TIDMHL.
RNS Number : 1337J
Hargreaves Lansdown PLC
07 September 2016
Hargreaves Lansdown plc
Preliminary Results Announcement Year ended 30 June 2016
Embargoed: for release at 0700h, 7 September 2016
Hargreaves Lansdown grows revenue, profit, assets under
administration and active client numbers to new record levels.
Assets exceed GBP60 billion for the first time.
Hargreaves Lansdown plc ("Hargreaves Lansdown" or the "Company")
is pleased to announce its preliminary results for the year ended
30 June 2016.
Highlights:
-- Strong growth in Assets Under Administration up 12% to GBP61.7 billion
-- 836,000 active clients, an increase of 100,000 in the year
-- Profit before tax increase of 10% to GBP218.9 million
-- Total dividend up 3% at 34.0 pence per share
-- See separate RNS and press release for details on Board succession
Year to Year to Change
30 June 30 June %
2016 2015
==================== ========== ========== =======
Net revenue GBP326.5m GBP294.2m +11%
==================== ========== ========== =======
Profit before tax GBP218.9m GBP199.0m +10%
==================== ========== ========== =======
Total assets under
administration GBP61.7bn GBP55.2bn +12%
==================== ========== ========== =======
Diluted earnings
per share 37.3p 33.1p +13%
==================== ========== ========== =======
Net new business
inflows GBP6.0bn GBP6.1bn -2%
Ian Gorham, Chief Executive, commented:
"We are delighted to present a set of results demonstrating a
healthy profit growth and continued substantial new assets and
clients. Hargreaves Lansdown is well positioned to take advantage
of the structural opportunity for growth in the savings and
investments market, including the launch of the Lifetime ISA in
April next year."
About us:
Hargreaves Lansdown operates the UK's largest direct to investor
investment service, administering over GBP61.7 billion of
investments in ISA, SIPP and Investment accounts for 836,000 active
clients. We have been helping clients choose and manage their
investments since 1981 and provide self-directed, advisory and
third party arrangement and management services for individuals and
corporate clients. Hargreaves Lansdown has built a respected
reputation with clients and the investment industry and works
tirelessly to maintain and improve the lot of retail investors. Our
aim is to be the UK's number 1 choice for savings and
investments.
Our success is built around high quality client service tailored
to investor needs, and ensuring that our clients have access to
information to support them with their investment decisions. Our
knowledgeable and helpful staff, technology and experience enable
us to provide an efficient and convenient service to our clients.
The business model is highly scalable and has a strong track record
of delivering growth and value for our shareholders and clients
alike.
We are proud of our success and are committed to delivering
continued value and service to both clients and shareholders.
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
Ian Gorham, Chief Executive Officer Christopher Hill, Chief
Financial Officer
Analysts' presentation
Hargreaves Lansdown will be hosting an investor and analyst
presentation at 9.00am on 7 September 2016 following the release of
the results for the year ended 30 June 2016. To attend the
presentation contact james.found@hl.co.uk. Slides accompanying the
analyst presentation will be available this morning at
www.hl.co.uk/investor-relations and an audio recording of the
analyst presentation will be available by close of business on the
day.
Alternative financial performance measures
Included in this announcement are various alternative
performance measures used by the Company in the course of
explaining the results for the year to 30 June 2016. These measures
are listed along with the calculations to derive them and an
explanation of why we use them on page 23 in the Glossary of
Alternative Financial Performance Measures.
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.
Extract from Chairman's Statement
Continued growth in clients and assets driving a return to
profits growth.
Growth
Our asset gathering has continued despite periods of low
investor confidence during the year, particularly in the first
quarter of the current calendar year which has historically been a
strong period for us. Investors have been concerned by weaker
financial markets, geo-political uncertainty, economic weakness
and, in the latter stages of the reporting period, the debate
surrounding the referendum on the UK's membership of the European
Union ("EU"). Notwithstanding this, we have delivered net new
business inflows in line with last year, underpinned by impressive
numbers of net new clients. As a result, our assets under
administration finished the year at another record level.
We have delivered strong underlying performance across our
business and we are pleased to report a 10% increase in profits,
despite market weakness during the period. The return to profit
growth and the continued pace of asset gathering gives us the
confidence to invest in the future growth of the business. Over the
course of the year, we have broadened the range of our Hargreaves
Lansdown Multi-Manager Funds, and carried on the development of our
savings proposition which remains on target to launch in late
calendar year 2016.
Governance
Good governance remains at the heart of everything we do. During
the course of the year, the Board Risk Committee has spent time on
the development and approval of the Internal Capital Adequacy
Assessment Process and improved its focus on emerging risks. In
appointing Jayne Styles as Chair of the Investment Committee, we
have sought to refine and focus the remit of the Investment
Committee. We commissioned a mid-year Internal Audit review of the
action plan arising from last year's external Board effectiveness
review and are pleased with the progress we are making as we
continue to develop the Board.
Dividend
We are a financially strong Group with a robust balance sheet
retaining a capital base over and above regulatory capital adequacy
requirements. Given the delivery of strong earnings growth in the
year and taking into account the future cash requirements of the
Group, the Board has approved a total dividend for the year of
34.0p per share (2015: 33.0p), representing a 3% increase versus
2015 and a dividend pay-out ratio of 91% (2015: 99%), more in line
with historic pay-out levels. This represents a second interim
ordinary dividend of 16.30p per share (2015: 14.30p) and a special
dividend of 9.90p per share (2015: 11.40p).
People
We recognise the importance of developing a team which contains
the best talent in the industry and have sustained our focus on
supporting our people, with much attention on leadership and
development, culture and succession planning during the year.
We have made a number of changes to the Board. In October 2015
we appointed Jayne Styles as a new independent Non-Executive
Director and Chair of the Investment Committee. Jayne is the Chief
Investment Officer of MS Amlin and brings broad investment
knowledge and relevant financial services experience. In February
2016, we welcomed Christopher Hill as our new Chief Financial
Officer, who brings a wealth of financial and operational
experience. As previously announced, Dharmash Mistry resigned as a
Non-Executive Director at the end of August 2015 and we thank
Dharmash for his contribution to the Board, particularly in the
digital arena.
The coming year is an exciting one as we seek to continue the
Group's growth trajectory, building on the new services and
features delivered in recent years and the introduction of our
savings proposition to allow us to continue to thrive in our chosen
markets. Our dedicated and talented people remain integral to our
success and, as always my gratitude goes to my colleagues for their
continuing hard work, diligence and enthusiasm.
Mike Evans
Chairman
6 September 2016
Chief Executive's Review
We are pleased to present our results for the year ended 30 June
2016, reporting a strong profit increase, alongside excellent
growth in Clients and Client Assets, which now exceed GBP60bn for
the first time.
Headlines
The year to 30 June 2016 saw a return to profit growth, allied
to substantial new assets and new clients in what was an eventful
geo-political financial year.
Profit before tax for the year grew 10% to GBP218.9 million,
aided by revenue from new and existing assets and clients,
increased net interest income, strong flows into new Hargreaves
Lansdown funds and energetic client equity trading, particularly
towards the end of the financial year.
Net new business was GBP6.0 billion (2015: GBP6.1bn),
representing 11% growth in Assets Under Administration (AUA). At 30
June 2016 AUA stood at GBP61.7 billion, up 12% (30 June 2015:
GBP55.2bn). Assets broke through the GBP60bn level for the first
time, despite lower stock markets, with the FTSE All-Share Index
averaging 5.1% lower than last year and ongoing depressed investor
confidence, which always makes gathering new business more
challenging.
We welcomed 100,000 new active clients, up 19% on last year
(2015: 84,000). Active client numbers were 836,000 at 30 June 2016
(30 June 2015: 736,000). Hargreaves Lansdown remains the largest
business of its type in the UK, with 37.5% of the direct investment
market at 31 March 2016 (Source: Platforum*), up from 35.9% in
September 2015 and its market share of UK execution only
stockbroking rose from 24.1% to 27.3%** over the past year.
Continued high service levels were rewarded through our high
asset retention rate of 93.5% (2015: 92.7%) and client retention
rate of 94.3% (2015: 93.4%). Hargreaves Lansdown continues to win
substantial numbers of awards for client service. Our Net Promoter
ScoreSM of 54.7% is excellent and a reflection of our commitment to
client service excellence.
Hargreaves Lansdown's 2016 results
Profit before tax for the year was a record GBP218.9 million.
High client satisfaction drove strong client recruitment and
retention, with associated additional fees and income. Our
Multi-Manager funds continued to be popular, generating GBP44.1
million of fund management income and our new initiatives,
particularly new fund launches, also proved successful. Whilst bank
deposit rates continued to fall, measures put in place in 2015 to
stabilise interest income for both Hargreaves Lansdown and clients
paid off, delivering increased returns from this source. Client
equity trading volumes during the year were considerably higher, up
9% at 3.7 million (2015: 3.4 million), driven particularly by
speculation and volatility around the EU referendum, with a record
63,000 trades conducted on 24 June 2016. This additional trading
drove higher stockbroking commission.
We are well positioned to take advantage of the structural
opportunity for growth in the savings and investments market. We
continue to see opportunities for controlled, selective investment
where we are confident in delivering attractive returns for our
shareholders. In this context, we demonstrated good cost control in
the second half of the year with 7% growth in operating costs in
the second half, compared to 19% in the first half. Given the
macro-economic backdrop, we are very pleased with the profit growth
achieved.
By far the most substantial profit headwind was the level of
stock markets through the year. Although by 30 June 2016 the FTSE
All Share Index finished down only 1.5% on the year before at
3515.45, a late "post Brexit" rally at the end of June 2016 masked
considerably depressed stock market levels throughout the year. On
average during the financial year to 30 June 2016, the Index traded
at a level 5.1% lower than the comparative period in 2015, and
investor confidence was subdued. Our platform and management fee
income is directly linked to client asset values, and had markets
remained flat profit growth would have been even higher.
Clients and assets again grew substantially, with the year-end
assets of our 836,000 active clients valued at GBP61.7 billion. Net
new pension (SIPP) assets were GBP2.7bn (2015: GBP2.3bn), up 17%,
reflecting the continued popularity of the Pension Freedom rules.
Individual Savings Account (ISA) net new business was down 15% at
GBP2.2 billion (2015: GBP2.6bn) and Fund and Share account net new
business flat at GBP1.1 billion (2015: GBP1.1bn). ISA and Fund and
Share account business tends to be more reflective of stock market
performance and given the difficult markets and low investor
confidence, we are not surprised by levels of net new business in
these areas. Deals with JP Morgan and Jupiter led to the
acquisition of 6,588 new clients and GBP264 million of new assets
added to our Vantage service.
There continued to be considerable demand for Hargreaves
Lansdown's expanding asset management capability amongst our
clients. At 30 June 2016 assets in Hargreaves Lansdown
Multi-Manager funds stood at GBP6.3 billion (2015: GBP5.6bn), up
13%. Two new fund launches, "High Income" and "Strategic Assets",
had a combined total of GBP380 million in assets at 30 June 2016.
Our HL Portfolio+ online "robo" investing service continued to
attract assets, with GBP311 million of assets at the year-end
(2015: GBP26m).
The Corporate Vantage service had 335 schemes live or in
implementation by the year end (2015: 256), a 31% increase. An
additional 15,242 net new members joined the service (2015:
11,134), up 29%, and assets in our Corporate Vantage service stood
at GBP1.76 billion by 30 June 2016 (2015: GBP1.30 bn), up 35%.
Annual premiums invested by employees and companies were GBP244.1
million (2015: GBP197.0m), up 24%. Growth in this service,
particularly in the first half of last year, was constrained by the
effect of new auto-enrolment rules on our key markets, with many
companies focusing on achieving compliance rather than selecting
new schemes. New corporate business has benefited from the absence
of that drag this year.
The interest rate environment remains depressed, and therefore
income from cash balances continued to reflect low interest rates.
However, in April 2015 we completed changes to our SIPP which
allowed us to place client money on term deposit, a significant
development as over 50% of cash held by clients with Hargreaves
Lansdown is held in the SIPP. This allowed us to increase both
revenue and deposit rates paid to clients holding cash in their
SIPP. Whilst interest rates remain low we expect to continue to
experience subdued margins on cash balances.
Net Promoter, NPS, and the NPS-related emoticons are registered
service marks, and Net Promoter Score and Net Promoter System are
service marks, of Bain & Company, Inc., Satmetrix Systems, Inc.
and Fred Reichheld
2016/2017 market outlook
A major impact on market outlook is uncertainty caused by the
UK's referendum decision on 23 June 2016 to leave the EU.
Hargreaves Lansdown remained neutral throughout this debate,
believing it a matter for the British people to decide. In the
short term we have seen elevated levels of equity trading in
response to volatility, and weakness in the pound leading to strong
relative performance of overseas funds and investments. The
long-term implications of the vote are unknown. However, we remain
confident about the future and consider our business to be robust.
Hargreaves Lansdown is the largest business of its kind in the UK
and not dependent on any single asset class or investment to
prosper. The requirement for individuals and corporates to commit
to long-term savings remains.
Throughout 2015/2016 UK stock markets were depressed, but
despite this we have reported strong results. The words "headwind"
and "low investor confidence" seem to have featured throughout
recent annual reports. Whilst in the short-term volatility and
uncertainty may continue, as more clarity develops on the execution
path for leaving the EU we hope 2016/2017 may see better
markets.
We have already seen a cut to base interest rates. Further
changes to rates are also possible and would have a commensurate
effect on our interest income.
Group outlook
Hargreaves Lansdown is well positioned to sustain its growth
within the UK savings and investments market. Retail clients
continue to need to manage their finances using a trusted, safe and
secure platform that is easy and efficient to deal with in an
increasingly complex economic environment.
Our 2016 performance has delivered a return to healthy profit
growth, as anticipated in the 2015 report. We remain confident in
investing in our strategy to develop products and services which
will complement the future growth of Hargreaves Lansdown. Business
in the first two months of the new financial year has been in line
with management's expectations, with stockbroking activity from
investors taking advantage of recent volatility and fund investment
relatively quiet over the summer months. The Board's confidence in
the business model is reflected in its approval of a total dividend
for 2016 of 34.0p (2015: 33.0p), representing 3% year on year
growth and a pay-out ratio of 91% (2015: 99%).
In the year to 30 June 2017 we look forward to the launch of HL
Savings, our cash management service. A "soft" initial launch will
allow us to test and refine the service. We therefore do not expect
HL Savings to have a material bearing on financial results for the
year to 30 June 2017. However, this project remains on track and
will mark our entry into an asset sector of significant interest to
all our clients - cash deposits - as well as peer to peer lending
which will follow in 2017.
We intend to expand our fund management range and to grow the
Portfolio+ service. The Corporate service has also again shown good
growth and, whilst a long term project, is adding assets apace and
deserves the continued investment we are making in its distribution
capability.
Mobile services remain important and we have invested in
replacing our mobile phone apps. We have always been at the
forefront of mobile investing and our new version of HL Live for
iPhone and Android will launch during the coming year, building on
our data and experience of our clients' mobile investing needs.
The strong position we have in the UK savings and investments
market, together with the selective investment we have undertaken
to further enhance our customer proposition, underpins our
confidence in continuing to deliver attractive growth and returns
for our shareholders.
The impact of regulation and government policy
Looking forward, we see further growth in the direct investment
market.
Regulation is an ever present theme in financial services.
Addressing regulatory change takes up a considerable amount of our
time and resources. However, Hargreaves Lansdown is well-placed to
address these challenges. Whilst there are always further
regulatory changes coming down the track, we have not identified
any likely to have an unusually material impact.
Corporate citizenship
Hargreaves Lansdown is an ethical company and champion of the
retail investor. We campaign tirelessly on behalf of retail
investors to improve their lot and their wealth.
We continue to encourage price competition within the fund
industry which has resulted in reduced costs of both active and
passive funds for investors. We have negotiated market leading
discounts on some of the best UK funds to the benefit of our
clients.
This year will see the launch of the HL Charitable Foundation to
further aid our charity and community work. The Foundation is
explained more in our forthcoming Report and Financial Statements
and I wish it every success. We have also invested considerably in
our people this year, making Hargreaves Lansdown an even more
exciting place to work.
As in previous years, Hargreaves Lansdown continues to pay its
taxes in full in the UK.
Conclusion
I would like to thank our clients, shareholders, colleagues and
my fellow directors in what has once again been a very busy year of
significant progress. The support and dedication they have shown
has delivered another set of strong results.
Ian Gorham
Chief Executive
6 September 2016
*As issued by The Platforum UK D2C Guide July 2016.
** Stockbroking data from Compeer Limited XO Quarterly
Benchmarking Report Quarter 2 2016 and Quarter 2 2015.
Extract from the Operating and Financial Review
Assets Under Administration (AUA) and Net New Business (NNB)
The value of total AUA increased by 12% during the year. The
Group achieved net new business inflows of GBP6.0 billion, and the
positive impact of investment performance increased client assets
by a further GBP0.5 billion (2015: GBP2.0bn). High client and asset
retention rates underpin the strength of the Hargreaves Lansdown
business model.
At 30 At 30 June Movement%
June 2016 2015
GBP'billion GBP'billion
Vantage Assets Under Administration
(AUA)* 58.7 52.3 +12%
Assets Under Administration
and Management (AUM)**
- Portfolio Management
Service (PMS) 2.9 2.9 0%
- Multi-Manager funds held
outside of PMS 3.6 2.9 +24%
------------- ------------- -------------
AUM Total 6.5 5.8 +12%
Less:
Multi-Manager funds (AUM)
included in Vantage AUA (3.5) (2.9) +21%
------------- ------------- -------------
Total Assets Under Administration 61.7 55.2 +12%
============= ============= =============
* AUA is the total value of all assets administered or managed
by Hargreaves Lansdown on behalf of clients.
** AUM is the total value of all assets managed by Hargreaves
Lansdown comprising our Multi-Manager Funds and assets held within
PMS
Vantage
Net new business in the Vantage SIPP, ISA and Fund & Share
account was respectively GBP2.7 billion, GBP2.2 billion and GBP1.1
billion (2015: GBP2.3 billion, GBP2.6 billion, GBP1.1 billion), in
total GBP6.0 billion (2015: GBP6.0 billion).
The first half of the year saw strong net new business of
GBP2.73 billion, up 24% compared to the equivalent six months last
year (2015: GBP2.21bn). This was achieved against a backdrop of
muted world stock markets stemming from various macroeconomic
concerns and weak commodity prices. The FTSE All Share index ended
3.5% down for the six months to 31 December 2015 at 3444.26.
Typically, falling stock markets have a high correlation with
reduced propensity to invest amongst retail investors. However,
despite the weak markets, our ISA and Fund & Share account new
business remained robust during this period whilst new pension
freedoms proved particularly attractive to clients, with Vantage
SIPP net new business up 73% over the six months ended 31 December
2015.
The second half of the year is typically our busiest as the tax
year-end is an important driver of new business. This year was no
exception with GBP3.21 billion of net new business in the second
half of the year to 30 June 2016, albeit a 15% drop versus the
GBP3.79 billion in the prior year comparative given the more
volatile market backdrop. The comparative period benefited from
three HL Multi-Manager fund launches, the new Pension Freedoms from
6 April 2015 and the ability to transfer Child Trust Funds into
Junior ISAs. This year the second half also had two HL
Multi-Manager fund launches but benefited less from the pension
freedoms and the impact of transfers into Junior ISAs.
The SIPP increase in net new business of 17% for the year was
driven by an increased number of SIPP clients making more
contributions and transferring other pensions they held to Vantage.
New pension freedoms, introduced from 6 April 2015, have also
continued to contribute to the increase year-on-year, along with
concerns that pension tax relief would be reduced in the March 2016
budget, which prompted a rush of contributions.
Conversely, net new ISA business of GBP2.2bn for the year
decreased by 15% which was attributable to an array of factors
including low investor confidence, diverting money into pensions in
case of tax relief changes in the Budget, and into property ahead
of stamp duty increases taking effect from 6 April 2016. These
factors led to a decrease in the number of clients subscribing to
their ISA and a reduction in the average subscription value.
Meanwhile Vantage Fund and Share account net new business was
flat year-on-year. This account has no tax benefits and no caps on
contributions and tends to be impacted more by investor confidence
and market sentiment. It often serves as a destination for
investment once clients have used their tax wrapper accounts and
also serves as the first point of call when withdrawing cash. In
addition, each year a proportion of clients transfer some of their
investments from this account into their SIPP and ISA accounts
ensuring they utilise their tax benefits. The value transferred
this year was GBP0.5 billion compared to GBP0.6 billion last
year.
The trust and the value that our clients place on our services
are endorsed by the retention rates. This year our client retention
rate rose from 93.4% to 94.3% and our asset retention rate rose
from 92.7% to 93.5%.
The FTSE All-Share Index fell by 1.54% (2015: fell 0.82%) over
the year to 30 June 2016, however the average month-end level of
the index was 5.1% lower this year compared to last (2015: 2.0%
higher). Although the index ended the second half up 2.1% at
3515.45, it suffered significant spells of depression caused by
various macroeconomic concerns and latterly volatility caused by
the uncertainty surrounding the EU referendum. Weak investor
confidence contributed to a challenging ISA season which some
industry bodies have called the worst ISA season on record.
The combined impact of organic growth and investment performance
resulted in SIPP AUA growing by 18%, ISA by 11% and the Fund and
Share account by 9%. As at 30 June 2016, the value of assets within
the Vantage SIPP was GBP19.3 billion (30 June 2015: GBP16.4
billion), the Vantage ISA was GBP23.0 billion (30 June 2015:
GBP20.7 billion), and the Vantage Fund and Share Account was
GBP16.5 billion (30 June 2015: GBP15.2 billion).
Portfolio Management Service (PMS)
PMS assets remained flat at GBP2.9 billion with net new business
of GBP66 million, down 8% on last year's GBP72 million. These
additional new assets were offset by the impact of a stock market
decline of GBP52 million (2015: GBP169 million growth). PMS remains
a core service provided by Hargreaves Lansdown, however, the
gathering of new assets and clients has been behind expectations. A
review of the service is being undertaken with a view to improving
lead flows and the quality of the offering for clients.
Multi-manager funds
The value of assets managed by Hargreaves Lansdown through its
own range of Multi-Manager funds increased by 13% to GBP6.3 billion
as at 30 June 2016 (2015: GBP5.6bn). The growth in assets consisted
of net new business of GBP0.8 billion (2015: GBP0.9bn), combined
with a stock market decrease of GBP0.1 billion (2015: increase of
GBP0.3bn). During the second half of the year two new Multi-Manager
funds were successfully launched helping to attract new clients and
assets. The two new funds are "UK High Income" and "Strategic
Assets" which provide further geographical and sector
diversification to the eight existing funds in the range. In the
short time since launch these two funds have grown to a combined
value of GBP382m.
Divisional Performance
Following the implementation of the Retail Distribution Review
("RDR"), we highlight the net revenue of the Group, as laid out in
Note 2 to the accounts. This measure provides a clear indication of
year-on-year comparative performance, taking into account the
changes in commission, charges and rebates. Total net revenue was
up 11% for the year at GBP326.5 million (2015: GBP294.2m). The
Group is organised into three core operating divisions as shown in
the table.
Net revenue Year ended Year ended Movement
30 June 2016 30 June 2015 %
GBP'million GBP'million
Vantage 245.8 220.0 +12%
Discretionary 58.9 `52.4 +12%
Third Party &
Other services 21.8 21.8 0%
------------------- -------------- -------------- ---------
Total net revenue 326.5 294.2 +11%
------------------- -------------- -------------- ---------
Vantage
Revenue
The Vantage division is the largest within the Group and
represents 75% of net revenue and 76% of operating profit. Net
revenue increased by 12% and was driven by the 12% growth in AUA
this year and the full year impact of income on assets gathered
over the course of last year. Revenue from funds grew from GBP136.7
million to GBP147.2 million with a slight reduction in the revenue
margin from 46bps to 44bps as a result of there being no renewal
commissions retained on funds held by clients from 1 April 2016
onwards, in accordance with the Retail Distribution Review.
Interest on client money grew from GBP24.2 million to GBP31.2
million with an improved margin being achieved on higher cash
balances as a result of changes to our SIPP which allowed us to
place client money on term deposit, a significant development as
over 50% of cash held by clients with Hargreaves Lansdown is held
in the SIPP, and enabling us to increase both revenue and deposit
rates paid to clients.
Stockbroking commission grew by 21% from GBP35.4 million to
GBP43.0 million benefiting from increased stockbroking volumes and
the removal of the impact in the second half of the prior year of a
temporary cGBP3.5 million loss of revenue, resulting from a
restructuring of the collection method for foreign exchange income
on overseas equity deals. Excluding this comparative effect,
stockbroking commission was up 10.5%.
We handled over 12.1 million dealing instructions on behalf of
827,000 clients relating to funds and shares (2015: 10.8m). Our
website (www.hl.co.uk) and apps were visited 104.7 million times,
an increase of 19% on the previous year. Vantage clients transacted
3.7 million share deals in the year (2015: 3.4 million). Share
deals comprise both client driven deals and automated deals such as
dividend income reinvestment and regular savings. Client driven
deals totalled 3.0 million compared to 2.8 million last year.
Markets and market share
The Vantage division delivered consistent strong growth in
assets and clients and has increased market share in the services
it provides. Our market share of the retail platform execution only
market stands at c37.5% making it over four times the size of the
second largest. The retail platform market as at 31 March 2016 was
valued at cGBP152* billion of which GBP56.6 billion was held on
Vantage.
The addressable market for Vantage is much greater than the
retail platform market given the scope of services and products
that Hargreaves Lansdown provide. Vantage accounts can be used by
both Retail and Corporate clients in order to hold a wide range of
investments in a SIPP, ISA or general investment account. This
enables us to address a much greater section of UK investors and
the billions of pounds currently held away from retail platforms.
For example the ISA Stocks and Share market is estimated at GBP267
billion and the Junior Stocks and Share ISA at GBP1 billion**. The
UK SIPP market is estimated at GBP175 billion***. In addition,
corporate pensions and assets currently or previously advised on by
financial advisors through IFAs, banks, building societies and life
assurers are also addressable.
From 6 April 2015 the Government allowed transfers from Child
Trust Funds (CTFs) to Junior ISAs. At this date over six million
children in the UK had CTFs with cGBP4.8 billion pounds invested.
In the year ending 30 June 2016 we have seen over 12,000 transfers
from CTFs to Junior ISAs cementing Hargreaves Lansdown's position
as the largest provider of Junior Stocks and Shares ISAs in the
UK.
* Source: The Platforum UK D2C Guide July 2016
** Source: HMRC
*** Source: John Moret, pension industry specialist
Vantage SIPP assets of GBP19.3 billion give Hargreaves Lansdown
an estimated 11% market share of the UK SIPP market with 276,000
SIPP accounts out of an estimated total of 1.4 million UK SIPP
accounts. The Group is also the UK's largest execution only
stockbroker with a market share of 27.3% as measured by Compeer
Limited in their XO Quarterly Benchmarking Report Q2 2016.
Market development
The markets for the Group's products and services continue to
evolve as individuals' savings and investment needs react to the
changing regulatory and market environment. With continued low
interest rates, Stocks and Shares ISAs remain attractive. The
current ISA allowance of GBP15,240 for the tax year commencing 6
April 2016 remains the same as that in the previous tax year,
however, as from 6 April 2017 the annual allowance will increase
significantly to GBP20,000. For some clients this will provide
additional scope for tax efficient investing and an opportunity to
increase net flows into our ISA offering.
From 6 April 2017 the new Lifetime ISA ("LISA") will be
launched. This is open to UK citizens between the ages of 18 and 40
and any savings added to the LISA before their 50(th) birthday will
receive an added 25% bonus from the government. The savings
allowance will be capped at GBP4,000 per annum and can be used
towards a deposit on a first home worth up to GBP450,000 or can be
used towards saving for retirement, whereby after their 60(th)
birthday individuals can withdraw all the savings free of tax. This
may provide fresh impetus for adults to boost their long-term
savings and for others to start saving for the first time and to
consider saving using risk based investments rather than cash.
Hargreaves Lansdown will have its LISA offering in place for the 6
April 2017.
Pension auto-enrolment in the UK is currently being phased in
and by 2017 all employers will have to auto-enrol eligible staff
into a suitable workplace pension and pay contributions on their
behalf. Escalating minimum contributions have been set. By 6 April
2019 the minimum contribution will be 9% of which the employer will
have to pay a minimum of 4%. The workplace will continue to play a
pivotal role in retirement saving: the auto-enrolment programme has
delivered demonstrable successes and we expect future government
policy to build on this. Our Corporate Vantage service is directed
at segments of this market and existing schemes we administer will
also benefit from auto-enrolment contributions.
The design of the UK's retirement savings system continues to be
a work in progress for the government. Auto-enrolment is
undoubtedly helping and is bringing millions of new savers into the
pension system. However, many millions are still either
under-saving for retirement or not saving at all. The growth of
money purchase pensions is mirrored by a rapid decline in
traditional defined benefit schemes.
A year on from the launch of Pension Freedoms, this policy
initiative to put ownership of pension savings more directly in the
hands of individual investors is proving popular and has helped to
reinvigorate interest in retirement savings. The Treasury's recent
review of pension tax relief did not result in wholesale change to
pension tax breaks, however future changes cannot be ruled out.
Whatever changes of detail occur, we are confident that
Government support for increased private pension provision is
robust and this is likely to mean continued tax advantages and
policy decisions designed to promote increased retirement saving.
With individuals taking more responsibility for pension saving, we
believe pension providers such as Hargreaves Lansdown which help
investors to self-manage their retirement savings are likely to
continue to prosper.
Clients and assets
During the year the number of active Vantage clients increased
by 100,000 to 827,000. Total clients include 68,600 active
Corporate Vantage scheme members across 333 live schemes and 64,000
Junior ISA clients. Junior ISA clients were up from 43,000 last
year benefiting from over 12,000 transfers of Child Trust Funds to
Junior ISAs which were allowed from 6 April 2015. We now administer
276,000 SIPP accounts, 572,000 ISA accounts and 274,000 Fund and
Share accounts on behalf of our clients.
16% more clients contributed to their SIPP than in the year to
30 June 2015, with the average new contribution into a Vantage SIPP
this year increasing by 3% to GBP9,188. Meanwhile the number of
clients subscribing to their Vantage Stocks and Share ISA decreased
by 5% and the average subscription decreased by 7% to GBP9,416.
Clients continued to transfer SIPP, ISA and other investments
held elsewhere into our Vantage service in order to benefit from
the advantages of having them all held on a single trusted and easy
to use service. The value of transfers-in decreased by 4% to GBP4.8
billion.
Clients continued to have a relatively low weighting in cash and
appeared prepared to take more investment risk given continued low
deposit rates. In the second half of the year, however, there has
been a move into cash caused by market volatility and Brexit
concerns weighing on investor confidence. The composition of assets
across the whole of Vantage at 30 June 2016 was 11.6% cash (30 June
2015: 10.2%), 34.1% stocks and shares (30 June 2015: 34.2%), and
54.3% investment funds (30 June 2015: 55.6%).
A number of our clients make regular contributions into their
ISA, SIPP or Fund and Share accounts. The 'Regular Savers' service
has been consistently growing since being introduced 14 years ago,
and as at 30 June 2016 we had 125,000 clients (2015: 105,000)
saving a total of GBP37.0 million (2015: GBP34.4 million) each
month by way of direct debit instruction. Our Corporate Vantage
service has the potential to significantly increase the value of
regular monthly savings and Corporate Vantage clients currently
subscribe GBP20.3 million each month, in addition to the regular
contributions noted above.
Discretionary and Managed
The Discretionary and Managed division represents 18% of net
revenue and 21% of operating profit. The division earns recurring
income on underlying investments held in the Group's Portfolio
Management Service (PMS), and on investments in the Group's
Multi-Manager funds.
Net revenue was up 12% from GBP52.4 million to GBP58.9 million.
As explained, the growth in AUM came from the launch of two new HL
Multi-Manager Funds combined with continued growth across the
existing eight funds. AUM was on average up 14% across the year and
Hargreaves Lansdown earns a management fee of 0.75% per annum on
assets held in these funds.
The Portfolio Management Service generates revenue from initial
and ongoing advice fees charged to clients who are supported by our
team of financial advisers. Client numbers grew to 14,896 from
14,845 in the prior year. As at 30 June 2016 the Group had 91
financial advisers (30 June 2015: 102). Initial advice fees were
flat year-on-year at GBP2.9 million whilst ongoing advice and
management fees fell from GBP11.7 million to GBP10.7 million. The
ongoing advice fee is charged at 0.365% per annum but as from 1
December 2015 any PMS client with an investment portfolio in excess
of GBP1 million had a cap of GBP3,650 per annum on the charge. The
impact of this was a reduction in revenue of cGBP0.3 million in the
year. Further changes to management fees on non-HL Multi-Manager
funds held within PMS had a GBP0.7 million impact on the division
but a reduced impact on the Group overall due to a 0.06% increase
in PMS platform fees which are recorded in Vantage.
Third Party and Other Services
Third party and other services represent 7% of net revenue and
3% of operating profit and the division distributes investment
products that are not invested or administered within the Group.
Net revenues were flat year-on-year at GBP21.8 million.
In March 2014 the government's budget implemented pension
reforms introducing greater flexibility in terms of how people
access their pension savings. As a result the demand for annuities
declined significantly, which particularly impacted last year's
revenue, but has continued into 2016 with commission income falling
from GBP1.9 million to GBP1.5 million this year. As annuity volumes
have declined we have seen an increase in clients moving into
Income Drawdown and the associated recurring revenue streams from
this service are recorded within the Vantage division.
Revenue from our Funds Library service, through the provision of
fund data and research services, decreased slightly from GBP6.4
million to GBP6.2 million. User billing and implementation fees
fell slightly but were partly offset by new revenue streams
relating to the provision of data for compliance with Solvency II.
These new streams commenced towards the end of the year and should
help to provide some future growth as more companies sign up for
these new regulatory required services.
The total revenues from Hargreaves Lansdown Currency and Markets
(Contracts For Difference ("CFD"), spread betting and currency
services) fell marginally by GBP0.1 million to GBP4.1 million. A
fall in certificated dealing charges and currency service
commissions were partly offset by an increase in CFD and spread
betting commissions which tend to benefit from volatile markets
such as those seen for much of the year.
As highlighted previously, third party corporate and personal
pension business has been in decline over recent years. Although
the Group continues to act as an intermediary for some third party
corporate pension schemes there is a focus on our own Corporate
Vantage services which means that we expect that third party
business will continue to decline.
Financial performance
Year ended Year ended Movement
30 June 2016 30 June 2015 %
GBP'million GBP'million
Revenue 388.3 395.1 -2%
Commission payable
/ loyalty bonus (61.8) (100.9) -39%
------------------------ -------------- -------------- ----------
Net revenue 326.5 294.2 +11%
Other operating
costs (108.2) (96.1) +12%
------------------------
Operating profit 218.3 198.1 +10%
Non-operating income 0.6 1.0 -40%
------------------------ -------------- -------------- ----------
Profit before taxation 218.9 199.0 +10%
Taxation (41.6) (41.8) -0.5%
------------------------ -------------- -------------- ----------
Profit after taxation 177.3 157.2 +13%
------------------------ -------------- -------------- ----------
Basic earnings
per share (pence) 37.4 33.2 +13%
Diluted earnings
per share (pence) 37.3 33.1 +13%
------------------------ -------------- -------------- ----------
Total net revenue
Total net revenue for the year grew 11% to GBP326.5 million.
Record levels of AUA, GBP6.0 billion net new business, new active
clients and increased transaction volumes have all been positive
factors which have more than outweighed the loss of any Vantage
renewal income post the April 2016 sunset clause. Divisional
revenue performance is described earlier in this review.
Net revenue margins
Clients can hold a range of assets on the Vantage platform
including investment funds, individual shares and other stock, and
cash. The net revenue margin earned on each asset class varies.
Investment funds on average represented 57% of Vantage AUA and the
net revenue margin earned was 0.44% (2015: 0.46%). The reduction
related to the previously flagged transition phase of RDR until
March 2016. From April 2016 we have been earning 0.42%.
Vantage net revenue Year ended 30 June Year ended 30 June
margins 2016 2015
--------------------- ----------------------------------------- -----------------------------------------
Net revenue Average Net revenue Net revenue Average Net revenue
(GBPm) AUA (GBPbn) margin (GBPm) AUA (GBPbn) margin
(%) (%)
--------------------- ------------ ------------- ------------ ------------ ------------- ------------
Funds(1) 147.2 33.3 0.44 136.7 29.7 0.46
--------------------- ------------ ------------- ------------ ------------ ------------- ------------
Shares(2) 57.8 19.3 0.30 47.9 16.6 0.29
--------------------- ------------ ------------- ------------ ------------ ------------- ------------
Cash(3) 31.2 5.5 0.56 24.2 4.6 0.53
--------------------- ------------ ------------- ------------ ------------ ------------- ------------
Other 9.6 - - 11.2 - -
--------------------- ------------ ------------- ------------ ------------ ------------- ------------
Total 245.8 58.1 0.42 220.0 50.9 0.43
--------------------- ------------ ------------- ------------ ------------ ------------- ------------
1 Revenue from funds comprises platform fees and renewal
commission (net of loyalty bonuses paid to clients).
2 Revenue from stocks and other comprises stockbroking
commission and management fees.
3 Revenue from cash comprises interest earned on client
money.
Further details on the Vantage net revenue margins above can be
found in the Glossary of financial performance measures on page
23
Shares on average represented 33% of Vantage AUA. The net
revenue margin on shares and other stock was 0.30% (2015: 0.29%)
with revenue being generated from equity deals and management fees.
The increase in margin has been caused by an increase in equity
dealing volumes combined with the change to charges on overseas
foreign exchange income in the second half of the prior year (as
highlighted on page 6). There are caps in place on management fees
charged in the SIPP and Stocks and Share ISA accounts once holdings
are above GBP44,444 in the SIPP and GBP10,000 in the ISA. This
causes some dilution to the margin over time as clients grow their
portfolio of shares.
Cash on average represented 10% of Vantage AUA. The net revenue
margin on cash balances was 0.56% (2015: 0.53%). As highlighted in
previous annual reports, the FCA introduced restrictions on the use
of term deposits of greater than 30 days for client money with
effect from 1 July 2014. This served to reduce the revenue margin
on cash and consequently we set out to mitigate the impact of these
restrictions by amending SIPP cash to be held in trustee
arrangements which would allow term deposits to be used again. This
trustee arrangement was implemented from 20 April 2015. The new
arrangements have allowed us to offer higher interest rates for
clients in the SIPP whilst also helping to boost the margin and
revenue we earn. Last year the benefit was only gained for a couple
of months whereas this year we have had the benefit for the full
year. Although the SIPP trustee arrangements have helped, the full
potential positive impact has been offset by an overall reduction
in rates offered by banks, particularly on short term deposits up
to 30 days which impacts non-SIPP client money accounting for c49%
of the total client money balances. Since the 30 June 2016 the Bank
of England has reduced the base rate by 0.25%. Assuming no further
base rate changes we anticipate the cash interest margin for the
financial year 2017 will be in the range of 0.35%-0.45%.
Recurring and non-recurring revenue
GBP193.1 million (2015: GBP173.3m), representing 79% of Vantage
net revenue (2015: 79%) is recurring in nature. Recurring revenue
streams comprised platform fees (GBP139.4m, 2015: GBP123.8m),
renewal commissions net of loyalty bonuses paid to clients
(GBP7.7m, 2015: GBP12.9m), management fees (GBP14.8m, 2015:
GBP12.4m) and interest on client money (GBP31.2m, 2015: GBP24.2m).
Although these revenues can be directly impacted by stock markets
and bank deposit rates they are recurring and as such we believe
they provide greater profit resilience. Non-recurring Vantage
revenue streams include stockbroking commission, initial charges
where our own financial advisers set clients up in the Vantage
service, and other income.
The Discretionary division has an even higher proportion of net
recurring revenue at 93% (2015: 92%), which is primarily the annual
management charge on the HL Multi-Manager funds (GBP44.1m, 2015:
GBP36.5m) and the management fees and ongoing adviser charges for
the PMS service (GBP10.7m, 2015: GBP11.7m). In contrast the Third
party and Other Services division is predominantly transaction
based save for some renewal commissions on Venture Capital Trusts
schemes and some contracted revenue within the Funds Library data
service.
Operating costs
As highlighted in the CEO statement, the business is well
positioned to take advantage of the structural opportunity for
growth in the savings and investments market. We have discretion
over the timing of controlled, selective investment where we are
confident in delivering attractive returns for our shareholders and
will take advantage of this flexibility to deliver good returns.
Operating costs increased by 13% to GBP108.2million (2015:
GBP96.1million) during the year with 7% growth in operating costs
in the second half, compared to 19% in the first half.
Staff costs remain our largest expense and increased by 13% in
the year, after capitalising GBP2.3 million (2015: GBP1.2m) of
Hargreaves Lansdown Savings and other IT development. The number of
staff employed on a full-time equivalent basis (including
directors) at 30 June 2016 was 942, and the average number of staff
during the year was 969, an increase of 6%. The changes in staff
numbers are in line with our strategic plans and our commitment to
delivering a high level of service to our growing client base which
will see us maintain our position as the UK's leading direct to
client investment platform. Of particular note are increased staff
numbers in HL Savings where we are developing a new digital cash
deposit service and a Peer to Peer platform; in IT, where we have
increased resource to deliver development projects, improved
infrastructure and cyber security; in marketing, where we have
increasingly focused on exploiting digital opportunities and in our
subsidiary company, Library Information Services, where additional
staff have been developing new services relating to Solvency II
type products. Staff costs this year versus last include an
additional GBP1.3 million of restructuring and redundancy costs and
GBP0.6 million additional cost relating to share options.
Group marketing and distribution spend decreased by 12%, from
GBP12.7 million to GBP11.2 million and includes the direct costs of
printing and sending information and newsletters to existing and
potential clients, media advertising, online marketing and client
incentives. Despite the lower spend, the change in mix of our
marketing activity with more emphasis and investment into digital
marketing meant that we added 100,000 clients (2015: 84,000), new
business was flat on last year and we have increased market
share.
Use of mobile and digital media is a key strategic focus and
increasingly resource has been deployed to exploit digital
marketing opportunities and this has allowed commensurately lower
spend on paper based marketing. We continue to invest significantly
in paid search traffic, cost per click relationships, and the next
generation of our smart phone and tablet apps. Our strength in
digital media helps drive client and asset recruitment and
subsequent retention.
Total operating costs Year ended Year ended Movement
30 June 2016 30 June
2015
GBP'million GBP'million %
Operating costs:
Staff costs 60.2 53.1 +13%
Marketing and distribution
costs 11.2 12.7 -12%
Office running costs 4.8 4.3 +12%
Depreciation, amortisation
& financial costs 6.1 5.1 +20%
Other costs 20.4 16.5 +24%
---------------------------- -------------- ------------ ---------
102.7 91.7 +12%
Total FSCS levy 5.5 4.4 +25%
---------------------------- -------------- ------------ ---------
Total operating costs 108.2 96.1 +13%
---------------------------- -------------- ------------ ---------
Last financial year saw the launch of three new HL Multi-Manager
Funds, the launch of the HL Retirement Planner embracing the new
pension freedoms and the launch of HL Portfolio+, all of which gave
rise to increased marketing and advertising costs. This financial
year there were fewer such events with just two new HL
Multi-Manager fund launches.
Office running costs increased from GBP4.3 million to GBP4.8
million following an increase in repairs and maintenance and
business rates.
Depreciation, amortisation and financial costs have increased by
GBP1.0 million as a result of increased capital spend in recent
years, primarily on IT hardware and software for our core in-house
systems.
Other costs rose by GBP3.9 million. The key drivers of this were
the processing of foreign exchange on overseas equity deals
(GBP1.5m) and additional dealing costs resulting from higher
transaction volumes (GBP0.3m). Also included in this figure are
increases in IT, regulatory spend and irrecoverable VAT (GBP1.1 m)
and an increase in professional services relating to strategic
initiatives (GBP0.8m).
The Financial Services Compensation Scheme ("FSCS") charge is
outside of managements' control and increased by 25% to
GBP5.5million. 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 cost of compensation payments. Contributions to the scheme are
proportional to the amount of eligible income of a firm, rather
than its risk profile or track record of running a compliant
service. As such, as a large business we may be required to make a
significant contribution to the cost of compensation on investments
we have never recommended or been involved with.
Taxation
The charge for taxation in the income statement decreased from
GBP41.8 million to GBP41.6 million resulting in an effective tax
rate of 19.0% compared to 21.0% last year. The standard UK
corporation tax rate fell from 21% to 20% as from 1 April 2015 and
remained at 20% through to 30 June 2016. An adjustment in respect
of prior year tax and the impact of increased capital allowances
and employee share acquisition relief in the period reduced the
effective corporation tax rate below the standard 20% to 19.0%.
Taxation of GBP3.1 million has been credited to equity relating to
corporation tax relief on share options offset by a charge of
GBP1.9 million arising from deferred tax on share options giving a
total credit to equity of GBP1.2 million.
Earnings per share (EPS)
Diluted EPS increased by 13% from 33.1 pence to 37.3 pence. EPS
is calculated as the earnings for the year divided by the total
weighted average fully diluted number of shares, including those
held by the Employee Benefit Trust (the "EBT"). Further information
on the EBT and potential dilution of share capital is provided
within the Directors' Remuneration Report.
Pension schemes
There were no changes to the defined contribution pension scheme
in the year, with staff and directors participating on equal terms.
Pension costs are recognised as an expense when the contribution is
payable.
Statement of financial position and cash flow
The Group maintains a robust balance sheet which is free from
debt, has a healthy ratio of current assets to current liabilities
and retains a capital base over and above regulatory capital
adequacy requirements. In addition to being attractive to clients,
this provides both resilience and flexibility. The Group is highly
cash generative and the cash conversion ratio measured by the
operating cash flows as a percentage of operating profits remained
high at 94%.
Non-current assets
Capital expenditure totalled GBP6.6 million this year, compared
with GBP5.5 million last year.
The cyclical replacement of hardware ensuring the capacity and
the security of the IT infrastructure amounted to GBP2.4 million
compared with GBP2.5 million last year. GBP1.4 million was spent on
computer software (2015: GBP1.7m) and capitalisation of other
intangibles was GBP2.7 million (2015: GBP1.2 million).
We capitalised GBP1.2 million of staff costs (2015 GBP1.2
million) as part of the continued project to enhance the capacity
and capability of our key administration systems. All of our core
systems are developed and maintained in-house and as such we have
significant IT resource dedicated to IT support and development.
For the year ended 30 June 2016 an average of 117 staff (2015: 102)
were employed in developing our systems with most of their related
costs expensed within staff costs. Any costs relating to the
development of new systems have been capitalised and are being
depreciated over their useful economic life.
We have capitalised GBP1.1 million of staff costs relating to
the development of the cash deposit and Peer to Peer platforms in
HL Savings (2015: GBPnil). Again this will be depreciated over its
useful economic life but only once it has been brought into use
which is expected to be towards the end of the calendar year
2016.
Finally we capitalised GBP0.4 million relating to a book of
business that was acquired from J.P. Morgan. As a result of the
acquisition an additional GBP223 million of assets were added to
the Vantage platform and an additional 4,312 clients. At the
interim results these costs were expensed within marketing and
advertising, but they will be now be amortised over their useful
economic life and subject to an annual impairment review.
Current assets
Group cash balances totalled GBP208.2 million at the end of the
year. The only significant cash outflows have been the 2015 second
interim ordinary and special dividends totalling GBP121.4 million
paid in September 2015 and a 2016 interim dividend of GBP36.8
million paid in March 2016.
Capital is defined as the total of share capital, share premium,
retained earnings and other reserves. Total capital at 30 June 2016
was GBP254.2 million (2015: GBP237.1m) and this capital is managed
via the net assets to which it relates. The Group has four
subsidiary companies authorised and regulated by the Financial
Conduct Authority (FCA). These firms have capital resources at a
level which satisfies both their regulatory capital requirements
and their working capital requirements. 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.
Increase in counterparty balances
In accordance with market practice, certain balances with
clients, Stock Exchange member firms and other counterparties are
included in the balance sheet. These balances fluctuate according
to the volume and value of recent trading. At the year-end, trade
receivables and trade payables included counterparty balances of
GBP560.9 million (2015: GBP363.2 million) and GBP555.5 million
(2015: GBP361.9 million) respectively. The higher balances resulted
from a significant increase in deal volumes post the EU Referendum
until the financial year-end.
Dividends
The Board remains committed to a progressive dividend policy,
and has declared a second interim (final) ordinary dividend of
16.30 pence and a special dividend of 9.90 pence per ordinary
share. These dividends will be paid on 28 September 2016 to all
shareholders on the register at the close of business on 16
September 2016. This brings the total dividends in respect of the
year to 34.0 pence per ordinary share (2015: 33.0p), an increase of
3%. This total ordinary dividend pay-out equates to 65% (2015: 65%)
of post-tax profits, with a further 26% (2015: 34%) of post-tax
profits paid by way of special dividend. Any special dividend in
future years will depend upon future cash requirements and
therefore may vary.
An arrangement exists under which the Hargreaves Lansdown EBT
has agreed to waive all dividends.
Dividend (pence per share)
2016 2015 Change
First interim dividend
paid 7.80p 7.30p +7%
Second interim dividend
declared 16.30p 14.30p +14%
------------------------- ------- ------- -------
Total ordinary dividend 24.10p 21.60p +12%
Special dividend
declared 9.90p 11.40p -13%
------------------------- ------- ------- -------
Total dividend for
the year 34.0p 33.0p +3%
------------------------- ------- ------- -------
Consolidated Income Statement
Year ended Year ended
30 June 30 June
2016 2015
Note GBP'000 GBP'000
Revenue 2 388,333 395,137
Commission payable (61,797) (100,949)
Net revenue 326,536 294,188
Staff costs (60,217) (53,117)
Other operating costs (42,575) (38,603)
FSCS costs (5,494) (4,417)
Operating profit 218,250 198,051
Investment revenue 4 629 987
--------------------------- ---- ---------- ----------
Profit before tax 218,879 199,038
Tax 5 (41,623) (41,789)
--------------------------- ---- ---------- ----------
Profit after tax 177,256 157,249
Attributable to:
Equity shareholders of the
parent Company 176,895 156,664
Non-controlling interest 361 585
177,256 157,249
--------------------------- ---- ---------- ----------
Earnings per share
Basic earnings per share
(pence) 7 37.4 33.2
Diluted earnings per share
(pence) 7 37.3 33.1
--------------------------- ----- ----
The results relate entirely to continuing operations.
Consolidated Statement of Comprehensive Income
Year ended Year ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Profit for the financial year 177,256 157,249
--------------------------------------------- ---------- ----------
Total comprehensive income for the financial
year 177,256 157,249
--------------------------------------------- ---------- ----------
Attributable to:-
Owners of the parent 176,895 156,664
Non-controlling interest 361 585
--------------------------------------------- ---------- ----------
177,256 157,249
--------------------------------------------- ---------- ----------
Consolidated Statement of Changes in Equity
Attributable to the owners of
the Company
----------------------------------------------------------------------------
Shares
held
Share Capital by
Share premium redemption EBT EBT Retained Non-controlling Total
capital account reserve reserve reserve earnings Total interest Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2014 1,897 8 12 (16,221) 13,545 228,512 227,753 591 228,344
Total
comprehensive
income - - - - - 156,664 156,664 585 157,249
Change to
non-controlling
interest - - - - - (964) (964) (103) (1,067)
Employee Benefit
Trust:-
Shares sold
in the year - - - 5,203 - - 5,203 - 5,203
Shares acquired
in the year - - - (2,000) - - (2,000) - (2,000)
EBT share sale
net of tax - - - - (841) - (841) - (841)
Employee share
option scheme:-
Share-based
payments
expense - - - - - 2,109 2,109 - 2,109
Current tax
effect of
share-based
payments - - - - - 1,305 1,305 - 1,305
Deferred tax
effect of
share-based
payments - - - - - (592) (592) - (592)
Dividend paid
(Note 6) - - - - - (152,071) (152,071) (572) (152,643)
At 30 June 2015 1,897 8 12 (13,018) 12,704 234,963 236,566 501 237,067
Total
comprehensive
income - - - - - 176,895 176,895 361 177,256
Employee Benefit
Trust:-
Shares sold
in the year - - - 14,095 - - 14,095 - 14,095
Shares acquired
in the year - - - (15,927) - - (15,927) - (15,927)
EBT share sale
net of tax - - - - (3,441) - (3,441) - (3,441)
Reserve transfer
on exercise
of share
options 2,736 (2,736) - - -
Employee share
option scheme:-
Share-based
payments
expense - - - - - 2,525 2,525 - 2,525
Current tax
effect of
share-based
payments - - - - - 3,122 3,122 - 3,122
Deferred tax
effect of
share-based
payments - - - - - (1,955) (1,955) - (1,955)
Dividend paid
(Note 6) - - - - - (158,182) (158,182) (396) (158,578)
At 30 June 2016 1,897 8 12 (14,850) 11,999 254,632 253,698 466 254,164
----------------- -------- -------- ----------- --------- -------- ---------- ---------- ---------------- ----------
The share premium account represents the difference between the
issue price and the nominal value of shares issued.
The capital redemption reserve relates to the repurchase and
cancellation of the Company's own shares.
The Shares held by the 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, a subsidiary of the Company.
Consolidated Statement of Financial Position
At 30 June At 30
2016 June
GBP'000 2015
Note GBP'000
ASSETS
Non-current assets
Goodwill 1,333 1,333
Other intangible assets 7,050 4,614
Property, plant and
equipment 10,987 11,990
Deferred tax assets 11 2,775 6,118
22,145 24,055
Current assets
Trade and other receivables 9 617,013 411,705
Cash and cash equivalents 10 211,393 216,753
Investments 8 994 909
Current tax assets 33 -
------------------------------ ---- ---------- --------
829,433 629,367
Total assets 851,578 653,422
LIABILITIES
Current liabilities
Trade and other payables 12 581,685 397,262
Current tax liabilities 15,242 18,861
596,927 416,123
---------------------------- ---- ---------- --------
Net current assets 232,506 213,244
------------------------------ ---- ---------- --------
Non-current liabilities
Provisions 487 232
------------------------------ ---- ---------- --------
Total liabilities 597,414 416,356
Net assets 254,164 237,067
EQUITY
Share capital 13 1,897 1,897
Share premium account 8 8
Investment revaluation -
reserve -
Capital redemption
reserve 12 12
Shares held by Employee
Benefit Trust reserve (14,850) (13,018)
EBT reserve 11,999 12,704
Retained earnings 254,632 234,963
Total equity, attributable
to the owners of the parent
Company 253,698 236,566
Non-controlling interest 466 501
------------------------------------ ---------- --------
Total equity 254,164 237,067
Consolidated Statement of Cash Flows
Year ended Year ended
30 June 30 June
Note 2016 2015
GBP'000 GBP'000
Operating activities
Cash generated from
operations 14 205,360 212,991
Income tax paid (40,766) (41,603)
Net cash generated from
operating activities 164,594 171,388
Investing activities
Interest received 458 896
Dividends received from
investments 171 91
Purchases of property,
plant and equipment (2,534) (2,590)
Purchase of intangible
assets (4,114) (2,887)
Purchase of available-for-sale
investments (85) (35)
Net cash used in investing
activities (6,104) (4,525)
Financing activities
Purchase of own shares
in EBT (15,927) (2,000)
Proceeds on sale of
own shares in EBT 10,655 4,362
Dividends paid to owners
of the parent (158,182) (152,071)
Dividends paid to non-controlling
interests (396) (572)
Purchase of non-controlling
interest in subsidiary - (1,067)
Net cash used in financing
activities (163,850) (151,348)
(5,360) 15,515
Cash and cash equivalents
at beginning of year 216,753 201,238
Cash and cash equivalents
at end of year 10 211,393 216,753
Notes to the Consolidated Financial Statements
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 pounds sterling
which is the currency of the primary economic environment in which
the Group operates and are rounded to the nearest thousand.
The consolidated financial statements contained in this
preliminary announcement do not constitute statutory accounts as
defined in Section 434 of the Companies Act 2006. The financial
statements are extracted from the 2016 Group financial statements
which have been signed and audited but have not yet been delivered
to the Registrar of Companies but will be following the Company's
annual general meeting. The financial information included in this
preliminary announcement has been based on the Company's financial
statements which are prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted for use in the EU.
The principal accounting policies are set out in the Group's 2016
statutory accounts.
The report of the auditors on the financial statements for the
years ended 30 June 2016 and 30 June 2015, which were prepared in
accordance with IFRS as adopted for use in the EU, was unqualified,
did not draw attention to any matters by way of emphasis without
qualifying their report and did not contain a statement under
section 498 (2) or 498 (3) of the Companies Act 2006. The financial
statements for the financial year ended 30 June 2015 have been
delivered to Companies House
2. Revenue
Revenue represents commission receivable from financial services
provided to clients, interest income on settlement accounts 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:
Year ended Year ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Revenue from services:
Recurring income 317,089 329,900
Transactional income 65,035 58,816
Other income 6,209 6,421
Total revenue 388,333 395,137
Recurring income comprises renewal income (2016: GBP76.9m, 2015:
GBP121.1m), management fees relating to the PMS Service and Vantage
SIPP and ISA accounts (2016: GBP25.5m, 2015: GBP24.2m), management
fees relating to the Hargreaves Lansdown Multi-Manager Funds (2016:
GBP44.1m, 2015: GBP36.5m), platform fees (2016: GBP139.4m, 2015:
GBP123.8m) and interest income on client money (2016: GBP31.2m,
2015: GBP24.3m). Transactional income comprises commission earned
from stockbroking transactions (2016: GBP46.8m, 2015: GBP39.3m),
adviser charges (2016: GBP10.5m, 2015: GBP9.7m) and other income
(2016: GBP7.7m, 2015: GBP9.8m). Other income represents the amount
of fees receivable from the provision of funds data services and
research through Library Information Services Ltd to external
parties.
Following the implementation of the Retail Distribution Review
("RDR") on 1 March 2014, total revenue earned from investment funds
held by clients significantly increased as a new platform fee was
introduced. At the same time commission income was being received
from the fund management groups on funds purchased by clients
before the RDR implementation date. Where we still received
commission on these pre RDR or "legacy funds" the vast majority was
passed back to our clients in the form of a significantly higher
loyalty bonus which is shown within commission payable in the
income statement. This continued up until 31 March 2016 from which
point any commission received on legacy funds was passed on
entirely to clients and as a result was no longer recognised as
revenue or a cost. In order to aid comparability across this
transitional period the measure of net revenue is felt to be more
meaningful and hence has been used in the Operating and Financial
review section and is shown in the Income statement. Net revenue is
measured as revenue less commission payable.
3. Segment information
The Group is organised into three business segments, namely the
Vantage division, the Discretionary/Managed division and the Third
Party/Other Services division. This is based upon the Group's
internal organisation and management structure and is the primary
way in which the Chief Operating Decision Maker (CODM) is provided
with financial information. The CODM has been identified as the
Board of Executive Directors.
The 'Vantage' division represents all activities relating to our
direct to private investor platform.
The 'Discretionary/Managed' division is focused on the provision
of managed services such as our Portfolio Management Service (PMS)
and range of Multi-Manager funds.
The 'Third Party/Other Services' division includes activities
relating to the broking of third party investments and pensions,
certificated share dealing and other niche services such as
currency, CFDs and spread betting. In this division, clients'
investments are not administered within the Group.
The 'Group' segment contains items that are shared by the Group
as a whole and cannot be reasonably allocated to other operating
segments.
Segment expenses are those that are directly attributable to a
segment together with the relevant portion of other expenses that
can reasonably be allocated to the segment. Gains or losses on the
disposal of available-for-sale investments, investment income,
interest payable and tax are not allocated by segment.
Segment assets and liabilities include items that are directly
attributable to a segment plus an allocation on a reasonable basis
of shared items. Corporate assets and liabilities are not included
in business segments and are thus unallocated. At 30 June 2016 and
2015, these comprise cash and cash equivalents, short-term
investments, tax-related and other assets or liabilities.
Consolidation adjustments relate to the elimination of
inter-segment counterparty balances required on consolidation.
Vantage Discretionary/ Third Group Consolidation Consolidated
Managed Party/ Adjustments
Other
Services
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 30
June 2016
Revenue from
external customers 307,522 58,956 21,855 - - 388,333
Commission payable (61,702) (27) (68) - - (61,797)
Total segment
net revenue 245,820 58,929 21,787 - - 326,536
--------------------- ---------- --------------- ---------- --------- -------------- -------------
Depreciation
and amortisation 4,143 376 697 - - 5,216
Investment revenue - - - 629 - 629
Reportable segment
profit before
tax 166,373 45,348 7,613 (455) - 218,879
--------------------- ---------- --------------- ---------- --------- -------------- -------------
Reportable segment
assets 614,314 31,336 6,156 239,426 (39,654) 851,578
Reportable segment
liabilities (571,409) (26,550) (548) (38,561) 39,654 (597,414)
--------------------- ---------- --------------- ---------- --------- -------------- -------------
Net segment assets 42,905 4,786 5,608 200,865 - 254,164
--------------------- ---------- --------------- ---------- --------- -------------- -------------
Year ended 30
June 2015
Revenue from
external customers 320,849 52,451 21,837 - - 395,137
Commission payable (100,879) (15) (55) - - (100,949)
Total segment
net revenue 219,970 52,436 21,782 - - 294,188
--------------------- ---------- --------------- ---------- --------- -------------- -------------
Depreciation
and amortisation 3,537 355 488 - - 4,380
Investment revenue - - - 987 - 987
Reportable segment
profit before
tax 147,463 39,855 11,516 204 - 199,038
--------------------- ---------- --------------- ---------- --------- -------------- -------------
Reportable segment
assets 398,582 35,022 13,159 247,229 (40,570) 653,422
Reportable segment
liabilities (387,092) (24,966) (409) (44,458) 40,570 (416,355)
--------------------- ---------- --------------- ---------- --------- -------------- -------------
Net segment assets 11,490 10,056 12,750 202,771 - 237,067
--------------------- ---------- --------------- ---------- --------- -------------- -------------
Information about products/services
The Group's operating segments are business units that provide
different products and services. The breakdown of revenue from
external customers for each type of service is therefore the same
as the segmental analysis above.
Information about geographical area
All business activities are located within the UK.
Information about major customers
The Group does not rely on any individual customer.
4. Investment revenue
Year
Year ended ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Interest on bank deposits 458 896
Dividends from equity investment 171 91
------------ ---------
629 987
------------ ---------
5. Tax
Year
Year ended ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Current tax: on profits for the year 40,771 41,749
Current tax: adjustments in respect (536) -
of prior years
Deferred tax (Note 11) 231 41
Deferred tax: adjustments in respect
of prior years (Note 11) 1,157 (1)
----------- ---------
41,623 41,789
----------- ---------
Corporation tax is calculated at 20.0% of the estimated
assessable profit for the year to 30 June 2016 (2015: 20.75%). In
addition to the amount charged to the income statement, certain tax
amounts have been charged or (credited) directly to equity as
follows:
Year
Year ended ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Deferred tax relating to share-based
payments 1,955 592
Current tax relating to share-based
payments (3,122) (1,305)
----------- ---------
(1,167) (713)
----------- ---------
Factors affecting tax charge for the year
It is expected that the ongoing effective tax rate will remain
at a rate approximating to the standard UK corporation tax rate in
the medium term except for the impact of deferred tax arising from
the timing of exercising of share options which is not under our
control. The standard UK corporation tax rate was reduced to 20%
(from 21%) on 1 April 2015 and accordingly the Group's profits for
this accounting year are taxed at an effective rate of 20.0%.
Deferred tax has been recognised at 20%, being the rate at which
the deferred tax assets are expected to reverse. 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
2016.
Factors affecting future tax charge
Any increase or decrease to the Company's share price will
impact the amount of tax deduction available in future years on the
value of shares acquired by staff under share incentive schemes.
The Finance Act 2015 received Royal Assent on 18 November 2015 and
has reduced the standard rate of UK corporation tax to 19% from 1
April 2017 and to 18% from 1 April 2020. A planned reduction in the
rate to 17% has yet to be substantively enacted.
The charge for the year can be reconciled to the profit per the
income statement as follow:
Year ended Year ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Profit before tax 218,879 199,038
Tax at the UK corporation
tax rate of 20.00% (2015 -
20.75%) 43,776 41,302
Items (allowable)
/ not allowable
for tax (2,774) 424
Adjustments in respect
of prior years 621 (1)
Impact of the changes
in tax rate - 64
Tax expense for
the year 41,623 41,789
Effective tax rate 19.0% 21.0%
6. Dividends
Amounts recognised as distributions to equity holders in the
year:
Year
Year ended ended
30 June 30 June
2016 2015
GBP'000 GBP'000
2015 Second interim dividend of 14.30p
(2014: 15.39p) per share 67,515 72,449
2015 Special dividend of 11.40p (2014:
9.61p) per share 53,850 45,248
2016 First interim dividend of 7.80p
(2015: 7.30p) per share 36,817 34,374
---------------------------------------- ----------- ---------
Total dividends paid during the year 158,182 152,071
---------------------------------------- ----------- ---------
After the balance sheet date, the Directors declared a second
interim (final) ordinary dividend of 16.30 pence per share and a
special dividend of 9.90 pence per share payable on 28 September
2016 to shareholders on the register on 16 September 2016.
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 2017 financial statements as follows:
GBP'000
2016 Second interim dividend of 16.30p
(2015: 14.30p) per share 77,036
2016 Special dividend of 9.90p (2015:
11.40p) per share 46,789
2016 Total declared dividend of 34.00p
(2015: 33.00p) per share 160,642
----------------------------------------- --------
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
2016 2015
No. of No. of
shares shares
Number of shares held by the Hargreaves
Lansdown Employee Benefit Trust 1,724,330 2,726,361
Representing % of called-up share capital 0.36% 0.57%
------------------------------------------- ----------- -----------
7. 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 EBT 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 dilutive potential ordinary shares.
The weighted average number of anti-dilutive share options and
awards excluded from the calculation of diluted earnings per share
was 1,285,073 at 30 June 2016 (2015: 1,010,928).
Year ended Year ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Earnings (all from continuing operations):
Earnings for the purposes of basic
& diluted EPS - net profit attributable
to equity holders of parent company 176,895 156,664
Number of shares:
Weighted average number of ordinary
shares for the purposes of diluted
EPS 474,720,091 473,716,102
Weighted average number of shares held
by HL EBT which have not vested unconditionally
with employees (1,818,222) (2,068,619)
-------------------------------------------------- ------------ ------------
Weighted average number of ordinary
shares for the purposes of basic EPS 472,901,869 471,647,483
-------------------------------------------------- ------------ ------------
Earnings per share: Pence Pence
Basic EPS 37.4 33.2
Diluted EPS 37.3 33.1
-------------------------------------------------- ------------ ------------
8. Investments
Year ended Year ended
30 June 30 June
2016 2015
GBP'000 GBP'000
At beginning of year 909 874
Purchases 85 35
At end of year 994 909
-------------------------------------- ----------- -----------
Comprising:
Current asset investment - UK listed
securities valued at quoted market
price 730 645
Current asset investment - Unlisted
securities valued at cost 264 264
-------------------------------------- ----------- -----------
GBP730,000 (2015: GBP645,000) of investments are classified as
held at fair value through profit and loss and GBP264,000 (2015:
GBP264,000) are classified as available-for-sale.
Available-for-sale investments have been included at fair value
where a fair value can be reliably calculated, with the revaluation
gains and losses reflected in the investment revaluation reserve as
shown in the Consolidated Statement of Changes in Equity, until
sale when the cumulative gain or loss is transferred to the income
statement. If a fair value cannot be reliably calculated by
reference to a quoted market price or other method of valuation,
available-for-sale investments are included at cost, with a fair
value adjustment recognised upon disposal of the investment.
9. Trade and other receivables
Year ended Year ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Financial assets:
Trade receivables 576,402 380,803
Other receivables 559 1,460
-------------------------------- ----------- -----------
576,961 382,263
Non-financial assets:
Prepayments and accrued income 40,052 29,442
-------------------------------- ----------- -----------
617,013 411,705
-------------------------------- ----------- -----------
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 GBP560.9 million (2015:
GBP363.2 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 GBP718.0 million and the gross amount offset in the
balance sheet with trade payables is GBP157.2 million. Other than
counterparty balances trade receivables primarily consist of fees
and amounts owed by clients and renewal commission owed by fund
management groups. There are no balances where there is a legal
right of offset but not a right of offset in accordance with
accounting standards, and no collateral has been posted for the
balances that have been offset.
10. Cash and cash equivalents
Year ended Year ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Cash and cash equivalents:
Restricted cash - balances held by
EBT 3,184 7,602
Group cash and cash equivalent balances 208,209 209,151
----------------------------------------- ----------- -----------
211,393 216,753
----------------------------------------- ----------- -----------
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 30 June 2016 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 GBP6,953 million (2015:
GBP5,499 million). In addition there were currency service cash
accounts held on behalf of clients not governed by the client money
rules of GBP18 million (2015: GBP12m). The client retains the
beneficial interest in both these deposit and cash accounts and
accordingly they are not included in the balance sheet of the
Group.
11. Deferred tax assets
Deferred tax assets arise because of temporary timing
differences only. The following are the major deferred tax assets
recognised and movements thereon during the current and prior
reporting years. Deferred tax has been recognised at 20%, being the
rate in force at the balance sheet date.
Other deductible
Accelerated Share-based temporary
tax depreciation payments differences Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2014 145 5,240 1,365 6,750
Credit / (charge) to income 80 83 (203) (40)
Charge to equity - (592) - (592)
----------------------------- ------------------ ------------ ----------------- --------
At 30 June 2015 225 4,731 1,162 6,118
Charge to income - (259) (1,129) (1,388)
Charge to equity - (1,955) - (1,955)
----------------------------- ------------------ ------------ ----------------- --------
At 30 June 2016 225 2,517 33 2,775
----------------------------- ------------------ ------------ ----------------- --------
12. Trade and other payables
Year ended Year ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Financial liabilities:
Trade payables 556,754 362,808
Social security and other taxes 7,404 9,692
Other payables 3,888 12,176
--------------------------------- ----------- -----------
568,046 384,676
Non-financial liabilities:
Accruals and deferred income 13,639 12,586
--------------------------------- ----------- -----------
581,685 397,262
--------------------------------- ----------- -----------
In accordance with market practice, certain balances with
clients, Stock Exchange member firms and other counterparties
totalling GBP555.5 million (2015: GBP361.9 million) are included in
trade payables. As stated in Note 9 above, 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 GBP712.6 million and the gross amount offset in the
balance sheet with trade receivables is GBP157.2 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.
13. Share capital
Year ended Year ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Authorised: 525,000,000 (2015: 525,000,000)
ordinary shares of 0.4p each 2,100 2,100
Issued and fully paid: Ordinary shares
of 0.4p each 1,897 1,897
--------------------------------------------- ------------ ------------
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.
14. Note to the consolidated statement of cash flows
Year ended Year ended
30 June 30 June
2016 2015
GBP'000 GBP'000
Profit for the year after tax 177,256 157,249
Adjustments for:
Investment revenues (629) (987)
Income tax expense 41,623 41,789
Depreciation of plant and equipment 3,537 3,279
Amortisation of intangible assets 1,678 1,101
Share-based payment expense 2,525 2,109
Increase/(decrease) in provisions 255 (47)
Operating cash flows before movements
in working capital 226,245 204,493
Increase in receivables (205,308) (107,842)
Increase in payables 184,423 116,340
--------------------------------------- ----------- -----------
Cash generated from operations 205,360 212,991
--------------------------------------- ----------- -----------
15. Going concern
The Group maintains on-going forecasts that indicate continued
profitability in the 2017 financial year. Stress test scenarios are
undertaken, the outcomes of which show that the Group has adequate
capital resources for the foreseeable future even in adverse
economic conditions. The Group's business is highly cash generative
with a low working capital requirement; indeed, the forecast cash
flows show that the Group will remain highly liquid in the
forthcoming financial year. The Directors therefore believe that
the Group is well placed to manage its business risks successfully
despite the current uncertain economic outlook. After making
enquiries, the Directors' expectation is that the Group will have
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing this preliminary results statement.
Glossary of Alternative Financial Performance Measures
Within the Preliminary Announcement various Alternative
Financial Performance Measures are referred to, which are non-GAAP
(Generally Accepted Accounting Practice) measures. They are used in
order to provide a better understanding of the performance of the
Group and the table below states those which have been used, how
they have been calculated and why they have been used.
Measure Calculation Why we use this measure
-------------------- ---------------------------- --------------------------------------
Cash The operating cash Provides a measure of the efficiency
conversion flows for the year with which profits are converted
ratio divided by the operating into cash.
(%) profits for the
year.
-------------------- ---------------------------- --------------------------------------
Discretionary The total value Provides a measure of the quality
recurring of the annual management of our earnings. We believe
net revenue charge earned on recurring revenue provides
(%) the Hargreaves Lansdown greater profit resilience and
Multi-Manager funds hence it is of higher quality.
and the management
fees and ongoing
adviser charges
for the PMS service
divided by the total
discretionary net
revenue.
-------------------- ---------------------------- --------------------------------------
Dividend The total dividend Provides a measure of the level
pay-out per share divided of profits paid out to shareholders
ratio by the basic Earnings and the level retained in the
(%) Per Share (EPS) business.
for a financial
year.
-------------------- ---------------------------- --------------------------------------
Dividend Total dividend payable Dividend per share is pertinent
per share relating to a financial information to shareholders
(pence year divided by and investors and provides
per share) the total number them with the ability to assess
of shares eligible the dividend yield of the Hargreaves
to receive a dividend. Lansdown PLC shares.
Note ordinary shares
held in the Hargreaves
Lansdown Employee
Benefit Trust have
agreed to waive
all dividends (see
Note 6 to the consolidated
financial statements).
-------------------- ---------------------------- --------------------------------------
Net revenue Total revenue less Because of the changes brought
(GBP) commission payments about to the client charging
(See which are primarily structure by the Retail Distribution
Income loyalty bonuses Review ("RDR") there was a
Statement paid to Vantage transitional period (from 1
on page clients. March 2014 to 1 April 2016).
12 for From 1 March 2014 revenue was
the reconciliation increased as Hargreaves Lansdown
of net earned both a new platform
revenue) fee from clients and the existing
renewal commission from the
Fund Management Groups based
on the value of funds held
by clients. At the same time
the loyalty bonus paid to clients
was significantly increased
on the pre-RDR funds to largely
mitigate the impact of the
new platform fee. In order
to aid comparability during
the period of transition to
1 April 2016 the net revenue
measure became the most useful
comparative measure of revenue
as it better reflected the
underlying income relating
to funds held by clients.
-------------------- ---------------------------- --------------------------------------
Percentage The total value Provides a measure of the quality
of Vantage of renewal commission of our earnings. We believe
net recurring (after deducting recurring revenue provides
revenue loyalty bonuses), greater profit resilience and
(%) platform fees, management hence it is of higher quality.
fees and interest
earned on client
money divided by
the total Vantage
net revenue.
-------------------- ---------------------------- --------------------------------------
Vantage Total Vantage net Provides the most comparable
net revenue revenue divided means of tracking, over time,
margin by the average value the margin earned on the assets
(%) of assets under under administration and is
administration which used by management to assess
includes the Portfolio business performance.
Management Services
assets under management
held in funds on
which a platform
fee is charged.
-------------------- ---------------------------- --------------------------------------
Vantage Net revenue from Provides a means of tracking,
net revenue cash (net interest over time, the margin earned
margin earned on the value on cash held by our clients.
from of client money
cash held on the Vantage
(%) platform divided
by the average value
of assets under
administration held
as client money.
-------------------- ---------------------------- --------------------------------------
Vantage Net revenue derived Provides the most comparable
net revenue from funds held means of tracking, over time,
margin by clients (platform the margin earned on funds
from fees, initial commission held by our clients.
funds 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.
-------------------- ---------------------------- --------------------------------------
Vantage Net revenue from Provides a means of tracking,
net revenue shares (stockbroking over time, the margin earned
margin commissions, management on shares held by our clients.
from fees where shares
shares are held in a SIPP
(%) or ISA, less the
cost of dealing
errors) divided
by the average value
of assets under
administration held
as shares.
-------------------- ---------------------------- --------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR AKADNOBKDBCK
(END) Dow Jones Newswires
September 07, 2016 02:00 ET (06:00 GMT)
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