of
its authorisation
to carry on its
business.
========================= ============================ =============================
Disruption to -- Inability to -- Business continuity
business service clients' and disaster recovery
Physical business needs. plans tested regularly.
continuity event -- Reputational -- Dual hosting
or catastrophic damage if not properly of all critical
loss of systems, managed. servers, telecommunications
or other external and applications.
event could cause -- High level of
disruption to resilience built
our business into daily operations.
and result in -- Separate business
inability to continuity/disaster
perform core recovery site available
business activities 24/7.
or reduction
in client service.
Financial crime -- Loss of data -- Dedicated information
Failure to protect or inability to security, anti-money
against cybercrime, maintain our systems laundering and client
fraud or security resulting in client protection teams
breaches could detriment and reputational in place.
result in loss damage. -- Formal policies
of data or inability -- Fraudulent activity and procedures.
to maintain our leading to identity -- A security operations
systems resulting fraud and/or loss centre focused on
in client detriment of clients' holdings the detection, containment
and reputational to fraudulent activity. and remediation
damage. of information security
threats.
========================= ============================ =============================
Financial risks
=================================================== ===============================
Risk Potential impact Mitigations
========================== ======================= ===============================
Prudential risk -- Regulatory censure. -- As part of the
The risk that ICAAP, Hargreaves
the Group may Lansdown undertakes
hold insufficient regular capital
regulatory capital adequacy assessments
resources in to ensure that it
order to meet maintains financial
FCA Threshold resources of sufficient
Conditions requirements. scale and quality
at all times. These
assessments include
risk-based stress
testing to model
the impact of extreme
scenarios on the
Group's own funds.
========================== ======================= ===============================
Liquidity -- Unable to meet -- A Treasury management
obligations as policy is in place,
they fall due. overseen by the
Treasury Committee,
which maximises
return on capital
whilst providing
the ability to access
sufficient liquid
funds at short notice
should this be necessary.
Lack of sufficient .
readily realisable
financial resources
to meet the Group's
obligations as
they fall due,
or lack of access
to liquid funds
on commercially
viable terms
could lead to
inability to
pay clients and
regulatory breaches.
========================== ======================= ===============================
Counterparty -- Failure of a -- Group deposits
The Group must third-party bank, with highly credit-rated
always protect broker or market institutions only,
against the risk maker. in accordance with
that a bank or the Treasury Policy.
other counterparty -- The Treasury
could fail. Committee monitors
the counterparties'
credit ratings on
a regular basis.
========================== ======================= ===============================
Market -- Downturns in -- The Group business
Fluctuations the market and model comprises
in capital markets resultant drops both recurring platform
may adversely in AUA and AUM revenue and transaction-based
affect trading will have a negative income.
activity and/or impact on Hargreaves -- A high proportion
the value of Lansdown income. of the AUA and AUM
the Group's Assets are held within
Under Administration tax-advantaged wrappers,
or Management, meaning there is
from which we a lower risk of
derive revenues. withdrawal.
-- Multi-Manager
funds publish market
exposures in prospectus
and funds are managed
(and monitored)
accordingly.
========================== ======================= ===============================
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 Provides a measure of the level
pay-out per share divided of profits paid out to shareholders
ratio by the basic Earnings and the level retained in the
(%) Per Share (EPS) business.
for a financial
year.
-------------------- ---------------------------- --------------------------------------
Dividend Total dividend payable Dividend per share is pertinent
per share relating to a financial information to shareholders
(pence year divided by and investors and provides
per share) the total number them with the ability to assess
of shares eligible the dividend yield of the Hargreaves
to receive a dividend. Lansdown 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).
-------------------- ---------------------------- --------------------------------------
Net revenue Total revenue less Because of the changes brought
(GBP) commission payments about to the client charging
(See which are primarily structure by the Retail Distribution
Income loyalty bonuses Review ("RDR") there was a
Statement paid to Vantage transitional period (from 1
on page clients. March 2014 to 1 April 2016).
9 for From 1 March 2014 revenue was
the reconciliation increased as Hargreaves Lansdown
of net earned both a new platform
revenue) fee from clients and the existing
renewal commission from the
Fund Management Groups based
on the value of funds held
by clients. At the same time
the loyalty bonus paid to clients
was significantly increased
on the pre-RDR funds to largely
mitigate the impact of the
new platform fee. In order
to aid comparability during
the period of transition to
1 April 2016 the net revenue
measure became the most useful
comparative measure of revenue
as it better reflected the
underlying income relating
to funds held by clients.
-------------------- ---------------------------- --------------------------------------
Percentage The total value Provides a measure of the quality
of net of renewal commission of our earnings. We believe
recurring (after deducting recurring revenue provides
revenue loyalty bonuses), greater profit resilience and
(%) platform fees, management hence it is of higher quality.
fees and interest
earned on client
money divided by
the total Vantage
net revenue.
-------------------- ---------------------------- --------------------------------------
Net revenue Total net revenue Provides the most comparable
margin divided by the average means of tracking, over time,
(%) value of assets the margin earned on the assets
under administration under administration and is
which includes the used by management to assess
Portfolio Management business performance.
Services assets
under management
held in funds on
which a platform
fee is charged.
-------------------- ---------------------------- --------------------------------------
Revenue Revenue from cash Provides a means of tracking,
margin (net interest earned over time, the margin earned
from on the value of on cash held by our clients.
cash client money held
(%) on the Vantage platform
divided by the average
value of assets
under administration
held as client money.
-------------------- ---------------------------- --------------------------------------
Net revenue Net revenue derived Provides the most comparable
margin from funds held means of tracking, over time,
from by clients (platform the margin earned on funds
funds fees, initial commission held by our clients.
(%) less loyalty bonus)
divided by the average
value of assets
under administration
held as funds, which
includes the Portfolio
Management Services
assets under management
held in funds on
which a platform
fee is charged.
-------------------- ---------------------------- --------------------------------------
Revenue Revenue from shares Provides a means of tracking,
margin (stockbroking commissions, over time, the margin earned
from management fees on shares held by our clients.
shares where shares are
(%) held in a SIPP or
ISA, less the cost
of dealing errors)
divided by the average
value of assets
under administration
held as shares.
-------------------- ---------------------------- --------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKQDBNBKBAFD
(END) Dow Jones Newswires
August 15, 2017 02:00 ET (06:00 GMT)
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