4th Feb 2015 08:05
LONDON (Alliance News) - Hargreaves Lansdown PLC Wednesday reported a drop in first-half pretax profit despite a rise in assets under administration over the course of the six months, in what was described as a "muted" time for stocks and retail investors.
In a statement, the investment management product provider said pretax profit declined to GBP101.9 million in the six months ended December 31 from GBP104.1 million in the corresponding period last year. Lower interest rates due to central bank policy and due to new rules meaning that client money cannot be placed on term deposit beyond 30 days, coupled with reduced revenue on funds, have meant that profit growth has lagged growth in assets under administration, it said.
"Whilst the outlook for interest rates remains low in the short term, as the economy recovers it is possible rates may rise. The directors expect interest rate income to continue in the previously guided range of 0.50% to 0.60% for the rest of the 2015 financial year," Chief Executive Ian Gorham said in a statement.
Assets under administration rose to GBP49.1 billion at the end of 2014, from GBP46.9 billion six months earlier and GBP43.4 billion at the same stage last year. The self-styled fund supermarket also disclosed that client numbers grew by 23,000 over the six months.
"In a muted six months for both stock markets and retail investing, Hargreaves Lansdown has managed to buck the trend with GBP2.25 billion of net new assets and further growth in clients to 675,000. We now look forward to the important tax year end period, and the introduction of exciting new pension freedoms on April 6, 2015," Gorham said.
The corresponding six months of 2013 made for a strong point of comparison for Hargreaves Lansdown, as it was boosted by rising stock markets and the float of Royal Mail PLC in the autumn of that year.
Although first-half revenue rose by 24% to GBP197.2 million, net revenue, which subtracts commission payable and loyalty bonuses paid to customers, increased by 1% to GBP144.1 million.
The increase in clients and assets drove revenue up but was offset by weak stock markets, lower interest rates received on client cash, and lower revenue on client fund assets due to tiered platform fees and the higher client loyalty bonuses introduced in March last year, all of which weighed on profit growth.
"The impact from lower interest rates will continue for the rest of the 2015 financial year. The impact of the new fund charges will annualise in March 2015. The 2016 financial year will therefore see the comparative effect of these factors abate," Gorham said.
Gorham said the group is to launch the "Hargreaves Lansdown Retirement Planner" in April to take advantage of the new pensions rules coming into force in the UK. According to the CEO, more than 143,000 people asked Hargreaves Lansdown for information about pensions in the last six months.
"This initiative aims to take advantage of our position as both a major provider of drawdown services and independent annuity broker, providing clients with flexible pension choices," Gorham said.
Hargreaves Lansdown also said it has plans for new cash management services, supported by a new peer-to-peer service. The services will take at least 18 to 24 months to develop, Gorham said, and should increase client assets "substantially". The group has opted to develop the services without applying for a banking licence that would enable it to accept retail deposits.
"Work on these initiatives has already commenced, and will connect clients with more cash and savings options, allowing clients to actively manage their cash savings through Hargreaves Lansdown. Cash savings deposits have not previously been a target market for the group and represent a substantial opportunity," Gorham said.
Looking ahead, the CEO said he has higher hopes for the second half of the financial year as it includes the tax year end.
"Whilst we are satisfied with the first half of our year, the second half of our trading year is perennially the stronger half for new business, including as it does the tax year end, which acts as a natural incentive for clients to use tax allowances," Gorham said.
With the prospect of the UK's General Election in May, Gorham noted that data suggest there was a "limited effect" on its business volumes the last time the electorate went to the polls.
"We believe whilst the event creates some detrimental uncertainty in the election month itself, history suggests this is balanced by retail investor enthusiasm in the months prior to the election to invest under the status quo before being exposed to the vagaries of a newly empowered government," Gorham said.
The group remains on the hunt for a new chief financial officer following Tracey Taylor's decision to step down. Simon Cleveland, a partner from Deloitte, is acting in the role on an interim basis until a successor is found.
Hargreaves Lansdown raised its interim dividend to 7.3 pence per share from 7.0 pence per share.
Hargreaves Lansdown shares were down 5.3% at 990.00 pence at the open Wednesday, the biggest FTSE 100 faller.
By Samuel Agini; [email protected]; @samuelagini
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