Hargreaves Lansdown Regulatory News (HL.)

Hargreaves Lansdown plc

Results for the year ended 30 June 2023

Highlights:

· Net new business of £4.8 billion

· Assets Under Administration, up 8% to £134.0 billion driven by net new business and positive market movement

· 1,804,000 active clients, an increase of 67,000 in the year

· Profit before tax increase of 50% to £402.7 million

· Underlying profit before tax increase of 47% to £438.8 million

· Ordinary dividend up 4.5% at 41.5 pence per share

Dan Olley, Chief Executive Officer, commented:

"We have delivered a robust financial performance for our full year in what continues to be a challenging broader economic environment. We welcomed a further 67,000 net new clients meaning we now support over 1.8 million with their savings and investments needs, with client retention stable at over 92%. We saw notable growth into our Active Savings proposition which continues to show the benefits of our diversified business model as we give our clients access to competitive rates for their cash. We delivered revenue growth of 26% year-on-year with cost growth within the guided range delivering a statutory profit of £402.7 million, up 50% on 2022.

As I begin my CEO tenure, it is clear to me that at its core this is a strong business with fantastic heritage that has significant potential to benefit from the structural, demographic, and regulatory shifts in the UK and the expected growth in the wealth market.

My early focus is to ensure we are set up to capture this growth opportunity, that we have pace of execution, cost discipline as we travel on this journey, and that we are giving our people the best opportunity to deliver for our clients and shareholders."

About us:

Hargreaves Lansdown is the UK's largest digital wealth management service administering £134.0 billion of investments for over 1,804,000 clients. Our purpose is to empower people to save and invest with confidence. We aim to provide a lifelong, secure home for people's savings and investments that offers great value, an incredible service and makes their financial life easy.

Contacts:

Analysts' presentation

Hargreaves Lansdown will be hosting a virtual investor and analyst presentation at 09:00am on 19 September 2023 following the release of the results for the year ended 30 June 2023. The meeting can also be accessed remotely via a live dial-in facility. In order to register as a participant please use the following link:

https://www.netroadshow.com/events/login?show=02eea776&confId=54378

Slides accompanying the analyst presentation will be available this morning at www.hl.co.uk/investor-relations and an audio recording of the analyst presentation will be available by close of business on the day.

Alternative performance measure

Included in this announcement are various alternative performance measures used by the Company in the course of explaining the results for the year to 30 June 2023. These measures are listed along with the calculations to derive them and an explanation of why we use them on page 35 in the Glossary of Alternative Financial Performance Measures. A reconciliation to profit before tax is given in the Operating and Financial Review section.

Forward-looking statements

This document has been prepared to provide additional information to shareholders to assess the current position and future potential of the Hargreaves Lansdown Group ("the Group"). It should not be relied on by any other party for any other purpose. This document contains forward-looking statements that involve risks and uncertainties. The Group's actual results may differ materially from the results discussed in the forward-looking statements as a result of various economic factors or the business risks, some of which are set out in this document.

Chief Executive's Review

Helping clients achieve better financial outcomes

I was delighted to move from being a Non-Executive Director to CEO of your Company as of August this year. Our last financial year has been a period of significant change and I will spend some time outlining the financial and operational execution that the team has delivered. However, before I do so, I want to set out some early reflections as CEO, a role which gives me a very different lens on the Group.

HL is a great business built on a fantastic heritage of delivering its clients the best, most relevant information on an industry-leading breadth of savings and investment solutions, underpinned by a focus on providing client-led service and support and making execution seamless and easy. What is clear to me as I reflect on the interactions I have had with both HL clients and non-clients alike since starting as CEO, is that getting these basics right - for every client, every time - is still the core driver of value. It is clear that our service and execution must return to the high standards we and our clients expect and deserve. This is a core focus for me. However, I have been very encouraged by all my conversations with the Client and Service teams at HL. They know that becoming the trusted financial partner for clients is a right you must earn through every interaction. Their passion for ensuring this happens is equal to mine, which is why I know we will deliver this non-negotiable objective for HL and our clients.

What was also clear from both my conversations with clients and the regulatory initiatives in our sector, is that investing remains a daunting task for a large proportion of the population. Many of the people I have spoken to are confused by the array of jargon and terminology, or put off by the wide range of product options available to them. This often results in inertia as investing is put off 'until tomorrow'. The current economic environment is only exacerbating this issue, putting more demands on people's finances, and dropping saving and investing down the list for many. The size of our client base is a significant differentiator in enabling us to have a strong gauge on changing client needs and our ability to therefore respond to help make investing accessible and understandable to everyone, with initiatives like Financially Fearless, which aims to tackle money inequality and specifically help women save and invest with confidence.

Doing this for a small number of clients may be relatively straight forward. However, to offer this proactive and personalised service in a scalable and cost-effective way to over 1.8 million clients, each with different needs, knowledge and experience, is a completely different challenge. It demands that we combine the best of our curated knowledge and market insights, with advances in technology and our digital platform, to help our clients identify the best savings and investment options for them. For example, earlier this year it became clear from our client interactions and market trends that gilts could be an attractive yielding investment option for higher rate taxpayers and those that have used their full ISA allowance. Through personalised and targeted education-based content, we were able to help clients take advantage of this opportunity, investing over £430m in July.

As HL continues to help more clients reach good financial outcomes, the opportunity to grow, and as a result drive long-term, sustainable attractive returns and growth for all our stakeholders, is clear. The alignment of the interests of the organisation, our clients, our shareholders, and the regulator has never been stronger.

This tells me that, at its core, our strategic direction is the right one. We have a unique opportunity to benefit from structural demographic and workplace behaviour shifts and the UK regulatory changes to encourage greater saving and investment. However, the world has changed since we set out the strategy in February 2022, with a fundamentally different macro-economic and geopolitical environment. We have also learnt lessons from the execution of the strategy since then. Coming in as a new CEO with the teams 18 months into delivery, now is a good time to take stock, keep what works and learn from areas where we can do even better. We will refocus and refine our approach, where needed, to ensure we still have our strategic initiatives in the right order and our resources focused on the right areas to maximise value to clients, colleagues, and shareholders. Work will also continue to develop and mature our control environment to ensure we're managing all our processes and controls efficiently and effectively as we scale further.

Initial priorities

Being only a few weeks into my new role I am very much in listening mode, speaking with our clients, shareholders and colleagues to understand their views and insights. Based on what I'm hearing from initial discussions and what I know from the time I've spent on the Board, I am focused, in the near-term, on four key areas.

1. Drive client and asset growth - Increase focus on tailored client content and a seamless experience, backed by great service and broad product range

2. Increase pace - Drive execution pace and agility to continuously deliver additional client value at speed

3. Save to Grow - Continuously strive to be fitter and leaner as a business, so we can save to invest more for clients

4. Focus on our people - Make HL great for colleagues and clients - the right culture, with the right people in the right roles, focused on the right things

I will be providing a more thorough update at the half year results early in 2024. In the meantime, it is important to reflect on the achievements and challenges of the last financial year.

Market backdrop

As the data from our Savings and Resilience Barometer shows, the rising cost-of-living is putting pressure on the UK's financial wellbeing. People have less disposable income, investor confidence is low and the outlook remains uncertain. Markets have been volatile and with interest rates rising, savers have looked to make their cash work harder for them without always wanting to invest.

This has been evident in the strong performance across our Active Savings cash platform, which attracted record new business of £3.2 billion in the year. Conversely, the challenging external conditions and low investor confidence impacted net flows onto the platform and stockbroking volumes, something that has been seen across the sector.

Our focus has remained on supporting our clients and helping them to achieve better financial outcomes during these challenging times including helping them to build their financial awareness and confidence, whilst at the same time continuing to deliver on our strategy.

An example of this would be during the US banking crisis in March this year, which followed the collapse of Silicon Valley Bank. This was a challenging time for many of our clients - insight from our interactions with them told us they had questions around their own investments in the banking sector and that they wanted reassurance of the security of the cash they were holding with UK banks. We acted quickly and wrote two specific articles and sent targeted communications to clients we knew engaged with macroeconomic news. Our articles attracted over 18,000 readers, who spent almost a minute longer on the page than the average of our other news articles, showing how clients value the relevance and timeliness of our research.

FY23 performance

In spite of the challenging backdrop, we have delivered robust financial performance. The value of our proposition attracted £4.8 billion of net new business and a further 67,000 net new clients, taking our total assets under administration and active client numbers to £134.0 billion and 1.8 million respectively.

Our investment in data and technology has helped us to support our clients in the ways that suit them. In FY23, we had 249 million digital visits and mobile engagement remained high - it is clear that more and more of our clients want to manage their accounts on-the-go, and this is steering our "app first" approach to developing our service going forward.

We also continued building out our Better Investors programme in line with the FCA's Consumer Duty regulation. This programme provides personalised content to clients with the aim of helping them and their families achieve good outcomes from their hard-earned savings. Topics include holding an appropriate level of cash, portfolio diversification, the importance of regular investing and the power of compounding. This educational-based content is just one way in which HL fosters long-term client relationships and stable client retention rates, at 92.2% (2022: 92.1%).

The impact of economic and financial challenges has seen the value of cash withdrawals increase this year as families deal with the cost-of-living issues, and this has led to a reduction in our asset retention rate, to 90.4% (2022: 91.8%).

We know our high level of service is a critical part of what our clients value and our Client Service Net Promoter Score fell to 45% (2022: 51%). Despite implementing technology improvements and adding resource to our Service teams, we had a very busy tax year end which meant increased waiting times for client queries and our service levels falling below our expectations. This is an area where we will improve further.

Revenue for the full year was £735.1 million, up 26% on the prior year (2022: £583.0m). We have seen continued base rate increases throughout the year and have passed over 85% of the benefit through to our clients over the last 12 months. Net interest margin has also increased as a result and it is encouraging to see growth across all our key revenue lines in the second half of the year.

We have delivered spend in line with our guidance with underlying costs of £314.6 million (2022: £284.7m). In addition, strategic spend in the year was £51.4 million (2022: £32.9m) of which £36.1 million was expensed and £15.3 million was capitalised.

Underlying Profit Before Tax increased 47% to £438.8 million (2022: £297.5m) and Statutory Profit Before Tax increased by 50% to £402.7 million (2022: £269.2m).

The dividend for the financial year has increased 4.5% to a total dividend of 41.5p for the full year, reflecting this year's positive financial performance.

Strategic delivery

Our focus this year has been on building out our client value proposition, while laying the foundations that will allow us to accelerate our growth and scale efficiency. Progress overall has been slower than we originally anticipated, but we have though made good progress on several initiatives as set out below.

Active Savings - With interest rates continuing to rise and clients looking for an easy way to make their cash work harder, we have expanded our partner banks and building societies to a total of 17, launched a new Cash ISA, and offered market-leading rates for 59% of the year, leading to record net flows of £3.2 billion and a closing AUA of £7.8 billion across more than 175,000 client accounts. Further improvement is needed to accelerate onboarding of banks.

Funds - Our new US and UK Income funds support clients looking to put together their own diversified portfolio, and we launched four managed Portfolio funds which offer greater diversification in a single investment for those who wish to take a more hands-off approach. AUM in these funds now totals £2.2 billion. We remain focused on continuing to improve the performance of our funds and creating more efficiency in the time-to-market of new fund launches. We will launch a new tool that helps less experienced clients and their families choose the right HL account for their situation, and the most suitable investment solutions to meet their needs.

Trading - This year, we relaunched our enhanced online Share Exchange service to help clients make the most of their tax allowances, brought in a new online voting solution, giving more power to retail investors, and reduced the cost of share dealing for almost 500,000 clients by removing the dealing charge for regular investors and those reinvesting dividends.

Investing - We reduced the management charge for the Lifetime ISA and removed charges completely for Junior ISAs, reducing costs and supporting families in saving for the future and creating lifelong, and beyond, relationships by encouraging intergenerational wealth transfer.

Service - As well as making tactical changes, such as reallocating resource across the business to better support clients over the period, we have commenced the roll out a Cloud-based telephony system. This has started to improve the client experience, drive colleague efficiency and improve the quality of data captured to drive even better service and provide client insights into our digital and service roadmaps. As I said, this is a core focus for me.

Cost Savings - We launched Pay by Bank for our clients using Active Savings towards the end of financial year. This not only makes it easier for clients to top up their accounts, but will also generate meaningful cost savings for HL. By year end, the adoption rate was already at 25% and we will be rolling it our across other accounts through the course of this year.

As well as client proposition improvements, we have made progress in building more secure foundations to improve our operational resilience and risk management, whilst continuing to invest in our client facing digital products.

In the year, we continued work and have made progress towards the FCA's 2025 Operational Resilience deadline. The Board approved our annual Operational Resilience Self-Assessment for the year to 31 March 2023, which we evolved from the 2022 assessment to add greater rigour and structure to the process. The Board also attested our compliance with the FCA's Consumer Duty by the end of July. I am pleased to report that our Consumer Duty programme confirmed that our existing embedded focus on good client outcomes has led to no major change requirements across all the FCA prescribed dimensions, with only minor enhancements identified to further support our clients in reaching good outcomes.

I am pleased that our colleague engagement surveys showed some improvement during the year, reflecting both our focus on helping colleagues build their financial resilience and building an inclusive and client focused culture. As ever there is more to do, which is why this is one of my four initial focus areas. We have also made good progress against our Inclusion and Diversity priorities, increasing gender and ethnicity representation across the business through both our new early talent programmes and improved recruitment processes, which have increased senior representation across the board.

On ESG, this year we have continued to strengthen our requirements as part of our Wealth Shortlist research, with all funds included on the shortlist meeting our minimum ESG requirements. We have also launched our new ESG Investment Policy and our Stewardship and Engagement Policy and are reporting on Scope 3 Financed Emissions across the portfolio of HL managed funds.

Finally, work continues to progress development of our enhanced relevance and personalisation engine within the HL digital platform. Sitting under both our digital and human interaction experiences, this engine will ensure clients receive the most relevant information, the best service and a seamless and easy experience, however they chose to engage with us.

Outlook and guidance

The current economic climate is likely to remain much the same for the coming financial year, and so will continue impacting investor confidence. This will provide a continued tailwind for flows into Active Savings but a potential constraint on net new investment flows and dealing volumes, although we will proactively mitigate this by helping all HL clients identify the opportunities that do exist and could be right for them, as we did with gilts. We will also provide tools to help clients efficiently consolidate assets to save them time and help us provide increasingly personalised services, whether they want to interact digitally or speak to an HL colleague directly.

Against this backdrop, we have already started to take initial actions on cost and will continue to carefully manage all operating costs and efficiency improvements whilst balancing with the importance of providing the high level of service and support that our ever-growing client base demands.

In terms of our financial outlook for FY24, Amy Stirling has provided some detailed guidance in her CFO's report.

It has been a busy first few weeks in the new role, and I have thoroughly enjoyed hearing from many of our clients, colleagues and shareholders. I'm looking forward to the coming months as I focus on my initial priority areas of driving growth, increasing pace, identifying opportunities to save to grow and ensuring we have the right people in the right roles and focusing on the right things, so we are truly future fit to deliver for our clients and, in turn, for our shareholders.

Dan Olley

Chief Executive Officer

18 September 2023

Financial Review

Assets Under Administration (AUA) and Net New Business (NNB)

* Platform growth, Movement to Active Savings and Active Savings Growth are alternative Performance Measures. See the Glossary of Alternative Performance Measures on page 35 for the full definition.

Hargreaves Lansdown provides the leading direct wealth management service in the UK.

The continued strength of our brand and breadth of services available to clients on our platform has seen us grow net new business every quarter this year despite the continued challenging macroeconomic backdrop for our clients.

Total net new business for the year was £4.8 billion (2022: £5.5bn). Of this figure, platform growth was £2.3 billion (2022: £4.3bn) with £0.7 billion (2022: £0.3bn) of net movement into Active Savings, where we saw a significant increase in flows, contributing £3.2 billion (2022: £1.5bn) of new money to the £4.8 billion total growth.

Total AUA increased by 8% to £134.0 billion at the year end (2022 £123.8bn). This increase was supported by the net new business uplift and £5.4 billion of positive market movement across the year, after the negative market growth experienced in the first half returned to positive in the second half.

AUA for the period of £134.0 billion was 8% above that for the prior year. The increase has occurred across both halves of the year, with the second half of the year providing two thirds of the increase. Market growth and other represents the impact of the underlying market and other retained investment income. In the current period this movement is driven by the changes in the market.

Throughout the year we have maintained our focus on engaging with clients to help them improve their financial engagement and resilience. During this period of low investor confidence, we have supported them in navigating the challenging economic backdrop. We were pleased to see that despite the financial impacts of the cost-of-living challenges, our client retention rate remained consistent at 92.2% (2022: 92.1%).

Asset retention reduced to 90.4% (2022: 91.8%) for the year, as we saw a higher level of cash withdrawals from specific cohorts of clients to help with cost-of-living increases or to fund large expenses and major life events.

We introduced 67,000 net new clients in the year (2022: 92,000), growing our active client base by 4% to 1,804,000.

An active client is defined as one who holds an account containing £100 or more with us. The average age of new clients remains consistent with recent periods at 36 (2022: 36) and we are encouraged by the quality of clients we are welcoming who brought an average NNB of £19,809, up 27% on last year (2022: £15,565). This was driven by greater numbers of new clients opening Active Savings accounts, which attract a higher opening balance - during the year there were 17,000 new Active Savings accounts (2022: 7,000).

Income Statement

* Underlying profit before tax, Tax on underlying profit, and Underlying profit after tax for the period exclude strategic investment costs (including dual running costs) of £36.1 million (2022: £28.3m). See the Glossary of Alternative Performance Measures on page 35 for the full definition.

Revenue

Total revenue for the period increased 26% to £735.1 million (2022: £583.0m), with all key revenue lines increasing in the second half of the year driven by a return to growth in all asset classes excluding cash as asset levels benefitted from positive market movements and net new business. Year-on-year revenue growth reflects an improvement to Net Interest Margin following a period of historic low interest rates, and the level of cash held by clients in both their Investment and Savings accounts more than offsetting the impact of lower average asset values and lower stockbroking volumes resulting from negative market movements and low levels of investor confidence.

The table below breaks down revenue, average AUA and margins earned during the period:

Revenue margin is an alternative performance measure, see the Alternative Performance Measures glossary on page 35 for the full definition.

1 Platform fees.

2 Stockbroking commission and equity holding charges.

3 Net interest earned on cash held in investment accounts.

4 Annual management charge on HL Funds, i.e. excluding the platform fee, which is included in revenue on Funds.

5 Revenue from Active Savings earned as fees from partner banks.

6 Average cash held via Active Savings.

7 Advisory fees and ancillary services (e.g. annuity broking, distribution of VCTs and HL Currency Services).

8 HL Funds AUM included in Funds AUA for platform fee and in HL Funds for annual management charge. Total average AUA excludes HL Fund AUM to avoid double-counting.

Funds

Funds continue to be the largest asset class on the platform at 47% of average AUA for the year and 46% of closing AUA (2022: 47%) reflecting the significant range of investment solutions available to meet a broad range of client needs. Revenue on Funds decreased by 7% to £236.4 million (2022: £254.5m) reflecting the decrease in average AUA, particularly in the first half, with this revenue line returning to growth in the second half of the year. Revenue margin on funds was flat at 39bps.

Funds remain one of our largest sources of revenue, with the margin for this year having remained stable on the prior year.

During the year, decisions have been taken to reduce fees on the Lifetime ISA (LISA), from 45bps at base to 25bps, and remove all fees on Junior ISA accounts. As a result, we expect the fund revenue margin to fall slightly in the next financial year and be in the range of 36.5bps to 38.5bps, driven primarily by the full year impact of the fee cuts made in the Junior ISA and LISA accounts in FY23.

Shares

Revenue on Shares decreased by 24% to £147.7 million (2022: £194.9m) and the revenue margin of 30bps (2022: 37bps) was at the low end of our expected range. This was as a result of a reduction in deal volumes, reflecting comparatively lower investor confidence as clients deal with cost-of-living issues, rising interest rates and market volatility and also the impact of the decline in the value of equities under administration, given the previously mentioned market volatility.

Average deals per trading day in the first half of the year were 31,000 and rose in the second half of the year to 35,000 per day. However, total deal volumes, including automated deals such as dividend reinvestment, decreased by 21% to 8.3 million (2022: 10.5m) but were in line with the low end of our expectation of deals per trading day. Dealing peaked in January 2023 at 39,000 deals per trading day, propelled by news of growth in UK, US and European markets. This compared with a low in December of 27,000, given the seasonally quieter Christmas period. Overseas dealing volumes fell slightly and represented 21% of our total client driven deals (2022: 22%).

Client driven trading is higher than levels seen prior to the pandemic and we continue to improve our client experience in relation to share trading, with improvements to best execution on trades and the removal of fees for income reinvestment and regular share savings. As and when investor confidence improves we believe we are well placed to see a return to higher trading volumes. Shares AUA, at the end of the year, was £50.8 billion (2022: £45.9bn).

Revenue guidance on shares for the next financial year is 28bps to 32bps. This incorporates the full year impact of the price changes on the Junior ISA, income reinvestment and regular savings.

Cash

Cash held in Investment accounts plays an important role in clients' portfolio management by providing access to the broad range of products and services available on our platform. We manage this cash according to clear principles which are set out in our Platform Client Fairness Policy. In determining rates, HL considers the client need, characteristics and behaviour by account type and the flexibility or limitations of the account when determining and reviewing the rates paid to clients. For example, we pay higher rates of interest where the accounts have more product restrictions (e.g. the SIPP over an unwrapped account) and where clients will hold higher cash balances (e.g. the Drawdown account). The step up in base rate has increased interest earned on cash and, as a result, we have increased both the amount and the proportion earned by clients during the period. The level of cash held in Investment accounts increased during the period with average cash AUA of £14.0 billion (2022: £13.6bn) which also contributed to the increase in revenue.

The average cash balance represented 10.8% of total average AUA, an increase from 10% in the prior year. However, across the year, cash held in investments accounts has been reducing as clients use existing funds on the platform to invest, and for certain clients we are seeing increased cash withdrawals to fund planned and unplanned needs. Our closing cash AUA at the end of 2023 was £13.1 billion (2022: £15.0bn).

Revenue on cash significantly increased in the year to £268.7 million (2022: £50.0m) reflecting increases in the Bank of England base rate during the period and the level of cash held by clients in investment accounts, partially offset by the pass through rate to clients. Seven rate increases were made during the year, taking the base rate from 125bps in July 2022 to 500bps as at 30 June 2023, compared to the changes in the previous year, which saw five increases taking the rate from 10bps to 125bps as at 30 June 2022.

Over the last twelve months, we have passed over 85% of the benefit of base rate increases to our clients and should we see further increases from here, we would expect to do broadly the same.

As a result, our guidance for net interest margin for the next financial year is 180bps to 200bps.

HL Funds

During the year we have delivered two new Building Block funds (US Fund and UK Income fund) and four new Portfolio funds (Cautious, Balanced, Moderately Adventurous and Adventurous), all of which come with a lower annual management charge than our existing fund offerings. These funds give clients access to key asset classes and are structured via segregated mandates so they can be held directly and also invested into by our flagship HL Managed funds. The sector-focused funds within the existing HL Multi-Manager range will be converted over time, resulting in further efficiencies and reductions in costs for investors.

Despite a very challenging market context for fund flows, across the year we saw net flows into the fund range of £0.3 billion, driven largely by the fund launches. HL Funds' AUM at the end of 2023 was £8.7 billion.

Revenues on HL Funds were down 10.0% to £54.3m (2022: £60.3m). The main driver of this was average funds under management being down 5% versus last year and lower margin, largely as a result of the launch of new, lower cost funds delivered in the year. The margin on HL Funds has reduced to 65bps (2022: 69bps) accordingly.

HL Funds are a key part of our strategy and we continue to launch further funds across FY24, including a Global Corporate Bond fund that launched in July 2023. This will continue to improve the overall proposition and competitiveness of our own investment funds and will continue to bring net inflows. The margin for 2024 is therefore expected to reduce and be in the range of 55bps to 60bps.

Active Savings

Revenue from Active Savings has grown significantly in the year to £8.7 million (2022: £1.8m) driven by the changes in the base rate and the increase in AUA. The average margin throughout the year was 14bps (2022: 5bps).

We have continued with the increased marketing of Active Savings from the end of the last financial year and we have subsequently seen strong flows across the period totaling £3.2 billion (2022: £1.5bn). As at 30 June 2023 the AUA was £7.8 billion (2022: £4.6bn) and over 175,000 clients now have an Active Savings account.

Looking forward, we will continue our focus on growing the Active Savings service through adding additional partner banks and improving functionality, particularly within our app.

Our revenue margin for the next financial year is expected to be in the range of 15bps to 20bps.

Other

Other revenues comprise advisory fees and ancillary services, such as annuity broking and distribution of VCTs. The amount has declined year-on-year, with the largest movements seen in distribution income in respect of third party services, where lower investor confidence for trading services has been partially offset by increased revenues from Annuity arrangement fees, due to the increase in rates available for these products.

*Definitions are shown in the Glossary of Alternative Financial Performance measures on page 35.

The Group's business model offers clients a broad range of asset classes to suit their needs in differing market environments and as such, benefits from a diversified revenue stream. The Group's revenues are largely ongoing in nature, as shown in the table above. The proportion of ongoing revenues has increased to 83% in the period (2022: 71%) as the transactional stockbroking commission decreased versus last year and the net interest income increased significantly as the base rate of interest increased. Ongoing revenue is primarily comprised of platform fees on funds and equities, fund management fees, net interest income and ongoing advisory fees. This increased by 48% to £612.6 million (2022: £414.1m) driven by improved net interest margin from the higher interest rates earned, which more than offset lower platform fees and management fees from lower average AUA levels. 

Transactional revenue primarily comprises stockbroking commission and advisory event-driven fees. This decreased by 27% to £122.5 million (2022: £168.9m) reflecting the 26% decrease in client-driven equity dealing volumes.

Underlying operating costs

* Definitions have been amended and are shown in the Glossary of Alternative Financial Performance Measures on page 35. The amendment has been made to align to the way that the Board discusses matters internally.

**Underlying operating costs exclude strategic investment costs (including dual running costs) of £36.1 million (2022: £28.3m). See the Glossary of Alternative Performance Measures on page 35 for the full definition.

Underlying operating costs

Underlying operating costs increased by 10.5% to £314.6 million (2022: £284.7m) reflecting wage and cost inflation, annualisation of headcount growth, increased technology spend, offset by lower volume driven Activity costs and a reduction in the FSCS levy.

People costs

People costs increased 16% to £167.9 million (2022: £144.2m) as we invested to support our colleagues through the course of the year. Our pay award for the year was an average of 5% and we have made further changes to colleague pay. Given the economic backdrop, we have reset junior colleagues compensation, providing a higher level of guaranteed earnings throughout the year and we have seen additional wage inflation in specific functions, addressing skill scarcity and retention. In addition we made a £1.1m one-off support payment for colleagues to help offset the impact of inflation.

Our headcount remained flat during the first half of the year, with targeted additions made in the second half of the year in our Service and Digital teams to support increased client contact and improving our systems and security respectively. The impact of the annualisation of 2022 headcount increases was also felt in the year and contributed 3% to the increase in the current year.

Activity

Activity costs comprise marketing costs, dealing-related costs, and payment costs for client cash transferred onto the platform. Overall activity costs have reduced by £4.9 million during the period reflecting the lower dealing volumes, higher payment volumes driven by Active Savings and £5 million cost savings achieved through renegotiation of third-party dealing contracts.

Payment costs have increased in line with the level of cash added to the platform. In Q4, we introduced Pay by Bank capabilities to those clients using Active Savings to make it easier to transfer funds onto the platform whilst significantly reducing the associated transaction cost. We have seen encouraging take up so far and will be rolling out to all clients during next year. Marketing costs, including client acquisition, client engagement and brand awareness, have remained stable year-on-year as we have continued to invest to drive awareness of our breadth of savings and investment solutions, particularly in the run up to tax year end this year.

Technology

Technology costs increased to £38.8 million (2022: £28.7m) driven by software support fees and service subscriptions as we build out our digital capability and transfer our systems to the Cloud and improving the security of our IT environment. This requires the use of more third-party software, leading to an increase in license and subscription costs throughout the year.

Support

Support costs, which include legal and professional fees, office running costs, depreciation and amortisation increased to £56.3 million (2022: £49.3m). Including the impact of higher energy costs and a £1.8 million one off increase in the dilapidations provision, office running costs account for £3.5 million of this increase. Insurance costs and professional fees have increased as have travel expenses as staff returned to more normalised working patterns.

The Financial Services Compensation Scheme (FSCS) levy run by the FCA decreased to £6.1 million (2022: £12.1m), due to a scheme surplus from the prior year, which reduced the amount the FCA needed to raise for the current year. The FSCS is the compensation scheme of last resort for customers of authorised financial services firms. At present, we expect that the levy cost next year will return to being in line with the prior year and as a result, expect to see Underlying cost growth of 9% - 11% for the next financial year.

Strategic Investment Costs(including Dual Running Costs)

Total strategic spend in the year was £51.4 million, of which £36.1 million has been expensed and £15.3 million has been capitalised in line with our accounting policy. As the programme scales up in both overall activity and individual project scale, we expect our spend to increase further next year. Spend primarily comprises staff (including contractor) costs and associated professional fees, associated compliance, infrastructure and support costs. With our strategic investment programme now well underway, the strategic investment costs incurred in the period are in addition to the business as usual, or underlying, costs of the business.

We have previously presented strategic investment costs and dual running costs as separate measures for the purpose of reporting our underlying costs. Through review, we determined that the use of a further Alternative Performance Measure provides no additional clarity or insight to readers or users of the financial statements regarding our approach to our Strategic Investment Programme. As such, we have reverted to using strategic investment cost as a single measure.

Profit before tax

During the year, £19.0 million of Finance Income resulted from term deposits of corporate cash being placed at higher interest rates. Finance costs comprise the undrawn cost of the Group's Revolving Credit Facility and the interest incurred on the Group's leases.

On an underlying basis, profit before tax increased by 47% to £438.8 million (2022: £297.5m). On a statutory basis profit before tax increased by 50% to £402.7 million (2022: £269.2m).

Tax

The effective tax rate for the period was 19.7% (2022: 19.9%). This is despite the higher rate of tax in effect from April 2023 and its impact on the Group in the year. This was largely driven by reclaims on our prior year submissions for R&D credits.

The Group's tax strategy is published on our website at http://www.hl.co.uk

Earnings per share

* Underlying profit before tax, Tax on underlying profit before tax, Underlying profit after tax and Underlying diluted EPS for the year exclude strategic investment costs (including dual running costs) of £36.1 million (2022: £28.3m). See the Glossary of Alternative Performance Measures on page 35 for the full definitions.

Diluted EPS increased by 50% from 45.6 pence to 68.2 pence, in line with the Group's increase in profits. The Group's basic EPS was 68.3 pence, compared with 45.6 pence in 2022.

Underlying diluted EPS increased by 48% from 50.4 pence to 74.3 pence. (See Glossary of Alternative Performance Measures on page 35 for the full definition). The Group's underlying basic EPS was 74.4 pence, compared with 50.4 pence in 2022.

Capital and liquidity management

Hargreaves Lansdown looks to create long-term value for shareholders by balancing delivery of profit growth, capital appreciation and an attractive dividend stream to shareholders with the need to invest in the business to maintain a broad savings and investment offering and high service standards for our clients.

The Group seeks to maintain a strong net cash position and a robust balance sheet with sufficient capital and liquidity to fund ongoing trading and future growth. The Group's net cash position at 30 June 2023 was £503.3 million (2022: £508.0m). Cash generated from operations more than offset the payments of the 2022, final ordinary dividend and the 2023 interim dividend. This includes cash on longer-term deposit and is before funding the 2023 final dividend of £136.6 million.

The Group has a Revolving Credit Facility agreement with Barclays Bank to provide access to a further £75 million of liquidity. This is undrawn and was put in place to further strengthen the Group's liquidity position and increase our cash management flexibility. The Group also funds a share purchase programme to manage the impact of dilution from operating our share-based compensation schemes.

The healthy net cash position provides both a source of competitive advantage and support to our client offering. It provides security to our clients and allows us to provide them with an excellent service, for example through using surplus liquidity to allow same day switching between products that have mismatched settlement dates.

Capital

Total attributable shareholders' equity, as at 30 June 2023, made up of share capital, share premium, retained earnings and other reserves increased to £709.7 million (2022: £575.1m) due to the increased profit in the year. Having made appropriate deductions as shown in the table above, estimated surplus capital amounts to £270.1 million.

HL plc has four subsidiary companies authorised and regulated by the FCA. The FCA's Investment Firm Prudential Regime (IFPR) applies to the Group and HL completes this assessment through the Group Internal Capital Adequacy and Risk Assessment (ICARA) processes. Our assessment of HL's capital requirements takes account of the regulatory requirements.

Consistent with the IFPR requirements, HLAM is specifically required to disclose regulatory capital information; this is available on the Group's website at https://www.hl.co.uk/investor-relations.

Dividend

Dividend (pence per share)

The Board has declared an increase in the total ordinary dividend of 4.5% taking the ordinary dividend per share to 41.50 pence (2022: 39.7 pence per share of ordinary dividend). The ordinary dividend is made up of an interim dividend of 12.70 pence per share that was paid on 31 March 2023 (2022: 12.26 pence per share) and a final ordinary dividend of 28.8 pence per share (2022: 27.44 pence per share). Subject to shareholder approval of the final ordinary dividend at the 2023 AGM, the final dividend will be paid on 15 December 2023 to all shareholders on the register at the close of business on 17 November 2023.

In terms of capital allocation, our priority continues to be to ensure our robust financial health, maintaining a meaningful capital surplus over the regulatory minimum. The Board has begun discussion regarding the overall approach to capital allocation acknowledging that we are currently in a period of investment and the importance of shareholder return. As a result and subject to market conditions and the Group's growth, investment and regulatory capital requirements, we expect to continue to grow the ordinary dividend at least 4% in the next financial year.

Amy Stirling

Chief Financial Officer

18 September 2023

SECTION 1: RESULTS FOR THE YEAR

Consolidated Income Statement for the year ended 30 June 2023

The results relate entirely to continuing operations.

Consolidated Statement of Comprehensive Income for the year ended 30 June 2023

The results relate entirely to continuing operations.

1.1 Revenue

Revenue represents fees receivable from financial services provided to clients, net interest income on client money and management fees charged to clients. It relates to services provided in the UK and is stated net of value added tax.

1 Active Savings revenue was previously disclosed within net interest income and is now disclosed separately.

1.2 Segmental reporting

Under IFRS 8, operating segments are required to be determined based upon the way the Group generates revenue and incurs expenses and the primary way in which the Chief Operating Decision Maker (CODM) is provided with financial information. In the case of the Group, the CODM is considered to be the Executive Committee.

It is the view of the Board and of the Executive Committee that there is only one segment, being the direct wealth management service administering investments in ISA, SIPP and Fund & Share accounts, and providing cash management services for individuals and corporates in the United Kingdom. Given that only one segment exists, no additional information is presented in relation to it, as it is disclosed throughout these financial statements.

The Group does not rely on any individual customer and so no additional customer information is reported.

1.3 Operating costs

*The line item description of this category has changed from the prior year.

1 Support costs includes costs previously known as legal and professional fees and office running costs. Also included in support costs are compensation and compliance costs, other finance costs, insurance costs and fair value movements on investments (note 2.1).

2 Activity costs now includes costs previously known as marketing costs and dealing and financial services costs.

1.4 Staff costs

Included in the above figures are 143 (2022: 80) contractors with a total cost of £15.5 million (2022: £6.0m).

1.5 Finance and other income

1.6 Finance costs

1.7 Tax

Corporation tax is calculated at 20.5% of the estimated assessable profit for the year to 30 June 2023 (2022: 19%).

In addition to the amount charged to the Consolidated 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, except for the impact of deferred tax arising from the timing of exercising of share options which is not under our control. Following the enactment of Finance Act 2021 the standard UK corporation tax rate was at 19% before increasing to 25% from 1 April 2023. Accordingly, the Group's taxable profits for this accounting year are taxed at 20.5%. Deferred tax has been recognised at either 20.5% or 25% depending on the rate expected to be in force at the time of the reversal of the temporary difference.

Factors affecting future tax charge

Any increase or decrease to the share price of Hargreaves Lansdown plc will impact the amount of tax deduction available in future years on the value of shares acquired by staff under share incentive schemes.

The charge for the year can be reconciled to the profit per the Income Statement as follows:

The additional deduction for tax purposes only arises from enhanced capital allowances available from the super deduction on qualifying plant and machinery purchased within the financial year ended 30 June 2023.

1.8 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 year, including ordinary shares held in the Hargreaves Lansdown Employee Benefit Trust (EBT) and Hargreaves Lansdown SIP Trust (SIP) 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 potentially dilutive ordinary shares.

The weighted average number of anti-dilutive share options and awards excluded from the calculation of diluted earnings per share was 1,285,599 at 30 June 2023 (2022: 429,519).

SECTION 2: ASSETS & LIABILITIES

Consolidated Statement of Financial Position as at 30 June 2023

2.1 Investments

£0.5million (2022: £0.8m) of investments are classified as held at fair value through profit and loss, being deal-related short-term investments. Fair value movements on investments are included in other support costs, as disclosed in note 1.3.

Investment balances are short-term positions the Group takes as a result of deals placed either in error or due to having to take positions where clients are no longer able to hold an investment. The gross gains and losses in relation to fair value include movements where no investment position is taken and are as shown below:

Fair value movement on investments

2.2 Trade and other receivables

In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties totalling £486.0 million (2022: £409.5m) 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 £659.7 million (2022: £532.6m) and the gross amount offset in the Statement of Financial Position with trade payables is £186.6 million (2022: £130.1m). Other than counterparty balances, trade receivables primarily consist of fees and amounts owed by clients and renewal commission owed by fund management groups. There are no balances where there is a legal right of offset but not a right of offset in accordance with accounting standards, and no collateral has been posted for the balances that have been offset.

Given the short-term nature of the Group's receivables and the expectation of the Group in relation to its counterparties, there has been no material expected credit loss recognised in the period.

The Group does not have any contract assets in respect of its revenue contracts with customers (2022: £nil).

2.3 Cash and cash equivalents

At 30 June 2023, 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 £7,214 million (2022: £8,665m). In addition, there were pension trust and Active Savings cash accounts held on behalf of clients not governed by the client money rules of £6,224 million (2022: £6,533m). The client retains the ownership in both these deposits and cash accounts, and accordingly, they are not included in the Statement of Financial Position of the Group.

Restricted cash balances relate to the balances held within the HL Employee Benefit Trust. These are strictly held for the purpose of purchasing shares to satisfy options under the Group's share option schemes.

2.4 Deferred tax

Deferred tax assets/(liabilities) arise because of temporary differences only. The following are the major deferred tax assets/(liabilities) recognised and movements thereon during the current and prior reporting years. Deferred tax has been recognised at either 20.5% or 25% depending upon the rate expected to be in force at the time of the reversal of the temporary difference. 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 2023.

2.5 Trade and other payables

In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties totalling £483.5 million (2022: £404.9m) are included in trade payables, similar to the treatment of trade receivables. As stated in note 2.2 above, where we have a legal right of offset and the ability and intention to settle net, trade payable balances have been presented net.

Other payables principally comprise amounts owed to staff as a bonus and rebates due to the regulated funds operated by the Group. Accruals and deferred income principally comprise amounts outstanding for trade purchases and receipts from clients, where cash is received in advance for certain services.

All balances classified as deferred income in the prior year have been recognised in revenue in the current year.

2.6 Long-term liabilities

SECTION 3: EQUITY

Consolidated Statement of Changes in Equity for the year ended 30 June 2023

1 Total comprehensive income includes Profit for the year and the total comprehensive income presented is equal to Profit in both years presented.