Hargreaves Lansdown Another period of growth

Hargreaves Lansdown plc (LON:HL) has today announced interim results for the six month period ended 31 December 2019.

Highlights

·    Net new business of £2.3 billion.

·    Assets under administration up 22% since 31 December 2018 to £105.2 billion.

·    1,274,000 active clients, an increase of 50,000 since 30 June 2019.

·    Profit before tax increase of 12% to £171.1 million.

·    Interim dividend up 9% to 11.2 pence per share (H1 2019: 10.3p)

Chris Hill, Chief Executive Officer, commented:

“The first half of our financial year was another period of growth. Despite market challenges, the resilience of our business, continued execution of our strategy and our focus on ensuring the right outcomes for clients, means we have seen growth and increased market share through the period.

We are confident that the diversified nature of Hargreaves Lansdown, our continued investment where we see opportunity and market leading client offering, mean that we are well placed to help our clients prosper, whilst delivering strong and sustainable returns for shareholders.”

Analyst presentation

Hargreaves Lansdown will be hosting an analyst presentation at 9.00am on 31 January 2020 following the release of these results for the half year ended 31 December 2019. Attendance is by invitation only. A conference call facility will be in place with the following participant dial-in numbers – UK (toll free) 0800 640 6441, UK (local) 020 3936 2999 and all other locations +44 20 3936 2999. The participant access code is 601416. Slides accompanying the analyst presentation will be available at www.hl.co.uk/investor-relations and an audio recording of the analyst presentation will be available by close of business on the day.

The Interim Results contain forward-looking statements which have been made in good faith based on the information available to us at the time of the approval of this report and should be treated with caution due to the inherent risks and uncertainties, including both economic and business risk factors some of which were set out in the 2019 Annual Report, underlying such forward-looking information.

Unless otherwise stated, all figures below refer to the six months ended 31 December 2019 (“H1 2020”).  Comparative figures are for the six months ended 31 December 2018 (“H1 2019”). Certain figures contained in this document, including financial information, have been subject to rounding adjustments. Accordingly, in certain instances the sum of the numbers in a column or a row in tables contained in this document may not conform exactly to the total figure given for that column or row.

Chief Executive’s Statement

Growth in challenging market conditions

The first half of our financial year was another period of growth for Hargreaves Lansdown as we reinforced our support for our clients and invested in our differentiated service. Our purpose remains to empower people to save and invest with confidence. To do this we must continuously deliver an exceptional client experience and respond to their evolving needs.

The external market was challenging in the second half of 2019, with political uncertainty, a General Election in the UK, Brexit and world trade tariffs all raising concerns.  As we have seen in previous unpredictable periods, client confidence and retail investment flows were affected. The Investment Association reported weak retail fund flows throughout and the suspension of the two Woodford funds also contributed to the general unease.

Against this backdrop, we continue to implement our strategy. The benefits of our client focused business model, the broad range of our investments and savings proposition and our leading client service have seen AUA rise 22% over the past year to £105.2 billion and a 12% increase in profit before tax to £171.1 million. Client numbers grew by 50,000 to 1,274,000 and client retention is consistent with prior periods at 93.3%. In addition, our latest share of the direct to consumer platform market has increased from 40.5% to 41.8%*.

Earlier this month we entered into an agreement to sell FundsLibrary Limited, our data management and digital services business, to Broadridge Financial Solutions, Inc. The decision to sell reflected our view that, as a business to business service, it was no longer core to our overall business. The deal is expected to complete at the end of February 2020 and I wish staff, management and business every success in the future.

* Source: Platforum UK D2C: Market Overview, February 2020 (provisional), data as at 30 September 2019.

Delivering value for clients through our service

Our clients remain at the centre of everything that we do. They require information that builds knowledge and confidence and helps them to understand the decisions they have to make to meet their individual needs. We provide this together with an ever greater range of investment and savings products and solutions, and make it easy to access and manage them all in one place. With an ever-shifting regulatory and tax environment, our clients need support from us more than ever before.

By providing the services and solutions our clients need, when they need them, engaging with them at the right times and communicating in ways they prefer, we optimise the value we can bring to a lifelong relationship and help them to achieve outcomes that are right for them.

As a leading financial services company we take our responsibilities very seriously, striving to play our role in setting the highest standards and recognising the challenges as a result.  We are committed to transparency and engagement with our clients as we support them with their evolving needs over the long term. Over the past year, we have removed various fees such as exit fees and ancillary charges which leaves us with what we consider is now one of the most transparent pricing structures in our sector.

Increasing numbers of our clients are approaching retirement and we are mindful of the challenges they face. During the period we launched a range of ‘wake up’ packs, helping clients to better understand their options and challenges regarding tax, income and investment. We also made improvements to our annuity process to help clients to secure enhanced annuities, and hence higher income, where available. Although interest rates remain low, we maintain our view that annuities are an important part of a range of tools we offer to get to the right outcomes for clients in retirement.

The period has seen continued growth and development of Active Savings as an innovative way to manage cash savings, which now has over £1.6bn of AUA and 46,000 customers using the service. This provides access to better rates for those that hold cash, whether they are in accumulation phase or in retirement. Banks increasingly recognise the relative importance of this platform as a means to raise deposits and development has continued with ICICI now offering an Easy Access Account and two new banks offering Fixed Term products. We continue to look at ways of extending this proposition further, including offering a new Cash ISA account in the coming months.  

Our Multi-Manager fund range began a project late in 2018 to transfer assets they invest in into segregated mandates rather than off-the-shelf retail funds. This process gives the team greater control over who manages the underlying funds, and how they run them, as well as reducing the cost of being invested in these funds to our clients. The process is working well as we extend this to the benefit of investors.

Our values and culture underpin our client service and proposition

Our values and our culture are hugely important to us and underpin our client focus. I firmly believe that not only are these critical to how an organisation reacts in tough situations, but how it is prepared to learn and put that experience to work to the benefit of clients. The Woodford fund suspensions were disappointing and frustrating for us and our clients, but their impact and the learnings have been incorporated into developments to our service.

The FCA’s 2017 review into best buy lists highlighted that they were a positive tool for investors and help them to make decisions. Our clients agree with this. However, we have now carried out a thorough review of our Wealth 50, spoken to clients to ascertain their views about our favourite funds list, and sought other independent insights. As a result, we will be making changes over the coming months to incorporate what we have learned from this research, including a greater focus on transparency of process. This will include adding more detail, greater transparency and a new structure to our research notes, for those clients who want a deeper level of information, and new functionality on our platform to help those who want to follow a more independent path.

It has been well documented that Philip Johnson and I, together with Lee Gardhouse and Mark Dampier decided to waive our bonuses for the 2019 financial year and we also waived platform fees for both the Woodford Equity Income Fund and the Woodford Income Focus Fund. A dedicated helpdesk team was created to support clients impacted by the closure of the Woodford Equity Income fund, and guide them through the coming months as it is wound up. We have been in regular and close communication with our clients and kept them fully informed with any updates. This has included writing to any of those invested in Woodford Equity Income, Woodford Income Focus and Woodford Patient Capital, either directly or through our Multi-Manager portfolios, 18 times with updates since the suspension of the Woodford Equity Income in June.

Additionally, we have communicated throughout the period with a number of parties to encourage a broad consideration of options for the Woodford Income Focus Fund that would maximise value for unit holders.  We polled clients to ensure that we were aligned to their needs, asking for their preferred outcome. We are pleased that the appointment of an alternative manager brings a resolution for these unit holders and that the fund will be open again in due course.

Finally, we are adding non-executive directors to the Hargreaves Lansdown Fund Managers Limited (HLFM) board to provide independent challenge and oversight closer to investment decisions. The first, John Troiano, joins us from Schroders where he was Global Head of Distribution. John’s global asset management and investment experience will add further breadth to the knowledge base and skills to both the Plc Board as well as HLFM.

Dividend

The Board believes the Group has strong profitability, liquidity and a capital position to execute its strategy without financial constraint and to operate a sustainable and progressive ordinary dividend policy. We remain confident in our business model and the Board has declared a 9% rise in the interim dividend to 11.2 pence per share. The Board remains committed to paying special dividends when sufficient excess cash and capital exist after taking account of the Group’s growth, investment and regulatory capital requirements at the time.

Outlook

We remain excited by the structural growth opportunity in the UK savings and investments market and remain confident in our ability to deliver sustainable growth through the cycle. The secular transfer of long term financial provision from businesses to individuals, an increase in life expectancy, ongoing low asset yields, and a complex saving and investment environment all present immense challenges for our clients. We believe Hargreaves Lansdown is well placed to support them with these challenges through our client focused business model, broad investment and savings proposition and leading client service.

The strength and resilience of our business model has ensured that the business delivered continued net new business and profit growth during the period. Since the Election we have seen an increase in investor confidence, which has translated into increased client activity and early signs of renewed net flows into retail funds. We hope that this sentiment will continue through the key tax year end season and beyond, and remain confident that we are well placed to help our clients prosper and deliver strong and sustainable returns for our shareholders.

I would like to thank our clients for their continued support and recommendation and I would also like to recognise my colleagues for all their hard work, dedication and commitment during a challenging period.

Chris Hill

Chief Executive Officer, Hargreaves Lansdown