Hargreaves Lansdown : Results 2023

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

	Year ended	Year ended	Change %
	30 June 2023	30 June 2022
Net new business inflows	£4.8bn	£5.5bn	-13%
Total assets under administration	£134.0bn	£123.8bn	+8%
Revenue	£735.1m	£583.0m	+26%
Profit before tax	£402.7m	£269.2m	+50%
Underlying profit before tax*	£438.8m	£297.5m	+47%
Diluted earnings per share	68.2p	45.6p	+49%
Underlying diluted earnings per share*	74.3p	50.4p	+47%
Total dividend per share	41.5p	39.7p	+4.5%

*Underlying profit before tax and underlying diluted EPS are Alternative Performance Measure which exclude the impact of strategic investment and dual tech running costs. See the Glossary of Alternative Performance Measures on page 35 for the full definitions and page 10 where a reconciliation to the relevant statutory measure is provided.

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:

Hargreaves Lansdown

For media enquiries:

Danny Cox, Head of Communications [phone]

Nick Cosgrove

Brunswick [phone]

For analyst enquiries:

James Found, Head of Investor Relations [phone]

Amy Stirling, Chief Financial Officer

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

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Slides accompanying the analyst presentation will be available this morning at www.hl.co.uk/investor-relationsand 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.

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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.

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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.

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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

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