Interim Results
Hargreaves Lansdown PLC
12 February 2008
Hargreaves Lansdown plc
Interim results for the 6 months to 31 December 2007
Embargoed: for release at 0700h, 12 February 2008
Hargreaves Lansdown plc ('Hargreaves Lansdown' or the 'Group') today announces
interim results for the six months ended 31 December 2007.
Highlights:
• Revenue increased by 33% at £57.8 million
• Total assets under administration(**) up 45% at £10.9bn
• Underlying operating profit(*) up 58% at £27.2m
• Underlying operating profit margin up from 40% to 47%
• Underlying diluted earnings per share(***) up 75% at 4.2p
• Interim dividend of 3.065p per share
• SIPP product continues to demonstrate growth
Six months ended 31 Six months ended 31 Increase % Year
December 2007 December 2006 to 30 June
2007
Revenue £57.8m £43.3m 33% £98.8m
Proportion of recurring revenue 73% 66% 7 pts 65%
Underlying operating profit (*) £27.2m £17.2m 58% £40.7m
Underlying operating profit margin 47% 40% 7 pts 41%
Total assets under administration (**) £10.9 bn £7.5 bn 45% £10.2 bn
Underlying diluted earnings per share 4.2p 2.4p 75% 6.4p
(***)
(*) Operating profit before exceptional administrative expenses
(**) Includes £697 million of Hargreaves Lansdown plc shares held in Vantage as
at 31 December 2007 (30 June 2007: £805 million)
(***) Based upon earnings before exceptional administrative expenses and
investment gains, and the full issued share capital
Commenting on the results, Peter Hargreaves, Chief Executive said:
'In the last six months, Hargreaves Lansdown continued to deliver growth across
the business. I'm delighted that we achieved an increase in both revenue and
profits during a period of market volatility and investor uncertainty. These
results demonstrate the resilience of our business model and the belief of our
clients in our service and advice.'
'By continuing to talk to and listen to our clients we have won new business and
again achieved good retention rates. This success has been built upon by the
provision of first class information, a robust platform and a unique cost
effective scalable direct marketing model.'
For further information please contact:
Hargreaves Lansdown +44 (0) 117 988 9967
- Stephen Lansdown, Chairman
- Peter Hargreaves, Chief Executive
- Ben Yearsley, Media and Investor Relations
A copy of the interim report and financial statements will be available on the
Group's website at www.H-L.co.uk
The Interim Report and Condensed Financial Statements have been prepared solely
to provide additional information to shareholders as a body to assess the
current position and future potential of the Group, and it should not be relied
on by any other party or for any other purpose. The Interim management report
contains forward-looking statements which have been made in good faith based on
the information available to them up to the time of their 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 2007 Annual Report, underlying such forward-looking
information.
Interim management report
Chairman's and Chief Executive's statement
This is our first half-yearly report as a public company. We are pleased to
report that despite market turbulence and reduced investor confidence we have
attracted net positive inflows of client assets during each month of the period
under review. Our businesses which offer advice continued to expand as more
investors continued to seek this expertise. We are consequently delighted to
report an improved profit over the comparative period a year ago.
The two main drivers of profit are our ability to gather and retain assets plus
the performance of the stock market itself. Historically the last six months of
our financial year represent the best opportunity for asset gathering. We shall
continue to target new money but this year it will be important for us to
facilitate the transfer to us of assets held by investors with other providers.
We hope this strategy will expand our client base and increase our assets under
administration. We have in the past demonstrated our ability in achieving this.
It is the accumulation of assets during the last six months of our trading
year (i.e. to 30 June) which has the greatest effect on our future profits.
Since the end of our first six months trading we still continue to attract
positive flows.
We would remind shareholders that much of the client assets we hold are held in
the main three tax shelters available to UK taxpayers namely the PEP, ISA and
SIPP. We therefore expect lower redemptions than the majority of the businesses
in the private client arena. The challenge will be to find the right investment
propositions for our clients during the period leading up to the end of the tax
year, a challenge that we relish and for which we feel fully equipped.
It is pleasing to report a good performance during the first six months of this
financial year. The team responsible for the performance of our multi-manager
propositions should be applauded for receiving the accolade of various awards
for investment performance and research. Other parts of the business have
similarly been singled out with various awards during the year. We believe that
we are more than fulfilling our requirements under both the TCF (Treating
Clients Fairly) initiative and MiFID (Markets in Financial Instruments
Directive) regulation brought in by the Financial Services Authority.
The Board is very pleased to be able to announce that it has been joined by
Jonathan Davis as non executive director on 1 February 2008. We are confident
that the Board and your Company will benefit significantly from Jonathan's
contribution.
Finally we would mention that during the period under review we have sealed our
future accommodation requirements whereby we hope we will be in a position to
move at the end of 2009.
In summary although the current conditions are not ideal, this is an opportunity
for us to improve our market share and build for the future. We look forward to
the challenge.
Financial Review
Certain figures contained in this report have been subjected to rounding
adjustments. Accordingly, in certain instances the sum of the numbers in a
column contained in this document may not conform exactly to the total figure
given for that column.
Summary of Results
Unaudited Audited Audited
6 months 6 months Year
ended ended to
31 December 31 December 30 June
2007 2006 2007
£' million £'million £'million
Revenue 57.8 43.3 98.8
Underlying administrative expenses (30.6) (26.2) (58.1)
Operating profit before exceptional administrative 27.2 17.2 40.7
expenses
Exceptional administrative expenses - (0.3) (29.6)
Operating profit 27.2 16.8 11.0
Non operating income - investment revenue and other gains 1.5 3.7 13.4
Profit before taxation 28.7 20.5 24.4
Taxation (8.5) (6.4) (7.4)
Profit after taxation 20.1 14.1 17.0
Assets Under Administration
During the period, the FTSE All Share has fallen by 3.45 per cent from 3,404.14
to 3,286.67. Despite the less than favourable market conditions, Hargreaves
Lansdown has increased its total assets under administration from £10.2 billion
as at 30 June 2007 to £10.9 billion as at 31 December 2007, an increase of
approximately 7%. This can be broken down as follows:
31 December 30 September 30 June
2007 2007 2007
£'billion £'billion £'billion
Assets Under Administration (AUA)
Vantage (*) 9.8 9.5 9.1
Other 0.2 0.2 0.2
AUA Total 10.0 9.7 9.3
Assets Under Administration and Management (AUM)
Portfolio Management Service (PMS) 0.9 0.8 0.8
Multi-manager funds excluding PMS 0.5 0.5 0.5
AUM Total 1.4 1.3 1.3
Less: Multi-manager funds included in both AUA and AUM (0.5) (0.5) (0.5)
Total Assets Under Administration 10.9 10.6 10.2
(*) 31 December 2007 figure includes £697m of shares in Hargreaves Lansdown plc
(30 June 2007 £805m)
The value of assets held within the Vantage service, the Group's
direct-to-private investor fund supermarket and wrap platform, increased from
£9.1 billion as at 30 June 2007 to £9.8 billion as at 31 December 2007. This
can be attributed to £0.9 billion net business inflows which have more than
compensated for the £0.2 billion negative impact of the market during the
period. The products generating the majority of new business growth in the
period were the Vantage SIPP and the Vantage Fund and Share Account. As at the
31 December 2007, the value of the Vantage PEP was £2.2 billion, (30 June 2007:
£2.2 billion) the Vantage ISA was £2.9 billion (30 June 2007: £2.8 billion), the
Vantage SIPP was £1.8 billion (30 June 2007: £1.4 billion) and the Vantage Fund
and Share Account was £2.9 billion (30 June 2007: £2.7 billion). The number of
active Vantage clients at 31 December 2007 was around 227,000 compared with
218,000 as at 30 June 2007.
The composition of assets across the whole of Vantage changed during the period.
As at 31 December 2007, Vantage was made up of 24% equities (30 June 2007:
25%), 66% funds (30 June 2007: 66%) and 10% cash (30 June 2007: 9%).
The value of assets held in our managed services, namely our Portfolio
Management Service and our range of multi-manager funds, was £1.4 billion as at
31 December 2007, an increase of 8% from the value at 30 June 2007, including
£0.5 billion of Hargreaves Lansdown multi-manager funds administered through
Vantage.
Revenue
Unaudited Audited Increase %
6 months ended 6 months ended
31 December 2007 31 December 2006
£'million £'million
Vantage 34.2 22.4 + 53%
Advisory 7.0 5.2 + 35%
Discretionary 5.1 3.2 + 59%
Third Party 7.9 8.6 - 8%
Stockbroking 2.7 2.9 - 7%
Central Services 0.8 1.0 - 20%
Total Revenue 57.8 43.3 + 33%
Whilst the FTSE All Share has fallen by 3.45 per cent in the period since 30
June 2007, in the six months to 31 December 2007 the value of total assets under
administration has increased by almost 7% and our revenue has increased by 33%.
This illustrates that a significant element of the Group's progress arises from
strong organic growth.
The main thrust of the improved performance in the first half came from the
Group's Vantage, Advisory and Discretionary divisions. These have achieved
strong revenue growth in the first half of the year compared to the same period
last year as a result of higher average asset values during the period. These
areas accounted for 80% of revenue for the six months ended 31 December 2007
(71% of revenue for the six months ended 31 December 2006) and continue to drive
the business forward by generating recurring higher quality earnings for the
Group.
In addition to higher management fees based upon assets held in our Portfolio
Management Service, our Advisory division has made a strong start to the year
generally and continues to seek out good quality, experienced advisers to add to
its team.
Revenue from the Third Party Business division has fallen by 8% for the first
six months compared to the same period last year. As previously advised, the
revenue from third party investments is expected to continue its gradual decline
as more clients choose to transfer their assets onto the Vantage platform. The
nature of revenue earned on corporate solutions business is such that the inflow
will depend largely on the timing of when schemes are implemented throughout the
year. The first six months revenue from the corporate solutions business is
down on the same period last year but the pipeline of prospective business still
remains positive. Whilst strong annuity sales in the first six months has
boosted revenue from third party life and pensions business, the revenue from
personal pensions continues to decline in favour of the Vantage SIPP. We have
now scaled back our marketing activity in relation to term assurance.
The Stockbroking division has made a positive start to the year, boosted by
higher levels of trading activity often associated with a more volatile market,
offset by the effect of the cessation of a third party dealing contract
terminated by the Group in November 2006 which previously accounted for annual
revenues of approximately £2 million.
Finally, revenue from the Central Services division includes interest on the
Group's own money which has increased due to higher cash balances held during
the period compared to the previous year, and higher interest rates available
during the period. In the six months ending 31 December 2006, revenue also
includes the effect of a £0.5 million timing difference in the accounting of the
employee Share Incentive Plan, which is the primary cause of the decrease in
Central Services income for the six months to 31 December 2007.
Underlying Administrative Expenses
Unaudited 6 months Audited 6 months Increase %
ended ended 31 December
31 December 2007 2006
£'million £'million
Staff costs 17.9 15.4 + 16%
Commission payable 5.2 4.5 + 16%
Marketing costs 2.8 2.4 + 17%
Depreciation, amortisation and financial 0.5 0.2 + 150%
costs
Other costs 4.1 3.6 + 14%
30.6 26.2
Underlying administrative expenses were well controlled during the period. They
increased by 17% in the six months ended 31 December 2007 compared to the same
period in the previous financial year. The Group's largest expense is staff
costs which increased by 16%. The average number of staff during the six months
ended 31 December 2007 was 651, an increase of 10% against an average of 592 for
the comparative period. The remainder of the increase in staff costs can be
explained by higher bonus payments associated with the revenue and profit growth
of the Group.
Commission payable includes the share of renewal commission which the Group
receives on funds held in Vantage which is rebated back to clients as a cash
loyalty bonus (except with respect to those funds held in the SIPP). It
increased by 16%, from £4.5 million to £5.2 million. The rate of growth in
commission payable is less that the increase in renewal commission primarily
because of the growth in assets held within the SIPP on which no loyalty is
paid.
The Group increased its marketing spend by 17% from £2.4 million to £2.8
million. This includes the cost of sending information to existing and potential
clients, including the Group's flagship publication, the Investment Times. These
costs also include an element of media advertising, postage, stationary and the
cost of corresponding with clients. The increase simply reflects a greater
level of marketing activity in the six months ended 31 December 2007 compared to
the same period in the previous financial year.
As the majority of our platform development is undertaken in-house, the capital
expenditure of the business remains fairly low, resulting in a small
depreciation charge. The charge for depreciation, amortisation and financial
costs for the period increased from £0.2 million to £0.5 million. The
substantial 150% increase is the result of a credit of £0.2m applied in the six
months ended 31 December 2006 following an over-provision for financial costs in
the year ended 30 June 2006.
Other administration costs and overheads include items such as building costs
and utility costs, dealing costs, irrecoverable VAT, compliance costs,
insurance, professional services, computer maintenance and external
administration charges. These costs increased by 14% from £3.6 million to £4.1
million. The increase can partly be attributed to a greater spend on legal and
professional costs in relation to the Group's new property, which has a target
occupation date of December 2009.
Exceptional administrative expenses
There were no exceptional administrative costs incurred in the six months ended
31 December 2007. The £0.3 million of exceptional costs incurred during the
comparative period were legal costs associated with the flotation of the Group.
Non operating income
Non operating income fell by 59% from £3.7 million to £1.5 million. This can be
attributed to the sale of investments in the six months ended 31 December 2006
which gave rise to £3.2 million of gains and dividends received on investments
no longer held in the later period. This drop was offset by an increase in
investment revenues in relation to interest received on the Group's cash
balances which were higher during the six months ended 31 December 2007.
Taxation
Taxation increased from £6.4 million to £8.5 million. The higher charge can
predominantly be attributed to an increase in pre-tax profits.
Earnings per share (EPS)
The basic diluted EPS increased from 3.0 pence to 4.2 pence. However the
directors consider that the most relevant EPS calculation to be the underlying
diluted earnings per share. This is calculated as the earnings for the year,
adjusted to exclude the net effect of exceptional administration expenses and
investment gains, divided by the total number of shares in issue, including
those held by the Employee Benefit Trust (EBT). Underlying diluted EPS increased
by 75%, from 2.4 pence to 4.2 pence.
Dividend
We have previously advised Shareholders that the Board will pay an interim
dividend in March 2008, and we are pleased to declare that an interim dividend
of 3.065 pence per share will be paid on 28 March 2008 amounting to a total
dividend of £14.16 million. We plan to declare a second dividend in late August
2008, at the same time as our preliminary results announcement, payable in
September 2008.
An arrangement exists under which the Hargreaves Lansdown Employee Benefit Trust
(the 'EBT') has agreed to waive all dividends.
Capital expenditure and cash flow
Capital expenditure remained fairly low at £0.6 million for the six months ended
31 December 2007, compared with £0.9 million for the same period in the previous
financial year. The majority of capital expenditure related to computer hardware
and software.
The Group was highly cash generative during the period with no significant
outgoings from underlying profits. There were no exceptional inflows during the
period. The Group's own cash balances increased by £19.5 million from £32.9
million to £52.4 million during the period. This includes £13.7 million of cash
held within the EBT. In addition to the Group's own cash, the figure for cash
and cash equivalents on the balance sheet includes client cash which is being
held on account pending the settlement of transactions. This will vary
depending on the level of trading activity around the balance sheet date. As at
31 December 2007, this balance was £11.8 million lower than the value as at 30
June 2007. This is the primary reason why the increase in cash and cash
equivalents quoted on the cash flow is only £7.7 million despite the higher
profitability and strong cash generation of the business.
Net assets, capital requirement and treasury policy
The Group net assets increased from £44.5 million at 30 June 2007 to £65.9
million at 31 December 2007. The Group has four subsidiary companies which are
authorised and regulated by the Financial Services Authority. From 1 January
2007, the Group's regulated companies have been subject to the transitional
provisions of the Capital Requirements Directive (CRD). At 31 December 2007,
the Group had Tier 1 capital of £27 million which provided excess regulatory
capital of approximately £18 million using the transitional rules.
The Group has no borrowings and deposits its liquid funds with selected
financial institutions which maintain a long term credit rating of AA- or
better. The Group actively maintains cash balances on short term deposit to
ensure that it has sufficient available funds for operations. This policy is
designed to ensure that the Group takes no material credit risk. The Group is
not exposed to significant foreign exchange translation or transaction risk.
Related party transactions
There were no material changes to the related party transactions during the
financial period.
Principal risks and uncertainties
The principal risks and uncertainties which could impact the Group for the
remainder of the financial year are those detailed on pages 13 and 14 of the
Group's Annual Report and Financial Statements 2007, a copy of which is
available on the Group's website www.H-L.co.uk. These remain the principal
risks and uncertainties for the second half of this financial year and beyond,
and they are regularly considered by the Board.
Other significant events
We have agreed the terms of our new leasehold premises with a target occupation
date of December 2009. We currently occupy five premises. The new premises will
replace all of these offices and accommodate in the region of a thousand staff,
compared to 644 employed as at 31 December 2007. We believe that a single site
will be extremely beneficial for us in terms of efficiency gains, improving
communication and harmonising the culture which has been a key element in the
Group's success to date.
Library Information Services Limited is a subsidiary of the Company. On 30
November 2007 the Company disposed of shares in the subsidiary to Stuart Louden
(a director of the subsidiary) representing 15% of the share capital. The
Company owns the remaining 85%. Further details of this transaction are shown
in note 27 to the interim financial statements.
We continue to invest resources in the infrastructure of the business in order
to maintain our high levels of client service. In particular we have embarked
upon further strengthening of our business continuity, both in terms of
relocating our secondary computer facilities and amending our business
continuity arrangements in advance of the move to the new premises at the end of
2009.
We continue to endeavour to provide our clients with the best service, the best
prices and the best information, irrespective of what market conditions prevail.
This can only be achieved with the hard work and dedication of all our people
and we have great pleasure in acknowledging their contribution to the Company's
objectives.
Responsibility statement
The directors confirm that to the best of their knowledge:
a) the condensed set of financial statements has been prepared in accordance
with IAS34;
b) the interim management report includes a fair review of the information
required by the Financial Statements Disclosure and Transparency Rules (DTR)
4.2.7R - 'indication of important events during the first six months and their
impact on the financial statements and description of principal risks and
uncertainties for the remaining six months of the year'; and
c) the interim management report includes a fair review of the information
required by DTR4.2.8R - 'disclosure of related party transactions and changes
therein'.
On behalf of the Board
Stephen Lansdown Peter Hargreaves
Chairman Chief Executive
11 February 2008 11 February 2008
Independent review report to Hargreaves Lansdown plc
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
December 2007 which comprises the income statement, the balance sheet, the
statement of recognised income and expense, the cash flow statement and related
notes 1 to 29. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with International
Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our
work has been undertaken so that we might state to the company those matters we
are required to state to them in an independent review report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdoms' Financial Services Authority.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting,' as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 31 December 2007 is not prepared, in all
material respects, in accordance with International Accounting Standard 34 as
adopted by the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditor
11 February 2008
Bristol, United Kingdom
Condensed Interim Income Statement
Note Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Revenue 10 57,770 43,341 98,769
Total operating income 57,770 43,341 98,769
Administrative expenses (30,564) (26,165) (58,098)
Exceptional administrative 8 - (336) (29,628)
expenses
Total administrative expenses (30,564) (26,501) (87,726)
Operating profit 27,206 16,840 11,043
Analysed as:
Operating profit before 27,206 17,176 40,671
exceptional administrative
expenses
Exceptional administrative 8 - (336) (29,628)
expenses
Operating profit 27,206 16,840 11,043
Investment revenues 11 1,418 492 1,430
Other gains and losses 12 53 3,196 11,917
Profit before tax 28,677 20,528 24,390
Tax 13 (8,530) (6,405) (7,435)
Profit for the period 20,147 14,123 16,955
Attributable to :
Equity holders of the Company 20,149 14,123 16,955
Minority interest (2) - -
20,147 14,123 16,955
Dividend per share (pence) 14
Interim dividend ** - - 3.00
Total dividend per share - - 3.00
Earnings per share (pence) 15 4.3 3.2 3.6
Basic earnings per share *
Diluted earnings per share * 4.2 3.0 3.6
All income, profits and earnings are in respect of continuing operations.
* The directors consider that the underlying earnings per share figures as shown in note 15 represents
a more consistent measure of underlying performance as this measure excludes the impact of exceptional
items.
** After the balance sheet date, the directors declared an interim dividend of 3.065 pence per share
payable on 28 March 2008 to shareholders on the register on 29 February 2008.
Condensed Interim Statement of Recognised Income and Expenses
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Note
Profit for the period 20,147 14,123 16,955
Increase in fair value of - 1,342 1,202
available-for-sale investments,
net of tax 21
Gain on disposal of - (2,236) (8,351)
available-for-sale investments
transferred to income statement,
net of tax 21
Gain/(loss) on sale of shares by 23 11 12,093
EBT, net of tax 24
Net income/(expense) recognised 23 (883) 4,944
directly in equity
Total recognised income and expense for the period 20,170 13,240 21,899
Attributable to :
Equity holders of the Company 20,172 13,240 21,899
Minority interest (2) - -
20,170 13,240 21,899
Condensed Interim Balance Sheet
Note Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Non-current assets
Goodwill 1,333 1,333 1,333
Other intangible assets 157 95 81
Property, plant and equipment 2,261 2,230 2,249
Deferred tax assets 5,145 2,300 4,978
8,896 5,958 8,641
Current assets
Trade and other receivables 17 62,654 51,193 51,533
Cash and cash equivalents 17 55,796 33,658 48,092
Investments 16 1,163 10,791 1,169
119,613 95,642 100,794
Total assets 128,509 101,600 109,435
Current liabilities
Trade and other payables 18 55,097 61,717 63,976
Current tax liabilities 6,974 2,720 154
62,071 64,437 64,130
Net current assets 57,542 31,205 36,664
Non-current liabilities
Deferred tax liabilities - 2,484 -
Trade and other payables 18 - 193 281
Provisions 505 445 529
505 3,122 810
Total liabilities 62,576 67,559 64,940
Net assets 65,933 34,041 44,495
Equity
Share capital 19 1,897 172 1,897
Share premium account 20 8 1,733 8
Investment revaluation reserve 21 - 6,255 -
Capital redemption reserve 22 12 12 12
Shares held by Employee Benefit 23 (6,638) (18,200) (7,552)
Trust
EBT reserve 24 12,053 (52) 12,030
Share option reserve 25 7,489 2,637 7,082
Retained earnings 26 51,167 41,484 31,018
Equity, attributable to equity
shareholders of the parent 65,988 34,041 44,495
Minority interests 27 (55) - -
Total Equity 65,933 34,041 44,495
The financial statements were approved by the board of directors on 11 February
2008 and signed on its behalf by:
S P Lansdown M J Mulligan
Chairman Group Finance Director
11 February 2008 11 February 2008
Condensed Interim Cash Flow Statement
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Note
Net cash from operating activities, after tax 28 5,893 15,942 7,741
Investing activities
Interest received 1,418 375 1,228
Dividends received from investments - 117 202
Proceeds on disposal of available-for-sale 6 2,540 14,281
investments
Purchases of property, plant and equipment (440) (902) (1,437)
Purchase of intangible fixed assets (108) (40) (53)
Acquisition of investments - - (212)
Proceeds on sale of own shares 935 1,631 25,645
Net cash from/(used in) investing activities 1,811 3,721 39,654
Financing activities
Receipt from repayment of loan - 250 250
Dividends paid - - (13,298)
Net cash from/(used in) financing activities - 250 (13,048)
Net increase/(decrease) in cash and cash 7,704 19,913 34,347
equivalents
Cash and cash equivalents at beginning of period 48,092 13,745 13,745
Cash and cash equivalents at end of period 55,796 33,658 48,092
Notes to the Interim Condensed Financial Statements
1. Basis of preparation
The Interim Financial Statements for the 6 months to 31 December 2007 have been
prepared using accounting policies consistent with International Financial
Reporting Standards and in accordance with the International Accounting Standard
(IAS) 34 Interim Financial Reporting and the disclosure requirements of the
Listing Rules. The Interim Financial Statements have been prepared on the
historical cost basis and are presented in pounds sterling which is the currency
of the primary economic environment in which the Group operates.
The financial information contained in these Interim Financial Statements does
not constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985. However, the information has been reviewed by the company's
auditors, Deloitte & Touche LLP, and their report appears at the front of this
document. The financial information for the year ended 30 June 2007 has been
derived from the audited financial statements of Hargreaves Lansdown plc for
that year, which have been reported on by Deloitte & Touche LLP and delivered to
the Registrar of Companies. Copies are available on-line at www.H-L.co.uk. The
report of the auditors on those statutory accounts was unqualified and did not
contain a statement under Section 237(2) or (3) of the Companies Act 1985.
2. Significant accounting policies
The following standards and interpretations are effective for the first time for
the financial year ending 30 June 2008 and have been adopted by the Group with
no significant impact on its consolidated results or financial position for the
period:
IFRS 7 - Financial instruments: disclosures (effective for periods beginning on
or after 1 January 2007).
IFRIC 10 - Interim financial reporting and impairment (effective for periods
beginning on or after 1 November 2006).
IFRIC 11 - Group and treasury share transactions (effective for periods
beginning on or after 1 March 2007).
In all other respects, the same accounting policies and methods of computation
are followed in the Interim Financial Statements as were followed in the Annual
Financial Statements for the year ended 30 June 2007, on which the auditors gave
an unqualified report. Such accounting policies have been consistently applied
throughout the periods.
3. Seasonality of operations
A high proportion of the Group's revenue is derived from the value of assets
under administration or management in either the Vantage or the Portfolio
Management Service (PMS). The value of these assets are influenced predominantly
by new business volumes, the stock market and client withdrawals. Of these
factors, new business tends to be seasonal with greater inflows in the second
half of the financial year between January and June. This can be attributed to
the timing of the UK tax year-end and the fact that many individuals review
their investments around this time. In the financial years ended 30 June 2007
and 30 June 2006, between 70 and 75 per cent of new Vantage business was
received in the second half of the year. The receipt of new business into PMS is
less seasonal than this as a result of being distributed through our Financial
Practitioners. In this instance, the inflow of business is also influenced by
the timing of when advisers meet with their clients.
As new business only accounts for a small proportion of asset values and because
of other revenue streams, overall Group revenue is less seasonal than new
business inflows. In the years ended 30 June 2007 and 30 June 2006, 56 per cent
of revenue was earned during the second half of the year.
4. Business and geographical segments
A business segment is a group of assets and operations engaged in providing
services that are subject to risks and returns that are different from those of
other business segments. The Group is currently organised into different
operating divisions, however the nature of the services provided, the regulatory
environment, the customer base and distribution channels for each division are
the same so that for the purposes of IAS14 Segmental Reporting, the consolidated
entity operates in one business segment. The principal activity of the Group is
the provision of investment management services. As the Group only operates in
one business segment, no additional business segmental analysis has been shown.
All business activities are located within the UK and therefore the Group
operates in a single geographical segment.
5. Material events after interim period end
After the interim balance sheet date, an interim dividend of 3.065 pence per
share (2007: 3.000 pence) amounting to a dividend of £14.16m (2007: £13.30m) was
declared by the Directors. These financial statements do not reflect this
dividend payable.
There have been no other material events after the end of the interim period
that have not already been reflected in the Interim Financial Statements.
6. Changes in capital expenditure and capital commitments since the last
annual balance sheet date
Capital expenditure
During the six months ended 31 December 2007, the Group acquired property,
plant, equipment and software assets with a cost of £572,000 (31 December 2006:
£942,000; 30 June 2007: £1,484,000). Assets with a net book value of £13,000
were disposed of in the six months ended 31 December 2007 (31 December 2006:
£nil; 30 June 2007: £10,000), resulting in a £nil gain on disposal (31 December
2006: £nil; 30 June 2007: £nil).
The Group intends to relocate from the current offices to a single new office at
the end of 2009. The Group has entered into a lease of new office premises for
an initial lease term of 17 years starting in September 2009 with a 15 month
rent-free period and a rental cost of £2.7 million per annum.
7. Principal risks and uncertainties
The principal risks and uncertainties which could impact the Group for the
remainder of the financial year are those detailed on pages 13 and 14 of the
Group's Annual Report and Financial Statements 2007, a copy of which is
available on the Group's website www.H-L.co.uk. These remain the principal
risks and uncertainties for the second half of this financial year and beyond,
and they are regularly considered by the Board.
Key sources of judgements and estimation uncertainty
The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amount of revenues, expenses,
assets and liabilities and the disclosure of contingent liabilities. If in the
future such estimates and assumptions, which are based on management's best
judgement at the date of preparation of the financial statements, deviate from
actual circumstances, the original estimates and assumptions will be modified as
appropriate in the period in which the circumstances change. The areas where a
higher degree of judgement or complexity arise, or areas where assumptions and
estimates are significant to the consolidated financial statements, are
discussed below:
Share based payments
Prior to 15 May 2007 the Company's shares were not listed on a stock exchange
and therefore no readily available market price existed for the shares. The
share price of share option awards granted prior to 15 May 2007 were based on
the latest market value agreed with H.M. Revenue and Customs using an earnings
multiples approach based on comparable quoted companies. Share price volatility
was estimated as the average of the volatility experienced by a comparable group
of quoted companies. The expected life used in the model has been adjusted,
based on management's best estimate, for the effects of non-transferability,
exercise restrictions, and behavioural considerations. The Company has been
required to make various valuation assumptions in order to account for share
based payments. Since 15 May 2007, a quoted market price has been available for
the Company's shares although no share options have yet been granted since that
date.
Indemnity provision
Included within provisions is an amount which represents management's best
estimate of the Group's liability to policy lapses resulting in indemnity
commission claw-backs. The calculation is based on the volume of indemnified
commission and on past experience of policy cancellation.
Staff costs
Included in staff costs is an estimate of the future liability for bonuses and
other employee incentive schemes which have been earned but not paid.
8. Exceptional items
Profit for the period has been arrived at after charging the
following exceptional items:
Unaudited Audited
6 months 6 months Audited Year
ended 31 ended 31 to 30 June
Exceptional administrative expenses December December
comprise 2007 2006 2007
£'000 £'000 £'000
- Flotation costs - 336 2,612
- Additional directors' remuneration - - 27,016
Exceptional items are those significant items that fall within the activities of
the Group which are separately disclosed by virtue of their size or incidence to
enable a full understanding of the Group's financial performance.
Flotation costs represent costs relating to the Company's Admission to the
London Stock Exchange and principally comprise legal and professional fees.
Additional Directors remuneration in the previous financial year represents
bonuses totalling £23.95 million (total cost £27.02 million including employers'
national insurance) awarded on 5 April 2007 to certain executive directors of
the Company and its subsidiaries.
9. Staff numbers
The average number of employees of the Group (including executive
directors) was:
Unaudited Audited
6 months 6 months Audited
ended 31 ended 31
December December Year to
2007 2006 30 June
2007
No. No. No.
Operating and support functions 479 436 456
Administrative functions 173 154 165
652 590 621
10. Revenue
Revenue principally represents commission receivable from financial services
provided to clients, interest 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:
Revenue from services: Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
50,647 38,348 87,509
Fees and commission income
Interest and similar income 6,536 3,721 8,832
Subscriptions and sundry charges 587 1,272 2,428
Total operating income 57,770 43,341 98,769
11. Investment revenue
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Interest on bank deposits 1,418 375 1,228
Dividends from equity investment - 117 202
1,418 492 1,430
12. Other gains and losses
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Gain on disposal of investments 53 3,196 11,917
13. Tax
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
The tax charge for the period is based on the anticipated effective rate of tax for the year
to 30 June 2008 of 29.5% (30 June 2007: 30%).
Current tax 8,479 6,604 8,241
Deferred tax 51 (199) (806)
8,530 6,405 7,435
In addition to the amount charged to the income statement, certain tax amounts
have been charged directly to equity as follows:
Note
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Deferred tax relating to share based 25 (218) (1,282) (3,352)
payments
Deferred tax on revaluation of the 21 - 562 684
Group's available-for-sale investments
Current tax relief on exercise of share 25 (72) - (2,308)
options
Current tax on gain on disposal of 24 - - 1,293
shares held by EBT
(290) (720) (3,683)
14. Dividends paid
No dividends were paid during the six months to 31 December 2007.
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
Amounts paid and recognised as distributions to equity £'000 £'000 £'000
holders in the period:
First interim dividend of 3.000p per share - - 13,298
- - 13,298
After the balance sheet date, the directors declared an interim dividend of
3.065 pence per share payable on 28 March 2008 to shareholders on the register
on 29 February 2008.
Under an arrangement dated 30 June 1997 the Hargreaves Lansdown Employee Benefit
Trust (the 'EBT'), which held the following number of ordinary shares in
Hargreaves Lansdown plc at the date shown, has agreed to waive all dividends.
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
Number of shares held by the Hargreaves Lansdown 12,113,960 37,041,675 14,038,685
Employee Benefit Trust
Representing % of called-up share capital 2.55% 7.81% 2.96%
15. Earnings per share
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 issue during the period, including ordinary shares held in the EBT reserve
which have not 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.
Underlying basic earnings per share and underlying diluted earnings per share
are calculated as for basic and diluted earnings per share, but using an
adjusted earnings figure such that the profit attributable to equity holders of
the Company is stated before exceptional expenses and other gains and losses.
The directors consider that the underlying earnings per share represent a more
consistent measure of underlying performance.
The weighted average number of ordinary shares used for the calculation of
earnings per share has been adjusted to show the impact of the subdivision of
each ordinary share of 10 pence into 25 ordinary shares of 0.4 pence and a 10
for 1 bonus issue which took place on 10 April 2007.
Unaudited Audited Audited
6 months 6 months Year to
ended 31 ended 31
December December 30 June
2007 2006 2007
Earnings (all from continuing operations) £'000 £'000 £'000
Earnings for the purposes of basic and diluted 20,149 14,123 16,955
earnings per share being net profit attributable to
equity holders of the parent
Exceptional administrative expenses - 336 29,628
Other gains and losses (53) (3,196) (11,917)
Tax on exceptional administrative expenses - (101) (4,539)
and other gains and losses
Earnings for the purposes of underlying basic and 20,096 11,162 30,127
underlying diluted earnings per share
Number Number Number
Number of shares
Weighted average number of ordinary shares for
the purposes of diluted earnings per share,
being total issued share capital 474,318,625 474,318,625 474,318,625
Shares held by HL EBT which have not vested 9,996,185 26,577,925 9,721,460
unconditionally with employees
464,322,440 447,740,700 464,597,165
Weighted average number of ordinary shares for
the purposes of basic earnings per share
Pence Pence Pence
Basic earnings per share 4.3 3.2 3.6
Diluted earnings per share 4.2 3.0 3.6
Underlying basic earnings per share 4.3 2.5 6.5
Underlying diluted earnings per share 4.2 2.4 6.4
The directors consider that the underlying earnings per share figures represent
a more consistent measure of underlying performance as this measure excludes the
impact of exceptional items and investment gains.
16. Investments
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
Available-for-sale investments 2007 2006 2007
£'000 £'000 £'000
At beginning of period 1,169 13,352 13,352
Revaluation surplus/(deficit) transfer to equity (note - 1,904 1,886
21)
Net increase in the value of short term trading - - 212
investments
Disposals (6) (4,465) (14,281)
At end of period 1,163 10,791 1,169
Current asset investments 1,163 10,791 1,169
Current asset available-for-sale investments include the following:
UK listed securities valued at quoted market price 422 10,049 428
Unlisted securities valued at cost 741 742 741
1,163 10,791 1,169
The fair value of unlisted investments cannot be reliably measured due to the
illiquid nature of the investment and absence of a readily available sale price.
Unlisted investments are therefore carried at cost.
17. Other financial assets
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
Trade and other receivables December December
2007 2006 2007
£'000 £'000 £'000
Trade receivables 53,711 44,515 45,153
Other receivables 318 2,198 368
Prepayments and accrued income 8,625 4,480 6,012
62,654 51,193 51,533
Trade 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 are included in trade receivables.
Cash and cash equivalents
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Cash and cash equivalents 55,796 33,658 48,092
Comprising:
Restricted cash - client settlement account balances 3,384 6,164 15,163
Restricted cash - balances held by EBT 13,663 1,793 12,370
Group cash and cash equivalent balances 38,749 25,701 20,559
Cash and cash equivalents comprise cash held by the Group and institutional cash
funds with near-instant access. Included in cash and cash equivalents are
amounts of cash held on client settlement accounts as shown above.
18. Other financial liabilities
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
Trade and other payables £'000 £'000 £'000
Current payables
Trade payables 45,078 41,950 51,423
Social security and other taxes 1,412 2,556 3,408
Other payables 7,437 15,869 7,718
Accruals and deferred income 1,170 1,342 1,427
55,097 61,717 63,976
Non-current payables
Other payables - 193 281
In accordance with market practice, certain balances with clients, Stock
Exchange member firms and other counterparties are included in trade payables.
Accruals and other payables principally comprise amounts outstanding for trade
purchases and ongoing costs.
19. Share capital
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Authorised:
525,000,000 ordinary shares of 0.4p each 2,100 250 2,100
(2006: 2,500,000 ordinary shares of 10p each)
Issued and fully paid:
Ordinary shares of 0.4p (2006: 10p each) 1,897 172 1,897
Shares Shares Shares
Issued and fully paid:
Number of ordinary shares of 0.4p (2006: 10p 474,318,625 1,724,795 474,318,625
each)
The Company has one class of ordinary shares which carry no right to fixed
income.
On 10 April 2007, a bonus issue of 10 shares for every 1 share took place
following a sub-division of the ordinary shares of 10 pence each into 25
ordinary shares of 0.4 pence each.
20. Share premium account
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Balance at beginning of period 8 1,733 1,733
Utilisation of share premium account - - (1,725)
Balance at end of period 8 1,733 8
This reserve represents the difference between the issue price and the nominal
value of shares issued.
21. Investment revaluation reserve
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Balance at beginning of period - 7,149 7,149
Increase in fair value of available-for-sale - 1,904 1,886
investments
Deferred tax effect of increase in fair value - (562) (684)
of available-for-sale investments
Disposal of available-for-sale investments - (3,196) (11,917)
Tax on disposal of available-for-sale - 960 3,566
investments
Balance at end of period - 6,255 -
The investment revaluation reserve represents the increase in fair value of
available-for-sale investments held by the Group, net of tax.
22. Capital redemption reserve
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Balance at beginning and at end of period 12 12 12
The capital redemption reserve relates to the repurchase and cancellation of the
Company's own shares.
23. Shares held by Employee Benefit Trust
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Balance at beginning of period (7,552) (19,809) (19,809)
Shares acquired in the period - (12) (12)
Shares sold 914 1,621 12,269
Balance at end of period (6,638) (18,200) (7,552)
The Shares held by Employee Benefit Trust 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
options schemes.
24. EBT reserve
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Balance at beginning of period 12,030 (63) (63)
Gain/(loss) on sale of shares by EBT 23 11 13,386
Tax on sale of shares by EBT - - (1,293)
Balance at end of period 12,053 (52) 12,030
The EBT reserve represents the cumulative gain/(loss) on disposal of investments
held by the Hargreaves Lansdown Employee Benefit Trust ('the 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.
25. Share option reserve
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Balance at beginning of period 7,082 914 914
Share based payments expense 117 441 508
Deferred tax effect of share based payments 218 1,282 3,352
Tax relief on exercise of share options 72 - 2,308
Balance at end of period 7,489 2,637 7,082
This reserve represents the effect of share based payments and associated tax.
26. Retained earnings
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Balance at beginning of period 31,018 27,361 27,361
Dividends paid - - (13,298)
Net profit for the period 20,149 14,123 16,955
Balance at end of period 51,167 41,484 31,018
27. Minority interests
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Balance at beginning of period - - -
Share of net liabilities (53) - -
Net loss for the period (2) - -
Balance at end of period (55) - -
Minority interests in the net assets of consolidated subsidiaries are identified
separately from the Group's equity therein. Minority 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 minority
interest's change in equity since that date.
The minority interest represents a 15% shareholding in Library Information
Services Limited, a subsidiary of the Company. On 30 November 2007 the Company
awarded shares in the subsidiary representing 15% of the share capital to Stuart
Louden (a director of the subsidiary) for total consideration of £150, being the
directors' assessment of market value. The resulting gain on disposal of
£53,000 is shown in note 12. Hargreaves Lansdown plc owns the remaining 85%.
28. Notes to the cash flow statement
Unaudited Audited Audited
6 months 6 months Year to 30
ended 31 ended 31 June
December December
2007 2006 2007
£'000 £'000 £'000
Profit for the period after tax 20,147 14,123 16,955
Adjustments for:
Investment revenues (1,418) (492) (1,430)
Other gains and losses (53) (3,196) (11,917)
Income tax expense 8,530 6,405 7,435
Loss on disposal of tangible fixed assets - - 10
Depreciation of plant and equipment 428 391 897
Depreciation of intangible assets 32 42 69
Share-based payment expense 406 441 508
Increase/(decrease) in provisions (24) (70) 19
Operating cash flows before movements in working 28,048 17,644 12,546
capital
Decrease/(increase) in receivables (11,120) (3,313) (5,625)
Increase/(decrease) in payables (9,158) 3,581 5,979
Cash generated by operations 7,770 17,912 12,900
Income taxes paid (1,877) (1,970) (5,159)
Net cash from operating activities 5,893 15,942 7,741
29. Related party transactions
The Group has a related party relationship with its subsidiaries, and with its
directors and members of the Executive Committee (the 'key management personnel
'). There were no material changes to the related party transactions during
the financial period.
Directors, Company Secretary, Advisors and Shareholder Information
EXECUTIVE DIRECTORS
Peter Hargreaves
Stephen Lansdown
Martin Mulligan
NON-EXECUTIVE DIRECTORS
Jonathan Bloomer
Michael Evans
Jonathan Davis (appointed 1 February 2008)
COMPANY SECRETARY
Tracey Taylor
AUDITORS
Deloitte & Touche LLP, Bristol
SOLICITORS
Burges Salmon LLP, Bristol
PRINCIPAL BANKERS
Lloyds TSB Bank plc, Bristol
REGISTRARS
Equiniti Limited (formerly Lloyds TSB Registrars)
Registered Office
Kendal House
4 Brighton Mews
Clifton
Bristol
BS8 2NX
Registered number: 2122142
WEBSITE
www.H-L.co.uk
DIVIDEND CALENDAR 2007/08
First dividend (interim) Second dividend
2007/08
Ex-dividend date* 27 February 2008 3 September 2008
Record date** 29 February 2008 5 September 2008
Payment date 28 March 2008 30 September 2008
* Shares bought on or after the ex-dividend date will not qualify for the
dividend.
** Shareholders must be on the Hargreaves Lansdown plc share register on this
date to receive the dividend.
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