Hargreaves Lansdown : Results 2022

Hargreaves Lansdown plc

Results for the year ended 30 June 2022

Highlights:

• Net new business of £5.5 billion
• Assets Under Administration, down 9% driven by market falls to £123.8 billion
• 1,737,000 active clients, an increase of 92,000 in the year
• Underlying profit before tax decrease of 19% to £297.5 million
• Profit before tax decrease of 26% to £269.2million
• Ordinary dividend up 3% at 39.7 pence per share

	Year to	Year to	Change %
	30 June 2022	30 June 2021
Net new business inflows	£5.5bn	£8.7bn	-37%
Total assets under administration	£123.8bn	£135.5bn	-9%
Revenue	£583.0m	£631.0m	-8%
Profit before tax	£269.2m	£366.0m	-26%
Underlying profit before tax*	£297.5m	£366.0m	-19%
Diluted earnings per share	45.6p	62.5p	-27%
Underlying diluted earnings per share*	50.4p	62.5p	-19%
Ordinary dividend per share	39.7p	38.5p	+3%
Total dividend per share	39.7p	50.5p	-21%

*Underlying profit before tax and underlying diluted EPS are new Alternative Performance Measure which exclude the impact of strategic investment and dual tech running costs. See the Glossary of Alternative Performance Measures on page 33 for the full definitions and page 9 where a reconciliation to the relevant statutory measure is provided.

Chris Hill, Chief Executive Officer, commented:

Against a macroeconomic and geopolitical climate not seen in a generation with subdued flows and lower activity across wealth management, we have delivered £5.5 billion of net new business through the year and the quality of our service attracted a further 92,000 net new clients.

Our focus is firmly on servicing our clients, disciplined cost management and delivering our strategy because we remain confident that it will deliver outstanding client service, strong shareholder returns and market leadership for HL.

Our progress against our strategic goals has been strong since February with the launch of the first of our new funds and an acceleration in our Active Savings proposition, an essential service to help clients manage their cash savings at this critical time, leading to a record £4.6 bn assets, with over 114,000 client accounts.

I would like to thank my colleagues for their hard work and continued commitment to our clients to ensure they get the best outcomes during these challenging times.

About us:

Hargreaves Lansdown is the UK's largest digital wealth management service administering £123.8 billion of investments for over 1,737,000 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:	For analyst enquiries:
Danny Cox, Head of Communications	James Found, Head of Investor Relations
[phone]	[phone]
Nick Cosgrove / Caroline Daniel	Amy Stirling, Chief Financial Officer
Brunswick [phone]

Analysts' presentation

Hargreaves Lansdown will be hosting a virtual investor and analyst presentation at 09:00am on 5 August 2022 following the release of the results for the year ended 30 June 2022. A conference call facility will be in place with the following participant dial-in numbers - UK (toll free) 0800 640 6441, UK (local) 020 3936 2999 and all other locations [phone]. The participant

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code is 132081. 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 2022. These measures are listed along with the calculations to derive them and an explanation of why we use them on page 33 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

Transforming the saving and investing experience

This year has been a year of contrasting moods. It was welcome to see signs of recovery from the COVID-19 pandemic, but that sense of optimism has been replaced by new challenges including inflationary pressure, international conflict and a worsening cost of living crisis that is now having an impact on so many lives. The result is that investor confidence has fallen significantly.

At times like these it helps that we have a deep sense of history and draw on lessons from our over 40-year track record of supporting our clients through tough economic times. HL has managed through unpredictable market conditions throughout our history, including several previous financial crises, political instability and general elections, referendums and Brexit. Our approach has been consistent: we support our clients by providing relevant insight, information and knowledge that both builds confidence and ensures that investment decisions and execution are as easy as they can be in uncertain times. In 2022 we have had two clear priorities: being there for our clients throughout these turbulent market conditions to help them achieve their financial goals; and accelerating our ambition to transform the saving and investing experience, where we have set out a clear programme of strategic investment to improve how our clients can engage and manage their money whilst driving growth for our shareholders.

Given the economic pressures, it is evident that financial resilience is now a key priority in everyone's lives. Our purpose - to empower people to save and invest with confidence - has never been more essential. Clients' needs, which were already changing fast during the pandemic, have continued to evolve amid the new pressures from inflation, higher interest rates and geopolitical uncertainty. As their lifelong partner and with unparalleled understanding of their financial goals that sit alongside navigating all of the pressures in their lives, it is critical that we now execute our strategy to continue to drive leadership in our sector by building the digital wealth manager of the future. We will transform the experience that clients encounter when they manage their money, combining the best of human expertise from our colleagues and augmenting it with the supercharged use of data and technology to deliver a uniquely personalised service that will make managing wealth, financial health and resilience, easier and more intuitive, with relevant information that drives real outcomes.

This integrated way of servicing our clients, the depth of data we can draw on, the comprehensive and unrivalled range of products and services in one place all underpin how we create value for our clients. We are proud of our track record of high quality service that has enabled us to earn and retain the loyalty and trust of our clients. Their continued confidence in picking us as their financial partner is evident in our rating as the direct-to- consumer platform with the highest brand awareness (Platforum UK Consumer Insights Jan 2022). We beat the high street on a regular basis for accessing market-leading rates on their cash - our Active Savings service has had market leading rates for over 80% of this year. Alongside our cash offer, clients benefit from discounted prices for popular investment funds with an average saving of 20% across our Wealth Short List of funds stemming from us using our scale to deliver value for them. They are able to do all of this using digital tools and services that resulted in HL being rated #1 for investor experience in October 2021 by Platforum. Our investment to evolve our strategy means that our clients will benefit from the creation of more value-added services, as we expand into a broader wealth management market, where incumbents have traditionally been too slow to adapt to ever-changing consumer needs. This market has reached an inflection point, with new technologies enabling us to service clients with personalisation through engaging tools, data analytics and timely relevant nudges in ways that were simply not possible before.

By investing to scale and further broaden our proposition at HL, our aim is to capture a growing proportion of the £3 trillion addressable wealth and cash savings market in the UK and drive the next stage of our sustainable growth. The £175 million focused investment programme will deliver a significant shift, allowing us to scale in a more cost effective way, improve the client experience and proposition and drive efficiency through our client service. Myself, all of my colleagues and our Board are united behind the delivery of our strategy and confident in the value it will deliver for both clients and shareholders.

Performance in the year

The difficult backdrop in 2022, driven by a combination of macroeconomic and geopolitical events has hit markets and dented investor confidence throughout the year. As we have seen across the industry, this has led not only to reduced asset values, but also to subdued flows for many direct- to-consumer services and lower activity across wealth management as a whole. Through the year we delivered £5.5 billion of net new business. I am particularly pleased that in spite of this tough backdrop, the quality of our service attracted a further 92,000 net new clients, taking our total client numbers to a record new high of 1.74 million. This compares to FY21 where positive influences like the COVID vaccine and subsequent recovery and the heightened savings environment during lockdowns led to a unique record year. As a result, we have seen an expected reduction in flows and client growth, which has impacted our results for the year, with profit before tax of £269.2 million.

Encouraging engagement is a key success metric for us and our investment into digital tools and our app continues to pay off with 290 million digital visits in 2022 and an increase in mobile engagement with 61.5% of digitally active clients using the app (2021: 58.3%). This higher engagement was also reflected in our flows where a record 882,000 clients contributed to their ISAs and pensions this tax year and net new business per new client increased to £15,565 (2021: £13,943).

In 2022 we continued our Better Investors programme which is aimed at building and improving our long-term relationship with clients, providing over 590,000 nudges to clients to raise awareness of key insights on investment basics such as levels of cash balance, compounding, levels of diversification and risk and the importance of regular investing. These nudges continue to help us maintain high levels of client retention at 92.1% (2021: 92.1%) whilst nudging up our asset retention rate to 91.8% (2021: 91.4%).

In recent years we have seen clients diversifying their portfolios, increasing their weightings to the US, China and particularly technology stocks and the NASDAQ. Having reached a record AUA of £141.2 billion at 31 December 2021, the second half of our financial year to 30 June 2022 has seen significant market turbulence with the FTSE All Share down 6.3%, the S&P 500 down 20.6% and the NASDAQ down 29.5%. This negative impact has more than offset the net new business flows resulting in AUA at the end of the financial year at £123.8 billion (2021: £135.5bn). Despite this impact we delivered a robust revenue performance of £583.0 million (FY21: £631.0m), underpinned by our diversified revenue streams. Although asset related revenues and share dealing volumes have been impacted, the recent rises in interest rates to 1.25% at the year end have provided a positive tailwind for cash revenue, which will continue into FY23. The rising interest rate environment was also reflected in the enhanced performance of our Active Savings service, where assets hit a record £4.6 billion with over 114,000 client accounts.

Delivering our strategy and executing on our key initiatives will require £175 million of strategic spend between now and FY26 In the first year we have incurred £25.7 million of Investment Cost (including £4.6m of spend which has been capitalised) and £7.2 million of dual technology running costs resulting in £313.0 million of statutory operating cost and delivering a statutory profit before tax of £269.2 million (2021: £366.0m). We are committed to disciplined investment with a focus on cost control across the business. In the period, underlying operating costs were £284.71 million, up 7% vs prior year reflecting c3% of wage inflation and the annualisation of growth in people and capability to support and develop the 92,000 new clients added. This has resulted in underlying profit before tax of £297.51 million (2021: £366.0m).

1 Underlying operating costs and underlying profit before tax are new alternative financial performance measures and are defined on page 33.

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Our strategy

We announced the evolution of our strategy in February at our Capital Markets Day as we invest to transform, combine and deliver the next phase

of wealth management. Over the past year, I have built a highly experienced and capable Executive team that understand what it takes to deliver a digital transformation at scale and the transition that HL must undertake to become the digital wealth management service of the future and change how people manage their money.

The execution of this strategy is underway and being delivered through five key pillars:

• Accelerate Growth via our Integrated Proposition
• Create a step-change in Client Service and Efficiency
• Develop our Digital Backbone
• Enable our People, Strengthening our Culture
• Scale the Foundations

We are focused on delivery and driving success through disciplined investment that drives clear benefits for clients and shareholders and have made a great start against each of these pillars in 2022.

Accelerate Growth via our Integrated Proposition

As client needs continue to evolve, we must continue to update our own proposition hand in hand to unlock the next stage of our growth.

At our Capital Markets Day, we outlined plans to expand our investment solutions, improving the range of investment options we provide to clients at all stages of their investment journey from beginners to highly experienced investors. Through launching a combination of new funds and investment solutions, HL will have the investment choices to address a broad range of client needs.

It is also clear that increasing interest rates and volatile markets highlight the importance of diversified portfolios and accelerate the growth of Active Savings, which allows us to help clients in a more effective and time efficient way.

Finally, as a direct-to-consumer service, we know that we must offer clients the tools they need to manage their own investments, but we also know that, at important stages and at moments that matter, focused guidance and advice can be key to building confidence and delivering the right outcomes. Therefore, we are going to launch a new digital, human and advice service that will complement the significant support and engagement we already offer our clients.

• Investment Solutions - We launched the HL Growth Fund as the default multi-asset fund for the SIPP in December 2021, integrating into key Workplace journeys from April. We have seen encouraging levels of engagement from clients with £102 million assets under management by the end of the financial year and high levels of opt-in. We have continued to expand our capabilities and have made new hires into the fund management team.
  We expanded our research coverage to Exchange Traded Funds, providing regular updates on clients most popular investment trust holdings, and appointed a dedicated ESG team providing increased education and analysis with 60% more articles, increased engagement and an increase in the number of responsible funds on the Wealth Shortlist. ESG is now a separate and distinct feature of all research that we produce.
• Active Savings - We added two new partner banks, including Santander International taking the number of partner banks to 15. Across the year we have seen £1.5 billion of net inflows with AUA now at £4.6 billion and 114,000 client accounts. The increases in interest rates through the second half of the year along with strategic marketing spend, however, has seen a step up in net flows with £0.7 billion added in the last quarter. This diversified proposition not only drives client and asset retention, but importantly in a rising rates environment has also been a driver of new client wins.
• Augmented Advice - Over the year we have made significant progress with our Augmented Advice offering, scoping, designing and building key features, informed by significant client testing. Our Augmented Advice proposition will establish a brand new experience for clients, incorporating insightful tools like financial well-being dashboards and calculators with nudges and coaching to provide an enhanced level of insight that supports them in hitting their financial goals. We have made an experienced hire to lead both this initiative and our face to face advice business.

As we look ahead to 2023, our focus will be on key deliverables across the three streams: we will be launching new funds and developing investment solutions, starting with a US fund launch in the second quarter of our financial year (subject to regulatory approval); we will build on the momentum that we have seen in Active Savings with a continued focus on that product; and we will launch a pilot for our Augmented Advice service at the end of H1.

Create a step change in Client Service & Efficiency

HL has always been known for its high quality client service. Maintaining and evolving this to deliver a future proofed client experience underpinned by scalable and cost-efficient processes is fundamental to our strategy and critical to our future success. In 2022 we continued to evolve our service, driving improvements to the client experience, highlighted by our Trust Pilot score which is now rated 'excellent'. We continue to strive for further progress and have focused on:

• Enhancing the quality of engagement - By ensuring our service becomes ever more personalised, we believe we will continue to improve client engagement. In July we started the roll-out of a Cloud Contact Centre platform through our partner Amazon Connect. This offers a simple to use platform for our client service teams to improve the way they serve our clients and reduce time taken to answer queries. Connect allows us to simplify our operating model, evolving client servicing so we can use our talented colleagues to focus on delivering an experience that adds value to the client, one that is actioned by data insight and through automating experiences that our clients expect to be self-serve. It is the first step in delivering a more personalised client experience in a more efficient way and will ensure improved levels of Client Satisfaction and NPS and also reduced cost to service. The platform will continue to be enhanced through 2023, delivering cost savings and service improvements by the second half of the year.
• Building simplicity & resilience - We want to offer a simpler and more consistent service underpinned by technology solutions that make it easy for us and clients. In 2022 we partnered with Ecospend to provide 'Pay by Bank' services, utilising the latest technology in Open Banking to create a more efficient and effective payment journey option for our clients. This will create greater resilience in our service and deliver significant cost saving over 2023 as we roll it out across our client journeys and applications.

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We have also undertaken a project to digitise our inbound mail processes. Using third-party providers we have completed the first two phases of this work, focusing on new business applications and workflow. This work will lead to a reduction in cost to serve, allowing us to service more clients without extra costs, and strengthening our ability to scale whilst maintaining resilience. It will also act as a key strategic enabler for workflow automation and the delivery of our wider service strategy.

Driving innovation - HL has a long history of innovating: we lead the market in delivering new solutions to enhance the saving and investing experience for clients and 2022 has continued this trend. In May we launched REX, a new Retail Offer Service with Peel Hunt, enabling retail investors to access IPOs and secondary fundraising, a key area where retail investors previously lacked the tools to engage. The first corporate action was for an infrastructure investment trust and 25% of the shareholders participated. This continues to broaden the service we offer our clients, providing greater functionality and increasing client satisfaction.

Our key focus for 2023 in service and efficiency will be on delivering across each of these areas to enhance the quality of our client engagement and deliver on cost savings outlined at our Capital Markets Day.

Develop our Digital Backbone

We have set out the ambition to be the leading digital wealth management service and transform how people manage their money. By investing in more digital capabilities - from data analytics, using cloud for scale and innovation, and better managing end-to-end client journeys - we will be able to continue to take advantage of our growth and the scale of our platform reducing cost to serve and creating operating leverage, using the infinite scalability of the cloud.

Enhancing our digital capability underpins all of our success and drives the execution of all of our strategic pillars. In 2022 we have delivered on some key foundational outcomes that underpin our digital backbone:

• Cloud & Platform - We need to leverage a cloud-based flexible infrastructure to build systems that auto-scale and increase our ability to innovate enabling us to partner with companies that are pioneering the latest technology. In 2022 we have set out foundations for our cloud migration, signing contracts with industry leaders ForgeRock and Kong to support our development of enhanced identity and authentication solutions and building our ability to scale. We have also begun to apply cloud-based solutions through partnerships including Amazon Web Services, who are supporting the delivery of our new cloud and data platforms, building increased personalisation and efficiency into our service.
• Data - We have an unparalleled insight into client behaviour and needs built up over 40 years of lifelong relationships. We must be able to use this data to provide the highest quality of client service and personalise the experience for both clients and colleagues. We are focused on data enrichment to build the foundations that enable a smoother transition to the cloud and to power augmented solutions. This year we have partnered with Precisely, to prepare our data for the future and enable us to manage and govern across its life cycle, identifying and cataloguing data assets as well as improving data quality through rules and workflows that then power AI driven guidance.
• Digital Foundations - These enable us to deliver an end-to-end digital client experience at pace, and key to this is ensuring that HL's transformation is client-product and client-journey led. In 2022 we have realigned our digital teams in a single organisation under our Chief Digital and Information Officer and created a stream-lined product led organisation under our Chief Technology Officer. One key element of the product led approach is to ensure consistency between online and mobile journeys - in 2022 we have focused on this, including adding previously non-mobile functionality such as fund switching so it is available across all devices and improving our mobile app to increase accessibility. We have also utilised product led teams to deliver improvements across other strategic pillars, including the digitisation of our mail room and the launch of the Retail Exchange service. The launch of a new design system has increased the pace of our developers through an ability to create consistent user experience. Across each of these initiatives we are seeing delivery at pace and achieving outcomes that significantly enhance the client and colleague experience.

Our Digital Transformation is focused on delivery and our execution plan is broken into clearly identified and achievable projects, where we can deliver at pace and see tangible cumulative benefit. Our focus in 2023 will be on utilising the ForgeRock and Kong partnerships to centralise digital identity to create a market leading experience; and we will increase our ability to execute multivariant releases. These are key elements that complement and support a data driven, product led way of working. Alongside this we will also continue our cloud journey, delivering significant internal and external tools through our partnership with AWS.

Enable our People, Strengthening our Culture

The delivery of a strategy is only possible with the right people, capabilities and culture underpinning it. HL's success is due to our brilliant colleagues and their continued efforts to go the extra mile, innovate and deliver for clients. The execution of our strategy will be reliant on introducing key new capabilities in some areas and so we are focused on building the right environment to develop and enhance colleague performance, retain and attract the right talent and make HL a great place to work. In 2022 we have adapted to the post-pandemic environment by building a hybrid working pattern that is colleague led and enabling our offices for new working patterns. We have also been focused on supporting colleagues through the challenging conditions impacting all of us and in May provided a 'breathing space' payment for colleagues to aid with their cost of living needs. We continue to look at solutions to provide colleagues with support during this time.

Looking ahead to 2023 we continue to onboard the new capability to support our strategy whilst also focusing on developing and enabling colleagues to adopt agile and product led ways of working, supporting HL's ability to deliver client outcomes and change at pace.

Scale the Foundations

A critical element of any successful business is the enabling functions that support the delivery and execution of the strategy. To drive sustainable returns over the long-term we must ensure we strengthen our foundations to ensure both resilient client journeys and support growth and new ways of working. In 2022 we have done this through welcoming new capability across key teams including a significant increase in Risk and Compliance. We have also delivered key resilience and scalability improvements to key systems including our Drawdown payments and commercial banking systems. In 2023 we will continue to prioritise this enhancement of foundations in parallel to our work to build new functionality, ensuring that we have the systems and people to deliver our strategy. We must also meet regulatory expectations including delivering in line with the new Consumer Duty to help ensure the right outcomes for clients.

It is clear that HL is in execution mode. In 2022 we have set the foundations for the successful delivery of our strategy. We are confident that we have the right strategy and the right team to deliver and now we are seeing the results. I look forward to sharing more of these as we transform our business over the coming years.

FY23 Guidance and medium-term outlook

We are currently seeing, and for the period ahead we expect to see continued, economic and geopolitical turbulence. This will continue to, impact key drivers of our business including asset levels and investor confidence. We have supported clients through such events and period for many years and each time we have come through stronger. This time will be no different.

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