3rd Sep 2007 07:02
Hargreaves Lansdown PLC03 September 2007 Hargreaves Lansdown plc Unaudited Preliminary Results Announcement Year ended 30 June 2007 Hargreaves Lansdown plc ("Hargreaves Lansdown" or the "Company") is pleased toannounce today its first preliminary results since being admitted to the mainmarket of the London Stock Exchange. Highlights • Revenue increased by 34% to £98.8m (2006: £73.5m) • Underlying operating profit (*) increased by 67% to £40.7m (2006: £24.3m) • Underlying diluted earnings per share (**) increased by 52% to 6.4p (2006: 4.2p) • Underlying operating profit margin has increased to 41% (2006: 33%) • Assets under administration increased by 67% to £10.2bn (***) (2006: £6.1bn) • Average number of staff employed increased by 21% to 621 (2006: 513) • Proportion of recurring revenue increased to 65% (2006: 61%) (*) Operating profit before taxation and exceptional administrative expenses (**) Based upon earnings before exceptional administrative expenses andinvestment gains, and the full issued share capital (***) Includes £805 million of Hargreaves Lansdown plc shares held in Vantage Peter Hargreaves, Chief Executive, commented: "We are very pleased to present our first set of results as a listed company forthe year ended 30 June 2007. Hargreaves Lansdown is a leading provider ofinvestment management products and services to the private investor in the UK,and 2007 saw us consolidate this position with strong growth and excellentresults. I am mindful that since our year end we have seen huge turmoil in the world'sstock markets. The market is still uncertain of the extent of the problemscaused by the United States' sub-prime lending market. Although HargreavesLansdown has no direct exposure to this area, sentiment is likely to cause anoverreaction in markets and it is impossible to know when the bottom will occur. We have always been rewarded by continuing to support our clients in turbulenttimes and believe we emerge from these periods stronger and with improved marketshare. A high proportion of assets held in Vantage are within tax wrappers andour cash option allows clients to shelter from the market without withdrawingcapital and losing potential tax benefits. I would also draw our shareholders' attention to the fact that we do havesignificant businesses in areas far less affected by the market. We have asuccessful corporate pensions division, a leading SIPP product and a marketleading annuity business. We are also seeing an increase in demand for advicefrom our team of Financial Practitioners. The long-term fiscal and demographic trends remain positive for our business. Weare still encouraged by the flow of ideas, the quality of our research and thenumber of letters we receive from our clients praising all aspects of ourservice. It is our company policy to put clients first, a philosophy which hasbeen the prime reason for the firm flourishing. We approach the new yeardetermined that we shall continue to grow the business and profits whilst at thesame time hoping that we return to more benign markets, which should in timerepair investor confidence." About us: The Hargreaves Lansdown Group (the "Group") distributes investment products andattracts high quality earnings based upon the value of investments underadministration or management. Our success can be attributed to innovative marketing, a high retention ofclients, through the provision of first class service and information and adirect selling model which is cost effective, scalable and affords a high profitmargin. For further information please contact: Hargreaves Lansdown +44 (0)117 988 9967 Stephen Lansdown, ChairmanPeter Hargreaves, Chief ExecutiveBen Yearsley, Media and Investor Relations Financial Dynamics +44 (0) 20 7269 7200 Robert BailhacheNick Henderson Analyst Presentation There will be an analyst presentation on the results at 11:00am on Monday 3September 2007 at Financial Dynamics, Holborn Gate, 26 Southampton Buildings,London WC2A 1PB. Those analysts wishing to attend are asked to contact FinancialDynamics. The presentation will also be accessible via a conference call forthose unable to attend in person. To register for the conference call, pleasecontact Financial Dynamics. Chairman's Statement Whilst positive market conditions have no doubt contributed to our good resultsthis year, our marketing team has also been successful at both encouragingexisting clients to entrust us with more of their wealth and attracting newclients into our Vantage, our fund supermarket and wrap platform, anddiscretionary management services. In particular, the growth in assets in ourVantage SIPP has been substantial and we anticipate this to be an area ofcontinued expansion in the future. Strong investment performance and the expansion of our team of advisers haveenabled us to substantially grow funds under management in our multi-managerfunds and our Portfolio Management Service (PMS) during the year. To the creditof our investment team our four multi-manager funds have performed consistentlywell throughout the year with all funds achieving top quartile performancewithin their respective peer groups over the 12 month period to the end of June2007. The success of our Corporate Solutions division was a major factor in growingrevenue from third party business. This division continues to attract largercorporate clients. At the year end, there were 77 pension schemes on our bookswhich contained a minimum of a hundred members, an increase of 43 per cent onthe previous year. On the 15th May 2007 the Group floated on the London Stock Exchange. This was amomentous milestone in the life of Hargreaves Lansdown. As predicted and hopedfor, the increased profile of the Group has already started to benefit thebusiness. We believe that the increased visibility of Hargreaves Lansdown as apublic company will afford both our corporate and individual clients evengreater comfort about dealing with us and entrusting us with their savings. Wehave enjoyed the dialogue with our new shareholders and look forward tocontinuing it in the future. Our local profile has improved our ability torecruit staff and improved the quality of applicants. Mike Evans, former Chief Operating Officer of Skandia UK Limited, and JonathanBloomer, former Chief Executive of Prudential plc, joined the board asnon-executive directors in August and September 2006 respectively. Theirknowledge and experience in the financial services industry has already provedto be of great assistance to the board and I am sure will be of even greaterbenefit in the years ahead. Both Mike and Jonathan sit on the audit,remuneration and nomination committees with Jonathan being the seniorindependent director chairing those committees. We are actively seeking a newnon-executive director to bring the board in line with recommended bestpractice. A newly formed executive committee will be responsible for the day to dayrunning of the various divisions within the Group and will liaise closely withthe main board of directors in developing the business strategy, managing riskand ensuring that we maintain the culture and dynamism which has made HargreavesLansdown successful to date. The regulatory environment that we operate in is undergoing a change towards amore principles based approach focused on ensuring that investors are treatedfairly. Hargreaves Lansdown welcomes this move. Our business model and oursuccess are built on putting our clients first and providing the highest levelsof service. The regulatory environment is always changing and new regulationsstemming from the EU will take effect in the months ahead. In addition, theFinancial Services Authority is conducting a Retail Distribution Review lookingat the way the financial services sector operates. We do not believe that any ofthese changes will materially affect our business model. The demographics of the country are such that people need to save more. As abusiness we are ideally situated to benefit from any increase in savings and itis our intention to continue to develop Vantage and our other services toimprove our offering to the private investor. Our focus will be 'more of thesame' in seeking new clients with funds to invest, servicing existing clientsand encouraging them to transfer more of their assets onto our platform. Wewill continue to market strongly in this respect but at the same time continueto keep a tight control on our overheads to ensure that our margins are at leastmaintained and hopefully improved. We are of course reliant on investmentmarkets being stable in order to maintain and increase our assets underadministration but we believe that by endeavouring to offer clients the bestinformation and the best service at the best prices our business will continueto grow. Our employees are vitally important to us. We seek to recruit and trainenthusiastic, intelligent employees and incentivise them through a goodremuneration structure to help grow the business. At the 30 June 2007 our staffnumbers totalled 648. 2007 has been a very busy time for everyone within theGroup not only dealing with the significant increases in business but also theadditional work involved with the flotation. I would like to personally thankeveryone for all their hard work and effort. Our success is down to them. We look forward to facing the exciting new challenges of life as a listedcompany. S P Lansdown Chairman Extract from Chief Executive's Review It is with pleasure that we present our first set of results as a publiclyquoted company. The Group has had a successful year's trading. This performanceis reflected in both underlying operating profit before tax (and exceptionalitems) which increased by 67 per cent from £24.3 million to £40.7 million andturnover which increased by 34 per cent from £73.5 million to £98.8 million. Thepercentage of revenue which is recurring in nature (i.e. renewal commission,management fees and interest) increased from 61 per cent to 65 per cent.Operating costs were well controlled during the year and our underlyingoperating profit margin increased from 33 per cent to 41 per cent. Underlyingdiluted earnings per share have risen by 52 per cent to 6.4 pence compared with4.2 pence for 2006. During the year our assets under administration increased by 67 per cent from£6.1 billion to £10.2 billion. This includes £1.3 billion of assets also underour management, an increase of 86 per cent on the previous year. The growth inassets under administration and management has arisen through a combination ofstrong new business volumes and market growth. The most relevant index, beingthe FTSE All Share, increased during the period by 15 per cent. As part of theflotation of the Group, shares in Hargreaves Lansdown plc feature strongly onthe Vantage platform this year, as both exceptional inflows and exceptionallevels of market growth. At 30 June 2007, the value of Hargreaves Lansdownshares on the Vantage platform was £805 million. Review Our year started with nervousness caused by the setback in the market in thespring of 2006. Consequently we started our year concentrating on gatheringassets and through the media of our newsletters, supporting clients and makingsuggestions. There were a few highlights during the early part of our year such as the verysuccessful launch of an innovative third party fund which incorporated the bestideas of several eminent fund managers. We were also pleased that thepredictions that A-Day in the pensions arena would be a one trick pony wereunfounded as we saw our pension volumes continue to grow strongly. The summer months always bring about client malaise as they occupy themselveswith holidays and other things conducive to the glorious summer of 2006. Wewere however encouraged during the first part of our financial year thatinvestors were seeking information, responding to our advertising and exploringour website, which was completely revamped and relaunched in November 2006. In the first six months of the year we performed well in comparison to thegeneral market place. Confidence was boosted by buoyant demand for our ownmulti-manager funds, our Portfolio Management Service (PMS), Self InvestedPersonal Pensions (SIPPs) and some interesting investments that were launchedduring the period. The second half of the year started exceptionally well with anumber of divisions reporting record or near record volumes. Renewed investor confidence encouraged us to market strongly during the thirdquarter and we ran an extra newsletter during that period, a decision whichturned out to be extremely fortuitous. Many of our competitors submitted theirfinal ISA season offerings just as the market fell significantly in February.It enabled us to hold our final ISA offering until we could see some stabilityin the marketplace and it was submitted when investor confidence was improving. Increased speculation regarding our float helped to generate interest in ourservices and provided a boost to our advertising. Our year closed with theprospect of marketing to many new prospective clients obtained during our Apriland May advertising campaign. There has been significant growth in our assets under administration on ourVantage platform and assets under management. We were particularly pleased withhow all sectors of the firm coped with the exceptional levels of business andalso capitalised on the circumstances. Assets held in Vantage at the year endincluded £2.2 billion invested in PEPs, £2.8 billion invested in ISAs, £1.4billion invested in SIPPs and £2.7 billion invested in our Fund and Shareaccount. Our multi-manager funds reached £1 billion at the year end, including£0.5 billion administered through Vantage. Group strategy Going forward our strategy will be "more of the same" in that we will continueto provide first class services to our clients, respond to market conditions andinnovate in our approach to marketing and product design. We will continue totalk to new and potential clients about their investments whatever theprevailing market conditions might be. We have not identified any new potentialbusinesses and we are not seeking to acquire any businesses. We will continueto expand our Financial Practitioners division since we have established thatmany clients would like a "local" representative. Our challenges for the year ahead are to continue improving our website where webelieve the future of the financial services industry lies and further enhancingour platform through in-house development. We have boosted our marketing teamwhich we believe to be one of the most enthusiastic and talented marketing teamsin financial services. We expect SIPPs to become an ever more important part ofour client offering but we are also encouraged by our Portfolio ManagementService with clients seeking more assistance in managing their investmentportfolios. We have finally established where we shall be operating from in a couple ofyears time which should enable us to bring all our people together under oneroof, something which we believe will benefit the firm immensely. Peter K Hargreaves Chief Executive Officer Extract from Financial Review Certain figures contained in this document, including financial information,have been subject to rounding adjustments. Accordingly, in certain instances thesum of the numbers in a column or a row in tables contained in this document maynot conform exactly to the total figure given for that column or row. Review of results 2007 2006 £'million £'million Revenue 98.8 73.5Underlying administrative expenses (58.1) (49.2) Operating profit before exceptional administrative expenses 40.7 24.3Exceptional administrative expenses (see (29.6) (19.6)below) Operating profit 11.0 4.6 Non operating income - investment revenue and 13.4 3.0other gains Profit before taxation 24.4 7.6Taxation (7.4) (1.6) Profit after taxation 17.0 6.0 The value of total assets under administration grew by 67 per cent during theperiod, from £6.1 billion to £10.2 billion. This is largely made up of £9.1billion of assets held within the Vantage service, with the remainder beingassets held within the Portfolio Management Service and other nomineeportfolios. We estimate that the £3.7 billion increase in Vantage assets from£5.4 billion to £9.1 billion can be attributed to £0.8 billion of HargreavesLansdown plc shares, £2.1 billion of other net new business, and £0.8 billion ofmarket growth. The value of assets managed by Hargreaves Lansdown through its own range ofmulti-manager funds and PMS increased by 86 per cent, to £1.3 billion, comparedto £0.7 billion as at 30 June 2006. Of these assets under management, £0.5billion were held within Vantage as at 30 June 2007, compared with £0.2 billionas at 30 June 2006. At 30 June At 30 June 2007 2006 £'billion £'billionAssets Under Administration AUA- Vantage 9.1 5.4- Other 0.2 0.2AUA Total 9.3 5.6 Assets Under Administration and Management AUM- Portfolio Management Service PMS 0.8 0.5- Multi-manager funds excluding PMS 0.5 0.2AUM Total 1.3 0.7 Less: Multi-manager funds included in both AUA and AUM (0.5) (0.2) Total Assets Under Administration 10.2 6.1 Revenue increased by £25.3 million or 34 per cent, to £98.8 million in the yearended 30 June 2007, compared to £73.5 million for the year ended 30 June 2006.This was principally due to an increase in revenue of £23.6 million across theVantage, Discretionary and Advisory divisions resulting from increased assetsunder administration and management and a full year's revenue on assets securedin the previous year. The 67 per cent growth in asset values was attributable tostrong new business volumes and market growth. The FTSE All Share indexincreased 15 per cent during the year, from 2967.58 to 3404.14. The Group's underlying operating profit (operating profit before taxation andexceptional items) increased by 67 per cent to £40.7 million in 2007 compared to£24.3 million for 2006. The increase resulted from revenue growth, driven byhigher asset values, which did not necessitate an equivalent rise in costs. TheGroup's operating margin increased from 33 per cent to 41 per cent. The Group incurred exceptional administration expenses of £29.6 million duringthe year, compared to £19.6 million for the year ended 30 June 2006. Themajority of these costs comprised the amount by which remuneration paid tocertain directors of the Company and its subsidiaries exceeded the amounts whichmight be payable in future years following the agreement of a new remunerationpolicy in March 2007. The remainder related to costs incurred in relation to theflotation of the Group on the London Stock Exchange. All of the exceptionalcosts for 2006 related to director's remuneration. Hargreaves Lansdown's 2007 results have been prepared for the first time inaccordance with International Financial Reporting Standards (IFRS) and thecomparative figures have been restated. The introduction of IFRS has resulted ina reduction in operating profit of £0.7 million in 2007 and £0.4 million in2006. Our cash flow has not been affected by these accounting adjustments. Themost significant adjustment is the inclusion of a fair value charge in respectof share arrangements entered into after 7th November 2002 and still inexistence at the date of transition to IFRS on 1 July 2005. There were £13.4 million of investment revenue and other gains during the year.This is primarily due to the disposal of a number of its fixed asset investmentsduring the year which resulted in net gains of £11.9 million. The Group's reported profit before tax increased to £24.4 million, compared to£7.6 million in the previous year. The effective tax rate for the Group thisyear was just above 30 per cent which has resulted in a reported profit aftertax for the year of £17.0 million, compared to £6.0 million for the previousyear. RevenueRevenue by division Year Ended Year Ended 30 June 30 June 2007 2006 £'million £'million Vantage 52.1 35.2Advisory 11.9 8.2Discretionary 7.4 4.4Third Party 19.8 17.1Stockbroking 5.8 7.5Central services 1.7 1.1 98.8 73.5 The Vantage division increased its revenues by £16.9 million, from £35.2 millionto £52.1 million. This resulted from strong growth in assets underadministration from £5.4 billion to £9.1 billion. The revenue growth alsoreflects the impact of a full year's income on assets acquired during theprevious year. The Vantage service allows clients to hold assets in taxefficient wrappers such as a PEP, ISA or SIPP, or alternatively in a Fund andShare Account. The highest growth in asset values was evident in the SIPP, withan increase of 180 per cent from £0.5 billion to £1.4 billion. The Fund andShare Account experienced high net inflows and market growth, including theexceptional impact of Hargreaves Lansdown plc shares, with asset valuesincreasing by 125 per cent from £1.2 billion to £2.7 billion. The strong growthexperienced in PEP / ISA business in 2006 continued in 2007 with assetsincreasing by 36 per cent to £5 billion. The Advisory business increased its revenues by £3.7 million, from £8.2 millionto £11.9 million. In addition to initial and renewal commission earned on thedistribution of third party investments, this division earns initial charges andannual management fees on assets introduced into the Group's PortfolioManagement Service (PMS). The value of assets managed in PMS increased by 59 percent from £493 million to £784 million. This growth can be attributed to highinflows, facilitated by an expanded team of advisers, and market growth. Theaverage number of advisers employed during the year increased by 22 per cent,from 47 in 2006 to 69 in 2007. The value of Hargreaves Lansdown's multi-manager funds increased from £0.6billion at 30 June 2006 to £1 billion, a 67 per cent uplift. As at 30 June 2007,52 per cent of these were held within PMS, 46 per cent were held within Vantageand the remainder were held directly. The Discretionary division earns renewalcommission on underlying investments held in PMS, including the value of PMSinvestments in the Group's multi-manager funds. The multi-manager funds chargeone per cent annually on the value of funds under management, which isrecognised in the Discretionary division net of the renewal commission paid toPMS and Vantage. Hargreaves Lansdown's Third Party business comprises those investment productswhich are sold by the Group but not held in Vantage or other Group nomineeaccounts. These include corporate pensions, personal pensions, annuities, thirdparty investment products, venture capital trusts and life assurance. Thedivisions handling Third Party business increased revenues overall by 16 percent, from £17.1 million to £19.8 million. The increase can be attributed togrowth in corporate pensions and personal annuities and term assurance. Thegrowth in these areas was offset by an expected decline of 14 per cent in therevenue from Third Party investments. This revenue will continue to decline asmore clients choose to transfer their investments onto the Vantage platform. The Stockbroking division experienced a decline in revenue of 23 per cent, from£7.5 million to £5.8 million. This can largely be attributed to the cessation ofa dealing service previously operated for a third party. This contract wasterminated in November 2006 to enable this division to focus on servicing thehigher margin, core Vantage business. Underlying administrative expenses Year Ended Year Ended 30 June 30 June 2007 2006 £'million £'million Staff costs 34.5 28.1Commission payable 9.3 7.9Marketing costs 5.8 4.7Depreciation, amortisation and financial costs 0.8 1.1Other costs 7.7 7.4 58.1 49.2 Underlying administrative expenses increased by 18 per cent, from £49.2 millionto £58.1 million. The Group's largest cost remains staff costs, which represents59 per cent of administrative expenses. These costs increased by 23 per cent inline with a 21 per cent increase in average staff numbers. Commission payable includes the share of the renewal commission which the Groupreceives on funds held in Vantage which is rebated back to clients as a cashloyalty bonus (except with respect to those funds held in the SIPP). Commissionpayable increased by 18 per cent, from £7.9 million to £9.3 million. This wasattributable to the growth in assets under administration in Vantage, offset bya drop in commission payable under a contract to provide dealing services for athird party which was terminated in November 2006. The Group increased its marketing spend by 23 per cent, from £4.7 million to£5.8 million. This includes the costs of sending information to existing andpotential clients, including the Group's flagship publication, the InvestmentTimes. These costs also include an element of media advertising, postage,stationary and the cost of corresponding with clients. The increase can beattributed to greater media advertising to respond to a fertile market and thehigh profile of the Group during its flotation. As the majority of our platform development is undertaken in-house, the capitalexpenditure of the business remains fairly low. The charge for depreciation,amortisation and financial costs for the year were not significant, decreasingfrom £1.1 million to £0.8 million. Other administrative costs and overheads include items such as building andutility costs, dealing costs, irrecoverable VAT, compliance costs, insurance,professional services, computer maintenance and external administration charges.These were controlled during the period, increasing by just 4 per cent from £7.4million to £7.7 million. Non operating income Investment revenues fell from £2.9 million to £1.4 million and werepredominantly made up of interest receivable on the Group's cash balances. Thedrop can be attributed to a special dividend received in 2006 from the LondonStock Exchange. The Group disposed of the majority of its fixed asset investment during theyear, including its holdings in EMX Company Limited and the London StockExchange plc. This resulted in net gains in 2007 of £11.9 million, with nonearising in 2006. Taxation Taxation increased from £1.6 million to £7.4 million. The higher charge can beattributed to an increase in pre-tax profits and an increase in the effectivetax rate from 21 per cent to just above 30 per cent. The reduced rate in 2006was largely the result of a dividend receipt of £1.9 million on which no tax waspayable and deductions in relation to share option benefits. In the year ended30 June 2007, there was no such dividend and deductions in relation to shareoption benefits were offset by float costs which were not allowable for taxpurposes. Earnings per share (EPS) The basic diluted EPS increased from 1.3 pence to 3.6 pence. However thedirectors consider the most relevant EPS calculation to be the underlyingdiluted earnings per share. This is calculated as the earnings for the year,adjusted to exclude the net effect of exceptional administration expenses andinvestment gains, divided by the total number of shares in issue, includingthose held by the Employee Benefit Trust (EBT). Underlying diluted EPS increasedby 52 per cent, from 4.2 pence to 6.4 pence. As at 30 June 2007, the EBT heldsufficient shares to satisfy all outstanding share options granted under theEmployee Share Schemes. Dividend On 26 April 2007 a dividend of 3.0 pence per share was proposed and was paid on21 May 2007 to shareholders on the register as at 1 May 2007. This was a 66 percent increase on total dividend payments of 1.81 pence made in 2006. Aspreviously advised prior to the flotation, there will be no final dividend inrespect of the financial year ended 30 June 2007. An arrangement exists underwhich the Hargreaves Lansdown Employee Benefit Trust (the "EBT") has agreed towaive all dividends. Capital expenditure and cash flow Capital expenditure remained relatively low, increasing from £0.8 million to£1.5 million. The Group was highly cash generative during the year with the significantoutgoings from underlying profits being exceptional director's remuneration anddividends. These were offset to some extent by the proceeds from the disposal ofa high proportion of the Group's investments and the sale of Company shares bythe EBT. The Group's own cash balances increased from £9.4 million to £32.9million during the year. This includes £12.4 million of cash held within theEBT. Net assets, capital requirement and treasury policy Group net assets increased from £17.5 million to £44.5 million. The Group hasfour subsidiary companies which are authorised and regulated by the FinancialServices Authority. These firms maintain capital resources at a level whichsatisfies both their regulatory capital requirements as well as their workingcapital requirements. As at 30 June 2007, the aggregated regulatory capitalrequirement across the four regulated subsidiary companies was approximately £9million compared to capital resources of approximately £27 million, whichresulted in a surplus of approximately £18 million. The Group has no borrowings and deposits its liquid funds with selectedfinancial institutions which maintain a long term credit rating of AA- orbetter. The Group actively maintains cash balances on short term deposit toensure that it has sufficient available funds for operations. This policy isdesigned to ensure that the Group takes no material credit risk. The Group isnot exposed to significant foreign exchange translation or transaction risk. Martin Mulligan Group Finance Director Consolidated Income Statement Year Year ended ended 30 June 30 June 2007 2006 Note £'000 £'000 Revenue 2 98,769 73,460 Administrative expenses (58,098) (49,190)Exceptional administrative expenses 4 (29,628) (19,627) Total administrative expenses (87,726) (68,817) Operating profit 11,043 4,643 Analysed as:Operating profit before exceptional 40,671 24,270administrative expensesExceptional administrative expenses 4 (29,628) (19,627) Operating profit 11,043 4,643 Investment revenue 5 1,430 2,919Other gains and losses 6 11,917 35 Profit before tax 24,390 7,597 Tax 7 (7,435) (1,584) Profit for the year 16,955 6,013 Dividend per share (pence) 8Interim dividend 3.00 0.36Special interim dividend - 1.09Final dividend - 0.36 Total dividend per share 3.00 1.81 Earnings per share Basic earnings per share * (pence) 9 3.6 1.4Diluted earnings per share * (pence) 9 3.6 1.3 All income, profits and earnings are in respect of continuing operations. * The directors consider that the underlying earnings per share figures as shown in note 9 representsa more consistent measure of underlying performance as this measure excludes the impact of exceptionalitems. Consolidated Balance Sheet At 30 June At 30 June 2007 2006 Note £'000 £'000Non-current assetsGoodwill 1,333 1,333Other intangible assets 81 97Property, plant and equipment 2,249 1,719Deferred tax assets 12 4,978 820 8,641 3,969Current assetsTrade and other receivables 11 51,533 48,075Cash and cash equivalents 11 48,092 13,745Investments 10 1,169 13,352 100,794 75,172 Total assets 109,435 79,141 Current liabilitiesTrade and other payables 13 63,976 57,610Current tax liabilities 154 - 64,130 57,610 Net current assets 36,664 17,562 Non-current liabilitiesDeferred tax liabilities 12 - 2,882Trade and other payables 13 281 665Provisions 529 515 810 4,062 Total liabilities 64,940 61,672 44,495 17,469 Net assets EquityShare capital 14 1,897 172Share premium account 15 8 1,733Investment revaluation reserve 16 - 7,149Capital redemption reserve 12 12Shares held by Employee Benefit Trust 17 (7,552) (19,809)reserveEBT reserve 18 12,030 (63)Share option reserve 19 7,082 914Retained earnings 20 31,018 27,361 Total equity, attributable to equity shareholders of the 44,495 17,469parent These financial statements are unaudited. Consolidated Statement of Cash Flows Year ended Year ended 30 June 30 June 2007 2006 Note £'000 £'000 Net cash from operating activities, 21 7,741 6,776after tax Investing activitiesInterest received 1,228 993Dividends received from investments 202 1,926Proceeds on disposal of 14,281 -available-for-sale investmentsPurchases of property, plant and (1,437) (830)equipmentPurchase of intangible fixed assets (53) (17)Acquisition of investments (212) (69)Purchases of own shares - (19,667)Proceeds on sale of own shares 25,645 264Proceeds on sale of associated - 85undertaking Net cash from/ (used in) investing 39,654 (17,315)activities Financing activitiesReceipts from repayment of loan 250 -Dividends paid (13,298) (7,863) Net cash used in financing (13,048) (7,863)activities Net increase/(decrease) in cash and cash 34,347 (18,402)equivalentsCash and cash equivalents at 13,745 32,147beginning of year Cash and cash equivalents at end 48,092 13,745of year Consolidated Statement of Recognised Income and Expense Year ended Year ended 30 June 30 June 2007 2006 Note £'000 £'000 Profit for the financial year 16,955 6,013 Revaluation of available-for-sale 16 1,202 2,886investments, net of taxGain on disposal of available for sale 16 (8,351) -investments transferred to incomestatement, net of tax Gain on sale of shares by employee 18 12,093 (63)benefit trust Net income recognised directly in 4,944 2,823equity Total recognised income and expense for the financial 21,899 8,836year Notes to the Financial Statements 1. General information On 18 May 2007 the Company was admitted to the Official List of the FinancialServices Authority and to unconditional trading on the London Stock Exchangeplc's main market for listed securities. This Preliminary Announcement is presented in pounds sterling which is thecurrency of the primary economic environment in which the Group operates. The consolidated financial statements contained in this preliminary announcementdo not constitute statutory accounts as defined in Section 240 of the CompaniesAct 1985. The disclosures made meet the requirements of the Listing Rules. Thefinancial statements are extracted from the 2007 Group financial statementswhich have yet to be signed and have not yet been delivered to the Registrar ofCompanies. The financial information included in this preliminary announcement has beencomputed in accordance with EU endorsed International Financial ReportingStandards (IFRS). Previously the Group reported its results using UK GAAP, andthe impact of the transition to IFRS is shown in note 22. The principalaccounting policies will be set out in the Group's 2007 statutory accounts. The comparative figures for the financial year ended 30 June 2006, which arebased on the statutory accounts for that year, have been adjusted for theeffects of IFRS and those adjusted figures are unaudited. The report of theauditors on the financial statements for the year ended 30 June 2006 which wereprepared in accordance with UK GAAP was unqualified and did not contain astatement under section 237 (2) or (3) of the Companies Act 1985. The financialstatements for the financial year ended 30 June 2006 have been delivered toCompanies House. Basis of Preparation The consolidated financial statements of Hargreaves Lansdown plc have, for thefirst time, been prepared in accordance with International Financial ReportingStandards adopted by the International Accounting Standards Board ("IASB") andinterpretations issued by the International Financial Reporting InterpretationsCommittee of the IASB (together "IFRS") as endorsed by the European Union. At the date of authorisation of these financial statements, the followingStandards and Interpretations which have not been applied in these financialstatements were in issue but not yet effective: Effective for the Group for the financial year beginning 1 July 2007: Amendment to IAS 1 'Presentation of Financial Statements - Capital Disclosures' IFRS 7 'Financial Instruments: Disclosure' IFRIC 8 'Scope of IFRS 2' IFRIC 9 'Re-assessment of embedded derivatives' IFRIC 11 'IFRS 2 - Group and Treasury Share Transactions' Effective for the Group for future financial years: Amendment to IAS 23 'Borrowing Costs' IFRS 8 'Operating Segments' IFRIC 12 'Service Concession Arrangements' The Group has considered the above new standards, interpretations and amendmentsto published standards that are not yet effective and concluded that they areeither not relevant to the Group or that they would not have a significantimpact on the Group's financial statements, apart from additional disclosures.The implementation of IFRIC 11 affects the accounting treatment of arrangementswhere a parent company grants rights to its equity instruments to employees in asubsidiary company and does not effect the overall position of the Group butwill require that the transaction is treated as a capital contribution by theparent company. It is effective for accounting periods commencing on or after 1March 2007. The transitional disclosures required by IFRS 1 concerning the transition fromUK Generally Accepted Accounting Principles ("UK GAAP") to IFRSs are set out innote 22. The date of transition to IFRS for the Group and the Company was 1 July 2005. The financial statements have been prepared on the historical cost basis, exceptfor the revaluation of certain financial instruments. 2. Revenue Revenue represents commission receivable from financial services provided toclients, interest on settlement accounts and management fees charged to clients.It relates to services provided in the UK and is stated net of value added tax.An analysis of the Group's revenue is as follows: Revenue from services: Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 Fees and commission income 87,509 66,132 Interest and similar income 8,832 5,063 Subscriptions and sundry 2,428 2,265 charges Total operating income 98,769 73,460 3. Business and geographical segments A business segment is a group of assets and operations engaged in providingservices that are subject to risks and returns that are different from those ofother business segments. The Group is currently organised into differentoperating divisions, however the nature of the services provided, the regulatoryenvironment, the customer base and distribution channels for each division arethe same, so that for the purposes of IAS14 Segment Reporting, the consolidatedentity operates in one business segment. The principal activity of the Group isthe provision of investment management services. As the Group only operates inone business segment, no additional business segmental analysis has been shown. All business activities are located within the UK and therefore the Groupoperates in a single geographical segment. 4. Exceptional Items Year Year ended ended 30 June 30 June 2007 2006Exceptional administrative expensescomprise: £'000 £'000 - Additional directors' remuneration 27,016 19,627- Flotation costs 2,612 - Exceptional items are those significant items that fall within the activities ofthe Group which are separately disclosed by virtue of their size or incidence toenable a full understanding of the Group's financial performance. Additional directors' remuneration On 5 April 2007, bonuses totalling £23.95 million (total cost £27,016,000including national insurance) were awarded to certain executive directors of theCompany and its subsidiaries. Flotation costs Costs relating to the Company's Admission to the London Stock Exchange compriselegal and professional fees of £2,612,000. 5. Investment revenue Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 Interest on bank deposits 1,228 993 Dividends from equity investment 202 1,926 1,430 2,919 6. Other gains and losses Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 Profit on disposal of associated - 35 undertaking Gain on disposal of investments 11,917 - 11,917 35 7. Tax Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 Current tax 8,241 2,385Deferred tax (note 12) (806) (801) 7,435 1,584 Corporation tax is calculated at 30% of the estimated assessable profit forthe years. In addition to the amount charged to the income statement, certain tax amountshave been charged directly to equity as follows: £'000 £'000Deferred tax relating to share based payments (note (3,352) (44)19)Deferred tax on revaluation of the Group's available 684 1,218for sale investments (note 16)Current tax relief on exercise of share options (note (2,308) -19)Current tax on gain on disposal of shares held by EBT 1,293 -(note 18) (3,683) 1,174 Factors affecting tax charge for the year It is expected that the ongoing effective tax rate will trend to a rateapproximating to the standard UK corporation tax rate (currently 30%, 28% from 1April 2008) in the medium term. During the year ended 30 June 2007 theeffective tax rate has been just above 30% primarily due to the disallowableflotation costs. A deferred tax asset in respect of future share optiondeductions has been recognised based on the Company's share price as at 30 June2007. Factors affecting future tax charge A number of changes to the UK tax system were announced in the March 2007 BudgetStatement and are expected to be enacted in the 2007 and 2008 Finance Acts. Thechanges relating to the reduction in corporation tax from 30% to 28% has beensubstantively enacted at the balance sheet date and, therefore, is included inthese financial statements. Any increase or decrease to the Company's share price will impact the amount oftax deduction available in future years on the value of shares acquired by staffunder share incentive schemes. The charge for the year can be reconciled to the profit per income statement asfollows: Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 Profit before tax from continuing 24,390 7,597 operations Tax 7,317 2,279 - at the UK corporation tax rate of 30% 30% Disallowed/(non-taxable) items (672) (206) Disallowed flotation costs 784 - Effect of adjustments relating to 110 74 prior years Effect of small company rate and rate applicable 2 (10) to trusts Surplus trading losses of subsidiary - 26 Impact of change in tax rate (61) - Dividend income not subject to tax (45) (579) Tax expense for the year 7,435 1,584 Effective tax rate 30% 21% 8. Dividends Year ended Year ended 30 June 30 June 2007 2006 Amounts recognised as distributions to equity £'000 £'000 holders in the period: First interim dividend of 3.0p (2006: 13,298 1,560 0.36p) per share Special interim dividend of 1.09p - 4,727 per share Final dividend per share of £nil - 1,576 (2006: 0.36p) 13,298 7,863 Dividend per share figures are restated to reflect the share restructuring on 10April 2007 described in note 14. On 26 April 2007 an interim dividend of 3.0 pence per share was proposed and waspaid on 21 May 2007 to shareholders on the register as at 1 May 2007. No finaldividend is proposed in respect of the year ended 30 June 2007, as advised bythe directors prior to flotation. Under an arrangement dated 30 June 1997 the Hargreaves Lansdown Employee BenefitTrust (the "EBT"), which held the following number of ordinary shares inHargreaves Lansdown plc at the date shown, has agreed to waive all dividends. Year ended Year ended 30 June 30 June 2007 2006 Number of shares held by the Hargreaves 14,038,685 40,986,825Lansdown Employee Benefit Trust Representing % of called-up share capital 2.96% 8.64% 9. Earnings per share Basic earnings per share is calculated by dividing the profit attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the period, including ordinary shares held in the EBT reservewhich have not vested unconditionally with employees. Diluted earnings per share is calculated adjusting the weighted average numberof ordinary shares outstanding to assume conversion of all dilutive potentialordinary shares. Underlying basic earnings per share and underlying diluted earnings per shareare calculated as for basic and diluted earnings per share, but using anadjusted earnings figure such that the profit attributable to equity holders ofthe Company is stated before exceptional items and investment gains. Thedirectors consider that the underlying earnings per share represent a moreconsistent measure of underlying performance. The weighted average number of ordinary shares used for the calculation ofearnings per share has been adjusted to show the impact of the subdivision ofeach ordinary share of 10 pence into 25 ordinary shares of 0.4 pence and a 10for 1 bonus issue which took place on 10 April 2007 as described in note 14. The calculation of the basic and diluted earnings per share is based on thefollowing data: Year ended Year ended 30 June 30 June 2007 2006 Earnings (all from continuing operations) £'000 £'000 Earnings for the purposes of basic and diluted 16,955 6,013 earnings per share being net profit attributable to equity holders of the parent Exceptional administrative expenses 29,628 19,627 Investment gains (11,917) (35) Tax on exceptional administrative (4,539) (5,888) expenses and investment gains Earnings for the purposes of underlying basic and 30,127 19,717 underlying diluted earnings per share Number Number Number of shares Weighted average number of ordinary shares for the purposes of diluted earnings per share, being total issued share capital 474,318,325 474,318,325 Shares held by HL EBT which have not vested 9,721,460 34,111,825 unconditionally with employees Weighted average number of ordinary shares for the 464,596,865 440,206,500 purposes of basic earnings per share Pence PenceUnderlying basic earnings per share 6.5 4.5 Underlying diluted earnings per share 6.4 4.2 10. Investments Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 At beginning of year 13,352 9,243Revaluation surplus transfer to equity (note 16) 1,886 4,104Net increase in the value of short term trading 212 68investments held at fair value through profit andlossElimination of subsidiary on consolidation - (13)Disposals (14,281) (50) At end of year 1,169 13,352 Current asset investments include the following: At 30 June At 30 June 2007 2006 £'000 £'000 UK listed securities valued at quoted market price 428 11,248Unlisted securities valued at cost 741 2,104 1,169 13,352 £428,000 (2006: £215,000) of investments are classified as held at fair valuethrough profit and loss and £741,000 (2006: £13,137,000) are classified asavailable-for-sale. Available-for-sale investments have been included at fairvalue where a fair value can be reliably calculated, with the revaluation gainsand losses reflected in the investment revaluation reserve as shown in note 16,until sale when the cumulative gain or loss is transferred to the incomestatement. If a fair value cannot be reliably calculated by reference to aquoted market price or other method of valuation, available-for-sale investmentsare included at cost, with a fair value adjustment recognised upon disposal ofthe investment. 11. Other financial assets At 30 June At 30 June 2007 2006Trade and other receivables £'000 £'000Trade receivables 45,153 39,693Other receivables 368 792Corporation tax debtor - 1,914Prepayments 6,012 5,676 51,533 48,075 Trade receivables are measured at initial recognition at fair value. Appropriateallowances for estimated irrecoverable amounts are recognised in profit or losswhen there is objective evidence that the asset is impaired. In accordance withmarket practice, certain balances with clients, Stock Exchange member firms andother counterparties are included in debtors. Trade receivables include £36.3million (2006: £33.7 million) of counterparty balances. 11. Other financial assets continued Cash and cash equivalents At 30 June At 30 June 2007 2006 £'000 £'000 Cash and cash equivalents 48,092 13,745Comprising: Restricted cash - client settlement account 15,163 4,393balancesRestricted cash - balances held by EBT 12,370 157Group cash and cash equivalent balances 20,559 9,195 Cash and cash equivalents comprise cash held by the Group and institutional cashfunds with near-instant access. Included in cash and cash equivalents areamounts of cash held on client settlement accounts as shown above. 12. Deferred tax Deferred tax assets have not been offset with deferred tax liabilities due tothe expectation that the balances will reverse in different accounting years,hence the deferred tax provision is reported separately as shown below: At 30 June At 30 June 2007 2006 £'000 £'000 Deferred tax liabilities - (2,882)Deferred tax assets 4,978 820 Net deferred tax asset/(liability) 4,978 (2,062) The following are the major deferred tax liabilities and assets recognised andmovements thereon during the current and prior reporting years. Revaluation Other Accelerated of available Share deductible tax for sale based temporary depreciation investments payments differences Total £'000 £'000 £'000 £'000 £'000 At 30 June 2005 (155) 1,664 (198) 378 1,689Charge/(credit) to income (4) - (197) (600) (801)Charge/(credit) to equity - 1,218 (44) - 1,174 As 30 June 2006 (159) 2,882 (439) (222) 2,062 Recycled from equity to - (3,566) - - (3,566)incomeCharge/(credit) to income (351) - (330) (125) (806)Charge/(credit) to equity - 684 (3,352) - (2,668) As 30 June 2007 (510) - (4,121) (347) (4,978) 13. Other financial liabilities At 30 June At 30 June 2007 2006Trade and other payables £'000 £'000 Current payablesTrade payables 51,423 37,321Social security and other taxes 3,408 3,632Other payables 7,718 14,431Accruals and deferred income 1,427 2,226 63,976 57,610 281 665 Non-current payables - Other payables In accordance with market practice, certain balances with clients, StockExchange member firms and other counterparties are included in creditors. Tradepayables include £50.4 million (2006: £36.2 million) of counterparty balances.Accruals and other payables principally comprise amounts outstanding for tradepurchases and ongoing costs. 14. Share capital At 30 June At 30 June 2007 2006 £'000 £'000 Authorised: 525,000,000 ordinary shares of 0.4p each 2,100 250 (2006: 2,500,000 ordinary shares of 10p each) Issued and fully paid: Ordinary shares of 0.4p (2006: 10p) each 1,897 172 Shares Shares Issued and fully paid: Number of ordinary shares of 0.4p (2006: 474,318,625 1,724,795 10p) each The Company has one class of ordinary shares which carry no right to fixedincome. On 10 April 2007 new articles of association of the Company were adoptedreplacing the articles adopted on 30 January 2007. On the same date theauthorised share capital of the Company was increased from £250,000 to£2,100,000 by the creation of 462,500,000 additional ordinary shares of 0.4pence each, each ranking pari passu in all respects with the existing ordinaryshares of 0.4 pence each in the capital of the Company. On 10 April 2007 a capitalisation issue of 10 shares for every 1 share tookplace following a sub-division of the ordinary shares of 10 pence each into 25ordinary shares of 0.4 pence each. £1,724,795 of the amount standing to thecredit of the share premium account of the Company was applied in paying up infull the new ordinary shares of 0.4 pence each allotted at par. The new ordinaryshares rank in all respects pari passu with the existing issued ordinary sharesof 0.4 pence each in the capital of the Company. Following the capitalisationissue each shareholder holds 275 shares for every one previously held and totalissued share capital comprises 474,318,625 ordinary shares of 0.4 pence each. 15. Share premium account Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 Balance at beginning of year 1,733 1,733 Utilisation of share premium account (note (1,725) - 14) Balance at end of year 8 1,733 This reserve represents the difference between the issue price and the nominalvalue of shares issued. 16. Investment revaluation reserve Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 Balance at beginning of year 7,149 4,263Increase in fair value of available-for-sale 1,886 4,104investmentsDeferred tax effect of increase in fair (684) (1,218)value of available-for-sale investmentsDisposal of available-for-sale investments (11,917) -Tax on disposal of available-for-sale 3,566 -investments Balance at end of year - 7,149 The investment revaluation reserve represents the increase in fair value ofavailable for sale investments held by the Group, net of deferred tax. 17. Shares held by Employee Benefit Trust reserve Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 Balance at beginning of year (19,809) (469) Shares acquired in the year - (19,667) Shares sold 12,257 327 Balance at end of year (7,552) (19,809) The Shares held by Employee Benefit Trust reserve represents the cost of sharesin Hargreaves Lansdown plc purchased in the market and held by the HargreavesLansdown plc Employee Benefit Trust to satisfy options under the Group's shareoptions schemes. 18. EBT reserve Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 Balance at beginning of year (63) - Gain/(loss) on sale of shares by EBT 13,386 (63) Tax on sale of shares by EBT (1,293) - Balance at end of year 12,030 (63) The EBT reserve represents the cumulative gain/(loss) on disposal of investmentsheld by the Hargreaves Lansdown Employee Benefit Trust ("the EBT"). The reserveis not distributable by the Company as the assets and liabilities of the EBT aresubject to management by the Trustees in accordance with the EBT trust deed. 19. Share option reserve Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 Balance at beginning of year 914 209Share based payments expense 508 661Deferred tax effect of share based payments 3,352 44Tax relief on exercise of share options 2,308 - Balance at end of year 7,082 914 This reserve represents the effect of share based payments and associateddeferred tax. 20. Retained earnings Year ended Year ended 30 June 30 June 2007 2006 £'000 £'000 Balance at beginning of year 27,361 29,211Dividends paid (13,298) (7,863)Net profit for the period 16,955 6,013 Balance at end of year 31,018 27,361 21. Notes to the consolidated cash flow statement Year Year ended 30 ended 30 June June 2007 2006 £'000 £'000 Profit for the year after tax 16,955 6,013 Adjustments for:Investment revenues (1,430) (2,919)Other gains and losses (11,917) (35)Income tax expense 7,435 1,584Loss on disposal of tangible fixed 10 -assetsDepreciation of plant and equipment 897 615Depreciation of intangible assets 69 59Impairment of goodwill - 13Share-based payment expense 508 661Increase in provisions 19 227 Operating cash flows before movements 12,546 6,218in working capital Increase in receivables (5,625) (12,904)Increase in payables 5,979 20,284 Cash generated by operations 12,900 13,598 Income taxes paid (5,159) (6,822) Net cash from operating activities 7,741 6,776 22. Adoption of International Financial Reporting Standards (IFRSs) In adopting IFRS for the first time within the 2007 statutory accounts for theyear ended 30 June 2007, the Group will comply with IFRS 1 'First Time Adoptionof IFRS', which states that a company should use the same accounting policies inits opening IFRS balance sheet and throughout all periods presented in its firstIFRS financial statements. An explanation of how the transition from previous GAAP to IFRS has affected theGroup's financial position, financial performance and cash flows is set outbelow. Explanation of transition to IFRSs for the Group The year ended 30 June 2007 is the first period for which the Group is requiredto present its financial statements under International Financial ReportingStandards (IFRS). The date of transition to IFRS was 1 July 2005 being the firstday of the 2006 financial year shown in the comparative information. IFRS 1 contains a number of exemptions which companies are permitted to apply.The Group has elected: • to present comparative information in accordance with IAS 32Financial Instruments: Disclosure and Presentation and IAS 39 FinancialInstruments: Recognition and Measurement. This means that certain investmentspreviously carried at historic cost under UK GAAP are now carried in the balancesheet at fair value; • not to restate business combinations arising prior to the IFRStransition date of 1 July 2005. The carrying amount of goodwill in the UK GAAPbalance sheet as at 30 June 2005 has accordingly been brought forward withoutadjustment; • to apply IFRS 2 (Share based payments) to all grants of equityinstruments after 7 November 2002 that had not vested as of 1 July 2005. Shareoptions granted prior to 7 November 2002 which have vested by the transitiondate do not have to be restated under IFRS. In accordance with IFRS 1 "First time adoption of International FinancialReporting Standards" the following statements for the Group are presented: • Reconciliation of the income statement under UK GAAP to thatreported under IFRS for the year ended 30 June 2006. • Reconciliations of the balance sheet and total equity reportedunder UK GAAP to that reported under IFRS at 1 July 2005 and 30 June 2006. There have been no material adjustments to the cash flow statement for theperiod ended 30 June 2006 resulting from the transition to IFRS. However, thepresentation of the consolidated cash flow statement has changed, whereby cashflows are classified as operating, investing or financing. The key differences between the financial information presented under UK GAAPand IFRS are: • Accounting for income tax is different under IFRS resulting inthe recognition of a greater number of deferred tax assets and liabilities. • Certain assets are reclassified to non-current assets underIFRS and certain tangible fixed assets have been reclassified to intangiblefixed assets under IFRS. • Goodwill is not amortised but maintained at its historic valuesubject to annual impairment reviews. • Recognition of an expense in respect of share based payments.The treatment under UK GAAP (FRS 20) is identical to IFRS, however the Group hadnot previously been required to apply FRS20 and so the full impact has beenshown as part of the IFRS transition adjustments. • Recognition of an expense in respect of accrued staff holidaypay under IAS19. • Revaluation of certain investments classified asavailable-for-sale, and a corresponding increase in the investment revaluationreserve at 1 July 2005. This accounting treatment was adopted by the Groupunder UK GAAP during the year ended 30 June 2006, and accordingly no IFRSadjustments were required to the carrying values at 30 June 2006. Reconciliation of the Group profit and loss account under UK GAAP to the Groupincome statement under IFRS for the year ended 30 June 2006 Continuing IFRS Income Employee Share based Goodwilloperations Reclassifications taxes IAS benefits payments IFRS 3 UK GAAP (i) 12 (ii) IAS 19 IFRS 2 (iv) (v) IFRS (iii) £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue 73,460 - - - - - 73,460 Admin. expenses (67,720) 19,191 - (67) (661) 67 (49,190)Exceptional admin. - (19,627) - - - - (19,627)expensesTotal admin. (67,720) (436) - (67) (661) 67 (68,817)expensesOperating profit 5,740 (436) - (67) (661) 67 4,643 Investment revenue 2,919 - - - - - 2,919Other gains and 35 - - - - - 35lossesFinance costs (436) 436 - - - - -Profit before tax 8,258 - - (67) (661) 67 7,597Tax (1,802) - 218 - - - (1,584)Profit for the 6,456 - 218 (67) (661) 67 6,013period Reconciliation of the Group balance sheet and total equity under UKGAAP to IFRS at 30 June 2006. IFRS Income Employee Share based Goodwill Reclassifications taxes IAS benefits payments IFRS 3 UK GAAP (i) 12 (ii) IAS 19 IFRS 2 (iv) (v) IFRS (iii) £'000 £'000 £'000 £'000 £'000 £'000 £'000Non-current assetsGoodwill 1,133 - - - - 200 1,333Other intangible - 97 - - - - 97assetsProperty, plant 1,816 (97) - - - - 1,719and equipmentInvestments 2,105 (2,105) - - - - -Deferred tax - - 820 - - - 820assets 5,054 (2,105) 820 - - 200 3,969Current assetsTrade and other 48,379 (304) - - - - 48,075receivablesCash and cash - - - - - 13,745equivalents 13,745Investments 11,247 2,105 - - - - 13,352 73,371 1,801 - - - - 75,172Total assets 78,425 (304) 820 - - 200 79,141 CurrentliabilitiesTrade and other 57,372 - - 238 - - 57,610payables 57,372 - - 238 - - 57,610Net current assets 15,999 1,801 - (238) - - 17,562 Non-currentliabilitiesDeferred tax - (308) 3,190 - - - 2,882liabilitiesTrade and other 665 - - - - - 665payablesProvisions 511 4 - - - - 515 1,176 (304) 3,190 - - - 4,062Total liabilities 58,548 (304) 3,190 238 - - 61,672 Net assets 19,877 - (2,370) (238) - 200 17,469 EquityShare capital 172 - - - - - 172Share premium 1,733 - - - - - 1,733accountRevaluation 10,031 - (2,882) - - - 7,149reserveCapital red. 12 - - - - - 12reserveEBT Reserve (63) - - - - - (63)Shares held by EBT (19,809) - - - - - (19,809)res.Share option - - 239 - 675 - 914reserveRetained earnings 27,801 - 273 (238) (675) 200 27,361 Total equity 19,877 - (2,370) (238) - 200 17,469 Reconciliation of the Group balance sheet and total equity under UK GAAP to IFRSat 1 July 2005 IFRS Income Available for Share Employee reclassifications taxes sale based benefits (i) IAS 12 investments payments IAS 19 Goodwill UK (ii) (vi) IFRS 2 (iii) IFRS 3 GAAP (iv) (v) IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Non-current assetsGoodwill 1,200 - - - - - 133 1,333Other intangible - 140 - - - - - 140assetsProperty, plant 1,644 (140) - - - - - 1,504and equipmentInvestments 3,168 (9,095) - 5,927 - - - -Deferred tax - - 353 - - - - 353assets 6,012 (9,095) 353 5,927 - - 133 3,330Current assetsTrade and other 33,254 - - - - - - 33,254receivablesCash and cash equivalents 32,147 - - - - - - 32,147Investments 148 9,095 - - - - - 9,243 65,549 9,095 - - - - - 74,644Total assets 71,561 - 353 5,927 - - 133 77,974 CurrentliabilitiesTrade and other 37,309 - - - - 171 - 37,480payablesCurrent tax 2,524 - - - - - - 2,524liabilities 39,833 - - - - 171 - 40,004Net current assets 25,716 9,095 - - - (171) - 34,640 Non-currentliabilitiesDeferred tax 275 - 1,767 - - - - 2,042liabilitiesTrade and other 509 - - - - - - 509payablesProvisions 288 - - - - - - 288 1,072 - 1,767 - - - 2,839Total liabilities 40,905 - 1,767 - - 171 - 42,843 Net assets 30,656 - (1,414) 5,927 - (171) 133 35,131 EquityShare capital 172 - - - - - - 172Share premium 1,733 - - - - - - 1,733accountRevaluation - - (1,664) 5,927 - - - 4,263reserveCapital red. 12 - - - - - - 12reserveEBT Reserve - - - - - - - -Shares held by EBT (469) - - - - - - (469)res.Share option - - 195 - 14 - - 209reserveRetained earnings 29,208 - 55 - (14) (171) 133 29,211 Total equity 30,656 - (1,414) 5,927 - (171) 133 35,131 (i) IFRS reclassifications: IFRS has different presentation anddisclosure requirements to UK GAAP and conversion to IFRS has involved a numberof changes to the presentation of items within the financial statements althoughthese changes have no net change to reported profits. The main reclassificationsunder IFRS are as follows: a) Under UK GAAP, purchased software was previously classifiedas a tangible fixed asset whereas under IFRS these assets are now classified asintangible (2006: £97,000, 2005: £140,000 net book value). b) Available for sale investments have been reported ascurrent assets whereas previously they were shown as fixed assets (2006:£2,105,000; 2005: £9,095,000). c) Certain administrative expenses have been classified asexceptional. Details are shown in note 4. (ii) Income taxes: Under IAS 12, deferred tax is provided onall IFRS temporary differences which will reverse. The deferred tax adjustmentsprimarily relate to a tax liability arising on the revaluation gains ofavailable for sale investments (30 June 2006: £2,882,000; 30 June 2005:£1,664,000) and a deferred tax asset arising from tax relief on share optiongains (30 June 2006: £439,000; 30 June 2005: £198,000) (iii) Employee benefits: Holiday pay - IFRS requires short-termaccumulating benefits such as holiday pay entitlements to be accrued over theperiod in which the entitlement is earned. There was a £67,000 impact on theincome statement in 2006 together with an additional liability of £238,000recognised in the balance sheet as at 30 June 2006 (2005: £171,000). (iv) IFRS 2 Share-based payment: The Group has applied IFRS 2 to theshare arrangements by which employees have been granted options to purchaseshares in the Company. The charge to the income statement represents the fairvalue of these arrangements calculated using an appropriate option-pricing modeladjusted for forfeits and where applicable non-market performance conditions.The charge has been spread over the period from the date of grant of options tothe date when the shares vest unconditionally adjusted to reflect actual andexpected leavers and the satisfaction of performance conditions. Under UK GAAPbefore 2007 there was no charge made in the profit and loss account for thesearrangements. During 2006 there was an expense of £661,000 recognised in theincome statement but no overall impact on the balance sheet as the expense wasoffset by a corresponding adjustment of £661,000 to equity through reserves(2005: £14,000) (iv) Goodwill: Under UK GAAP, goodwill was amortised over itsestimated useful life. Under IFRS, goodwill is not amortised but is insteadsubject to an annual impairment test. As a consequence of this, the goodwillamortisation included in the 2006 UK GAAP balance sheet of £200,000 has beenreversed (2005: £133,000). (vi) Available for sale investments: Under IAS 39, fixed assetinvestments have been classified as available-for-sale and are recognised andmeasured at fair value with adjustments to fair value reflected directly inequity. The treatment was the same under UK GAAP during 2006. Prior to 2006,under UK GAAP fixed asset investments were recognised and measured at cost lessany permanent diminution in value. The carrying value of available for saleinvestments at 30 June 2005 have increased by £5,927,000 in the IFRS balancesheet with a corresponding increase of £5,927,000 to the investment revaluationreserve. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hargreaves Lansdown