Hargreaves Lansdown plc (LON:HL) has announced its results for the year ended 30 June 2020.
· Net new business of £7.7 billion
· Strong growth in Assets Under Administration, up 5% to £104.0 billion
· 1,412,000 active clients, an increase of 188,000 in the year
· Profit before tax increase of 24% to £378.3 million
· Total dividend up 31% at 54.9 pence per share
|Year to 30 June 2020||Year to 30 June 2019||Change %|
|Net new business inflows||£7.7bn||£7.3bn||+5%|
|Total assets under administration||£104.0bn||£99.3bn||+5%|
|Underlying profit before tax*||£339.5m||£305.8m||+11%|
|Profit before tax||£378.3m||£305.8m||+24%|
|Diluted earnings per share||65.9p||52.0p||+27%|
|Ordinary dividend per share||37.5p||33.7p||+11%|
|Total dividend per share||54.9p||42.0p||+31%|
*Underlying profit before tax excludes a one-off gain of £38.8m on the disposal of Funds Library
Chris Hill, Chief Executive Officer, commented:
We have delivered a strong performance, despite an external environment of persistent challenge.
The benefits of putting our clients at the heart of everything we do, combined with our investment in the scalability, diversity and resilience of HL’s business model, have been demonstrated through a record 188,000 net new clients, bringing total active clients to over 1.4 million and £7.7 billion of net new business, also a record.
At the same time we have completed significant strategic initiatives including launching our new Wealth Shortlist and Fund Finder, as well as completing further work to enhance governance, scalability and resilience in our service to clients.
Our priority has remained our colleagues and clients throughout this challenging period and I am proud of how we have responded. We have not furloughed our employees, enacted any redundancy programmes or sought any Government assistance.
The acute challenges of this year have reinforced the importance of resilience for us all and we will continue to have a key role in helping our clients build resilience into their savings and investments to enable themselves to be confident to manage through difficult periods and events.
Our focus on clients, the trusted relationships we have with them and the investment we have made to broaden and strengthen our proposition, means that we are strongly positioned to help our clients navigate through these unprecedented times. It also provides us with confidence in our ability to deliver sustainable and attractive growth and returns beyond the immediate period of uncertainty.
Hargreaves Lansdown will be hosting an investor and analyst presentation at 10:00am on 7 August 2020 following the release of the results for the year ended 30 June 2020. To access the presentation call contact firstname.lastname@example.org. 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 2020. These measures are listed along with the calculations to derive them and an explanation of why we use them on page 30 in the Glossary of Alternative Financial Performance Measures. A reconciliation to profit before tax is given in the Operating and Financial Review section.
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
Growth through challenge and change
2020 has been a significant year for Hargreaves Lansdown and I am pleased at how we have continued to execute our strategy and provide support for our clients in an external environment of persistent challenge.
In hard times there are challenges for all of us as individuals, clients and colleagues. I would like to take this opportunity to thank our clients for their resilience and continued support and my colleagues for their hard work, commitment and ingenuity in managing the tremendous change that COVID-19 has brought in the midst of our busiest time of year. Despite the personal upheaval we have all experienced, it has been inspiring to see the support we have provided to our clients and it is through their performance that we have been able to deliver strong outcomes for all our stakeholders.
The first half of the year was characterised by political uncertainty around Brexit and Trade Wars. At the time, we were confident that any certainty provided by the election result would improve investor confidence and lead to a strong performance through the second half. Our thinking was confirmed over the rest of the year where, despite the unforeseen ongoing pandemic and the significant challenge this has brought to the world, HL has delivered a performance of great strength.
The benefits of putting our clients at the heart of everything we do combined with our investment in the scalability, diversity and resilience of HL’s business model, have been demonstrated in its response to the COVID-19 crisis. At the same time we have completed significant strategic initiatives including launching our new Wealth Shortlist, delivering our first multi-channel advertising campaign as well as completing further work to enhance governance, scalability and resilience in our service to clients.
Building resilience over the long term
I believe that the acute challenges of this year have reinforced the importance of resilience for us all. Clients must have confidence in HL’s ability to remain secure and provide the best service to them. But clients must also build resilience into their savings and investments to enable themselves to be confident to manage through difficult periods and events.
At Hargreaves Lansdown we have a very strong purpose: to empower our clients to save and invest with confidence over the long-term; and this is supported by a culture and values that are focused on helping our clients in the right ways to deliver the best outcomes for them. We recognise how complex the UK wealth landscape has become and the challenge this brings to serve clients. Financial requirements are becoming increasingly complicated: as people live longer, as long-term saving obligations move from companies to individuals and the low interest rate environment persists with added volatility and uncertainty; people need support.
The tools, knowledge and insight that we provide as part of our service, equip and empower our clients to manage their savings and investments. Diversification is a key part of building resilience into a portfolio and our proposition offers clients the opportunity to save and invest across a spectrum of asset classes, including in cash with Active Savings.
HL’s role as a lifelong partner for clients is growing and we will continue to develop our proposition, capabilities and digital technology to provide an experience for clients that is appropriate to their evolving lifetime savings and investment needs. Our connectivity with our clients means we can evolve to meet their needs, especially as the external environment continues to change rapidly.
Our Response to COVID-19
This culture and focus on our clients guided our swift response to the COVID-19 pandemic. Our immediate priorities were ensuring the safety and well-being of colleagues whilst maintaining the core services that our clients rely on. This included moving the majority of colleagues to work from home whilst swiftly implementing effective social distancing across three sites for those colleagues who needed to be in the office.
It is through the investment we have made in our service and technology over the past few years that we were able to ensure both the resilience and scalability of HL over this period and to react to the situation with agility. As a result we were able to continue to deliver the service that our clients needed during this time and manage the record volumes of client activity. We also provided critical insight and information on matters that they were concerned about.
In keeping with our own expectations of our role in the community in which we live we also provided support to our local community. More detail on our response to COVID-19 for key stakeholders will be outlined in the Corporate Social Responsibility section of our 2020 Report and Financial Statements.
Keeping close to clients
Our client service and client outcome based strategy is underpinned by an unrelenting focus on understanding our clients’ needs, a critical part of which comes from using the insight that we get from their interactions with us. As we act on this insight, and provide a service that serves to retain clients, we build a lifelong relationship that further enhances our ability to tailor their engagement and our service in the most appropriate ways for them.
This focus was key to our service response to COVID-19 as mentioned above. We used the intelligence provided through our phone and email contact together with observing the activity on the mobile and web platforms to study carefully what clients needed and we reacted as a result. We maintained the Helpdesk phone lines throughout and put additional measures in place to increase our email response rate in line with client contact. We also introduced new measures to support our vulnerable clients including increased information on fraud risk and a specific phone line to provide them with further support.
We made proactive decisions to stop and then swiftly to adjust our marketing to ensure that the messages were appropriate, and paused other initiatives such as the Wealth Shortlist so that our clients were getting the right focus and attention when they needed it most. As the crisis developed we concentrated on what content clients were engaging with online and identified where they needed insight. The top 10 articles our research team posted were read up to three times as much as the top 10 last year with over double the number of non-client visitors to the website using these resources.
We recognise that, through the intensive scale of client interaction on our mobile and online platforms, and through calls and emails to the Helpdesk, we gain huge insight and understanding. This allows us to focus on what savers and investors specifically need and then work to deliver this. Across the year, digital visits increased by 41% from 177 million (FY19) to 249 million in FY20. We received unprecedented volumes of emails into the Helpdesk between April and June alone and have continued to see consistently high volumes of calls throughout this time.
We have also developed our digital and mobile capability in response to changes in how clients want to interact with us. The popularity of our mobile app continues to significantly grow and represents an increasingly important feature for our clients. Of the 1.2 million clients who logged in online, 43% did so through the app whilst 33% of online client initiated share trades came via the apps, more than double last year. Developing digital capabilities further remains a priority for us and it is important that we remain agile and are continually anticipating and responding to changes.
Developing our proposition
We recognise the need to constantly develop and improve our offering to ensure we are delivering what our clients need. At the same time, as a leading financial services company we have a responsibility to play a key part in setting industry standards. As such it was essential that we learnt from the experience surrounding the Woodford issue last year.
We undertook significant work to review the governance framework relating to the investment processes across the business and conducted extensive research with our clients. Changes were implemented and incorporated in the launch of the Wealth Shortlist in June 2020. This new list incorporates new functionality, search tools and a more structured view of our research to provide clients with all the key information they need to make investment decisions, in a transparent and easy to use format.
The extensive research included interactions with over 8,000 clients, with surveys, face to face interviews and a deep dive into the additional insights we have gained in how clients use our platform. The end result directly reflects what our clients told us about how they use the list and what they wanted to see.
As part of this process, we also launched new fund tools and updates which make navigating the funds available through our platform more transparent and easier than ever before.
These changes have been underpinned by changes to governance processes to raise the level of rigour and challenge to decisions that we make. These developments will ensure that not only our Wealth Shortlist and Fund Finder tool, but also future investment propositions and wider developments, will also have a robust, thorough and transparent governance structure behind them. We recognise how evolving the role of governance provides additional rigour and challenge to our decisions and results in better outcomes.
Executing our strategy
We welcomed a record 188,000 net new clients during the year, bringing total active clients to over 1.4 million and supported £7.7 billion of net new business, another record.
The importance of our own resilience and diversification is demonstrated in our growth with the volume of client driven share deals up 96% and revenue from share dealing up 94% and Active Savings now used by 66,000 clients with £2.2 billion of AUA.
Through the market volatility of early 2020, we have maintained our position as the market leader with our share of the direct to consumer platform market at 41.1%1, and seen a significant increase in our share of the execution only stockbroking market rising to 39.5%2.
In the lead up to tax year end we delivered our first multi-channel advertising campaign ‘Switch your Money ON’. This was an opportunity to deliver a creative proposition with both immediacy and the long-term potential to deliver other HL messages, whilst building the HL brand. Over 12 million of our target audience viewed advertisements in the period, including adverts seen over 304 million times. We focused on reinforcing our position as a leading ISA provider as we approached tax year end, highlighting our scale and service credentials and this approach delivered significant results with both brand awareness and consideration.
Compared to a few years ago, we are now seeing more clients who, on average, are joining HL at younger ages and the way they interact has shifted with more interest in mobile and access to new asset classes through our Active Savings products. Client needs adapt and evolve over time depending on knowledge, experience and circumstances and our agility in adapting and responding is driven by our proposition and service.
In order to rise to this challenge, we recognise the importance of continuing to develop more digital and connected technology. We continue to invest into our range of capabilities because these are what enable us to develop and deliver a broad proposition, offering not only choice and flexibility but solutions across a diverse range of asset classes. These solutions are supported by an evolving set of tools, expertise and service that enable clients to engage, giving them confidence to take control and be resilient in managing their savings and investments for the long term. In return, these clients concentrate their investments and cash savings with us, and work to their financial goals over their lifetimes, continuing to save their annual allowances and investing for the long term.
In February, we completed the sale of FundsLibrary, our data management and digital services business, to Broadridge Financial Solutions Inc. The decision to sell reflected our view that, as a business to business service, it was no longer core to our overall strategy, and the proceeds received from this will be used to enhance the total dividend payment for this year.
Conclusion and outlook
Over the next few years, the wealth industry will continue to develop in response to the changing requirements and challenges that people have in saving and investing alongside the pressing demands of everyday life. With our scale, insight and deep understanding of client needs we will continue to be at the forefront of responding to change and evolving our proposition to the benefit of clients. We are already seeing an evolution of our service supporting clients from younger ages and across broader investment and savings options. As we continue to evolve our proposition to reflect changing client needs, that trend will continue to grow in importance.
The Financial Conduct Authority has acknowledged the importance of people’s engagement with managing their financial futures and, after the past few years of significant regulatory change, there has been a growing focus on steering future regulation to one based upon outcomes. We are supportive of this regulatory direction of travel and will continue to work with the Financial Conduct Authority as the industry evolves to design and deliver these outcomes responsibly.
The experience of this year has reinforced the importance of our service-focused strategy and demonstrated its effectiveness with a very strong performance delivered through a range of difficult conditions. This gives us confidence to look ahead and invest in addressing the significant market opportunity. We will maintain our focus on skills, capabilities and technologies as this is critical in developing the lifelong client relationships which help drive future growth. Our scale and strong market position, together with a robust balance sheet and cash flows will enable us to continue delivering value to all of our stakeholders over the long term.
In the near term the UK economy faces a period of uncertainty as we work through the many issues arising from COVID-19. Unemployment levels have increased significantly whilst economic growth has decreased. The government has borrowed vast amounts to help the economy and society but the road to recovery could be a long one with various tax implications along the way.
The impact on our clients and the wider investment community as a result is difficult to call. Interest rates are at all-time lows, which makes cash savings unappealing, but market uncertainty and volatility can equally deter people from investing and access to liquidity is a key part of building financial resilience. However, our focus on clients, the trusted relationships we have with them and the investment we have made to broaden and strengthen our proposition, means Hargreaves Lansdown is strongly positioned to help our clients navigate through these difficult times. We are clear in the structural growth opportunity, clear in our strategy and business model and these provide us with confidence in our ability to deliver sustainable and attractive growth and returns beyond the immediate uncertainties.
Chief Executive Officer – Hargreaves Lansdown
6 August 2020
1 Source: Platforum UK D2C Market Overview (July 2020).
2 Source: Compeer Limited XO Quarterly Benchmarking Report Quarter 1 2020.