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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hargreaves Lansdown Plc | LSE:HL. | London | Ordinary Share | GB00B1VZ0M25 | ORD 0.4P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 749.80 | 747.80 | 749.20 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Security Brokers & Dealers | 735.1M | 323.8M | 0.6833 | 10.95 | 3.54B |
From Apr 2019 to Apr 2024
TIDMHL.
RNS Number : 9696D
Hargreaves Lansdown PLC
06 February 2018
Hargreaves Lansdown plc
Interim results for the six months ended 31 December 2017
Hargreaves Lansdown plc ("HL" or "the Group") today announces interim results for the six month period ended 31 December 2017.
Highlights
-- Net new business of GBP3.34 billion*. -- Assets under administration up 9% since 30 June 2017 to GBP86.1 billion. -- 1,015,000 active clients, an increase of 61,000 since 30 June 2017. -- Profit before tax increase of 12% to GBP146.9 million. -- Interim dividend up 17% to 10.1 pence per share (H1 2017: 8.6p).
Chris Hill, Chief Executive Officer, commented:
"I'm pleased to report another strong period of growth for Hargreaves Lansdown for client numbers, revenue and profit. We have a significant market opportunity with a clear strategy focused on our clients' needs and offering great value and service to them. Our aim of making it easy and efficient for clients to manage their savings and investments in a secure environment and empowering them to save and invest with confidence is at the heart of our business, and was reflected in our continued growth during the first half of our 2018 financial year."
Hot Features
Premium
Financial highlights 6 months 6 months Change Year
ended ended % ended
31 December 31 December 30 June
2017 2016 2017
(H1 2018) (H1 2017) (FY
2017)
======================= ============= ============= ======= ==========
Net new business* GBP3.34bn GBP2.34bn +43% GBP6.9bn
======================= ============= ============= ======= ==========
Total assets under GBP86.1bn GBP70.0bn +23% GBP79.2bn
administration (AUA)
======================= ============= ============= ======= ==========
Net revenue GBP216.0m GBP184.8m +17% GBP385.6m
======================= ============= ============= ======= ==========
Profit before tax GBP146.9m GBP131.0m +12% GBP265.8m
======================= ============= ============= ======= ==========
Diluted earnings per
share 25.0p 22.4p +12% 44.6p
======================= ============= ============= ======= ==========
Interim dividend per
share 10.1p 8.60p +17% 8.60p
* Excludes the transfer off the Vantage platform of GBP902m of Hargreaves Lansdown plc shares and the withdrawal of GBP56 million of Hargreaves Lansdown plc placing proceeds during the period that were held by a founder.
** Net revenue is total revenue less commission payable / loyalty bonus (see Glossary of alternative performance measures on page 24)
Contacts:
Hargreaves Lansdown
For media enquiries: For analyst enquiries:
Danny Cox, Head of Communications James Found, Head of Investor Relations
+44(0)117 317 1638 +44(0)117 988 9898
Chris Hill, Chief Executive Officer Philip Johnson, Chief Financial Officer
Analyst presentation
Hargreaves Lansdown will be hosting an analyst presentation at 9.00am on 6 February 2018 following the release of these results for the half year ended 31 December 2017. Attendance is by invitation only. A conference call facility will be in place with the following participant dial-in numbers - UK toll free 0800 640 6441, UK (local) 020 3936 2999 and all other locations +44 20 3936 2999. The participant access code is 024358. Slides accompanying the analyst presentation will be available at www.hl.co.uk/investor-relations and an audio recording of the analyst presentation will be available by close of business on the day.
The Interim Results contain forward-looking statements which have been made in good faith based on the information available to us at the time of the approval of this report and should be treated with caution due to the inherent risks and uncertainties, including both economic and business risk factors some of which were set out in the 2017 Annual Report, underlying such forward-looking information.
Unless otherwise stated, all figures below refer to the six months ended 31 December 2017 ("H1 2018"). Comparative figures are for the six months ended 31 December 2016 ("H1 2017"). Certain figures contained in this document, including financial information, have been subject to rounding adjustments. Accordingly, in certain instances the sum of the numbers in a column or a row in tables contained in this document may not conform exactly to the total figure given for that column or row.
LEI Number: 2138008ZCE93ZDSESG90
Chief Executive's Statement
Growth in assets and clients
Hargreaves Lansdown made significant progress in the first half of our 2018 financial year with strong net new business, continued profit growth and the ongoing delivery of our strategy built around empowering people to save and invest with confidence.
Underlying net new business during the period was GBP3.3 billion(1) , helping AUA increase to GBP86.1 billion, up 9 per cent since 30 June 2017 (GBP79.2 billion). This was driven by increased client numbers, the positive market environment and wealth consolidation onto our platform.
At our full year results presentation, we outlined the opportunity for Hargreaves Lansdown across the wider private wealth market. We remain excited about this opportunity and we were pleased to welcome 61,000 net new clients during the period. It was a proud moment for us all when we celebrated reaching the one million active client mark in November 2017. Total active clients now stand at 1,015,000.
Our leading reputation for client service and the breadth of our offering appeal to new clients who, in common with our existing clients, transfer and consolidate their investments onto a single platform and then regularly contribute and take advantage of their annual allowances as they build their own and their family's wealth. Our proposition and scale also enables us to help fund managers in transferring direct back books and we were pleased to welcome clients arriving from BlackRock in the period and Old Mutual due later this year. We should also recognise that operational issues on a competitor platform resulted in significant levels of transfer activity across the period.
Investing in our clients
Our people, marketing and technology are key to delivering a high quality service for clients and in building our brand and reputation. We have consciously increased the rate of investment over the past year to support higher levels of customer activity, deepen our marketing skills, improve our technological development capacity and broaden our offering, all whilst maintaining compliance with significant regulatory change.
We look to develop a lifelong relationship with all our clients, and hence satisfaction and retention are key measures for us. The client retention rate has remained very high at 94.5% and we constantly look at evolving these measures in order to give us greater insight into client expectations and service levels.
Despite a small increase in interest rates, and low overall confidence in the UK, clients continue to invest elsewhere with confidence in order to generate returns and flows have been directed towards overseas markets. Activity levels are up significantly with the Helpdesk regularly handling call levels more than 18% higher than last year, and client instructions averaging one million a month. These are all record levels. We have increased the number of our colleagues in these important client facing roles throughout the period to meet this demand.
Our clients have also needed us to help them through the changes brought about as a result of MiFID II regulation and we believe this has increased our call activity over 50% at times. The transfers of direct books and activity as a result of operational issues on competitor platforms have also been successfully dealt with. All of these outcomes are testament to our strong culture focused around our clients and our dedicated people.
Having restructured our marketing team last year, they have been focused on improving the effectiveness of spend across our channels through a deeper understanding of client segmentation, the client proposition and the content they deliver. In addition, much work has been undertaken on how we deliver our vision of becoming a household name in the UK and, as part of that, we will be launching our updated brand and visual identity this weekend. Clients and those using our website will see a refreshed visual identity but, most importantly, we are using this as an opportunity to develop and expand our tone of voice to complement our broader reach. Our digital presence has continued to expand and develop and we recognise the need to match our approach to the broader range of people with whom we are now building a relationship.
Many improvements to our service are born from listening to the needs of different groups of clients and analysing their activity. We notice an increasing requirement from clients to understand the income produced by their portfolio, particularly as they approach retirement. Our analysis has led to the creation of a new income tab with the objective to provide better visibility and understanding. This resulted in a dramatic change on the Net Ease score for 'finding income on your account' and 'understanding the income on your account' from close to 0% to over 50%.
In order to address the evolving needs of our clients, we are investing in our capability to deliver technological change faster and in a more agile manner, hence our decision a year ago to set up a second IT hub in Warsaw. Over the last six months we have built out our HL Tech team there to 50 people. They are now working closely with the Bristol IT team to push our service forward at a faster pace, with a particular focus on improving our operational capabilities and efficiency.
We were pleased to launch Active Savings, our cash management service, in December 2017. We intend to grow this service through the first half of 2018 via a measured rollout, which has begun with an initial 1,000 clients invited to sign up in January. Although it has taken longer to launch than originally planned, we believe it will make the management of cash savings simpler and easier than ever before, all at the same levels of client service as the rest of our offering. Further developments are planned through 2018 and beyond, including the addition of further banks, easy access accounts and the ISA and SIPP cash capabilities into the service.
As mentioned above, throughout the period we have been busy working on various regulatory requirements such as MiFID II, PRIIPs, PSD2 and GDPR. I believe that our financial services sector is experiencing an unprecedented level of regulatory change. Meeting these requirements is onerous and requires significant planning, development and implementation work across the business in order to meet the deadlines, with consequent additional costs. However, we do believe effective regulation is important to protect consumers and maintain confidence in the financial services industry and we will always work tirelessly to represent our clients' interests. Our strong balance sheet and market-leading positions mean we are well placed to face these challenges.
Financial results
Consistent net new business, delivered at constant revenue margins, and higher markets have driven net revenues forward by 17% in the period to GBP216.0 million (H1 2017: GBP184.8m). This has given us confidence to invest in supporting client service across a period of high customer activity as well as delivering future sources of growth such as Active Savings. Profit before tax increased by 12% to GBP146.9 million (H1 2017: GBP131.0m).
Dividend
The Board believes the Group has sufficiently strong profitability, liquidity and capital positions to execute its strategy without financial constraints and to operate a sustainable and progressive ordinary dividend policy going forward. Given the confidence that we have in our business model and a desire to rebalance increases in the ordinary dividend more towards the interim payment in 2018, the Board has therefore declared a 17% rise in the interim dividend to 10.1 pence per share. The Board remains committed to paying special dividends when sufficient excess cash and capital exist after taking account of the Group's growth, investment and regulatory capital requirements of the time.
Board changes
Mike Evans announced his intention to stand down as Chairman of the Group in May 2017 once a successor had been appointed. A sub-committee of the Nomination Committee, led by our Senior Independent Director Chris Barling, oversaw an extensive search and rigorous assessment process and I am delighted that following regulatory approval Deanna Oppenheimer was appointed as a Director on 2 February 2018 and will become Chair as from 7 February 2018. I would like to thank Mike for his significant contribution as a non-executive Director since 2006 and as Chairman since 2009. Under his guidance the Group has become a successful FTSE 100 business combining strong client focus with high service standards. I thank him also for his support in a process that has seen us strengthen our Board with the appropriate skills, knowledge, experience and diversity to lead the business in its next phase of growth. On behalf of all the Directors and my colleagues, we wish Mike well for his future.
During the period, the Board welcomed Fiona Clutterbuck and Roger Perkin as new independent non-executive Directors. As from 1 January 2018 they were appointed as Chairs of the Remuneration and Audit Committee respectively. On the same date, Shirley Garrood was appointed as Chair of the Risk Committee and, following the completion of the Chair appointment process, she will become Senior Independent Director on 7 February 2018 upon the retirement of Chris Barling. Chris has made a significant contribution to the Board since 2010 with his entrepreneurial and technology experience and, having led the Chair search through to completion, we wish him well. These changes strengthen our Board with the appropriate skills, knowledge, experience and diversity to lead the business in its next phase of growth.
Outlook
There is a significant market growth opportunity as a result of the long term savings gap and increasing requirement for individuals to have greater involvement in their savings and investments. Our purpose is to empower people to save and invest with confidence. We believe that continuing to place our clients at the centre of what we do: offering them great value and service; making it easy and efficient for them to manage their savings and investments in a secure environment; and establishing a lifelong relationship with them will enable us to continue to build more share in this growing market.
The second half of our trading year is traditionally our stronger half for new business, including as it does the tax year-end, which acts as a natural incentive for clients to use tax allowances. Given the geopolitical backdrop and Brexit uncertainty, levels of new business will be influenced by evolving investor sentiment and stock market levels. As usual, the second half of the year will be impacted by the Financial Services Compensation Scheme levy which for last year resulted in a final charge of GBP4.2 million.
I would like to thank our clients for their continued support and recommendation and I would also like to recognise my colleagues for their hard work and commitment. Not only have they continued to deliver the levels of client service for which Hargreaves Lansdown is recognised in the face of significant increases in activity, but also they have delivered solutions to new regulatory requirements as well as new services which will underpin our future growth.
Chris Hill
Chief Executive Officer
(1) Underlying net new business excludes the transfer off the Vantage platform of GBP902 million of Hargreaves Lansdown plc shares and the withdrawal of GBP56 million of Hargreaves Lansdown plc placing proceeds during the period that were held by a founder.
Financial Review
Assets Under Administration (AUA) and Net New Business (NNB)
Unaudited Unaudited Unaudited
3 months to 3 months 6 months
30 September to ended
2017 31 December 31 December
GBPbn 2017 2017
GBPbn GBPbn
Opening AUA 79.2 82.0 79.2
Underlying
NNB 1.5 1.8 3.3
Market growth
& other 1.3 3.3 4.6
Founder transfers(1) - (1.0) (1.0)
--------------------- ------------- ------------ ------------
Closing AUA 82.0 86.1 86.1
(1) Underlying net new business excludes the transfer off the Vantage platform of GBP902 million of Hargreaves Lansdown plc shares and the withdrawal of GBP56 million of Hargreaves Lansdown plc placing proceeds during the period that were held by a founder.
The diversified nature of Hargreaves Lansdown, the breadth of our product offering and the provision of high quality services tailored to the needs of our clients has allowed us to deliver a strong first half of the year for net new business and growth in AUA.
Underlying net new business for the first half totalled GBP3.3 billion. This was driven by increased client numbers, the positive market environment and continued wealth consolidation onto our platform. We also benefited in both the first and second quarters from significant transfer activity relating to operational issues on a competitor platform, which shows the benefit of our strong reputation for client service. We introduced 61,000 net new clients to our services in the six months to 31 December 2017 and grew our active client base by a further 6% to 1,015,000.
Total AUA increased by 9% to GBP86.1 billion as at 31 December 2017 (GBP79.2 bn as at 30 June 2017). This was driven by GBP3.3 billion of underlying net new business (H1 2017: GBP2.3bn), the positive impact of stock market growth and excludes the GBP1.0 billion one-off transfer and withdrawal of assets by a founder. The transfer and withdrawal have no impact on revenue as they were previously within his Fund and Share account which makes no charge for holding shares.
Income Statement
Unaudited Unaudited Audited
6 months ended 6 months Year to
31 December ended 30 June
2017 31 December 2017
GBPm 2016 GBPm
GBPm
Net revenue 216.0 184.8 385.6
Operating costs (70.9) (54.4) (126.7)
Fair value gains
on derivatives 1.1 - 2.2
Non-operating
income 0.7 0.5 4.7
----------------- ----------------- -------------- ----------
Profit before
tax 146.9 130.9 265.8
Tax (27.9) (24.6) (53.8)
----------------- ----------------- -------------- ----------
Profit after
tax 119.0 106.3 212.0
Net revenue
Total net revenue for the period was up 17% to GBP216.0 million (H1 17: GBP184.8 million), driven by higher average AUA and increased client share dealing activity. Average AUA for the period was up 23% outperforming a 9% increase in the average FTSE All Share due to the impact of strong net new business. Net revenue growth was slightly below the rate of AUA growth due to reduced cash margins, in line with our expectations and as communicated in the full year results, as the impact of the August 2016 base rate cut worked through the annual cash placing cycle, and flat revenues from our ancillary business lines whose income is not correlated to AUA levels.
The table below breaks down net revenue, average AUA and margins earned across the main asset classes which our clients hold with us:
6 months ended 6 months ended Year ended 30
31 December 31 December June 2017
2017 2016
Net Average Net Net Average Net Net Average Net
revenue AUA revenue revenue AUA revenue revenue AUA revenue
GBPm GBPbn margin GBPm GBPbn margin GBPm GBPbn margin
bps bps bps
Funds(1) 97.8 47.4(6) 41 80.5 38.4(6) 42 169.2 40.9(6) 41
Shares(2) 42.9 27.3 31 36.2 21.9 33 76.3 23.3 33
Cash(3) 18.2 8.4 43 18.6 7.3 51 36.6 7.5 49
HL Funds(4) 33.3 9.0(6) 74 26.3 7.0(6) 75 56.5 7.7(6) 73
Other(5) 23.8 - - 23.2 - - 47.0 - -
Double-count(6) - (9.0)(6) - - (7.0)(6) - - (7.7)(6) -
----------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total 216.0 83.1(6) - 184.8 67.6(6) - 385.6 71.7(6) -
1 Platform fees and renewal commission.
2 Stockbroking commission and equity holding charges.
3 Net interest earned on client money.
4 Annual management charge on HL Funds, i.e. excluding the platform fee, which is included in revenue on Funds.
5 Advisory fees, Funds Library revenues and ancillary services (e.g. annuity broking, distribution of VCTs and Hargreaves Lansdown Currency and Market Services).
6 HL Funds AUM included in Funds AUA for platform fee and in HL Funds for annual management charge. Total average AUA excludes HL Fund AUM to avoid double-counting.
Net revenue on Funds increased by 21% to GBP97.8m (H1 17: GBP80.5m) due to AUA growth from net new business and higher market levels. Funds remain our largest client asset class at 57% of average AUA (H1 2017: 57%), and the net revenue margin earned on these in the period was 41bps (H1 2017: 42bps). The slight reduction relates to the tiered structure of the platform fee, with a greater value of fund portfolios increasing absolute pound note revenues whilst benefiting from the scale discounts and hence bringing the average margin down. Net revenue margins on Funds have been broadly stable following the completion of RDR and we continue to expect them to remain at similar levels over the remainder of the financial year.
Net revenue on Shares increased by 19% to GBP42.9m (H1 17: GBP36.2m) and the net revenue margin was 31bps (H1 2017: 33bps), within our expected range of 27bps to 33bps. The decrease in margin was primarily due to the significant boost in dealing volumes which were experienced in the comparative period following the June 2016 EU Referendum, although volumes in the current financial year have remained high and are 8% ahead of H1 17 in absolute terms. Management fees charged in the SIPP and Stocks and Share ISA accounts are capped once holdings are above GBP44,444 in the SIPP and GBP10,000 in the ISA. This also causes some dilution to the margin over time as clients grow their portfolio of shares. Shares account for 33% of the average AUA (H1 2017: 32%) and we continue to expect the margin on Shares to be centred around 30bps over the remainder of the financial year, with a range around this depending on actual dealing volume levels.
Net revenue on Cash fell by 2% to GBP18.2m (H1 17: GBP18.6m) as increased AUA levels were offset by a decline in the net interest margin to 43bps (H1 2017 51bps). This was in line with our communicated expectations at the start of the year that margins would be within a 35 to 45bp range for the period following the Bank of England base rate reduction from 0.50% to 0.25% in August 2016. The financial impact of this rate reduction is spread given that the majority of clients' SIPP money is placed on rolling 13 month term deposits. In November 2017, the Bank of England increased the rate back up to 0.50% but again the full impact will take over a year to flow through. Cash accounts for 10% of average AUA (H1 2017: 11%) and, assuming there are no further rate changes, we anticipate the net interest margin on Cash for the 2018 financial year will now be in the range of 40bps to 50bps.
HL Funds consist of ten Multi-Manager funds, on which the management fee is 75bps per annum, and two Select equity funds, on which the management fee is 60bps. Net revenue from HL Funds has grown by 27% this year to GBP33.3m (H1 17: GBP26.3m) following the launch of our two Select funds in December 2016 and March 2017, rising markets and continued net inflows. These fees are collected on a daily basis whereas the Group calculates average AUM on a month end basis. The mathematical impact of this has offset the mix effect, resulting in a headline margin for the period of 74bps (H1 17: 75bps). Please note that the platform fees on these assets are included in the Funds line and hence total average AUA of GBP83.1 billion (H1 2017: GBP67.6bn) excludes HL Funds AUM to avoid double-counting.
Other revenues are made up of advisory fees, our Funds Library data services and ancillary services such as annuity broking, distribution of VCTs and the Hargreaves Lansdown Currency and Market Services. These revenues are primarily transactional and not impacted by market growth and grew by 3%.
Unaudited Unaudited Audited
6 months ended 6 months Year to
31 December ended 30 June
2017 31 December 2017
GBPm 2016 GBPm
GBPm
Net recurring
revenue 167.7 141.9 296.9
Transactional
revenue 44.3 39.2 81.2
Other revenue 4.0 3.7 7.5
------------------ ------------------- ------------------------------ ------------------------------
Total net revenue 216.0 184.8 385.6
The Group's revenues are largely recurring in nature, as shown in the table above, with the proportion of net recurring revenues increasing slightly to 78% in the period (H1 17: 77%). Net recurring revenue is primarily comprised of platform fees, Hargreaves Lansdown fund management fees, interest on client money, equity holding charges and advisory fees. This grew by 18% to GBP167.7 million (H1 17: GBP141.9 million) due to increased average AUA from higher market levels and continued net new business. Recurring revenues provide greater profit resilience and hence we believe they are of higher quality than non-recurring revenues.
Transactional revenue is primarily made up of stockbroking commission and advisory event-driven fees. This grew by 13% to GBP44.3 million (H1 17: GBP39.2 million) with increased equity deal volumes being the key driver.
Other revenue is derived from the provision of funds data services and research to external parties through Funds Library. This was up 8% from GBP3.7 million to GBP4.0 million driven by new Solvency II and MiFID II services.
Operating costs
Unaudited Unaudited Audited
6 months 6 months Year ended
ended ended 30 June
31 December 31 December 2017
2017 2016 GBPm
GBPm GBPm
Staff costs 41.8 31.9 68.6
Marketing and distribution
costs 6.9 5.8 14.3
Depreciation, amortisation
& financial costs 4.4 3.3 9.0
Other costs 18.1 13.7 30.6
--------------------------- -------------------- -------------- -------------
71.2 54.7 122.5
Total FSCS levy (0.3) (0.3) 4.2
--------------------------- -------------------- -------------- -------------
Total operating
costs 70.9 54.4 126.7
As highlighted in the full-year results, we consciously and significantly increased our investment in people, digital marketing and technology during the 2017 financial year as we believe the Group's focus on client service is core to our success as a business and necessary to position us to capture the structural growth opportunity in the UK savings and investments market. This has been validated by the strong net new business levels we have seen across the past 12 months, high client retention rates and continued development of our product set and growth capabilities during the period. We have also had to cope with an unprecedented level of regulatory changes whilst investing to maintain the future scalability of our platform behind the scenes. The increase in the cost run-rate moderated during the first half of 2018 and, excluding the FSCS levy, operating costs increased by 5% to GBP71.2 million versus GBP67.8 million in the second half of last year. However, versus the comparable H1 2017 period where significant increases in post-Brexit client activity levels caused us to be under-resourced and fall short of our internal service expectations, operating costs are up 30%.
Staff costs rose by 31% to GBP41.8 million (H1 2017: GBP31.9 million). Average staff numbers increased by 35% from 970 in H1 17 to 1,310 in H1 18 with the key increases being in Technology, including the build out of HL Tech in Warsaw, Helpdesk and Operations, in line with higher client activity levels, and Marketing as we expand our capabilities.
Marketing and distribution costs increased by 19% to GBP6.9 million (H1 2017: GBP5.8 million) as we invest in our digital marketing presence and various marketing opportunities that proved successful in the second half of last year. Use of mobile and digital media remains a key strategic focus of how we engage with existing and potential new clients and as we gain a deeper understanding of clients and our proposition we can refine and improve the effectiveness of spend. Following significant research and testing, we are launching our updated brand and new visual identity on 10 February 2018, which should further improve client engagement and drive the profile of Hargreaves Lansdown.
Depreciation, amortisation and financial costs increased by GBP1.1 million as a result of higher capital spend in recent years, primarily on our core in-house IT systems.
Total capitalised expenditure in the period was GBP6.0 million (2016: GBP5.0 million). This expenditure was primarily for cyclical replacement of IT hardware, the continued project to enhance the capacity and capability of our key administration systems and the ongoing development of Active Savings.
Other costs rose by GBP4.4 million to GBP18.1 million (H1 2017: GBP13.7 million). The key drivers of this were additional dealing costs resulting from higher share dealing transaction volumes, increased computer maintenance and office costs driven by higher employee numbers, and irrecoverable VAT on non-staff expenses.
The Financial Services Compensation Scheme (FSCS) levy is typically charged in the second half of the year so ordinarily there is no charge in the first half, however, an over accrual for the charge last year gave rise to a credit of GBP0.3 million. In the prior year comparative period, a rebate of GBP0.3 million was received. The FSCS is the compensation fund of last resort for customers of authorised financial services firms. All authorised firms are required to contribute to the running of the scheme and the levy reflects the cost of compensation payments paid by the industry in proportion to the amount of each participant's relevant eligible income. As usual, the second half of the year will be impacted by the Financial Services Compensation Scheme levy, which for last year resulted in a final charge of GBP4.2 million.
Profit before tax
Hargreaves Lansdown's success is built around the service we provide to our clients. In the past 12 months we have consciously increased headcount to ensure we deliver the expected high service standards, while dealing with record volumes of business and investing in further growth opportunities. Despite this, the Group has grown profit before tax by 12% to GBP146.9 million (H1 2017: GBP131.0 million) and maintained its operating margins at an industry leading level of 68% (H1 17: 71%), consistent with the full year 2017 outcome of 68%. This investment is key to driving future growth and ensuring we have a scalable operating platform which we believe will be to the benefit of both clients and shareholders across the market cycle.
Tax
The effective tax rate for the period was 19.0% (H1 2017: 18.8%), in line with the standard rate of UK corporation tax. The Group's tax strategy is published on our website at http://www.hl.co.uk
Earnings per share
Unaudited Unaudited Audited
6 months 6 months Year to
ended ended 30 June
31 December 31 December 2017
2017 2016 GBPm
GBPm GBPm
Operating profit 146.2 130.5 261.1
Finance income 0.7 0.4 1.2
Other gains - 0.1 3.5
-------------------- ------------- ------------- ---------
Profit before
tax 146.9 131.0 265.8
Tax (27.9) (24.6) (53.8)
-------------------- ------------- ------------- ---------
Profit after tax 119.0 106.4 212.0
Diluted share
capital (million) 475.2 474.3 474.7
Diluted EPS (pence
per share) 25.0 22.4 44.6
Diluted EPS increased by 12% from 22.4 pence to 25.0 pence, reflecting the Group's strong trading performance. The Group's basic EPS was 25.0 pence, compared with 22.4 pence in H1 2017.
Capital and liquidity management
Hargreaves Lansdown looks to create long-term value for shareholders by balancing our desire to deliver profit growth, capital appreciation and an attractive dividend stream to shareholders with the need to maintain a market-leading offering and high service standards for our clients.
The Group seeks to maintain a strong net cash position and a robust balance sheet with sufficient capital and liquidity to fund ongoing trading and future growth, in line with our strategy of offering a lifelong, secure home for people's savings and investments. The Group has a high conversion rate of operating profits to cash and its net cash position at 31 December 2017 was GBP275.1 million (H1 2017: GBP189.8 million) as cash generated through trading offset the payments of the 2017 final dividend. This includes cash on longer-term deposit and is before funding the 2018 interim dividend of GBP47.9 million. During the period, the Group entered into a Revolving Credit Facility agreement with Barclays Bank to provide access to a further GBP75 million of liquidity. This is currently undrawn and was put in place to further strengthen the Group's liquidity position and increase our cash management flexibility. The Group also funds a share purchase programme to ensure we avoid any dilution from operating our share-based compensation schemes.
Capital is defined as the total of share capital, share premium, retained earnings and other reserves. As at 31 December 2017, Capital increased to GBP333.1 million (H1 2017: GBP236.5 million) as continued profitability and the Board's decision to retain additional capital resources following the reassessment of the Group's regulatory capital requirements by the FCA in August 2017 more than offset payment of the 2017 final dividend. The Group has four subsidiary companies authorised and regulated by the Financial Conduct Authority. These firms have capital resources at a level which satisfies both their regulatory capital requirements and their working capital requirements and, as a group, we maintain a robust balance sheet retaining a capital base over and above regulatory capital requirements. Further disclosures are published in the Pillar 3 document on the Group's website at www.hl.co.uk.
Dividend
Hargreaves Lansdown has a progressive ordinary dividend policy. The Board considers the dividend on a total basis, with the intention of maintaining the ordinary payout ratio at around 65% across the market cycle and looking to return excess cash to shareholders in the form of a special dividend after the year-end. Any such return will be determined according to market conditions and after taking account of the Group's growth, investment and regulatory capital requirements at the time.
The Board is confident that Hargreaves Lansdown has sufficiently strong financial, liquidity and capital positions to execute its strategy without constraints and can operate a sustainable and progressive ordinary dividend policy going forward. The Board therefore remains committed to the potential payment of a special dividend for the 2018 financial year should sufficient excess cash and capital exist after taking account of market conditions and the Group's growth, investment and prospective regulatory requirements after year end.
In looking to maintain an appropriate balance between interim and full-year ordinary dividends, the Board has declared an increased interim dividend of 10.1 pence per share (H1 2017: 8.6p). The interim dividend will be paid on 9 March 2018 to all shareholders on the register at 16 February 2018.
Responsibility Statement
Directors Responsibility Statement
The Directors confirm that this consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
-- an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
-- material related-party transactions in the first six months and any material changes in the related party transactions described in the last Annual Report.
The Directors of Hargreaves Lansdown plc are listed on page 23 of the Interim Report and Condensed Consolidated Financial Statements 6 months ended 31 December 2017.
By order of the Board:
Philip Johnson
Chief Financial Officer
5 February 2018
Independent Review Report to Hargreaves Lansdown plc
Report on the condensed consolidated financial statements
Our conclusion
We have reviewed Hargreaves Lansdown plc's condensed consolidated financial statements (the "interim financial statements") in the Interim Report and Condensed Consolidated Financial Statements of Hargreaves Lansdown plc for the 6 month period ended 31 December 2017. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Condensed Consolidated Statement of Financial Position as at 31 December 2017; -- the Condensed Consolidated Statement of Comprehensive Income for the period then ended; -- the Condensed Consolidated Statement of Cash Flows for the period then ended; -- the Condensed Consolidated Statement of Changes in Equity for the period then ended; and -- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Report and Condensed Consolidated Financial Statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 5.1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The Interim Report and Condensed Consolidated Financial Statements, including the interim financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report and Condensed Consolidated Financial Statements in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Interim Report and Condensed Consolidated Financial Statements based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim Report and Condensed Consolidated Financial Statements and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
5 February 2018
a) The maintenance and integrity of the Hargreaves Lansdown plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Section 1: Results for the year
Condensed Consolidated Statement of Comprehensive Income
for the period ended 31 December 2017
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
Note GBPm GBPm GBPm
Revenue 1.1 216.1 184.9 385.7
Commission payable (0.1) (0.1) (0.1)
-------------------------------- ---- ------------ ------------ --------
Net revenue 216.0 184.8 385.6
Fair value gains on derivatives 1.1 - 2.2
Operating costs (70.9) (54.4) (126.7)
-------------------------------- ---- ------------ ------------ --------
Operating profit 146.2 130.4 261.1
Finance income 1.3 0.7 0.4 1.2
Other gains - 0.1 3.5
-------------------------------- ---- ------------ ------------ --------
Profit before tax 146.9 130.9 265.8
Tax 1.4 (27.9) (24.6) (53.8)
-------------------------------- ---- ------------ ------------ --------
Profit for the period 119.0 106.3 212.0
Attributable to:
Owners of the parent 118.8 106.0 211.7
Non-controlling interest 0.2 0.3 0.3
-------------------------------- ---- ------------ ------------ --------
119.0 106.3 212.0
Earnings per share (pence)
Basic earnings per share 1.5 25.0 22.4 44.7
Diluted earnings per share 25.0 22.4 44.6
The results relate entirely to continuing operations.
After the balance sheet date, the Directors declared an ordinary interim dividend of 10.1 pence per share payable on 9 March 2018 to shareholders on the register at 16 February 2018.
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
GBPm GBPm GBPm
Profit for the period 119.0 106.3 212.0
--------------------------- ------------ ------------ --------
Total comprehensive income
for the financial period 119.0 106.3 212.0
Attributable to:
Owners of the parent 118.8 106.0 211.7
Non-controlling interest 0.2 0.3 0.3
--------------------------- ------------ ------------ --------
119.0 106.3 212.0
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. An analysis of the Group's revenue is as follows:
Revenue Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
GBPm GBPm GBPm
Revenue from services 197.9 166.3 349.1
Interest earned on client
money 18.2 18.6 36.6
-------------------------- ------------ ------------- --------
Total revenue 216.1 184.9 385.7
Commission payable (0.1) (0.1) (0.1)
-------------------------- ------------ ------------- --------
Net revenue 216.0 184.8 385.6
1.2 Segment information
Under IFRS 8, operating segments are required to be determined based upon the Group's internal organisation and management structure and the primary way in which the Chief Operating Decision Maker (CODM) is provided with financial information. In the case of the Group, the CODM is considered to be the Executive Committee.
The executive committee review the activities of the Group as a single operating segment.
The Group does not operate in more than one location and, as a result, no geographical segments are reported.
The Group does not rely on any individual customer and so no additional customer information is reported.
1.3 Finance income
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
GBPm GBPm GBPm
Interest on bank deposits 0.7 0.4 1.0
Dividends from equity
investment - - 0.2
-------------------------- ------------ -------------- --------
0.7 0.4 1.2
1.4 Tax
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
GBPm GBPm GBPm
The tax charge for the period is based
on the prevailing effective standard rate
of tax for the year to 30 June 2018 of
19.00% (30 June 2017: 19.75%).
Current tax - on profits
for the period 26.9 25.5 52.4
Current tax - adjustments
in respect of prior years - 0.1 1.6
Deferred tax 1.0 (1.0) (0.4)
Deferred tax - adjustments
in respect of prior years - - 0.1
Deferred tax: adjustments
due to changes in tax
rates - - 0.1
--------------------------- ------------ -------------- --------
27.9 24.6 53.8
In addition to the amount charged to the income statement, certain tax amounts have been charged / (credited) directly to equity as follows:
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
GBPm GBPm GBPm
Deferred tax relating
to share-based payments (1.5) 0.4 0.9
Current tax relating to
share-based payments (0.8) (0.3) (1.5)
------------------------- ------------ -------------- --------
(2.3) 0.1 (0.6)
1.5 Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in free issue during the period, including ordinary shares held in the EBT reserve which have vested unconditionally with employees.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding by assuming the conversion of all dilutive potential ordinary shares.
The weighted average number of anti-dilutive share options and awards excluded from the calculation of diluted earnings per share was 153,168 as at 31 December 2017 (1,807,900 at 31 December 2016 and 1,213,461 at 30 June 2017).
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
Earnings (all from continuing GBPm GBPm GBPm
operations)
Earnings for the purposes
of basic and diluted EPS
being net profit attributable
to equity holders of the
parent Company 118.8 106.0 211.7
Number of shares Number Number Number
Weighted average number
of ordinary shares 474,318,625 474,318,625 474,318,625
Weighted average number
of shares held by HL EBT (381,494) (1,594,886) (926,356)
Weighted average number
of share options held by
HL EBT which have vested
unconditionally with employees 611,223 893,358 1,010,585
-------------------------------- ----------- ----------- -----------
Weighted average number
of shares for the purposes
of basic EPS 474,548,354 473,617,097 474,402,854
Weighted average number
of dilutive share options
held by HL EBT that have
not vested unconditionally
with employees 668,003 731,379 562,587
-------------------------------- ----------- ----------- -----------
Weighted average number
of shares for the purpose
of diluted EPS 475,216,357 474,348,476 474,965,441
Earnings per share Pence Pence Pence
Basic EPS 25.0 22.4 44.7
Diluted EPS 25.0 22.4 44.6
Section 2: Assets & Liabilities
Notes to the Condensed Consolidated Statement of Financial Position
for the period ended 31 December 2017
Note Unaudited Unaudited Audited
at 31 at 31 at 30
December December June
2017 2016 2017
GBPm GBPm GBPm
ASSETS:
Non-current assets
Goodwill 1.3 1.3 1.3
Other intangible assets 13.9 9.3 11.9
Property, plant and equipment 12.1 10.9 11.7
Deferred tax assets 2.6 3.4 2.0
--------------------------------- ---- --------- --------- -------
29.9 24.9 26.9
Current assets
Trade and other receivables 2.3 573.0 353.7 628.8
Cash and cash equivalents 2.4 104.2 192.7 81.4
Investments 2.2 0.9 1.8 4.1
Derivative financial instruments 0.2 - 0.3
--------------------------------- ---- --------- --------- -------
678.3 548.2 714.6
--------------------------------- ---- --------- --------- -------
Total assets 708.2 573.1 741.5
LIABILITIES:
Current liabilities
Trade and other payables 354.5 314.0 411.5
Derivative financial instruments 0.1 - 0.2
Current tax liabilities 19.9 22.1 21.5
--------------------------------- ---- --------- --------- -------
374.5 336.1 433.2
--------------------------------- ---- --------- --------- -------
Net current assets 303.8 212.1 281.4
Non-current liabilities
Provisions 0.6 0.5 0.6
Total liabilities 375.1 336.6 433.8
Net assets 333.1 236.5 307.7
--------------------------------- ---- --------- --------- -------
EQUITY:
Share capital 3.1 1.9 1.9 1.9
Shares held by Employee
Benefit Trust reserve (5.5) (13.6) (7.0)
EBT reserve 7.3 10.5 7.9
Retained earnings 328.4 236.9 304.1
--------------------------------- ---- --------- --------- -------
Total equity, attributable
to the owners of the parent 332.1 235.7 306.9
Non-controlling interest 1.0 0.8 0.8
Total equity 333.1 236.5 307.7
2.1 Changes in capital expenditure since the last annual balance sheet date
Capital expenditure
During the six months ended 31 December 2017, the Group acquired fixtures, fittings, plant, equipment and software assets and internally generated intangibles with a cost of GBP6.0 million (H1 2017: GBP5.0 million, year to 30 June 2017: GBP8.4 million).
2.2 Investments
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
GBPm GBPm GBPm
At beginning of period 4.1 1.0 1.0
Sales (3.2) - (0.3)
Purchases - 0.8 3.4
---------------------------------- ------------ ------------- ----------
At end of period 0.9 1.8 4.1
Comprising:
Current asset investment
- UK listed securities
valued at quoted market
price 0.9 1.5 4.1
Current asset investment - 0.3 -
- Unlisted securities valued
at cost
GBP0.9 million (31 December 2016: GBP1.5 million, 30 June 2017: GBP4.1 million) of investments are classified as held at fair value through profit and loss and nil (31 December 2016: GBP0.3 million, 30 June 2017: nil) are classified as available-for-sale.
2.3 Trade and other receivables
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
GBPm GBPm GBPm
Financial assets:
Trade receivables 343.5 301.5 401.1
Term deposits 175.0 - 180.0
Other receivables 3.5 1.5 1.5
---------------------- ------------ ------------- --------
522.0 303.0 582.6
Non-financial assets:
Accrued income 45.9 46.0 40.0
Prepayments 5.1 4.7 6.2
---------------------- ------------ ------------- --------
573.0 353.7 628.8
Trade and other receivables are measured at initial recognition at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties totalling GBP326.2 million (31 December 2016: GBP291.2 million, 30 June 2017: GBP378.6 million) are included in trade receivables. These balances are presented net where there is a legal right of offset and the ability and intention to settle net. The gross amount of trade receivables is GBP394.3 million and the gross amount of offset in the balance sheet with trade payables is GBP68.0 million. Other than counterparty balances trade receivables primarily consist of fees and amounts owed by clients. There are no balances where there is a legal right of offset but not a right of offset in accordance with accounting standards, and no collateral has been posted for the balances that have been offset.
2.4 Cash and cash equivalents
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
GBPm GBPm GBPm
Restricted cash - balances
held by Hargreaves Lansdown
EBT 4.2 2.9 5.5
Group cash and cash equivalent
balances 100.0 189.8 75.9
------------------------------- ------------ ------------ --------
104.2 192.7 81.4
Cash and cash equivalents comprise cash on hand and demand deposits held by the Group that are readily convertible to a known amount of cash. The carrying amount of these assets is approximately equal to their fair value.
At 31 December 2017 segregated deposit amounts held by the Group on behalf of clients in accordance with the client money rules of the Financial Conduct Authority amounted to GBP8,719 million (31 December 2016: GBP7,423 million, 30 June 2017 GBP8,243 million). In addition there were currency service cash accounts held on behalf of clients not governed by the client money rules of GBP14.1 million (31 December 2016: GBP35.0 million, 30 June 2017 GBP13.4 million). The client retains the beneficial interest in both these deposits and cash accounts and accordingly they are not included in the balance sheet of the Group.
2.5 Trade and other payables
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
GBPm GBPm GBPm
Financial liabilities:
Trade payables 322.5 286.0 375.5
Social security and other
taxes 4.8 3.8 8.0
Other payables 18.6 15.1 13.1
--------------------------- ------------ ------------- --------
345.9 304.9 396.6
Non-financial liabilities:
Accruals 8.1 8.8 14.3
Deferred income 0.5 0.3 0.6
--------------------------- ------------ ------------- --------
354.5 314.0 411.5
In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties totalling GBP322.9 million (31 December 2016: GBP286.0 million, 30 June 2017: GBP374.9 million) are included in trade payables. As stated in note 2.3, where we have a legal right of offset and the ability and intention to settle net, trade payable balances have been presented net. The gross amount of trade payables is GBP390.9 million and the gross amount offset in the balance sheet with trade receivables is GBP68.0 million. 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.
Other payables principally comprise amounts owed to clients as a loyalty bonus and to staff as a bonus. Accruals and deferred income principally comprise amounts outstanding for trade purchases and revenue received but not yet earned on group pension schemes where an ongoing service is still being provided.
Section 3: Equity
Condensed Consolidated Statement of Changes in Equity
for the period ended 31 December 2017
Share Shares EBT Retained Total Non-controlling Total
capital held reserve earnings interest equity
by
EBT
reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 July 2016 1.9 (14.9) 12.0 254.6 253.6 0.5 254.1
Total comprehensive
income - - - 106.0 106.0 0.3 106.3
Employee Benefit
Trust:
Shares sold during
the period - 4.2 - - 4.2 - 4.2
Shares acquired
in the period - (2.9) - - (2.9) - (2.9)
EBT share sale - - (2.5) - (2.5) - (2.5)
Reserve transfer
on exercise of
share options - - 1.0 (1.0) - - -
Employee share
option scheme:
Share-based payments
expense - - - 1.3 1.3 - 1.3
Current tax effect
of share-based
payments - - - 0.2 0.2 - 0.2
Deferred tax effect
of share-based
payments - - - (0.4) (0.4) - (0.4)
Dividend paid
(note 3.2) - - - (123.8) (123.8) - (123.8)
---------------------- --------- --------- --------- ---------- -------- ---------------- --------
At 31 December
2016 1.9 (13.6) 10.5 236.9 235.7 0.8 236.5
At 1 July 2017 1.9 (7.0) 7.9 304.1 306.9 0.8 307.7
Total comprehensive
income - - - 118.8 118.8 0.2 119.0
Employee Benefit
Trust:
Shares sold during
the period - 8.3 - - 8.3 - 8.3
Shares acquired
in the period - (6.8) - - (6.8) - (6.8)
EBT share sale - - (2.7) - (2.7) - (2.7)
Reserve transfer
on exercise of
share options - - 2.1 (2.1) - - -
Employee share
option scheme:
Share-based payments
expense - - - 1.9 1.9 - 1.9
Current tax effect
of share-based
payments - - - 0.8 0.8 - 0.8
Deferred tax effect
of share-based
payments - - - 1.5 1.5 - 1.5
Dividend paid
(note 3.2) - - - (96.6) (96.6) - (96.6)
---------------------- --------- --------- --------- ---------- -------- ---------------- --------
At 31 December
2017 1.9 (5.5) 7.3 328.4 332.1 1.0 333.1
The share premium account represents the difference between the issue price and the nominal value of shares issued.
The shares held by Employee Benefit Trust ("the EBT") reserve represents the cost of shares in Hargreaves Lansdown plc purchased in the market and held by the Hargreaves Lansdown plc Employee Benefit Trust to satisfy options under the Group's share option schemes.
The EBT reserve represents the cumulative gain on disposal of investments held by the Hargreaves Lansdown EBT. The reserve is not distributable by the Company as the assets and liabilities of the EBT are subject to management by the Trustees in accordance with the EBT trust deed.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the minority's proportion of the net fair value of the assets and liabilities acquired at the date of the original business combination and the non-controlling interest's change in equity since that date. The non-controlling interest represents a 22% shareholding in Library Information Services Limited and a 7.5% shareholding in Hargreaves Lansdown Savings Limited, both subsidiaries of the Company.
3.1 Share capital Unaudited Unaudited
6 months 6 months Audited
ended ended Year to
31 December 31 December 30 June
2017 2016 2017
GBPm GBPm GBPm
Issued and fully paid:
Ordinary shares of 0.4p 1.9 1.9 1.9
Shares Shares Shares
Issued and fully paid:
Number of ordinary shares
of 0.4p 474,318,625 474,318,625 474,318,625
The Company has one class of ordinary shares which carry no right to fixed income.
3.2 Dividends paid Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
GBPm GBPm GBPm
Amounts recognised as distributions to
equity holders in the period:
2017 Final dividend 96.6 - -
of 20.4p per share
2017 First interim dividend
of 8.6p per share - - 40.7
2016 Second interim
dividend of 16.3p per
share - 77.0 77.0
2016 Special dividend
of 9.9p per share - 46.8 46.8
----------------------------- ------------- ------------- ---------
Total 96.6 123.8 164.5
The Hargreaves Lansdown Employee Benefit Trust (the "EBT"), which held the following number of ordinary shares in Hargreaves Lansdown plc at the date shown, has agreed to waive all dividends.
Unaudited Unaudited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2017 2016 2017
Number of shares held
by the
Hargreaves Lansdown
Employee Benefit Trust
(HL EBT) 551,958 1,540,551 917,011
Representing % of called-up
share capital 0.12% 0.32% 0.18%
Audited
Unaudited Year
6 months Unaudited to
ended 6 months 30
31 ended June
December 31 December 2017
2017 2016
Note GBPm GBPm GBPm
Net cash from operating
activities
Cash generated from
operations 4.1 145.5 130.3 270.5
Income tax paid (27.8) (18.5) (44.7)
----------------------------------- ----- ---------- ------------- --------
Net cash generated from
operating activities 117.7 111.8 225.8
Investing activities
Decrease/(increase)
in term deposits 5.0 - (180.0)
Interest received 0.7 0.4 1.0
Dividends received from
investments - - 0.2
Proceeds on disposal
of investments 3.2 - 2.7
Purchase of property,
plant and equipment (2.6) (1.7) (4.7)
Purchase of intangible
assets (3.4) (3.3) (8.4)
Purchase of investments - (0.8) (3.4)
----------------------------------- ----- ---------- ------------- --------
Net cash used in investing
activities 2.9 (5.4) (192.6)
Financing activities
Purchase of own shares
in EBT (6.8) (2.9) (2.9)
Proceeds on sale of
own shares in EBT 5.6 1.6 4.2
Dividends paid to owners
of the parent (96.6) (123.8) (164.5)
Dividends paid to non-controlling - - -
interests
----------------------------------- ----- ---------- ------------- --------
Net cash used in financing
activities (97.8) (125.1) (163.2)
Net (decrease) in cash
and cash equivalents 22.8 (18.7) (130.0)
Cash and cash equivalents
at beginning of period 81.4 211.4 211.4
----------------------------------- ----- ---------- ------------- --------
Cash and cash equivalents
at end of period 2.4 104.2 192.7 81.4
4.1 Notes to the consolidated Unaudited
cash flow statement 6 months Audited
ended Year to
31 December 30 June
2016 2017
GBPm GBPm
Profit for the period after
tax 106.3 212.0
Adjustments for:
Investment revenues (0.4) (1.2)
Income tax expense 24.6 53.8
Gain on disposal of investments (0.1) (3.5)
Depreciation of plant and
equipment 1.8 3.8
Amortisation of intangible
assets 1.1 2.3
Impairment of intangible
assets - 1.2
Share-based payment expense 1.3 4.1
Increase in provisions - 0.1
------------------------------------ ----------------- ---------
Operating cash flows before
movements in working capital 134.6 272.6
Decrease/(increase) in receivables 263.3 168.2
(Decrease)/increase in payables (267.6) (170.2)
Net derivative movement - (0.1)
------------------------------------ ----------------- ---------
Cash generated from operations 130.3 270.5
Section 5
Other Notes
as at 31 December 2017
5.1 Basis of preparation
The consolidated Interim Financial Statements of Hargreaves Lansdown plc for the six months to 31 December 2017 have been prepared using accounting policies in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and in accordance with the International Accounting Standard (IAS) 34 Interim Financial Reporting and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority. The Interim Financial Statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments, and are presented in pounds sterling which is the currency of the primary economic environment in which the Group operates.
The financial information contained in these Interim Financial Statements does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. However, the information has been reviewed by the company's auditor, PricewaterhouseCoopers LLP, and their report appears earlier in this document. The financial information for the year ended 30 June 2017 has been derived from the audited financial statements of Hargreaves Lansdown plc for that year, which have been reported on by PricewaterhouseCoopers LLP and delivered to the Registrar of Companies. Copies are available on-line at www.hl.co.uk. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by the way of emphasis without qualifying the report and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.
The same accounting policies, methods of computation and presentation have been followed in the preparation of the Interim Financial Statements for the six months ended 31 December 2017 as were applied in the Audited Annual Financial Statements for the year ended 30 June 2017.
Going concern
Throughout the period, the Group was debt free, has continued to generate significant cash and has considerable financial resources enabling it to meet its day-to-day working capital requirements.
The Directors have considered the resilience of the Group, taking account of its current financial position, the principal risks facing the business in severe but reasonable scenarios and the effectiveness of any mitigating actions. As a consequence, the Directors believe that the Group is well placed to manage its business risks in the context of the current economic outlook and have adequate financial resources to continue in operational existence for a period of at least 12 months from the date of approval of these interim financial statements. They therefore continue to adopt the going concern basis in preparing the consolidated interim financial statements.
Seasonality of operations
A high proportion of the Group's revenue is derived from the value of assets under administration or management in either the Vantage Service or the Portfolio Management Service (PMS). The values of these assets are influenced predominantly by new business volumes, the stock market and client withdrawals.
As new business only accounts for a small proportion of asset values and because of other revenue streams and market effects, overall Group net revenue is less seasonal than new business inflows. In the year ended 30 June 2017 51% of revenue was earned during the second half of the year (2016: 51%).
5.2 Material events after interim period-end
After the interim balance sheet date, an ordinary interim dividend of 10.10 pence per share (H1 2017: interim dividend 8.60p) amounting to a total dividend of GBP47.9 million (2017: GBP40.7 million) was declared by the plc Directors. These financial statements do not reflect this dividend payable.
There have been no other material events after the end of the interim period.
5.3 Principal risks and uncertainties
The principal risks and uncertainties which could impact the Group for the remainder of the financial year are those detailed on pages 24 to 26 of the Group's Annual Report and Financial Statements 2017, a copy of which is available on the Group's website www.hl.co.uk. These remain the principal risks and uncertainties for the second half of this financial year and beyond; the key ones of which are listed below and they are regularly considered by the Board.
Operational risks
-- Cybercrime, fraud or security breaches in respect of the Group's information, data, software or information technology systems.
-- Business continuity event. -- Changing markets and increased competition.
Financial risks
-- Risk of a decline in earnings due to a decline in interest rates or regulatory changes affecting interest income.
-- Fluctuations in the capital markets adversely affecting trading activity and /or the value of the Group's assets under administration.
The Group is exposed to interest rate risk, the risk of sustaining losses from adverse movements in interest bearing assets. These assets comprise cash, cash equivalents and term deposits. At 31 December 2017 the value of such assets on the Group balance sheet was GBP279.2 million (at 31 December 2016: GBP192.7 million). A 50bps (0.5%) move in interest rates, in isolation, would therefore, not have a material direct impact on the Group balance sheet or results. This exposure is continually monitored to ensure that the Group is maximizing its interest earning potential within accepted liquidity and credit constraints. The Group has no external borrowings and as such is not exposed to interest rate or refinancing risk on borrowings.
As a source of revenue is based on the value of client cash under administration, the Group also has an indirect exposure to interest rate risk on cash balances held for clients. These balances are disclosed in note 2.4 and are not on the Group balance sheet.
5.4 Related party transactions
The Company has a related party relationship with its Directors and members of the Executive Committee (the "key management personnel"). There were no material changes to the related party transactions during the financial period; transactions are consistent in nature with the disclosure in note 5.6 to the 2017 Annual Report.
5.5 Financial instruments' fair value disclosure
The fair values of the Group's financial assets and liabilities are not materially different from their carrying values. There have been no transfers of assets or liabilities between levels of the fair value hierarchy and there are no non-recurring fair value measurements.
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which fair value is observable:
Level Level Level Total
1 2 3
Quoted Directly Inputs
prices observable not
for market based
similar inputs on observable
instruments other market
than Level data
1 inputs
GBPm GBPm GBPm
Unaudited at 31 December
2017
Financial assets
at fair value through
profit or loss 0.9 - - 0.9
Derivative financial
assets - 0.2 - 0.2
Derivative financial
liabilities - (0.1) - (0.1)
-------------------------- ------------- ------------ --------------- ------
0.9 0.1 - 1.0
-------------------------- ------------- ------------ --------------- ------
Unaudited at 31 December
2016
Financial assets
at fair value through
profit or loss 1.5 - - 1.5
Available-for-sale
financial assets - - 0.3 0.3
-------------------------- ------------- ------------ --------------- ------
1.5 - 0.3 1.8
-------------------------- ------------- ------------ --------------- ------
Audited at 30 June
2017
Financial assets
at fair value through
profit or loss 4.1 - - 4.1
Derivative financial
assets - 0.3 - 0.3
Derivative financial
liabilities - (0.2) - (0.2)
-------------------------- ------------- ------------ --------------- ------
4.1 0.1 - 4.2
-------------------------- ------------- ------------ --------------- ------
The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. Instruments included in Level 1 comprise primarily equity investments and fund units entered into on a counter-party basis. As such there is no recurring valuation of financial instruments between reporting periods.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.
General Information
EXECUTIVE DIRECTORS
Christopher Hill
Philip Johnson
NON-EXECUTIVE DIRECTORS
Chris Barling
Fiona Clutterbuck (appointed 1 September 2017)
Mike Evans
Shirley Garrood
Deanna Oppenheimer (appointed 2 February 2018)
Roger Perkin (appointed 1 September 2017)
Stephen Robertson
Jayne Styles
COMPANY Secretary
Judy Matthews
INDEPENT AUDITOR
PricewaterhouseCoopers LLP, London
SOLICITORS
Osborne Clarke LLP, Bristol
PRINCIPAL BANKERS
Lloyds Bank plc, Bristol
BROKERS
Barclays
Numis Securities Limited
REGISTRARS
Equiniti Limited
Registered Office
1 College Square South
Anchor Road
Bristol
BS1 5HL
Registered number
02122142
WEBSITE
www.hl.co.uk
DIVID CALAR 2017/18
First dividend
(interim)
Ex-dividend 15 February
date* 2018
Record date** 16 February
2018
Payment date 9 March 2018
* Shares bought on or after the ex-dividend date will not qualify for the dividend.
** Shareholders must be on the Hargreaves Lansdown plc share register on this date to receive the dividend.
Glossary of Alternative Performance Measures
Within the Interim Report and Condensed Financial Statements various Alternative Financial Performance Measures are referred to, which are non-GAAP (Generally Accepted Accounting Practice) measures. They are used in order to provide a better understanding of the performance of the Group and the table below states those which have been used, how they have been calculated and why they have been used.
Measure Calculation Why we use this measure
-------------------- -------------------------------- ---------------------------------------
Dividend Total dividend payable Dividend per share is pertinent
per share relating to a financial information to shareholders
(pence year divided by the and investors and provides
per share) total number of shares them with the ability to assess
eligible to receive the dividend yield of the
a dividend. Note Hargreaves Lansdown plc shares.
ordinary shares held
in the Hargreaves
Lansdown Employee
Benefit Trust have
agreed to waive all
dividends.
-------------------- -------------------------------- ---------------------------------------
Operating The costs as per In light of the transitional
Costs the Income Statement period relating to the Retail
excluding commission Distribution Review (see Net
payable (i.e. the Revenue below) and the impact
aggregate of staff this had on commission payable
costs, other operating in the form of loyalty bonuses,
costs and FSCS costs). this measure of Operating
Costs provides a more useful
comparative measure over time.
-------------------- -------------------------------- ---------------------------------------
Operating Profits after deducting Provides a measure of profitability
profit operating costs but of the core operating activities
margin before the impact and excludes non-core items.
of finance income
and other gains or
losses divided by
revenue.
-------------------- -------------------------------- ---------------------------------------
Net new Represents subscriptions, Provides a measure of tracking
business cash receipts, cash the success of gathering assets
inflows and stock transfers on to the platform over time.
in less cash withdrawals,
cash and stock transfers
out.
-------------------- -------------------------------- ---------------------------------------
Net revenue Total revenue less Because of the changes brought
(GBP) commission payments about to the client charging
which are primarily structure by the Retail Distribution
(See loyalty bonuses paid Review ("RDR") there was a
Income to Vantage clients. transitional period (from
Statement 1 March 2014 to 1 April 2017).
on page From 1 March 2014 revenue
11 for was increased as Hargreaves
the reconciliation Lansdown earned both a new
of net platform fee from clients
revenue) and the existing renewal commission
from the Fund Management Groups
based on the value of funds
held by clients. At the same
time the loyalty bonus paid
to clients was significantly
increased on the pre-RDR funds
to largely mitigate the impact
of the new platform fee. In
order to aid comparability
during the period of transition
to 1 April 2017 the net revenue
measure became the most useful
comparative measure of revenue
as it better reflected the
underlying income relating
to funds held by clients.
-------------------- -------------------------------- ---------------------------------------
Net recurring Net revenue that Provides a measure of the
revenue is received every quality of our earnings. We
month depending on believe net recurring revenue
the value of assets provides greater profit resilience
held on the platform and hence is of higher quality
including platform than non-recurring revenue.
fees, management
fees and interest
earned on client
money.
-------------------- -------------------------------- ---------------------------------------
Percentage The total value of Provides a measure of the
of recurring renewal commission quality of our earnings. We
net revenue (after deducting believe recurring revenue
(bps) loyalty bonuses), provides greater profit resilience
platform fees, management and hence it is of higher
fees and interest quality than non-recurring
earned on client revenue.
money divided by
the total net revenue.
-------------------- -------------------------------- ---------------------------------------
Net revenue Total net revenue Provides the most comparable
margin divided by the average means of tracking, over time,
(bps) value of assets under the margin earned on the assets
administration which under administration and is
includes the Portfolio used by management to assess
Management Services business performance.
assets under management
held in funds on
which a platform
fee is charged.
-------------------- -------------------------------- ---------------------------------------
Net revenue Net revenue from Provides a means of tracking,
margin cash (net interest over time, the margin earned
from earned on the value on cash held by our clients.
cash of client money held
(bps) on the platform divided
by the average value
of assets under administration
held as client money).
-------------------- -------------------------------- ---------------------------------------
Net revenue Net revenue derived Provides the most comparable
margin from funds held by means of tracking, over time,
from clients (platform the margin earned on funds
funds fees, initial commission held by our clients.
(bps) less loyalty bonus)
divided by the average
value of assets under
administration held
as funds, which includes
the Portfolio Management
Services assets under
management held in
funds on which a
platform fee is charged.
-------------------- -------------------------------- ---------------------------------------
Net revenue Management fees derived Provides a means of tracking,
margin from HL Funds (but over time, the margin earned
from excluding the platform on HL Funds.
HL Funds fee) divided by the
(bps) average value of
assets held in the
HL Funds.
-------------------- -------------------------------- ---------------------------------------
Net revenue Net revenue from Provides a means of tracking,
margin shares (stockbroking over time, the margin earned
from commissions, management on shares held by our clients.
shares fees where shares
(bps) are held in a SIPP
or ISA, less the
cost of dealing errors)
divided by the average
value of assets under
administration held
as shares.
-------------------- -------------------------------- ---------------------------------------
Transactional Revenue that is non-recurring Such revenue is not as high
revenue in nature and dependent quality as recurring revenue
on a client instruction but helps to show the diversification
such as a deal to of our revenue streams.
buy or sell shares
or take advice.
-------------------- -------------------------------- ---------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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