Hargreaves Lansdown Regulatory News (HL.)

Hargreaves Lansdown plc

Annual Financial Report For The Year Ended 30 June 2013

The company has now approved its Annual Report and Accounts for 2013.

This Annual Financial Report announcement contains the information required to comply with the Disclosure and Transparency Rules, and extracts of the Directors' Report forming part of the full financial statements.

The financial information set out below does not constitute the Company's statutory accounts for the year ended 30 June 2013. The annual report and accounts will be available from 23 September 2013 on the Company's website www.hl.co.uk/investor-relations. Copies of the audited financial statements are also available from the registered office at One College Square South, Anchor Road, Bristol, BS1 5HL.

A copy of the Company's statutory accounts for the year ended 30 June 2013 has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.

Extract from Chief Executive's Review

We are pleased to present our results for the year ended 30 June 2013, once again reporting record revenues (+22%) and operating profits (+28%). The most salient features are the record growth in net new business and clients. Net new business was £5.1 billion (+59%) and we welcomed 76,000 net new clients (+69%).

We remain focused on client service, which leads to client recommendation and contributes to our growth and success. 96% of clients rated our services as good, very good or excellent.

Our identified areas of growth: private and occupational pensions; our investment supermarket; and the internet continue to be strategic priorities. The forthcoming Retail Distribution Review (RDR) is an opportunity to capitalise on our respected market position. Our pioneering position in the growing popularity of self-directed investing is proving its worth.

Review of the economic background

Excessive debt is still a feature amongst countries, banks and individuals. Some economic data with regard to employment figures in the UK and particularly the US is encouraging. However, the volatile reaction of markets to any change of policy by institutions such as the US Federal Reserve acts as a reminder of the continuing fragile nature of the economic environment.

Improvement in sentiment, allied to continued quantitative easing and low interest rates, served to improve stock markets during the year, with the FTSE All-Share index share advancing 14% in the year to 30 June 2013.

Hargreaves Lansdown's 2013 results

We report a record profit before tax of £195.2 million, up 28% on last year's £152.8 million. Our ability to attract and retain assets and clients has been key to our continued profitability. We would single out our new pension incentives, improvements in the provision to look after family investments, the expansion of equity trading and the embracing of mobile technology as key successes.

We report a substantial 38% increase in client assets under administration from £26.3 billion to £36.4 billion. Net new business for the year was £5.1 billion (2012: £3.2 billion) with market movement and other factors adding a further £5.0 billion. An additional 76,000 investors (2012: 45,000) net, became new clients during the year taking total active clients for Vantage and advised services combined to 507,000.

Our Corporate Vantage service continues to expand, with 78 schemes live or in implementation (2012: 47). This 66% increase in schemes has been accompanied by a 275% increase in Corporate Vantage assets, which have now passed the £355 million mark. Although this project remains long-term we are delighted with the success to date.

Our mission is to retain our position as the best place in the UK to buy investments. We are estimated to have 28% of the direct investing market (Source: The Direct Platform Guide Issue 3, February 2013), a market predicted to expand substantially, and over the last year we have increased assets, clients and market share. For example, Hargreaves Lansdown saw an increase of 24.2% in Stocks and Shares ISA subscriptions in the 2012/13 tax year against the previous tax year, whereas UK overall Stocks and Shares ISA subscriptions increased by only 5.4% in the year. During the year we further improved our stockbroking services in nature and scope resulting in our share of the UK execution-only stockbroking market rising to 19.4% (2012: 14.1% - source ComPeer XO Quarterly Benchmarking Report Quarter 2 2013). We also saw increased business in Investment Trusts, ETFs and passive funds.

None of this success would be possible without the confidence of our clients. We work hard to retain their loyalty by delivering high service levels and an efficient experience.

2013 market outlook

Whilst there is some indication that companies and economies have adapted to deal with the new paradigms of low interest rates and low growth, austerity is here to stay for some time. A more positive environment may be developing, but short-term volatility will remain, as markets react to any potential removal of stimuli.

Last year I wrote "we shall have to work hard to promote the benefits of investing. Reduced state support for the public means saving and investing is more important than ever. There is little prospect of higher interest rates on cash in the near future so equities and bonds remain good alternatives for potential higher income…. equity markets also offer patient investors the opportunity for future capital growth." The same remains true today.

Company outlook

During the year we consolidated our position as a leading FTSE 100 company. Our financial success has been built on continuing to deliver exceptional service, information and value. As a profitable company with no debt we present the financial strength to give investors comfort. This also enables us to reinvest in our business and respond to competitor activity.

We continue to enhance our services and take advantage of the RDR, a regulatory development which requires short-term operational systems changes but nevertheless offers opportunity. As some Banks and financial advisers withdraw from the market we are presented with the opportunity to fill that gap profitably with our low-cost, efficient and trusted services.

In the 2014 financial year there will be some pressure on income earned from interest on cash deposits, caused by the current extremely low interest rates. This has been exacerbated by the government's "Funding for Lending" scheme which has reduced deposit rates significantly.

Throughout Hargreaves Lansdown's history the cost of retail investing, including our own charges has reduced over time. We will continue to share the benefits of scale, technology and success with our clients in a virtuous circle. Our clients have previously rewarded us with increased volumes of business for our investment and we will work hard to encourage them to continue to do so. For example, this year we have undertaken an exercise to improve discounts from investment providers, providing an additional edge in giving value to clients in return for their loyalty.

The impact of regulation

We expect regulatory change to continue, creating challenge and cost, but also opportunity. Hargreaves Lansdown has the scale, resources and innovative skills to cope with additional regulation which is an increasing barrier to entering or competing in our marketplace.

The Retail Distribution Review (RDR) remains a major theme. We have benefited from "RDR Phase 1" introduced on 31 December 2012 which relates mainly to financial advice. Our advisory services were fee-based long before the rules were implemented. New assets gathered from advice increased 42% to £786 million and our discretionary service, PMS, saw 31% growth in assets during the year. The rules also encouraged a move to self-directed investment resulting in a flood of transfers of assets and clients gained from advisory businesses.

The rules for "RDR Phase 2" were published on 26 April 2013. The reforms require the unbundling of pricing on investment products and from 6 April 2014 fees for investment and platform services will be charged separately. The rules are clear and we are confident about implementing these changes whilst maintaining our high service levels. Our investment in negotiating lower charges for clients and our own investment in systems to facilitate low charges will result in the majority of clients paying less for their investing services in future. We expect to introduce our new pricing model for funds in early 2014.

The impact of RDR Phases 1 and 2 will take a while to filter through. We do not expect RDR to cause any material disruption to profitability. Provided the RDR changes are applied fairly to all companies, our proposition of a strong service and value offering to a loyal client base should help us to navigate the change well.

The year saw two new regulators; the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) which replaced the Financial Services Authority (FSA). We are now regulated by the FCA and consider we have a constructive relationship with regulators. Whilst it is early days, we consider the conduct of the FCA at policy level, particularly in seeking engagement and consumer-friendly outcomes, to be positive.

We encourage the new regulators to seek practical outcomes that make a difference to investors and reward good practices, resisting foisting vast paperwork and warnings that confuse, serve little useful purpose and add cost for consumers. Hargreaves Lansdown has been successful to date despite regulation and government apathy in supporting investing. It is easier to promote gambling, alcohol or payday loans to the UK public than the concept of investing in reputable investments or financing British companies to support our economy. That needs to change. The FCA, working with the Treasury, has the opportunity to take a fresh look at achieving sensible regulation and make it easier to encourage the UK public to invest.

Contributions to the Financial Services Compensation Scheme (FSCS) continue to be a burden. We are supportive of a safety net for retail investors but we remain critical of the way the FSCS is funded and some of its supplementary activities. We continue to campaign for a rational, sensible, economic compensation scheme, including having direct dialogue with the FSCS over our concerns.

Corporate citizenship and improving investing for the UK public

We see our purpose to be a safe custodian, offer a great service and exercise the UK public's buying power on their behalf. We work tirelessly and innovatively researching how to help people make the most of their money. One aspect of achieving this goal is to campaign on behalf of the retail investor to make investing easier and cheaper.

During the year we have supported the campaign for annuity "shopping around"; supported amendments to the Pensions Bill to potentially increase pensioner income; worked with political parties to simplify auto-enrolment; supported the IMA campaign for clearer charges and backed the FCA in promoting good regulation.

Over six million children cannot take advantage of Junior ISAs because they are locked into the obsolete Child Trust Funds (CTFs) - where there are fewer providers, less choice and often poorer returns. After lobbying from Hargreaves Lansdown and others the Government has now agreed to consult on what we hope to be the first step in allowing CTFs to be transferred to superior Junior ISAs.

We support improved portability of client assets, encouraging retail investors to move easily from old, obsolete investment plans to better value modern products.

We seek to remain the friend of the retail investor, whatever their financial means. Our new RDR pricing structure has been specifically designed to be fair, attractive and excellent value for both small and large investors.

Hargreaves Lansdown will again pay its corporate taxes in full in the UK, and we shall continue to seek to be a role model for how financial services companies can deliver a great service, reputable behaviour and profitability in harmony with the UK public.

Conclusion

I would again like to thank our clients, shareholders, staff and my fellow directors. Their continued support, good humour and efforts have delivered exceptional results.

Ian Gorham

Chief Executive

4 September 2013

Extract from Business and Financial Review

Despite continued tough economic conditions, it has been another record year for the Group in terms of revenue and profits. A significant bounce back in world stock markets during the year to 30 June 2013 combined with record levels of organic growth from new business and new clients meant that we ended the year with a record £36.4bn of AUA.

The Group achieved revenue of £292.4m, a 22% increase compared to FY 2012, driven primarily by increased levels of AUA.

Continued robust control of costs and scalable operations have contributed to the improved operating profit margin which increased to 65.8% (FY 2012: 63.1%).

The effective tax rate for the Group this year was 23.7% (FY 2012: 25.9%). The 28% increase in operating profit, together with a lower rate of corporation tax, combined to increase the diluted earnings per share from 24.1 pence to 31.4 pence per share.

Assets Under Administration (AUA) and new business inflows

During the year the value of total AUA has increased by 38%. The Group achieved net new business inflows of £5.1 billion, and the positive impact of the rise in investment markets and other growth factors increased client assets by a further £5.0 billion. Total AUA can be broken down as follows:

Net new business in the Vantage ISA, SIPP and other Vantage nominee accounts was respectively £1.8 billion, £1.9 billion and £1.1 billion (2012: £1.1 billion, £1.4 billion, £0.6 billion), in total £4.8 billion (2012: £3.1 billion).

Net new business generated within PMS was also strong at £271 million (2012: £113 million). The increase was assisted by an increase to the number of financial advisers employed by the Group this year.

Investment markets improved during the year, with the average level of the FTSE All-Share index being 10.4% higher compared to FY 2012, contributing to market growth of £4.7 billion in Vantage AUA and £0.3 billion in PMS.

The second half of the year is our busiest as the tax year-end is an important driver of new business. This year £3.45 billion of net new business came in the second half. From 1 January 2013 we introduced a loyalty bonus on SIPP accounts. This encouraged new clients to open SIPP accounts and also pension transfers into our SIPP. Phase 1 of RDR, introduced on 31 December 2012, dictated that firms must offer transfers of client assets in stock, meaning that clients would no longer risk being "out of the market" for a period of time when transferring to Hargreaves Lansdown. This gave us an opportunity to significantly increase transfer business.

Cash deposit rates on offer from banks have fallen to historically low levels, partly as a result of the government's "Funding for Lending" scheme. Those seeking a higher return have turned to alternative investment options such as funds and shares, which offer higher yields and potential capital growth. This factor has spurred clients to divert more of their savings into investments in Vantage.

Increased investor confidence and rising markets in the second half of the year have also enhanced inflows of new assets.

More clients are investing through Hargreaves Lansdown than ever before. In total we now administer investments for over 507,000 clients.

Total revenue

The improvement in investment markets during the year has had a beneficial effect on AUA and on revenue in all three divisions. A significant contribution to the 22% growth in revenue has also come from organic growth in AUA and from new clients investing with us.

Most of the revenue growth occurred in the Vantage division, where AUA increased by £9.6 billion. The overall revenue margin earned on Vantage AUA decreased from 81bps to 75.5bps, primarily as a result of lower interest rates earned on deposits. As highlighted in the Interim Results and noted above in the Chief Executive's statement, deposit rates started to reduce early in the financial year and are now significantly lower than last year. For example, the 12-month LIBOR rate was 0.92% at the end of June 2013 compared to 1.80% a year earlier. As a result, the revenue margin on cash balances (c10% of AUA) reduced in the second half of the financial year. If rates remain at this level, as is likely, a more significant reduction will affect the 2014 financial year.

Vantage

The Vantage division increased its revenues by £41.5 million or 22%, from £185.7 million to £227.2 million. This was driven primarily by the 39% growth in AUA and the impact of a full year's income on assets gathered during the previous year.

The £4.8 billion growth in AUA resulting from net new business inflows, or 'organic growth', was 20% this year (2012: 13%).

The increase in AUA derived from stock market and other growth factors was 19% (2012: -6%). The combined impact of organic growth and market growth resulted in SIPP AUA growing by 37%, ISA by 36% and the Fund and Share account by 44%.

Included within the Fund and Share account is a significant holding in Hargreaves Lansdown plc shares which increased in value by 68% during the year. Excepting Hargreaves Lansdown shares, the growth in Fund and Share AUA was 39%.

As at 30 June 2013, the value of the Vantage ISA was £13.6 billion, (30 June 2012: £10.0 billion), the Vantage SIPP was £10.4 billion (30 June 2012: £7.6 billion) and the Vantage Fund and Share Account was £10.2 billion (30 June 2012: £7.1 billion).

During the year the number of active Vantage clients increased by 75,000 to 500,000, including a total of 8,000 new Corporate Vantage scheme members, taking the total Corporate Vantage members to 13,000 (2012: 5,000). We now administer 154,000 SIPP accounts, 386,000 ISA accounts and 182,000 Fund and Share accounts on behalf of our clients.

28% more clients contributed to their SIPP than in the year to 30 June 2012, with the average new contribution into a Vantage SIPP this year reducing by 15% to £8,841. The average subscription in the Vantage Stocks and Share ISA increased by 11% to £8,397, with a 37% increase to the number of clients subscribing.

Clients continued to transfer SIPP and ISA investments held elsewhere into our Vantage service. The value of transfers increased this year by a significant 52%. More clients sought to consolidate their investments and benefit from the advantages of having them all held in one place with a company they trust.

Clients have decreased their cash weightings during the period as investor sentiment began to improve and world markets rallied. The composition of assets across the whole of Vantage at 30 June 2013 was 10% cash (30 June 2012: 12%), 34% stocks and shares (30 June 2012: 31%), and 56% investment funds (30 June 2012: 57%).

A number of our clients make regular contributions into their ISA, SIPP or Fund and Share accounts. The 'Regular Savers' service has been growing steadily since being introduced ten years ago, and as at 30 June 2013 we had 66,000 clients (2012: 53,000) saving a total of £24 million each month by way of direct debit instruction. Our Corporate Vantage service has the potential to significantly increase the value of regular monthly savings and Corporate Vantage clients currently subscribe an additional £6.6 million each month.

Vantage clients transacted 5.1 million fund deals (2012: 4.1 million) and 1.9 million share deals in the year (2012: 1.5 million). No charge is made to our clients for dealing in investment funds and therefore fund dealing does not impact revenues. The increased volume of share dealing resulted in an increase to stockbroking commission of £6.5m to a total of £26.9 million.

Discretionary and Managed

The Discretionary division earns recurring income on underlying investments held in the Group's Portfolio Management Service (PMS), and on investments in the Group's multi-manager funds. Revenue in the Discretionary division increased by 25% from £27.3 million to £34.1 million. Increased renewal income and management fees resulting from the increase in AUA were the key drivers.

The value of assets managed by Hargreaves Lansdown through its own range of multi-manager funds and PMS increased by 37% to £3.3 billion as at 30 June 2013 (2012: £2.4 billion). The growth in assets is due to net new business of £0.5 billion combined with a market increase of £0.4 billion.

Our advisory service generates initial and ongoing advice fees on assets introduced into PMS. The Group has significantly increased the number of financial advisers during the year from 68 as at 30 June 2012 to 92 as at 30 June 2013. We aim to capture more of the advised market, particularly as many Independent Financial Advisers and high street banks have been exiting this market on the back of new regulatory rules such as the Retail Distribution Review. Increased adviser numbers has helped drive a 140% increase in net new business introduced into PMS during the year. Net new business amounted to £271 million (2012: £113m). The proportion of PMS assets invested in Hargreaves Lansdown multi-manager funds as at 30 June 2013 was 89% (2012: 90%).

Third Party and Other Services

Third party and other services revenues rose 21% during the year, from £25.7 million to £31.1 million.

Although the Group continues to act as an intermediary for some third party pension schemes, the focus has shifted towards the Corporate Vantage service and hence we expect that third party business will see a gradual decline. Other services, however, are delivering growth. Revenue from our Funds Library service increased by £2.5 million, driven by a general increase in all revenue streams and in particular implementation billing fees and user licence fees where we have more clients now using this service.

The total revenues from Hargreaves Lansdown Currency and Markets (CFDs, spread betting and currency services) were up £0.3m on last year as increased numbers of clients utilise these additional services, driving transactional volumes higher.

Total administration expenses

Total administrative expenses are made up of operating expenses which are under our control plus the Financial Services Compensation Scheme (FSCS) costs that are outside our control.

Staff costs remain our largest expense as a percentage of operating expenses and decreased by 2 percentage points to 50% (2012: 52%).

The number of staff on a full-time equivalent basis (including directors) at 30 June 2013 was 741, and the average number of staff during the year was 728, an increase of 11% against an average of 657 for the comparative year.

The increase in staff numbers resulted from increased investment in IT and web services, along with recruitment of staff focused on the strategic areas of Pensions, Funds Library and Corporate Vantage, primarily in the first half of the year. We also increased the number of seasonal staff that we needed to handle the unprecedented levels of new in-specie transfer business being transferred into Vantage, in the third and early part of the fourth quarter of the year. Recent industry initiatives such as electronic registration will be beneficial, enabling us to more efficiently handle transfers. Commission payable is the portion of renewal income which the Group receives on investment funds held in Vantage and rebated to clients as a 'loyalty bonus'. This rebate to clients was paid throughout the year except on investment funds held in a SIPP where it was introduced on 1 January 2013. The 41% increase in cost is in line with the rise in value of the related client assets after allowing for the introduction of the loyalty bonus in the SIPP at a cost of £3.7 million for the 6 months. On average 18% of renewal income earned in Vantage is returned to clients.

Group marketing and distribution spend increased by 17%, from £9.4 million to £11.0 million and includes the costs of printing and sending information and newsletters to existing and potential clients, media advertising, online marketing and client incentives. Improved stock markets warranted additional marketing spend. A key strategic focus for the business is our use of mobile and digital media. We increasingly invest in paid search traffic, cost per click relationships, HLTV and smart phone and tablet apps. These have amounted to £1.0 million of additional cost this year but have served to reinforce our strength in digital media which helps drive client and asset recruitment.

Other costs include dealing costs, irrecoverable VAT, insurance, computer maintenance and external administration charges. After excluding a one-off VAT refund of £2.2m from last year other costs were up by £1.0 million or 11%.

FSCS levy

Costs relating to the Financial Services Compensation Scheme ("FSCS") are beyond our control.

The FSCS is the compensation fund of last resort for customers of authorised financial services firms. All authorised firms are required to contribute to the running of the scheme and the cost of compensation payments. Contributions to the scheme are proportional to the amount of eligible income of a firm, rather than its risk profile or track record of running a compliant service. As such, as a large business we usually make a significant contribution to the cost of compensation on investments we have never recommended or been involved with. FSCS costs decreased from £4.8 million to a £0.5 million refund this year. This followed a successful challenge to the basis of calculation of the levy, resulting in a refund of part of the FSCS levy relating to earlier years.

Taxation

The charge for taxation increased in line with higher profits to £46.2 million from £39.5 million. The effective tax rate fell from 25.9% in 2012 to 23.7% in the current period due to the standard UK corporation tax rate falling from 26% to 23% since the start of the prior period, the 2013 applicable rate being 23.75% (2012 25.5%). In total, taxation of £4.0 million has also been credited directly to equity and relates to share-based payments.

The Group's policy on tax is to pay the right amount of tax at the right time. We aim to be transparent in our activities; we prefer not to engage in aggressive, artificial or sophisticated tax planning activities, and we actively engage with the UK tax authorities both on corporate taxes and tax issues affecting our clients.

Earnings per share (EPS)

The diluted EPS increased by 30% from 24.1 pence to 31.4 pence. EPS is calculated as the earnings for the year divided by the total weighted average fully diluted number of shares, including those held by the Employee Benefit Trust (the "EBT").

Pension schemes

There were no changes to the defined contribution pension scheme in the year, with staff and directors participating on equal terms. Pension costs are recognised as an expense when the contribution is payable.

Capital expenditure

Capital expenditure, primarily on IT hardware and software, totalled £6.2 million this year, compared with £1.1 million last year. The increase relates to the cyclical replacement of hardware and the continuation of the project to enhance the capacity of our key administration systems.

All of our core systems are developed and maintained in-house and as such we have significant IT resource dedicated to IT support and development. For the year ended 30 June 2013, an average of 42 staff were employed in IT development with most of their related costs expensed within staff costs. Any costs relating to the development of new systems have been capitalised and will be depreciated over the useful economic life of the new system once implemented. In the year we capitalised £0.25 million of staff costs.

Balance sheet and cash flow

The Group is soundly financed with a strong balance sheet and no borrowings. This is an important strength which in addition to being attractive to clients provides both resilience and flexibility. The Group is highly cash generative and the cash conversion ratio measured by the operating cash flows as a percentage of operating profits remained high at 103% in 2013 compared to 104% in 2012.

Group cash balances excluding restricted cash totalled £177.7 million at the end of the year. The only significant cash outflow from profits has been the second interim ordinary and special dividends totalling £81.7 million paid in September 2012 and an interim dividend of £29.5 million paid in April 2013.

The Group has four subsidiary companies authorised and regulated by the Financial Conduct Authority (FCA). These firms maintain capital resources at a level which satisfies both their regulatory capital requirements and their working capital requirements. Industry regulatory capital requirements have increased in recent years and we expect this to continue as a result of FCA requirements. The Group continues to hold a level of capital that provides significant headroom over the regulatory minimum. As at 30 June 2013, the aggregated Pillar 1 regulatory capital requirement across the four regulated subsidiary companies was approximately £9.5 million compared to capital resources of approximately £71.7 million. Capital resources equate to approximately three times the Pillar 2 capital requirement, which the Board assessed as adequate during our Individual Capital Adequacy Assessment Process (ICAAP). Further disclosures are published in the Pillar 3 document on the Group's website at www.hl.co.uk.

Increase in counterparty balances

In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties are included in the balance sheet. These balances fluctuate according to the volume and value of recent trading. At the year-end, trade receivables and trade payables included counterparty balances of £211.4 million (2012: £93.4 million) and £230.0 million (2012: £105.6 million) respectively.

Dividends

The Board remains committed to a progressive dividend policy.

The Board has declared a second interim (final) ordinary dividend of 14.38 pence and a special dividend of 8.91 pence per ordinary share. These dividends will be paid on 27 September 2013 to all shareholders on the register at the close of business on 13 September 2013. This brings the total dividends in respect of the year to 29.59 pence per ordinary share (2012: 22.59p), an increase of 31%.

This total ordinary dividend pay-out equates to 65% (2012: 65%) of post-tax profits, with a further 28% (2012: 28%) of post-tax profits paid by way of special dividend. Any special dividend in future years will depend upon future cash requirements and therefore may vary.

An arrangement exists under which the Hargreaves Lansdown EBT has agreed to waive all dividends.

Tracey Taylor

Group Finance Director

4 September 2013

Principal risks and uncertainties

The following is extracted from page 25 to 27 of the 2013 Annual Report and Accounts, and is repeated here for the purposes of the Disclosure and Transparency Rules.

Like all businesses, the Group faces a number of potential risks which, if not properly controlled, could hinder the successful implementation of its strategy and have a material impact on the long-term performance. The Board believes that a successful risk management framework balances risk and reward. The Board has responsibility for risk management and internal control, further details of which can be found in the Corporate Governance statement.

The risk profile of the business has not changed significantly this year. Each year we highlight the risk of earnings being impacted by market volatility or a fall in interest rates. Although the markets remained volatile in 2013, over the year the FTSE All-Share index rose by 14%. This helped the business to grow the value of clients' investments which in turn helped increase Group revenue. Interest rates have significantly reduced during the year, partly as a result of the UK Government's "Funding for Lending" scheme. 12 month LIBOR was 0.92% at the end of June 2013 compared to 1.80% a year earlier, and this is set to significantly reduce interest income during the 2014 financial year. Market volatility arising from such factors as the Euro crisis remains an accepted risk, although the high percentage of assets in tax wrappers mitigates the impact of market turbulence on client asset retention.

In terms of regulatory risk, on 26 April 2013 the Financial Conduct Authority (FCA) issued Policy Statement PS13/1 setting out the final rules that will apply to platforms and other nominee services with effect from 6 April 2014. We had been anticipating the new rules for some time and had engaged at length with the previous regulator during the consultation process. The rules and implementation timescale are broadly as we had expected, and the majority of work required to comply is already either in progress or complete so we expect to be ready in good time. The FCA platform rules will necessitate a move away from commission income to explicit platform fees that clients will pay directly to us for our services in future. There are transitional rules that will apply, enabling us to continue to earn commission income on existing assets for a period of two years. We expect to offer all Hargreaves Lansdown clients the ability to buy commission free units in due course. As we have done successfully for many years, we will continue to seek to use our negotiating power to reduce the cost of investing for our clients.

There continues to be concern over the uncertainty in the Eurozone regarding the indebtedness of certain countries, particularly Greece, Portugal, Spain, Italy and Ireland, and the health of their banking sectors. As at 30 June 2013 the Group has no direct counterparty exposure to these countries. The Group is not exposed to significant foreign exchange translation or transaction risk.

The risk factors mentioned below do not purport to be exhaustive as there may be additional risks that the Group has not yet identified or has deemed to be immaterial that could have a material adverse effect on the business.

Directors' Responsibility Statement

The following is extracted from page 55 of the 2013 Annual Report and Accounts, and is repeated here for the purposes of the Disclosure and Transparency Rules. The statement relates solely to the Company's 2013 Annual Report and Accounts and is not connected to the extracted information set out in this announcement. The names and functions of the Directors making the responsibility statement are set out on page 32 and 33 of the full Annual Report and Accounts.

The Directors confirm to the best of their knowledge:

· the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

· the Review of Group Operations and the Risk Report, which are incorporated into the Directors' Report, include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Consolidated Income Statement 

All income, profits and earnings are in respect of continuing operations.

* FSCS costs are those relating to the running of and the levies issued under the Financial Services Compensation Scheme. In previous years these costs were included within administrative expenses.

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

The share premium account represents the difference between the issue price and the nominal value of shares issued.

The investment revaluation reserve represents the change in fair value of available-for-sale investments held by the Group, net of deferred tax.

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 25% shareholding in Library Information Services Limited, a subsidiary of the Company.

Consolidated Balance Sheet

Statement of Cash Flows

Notes to the Financial Statements

1. General information

Hargreaves Lansdown plc (the "Company") and ultimate parent of the Group is a company incorporated 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.

This Preliminary Announcement is presented in pounds sterling which is the currency of the primary economic environment in which the Group operates.

The consolidated financial statements contained in this preliminary announcement do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The financial statements are extracted from the 2013 Group financial statements which have yet to be signed and have not yet been delivered to the Registrar of Companies. The audit of the statutory accounts for the year ended 30 June 2013 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting. The financial information included in this preliminary announcement has been based on the Company's financial statements which are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the EU. The principal accounting policies will be set out in the Group's 2013 statutory accounts.

The comparative figures for the financial year ended 30 June 2012 are based on the statutory accounts for that year. The report of the auditors on the financial statements for the year ended 30 June 2012, which were prepared in accordance with IFRS, was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006. The financial statements for the financial year ended 30 June 2012 have been delivered to Companies House.

2. Revenue

Revenue represents commission receivable from financial services provided to clients, interest income 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:

Recurring income principally comprises renewal income, management fees and interest income on client money. Transactional income principally comprises commission earned from stockbroking transactions. Other income principally represents the amount of fees receivable from the provision of funds library services. The policies adopted for the recognition of each significant revenue stream are set out in note 2 above.

3. Segment information

The Group is organised into three business segments, namely the Vantage Division, the Discretionary 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 of Executive Directors.

The 'Vantage' division represents all activities relating to the Vantage service, 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, CFD's and spread betting. In this division, clients' investments are not administered within the Group.

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 thus unallocated. At 30 June 2013 and 2012, 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.

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. Investment revenue

5. Tax

Corporation tax is calculated at 23.75% of the estimated assessable profit for the year to 30 June 2013 (2012: 25.5%).

In addition to the amount charged to the income statement, certain tax amounts have been charged or credited directly to equity as follows:

Factors affecting tax charge for the year

It is expected that the ongoing effective tax rate will remain at a rate approximating to the standard UK corporation tax rate in the medium term. The standard UK corporation tax rate was reduced to 23% (from 24%) on 1 April 2013. Deferred tax has been recognised at 23%, being the rate in force at the balance sheet date. A deferred tax asset in respect of future share option deductions has been recognised based on the Company's share price as at 30 June 2013.

Factors affecting future tax charge 

Any increase or decrease to the Company's share price will impact the amount of tax deduction available in future years on the value of shares acquired by staff under share incentive schemes. The Finance Act 2013 received Royal Assent on 17 July 2013 and will reduce the standard rate of UK corporation tax to 21% from 1 April 2014 and 20% from 1 April 2015. The reduction to 21% will reduce the deferred tax assets shown in note 10 by an estimated £449,000; this will be recognised in the financial statements for the year ended 30 June 2014.

6. Dividends

After the balance sheet date, the directors declared a second interim (final) ordinary dividend of 14.38 pence per share and a special dividend of 8.91 pence per share payable on 27 September 2013 to shareholders on the register on 13 September 2013. 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 2014 financial statements as follows:

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.

7. 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 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 adjusting the weighted average number of ordinary shares outstanding to assume 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 320,210 at 30 June 2013 (2012: 2,806,402).

8. Investments

£349,000 (2012: £308,000) of investments are classified as held at fair value through profit and loss and £264,000 (2012: £1,920,000) 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 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 where the directors believe that this is not significantly different to fair value, with a fair value adjustment recognised upon disposal of the investment.

9. Other financial assets

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 are included in debtors. Trade receivables include £211.4 million (2012: £93.4 million) of counterparty balances.

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.

At 30 June 2013 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 £3,561 million (2012: £2,922 million). The client retains the beneficial interest in these deposits and accordingly they are not included in the balance sheet of the Group.

10. Deferred tax

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 23%, being the rate in force at the balance sheet date. The Finance Act 2013 reduces the standard UK corporation tax rate to 21% from 1 April 2014 and 20% from 1 April 2015 which will reduce the deferred tax assets and liabilities shown below.

11. Other financial liabilities

In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties are included in creditors. Trade payables include £230.0 million (2012: £105.6 million) of counterparty balances. 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. Other payables principally comprise amounts owed to clients as a loyalty bonus and to staff as a bonus.

12. Share capital

The Company has one class of ordinary shares which carry no right to fixed income.

13. Note to the consolidated cash flow statement

14. Going concern

The Group maintains ongoing forecasts that indicate continued profitability in the 2014 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 the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing this preliminary results statement.

Related Party Disclosures

The following is extracted from note 26 on pages 81 and 82 of the 2013 Annual Report and Accounts, and is repeated here for the purposes of the Disclosure and Transparency Rules.

The Plc 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 2013 and 30 June 2012 the Company has been party to a lease with P K Hargreaves, a current director and S P Lansdown, a director until 23 November 2012, 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 rent of £105,000 per annum. No amount was outstanding at either year-end. Shortly before the year-end P K Hargreaves bought out the 50% ownership in Kendal House held by S P Lansdown.

During the years ended 30 June 2013 and 30 June 2012 the Group has provided a range of investment services to shareholders, directors and staff on normal third party business terms.

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.

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 are shown in the Remuneration Committee report.

Transactions between subsidiaries and between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. The parent Company, Hargreaves Lansdown plc, entered into the following transactions with subsidiaries and the Employee Benefit Trust, which are related parties.

All 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