REG - Hargreaves Lansdown - Half-year Report <Origin Href="QuoteRef">HRGV.L</Origin> - Part 2
08/02/2017 07:05
- Part 2: For the preceding part double click ID:nRSH2745Wa
At 31 December 2015 1,897 8 12 (4,746) 11,957 204,894 214,022 686 214,708
At 1 July 2016 1,897 8 12 (14,850) 11,999 254,632 253,698 466 254,164
Total comprehensive income - - - - - 106,072 106,072 278 106,350
Employee Benefit Trust:
Shares sold during the period - - - 4,134 - - 4,134 - 4,134
Shares acquired in the period - - - (2,908) - - (2,908) - (2,908)
EBT share sale - - - - (2,522) - (2,522) - (2,522)
Reserve transfer on exercise of share options - - - - 1,010 (1,010) - - -
Employee share option scheme:
Share-based payments expense - - - - - 1,345 1,345 3 1,348
Current tax effect of share-based payments - - - - - 183 183 - 183
Deferred tax effect of share-based payments - - - - - (459) (459) - (459)
Dividend paid (note 11) - - - - - (123,846) (123,846) - (123,846)
At 31 December 2016 1,897 8 12 (13,624) 10,487 236,917 235,697 747 236,444
The share premium account represents the difference between the issue price
and the nominal value of shares issued.
The capital redemption reserve relates to the repurchase and cancellation of
the Company's own shares.
The shares held by Employee Benefit Trust ("the EBT") reserve represents the
cost of shares in Hargreaves Lansdown plc purchased in the market and held by
the Hargreaves Lansdown plc Employee Benefit Trust to satisfy options under
the Group's share option schemes.
The EBT reserve represents the cumulative gain on disposal of investments held
by the Hargreaves Lansdown EBT. The reserve is not distributable by the
Company as the assets and liabilities of the EBT are subject to management by
the Trustees in accordance with the EBT trust deed.
Non-controlling interests in the net assets of consolidated subsidiaries are
identified separately from the Group's equity therein. Non-controlling
interests consist of the minority's proportion of the net fair value of the
assets and liabilities acquired at the date of the original business
combination and the non-controlling interest's change in equity since that
date. The non-controlling interest represents a 22% shareholding in Library
Information Services Limited and a 7.5% shareholding in Hargreaves Lansdown
Savings Limited, both subsidiaries of the Company.
Condensed Consolidated Statement of Financial Position
as at 31 December 2016
Note Unauditedat 31 December2016 £'000 Unauditedat 31 December2015 £'000 Audited at 30 June 2016 £'000
ASSETS:
Non-current assets
Goodwill 1,333 1,333 1,333
Other intangible assets 9,270 4,946 7,050
Property, plant and equipment 10,903 12,506 10,987
Deferred tax assets 3,362 6,833 2,775
24,868 25,618 22,145
Current assets
Trade and other receivables 14 353,744 308,233 617,013
Cash and cash equivalents 15 192,738 181,716 211,393
Investments 13 1,818 727 994
Current tax assets - - 33
548,300 490,676 829,433
Total assets 573,168 516,294 851,578
LIABILITIES:
Current liabilities
Trade and other payables 16 314,123 282,876 581,685
Current tax liabilities 22,113 18,478 15,242
336,236 301,354 596,927
Net current assets 212,064 189,322 232,506
Non-current liabilities
Provisions 488 232 487
Total liabilities 336,724 301,586 597,414
Net assets 236,444 214,708 254,164
EQUITY:
Share capital 17 1,897 1,897 1,897
Share premium account 8 8 8
Capital redemption reserve 12 12 12
Shares held by Employee Benefit Trust reserve (13,624) (4,746) (14,850)
EBT reserve 10,487 11,957 11,999
Retained earnings 236,917 204,894 254,632
Total equity, attributable to the owners of the parent 235,697 214,022 253,698
Non-controlling interest 747 686 466
Total equity 236,444 214,708 254,164
The condensed consolidated financial statements on pages 12 to 29 of
Hargreaves Lansdown plc, registered number 02122142, were approved by the
board of directors on 7 February 2017, signed on its behalf and authorised for
issue by:
Ian Gorham
Chief Executive
Condensed Consolidated Statement of Cash Flows
for the period ended 31 December 2016
Note Unaudited6 months ended 31 December2016 £'000 Unaudited6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
Net cash from operating activities
Cash generated from operations 18 130,369 100,546 205,360
Income tax paid (18,585) (18,850) (40,766)
Net cash generated from operating activities 111,784 81,696 164,594
Investing activities
Interest received 440 242 458
Dividends received from investments 3 27 171
Proceeds on disposal of investments - 182 -
Purchase of property, plant and equipment (1,717) (2,242) (2,534)
Purchase of intangible assets (3,273) (1,101) (4,114)
Purchase of available-for-sale investments (824) - (85)
Net cash used in investing activities (5,371) (2,892) (6,104)
Financing activities
Purchase of own shares in EBT (2,908) - (15,927)
Proceeds on sale of own shares in EBT 1,611 7,524 10,655
Proceeds from the sale of an investment in a subsidiary 75 - -
Dividends paid to owners of the parent (123,846) (121,365) (158,182)
Dividends paid to non-controlling interests - - (396)
Net cash used in financing activities (125,068) (113,841) (163,850)
Net (decrease) in cash and cash equivalents (18,655) (35,037) (5,360)
Cash and cash equivalents at beginning of period 211,393 216,753 216,753
Cash and cash equivalents at end of period 15 192,738 181,716 211,393
Notes to the Condensed Consolidated Financial Statements
1. Basis of preparation
The consolidated Interim Financial Statements of Hargreaves Lansdown plc for
the six months to 31 December 2016 have been prepared using accounting
policies in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and in accordance with the
International Accounting Standard (IAS) 34 Interim Financial Reporting and
theDisclosure Rules and Transparency Rules of the United Kingdom's Financial
Conduct Authority. The Interim Financial Statements have been prepared on the
historical cost basis, except for the revaluation of certain financial
instruments, and are presented in pounds sterling which is the currency of the
primary economic environment in which the Group operates.
The financial information contained in these Interim Financial Statements does
not constitute statutory accounts within the meaning of Section 434 of the
Companies Act 2006. However, the information has been reviewed by the
company's auditor, PricewaterhouseCoopers LLP, and their report appears
earlier in this document. The financial information for the year ended 30
June 2016 has been derived from the audited financial statements of Hargreaves
Lansdown plc for that year, which have been reported on by
PricewaterhouseCoopers LLP and delivered to the Registrar of Companies.
Copies are available on-line at www.hl.co.uk. The auditor's report on those
accounts was not qualified, did not include a reference to any matters to
which the auditor drew attention by the way of emphasis without qualifying the
report and did not contain statements under section 498 (2) or (3) of the
Companies Act 2006.
The same accounting policies, methods of computation and presentation have
been followed in the preparation of the Interim Financial Statements for the
six months ended 31 December 2016 as were applied in the Audited Annual
Financial Statements for the year ended 30 June 2016.
Going concern
Throughout the period, the Group was debt free, has continued to generate
significant cash and has considerable financial resources enabling it to meet
its day-to-day working capital requirements.
The Directors have considered the resilience of the Group, taking account of
its current financial position, the principal risks facing the business in
severe but reasonable scenarios and the effectiveness of any mitigating
actions. As a consequence, the Directors believe that the Group is well placed
to manage its business risks in the context of the current economic outlook
and have adequate financial resources to continue in operational existence for
a period of at least 12 months from the date of approval of these interim
financial statements. They therefore continue to adopt the going concern basis
in preparing the consolidated interim financial statements.
2. Seasonality of operations
A high proportion of the Group's revenue is derived from the value of assets
under administration or management in either the Vantage Service or the
Portfolio Management Service (PMS). The values of these assets are influenced
predominantly by new business volumes, the stock market and client
withdrawals. Of these factors, new business within Vantage 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.
The receipt of new business into PMS is less seasonal than this as a result of
being distributed through our Financial Advisers. In this instance, the inflow
of business is also influenced by the timing of when advisers meet with
clients.
As new business only accounts for a small proportion of asset values and
because of other revenue streams and market effects, overall Group net revenue
is less seasonal than new business inflows. In the year ended 30 June 2016
51% of revenue was earned during the second half of the year (2015: 51%).
3. Segment information
The Group is organised into three business segments, namely the Vantage
division, the Discretionary/Managed division and the Third Party/Other
Services division. This is based upon the Group's internal organisation and
management structure and is the primary way in which the Chief Operating
Decision Maker (CODM) is provided with financial information. The CODM has
been identified as the Board Executive Directors.
The 'Vantage' division represents all activities relating to our direct to
private investor platform.
The 'Discretionary/Managed' division is focused on the provision of managed
services such as our Portfolio Management Service (PMS) and range of
Multi-Manager funds.
The 'Third Party/Other Services' division includes activities relating to the
broking of third party investments and pensions, certificated share dealing
and other niche services such as currency, CFDs and spread betting. In this
division, clients' investments are not administered within the Group. In
addition this division includes the costs related to Hargreaves Lansdown
Savings Limited ("HLS") in establishing its digital cash deposit service and
P2P platform. To date no revenue has been generated by HLS.
The 'Group' segment contains items that are shared by the Group as a whole and
cannot be reasonably allocated to other operating segments.
Segment expenses are those that are directly attributable to a segment
together with the relevant portion of other expenses that can reasonably be
allocated to the segment. Gains or losses on the disposal of
available-for-sale investments, investment income, interest payable and tax
are not allocated by segment.
Segment assets and liabilities include items that are directly attributable to
a segment plus an allocation on a reasonable basis of shared items. Corporate
assets and liabilities are not included in business segments and are
3. Segment information (continued)
thus unallocated. At 31 December 2016 and 2015, these comprise cash and cash
equivalents, short-term investments, tax-related and other assets or
liabilities.
Consolidation adjustments relate to the elimination of inter-segment revenues
at arm's length prices, balances and investments in Group subsidiaries
required on consolidation.
PMS platform is provided for Vantage products hence platform fees charged by
PMS is included under the Vantage segment.
Vantage Discretionary and Managed Third Party/Other Services Group Consolidation Adjustment Consolidated
£'000 £'000 £'000 £'000 £'000 £'000
6 months ended 31 December 2016
Revenue from external customers 140,252 33,290 11,357 - - 184,899
Commission payable (5) (28) (33) - - (66)
Total segment net revenue 140,247 33,262 11,324 - - 184,833
Depreciation and amortisation (2,227) (202) (407) - - (2,836)
Investment revenue - - - 443 - 443
Other gains - - - 55 - 55
Reportable segment profit before tax 100,862 27,241 3,101 (226) - 130,978
Reportable segment assets 345,244 31,731 4,057 223,970 (31,834) 573,168
Reportable segment liabilities (296,180) (29,281) (493) (42,604) 31,834 (336,724)
Net segment assets 49,064 2,450 3,564 181,366 - 236,444
6 months ended 31 December 2015
Revenue from external customers 161,135 29,197 10,410 - - 200,742
Commission payable (41,878) (27) (36) - - (41,941)
Total segment net revenue 119,257 29,170 10,374 - - 158,801
Depreciation and amortisation (1,984) (185) (326) - - (2,495)
Investment revenue - - - 269 - 269
Reportable segment profit before tax 81,494 22,924 4,092 (400) - 108,110
Reportable segment assets 294,377 18,948 12,143 211,010 (20,184) 516,294
Reportable segment liabilities (265,877) (18,550) (356) (36,987) 20,184 (301,586)
Net segment assets 28,500 398 11,787 174,023 - 214,708
Information about products/services
The Group's operating segments are business units that provide different
products and services. The breakdown of revenue from external customers for
each type of service is therefore the same as the segmental analysis above.
Information about geographical area
All business activities are located within the UK.
Information about major customers
The Group does not rely on any individual customer.
4. Material events after interim period-end
After the interim balance sheet date, an ordinary interim dividend of 8.60
pence per share (H1 2016: interim dividend 7.80p) amounting to a total
dividend of £40.7 million (2016: £36.9m) was declared by the plc Directors.
These financial statements do not reflect this dividend payable.
There have been no other material events after the end of the interim period.
5. Changes in capital expenditure and capital commitments since the
last annual balance sheet date
Capital expenditure
During the six months ended 31 December 2016, the Group acquired fixtures,
fittings, plant, equipment and software assets and internally generated
intangibles with a cost of £5.0 million (H1 2016: £3.3m, year to 30 June 2016:
£6.6m).
Capital commitment
At the balance sheet date, the Group had capital commitments of £0.5 million
relating to property, plant and equipment (31 December 2015: £0.8m, 30 June
2016: £1.1m).
6. 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 36 to 39 of the
Group's Annual Report and Financial Statements 2016, a copy of which is
available on the Group's website www.hl.co.uk. These remain the principal
risks and uncertainties for the second half of this financial year and beyond;
the key ones of which are listed below and they are regularly considered by
the Board.
Operational risks
· Cybercrime, fraud or security breaches in respect of the Group's
information, data, software or information technology systems.
· Business continuity event.
· Changing markets and increased competition.
Financial risks
· Risk of a decline in earnings due to a decline in interest rates or
regulatory changes affecting interest income.
· Fluctuations in the capital markets adversely affecting trading
activity and /or the value of the Group's assets under administration.
The Group is exposed to interest rate risk, the risk of sustaining losses from
adverse movements in interest bearing assets. These assets comprise cash and
cash equivalents. At 31 December 2016 the value of such assets on the Group
balance sheet was £193 million (at 31 December 2015: £182m). A 50bps (0.5%)
move in interest rates, in isolation, would therefore, not have a material
direct impact on the Group balance sheet or results. This exposure is
continually monitored to ensure that the Group is maximizing its interest
earning potential within accepted liquidity and credit constraints. The Group
has no external borrowings and as such is not exposed to interest rate or
refinancing risk on borrowings.
As a source of revenue is based on the value of client cash under
administration, the Group also has an indirect exposure to interest rate risk
on cash balances held for clients. These balances are disclosed in Note 15 and
are not on the Group balance sheet.
7. Staff numbers
Unaudited6 months ended 31 December2016 No. Unaudited6 months ended 31 December2015 No. Audited Year to 30 June 2016 No.
Average number of employees of the Group
(including executive directors) 970 964 969
8. Revenue
Revenue represents platform and management fees charged to clients,
transactional costs in relation to stockbroking and interest income on client
money. 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 Unaudited6 months ended 31 December2016 £'000 Unaudited6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
Recurring income 141,992 168,416 317,089
Transactional income 39,166 29,453 65,035
Other income 3,741 2,873 6,209
Total revenue 184,899 200,742 388,333
Recurring income principally comprises £2.9 million of renewal income (H1
2016: £51.5m 2016: £76.9m), £13.7 million of management fees relating to the
PMS Service and Vantage SIPP and ISA accounts (H1 2016: £13.1m, 2016: £25.5m),
£26.3 million of management fees relating to the Hargreaves Lansdown
Multi-Manager Funds (H1 2016: £21.4m, 2016: £44.1m), £80.6 million of platform
fees (H1 2016: £68.5m, 2016: £139.4m) and £18.6 million of interest income on
client money (H1 2016: £13.9m, 2015: £31.2m).
Transactional income comprises £30.2 million of commission earned from
stockbroking transactions (H1 2016: £20.4m, 2016: £46.8m), adviser charges of
£4.9 million (H1 2016: £5.4m, 2016: £10.5m) and other income of £4.1 million
(H1 2016: £3.7m, 2016: £7.7m).
Other income represents the amount of fees receivable from the provision of
funds data services and research through Library Information Services Ltd to
external parties.
Following the implementation of the Retail Distribution Review ("RDR") on 1
March 2014, total revenue earned from investment funds held by clients
significantly increased as a new platform fee was introduced. At the same time
commission income was being received from the fund management groups on funds
purchased by clients before the RDR implementation date. Where we still
received commission on these pre RDR or "legacy funds" the vast majority was
passed back to our clients in the form of a significantly higher loyalty bonus
which was shown within commission payable in the income statement. From 1
April 2016 any renewal income received from fund management groups relating to
legacy funds was passed back entirely to the client. This commission was
therefore no longer recorded as a revenue and the loyalty payment to clients
was no longer recorded as a cost. In order to aid comparability across this
transitional period the measure of net revenue is felt to be more meaningful
and hence has been used in assessing the financial performance and is shown in
the income statement. Net revenue is measured as revenue less commission
payable.
9. Investment revenues
Unaudited6 months ended 31 December2016 £'000 Unaudited6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
Interest on bank deposits 440 242 458
Dividends from equity investment 3 27 171
443 269 629
10. Tax
Unaudited6 months ended 31 December2016 £'000 Unaudited6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
The tax charge for the period is based on the prevailing effective standard rate of tax for the year to 30 June 2017 of 19.75% (30 June 2016: 20%).
Current tax - on profits for the period 25,478 21,269 40,771
Current tax - adjustments in respect of prior years 197 (356) (536)
Deferred tax (1,047) 72 231
Deferred tax - adjustments in respect of prior years - 229 1,157
24,628 21,214 41,623
In addition to the amount charged to the income statement, certain tax amounts
have been charged / (credited) directly to equity as follows:
Unaudited6 months ended 31 December2016 £'000 Unaudited 6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
Deferred tax relating to share-based payments 459 (1,015) 1,955
Current tax relating to share-based payments (183) (2,446) (3,122)
276 (3,461) (1,167)
11. Dividends paid
Unaudited6 months ended 31 December2016 £'000 Unaudited 6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
Amounts recognised as distributions to equity holders in the period:
2016 Special dividend of 9.90p per share 46,797 - -
2016 Second interim dividend of 16.30p per share 77,049 - -
2016 First interim dividend of 7.80p per share - - 36,817
2015 Second interim dividend of 14.30p per share - 67,515 67,515
2015 Special dividend of 11.40p per share - 53,850 53,850
Total 123,846 121,365 158,182
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.
Unaudited6 months ended 31 December2016 Unaudited 6 months ended 31 December2015 Audited Year to 30 June 2016
Number of shares held by the Hargreaves Lansdown Employee Benefit Trust (HL EBT) 1,540,551 1,098,096 1,724,330
Representing % of called-up share capital 0.32% 0.23% 0.36%
Breach of Companies Acts requirements in respect of historic dividend payments
- circular to shareholders
The Board has become aware of a technical issue in respect of the payment of a
number of historic dividends paid by the Company.
The Company has always filed its statutory annual accounts on time in
accordance with the requirements of the Companies Act 2006 (and before that,
the Companies Act 1985) (the "Acts"), and at all times had sufficient profits
and other distributable reserves to justify the payment of dividends.
However, the Company has not satisfied certain procedural requirements of the
Acts before paying certain of the dividends in the years since the Company's
IPO (the "Relevant Distributions"). These procedural requirements relate to
the failure to file interim accounts at Companies House which justified the
payment of interim dividends or the payment of final dividends before the
circulation to members of the audited accounts of the Company in respect of
the relevant financial year.
The Company has been advised that, as a consequence of the above distributions
being made otherwise than in accordance with the Acts, it may have claims
against past and present shareholders who were recipients of the Relevant
Distributions and against those persons who were directors of the Company at
the time of the Relevant Distributions.
The Company wishes to put all potentially affected parties so far as possible
in the position in which they were always intended to be had the Relevant
Distributions been made in accordance with the procedural requirements of the
Acts.
Accordingly, the Company intends to convene a general meeting at which a
resolution will be proposed, which will, if passed, give the Board authority
to enter into deeds of release to discharge these parties from any obligation
to repay any amount to the Company in connection with the Relevant
Distributions.
The entry by the Company into the Shareholders' Deed of Release constitutes a
related party transaction (as defined in the Listing Rules). This is because
Peter Hargreaves and Stephen Lansdown, who each hold more than 10% of the
Company's voting rights and are therefore deemed to be related parties under
the Listing Rules, will be released from any liability to repay any amounts of
the Relevant Distributions received by them, in the same manner as other
shareholders. In addition, the entry by the Company into the Directors' Deed
of Release will also constitute a related party transaction with respect to
the Directors. Therefore, the resolution to be proposed will also seek the
specific approval of the Company's shareholders for the entry into each of the
Shareholders' Deed of Release and the Directors' Deed of Release as a related
party transaction, in accordance with the requirements of the Listing Rules.
The proposed ratification of the Relevant Distributions, and the entry by the
Company into the Shareholders' Deed of Release and Directors' Deed of Release
will not have any effect on the Company's financial position.
A circular to shareholders to convene the general meeting and giving more
information about the Relevant Distributions will be sent to shareholders
shortly.
12. Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of ordinary
shares in free issue during the period, including ordinary shares held in the
EBT reserve which have vested unconditionally with employees.
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding by assuming the conversion of all
dilutive potential ordinary shares.
The weighted average number of anti-dilutive share options and awards excluded
from the calculation of diluted earnings per share was 1,807,900 as at 31
December 2016 (283,152 at 31 December 2015 and 1,285,073 at 30 June 2016).
Unaudited6 months ended 31 December2016 Unaudited 6 months ended 31 December2015 Audited Year to 30 June 2016
Earnings (all from continuing operations) £'000 £'000 £'000
Earnings for the purposes of basic and diluted EPS being net profit attributable to equity holders of the parent Company 106,072 86,711 176,895
Number of shares Number Number Number
Weighted average number of ordinary shares Weighted average number of shares held by HL EBT 474,318,625 474,318,625 474,318,62525
(1,594,886) (2,015,387) (1,976,360)
Weighted average number of share options held by HL EBT which have vested unconditionally with employees 893,358 720,836 559,604,
Weighted average number of shares for the purposes of basic EPS 473,617,097 473,024,074 472,901,869
Weighted average number of dilutive share options held by HL EBT which have not vested unconditionally with employees 731,379 1,581,090 1,818,222
Weighted average number of shares for the purpose of diluted EPS 474,348,476 474,605,164 474,720,091
Earnings per share Pence Pence Pence
Basic EPS 22.4 18.3 37.4
Diluted EPS 22.4 18.3 37.3
13. Investments
Unaudited6 months ended 31 December2016 £'000 Unaudited 6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
At beginning of period 994 909 909
Sales - (182) -
Purchases 824 - 85
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