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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 | |
---|---|---|---|---|---|---|---|---|---|---|
-5.50 | -0.49% | 1,124.50 | 1,124.50 | 1,125.50 | 1,131.00 | 1,115.50 | 1,129.50 | 782,105 | 12:05:17 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Security Brokers & Dealers | 735.1M | 323.8M | 0.6833 | 16.47 | 5.33B |
TIDMHL.
RNS Number : 8373M
Hargreaves Lansdown PLC
19 September 2023
Hargreaves Lansdown plc
Results for the year ended 30 June 2023
Highlights:
-- Net new business of GBP4.8 billion
-- Assets Under Administration, up 8% to GBP134.0 billion driven by net new business and positive market movement
-- 1,804,000 active clients, an increase of 67,000 in the year -- Profit before tax increase of 50% to GBP402.7 million -- Underlying profit before tax increase of 47% to GBP438.8 million -- Ordinary dividend up 4.5% at 41.5 pence per share Year ended Year ended Change % 30 June 2023 30 June 2022 =================================== ============== ============== ========= Net new business inflows GBP4.8bn GBP5.5bn -13% =================================== ============== ============== ========= Total assets under administration GBP134.0bn GBP123.8bn +8% =================================== ============== ============== ========= Revenue GBP735.1m GBP583.0m +26% =================================== ============== ============== ========= Profit before tax GBP402.7m GBP269.2m +50% =================================== ============== ============== ========= Underlying profit before tax* GBP438.8m GBP297.5m +47% =================================== ============== ============== ========= Diluted earnings per share 68.2p 45.6p +49% =================================== ============== ============== ========= Underlying diluted earnings per share* 74.3p 50.4p +47% =================================== ============== ============== ========= Total dividend per share 41.5p 39.7p +4.5% =================================== ============== ============== ========= *Underlying profit before tax and underlying diluted EPS are Alternative Performance Measure which exclude the impact of strategic investment and dual tech running costs. See the Glossary of Alternative Performance Measures on page 35 for the full definitions and page 10 where a reconciliation to the relevant statutory measure is provided.
Dan Olley, Chief Executive Officer, commented:
"We have delivered a robust financial performance for our full year in what continues to be a challenging broader economic environment. We welcomed a further 67,000 net new clients meaning we now support over 1.8 million with their savings and investments needs, with client retention stable at over 92%. We saw notable growth into our Active Savings proposition which continues to show the benefits of our diversified business model as we give our clients access to competitive rates for their cash. We delivered revenue growth of 26% year-on-year with cost growth within the guided range delivering a statutory profit of GBP402.7 million, up 50% on 2022.
As I begin my CEO tenure, it is clear to me that at its core this is a strong business with fantastic heritage that has significant potential to benefit from the structural, demographic, and regulatory shifts in the UK and the expected growth in the wealth market.
My early focus is to ensure we are set up to capture this growth opportunity, that we have pace of execution, cost discipline as we travel on this journey, and that we are giving our people the best opportunity to deliver for our clients and shareholders."
About us:
Hargreaves Lansdown is the UK's largest digital wealth management service administering GBP134.0 billion of investments for over 1,804,000 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 Amy Stirling, Chief Financial Officer Brunswick +44(0)207 404 5959
Analysts' presentation
Hargreaves Lansdown will be hosting a virtual investor and analyst presentation at 09:00am on 19 September 2023 following the release of the results for the year ended 30 June 2023. The meeting can also be accessed remotely via a live dial-in facility. In order to register as a participant please use the following link:
https://www.netroadshow.com/events/login?show=02eea776&confId=54378
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 2023. These measures are listed along with the calculations to derive them and an explanation of why we use them on page 35 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
Helping clients achieve better financial outcomes
I was delighted to move from being a Non-Executive Director to CEO of your Company as of August this year. Our last financial year has been a period of significant change and I will spend some time outlining the financial and operational execution that the team has delivered. However, before I do so, I want to set out some early reflections as CEO, a role which gives me a very different lens on the Group.
HL is a great business built on a fantastic heritage of delivering its clients the best, most relevant information on an industry-leading breadth of savings and investment solutions, underpinned by a focus on providing client-led service and support and making execution seamless and easy. What is clear to me as I reflect on the interactions I have had with both HL clients and non-clients alike since starting as CEO, is that getting these basics right - for every client, every time - is still the core driver of value. It is clear that our service and execution must return to the high standards we and our clients expect and deserve. This is a core focus for me. However, I have been very encouraged by all my conversations with the Client and Service teams at HL. They know that becoming the trusted financial partner for clients is a right you must earn through every interaction. Their passion for ensuring this happens is equal to mine, which is why I know we will deliver this non-negotiable objective for HL and our clients.
What was also clear from both my conversations with clients and the regulatory initiatives in our sector, is that investing remains a daunting task for a large proportion of the population. Many of the people I have spoken to are confused by the array of jargon and terminology, or put off by the wide range of product options available to them. This often results in inertia as investing is put off 'until tomorrow'. The current economic environment is only exacerbating this issue, putting more demands on people's finances, and dropping saving and investing down the list for many. The size of our client base is a significant differentiator in enabling us to have a strong gauge on changing client needs and our ability to therefore respond to help make investing accessible and understandable to everyone, with initiatives like Financially Fearless, which aims to tackle money inequality and specifically help women save and invest with confidence.
Doing this for a small number of clients may be relatively straight forward. However, to offer this proactive and personalised service in a scalable and cost-effective way to over 1.8 million clients, each with different needs, knowledge and experience, is a completely different challenge. It demands that we combine the best of our curated knowledge and market insights, with advances in technology and our digital platform, to help our clients identify the best savings and investment options for them. For example, earlier this year it became clear from our client interactions and market trends that gilts could be an attractive yielding investment option for higher rate taxpayers and those that have used their full ISA allowance. Through personalised and targeted education-based content, we were able to help clients take advantage of this opportunity, investing over GBP430m in July.
As HL continues to help more clients reach good financial outcomes, the opportunity to grow, and as a result drive long-term, sustainable attractive returns and growth for all our stakeholders, is clear. The alignment of the interests of the organisation, our clients, our shareholders, and the regulator has never been stronger.
This tells me that, at its core, our strategic direction is the right one. We have a unique opportunity to benefit from structural demographic and workplace behaviour shifts and the UK regulatory changes to encourage greater saving and investment. However, the world has changed since we set out the strategy in February 2022, with a fundamentally different macro-economic and geopolitical environment. We have also learnt lessons from the execution of the strategy since then. Coming in as a new CEO with the teams 18 months into delivery, now is a good time to take stock, keep what works and learn from areas where we can do even better. We will refocus and refine our approach, where needed, to ensure we still have our strategic initiatives in the right order and our resources focused on the right areas to maximise value to clients, colleagues, and shareholders. Work will also continue to develop and mature our control environment to ensure we're managing all our processes and controls efficiently and effectively as we scale further.
Initial priorities
Being only a few weeks into my new role I am very much in listening mode, speaking with our clients, shareholders and colleagues to understand their views and insights. Based on what I'm hearing from initial discussions and what I know from the time I've spent on the Board, I am focused, in the near-term, on four key areas.
1. Drive client and asset growth - Increase focus on tailored client content and a seamless experience, backed by great service and broad product range
2. Increase pace - Drive execution pace and agility to continuously deliver additional client value at speed
3. Save to Grow - Continuously strive to be fitter and leaner as a business, so we can save to invest more for clients
4. Focus on our people - Make HL great for colleagues and clients - the right culture, with the right people in the right roles, focused on the right things
I will be providing a more thorough update at the half year results early in 2024. In the meantime, it is important to reflect on the achievements and challenges of the last financial year.
Market backdrop
As the data from our Savings and Resilience Barometer shows, the rising cost-of-living is putting pressure on the UK's financial wellbeing. People have less disposable income, investor confidence is low and the outlook remains uncertain. Markets have been volatile and with interest rates rising, savers have looked to make their cash work harder for them without always wanting to invest.
This has been evident in the strong performance across our Active Savings cash platform, which attracted record new business of GBP3.2 billion in the year. Conversely, the challenging external conditions and low investor confidence impacted net flows onto the platform and stockbroking volumes, something that has been seen across the sector.
Our focus has remained on supporting our clients and helping them to achieve better financial outcomes during these challenging times including helping them to build their financial awareness and confidence, whilst at the same time continuing to deliver on our strategy.
An example of this would be during the US banking crisis in March this year, which followed the collapse of Silicon Valley Bank. This was a challenging time for many of our clients - insight from our interactions with them told us they had questions around their own investments in the banking sector and that they wanted reassurance of the security of the cash they were holding with UK banks. We acted quickly and wrote two specific articles and sent targeted communications to clients we knew engaged with macroeconomic news. Our articles attracted over 18,000 readers, who spent almost a minute longer on the page than the average of our other news articles, showing how clients value the relevance and timeliness of our research.
FY23 performance
In spite of the challenging backdrop, we have delivered robust financial performance. The value of our proposition attracted GBP4.8 billion of net new business and a further 67,000 net new clients, taking our total assets under administration and active client numbers to GBP134.0 billion and 1.8 million respectively.
Our investment in data and technology has helped us to support our clients in the ways that suit them. In FY23, we had 249 million digital visits and mobile engagement remained high - it is clear that more and more of our clients want to manage their accounts on-the-go, and this is steering our "app first" approach to developing our service going forward.
We also continued building out our Better Investors programme in line with the FCA's Consumer Duty regulation. This programme provides personalised content to clients with the aim of helping them and their families achieve good outcomes from their hard-earned savings. Topics include holding an appropriate level of cash, portfolio diversification, the importance of regular investing and the power of compounding. This educational-based content is just one way in which HL fosters long-term client relationships and stable client retention rates, at 92.2% (2022: 92.1%).
The impact of economic and financial challenges has seen the value of cash withdrawals increase this year as families deal with the cost-of-living issues, and this has led to a reduction in our asset retention rate, to 90.4% (2022: 91.8%).
We know our high level of service is a critical part of what our clients value and our Client Service Net Promoter Score fell to 45% (2022: 51%). Despite implementing technology improvements and adding resource to our Service teams, we had a very busy tax year end which meant increased waiting times for client queries and our service levels falling below our expectations. This is an area where we will improve further.
Revenue for the full year was GBP735.1 million, up 26% on the prior year (2022: GBP583.0m). We have seen continued base rate increases throughout the year and have passed over 85% of the benefit through to our clients over the last 12 months. Net interest margin has also increased as a result and it is encouraging to see growth across all our key revenue lines in the second half of the year.
We have delivered spend in line with our guidance with underlying costs of GBP314.6 million (2022: GBP284.7m). In addition, strategic spend in the year was GBP51.4 million (2022: GBP32.9m) of which GBP36.1 million was expensed and GBP15.3 million was capitalised.
Underlying Profit Before Tax increased 47% to GBP438.8 million (2022: GBP297.5m) and Statutory Profit Before Tax increased by 50% to GBP402.7 million (2022: GBP269.2m).
The dividend for the financial year has increased 4.5% to a total dividend of 41.5p for the full year, reflecting this year's positive financial performance.
Strategic delivery
Our focus this year has been on building out our client value proposition, while laying the foundations that will allow us to accelerate our growth and scale efficiency. Progress overall has been slower than we originally anticipated, but we have though made good progress on several initiatives as set out below.
Active Savings - With interest rates continuing to rise and clients looking for an easy way to make their cash work harder, we have expanded our partner banks and building societies to a total of 17, launched a new Cash ISA, and offered market-leading rates for 59% of the year, leading to record net flows of GBP3.2 billion and a closing AUA of GBP7.8 billion across more than 175,000 client accounts. Further improvement is needed to accelerate onboarding of banks.
Funds - Our new US and UK Income funds support clients looking to put together their own diversified portfolio, and we launched four managed Portfolio funds which offer greater diversification in a single investment for those who wish to take a more hands-off approach. AUM in these funds now totals GBP2.2 billion. We remain focused on continuing to improve the performance of our funds and creating more efficiency in the time-to-market of new fund launches. We will launch a new tool that helps less experienced clients and their families choose the right HL account for their situation, and the most suitable investment solutions to meet their needs.
Trading - This year, we relaunched our enhanced online Share Exchange service to help clients make the most of their tax allowances, brought in a new online voting solution, giving more power to retail investors, and reduced the cost of share dealing for almost 500,000 clients by removing the dealing charge for regular investors and those reinvesting dividends.
Investing - We reduced the management charge for the Lifetime ISA and removed charges completely for Junior ISAs, reducing costs and supporting families in saving for the future and creating lifelong, and beyond, relationships by encouraging intergenerational wealth transfer.
Service - As well as making tactical changes, such as reallocating resource across the business to better support clients over the period, we have commenced the roll out a Cloud-based telephony system. This has started to improve the client experience, drive colleague efficiency and improve the quality of data captured to drive even better service and provide client insights into our digital and service roadmaps. As I said, this is a core focus for me.
Cost Savings - We launched Pay by Bank for our clients using Active Savings towards the end of financial year. This not only makes it easier for clients to top up their accounts, but will also generate meaningful cost savings for HL. By year end, the adoption rate was already at 25% and we will be rolling it our across other accounts through the course of this year.
As well as client proposition improvements, we have made progress in building more secure foundations to improve our operational resilience and risk management, whilst continuing to invest in our client facing digital products.
In the year, we continued work and have made progress towards the FCA's 2025 Operational Resilience deadline. The Board approved our annual Operational Resilience Self-Assessment for the year to 31 March 2023, which we evolved from the 2022 assessment to add greater rigour and structure to the process. The Board also attested our compliance with the FCA's Consumer Duty by the end of July. I am pleased to report that our Consumer Duty programme confirmed that our existing embedded focus on good client outcomes has led to no major change requirements across all the FCA prescribed dimensions, with only minor enhancements identified to further support our clients in reaching good outcomes.
I am pleased that our colleague engagement surveys showed some improvement during the year, reflecting both our focus on helping colleagues build their financial resilience and building an inclusive and client focused culture. As ever there is more to do, which is why this is one of my four initial focus areas. We have also made good progress against our Inclusion and Diversity priorities, increasing gender and ethnicity representation across the business through both our new early talent programmes and improved recruitment processes, which have increased senior representation across the board.
On ESG, this year we have continued to strengthen our requirements as part of our Wealth Shortlist research, with all funds included on the shortlist meeting our minimum ESG requirements. We have also launched our new ESG Investment Policy and our Stewardship and Engagement Policy and are reporting on Scope 3 Financed Emissions across the portfolio of HL managed funds.
Finally, work continues to progress development of our enhanced relevance and personalisation engine within the HL digital platform. Sitting under both our digital and human interaction experiences, this engine will ensure clients receive the most relevant information, the best service and a seamless and easy experience, however they chose to engage with us.
Outlook and guidance
The current economic climate is likely to remain much the same for the coming financial year, and so will continue impacting investor confidence. This will provide a continued tailwind for flows into Active Savings but a potential constraint on net new investment flows and dealing volumes, although we will proactively mitigate this by helping all HL clients identify the opportunities that do exist and could be right for them, as we did with gilts. We will also provide tools to help clients efficiently consolidate assets to save them time and help us provide increasingly personalised services, whether they want to interact digitally or speak to an HL colleague directly.
Against this backdrop, we have already started to take initial actions on cost and will continue to carefully manage all operating costs and efficiency improvements whilst balancing with the importance of providing the high level of service and support that our ever-growing client base demands.
In terms of our financial outlook for FY24, Amy Stirling has provided some detailed guidance in her CFO's report.
It has been a busy first few weeks in the new role, and I have thoroughly enjoyed hearing from many of our clients, colleagues and shareholders. I'm looking forward to the coming months as I focus on my initial priority areas of driving growth, increasing pace, identifying opportunities to save to grow and ensuring we have the right people in the right roles and focusing on the right things, so we are truly future fit to deliver for our clients and, in turn, for our shareholders.
Dan Olley
Chief Executive Officer
18 September 2023
Financial Review
Assets Under Administration (AUA) and Net New Business (NNB)
Year ended Year ended 30 June 2023 30 June 2022 GBPbn GBPbn ============================ ============= ============= Opening AUA 123.8 135.5 Platform growth* 2.3 4.3 Movement to Active Savings* (0.7) (0.3) Active Savings growth 3.2 1.5 ---------------------------- ------------- ------------- Total Net New Business 4.8 5.5 Market growth and other 5.4 (17.2) Closing AUA 134.0 123.8 ============================ ============= =============
* Platform growth, Movement to Active Savings and Active Savings Growth are alternative Performance Measures. See the Glossary of Alternative Performance Measures on page 35 for the full definition.
Hargreaves Lansdown provides the leading direct wealth management service in the UK.
The continued strength of our brand and breadth of services available to clients on our platform has seen us grow net new business every quarter this year despite the continued challenging macroeconomic backdrop for our clients.
Total net new business for the year was GBP4.8 billion (2022: GBP5.5bn). Of this figure, platform growth was GBP2.3 billion (2022: GBP4.3bn) with GBP0.7 billion (2022: GBP0.3bn) of net movement into Active Savings, where we saw a significant increase in flows, contributing GBP3.2 billion (2022: GBP1.5bn) of new money to the GBP4.8 billion total growth.
Total AUA increased by 8% to GBP134.0 billion at the year end (2022 GBP123.8bn). This increase was supported by the net new business uplift and GBP5.4 billion of positive market movement across the year, after the negative market growth experienced in the first half returned to positive in the second half.
AUA for the period of GBP134.0 billion was 8% above that for the prior year. The increase has occurred across both halves of the year, with the second half of the year providing two thirds of the increase. Market growth and other represents the impact of the underlying market and other retained investment income. In the current period this movement is driven by the changes in the market.
Throughout the year we have maintained our focus on engaging with clients to help them improve their financial engagement and resilience. During this period of low investor confidence, we have supported them in navigating the challenging economic backdrop. We were pleased to see that despite the financial impacts of the cost-of-living challenges, our client retention rate remained consistent at 92.2% (2022: 92.1%).
Asset retention reduced to 90.4% (2022: 91.8%) for the year, as we saw a higher level of cash withdrawals from specific cohorts of clients to help with cost-of-living increases or to fund large expenses and major life events.
We introduced 67,000 net new clients in the year (2022: 92,000), growing our active client base by 4% to 1,804,000.
An active client is defined as one who holds an account containing GBP100 or more with us. The average age of new clients remains consistent with recent periods at 36 (2022: 36) and we are encouraged by the quality of clients we are welcoming who brought an average NNB of GBP19,809, up 27% on last year (2022: GBP15,565). This was driven by greater numbers of new clients opening Active Savings accounts, which attract a higher opening balance - during the year there were 17,000 new Active Savings accounts (2022: 7,000).
Income Statement
Year ended Year ended 30 June 2023 30 June 2022 GBPm GBPm ============================================ ============= =============== Revenue 735.1 583.0 Operating costs (350.7) (313.0) Finance and other income 19.0 - Finance costs (0.7) (0.8) Profit before tax 402.7 269.2 ============================================ ============= =============== Tax (79.0) (53.4) Profit after tax 323.7 215.8 -------------------------------------------- ------------- --------------- Profit before tax 402.7 269.2 Adjusted for: Strategic Investment Costs (including dual running costs) 36.1 28.3 * Underlying profit before tax* 438.8 297.5 * Tax on underlying profit* (86.1) (59.0) ============================================ ============= =============== Underlying profit after tax* 352.7 238.5 ============================================ ============= ===============
* Underlying profit before tax, Tax on underlying profit, and Underlying profit after tax for the period exclude strategic investment costs (including dual running costs) of GBP36.1 million (2022: GBP28.3m). See the Glossary of Alternative Performance Measures on page 35 for the full definition.
Revenue
Total revenue for the period increased 26% to GBP735.1 million (2022: GBP583.0m), with all key revenue lines increasing in the second half of the year driven by a return to growth in all asset classes excluding cash as asset levels benefitted from positive market movements and net new business. Year-on-year revenue growth reflects an improvement to Net Interest Margin following a period of historic low interest rates, and the level of cash held by clients in both their Investment and Savings accounts more than offsetting the impact of lower average asset values and lower stockbroking volumes resulting from negative market movements and low levels of investor confidence.
The table below breaks down revenue, average AUA and margins earned during the period:
Year ended 30 June 2023 Year ended 30 June 2022 ====================================== ====================================== Revenue Average Revenue Revenue Average Revenue GBPm AUA GBPbn margin bps GBPm AUA GBPbn margin bps Funds(1) 236.4 60.7(8) 39 254.5 65.3(8) 39 Shares(2) 147.7 48.8 30 194.9 52.3 37 Cash(3) 268.7 14.0 192 50.0 13.6 37 HL Funds(4) 54.3 8.4(8) 65 60.3 8.8(8) 69 Active Savings(5) 8.7 6.4 14 1.8 3.86 5 Other(7) 19.3 - - 23.3 - - ================== ========= ============ ============= ========= ============ ============= Double-count(8) - (8.3)(8) - - (8.7)(8) - ================== ========= ============ ============= ========= ============ ============= Total 735.1 130.0(8) - 583.0 135.1(8) - ================== ========= ============ ============= ========= ============ =============
Revenue margin is an alternative performance measure, see the Alternative Performance Measures glossary on page 35 for the full definition.
1 Platform fees. 2 Stockbroking commission and equity holding charges. 3 Net interest earned on cash held in investment accounts.
4 Annual management charge on HL Funds, i.e. excluding the platform fee, which is included in revenue on Funds.
5 Revenue from Active Savings earned as fees from partner banks. 6 Average cash held via Active Savings.
7 Advisory fees and ancillary services (e.g. annuity broking, distribution of VCTs and HL Currency Services).
8 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.
Funds
Funds continue to be the largest asset class on the platform at 47% of average AUA for the year and 46% of closing AUA (2022: 47%) reflecting the significant range of investment solutions available to meet a broad range of client needs. Revenue on Funds decreased by 7% to GBP236.4 million (2022: GBP254.5m) reflecting the decrease in average AUA, particularly in the first half, with this revenue line returning to growth in the second half of the year. Revenue margin on funds was flat at 39bps.
Funds remain one of our largest sources of revenue, with the margin for this year having remained stable on the prior year.
During the year, decisions have been taken to reduce fees on the Lifetime ISA (LISA), from 45bps at base to 25bps, and remove all fees on Junior ISA accounts. As a result, we expect the fund revenue margin to fall slightly in the next financial year and be in the range of 36.5bps to 38.5bps, driven primarily by the full year impact of the fee cuts made in the Junior ISA and LISA accounts in FY23.
Shares
Revenue on Shares decreased by 24% to GBP147.7 million (2022: GBP194.9m) and the revenue margin of 30bps (2022: 37bps) was at the low end of our expected range. This was as a result of a reduction in deal volumes, reflecting comparatively lower investor confidence as clients deal with cost-of-living issues, rising interest rates and market volatility and also the impact of the decline in the value of equities under administration, given the previously mentioned market volatility.
Average deals per trading day in the first half of the year were 31,000 and rose in the second half of the year to 35,000 per day. However, total deal volumes, including automated deals such as dividend reinvestment, decreased by 21% to 8.3 million (2022: 10.5m) but were in line with the low end of our expectation of deals per trading day. Dealing peaked in January 2023 at 39,000 deals per trading day, propelled by news of growth in UK, US and European markets. This compared with a low in December of 27,000, given the seasonally quieter Christmas period. Overseas dealing volumes fell slightly and represented 21% of our total client driven deals (2022: 22%).
Client driven trading is higher than levels seen prior to the pandemic and we continue to improve our client experience in relation to share trading, with improvements to best execution on trades and the removal of fees for income reinvestment and regular share savings. As and when investor confidence improves we believe we are well placed to see a return to higher trading volumes. Shares AUA, at the end of the year, was GBP50.8 billion (2022: GBP45.9bn).
Revenue guidance on shares for the next financial year is 28bps to 32bps. This incorporates the full year impact of the price changes on the Junior ISA, income reinvestment and regular savings.
Cash
Cash held in Investment accounts plays an important role in clients' portfolio management by providing access to the broad range of products and services available on our platform. We manage this cash according to clear principles which are set out in our Platform Client Fairness Policy. In determining rates, HL considers the client need, characteristics and behaviour by account type and the flexibility or limitations of the account when determining and reviewing the rates paid to clients. For example, we pay higher rates of interest where the accounts have more product restrictions (e.g. the SIPP over an unwrapped account) and where clients will hold higher cash balances (e.g. the Drawdown account). The step up in base rate has increased interest earned on cash and, as a result, we have increased both the amount and the proportion earned by clients during the period. The level of cash held in Investment accounts increased during the period with average cash AUA of GBP14.0 billion (2022: GBP13.6bn) which also contributed to the increase in revenue.
The average cash balance represented 10.8% of total average AUA, an increase from 10% in the prior year. However, across the year, cash held in investments accounts has been reducing as clients use existing funds on the platform to invest, and for certain clients we are seeing increased cash withdrawals to fund planned and unplanned needs. Our closing cash AUA at the end of 2023 was GBP13.1 billion (2022: GBP15.0bn).
Revenue on cash significantly increased in the year to GBP268.7 million (2022: GBP50.0m) reflecting increases in the Bank of England base rate during the period and the level of cash held by clients in investment accounts, partially offset by the pass through rate to clients. Seven rate increases were made during the year, taking the base rate from 125bps in July 2022 to 500bps as at 30 June 2023, compared to the changes in the previous year, which saw five increases taking the rate from 10bps to 125bps as at 30 June 2022.
Over the last twelve months, we have passed over 85% of the benefit of base rate increases to our clients and should we see further increases from here, we would expect to do broadly the same.
As a result, our guidance for net interest margin for the next financial year is 180bps to 200bps.
HL Funds
During the year we have delivered two new Building Block funds (US Fund and UK Income fund) and four new Portfolio funds (Cautious, Balanced, Moderately Adventurous and Adventurous), all of which come with a lower annual management charge than our existing fund offerings. These funds give clients access to key asset classes and are structured via segregated mandates so they can be held directly and also invested into by our flagship HL Managed funds. The sector-focused funds within the existing HL Multi-Manager range will be converted over time, resulting in further efficiencies and reductions in costs for investors.
Despite a very challenging market context for fund flows, across the year we saw net flows into the fund range of GBP0.3 billion, driven largely by the fund launches. HL Funds' AUM at the end of 2023 was GBP8.7 billion.
Revenues on HL Funds were down 10.0% to GBP54.3m (2022: GBP60.3m). The main driver of this was average funds under management being down 5% versus last year and lower margin, largely as a result of the launch of new, lower cost funds delivered in the year. The margin on HL Funds has reduced to 65bps (2022: 69bps) accordingly.
HL Funds are a key part of our strategy and we continue to launch further funds across FY24, including a Global Corporate Bond fund that launched in July 2023. This will continue to improve the overall proposition and competitiveness of our own investment funds and will continue to bring net inflows. The margin for 2024 is therefore expected to reduce and be in the range of 55bps to 60bps.
Active Savings
Revenue from Active Savings has grown significantly in the year to GBP8.7 million (2022: GBP1.8m) driven by the changes in the base rate and the increase in AUA. The average margin throughout the year was 14bps (2022: 5bps).
We have continued with the increased marketing of Active Savings from the end of the last financial year and we have subsequently seen strong flows across the period totaling GBP3.2 billion (2022: GBP1.5bn). As at 30 June 2023 the AUA was GBP7.8 billion (2022: GBP4.6bn) and over 175,000 clients now have an Active Savings account.
Looking forward, we will continue our focus on growing the Active Savings service through adding additional partner banks and improving functionality, particularly within our app.
Our revenue margin for the next financial year is expected to be in the range of 15bps to 20bps.
Other
Other revenues comprise advisory fees and ancillary services, such as annuity broking and distribution of VCTs. The amount has declined year-on-year, with the largest movements seen in distribution income in respect of third party services, where lower investor confidence for trading services has been partially offset by increased revenues from Annuity arrangement fees, due to the increase in rates available for these products.
Year ended Year ended 30 June 2023 30 June 2022 GBPm GBPm ======================= ============= ============= Ongoing revenue* 612.6 414.1 Transactional revenue* 122.5 168.9 Total revenue 735.1 583.0 ======================= ============= =============
*Definitions are shown in the Glossary of Alternative Financial Performance measures on page 35.
The Group's business model offers clients a broad range of asset classes to suit their needs in differing market environments and as such, benefits from a diversified revenue stream. The Group's revenues are largely ongoing in nature, as shown in the table above. The proportion of ongoing revenues has increased to 83% in the period (2022: 71%) as the transactional stockbroking commission decreased versus last year and the net interest income increased significantly as the base rate of interest increased. Ongoing revenue is primarily comprised of platform fees on funds and equities, fund management fees, net interest income and ongoing advisory fees. This increased by 48% to GBP612.6 million (2022: GBP414.1m) driven by improved net interest margin from the higher interest rates earned, which more than offset lower platform fees and management fees from lower average AUA levels.
Transactional revenue primarily comprises stockbroking commission and advisory event-driven fees. This decreased by 27% to GBP122.5 million (2022: GBP168.9m) reflecting the 26% decrease in client-driven equity dealing volumes.
Underlying operating costs
Year ended Year ended 30 June 2022 30 June 2023 GBPm GBPm ============================ =============== ========================= Underlying cost Underlying cost ============================ =============== ========================= People costs* 167.9 144.2 Activity costs* 45.5 50.4 Technology costs* 38.8 28.7 Support costs* 56.3 49.3 Underlying costs (pre-FSCS) 308.5 272.6 Total FSCS levy 6.1 12.1 ============================ =============== ========================= Underlying operating costs** 314.6 284.7 ============================ =============== =========================
* Definitions have been amended and are shown in the Glossary of Alternative Financial Performance Measures on page 35. The amendment has been made to align to the way that the Board discusses matters internally.
** Underlying operating costs exclude strategic investment costs (including dual running costs) of GBP36.1 million (2022: GBP28.3m). See the Glossary of Alternative Performance Measures on page 35 for the full definition.
Underlying operating costs
Underlying operating costs increased by 10.5% to GBP314.6 million (2022: GBP284.7m) reflecting wage and cost inflation, annualisation of headcount growth, increased technology spend, offset by lower volume driven Activity costs and a reduction in the FSCS levy.
People costs
People costs increased 16% to GBP167.9 million (2022: GBP144.2m) as we invested to support our colleagues through the course of the year. Our pay award for the year was an average of 5% and we have made further changes to colleague pay. Given the economic backdrop, we have reset junior colleagues compensation, providing a higher level of guaranteed earnings throughout the year and we have seen additional wage inflation in specific functions, addressing skill scarcity and retention. In addition we made a GBP1.1m one-off support payment for colleagues to help offset the impact of inflation.
Our headcount remained flat during the first half of the year, with targeted additions made in the second half of the year in our Service and Digital teams to support increased client contact and improving our systems and security respectively. The impact of the annualisation of 2022 headcount increases was also felt in the year and contributed 3% to the increase in the current year.
Activity
Activity costs comprise marketing costs, dealing-related costs, and payment costs for client cash transferred onto the platform. Overall activity costs have reduced by GBP4.9 million during the period reflecting the lower dealing volumes, higher payment volumes driven by Active Savings and GBP5 million cost savings achieved through renegotiation of third-party dealing contracts.
Payment costs have increased in line with the level of cash added to the platform. In Q4, we introduced Pay by Bank capabilities to those clients using Active Savings to make it easier to transfer funds onto the platform whilst significantly reducing the associated transaction cost. We have seen encouraging take up so far and will be rolling out to all clients during next year. Marketing costs, including client acquisition, client engagement and brand awareness, have remained stable year-on-year as we have continued to invest to drive awareness of our breadth of savings and investment solutions, particularly in the run up to tax year end this year.
Technology
Technology costs increased to GBP38.8 million (2022: GBP28.7m) driven by software support fees and service subscriptions as we build out our digital capability and transfer our systems to the Cloud and improving the security of our IT environment. This requires the use of more third-party software, leading to an increase in license and subscription costs throughout the year.
Support
Support costs, which include legal and professional fees, office running costs, depreciation and amortisation increased to GBP56.3 million (2022: GBP49.3m). Including the impact of higher energy costs and a GBP1.8 million one off increase in the dilapidations provision, office running costs account for GBP3.5 million of this increase. Insurance costs and professional fees have increased as have travel expenses as staff returned to more normalised working patterns.
The Financial Services Compensation Scheme (FSCS) levy run by the FCA decreased to GBP6.1 million (2022: GBP12.1m), due to a scheme surplus from the prior year, which reduced the amount the FCA needed to raise for the current year. The FSCS is the compensation scheme of last resort for customers of authorised financial services firms. At present, we expect that the levy cost next year will return to being in line with the prior year and as a result, expect to see Underlying cost growth of 9% - 11% for the next financial year.
Strategic Investment Costs
(including Dual Running Costs)
Total strategic spend in the year was GBP51.4 million, of which GBP36.1 million has been expensed and GBP15.3 million has been capitalised in line with our accounting policy. As the programme scales up in both overall activity and individual project scale, we expect our spend to increase further next year. Spend primarily comprises staff (including contractor) costs and associated professional fees, associated compliance, infrastructure and support costs. With our strategic investment programme now well underway, the strategic investment costs incurred in the period are in addition to the business as usual, or underlying, costs of the business.
We have previously presented strategic investment costs and dual running costs as separate measures for the purpose of reporting our underlying costs. Through review, we determined that the use of a further Alternative Performance Measure provides no additional clarity or insight to readers or users of the financial statements regarding our approach to our Strategic Investment Programme. As such, we have reverted to using strategic investment cost as a single measure.
Profit before tax
During the year, GBP19.0 million of Finance Income resulted from term deposits of corporate cash being placed at higher interest rates. Finance costs comprise the undrawn cost of the Group's Revolving Credit Facility and the interest incurred on the Group's leases.
On an underlying basis, profit before tax increased by 47% to GBP438.8 million (2022: GBP297.5m). On a statutory basis profit before tax increased by 50% to GBP402.7 million (2022: GBP269.2m).
Tax
The effective tax rate for the period was 19.7% (2022: 19.9%). This is despite the higher rate of tax in effect from April 2023 and its impact on the Group in the year. This was largely driven by reclaims on our prior year submissions for R&D credits.
The Group's tax strategy is published on our website at http://www.hl.co.uk
Earnings per share
Year ended Year ended 30 June 30 June 2022 2023 GBPm GBPm ======================================================= =========== ============== Operating profit 384.4 270.0 Finance and other income 19.0 - Finance costs (0.7) (0.8) ======================================================= =========== ============== Profit before tax 402.7 269.2 Tax (79.0) (53.4) Profit after tax 323.7 215.8 ======================================================= =========== ============== Underlying profit before tax* 438.8 297.5 ======================================================= =========== ============== Tax on underlying profit* (86.1) (59.0) ======================================================= =========== ============== Underlying profit after tax* 352.7 238.5 ======================================================= =========== ============== Weighted average number of shares for the calculation of diluted EPS 474.6 474.5 Diluted EPS (pence per share) 68.2 45.6 ======================================================= =========== ==============
* Underlying profit before tax, Tax on underlying profit before tax, Underlying profit after tax and Underlying diluted EPS for the year exclude strategic investment costs (including dual running costs) of GBP36.1 million (2022: GBP28.3m). See the Glossary of Alternative Performance Measures on page 35 for the full definitions.
Diluted EPS increased by 50% from 45.6 pence to 68.2 pence, in line with the Group's increase in profits. The Group's basic EPS was 68.3 pence, compared with 45.6 pence in 2022.
Underlying diluted EPS increased by 48% from 50.4 pence to 74.3 pence. (See Glossary of Alternative Performance Measures on page 35 for the full definition). The Group's underlying basic EPS was 74.4 pence, compared with 50.4 pence in 2022.
Capital and liquidity management
Hargreaves Lansdown looks to create long-term value for shareholders by balancing delivery of profit growth, capital appreciation and an attractive dividend stream to shareholders with the need to invest in the business to maintain a broad savings and investment 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. The Group's net cash position at 30 June 2023 was GBP503.3 million (2022: GBP508.0m). Cash generated from operations more than offset the payments of the 2022, final ordinary dividend and the 2023 interim dividend. This includes cash on longer-term deposit and is before funding the 2023 final dividend of GBP136.6 million.
The Group has a Revolving Credit Facility agreement with Barclays Bank to provide access to a further GBP75 million of liquidity. This is 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 manage the impact of 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 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 2022 2023 GBPm GBPm ================================================== =========== ============== Shareholder funds 709.7 575.1 Less: goodwill, intangibles and other deductions (54.7) (41.0) ================================================== =========== ============== Tangible capital 655.0 534.1 Less: provision for dividend (136.6) (130.2) ================================================== =========== ============== Qualifying regulatory capital 518.4 403.9 Less: estimated capital requirement (248.3) (219.1) ================================================== =========== ============== Estimated capital surplus 270.1 184.8 ================================================== =========== ==============
Total attributable shareholders' equity, as at 30 June 2023, made up of share capital, share premium, retained earnings and other reserves increased to GBP709.7 million (2022: GBP575.1m) due to the increased profit in the year. Having made appropriate deductions as shown in the table above, estimated surplus capital amounts to GBP270.1 million.
HL plc has four subsidiary companies authorised and regulated by the FCA. The FCA's Investment Firm Prudential Regime (IFPR) applies to the Group and HL completes this assessment through the Group Internal Capital Adequacy and Risk Assessment (ICARA) processes. Our assessment of HL's capital requirements takes account of the regulatory requirements.
Consistent with the IFPR requirements, HLAM is specifically required to disclose regulatory capital information; this is available on the Group's website at https://www.hl.co.uk/investor-relations .
Dividend
Dividend (pence per share)
2023 2022 ========================= ======= ======= Interim dividend paid 12.70p 12.26p Final dividend declared 28.80p 27.44p ========================= ======= ======= Total dividend 41.50p 39.70p ========================= ======= =======
The Board has declared an increase in the total ordinary dividend of 4.5% taking the ordinary dividend per share to 41.50 pence (2022: 39.7 pence per share of ordinary dividend). The ordinary dividend is made up of an interim dividend of 12.70 pence per share that was paid on 31 March 2023 (2022: 12.26 pence per share) and a final ordinary dividend of 28.8 pence per share (2022: 27.44 pence per share). Subject to shareholder approval of the final ordinary dividend at the 2023 AGM, the final dividend will be paid on 15 December 2023 to all shareholders on the register at the close of business on 17 November 2023.
In terms of capital allocation, our priority continues to be to ensure our robust financial health, maintaining a meaningful capital surplus over the regulatory minimum. The Board has begun discussion regarding the overall approach to capital allocation acknowledging that we are currently in a period of investment and the importance of shareholder return. As a result and subject to market conditions and the Group's growth, investment and regulatory capital requirements, we expect to continue to grow the ordinary dividend at least 4% in the next financial year.
Amy Stirling
Chief Financial Officer
18 September 2023
SECTION 1: RESULTS FOR THE YEAR
Consolidated Income Statement for the year ended 30 June 2023
Year ended Year ended 30 June 30 June 2023 2022 Note GBPm GBPm Revenue 735.1 583.0 Operating costs 1.3 (350.7) (313.0) Operating profit 384.4 270.0 Finance and other income 1.5 19.0 - Finance costs 1.6 (0.7) (0.8) Profit before tax 402.7 269.2 Tax 1.7 (79.0) (53.4) Profit for the financial year 323.7 215.8 Attributable to: Owners of the parent 323.8 216.3 Non-controlling interest (0.1) (0.5) 323.7 215.8 Earnings per share Basic earnings per share (pence) 1.8 68.3 45.6 Diluted earnings per share (pence) 1.8 68.2 45.6
The results relate entirely to continuing operations.
Consolidated Statement of Comprehensive Income for the year ended 30 June 2023
Year ended Year ended 30 June 30 June 2023 2022 GBPm GBPm Profit for the financial year 323.7 215.8 Total comprehensive income for the financial year 323.7 296.3 Attributable to: Owners of the parent 323.8 296.7 Non-controlling interest (0.1) (0.4) 323.7 296.3 --------------------------------------------------- ----------- ------------
The results relate entirely to continuing operations.
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 2022 2023 GBPm GBPm Revenue: Ongoing revenue Platform fees 270.5 289.1 Fund management fees 54.3 60.3 Ongoing advice charges 7.4 8.3 Active Savings revenue (1) 8.7 1.8 Net interest income 268.7 50.0 Renewal commission 3.0 4.6 Transactional revenue Fees on stockbroking transactions 116.9 164.6 Initial advice charges 4.7 4.0 Other transactional income 0.9 0.3 Total Revenue 735.1 583.0 ----------------------------------- ------------ ----------------
(1) Active Savings revenue was previously disclosed within net interest income and is now disclosed separately.
1.2 Segmental reporting
Under IFRS 8, operating segments are required to be determined based upon the way the Group generates revenue and incurs expenses 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 direct wealth management service administering investments in ISA, SIPP and Fund & Share accounts, and providing cash management services for individuals and corporates in the United Kingdom. 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 2023 30 June 2022 GBPm GBPm Depreciation of owned plant and equipment and right-of-use assets 8.5 8.9 Amortisation of other intangible assets 6.8 6.2 Impairment of intangible assets - 1.0 Operating lease rentals payable - property - 0.1 FSCS costs 6.1 12.1 Activity costs(2) * Marketing costs 20.7 25.8 * Dealing & financial services costs 23.4 24.6 Technology costs(*) 40.4 29.7 Support costs (1) * Legal and professional costs 40.9 33.1 * Office running costs 8.4 4.9 * Other operating costs 16.2 11.2 Staff (including contractors) costs (note 1.4) 179.3 155.5 -------------------------------------------- --------------- --------------- Operating costs 350.7 313.0 -------------------------------------------- --------------- ---------------
(*) The line item description of this category has changed from the prior year.
(1) Support costs includes costs previously known as legal and professional fees and office running costs. Also included in support costs are compensation and compliance costs, other finance costs, insurance costs and fair value movements on investments (note 2.1).
(2) Activity costs now includes costs previously known as marketing costs and dealing and financial services costs.
1.4 Staff costs
Year ended Year ended 30 June 30 June 2023 2022 The average monthly number of employees of the No. No. Group (including executive Directors and contractors) was: Operating and support functions 1,558 1,533 Administrative functions 661 576 2,219 2,109 -------------------------------------------------------- ----------- ------------ Their aggregate remuneration comprised: GBPm GBPm Wages and salaries 149.9 122.2 Social security costs 14.4 14.2 Share-based payment expenses 8.2 8.4 Other pension costs 16.0 13.2 -------------------------------------------------------- ----------- ------------ Total costs paid for staffing 188.5 158.0 -------------------------------------------------------- ----------- ------------ Capitalised in the year (9.2) (2.5) Staff (including contractors) costs as a deduction to operating profit 179.3 155.5 -------------------------------------------------------- ----------- ------------
Included in the above figures are 143 (2022: 80) contractors with a total cost of GBP15.5 million (2022: GBP6.0m).
1.5 Finance and other income
Year ended Year ended 30 June 30 June 2023 2022 GBPm GBPm Interest on bank deposits 15.8 - Other income 3.2 - 19.0 - ------------------------------------------------- ----------------- -----------
1.6 Finance costs
Year ended Year ended 30 June 30 June 2023 2022 GBPm GBPm Commitment fees 0.3 0.3 Interest incurred on lease payables 0.4 0.5 Finance costs 0.7 0.8 ------------------------------------- ------------- -----------
1.7 Tax
Year ended Year ended 30 June 2023 30 June 2022 GBPm GBPm Current tax: on profits for the year 80.0 52.3 Current tax: adjustments in respect of prior years (0.2) (0.4) Deferred tax (note 2.4) (0.8) 1.0 Deferred tax: adjustments in respect of prior years (note 2.4) - 0.5 79.0 53.4 ----------------------------------------------- -------------- ------------
Corporation tax is calculated at 20.5% of the estimated assessable profit for the year to 30 June 2023 (2022: 19%).
In addition to the amount charged to the Consolidated Income Statement, certain tax amounts have been charged or (credited) directly to equity as follows:
Year ended Year ended 30 June 30 June 2022 2023 GBPm GBPm Deferred tax relating to share-based payments (0.2) (0.6) Current tax relating to share-based payments (0.1) 0.1 ----------------------------------------------- ----------- --------------- (0.3) (0.5) ----------------------------------------------- ----------- ---------------
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 2021 the standard UK corporation tax rate was at 19% before increasing to 25% from 1 April 2023. Accordingly, the Group's taxable profits for this accounting year are taxed at 20.5%. Deferred tax has been recognised at either 20.5% or 25% depending on the rate expected to be in force at the time of the reversal of the temporary difference.
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 2023 30 June 2022 GBPm GBPm Profit before tax 402.7 269.2 ---------------------------------------------- -------------- ---------------- Tax at the standard UK corporate tax rate of 20.5% (2022: 19.0%) 82.6 51.1 Non-taxable income (5.7) 0.1 Items not allowable for tax 2.3 2.3 Additional deduction for tax purposes (0.2) (0.2) Adjustments in respect of prior years 0.1 0.1 Foreign tax suffered 0.1 0.1 Impact of the change in tax rate (0.2) (0.1) Tax expense for the year 79.0 53.4 ---------------------------------------------- -------------- ---------------- Effective tax rate 19.7% 19.9% ---------------------------------------------- -------------- ----------------
The additional deduction for tax purposes only arises from enhanced capital allowances available from the super deduction on qualifying plant and machinery purchased within the financial year ended 30 June 2023.
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) and Hargreaves Lansdown SIP Trust (SIP) reserve which 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 potentially dilutive ordinary shares.
The weighted average number of anti-dilutive share options and awards excluded from the calculation of diluted earnings per share was 1,285,599 at 30 June 2023 (2022: 429,519).
Year ended Year ended 30 June 30 June 2023 2022 GBPm GBPm Earnings Earnings for the purposes of basic and diluted EPS - net profit attributable to equity holders of the parent company 323.8 216.3 -------------------------------------------------------------- --------------- --------------- Number of shares Weighted average number of ordinary shares 474,318,625 474,318,625 Weighted average number of shares held by HL EBT and SIP (242,404) (444,685) Weighted average number of shares held by HL EBT and SIP that have vested unconditionally with employees 89,116 74,702 -------------------------------------------------------------- --------------- --------------- Weighted average number of ordinary shares for the purposes of basic EPS 474,165,337 473,948,642 Weighted average number of dilutive share options held by HL EBT and SIP that have not vested unconditionally with employees 686,256 579,869 Weighted average number of ordinary shares for the purposes of diluted EPS 474,851,593 474,528,511 -------------------------------------------------------------- --------------- --------------- Earnings per share Pence Pence Basic EPS 68.3 45.6 Diluted EPS 68.2 45.6 -------------------------------------------------------------- --------------- ---------------
SECTION 2: ASSETS & LIABILITIES
Consolidated Statement of Financial Position as at 30 June 2023
At 30 June At 30 June 2023 2022 Note GBPm GBPm ASSETS Non-current assets Goodwill 1.3 1.3 Other intangible assets 50.4 37.3 Property, plant and equipment 17.4 22.5 Deferred tax 2.4 2.6 1.9 71.7 63.0 Current assets Investments 2.1 0.5 0.8 Trade and other receivables 2.2 836.9 523.5 Cash and cash equivalents 2.3 373.3 488.3 Current tax assets 3.4 0.6 1,214.1 1,013.2 Total assets 1,285.8 1,076.2 LIABILITIES Current liabilities Trade and other payables 2.5 565.5 488.3 565.5 488.3 Net current assets 648.6 524.9 Non-current liabilities Provisions 3.0 2.6 Non-current lease liabilities 2.6 7.6 11.8 Total liabilities 576.1 502.7 Net assets 709.7 573.5 EQUITY Share capital 3.1 1.9 1.9 Shares held by EBT (6.4) (3.6) EBT reserve (1.0) (2.4) Retained earnings 715.2 579.2 Total equity, attributable to the owners of the parent 709.7 575.1 Non-controlling interest - (1.6) Total equity 709.7 573.5
2.1 Investments
Year ended Year ended 30 June 30 June 2022 2023 GBPm GBPm At beginning of year 0.8 0.9 Purchases 2.0 0.7 Disposals (2.3) (0.8) ------------------------------------------------- ----------- --------------- At end of year 0.5 0.8 ------------------------------------------------- ----------- --------------- Comprising: Current asset investment - UK-listed securities valued at quoted market price 0.5 0.8 ------------------------------------------------- ----------- ---------------
GBP0.5million (2022: GBP0.8m) of investments are classified as held at fair value through profit and loss, being deal-related short-term investments. Fair value movements on investments are included in other support costs, as disclosed in note 1.3.
Investment balances are short-term positions the Group takes as a result of deals placed either in error or due to having to take positions where clients are no longer able to hold an investment. The gross gains and losses in relation to fair value include movements where no investment position is taken and are as shown below:
Fair value movement on investments
Year ended Year ended 30 June 30 June 2022 2023 GBPm GBPm Gross gains 0.6 0.4 Gross losses (2.1) (1.3) -------------- ----------- --------------- (1.5) (0.9) -------------- ----------- ---------------
2.2 Trade and other receivables
Year ended Year ended 30 June 30 June 2022 2023 GBPm GBPm Financial assets Trade receivables 510.3 432.6 Term deposits 130.0 20.0 Accrued income 169.0 49.0 Other receivables 7.6 3.7 ------------------------ ----------- --------------- 816.9 505.3 Non-financial assets Prepayments 20.0 18.2 ------------------------ ----------- --------------- 836.9 523.5 ---------------------- ----------- ---------------
In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties totalling GBP486.0 million (2022: GBP409.5m) 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 GBP659.7 million (2022: GBP532.6m) and the gross amount offset in the Statement of Financial Position with trade payables is GBP186.6 million (2022: GBP130.1m). 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 (2022: GBPnil).
2.3 Cash and cash equivalents
Year ended Year ended 30 June 30 June 2023 2022 GBPm GBPm Cash and cash equivalents Group cash and cash equivalent balances 368.0 488.0 Restricted cash - balances held by HL EBT 5.3 0.3 ----------------------------------- -------------- -------------- 373.3 488.3 --------------------------------- -------------- --------------
At 30 June 2023, 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 GBP7,214 million (2022: GBP8,665m). In addition, there were pension trust and Active Savings cash accounts held on behalf of clients not governed by the client money rules of GBP6,224 million (2022: GBP6,533m). The client retains the ownership 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
Deferred tax assets/(liabilities) arise because of temporary differences only. The following are the major deferred tax assets/(liabilities) recognised and movements thereon during the current and prior reporting years. Deferred tax has been recognised at either 20.5% or 25% depending upon the rate 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 2023.
Other deductible Fixed assets Share-based temporary tax relief payments differences Total GBPm GBPm GBPm GBPm At 1 July 2021 0.3 2.5 0.9 3.7 Charge to income (0.8) (0.7) - (1.5) Charge to equity - (0.3) - (0.3) ------------------------------- ------------- ------------ ----------------- ---------- At 30 June 2022 (0.5) 1.5 0.9 1.9 (Charge)/credit to income (0.2) 1.0 - 0.8 Charge to equity - - (0.1) (0.1) ------------------------------- ------------- ------------ ----------------- ---------- At 30 June 2023 (0.7) 2.5 0.8 2.6 ------------------------------- ------------- ------------ ----------------- ---------- Deferred tax expected to be recovered or settled: Within 1 year after reporting date (0.5) 0.1 0.2 (0.2) > 1 year after reporting date (0.2) 2.4 0.6 2.8 ------------------------------- ------------- ------------ ----------------- ---------- (0.7) 2.5 0.8 2.6 ------------------------------- ------------- ------------ ----------------- ----------
2.5 Trade and other payables
Year ended Year ended 30 June 30 June 2022 2023 GBPm GBPm Financial liabilities Trade payables 487.4 406.7 Current lease liabilities 4.6 4.6 Other payables 38.0 31.0 ----------------------------- ----------- ----------------- 530.0 442.3 Non-financial liabilities Deferred income 0.3 0.3 Accruals 26.5 38.5 Social security and other taxes 8.7 7.2 ----------------------------- ----------- ----------------- 565.5 488.3
In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties totalling GBP483.5 million (2022: GBP404.9m) 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.
All balances classified as deferred income in the prior year have been recognised in revenue in the current year.
2.6 Long-term liabilities
Year ended Year ended 30 June 30 June 2023 2022 GBPm GBPm Lease liabilities greater than 12 months 7.6 11.8 ---------------------------------- -------------- --------------
SECTION 3: EQUITY
Consolidated Statement of Changes in Equity for the year ended 30 June 2023
Attributable to the owners of the Parent Shares Non- Share held Retained controlling Total capital by EBT EBT reserve earnings Total interest equity GBPm GBPm GBPm GBPm GBPm GBPm GBPm At 1 July 2021 1.9 (4.8) (3.1) 599.5 593.5 (1.1) 592.4 -------------------------- --------- -------- ------------ ---------- ---------- ------------- -------- Total comprehensive income(1) - - - 216.3 216.3 (0.5) 215.8 Employee Benefit Trust Shares sold in the year - 5.4 - - 5.4 - 5.4 Shares acquired in the year - (4.2) - - (4.2) - (4.2) HL EBT share sale - - (2.8) - (2.8) - (2.8) Reserve transfer on exercise of share options - - 3.5 (3.5) - - - Employee share option scheme Share-based payments expense (note 1.4) - - - 8.4 8.4 - 8.4 Current tax effect of share-based payments (note 1.7) - - - 0.1 0.1 0.1 Deferred tax effect of share-based payments (note 1.7) - - - (0.6) (0.6) - (0.6) Dividend paid (note 3.2) - - - (241.0) (241.0) - (241.0) -------------------------- At 30 June 2022 1.9 (3.6) (2.4) 579.2 575.1 (1.6) 573.5 Total comprehensive income(1) - - - 323.8 323.8 (0.1) 323.7 Change in ownership - - - (1.7) (1.7) 1.7 - Employee Benefit Trust Shares sold in the year - 2.2 - - 2.2 - 2.2 Shares acquired in the year - (5.0) - - (5.0) - (5.0) HL EBT share sale - - (2.2) - (2.2) - (2.2) Reserve transfer on exercise of share options - - 3.6 (3.6) - - - Employee share option scheme Share-based payments expense (note 1.4) - - - 8.2 8.2 - 8.2 Current tax effect of share-based payments (note 1.7) - - - (0.1) (0.1) - (0.1) Deferred tax effect of share-based payments (note 1.7) - - - (0.2) (0.2) - (0.2) Dividend paid (note 3.2) - - - (190.4) (190.4) - (190.4) At 30 June 2023 1.9 (6.4) (1.0) 715.2 709.7 - 709.7 -------------------------- --------- -------- ------------ ---------- ---------- ------------- --------
(1) Total comprehensive income includes Profit for the year and the total comprehensive income presented is equal to Profit in both years presented.
3.1 Share capital
Year ended Year ended 30 June 30 June 2022 2023 GBPm GBPm Authorised: 525,000,000 (2022: 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 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. Throughout the prior year, the non-controlling interest in Hargreaves Lansdown Savings Limited was held by Stuart Louden, an employee of the Group. During the prior year an agreement was reached to purchase Stuart Louden's shares which was executed during the year and at the year end the Company had 100% control of Hargreaves Lansdown Savings Limited.
3.2 Dividends
Amounts recognised as distributions to equity holders in the year:
Year ended Year ended 30 June 30 June 2023 2022 GBPm GBPm 2022 final dividend of 27.44p (final dividend 2021: 26.6p) per share 130.2 126.0 2022 special dividend of 12.0p per share - 56.9 2023 interim dividend of 12.70p (2022: 12.26p) per share 60.2 58.1 ------------------------------------------------ ----------- ------------ Total dividends paid during the year 190.4 241.0 ------------------------------------------------ ----------- ------------
After the end of the reporting period, the Directors declared a final ordinary dividend of 28.80p pence per share payable on 15 December 2023 to shareholders on the register on 17 November 2023. 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 2023 financial statements as follows:
GBPm 2023 final dividend of 28.80 p (2022 final dividend: 27.44p) per share 136.6 Total dividends 136.6 --------------------------------------------- ---------
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 2023 2022 No. of shares No. of shares Number of shares held by the Hargreaves Lansdown Employee Benefit Trust 779,080 424,035 Representing percentage of called-up share capital 0.16% 0.09% -------------------------------------------------- ----------------- -----------------
SECTION 4: CONSOLIDATED STATEMENT OF CASH FLOWS
Consolidated Statement of Cash Flows for the year ended 30 June 2023
Year ended 30 June Year ended 2023 30 June 2022 Note GBPm GBPm Net cash from operating activities Profit for the year after tax 323.7 215.8 Adjustments for: Income tax expense 1.7 79.0 53.4 Depreciation of plant and equipment 1.3 8.5 8.9 Amortisation of intangible assets 1.3 6.8 6.2 Impairment of intangible assets 1.3 - 1.0 Share-based payment expense 1.4 8.2 8.3
Interest on lease liabilities 1.6 0.4 0.5 Increase/(decrease) in provisions 0.4 (0.1) Operating cash flows before movements in working capital 427.0 294.0 (Increase)/decrease in receivables (203.4) 305.8 Increase/(decrease) in payables 72.2 (285.7) --------------------------------------- -------- -------------- ------------------ Cash generated from operations 295.8 314.1 --------------------------------------- -------- -------------- ------------------ Income tax paid (80.5) (51.2) Net cash generated from operating activities 215.3 262.9 Investing activities (Increase)/decrease in term deposits (110.0) 40.0 Purchase of property, plant and equipment (3.5) (2.8) Cash capitalisation of intangible assets (19.2) (10.9) Proceeds on disposal of investments 0.3 0.1 Net cash generated (used in)/from investing activities (132.4) 26.4 Financing activities Purchase of own shares in EBT (5.0) (4.2) Proceeds on sale of own shares in EBT 2.2 2.8 Payment of principal in relation to lease liabilities (4.7) (3.9) Dividends paid to owners of the parent 3.2 (190.4) (241.0) Net cash used in financing activities (197.9) (246.3) Net (decrease)/increase in cash and cash equivalents (115.0) 43.0 Cash and cash equivalents at beginning of year 2.3 488.3 445.3 Cash and cash equivalents at end of year (including restricted cash) 2.3 373.3 488.3
Section 5: OTHER NOTES
5.1 General information
Hargreaves Lansdown plc (the Company and ultimate parent of the Group) is a company incorporated and domiciled in the United Kingdom under the Companies Act 2006 whose shares are publicly traded on the London Stock Exchange. The address of the registered office is One College Square South, Anchor Road, Bristol, BS1 5HL, United Kingdom. The nature of the Group's operations and its principal activities are set out in the Operating and Financial Review.
These financial statements are presented in millions of pounds sterling (GBPm) which is the currency of the primary economic environment in which the Group operates.
Basis of preparation
These financial statements have been prepared in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The financial statements are prepared on a going concern basis as discussed below.
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 financial statements of the Group.
Going concern
The Group maintains ongoing forecasts that indicate continued profitability in the 2023 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 Contingencies
The Group operates in a highly regulated environment and, in the ordinary course of business, provides information to various regulators and authorities as part of informal and formal requests and enquiries. In addition, the Group receives complaints or claims in relation to its services from time to time brought by clients, investors or other third parties. These may be notified to the Group or directly to third parties, such as the Financial Ombudsman Service in the case of client and investor complaints investigated and not upheld by the Group. These include enquiries, complaints and a threatened claim relating to the LF Equity Income Fund (formerly the Woodford Equity Income Fund).
The Company received a letter purporting to be a pre-action letter from a law firm in March 2021. In June 2021, the Company rejected all the claims made for lack of a substantive basis of claim. The Company is aware that the law firm has since filed a claim form with the court against both Link Fund Solutions Limited and Hargreaves Lansdown Asset Management Limited ("HLAM") for an unspecified amount in October 2022. As at the date of issuing these financial statements, the law firm has not yet confirmed that it has secured sufficient funding to progress the claim, HLAM has not been served with the claim form and no timetable has been set for the conduct of any claim.
All such matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. There are inherent uncertainties in the outcome of such matters and it is not practicable to reliably estimate the financial impact if any, on the Group's results or net assets at the period end.
These matters have been re-assessed throughout the financial year and the above statement is accurate as at the reporting date and up to the date of issue.
5.3 Related party transactions
The Company has a related party relationship with its subsidiaries, 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:
Throughout the prior year, the non-controlling interest in HL Savings Limited was held by Stuart Louden, an employee of the Group. During the prior year an agreement was reached to purchase Stuart Louden's shares which was executed during the year and at the year end the Company had 100% control of Hargreaves Lansdown Savings Limited.
5.3 Related party transactions continued
During the years ended 30 June 2023 and 30 June 2022 the Company has been party to a lease with P K Hargreaves, a significant shareholder during the year and former Director, for rental of the old head office premises at Kendal House. A five year lease was signed in April 2021 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 2023 and 30 June 2022, 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 a member of the Board or Executive Committee during the relevant year shown, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
Year ended Y ear ended 30 June 30 June 2023 2022 GBPm GBPm Short-term employee benefits 8.1 8.6 Post-employment benefits 0.4 0.4 Other long-term benefits 0.5 0.4 Termination benefits 0.9 0.5 Share-based payments 2.1 5.2 ----------------------------- ----------- -------------- 12.1 15.1 ----------------------------- ----------- -------------- Non-Executive Directors fees 1.1 1.0 ----------------------------- ----------- --------------
The table above has been updated to include Non-executive Directors Fees, which were not included in the prior year.
In addition to the amounts, six key management personnel (2022: eight) received gains of GBP1.0 million (2022: GBP1.6m) as a result of exercising share options. During the year, awards were made under executive option schemes for nine key management personnel (2022: nine).
Included within the previous table are the following amounts paid to Executive 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 Y ear ended 30 June 30 June 2023 2022 GBPm GBPm Short-term employee benefits 2.7 2.6 Post-employment benefits 0.1 0.1 Other long-term benefits 0.2 0.2 Share-based payments 0.6 1.4 ----------------------------- ----------- ------------- 3.6 4.3 ----------------------------- ----------- -------------
In addition to the amounts above, Directors of the Company received gains of GBP0.3 million relating to the exercise of share options (2022: GBP0.7m).
Year ended Y ear ended 30 June 30 June 2023 2022 GBPm GBPm Emoluments of the highest paid Director 2.5(1) 1.9(1) ------------------------------------------------------- ----------- ---------------- No. No. Number of Directors who exercised share options during the year 1 2 Number of Directors who were members of money purchase pension schemes 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.
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.
5.4 Non-statutory accounts
The consolidated financial information as noted in this document does not constitute the Group's statutory financial statements for the years ended 30 June 2023 or 30 June 2022 but is derived from them. Statutory financial statements for 2022 have been delivered to the registrar of companies and those for 2023 will be delivered in due course. The auditors have reported on both sets of financial statements and their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 of the Companies Act 2006.
Section 6: STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The directors are responsible for preparing the Report and Financial Statements 2023 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 and the parent company financial statements in accordance with UK-adopted international accounting standards.
Under company law, 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 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 UK-adopted international accounting standards have been followed, 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 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 also responsible for keeping adequate accounting records that are sufficient to show and explain the group's 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.
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 Report and Financial Statements 2023 and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the group's and parent company's position and performance, business model and strategy.
Each of the directors, whose names and functions are listed in The Board of Directors confirm that, to the best of their knowledge:
-- the group and parent company financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities and financial position of the group and parent company, and of the profit of the group; and
-- the Strategic 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.
In the case of each director in office at the date the directors' report is approved:
-- so far as the director is aware, there is no relevant audit information of which the group's and parent company's auditors are unaware; and
-- they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the group's and parent company's auditors are aware of that information.
By order of the Board
Amy Stirling
Chief Financial Officer
18(th) September 2023
Executive Directors
Dan Olley
Amy Stirling
Non-Executive Directors
Deanna Oppenheimer
Andrea Blance
Adrian Collins
Penny James
Moni Mannings
Michael Morley
Roger Perkin
Darren Pope
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
Failure to execute strategic plans Risk Potential Mitigations Key risk 2022/23 activity impact indicators ------------------------------------------------------------ ----------------------------------------------------------- -------------------------------------------- ---------------------------------------------------------- The risk that * Erosion of shareholder value * The Executive Committee and Board review strategy in * Technology and resiliency risk events * Commenced execution against three year strategy HL does not the context of propositional design and service deliver on enhancement on a regular basis the * Negative impact on our brand and reputation * NNB v forecast * Progressed proposition enhancements including fund strategy develop, active savings capacity and client or in the * Oversight and tracking of strategic deliverables at communication and cash ISA wrapper forecasted * Negative impact on client experience and HL's ability senior level governance forums (i.e. Quarterly * Client retention
timescales to maintain market share Business Review) due to * Developed a Digital roadmap, including Cloud incorrect * Service rating deployment and engagement of enhancement telephonic information * Clear objectives aligned to Executive owners and a capability or supporting operating plan in place assumptions based on changing market dynamics, inability to react to changes, or that the activities supporting the delivery of the strategy are inadequate or poorly designed. ------------------------------------------------------------ ----------------------------------------------------------- -------------------------------------------- ---------------------------------------------------------- Business Performance Risk Potential Mitigations Key risk 2022/23 activity impact indicators --------------------------------------------------------- --------------------------------------------------- -------------------------------- -------------------------------------------------------- The risk that * Earning fluctuations * Diversified revenue streams balanced between * Profit Before Tax * Increased targeted marketing campaigns HL does not recurring and transaction-based meet the agreed * Blocker to delivery of strategic objectives * Underlying Costs * Targeted pricing adjustments business * Monitoring and maintenance of client service performance targets * Erosion of shareholder value and / or market share * Client metrics (net, * Prioritisation of internal investment on service, linked * Executive and Board Governance new and retention) technology & risk to strategy, due to poor * Robust cost control * Executive oversight and development of KPIs delivery, cost management and/or decision making. --------------------------------------------------------- --------------------------------------------------- -------------------------------- --------------------------------------------------------
Operational risks
Technology Risk Potential Mitigations Key risk 2022/23 activity impact indicators --------------------------------------------------- ----------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------------ As HL moves through its * Inability to maintain operational efficiency * Scalable IT Architecture planning * Unplanned downtime of client facing applications * Formation of new teams to support strategy in tooling transformation, and technology enablement the risk of technology * Failure to deliver against strategy * Rolling internal and external monitoring of IT * Status of critical projects failing to environment * Leverage Cloud technology to improve transfer out meet current processes business and * Poor client outcomes * Core system monitoring future * Identification of contingency providers for operational technology * Broadened our Learning tools and introduced new requirements * Reputational damage * System patching status mentoring and coaching programmes or at the pace required to * IT recovery capability, planning and testing deliver the * Regulatory intervention * Technology risk events * Migration of client telephony services to Amazon strategic Connect outcomes, or the risk of system/data * Full End-to-End IT Testing platform being unavailable resulting in * Platform security improvements disruption to business operations * Launched first cloud journey, improving our transfers and the process potential for customer detriment, * Operational Resilience programme financial loss, damage to reputation, * Operational Plan, including prioritisation of IT regulatory development fines and/or censure. --------------------------------------------------- ----------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------------ Administration Risk Potential Mitigations Key risk 2022/23 activity impact indicators ------------------------------------------- --------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- Risk of failure * Poor client service & outcome(s) * Ongoing First Line of Defence monitoring of controls, * NPS * Focused workforce planning and tool deployment to or delay of control management, self-assessment and quality support service improvements any of the assurance activities * Loss of client assets or money * Risk events (including CASS breaches) and Compliance
that are breach monitoring * Roll out of Amazon Connect telephony capability carried * Process and procedural documents out in support * Reputational damage of the actual * Third party breaches * Enhancements to our transfer processes process of * Training and development administration * Failure to comply with Consumer Duty of investing. * Complaints * Development of digital roadmap to drive further * Operational MI service capability * Regulatory intervention * Helpdesk call quality * Control focus at key governance forums, including CASS Committee, Executive Risk Committee and Operating Committee oversight * Operational processing and transactional error rates ------------------------------------------- --------------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- Regulatory Compliance Risk Potential Mitigations Key risk 2022/23 activity impact indicators ----------------------------------------------------------- ------------------------------------------------------ --------------------------------------------------- ------------------------------------------------------------ Risk that required * Regulatory breaches * Regulatory horizon scanning and business impact * Volume of new outputs from regulatory bodies * Investment into 'Foundation' strategic pillar regulatory analysis change is not * Regulatory intervention * Number of regulatory change projects * Consumer Duty implementation implemented * Compliance monitoring to regulatory * Reputational damage * Risk Events and Compliance breaches * CASS Improvement Plan expectations * Ongoing open dialogue with the FCA or requirement * Inability to deliver business strategy or objectives * Complaints * First ICARA under new IFPR rules and/or * Executive Risk Committee oversight existing regulatory * Increased and enhanced Compliance Monitoring capacity requirements are not met. ----------------------------------------------------------- ------------------------------------------------------ --------------------------------------------------- ------------------------------------------------------------ Financial crime Risk Potential Mitigations Key risk 2022/23 impact indicators activity ----------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------- ----------------------------------------------------------- Risk that HL * Loss of sensitive data * Dedicated Chief Information Security Officer and team, * Fraud monitoring * Completion of Financial Crime transformation fails to and a Security Operations Centre focused on the programme (part 1) design detection, containment and remediation of information or * Poor client outcomes (including fraud) security threats * Cyber threat assessment implement * Increased capability and capacity of Financial Crime appropriate teams frameworks, * Negative impact on confidence in HL * Dedicated Information Security, Anti Money laundering * Time taken to address security vulnerabilities including and Client Protection teams in place policies, * Operational delivery of Client Risk Assessment tool processes, * Diminish the integrity of the financial system * Number of Information Commissioner's Office (ICO) or * Specialist AML screening team notifiable data protection breaches technology, * Delivery of enhanced client Sanction controls to counter * Regulatory intervention HL being * Formal policies and procedures and a robust, rolling used risk-based programme of penetration and vulnerability to further testing in place financial crime by either * Enhanced Sanction control environment internal or external parties * Horizon scanning peer group to understand industry trends ----------------------------------------------------- ------------------------------------------------------------- -------------------------------------------------------- ----------------------------------------------------------- Data Management Risk Potential Mitigations Key risk 2022/23 impact indicators activity --------------------------------------------- -------------------------------------------------------- ------------------------------------------------- ------------------------------------------------------------ Risk that HL * Loss of sensitive data * Dedicated Chief Information Security Officer, Chi * Data related Risk Events * New Data Risk Management Policy fails to ef design Data Officer and Data Protection Officer in place or * Poor client outcomes (including fraud) * Data reporting issues * Refresh of the suite of data standards supporting the
implement policy appropriate * Data Governance function frameworks, * Inefficient processing * Data Privacy Impact Assessment completions including * Established a cross organisational Data Panel to policies, * Robust data access controls improve the management and use of data processes, * Regulatory intervention * Cyber events or technology, * Data storage standards * Data Management and Information Security programmes to manage * Fraud events data and data * Monitoring of sensitive data usage storage * Data Panel --------------------------------------------- -------------------------------------------------------- ------------------------------------------------- ------------------------------------------------------------ Product & Proposition Risk Potential Mitigations Key risk 2022/23 impact indicators activity ----------------------------------- -------------------------------------------------------- -------------------------------------------------- ------------------------------------------------- Risk of developing/selling/communicating * Poor client outcomes * Colleague communication and training * Client survey results * Delivery against forthcoming Consumer Duty new products regulations or maintaining existing products * Negative reputational impact * Risk and incident monitoring and review * Complaints that result * Investment in Model Risk capabilities in poor outcomes for clients. * Regulatory censorship * Executive Risk Committee and Product Governance * Clients cancelling a new product or service Committee oversight * Launch FlexInvest * Corporate and social responsibility programme * Whistleblowing process * Fair value assessment * Robust marketing and financial promotion controls * Model Risk Management ----------------------------------- -------------------------------------------------------- -------------------------------------------------- ------------------------------------------------- Operational Resilience Risk Potential Mitigations Key risk 2022/23 impact indicators activity --------------------------------------------- -------------------------------------------- --------------------------------- ---------------------------------------------------------- Risk that HL * Poor client outcomes * Business Impact Analysis * System downtime * Enhancements to the End-to-End IT testing platform fails to establish robust * Policy or regulatory breaches * Business Continuity Plans * Process failures * Investment in Operational Resiliency tools and operational processes resilience solutions * Operational inefficiencies or failures * Disaster Recovery Plans * Crisis management response to * Review and enhancements to crisis management and support incident management approaches positive * Reputational damage * Strong Incident Management capability client outcomes. * Dedicated Operational Resiliency team and programme * Regular incident scenario testing * Scenario based playbooks * Vulnerability remediation * Operating Committee oversight --------------------------------------------- -------------------------------------------- --------------------------------- ---------------------------------------------------------- Employee Relations Risk Potential Mitigations Key risk 2022/23 impact indicators activity ----------------------------------------------- ------------------------------------------------------------ -------------------------------------- ------------------------------------------------------------ The risk that HL does not * Operational inefficiency or poor conduct * Effective performance and Talent Management * Colleague retention rates * Breathing Space payment for junior colleagues to help adapt its employee with cost of living relation components to meet the * Poor client outcomes * Regular review of employee reward offering to ensure * Colleague absence monitoring changing market competitive reward offering * Improvements in 'Health & Wellbeing' support to all environment colleagues and the way * Reputational damage * Gender Pay Gap that HL will * Regular staff surveys and employee forums to operate as understand morale * People communications through HL Way to support HL it transforms, * Diversity & Inclusion Values such as employee attraction, * People agenda monitored at ExCo and Board recruitment, * Broadened out our Learning tools onboarding, development, * Robust whistleblowing policy and supporting processes
retention as * New mentoring and coaching schemes well as employment laws which leads to * Evolved our Responsible Business Strategy through our employee/customer/HL ESG Taskforce detriment. ----------------------------------------------- ------------------------------------------------------------ -------------------------------------- ------------------------------------------------------------ Change Management Risk Potential Mitigations Key risk 2022/23 impact indicators activity ------------------------------- ------------------------------------------------------- ------------------------------------------- ------------------------------------------------------------ The risk that * Operational inefficiency * Delivery & Change Co-ordination Function * Change envelopes (financial budgets) * Development of Operating plan embedding strategic HL change priorities initiatives are not * Poor client outcomes * Change Delivery Framework & controls * Delivery plans (milestones) delivered * Embedding of Change Delivery Framework and delivery in a timely controls and oversight processes manner or * Reputational damage * Exco and Business Investment Committee oversight fail to deliver * Change delivery recruitment in 1LoD the required business * Ongoing Executive and management oversight mechanisms outcomes; (replacing ABR & QBR bullet) resulting in compromised delivery. ------------------------------- ------------------------------------------------------- ------------------------------------------- ------------------------------------------------------------ Information Security Risk Potential Mitigations Key risk 2022/23 impact indicators activity ---------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------- -------------------------------------------------------- The risk that information * Service disruption or failure * Dedicated Chief information Security Officer in place * Vulnerability management effectiveness * Access control developments including privileged security access management. protocols do not keep * Compromise of sensitive and or corporate data * Organisational remit reporting through SMF24 * Cyber Events up with good * Platform Security improvements. practices and developments * Negative reputational damage * Cyber Security Strategy and Plan * Cyber Threat assessment resulting in * Cyber threat intelligence and Security monitoring unauthorised improvements access, * Impacted client outcomes * Cyber agenda monitored at Exco and Board * Third party governance KRIs security breaches * Endpoint Security Improvements modification * Regulatory censure/fines * Secure by Design regime for all change activities * Colleague security awareness and compliance or loss resulting in the * Cyber Security controls aligned in industry good potential practice for customer detriment, financial * Security Testing and assurance regime loss, damage to reputation * Supply chain security assurance regime or regulatory fines/censure. * Cyber vulnerability management, monitoring, incident planning and response * Scenario testing for Senior Leadership. Formal scenario selection and assessment for ICARA provision ---------------------------------------------------- ------------------------------------------------------------ -------------------------------------------------- --------------------------------------------------------
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 Definition Why we use this measure Reconciliation Underlying Underlying cost related This has been amended This measure Activity costs to stockbroking, financial in the period to provide is the same services costs and marketing visibility of the costs as the Activity costs on a transactional that are associated Costs figures basis related to the volume with both client numbers within note of activity undertaken and transactional volumes, 1.3 less by our clients. to allow comparison strategic from year to year. investment costs that fit this categorisation of GBP0.1m. ---------------------------------- ------------------------------- ------------------ Dividend per Total dividend payable Dividend per share N/A share (pence relating to a financial is pertinent information per share) year divided by the total to shareholders and number of shares eligible investors and provides to receive a dividend. them with the ability Note ordinary shares held to assess the dividend in the Hargreaves Lansdown yield of Hargreaves Employee Benefit Trust Lansdown plc shares. have agreed to waive all
dividends (see note 3.2 to the consolidated financial statements). ---------------------------------- ------------------------------- ------------------ Underlying Underlying cost related People costs are our Equivalent People costs to staff, the main driver largest cost category to staff of cost in our business and our people are costs figure the key driver of our within note Business and our strategy. 1.3, less strategic investment costs of GBP11.3m ---------------------------------- ------------------------------- ------------------ Platform Growth The net value of new assets Provides the most useful N/A brought onto the platform measure of tracking, less assets leaving the over time, the element platform, excluding cash of net new business placed with Active Savings. that is made up of assets brought onto the platform. ---------------------------------- ------------------------------- ------------------ Net movement The net value of assets Separated out from N/A to Active Savings moving from the HL platform Platform Growth to to Active Savings highlight the change in asset mix within the business and the retention provided by Active Savings. ---------------------------------- ------------------------------- ------------------ Active Savings The net value of new cash Provides the most useful N/A Growth placed with Active Savings. measure of tracking, over time, the element of net new business that is made up of cash brought into Active Savings. ---------------------------------- ------------------------------- ------------------ Market growth The underlying market Provides the best measure N/A and other movement and other retained for highlighting changes investment income, including in the AUA that are dividends reinvested on not directly impacted behalf of clients by client activity. ---------------------------------- ------------------------------- ------------------ Net interest Revenue from cash divided Provides the most comparable N/A margin (bps) by the average value of means of tracking, cash under administration, over time, the margin net of interest received earned on the cash by clients under administration after considering the amount received by clients ---------------------------------- ------------------------------- ------------------ Revenue margin Total revenue divided Provides the most comparable N/A (bps) by the average value of means of tracking, assets under administration over time, the margin which includes the Portfolio earned on the assets Management Services assets under administration under management held and is used by management in funds on which a platform to assess business fee is charged. performance. ---------------------------------- ------------------------------- ------------------ Revenue margin Revenue from cash (net Provides a means of N/A from cash (bps) interest earned on the tracking, over time, value of client money the margin earned on held on the platform divided cash held by our clients. by the average value of assets under administration held as client money). ---------------------------------- ------------------------------- ------------------ Revenue margin Revenue derived from funds Provides the most comparable N/A from funds held by clients (platform means of tracking, (bps) fees, initial commission over time, the margin less loyalty bonus) divided earned on funds held by the average value of by our clients. 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 margin Management fees derived Provides a means of N/A from HL Funds from HL Funds (but excluding tracking, over time, (bps) the platform fee) divided the margin earned on by the average value of HL Funds. assets held in the HL Funds. ---------------------------------- ------------------------------- ------------------ Revenue margin Revenue from shares (stockbroking Provides a means of N/A from shares commissions, management tracking, over time, (bps) fees where shares are the margin earned on held in a SIPP or ISA, shares held by our less the cost of dealing clients. errors) divided by the average value of assets under administration held as shares. ---------------------------------- ------------------------------- ------------------ Strategic investments The total Cost (excluding Costs relating to the See page costs capitalisation), of the planning and commencement 9 (Including Strategic Investment Programme of the digital technology dual running including staff and professional strategy and core growth costs) fees relating to the planning, initiatives, which commencement and dual include staff costs, running of the digital professional fees and technology strategy, strategic technology costs, that growth initiatives and are considered separately the cost of expanding to reflect the impact associated compliance, on the results of the infrastructure and support Group. functions. ---------------------------------- ------------------------------- ------------------ Underlying Underlying support costs Provides an assessment The measure Support costs includes costs previously of our other costs. is the same known as legal and professional as Support fees and office running costs, within costs, including operating note 1.3,
lease rentals. Also included less strategic in underlying support investment costs are depreciation costs of of owned plant and equipment, GBP1.6m amortisation of other intangible assets and impairment. ---------------------------------- ------------------------------- ------------------ Underlying Costs associated with Provides a means of The sum Technology the use of third-party understanding the impact of Depreciation, costs software and data feeds that increasing or Amortisation, used in the performance changing our proposition Impairment, of daily business. has on our costs. Operating lease rentals payable and Support costs per note 1.3, less strategic investment costs of GBP22.7m ---------------------------------- ------------------------------- ------------------ Underlying Underlying profit after The calculation of N/A basic earnings tax divided by the weighted basic earnings per per share average number of ordinary share using statutory shares for the purposes profit after tax adjusted of basic EPS. for those costs that are related specifically to our strategic investments. ---------------------------------- ------------------------------- ------------------ Underlying Operating costs less strategic Provides relevant information Operating costs investment costs (including on the year-on-year costs per dual running costs). cost of the underlying note 1.3 business as we go through less GBP36.1m a period of significant strategic strategic investment. investment costs ---------------------------------- ------------------------------- ------------------ Underlying Underlying profit after The calculation of N/A diluted earnings tax divided by the weighted diluted earnings per per share average number of ordinary share using statutory shares for the purposes profit after tax adjusted of diluted EPS. for those costs that are related specifically to our strategic investments. ---------------------------------- ------------------------------- ------------------ Underlying Profit after tax attributable Profit after tax includes Profit after profit after to equity holders of the costs that are part tax per tax parent company excluding of strategic planning the Statement Strategic investment costs and development. This of Comprehensive (including dual running measure helps to provide income after costs). clarity between the adding back profit of the business strategic from period to period investment when those costs are costs and not considered. This adjusting is important as we for a tax go through a period shield effect, of significant strategic as shown investment. on page 6 ---------------------------------- ------------------------------- ------------------ Underlying Profit before tax excluding Provides the best measure Profit before profit before Strategic investment costs for comparison of profit tax per tax (including dual running before tax of the underlying the Statement costs). business performance of Comprehensive as we go through a income after period of significant adding back strategic investment. strategic investment costs as shown on page 6 ---------------------------------- ------------------------------- ------------------
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September 19, 2023 02:00 ET (06:00 GMT)
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