REG - Hargreaves Lansdown - Final Results <Origin Href="QuoteRef">HRGV.L</Origin> - Part 2
15/08/2017 07:06
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254.2
EQUITY
Share capital 1.9 1.9
Shares held by EBT reserve (7.0) (14.9)
EBT reserve 7.9 12.0
Retained earnings 304.1 254.7
Total equity, attributable to the owners of the parent 306.9 253.7
Non-controlling interest 0.8 0.5
Total equity 307.7 254.2
2.1 Investments
Year ended30 June 2017 Year ended30 June 2016
£m £m
At beginning of year 1.0 0.9
Purchases 3.4 0.1
Disposals (0.3) -
At end of year 4.1 1.0
Comprising:
Current asset investment - UK listed securities valued at quoted market price 4.1 0.7
Current asset investment - unlisted securities valued at cost - 0.3
£4.1 million (2016: £0.7 million) of investments are classified as held at
fair value through profit and loss, being deal-related short-term investments
and holdings in the HL multi-manager funds as a result of the daily box
position.
At 30 June 2017 £nil (2016: £0.3 million) are classified as
available-for-sale. During the year, the investment previously held as
available-for-sale, was sold for £4.0 million. This led to a gain of £3.7
million, with the investment previously having been held at cost, which has
been recognised in the consolidated income statement in the year (see Note
1.6).
2.2 Trade and other receivables
Year ended30 June 2017 Year ended30 June 2016
£m £m
Financial assets
Trade receivables 401.1 576.4
Term Deposits 180.0 -
Other receivables 1.5 0.6
582.6 577.0
Non-financial assets
Accrued income 40.0 33.5
Prepayments 6.2 6.5
628.8 617.0
In accordance with market practice, certain balances with clients, Stock
Exchange member firms and other counterparties totalling £378.6 million (2016:
£560.9 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 £483.4
million (2016: 718.0 million) and the gross amount offset in the statement of
financial position with trade payables is £104.8 million (2016: 157.2
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.
2.3 Cash and cash equivalents
Year ended30 June 2017 Year ended30 June 2016
£m £m
Cash and cash equivalents
Restricted cash - balances held by EBT 5.5 3.2
Group cash and cash equivalent balances 75.9 208.2
81.4 211.4
At 30 June 2017, segregated deposit amounts held by the Group on behalf of
clients in accordance with the client money rules of the Financial Conduct
Authority amounted to £8,243 million (2016: £6,953 million). In addition there
were currency service cash accounts held on behalf of clients not governed by
the client money rules of £13.4 million (2016: £18.0 million). The client
retains the beneficial interest in both these deposits and cash accounts, and
accordingly, they are not included in the statement of financial position of
the Group.
2.4 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 19% or 17%, being the rate expected to be in force at the time of the
reversal of the temporary difference.
Accelerated tax depreciation Share-based payments Other deductible temporary differences Total
£m £m £m £m
At 1 July 2015 0.2 4.7 1.2 6.1
Charge to income - (0.3) (1.1) (1.4)
Charge to equity - (2.0) - (2.0)
At 30 June 2016 0.2 2.4 0.1 2.7
Charge to income (0.3) 0.3 0.2 0.2
Charge to equity - (0.9) - (0.9)
At 30 June 2017 (0.1) 1.8 0.3 2.0
Deferred tax expected to be recovered or settled:
Within 1 year after reporting date (0.1) 1.0 0.3 1.2
> 1 year after reporting date - 0.8 - 0.8
(0.1) 1.8 0.3 2.0
2.5 Trade and other payables
Year ended30 June 2017 Year ended30 June 2016
£m £m
Financial liabilities
Trade payables 375.5 556.8
Social security and other taxes 8.0 7.3
Other payables 13.1 3.9
396.6 568.0
Non-financial liabilities
Accruals 14.3 13.4
Deferred income 0.6 0.3
411.5 581.7
In accordance with market practice, certain balances with clients, Stock
Exchange member firms and other counterparties totalling £374.9 million (2016:
£555.5 million) are included in trade payables, similarly with the treatment
of trade receivables. As stated in Note 2.2 above, where we have a legal right
of offset and the ability and intention to settle net, trade payable balances
have been presented net.
Other payables principally comprise amounts owed to staff as a bonus and
rebates due to the regulated funds operated by the Group. Accruals and
deferred income principally comprise amounts outstanding for trade purchases
and revenue received but not yet earned on corporate pension schemes, where an
ongoing service is still being provided.
SECTION 3: EQUITY
Consolidated Statement of Changes in Equity for the year ended 30 June 2017
Attributable to the owners of the Parent
Share capital Shares held by EBT reserve EBT reserve Retained earnings Total Non-controlling interest Totalequity
£m £m £m £m £m £m £m
At 1 July 2015 1.9 (13.1) 12.7 235.0 236.5 0.5 237.0
Total comprehensive income - - - 176.9 176.9 0.4 177.3
Employee Benefit Trust
Shares sold in the year - 14.1 - - 14.1 - 14.1
Shares acquired in the year - (15.9) - - (15.9) - (15.9)
EBT share sale - - (3.4) - (3.4) - (3.4)
Reserve transfer on exercise of share options 2.7 (2.7) - - -
Employee share option scheme
Share-based payments expense - - - 2.5 2.5 - 2.5
Current tax effect of share-based payments - - - 3.2 3.2 - 3.2
Deferred tax effect of share-based payments - - - (2.0) (2.0) - (2.0)
Dividend paid (Note 3.2) - - - (158.2) (158.2) (0.4) (158.6)
At 30 June 2016 1.9 (14.9) 12.0 254.7 253.7 0.5 254.2
Total comprehensive income - - - 211.7 211.7 0.3 212.0
Employee Benefit Trust
Shares sold in the year - 10.8 - - 10.8 - 10.8
Shares acquired in the year - (2.9) - - (2.9) - (2.9)
EBT share sale - - (6.6) - (6.6) - (6.6)
Reserve transfer on exercise of share options 2.5 (2.5) - - -
Employee share option scheme
Share-based payments expense - - - 4.1 4.1 - 4.1
Current tax effect of share-based payments - - - 1.5 1.5 - 1.5
Deferred tax effect of share-based payments - - - (0.9) (0.9) - (0.9)
Dividend paid (Note 3.2) - - - (164.5) (164.5) - (164.5)
At 30 June 2017 1.9 (7.0) 7.9 304.1 306.9 0.8 307.7
3.1Share capital
Year ended30 June 2017 Year ended30 June 2016
£m £m
Authorised: 525,000,000 (2016: 525,000,000) ordinary shares of 0.4p each 2.1 2.1
Issued and fully paid: ordinary shares of 0.4p each 1.9 1.9
Shares Shares
Issued and fully paid: number of ordinary shares of 0.4p each 474,318,625 474,318,625
The Company has one class of ordinary shares which carry no right to fixed
income.
The Shares held by the EBT reserve represents the cost of shares in Hargreaves
Lansdown plc purchased in the market and held by the Hargreaves Lansdown plc
EBT to satisfy options under the Group's share option schemes.
The EBT reserve represents the cumulative gain on disposal of investments held
by the Hargreaves Lansdown EBT. The reserve is not distributable by the
Company as the assets and liabilities of the EBT are subject to management by
the Trustees in accordance with the EBT trust deed.
Non-controlling interests in the net assets of consolidated subsidiaries are
identified separately from the Group's equity therein. Non-controlling
interests consist of the minority's proportion of the net fair value of the
assets and liabilities acquired at the date of the original business
combination and the non-controlling interest's change in equity since that
date. The non-controlling interest represents a 22% shareholding in Library
Information Services Limited and a 7.5% shareholding in Hargreaves Lansdown
Savings Limited, which are both subsidiaries of the Company.
3.2 Dividends
Amounts recognised as distributions to equity holders in the year:
Year ended30 June 2017 Year ended30 June 2016
£m £m
2016 second interim dividend of 16.3p (2015: 14.3p) per share 77.0 67.5
2016 special dividend of 9.9p (2015: 11.4p) per share 46.8 53.9
2017 first interim dividend of 8.6p (2016: 7.8p) per share 40.7 36.8
Total dividends paid during the year 164.5 158.2
After the end of the reporting period, the Directors declared a final ordinary
dividend of 20.4 pence per share payable on 20 October 2017 to shareholders on
the register on 29 September 2017. 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 2018 financial statements as follows:
£m
2017 final dividend of 20.4p (2016 Second interim dividend: 16.3p) per share 96.6
The payment of these dividends will not have any tax consequences for the
Group.
Under an arrangement dated 30 June 1997 the Hargreaves Lansdown Employee
Benefit Trust, which held the following number of ordinary shares in
Hargreaves Lansdown plc at the date shown, has agreed to waive all dividends.
Year ended30 June 2017 Year ended30 June 2016
No. of shares No. of shares
Number of shares held by the Hargreaves Lansdown EBT 917,011 1,776,305
Representing % of called-up share capital 0.18% 0.37%
SECTION 4: CONSOLIDATED STATEMENT OF CASH FLOWS
Consolidated Statement of Cash Flows for the year ended 30 June 2017
Year ended 30 June 2017 Year ended 30 June 2016
Note £m £m
Net cash from operating activities
Profit for the year after tax 212.0 177.3
Adjustments for:
Investment revenues (1.2) (0.6)
Income tax expense 53.8 41.6
Gains on disposal of investments (3.5) -
Depreciation of plant and equipment 3.8 3.5
Amortisation of intangible assets 2.3 1.7
Impairment of intangible assets 1.2 -
Share-based payment expense 4.1 2.5
Increase in provisions 0.1 0.3
Operating cash flows before movements in working capital 272.6 226.3
Increase / (decrease) in receivables 168.2 (205.3)
(Decrease) / increase in payables (170.2) 184.4
Net movements on derivative settlement (0.1) -
Cash generated from operations 270.5 205.4
Income tax paid (44.7) (40.8)
Net cash generated from operating activities 225.8 164.6
Investing activities
Increase in short-term deposits (180.0) -
Interest received 1.0 0.5
Dividends received from investments 0.2 0.2
Proceeds on disposal of investment 2.7 -
Purchase of property, plant and equipment (4.7) (2.6)
Purchase of intangible assets (8.4) (4.1)
Purchase of investments (3.4) (0.1)
Net cash used in investing activities (192.6) (6.1)
Financing activities
Purchase of own shares in EBT (2.9) (15.9)
Proceeds on sale of own shares in EBT 4.2 10.7
Dividends paid to owners of the parent (164.5) (158.2)
Dividends paid to non-controlling interests - (0.4)
Net cash used in financing activities (163.2) (163.8)
Net decrease in cash and cash equivalents (130.0) (5.3)
Cash and cash equivalents at beginning of year 2.3 211.4 216.7
Cash and cash equivalents at end of year 2.3 81.4 211.4
Section 5: OTHER NOTES
5.1 General information
Hargreaves Lansdown plc (the Company) and ultimate parent of the Group is a
company incorporated and domiciled in the United Kingdom under the Companies
Act 2006 whose shares are publicly traded on the London Stock Exchange. The
address of the registered office is One College Square South, Anchor Road,
Bristol, BS1 5HL, United Kingdom. The nature of the Group's operations and its
principal activities are set out in the Operating and Financial Review.
These financial statements are presented in millions of pounds sterling (£m)
which is the currency of the primary economic environment in which the Group
operates.
Basis of preparation
The consolidated financial statements of Hargreaves Lansdown plc have been
prepared in accordance with International Financial Reporting Standards (IFRS)
and IFRS Interpretation Committee (IFRS IC) interpretations as adopted by the
European Union (EU), and with those parts of the Companies Act 2006 applicable
to companies reporting under IFRS.
The preparation of financial statements in conformity with IFRSs requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Company's accounting
policies.
In the current period the Group has adopted a new format for the financial
statements. This has been done to allow users to better understand the primary
statements and the related balances that make them up. We have also simplified
our reporting of revenue and operating costs to ensure that the information
provided is pertinent and indicates the balances of most importance, whilst
ensuring conformity with IFRS. In order to do this, we have aligned the notes
to the financial statements with the relevant primary statements, where there
is an associated accounting policy, it is clearly denoted by a box presented
at the beginning of the note.
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 a period of at least 12 months from the date of approval of the
Group Financial statements. Accordingly, they continue to adopt the going
concern basis in preparing this preliminary results statement.
5.2 Related Party Transactions
The Company has a related party relationship with its subsidiaries, and with
its Directors and members of the Executive Committee (the "key management
personnel"). Transactions between the Company and its key management personnel
are disclosed below. Details of transactions between the Company and other
related parties are also disclosed below.
Trading transactions
The Company entered into the following transactions with Directors within the
Hargreaves Lansdown Group and related parties who are not members of the
Group:
During the years ended 30 June 2017 and 30 June 2016, the Company has been
party to a lease with P K Hargreaves, a Director until 14 April 2015, for
rental of the old head office premises at Kendal House. A ten-year lease was
signed on 6 April 2011 for a rental of part of the building, to be used for
disaster recovery purposes at a market rate rent of £0.1 million per annum. No
amount was outstanding at either year end.
On 12 October 2016, the Company sold 7.5% of the ordinary share capital it
held in its subsidiary undertaking Hargreaves Lansdown Savings Limited (HLS).
The shares were sold to Stuart Louden, the Group Savings Director and
currently the only other shareholder, who is an employee of Hargreaves
Lansdown Asset Management Limited. The price paid per share was £1,000. As
there is no readily available market for these shares the Directors had to
assess a valuation based on the risks and rewards of the parties involved,
given the uncertainty of establishing a new start up entity and its future
potential. As a result HLS was valued at £1 million and the Directors of the
Company therefore, deemed £1,000 per share to be a fair price in the
circumstances. The total amount paid was £75,000 and this was settled
immediately in cash. Following the share sale the Company now holds 92.5% of
the ordinary share capital in HLS and Stuart Louden holds 7.5%. The
transaction was completed in order to provide incentive to Stuart Louden to
successfully develop the business of HLS into a profitable company. In
addition, the Company has granted Stuart Louden an option to purchase a
further 2.5% of the ordinary share capital at a price of £500,000. This
purchase option may be exercised at any time prior to 31 August 2021 provided
that at the time of exercise Stuart Louden is an employee of a Hargreaves
Lansdown Group company and he has not at any time given notice to terminate
such employment. The options have no value at current beyond what was paid and
as such do not appear in the Share Based Payments note in note 1.10
During the years ended 30 June 2017 and 30 June 2016, the Group has provided a
range of investment services in the normal course of business to shareholders
on normal third-party business terms. Directors and staff are eligible for a
slight discount on some of the services provided.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group, being those
personnel who were either a member of the Board of a Group company or a member
of the Executive Committee during the relevant year shown below, is set out
below in aggregate for each of the categories specified in IAS 24 Related
Party Disclosures.
Year ended 30 June 2017 £m Year ended 30 June 2016 £m
Short-term employee benefits 7.7 6.4
Post-employment benefits 0.1 0.3
Termination benefits - 0.3
Share-based payments 2.0 1.2
9.8 8.2
In addition to the amounts above, seven key management personnel (2016: seven)
received gains of £1.2 million (2016: £6.7 million) as a result of exercising
share options. During the year, no awards were made under the long-term
incentive schemes for key management personnel (2016: nine).
Included within the previous table are the following amounts paid to Directors
of the Company who served during the relevant year. Full details of Directors'
remuneration, including numbers of shares exercised, are shown in the
Directors' remuneration report.
Year ended 30 June 2017 £m Year ended 30 June 2016 £m
Short-term employee benefits 3.7 2.8
Post-employment benefits - -
Termination benefits - -
Share-based payments 1.1 0.5
4.8 3.3
In addition to the amounts above, Directors of the Company received gains of
£0.6 million relating to the exercise of share options
(2016: £0.4 million).
Year ended 30 June 2017 £m Year ended 30 June 2016 £m
Emoluments of the highest paid Director 1.71 2.01
No. No.
Number of Directors who exercised share options during the year 22 1
Number of Directors who were members of money purchase pension schemes 22 2
1 The highest paid Director was the Chief Executive Officer and full details
of his emoluments can be found in the audited 'Remuneration payable' table in
the Directors' remuneration report.
2 This includes the former Chief Executive Officer in the period up to the
date of his resignation.
Any amounts outstanding with related parties are unsecured and will be settled
in cash. No guarantees have been given or received in respect of amounts
outstanding. No provisions have been made for doubtful debts in respect of the
amounts owed by the related parties.
Section 6: STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation. Company
law requires the Directors to prepare financial statements for each financial
year. Under that law the Directors have prepared the Group financial
statements in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and parent company financial
statements in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union. Under company law the Directors must
not approve the financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and parent company
and of the profit or loss of the Group and parent company for that period. In
preparing the financial statements, the Directors are required to:
· Select suitable accounting policies and then apply them
consistently;
· State whether applicable IFRSs as adopted by the European Union have
been followed for the Group financial statements and IFRSs as adopted by the
European Union have been followed for the Company financial statements,
subject to any material departures disclosed and explained in the financial
statements;
· Make judgements and accounting estimates that are reasonable and
prudent; and
· Prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Group and parent company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group and parent company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and parent company and enable them to ensure that the financial
statements and the Directors' remuneration report comply with the Companies
Act 2006 and, as regards the Group financial statements, Article 4 of the IAS
Regulation.
The Directors are also responsible for safeguarding the assets of the Group
and parent company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the parent
company's website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in other
jurisdictions.
The Directors consider that the annual report and accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group and parent company's performance,
business model and strategy.
Each of the Directors, whose names and functions are listed below confirm
that, to the best of their knowledge:
· The parent company financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and profit of the
company;
· The Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and profit of the Group;
and
· The Directors' report includes a fair review of the development and
performance of the business and the position of the Group and parent company,
together with a description of the principal risks and uncertainties that it
faces.
By order of the Board
Philip Johnson
Chief Financial Officer
14 August 2017
Executive Directors
Chris Hill
Philip Johnson
Non-Executive Directors
Christopher Barling
Mike Evans
Shirley Garrood
Stephen Robertson
Jayne Styles
Section 7: PRINCIPAL RISKS AND UNCERTAINTIES
Managing the risks to Hargreaves Lansdown is fundamental to delivering the
incredible levels of service our clients expect and generating returns for
shareholders. The Board has performed a robust assessment of the principal
risks facing the Group through a process of continual review, including those
that would threaten its business model, future performance, solvency and
liquidity. In making such an assessment the Board considers the likelihood of
each risk materialising in the short and longer term.
The principal risks and uncertainties faced by the Group are detailed below,
along with actions taken to mitigate and manage them. The principal risks are
categorised into strategic risks, operational risks and financial risks as per
our risk framework.
Strategic & emerging risks
Risk Potential impact Mitigations
Future strategic changeHargreaves Lansdown failsto provide innovative propositions and services to ourclients. · Negative impact on AUM, shareholderreturnsandclient numbertargets.· Reputationaldamageasaresult oftheunder performance. · The Board reviews the strategy in the context of providing ourclientswiththeservicesand propositionstheyneed.· Steering groupsaresetupforall
new services or client offerings to ensure they are delivered to time, quality and costs requirements.
Future regulatory changeManaging implementation of regulatory change has been a majorelementoftheemerging risksinrecentyears. · Non-compliance withregulation.· Missed opportunities to achieve competitive advantage through theapproachtoimplementation. · The Group Steering Boardensure all regulatory projects are properly prioritised and delivered.· The Compliance function performs horizon
checking to ensure the Group has timely visibility of future regulatory change. Director of Risk and Compliancemaintainsreporting onfutureregulatorychange.
Change in regulatory capital levelsA revised regime could have a material impact on both Hargreaves Lansdown andthe industry. · Capital requirement figure materiallylargerthanthefigure underthecurrentICAAPregime. · Attendanceatindustryevents.· Ongoingcommunicationwiththe FCA.
· Capital requirement figure materiallylargerthanthefigure
underthecurrentICAAPregime.
· Attendanceatindustryevents.· Ongoingcommunicationwiththe
FCA.
Operational risks
Risk Potential impact Mitigations
Continued geo-political and economic uncertaintyBoth nationally and internationallyweareina period ofsubstantial geo-political andeconomic instability. · Negativeimpactonconsumer confidenceanddesiretohold/ buyinvestmentspreferringto keep funds as cashsavings. · The Executive and the Board track and discuss emerging risks to ensureappropriateresponses are inplace.
ConductTheriskthatHargreaves Lansdownfailstodeliver fairoutcomesforclients. · Reputationaldamageresulting from poor levels of customer service.· Negative impact on AUM, shareholderreturnsandclient numbertargets. · Strongclient-centricculture.· Formal policy in place with ongoingreviewatGroupand departmental level.· Conduct Risk Management Information is
discussed at theRiskCommitteeaspartof the wider Risk Management Information.
RegulatoryThe risk that the Group fails to meet regulatory obligations, leading to reputational damage,monetaryfinesorthe withdrawalofitsauthorisation to carryon its business. · Reputationaldamageresulting from poor levels of customer service.· Negative impact on AUM, shareholderreturnsand client numbertargets. · IndependentCompliance,Risk andInternalAuditfunctions.· Strong compliance culture gearedtowardsclientoutcomes andregulatorycompliance.
Disruption to businessPhysical business continuity event or catastrophic loss of systems, or other external event could cause disruption to our business and result in inability to perform core business activities or reduction in client service. · Inability to service clients' needs.· Reputational damage if not properly managed. · Business continuity and disaster recovery plans tested regularly.· Dual hosting of all critical servers, telecommunications and applications.·
High level of resilience built into daily operations.· Separate business continuity/disaster recovery site available 24/7.
Financial crimeFailure to protect against cybercrime, fraud or security breaches could result in loss ofdataorinabilitytomaintain oursystemsresultinginclient detriment and reputational damage. · Loss of data or inability to maintainoursystemsresultingin clientdetrimentandreputational damage.· Fraudulent activity leading to identity fraud and/or loss of clients'holdingstofraudulent activity. · Dedicatedinformationsecurity, anti-money laundering and client protectionteamsinplace.· Formalpoliciesandprocedures.· A security
operations centre focused on the detection, containment andremediationof information securitythreats.
Financial risks
Risk Potential impact Mitigations
Prudential riskThe risk that the Group may hold insufficient regulatory capital resources in order to meetFCAThresholdConditions requirements. · Regulatory censure. · As part of the ICAAP,Hargreaves Lansdown undertakes regular capital adequacy assessments to ensure that it maintains financial resources of sufficient
scale and quality at all times. These assessments include risk-based stress testing to model the impact of extreme scenarios on theGroup'sownfunds.
LiquidityLack of sufficient readily realisable financial resources to meet the Group's obligationsastheyfalldue,or lack of access to liquid funds oncommerciallyviableterms could lead to inability to pay clients and regulatory breaches. · Unable to meet obligations as they fall due.. · A Treasury management policy is in place, overseen by the Treasury Committee, which maximises return on capital whilst providing the ability to access
sufficient liquid funds at short notice should this be necessary.
CounterpartyThe Group must always protectagainsttheriskthata bank or other counterparty could fail. · Failureofathird-partybank, brokerormarket maker. · Group deposits with highly credit-ratedinstitutionsonly,in accordance with the Treasury Policy.· The Treasury Committee monitors the
counterparties' creditratingsonaregularbasis.
MarketFluctuations in capitalmarkets may adversely affect trading activityand/orthevalueofthe Group's Assets Under Administration or Management, from which we deriverevenues. · Downturns in the market and resultantdropsin AUA and AUMwillhave anegativeimpactonHargreaves Lansdownincome. · The Group businessmodel comprises both recurring platform revenue and transaction-basedincome.· A high proportion of the AUA and AUM are held
withintax-advantagedwrappers, meaning there is a lower risk of withdrawal.· Multi-Manager funds publish market exposures inprospectus and funds are managed
(and monitored)accordingly.
Glossary of Alternative Financial Performance Measures
Within the Announcement various Alternative Financial Performance Measures are
referred to, which are non-GAAP (Generally Accepted Accounting Practice)
measures. They are used in order to provide a better understanding of the
performance of the Group and the table below states those which have been
used, how they have been calculated and why they have been used.
Measure Calculation Why we use this measure
Dividend pay-out ratio (%) The total dividend per share divided by the basic Earnings Per Share (EPS) for a financial year. Provides a measure of the level of profits paid out to shareholders and the level retained in the business.
Dividend per share (pence per share) Total dividend payable relating to a financial year divided by the total number of shares eligible to receive a dividend. Note ordinary shares held in the Hargreaves Lansdown Employee Benefit Trust have agreed to waive all dividends (see Note 3.2 to the consolidated financial statements). Dividend per share is pertinent information to shareholders and investors and provides them with the ability to assess the dividend yield of the Hargreaves Lansdown plc
shares.
Net revenue (£)(See Income Statement on page 9 for the reconciliation of net revenue) Total revenue less commission payments which are primarily loyalty bonuses paid to Vantage clients. Because of the changes brought about to the client charging structure by the Retail Distribution Review ("RDR") there was a transitional period (from 1 March 2014 to 1
April 2016). From 1 March 2014 revenue was increased as Hargreaves Lansdown earned both a new platform 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 of net recurring revenue (%) The total value of renewal commission (after deducting loyalty bonuses), platform fees, management fees and interest earned on client money divided by the total Vantage net revenue. Provides a measure of the quality of our earnings. We believe recurring revenue provides greater profit resilience and hence it is of higher quality.
Net revenue margin (%) Total net
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