REG - Hargreaves Lansdown - Half-year Report <Origin Href="QuoteRef">HRGV.L</Origin> - Part 3
08/02/2017 07:05
- Part 3: For the preceding part double click ID:nRSH2745Wb
At end of period 1,818 727 994
Comprising:
Current asset investment - UK listed securities valued at quoted market price 1,554 463 730
Current asset investment - Unlisted securities valued at cost 264 264 264
£1,554,000 (31 December 2015: £463,000, 30 June 2016: £730,000) of investments
are classified as held at fair value through profit and loss and £264,000 (31
December 2015: £264,000, 30 June 2016: £264,000) are classified as
available-for-sale. Available-for-sale investments have been included at fair
value where a fair value can be reliably calculated, with the revaluation
gains and losses reflected in the investment revaluation reserve as shown in
the Condensed Consolidated Statement of Changes in Equity, until sale when the
cumulative gain or loss is transferred to the income statement. If a fair
value cannot be reliably calculated by reference to a quoted market price or
other method of valuation, available-for-sale investments are included at
cost, with a fair value adjustment recognised upon disposal of the
investment.
14. Trade and other receivables
Unaudited6 months ended 31 December2016 £'000 Unaudited 6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
Financial assets:
Trade receivables 301,527 271,035 576,402
Other receivables 1,507 899 559
303,034 271,934 576,961
Non-financial assets:
Accrued income 46,053 32,616 33,546
Prepayments 4,657 3,683 6,506
353,744 308,233 617,013
Trade and other receivables are measured at initial recognition at fair value.
Appropriate allowances for estimated irrecoverable amounts are recognised in
profit or loss when there is objective evidence that the asset is impaired.
In accordance with market practice, certain balances with clients, Stock
Exchange member firms and other counterparties totalling £291.2 million (31
December 2015: £252.5m, 30 June 2016: £560.9m) 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 £349.9 million and the gross amount of offset in the balance
sheet with trade payables is £58.7 million. Other than counterparty balances
trade receivables primarily consist of fees and amounts owed by clients. 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.
15. Cash and cash equivalents
Unaudited6 months ended 31 December2016 £'000 Unaudited 6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
Restricted cash - balances held by Hargreaves Lansdown EBT 2,895 15,985 3,184
Group cash and cash equivalent balances 189,843 165,731 208,209
192,738 181,716 211,393
Cash and cash equivalents comprise cash on hand and demand deposits held by
the Group that are readily convertible to a known amount of cash. The carrying
amount of these assets is approximately equal to their fair value.
At 31 December 2016 segregated deposit amounts held by the Group on behalf of
clients in accordance with the client money rules of the Financial Conduct
Authority amounted to £7,423 million (31 December 2015: £5,125m, 30 June 2016
£6,953m). In addition there were currency service cash accounts held on behalf
of clients not governed by the client money rules of £35 million (31 December
2015: £7m, 30 June 2016 £18m). The client retains the beneficial interest in
both these deposits and cash accounts and accordingly they are not included in
the balance sheet of the Group.
16. Trade and other payables
Unaudited6 months ended 31 December2016 £'000 Unaudited 6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
Financial liabilities:
Trade payables 286,042 251,414 556,754
Social security and other taxes 3,844 5,290 7,404
Other payables 15,148 19,191 3,888
305,034 275,895 568,046
Non-financial liabilities:
Accruals 8,780 6,748 13,369
Deferred income 309 233 270
314,123 282,876 581,685
In accordance with market practice, certain balances with clients, Stock
Exchange member firms and other counterparties totalling £286.0 million (31
December 2015: £250.0m, 30 June 2016: £555.5m) are included in trade payables.
As stated in Note 14, where we have a legal right of offset and the ability
and intention to settle net, trade payable balances have been presented net.
The gross amount of trade payables is £344.7 million and the gross amount
offset in the balance sheet with trade receivables is £58.7 million. There are
no balances where there is a legal right of offset but not a right of offset
in accordance with accounting standards, and no collateral has been posted for
the balances that have been offset.
Other payables principally comprise amounts owed to clients as a loyalty bonus
and to staff as a bonus. Accruals and deferred income principally comprise
amounts outstanding for trade purchases and revenue received but not yet
earned on group pension schemes where an ongoing service is still being
provided.
17. Share capital
Unaudited6 months ended 31 December2016 £'000 Unaudited 6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
Issued and fully paid:
Ordinary shares of 0.4p 1,897 1,897 1,897
Shares Shares Shares
Issued and fully paid:
Number of ordinary shares of 0.4p 474,318,625 474,318,625 474,318,625
The Company has one class of ordinary shares which carry no right to fixed
income.
18. Notes to the consolidated cash flow statement
Unaudited6 months ended 31 December2016 £'000 Unaudited 6 months ended 31 December2015 £'000 Audited Year to 30 June 2016 £'000
Profit for the period after tax 106,350 86,896 177,256
Adjustments for:
Investment revenues (443) (269) (629)
Income tax expense 24,628 21,214 41,623
Depreciation of plant and equipment 1,783 1,726 3,537
Amortisation of intangible assets 1,053 769 1,678
(Profit) on disposal (55) - -
Share-based payment expense 1,348 1,124 2,525
Increase in provisions - - 255
Operating cash flows before movements in working capital 134,664 111,460 226,245
Decrease/(increase) in receivables 263,268 103,472 (205,308)
(Decrease)/increase in payables (267,563) (114,386) 184,423
Cash generated from operations 130,369 100,546 205,360
19. Related party transactions
The Company has a related party relationship with its directors and members of
the Executive Committee (the "key management personnel"). Apart from the
transaction disclosed below there were no material changes to the related
party transactions during the financial period; transactions are consistent in
nature with the disclosure in Note 27 to the 2016 Annual Report.
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.
20. Financial instruments' fair value disclosure
The fair values of the Group's financial assets and liabilities are not
materially different from their carrying values. Market values have been used
to determine the fair value of available-for-sale financial assets where there
is a quoted market price. Investments in equity instruments which do not have
a quoted market price in an active market or whose fair value cannot be
reliably measured are measured at cost. There have been no transfers of
assets or liabilities between levels of the fair value hierarchy and there are
no non-recurring fair value measurements.
The following table provides an analysis of financial instruments that are
measured subsequent to initial recognition at fair value, grouped into Levels
1 to 3 based on the degree to which fair value is observable:
Level 1Quoted prices for similar instruments Level 2Directly observable market inputsother than Level 1 inputs Level 3Inputs not based on observable market data Total
£'000 £'000 £'000
Unaudited at 31 December 2016
Financial assets at fair value through profit or loss 1,554 - - 1,554
Available-for-sale financial assets - - - -
1,554 - - 1,554
Unaudited at 31 December 2015
Financial assets at fair value through profit or loss 463 - - 463
Available-for-sale financial assets - - - -
463 - - 463
Audited at 30 June 2016
Financial assets at fair value through profit or loss 730 - - 730
Available-for-sale financial assets - - - -
730 - - 730
Directors, Company Secretary, Advisers and Shareholder Information
EXECUTIVE DIRECTORS
Ian Gorham
Christopher Hill
NON-EXECUTIVE DIRECTORS
Chris Barling
Mike Evans
Shirley Garrood
Jayne Styles
Stephen Robertson
COMPANY Secretary
Judy Matthews
INDEPENDENT AUDITOR
PricewaterhouseCoopers LLP, London
SOLICITORS
Osborne Clarke LLP, Bristol
PRINCIPAL BANKERS
Lloyds Bank plc, Bristol
BROKERS
Barclays
Numis Securities Limited
REGISTRARS
Equiniti Limited
Registered Office
1 College Square South
Anchor Road
Bristol
BS1 5HL
Registered number
02122142
WEBSITE
www.hl.co.uk
DIVIDEND CALENDAR 2016/17
First dividend (interim)
Ex-dividend date* 9 March 2017
Record date** 10 March 2017
Payment date 30 March 2017
* 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.
Glossary of Alternative Performance Measures
Within the Interim Report and Condensed Financial Statements various
Alternative Financial Performance Measures are referred to, which are non-GAAP
(Generally Accepted Accounting Practice) measures. They are used in order to
provide a better understanding of the performance of the Group and the table
below states those which have been used, how they have been calculated and why
they have been used.
Measure Calculation Why we use this measure
Cash conversion ratio (%) The operating cash flows for the year divided by the operating profits for the period. Provides a measure of the efficiency with which profits are converted into cash.
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. 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.
Operating Costs The costs per the Income Statement excluding commission payable (i.e. the aggregate of staff costs, other operating costs and FSCS costs). In light of the transitional period relating to the Retail Distribution Review (see Net Revenue below) and the impact this had on commission payable in the form of
loyalty bonuses, this measure of Operating Costs provides a more useful comparative measure over time.
Organic new business Represents new business other than that which has been acquired in deals to acquire books of business from Asset Management groups. This has been used to better compare the net new business on a like-for-like basis.
Net new business inflows Represents subscriptions, cash receipts, cash and stock transfers in less cash withdrawals, cash and stock transfers out. Provides a measure of tracking the success of gathering assets on to the platform over time.
Net revenue (£) (See Income Statement on page 13 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 recurring net 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 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.
Vantage net revenue margin (%) Total Vantage net revenue divided by the average value of assets under administration which includes the Portfolio Management Services assets under management held in funds on which a platform fee is charged. Provides the most comparable means of tracking, over time, the margin earned on the assets under administration and is used by management to assess business performance.
Vantage net revenue margin from cash (%) Net revenue from cash (net interest earned on the value of client money held on the Vantage platform divided by the average value of assets under administration held as client money. Provides a means of tracking, over time, the margin earned on cash held by our clients.
Vantage net revenue margin from funds (%) Net revenue derived from funds held by clients (platform fees, initial commission less loyalty bonus) divided by the average value of assets under administration held as funds, which includes the Portfolio Management Services assets under management held in funds on which a platform fee is charged. Provides the most comparable means of tracking, over time, the margin earned on funds held by our clients.
Vantage net revenue margin from shares (%) Net revenue from shares (stockbroking commissions, management fees where shares are held in a SIPP or ISA, less the cost of dealing errors) divided by the average value of assets under administration held as shares. Provides a means of tracking, over time, the margin earned on shares held by our clients.
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