HARGREAVES LANSDOWN PLC 

Capital Markets Day 22^nd February 2022

Hargreaves Lansdown plc, the market leading UK digital wealth management service, will today host its Capital Markets Day for investors and analysts at 10.30am.

Hargreaves Lansdown (HL) was the original disruptor and successfully established the Direct to Consumer (D2C) market. The market leading platform and record client base that we have built has given unrivalled insight into client needs and behaviours alongside the major trends influencing the UK Wealth market, including the drivers of long-term growth. This has made it clear that the UK wealth management industry is once again at a key inflection point. The size of the market opportunity has never been this significant. Therefore, at the Capital Markets Day the team will set out a clear plan for how we will redefine wealth management in the UK and deliver both strong growth and attractive returns for our shareholders.

Chris Hill, CEO said

"In my 5 years as CEO I have never been as excited about the opportunities we see for our business as now. We have a vision - to transform the savings and investment experience, combining the best of human expertise and supercharging it with technology and data to deliver a uniquely personalised service that will make managing wealth, financial health and resilience easier and more intuitive than ever. The wealth management market has never been bigger and continues to grow at pace driven by structural trends - but it is also at a key inflection point - ready to be disrupted by a next generation service. Our unique insight into clients' needs and demands positions us better than anyone else to redefine wealth management. We have set out today a clear vision and accompanying financial targets to underpin this. I, alongside our leadership team, look forward to talking through this at our Capital Markets Day."

Redefining Wealth Management

The presentation will provide more detail on how HL, using its unique client insight, will develop an even more comprehensive offering, with a greater share of client wallet through transforming the savings and investing experience to support consumers managing their wealth and financial resilience throughout their lifetimes. 

There are five core elements of the strategy that will be outlined:

1.   Developing our digital backbone: By investing in more digital capabilities - from data analytics, to transferring data to the cloud, and better managing basic end-to-end client journeys - we will be able to continue to take advantage of the growth to scale our platform to improve both our proposition and service whilst reducing the cost to service, create operating leverage and use the infinite scalability of the cloud. More automation and digitisation supports client service, innovation, and reduced errors and the risk of downtime. Increased efficiency, higher client retention and reduced cost to serve, is part of our guidance today.

2.   Leveraging data-driven insights for clients: Our agile teams will capitalise on the highly scalable and secure digital backbone, allowing them to leverage the data insights and build new products and services faster than ever before. This investment in digital analytics and data will help us offer an increasingly tailored, faster and seamless omnichannel client experience, allowing clients to move their wealth to the right products, adopting the 'buy it now' ease of our favourite retailers and benefiting from timely personalised nudges that create better outcomes. Data will be used to drive efficiency in all our processes, ensuring that we have more time to engage our clients in high value conversations.

3.   Rapidly expanding our Investment Solutions: We will launch 19 new funds by 2024, and new ESG funds will be a critical part of this expanded offer. The new HL Fund capabilities and suite of solutions will provide a wide range of cost competitive choices, tailored for investor experience and investment objectives. This will drive significant increases in the proportion of our clients' assets that are held in HL Funds over time and support enhanced net new business as new clients bring money on to our platform. By 2024 we also expect to have practical new tools including Portfolio Health Checks and tools to help build Portfolios.

4.   Accelerating Active Savings: Given the outlook for UK interest rates, our existing cash savings offer is set for significant growth to help our clients diversify. We will grow the assets held with strong new bank partnerships, better functionality, increased marketing to existing HL clients and the general public and a clearer transition to our Savings service, so we have the best and most complete offer available.

5.   Creating the best digital and human advice service: We will build a new omni-channel advice proposition that combines the best of human interaction and our 40 years of insight into clients' needs, augmented by better data analytics and digital capabilities to provide a game-changing proposition. With the new HL Advice offering we aim to bridge the gap from D2C to Advice and offer an integrated service with a platform that helps our clients manage key life events and adapts to their current needs. This expansion will lead to a higher share of wallet as clients consolidate their savings and investments with us and increase retention as more choose to build lifelong relationships because we can help at all the key financial moments that matter. We expect to have a phased launch of this proposition commencing from FY24, enabled by access to Open Finance as it develops.

Guidance - Growth

Our delivery on each of these initiatives will help deliver sustainable Net New Business (NNB) growth driven by a client base c50% bigger than today's, together with operating leverage and market-leading margins.  Our investment will enable us to add more clients and services at pace and at a lower cost over time.

Specifically in the presentation today we will provide the following, more detailed guidance:

·      We will see gradual growth in NNB to high-single digits as a % of opening AUA by FY24 and then rising to c10% by FY26 on a sustainable basis resulting in NNB of c£20 billion in FY26.

·      Between now and FY26, we expect client retention to gradually increase as the proposition and service are further improved.

·      We will simultaneously drive improved client acquisition to achieve a client base of c2.1 million by FY24 and c2.6 million by FY26.

·      We will drive an increasing share of AUA into HL Funds, reaching over 20% of funds AUA managed by HL by FY26.

·      Whilst we will continue to provide our yearly revenue margin guidance, reflecting the changing mix of business and a competitive environment, we have assumed a blended overall revenue margin that is c42-44bps from FY23 through the medium term.

Guidance - Costs

To deliver on this significant growth opportunity, we plan to invest in our platform, notably on technology spend and key capabilities over the next five years, 80% self-funded by the recurring cost savings we achieve over the period.

Transparency on Investment and legacy costs

·      Over the 5 years from FY22 to FY26 we will undertake Investment Spend of £175 million to deliver on our strategy split as follows (FY22 c£35m, FY23 c£65m, FY24 c£45m, FY25 c£25m and FY26 c£5m).

·      Our investment will deliver annual ongoing cost savings that build up to £55m over the period of investment and fund circa 80% of the investment spend.

·      For the period of FY22 to FY25 we will have additional Dual Tech System Costs as we move from legacy to new systems split out as follows (FY22 c£10m, FY23 c£20m, FY24 c£15m and FY25 c£5m).

Underlying costs

Looking ahead, it is anticipated that the strategic Investment Spend and Dual Tech System Costs will continue until the financial year ending June 2026. Therefore to provide better clarity on our performance we will provide guidance and additional disclosure of results on an underlying basis (excluding investment cost spend, dual tech system running costs and the cost of expanding associated compliance, infrastructure and support functions).

·      On an underlying basis we expect cost growth of c13% in the current year. For FY23 to FY25 we expect cost growth to be c8.0-9.5%% p.a. falling gradually across the three years, before settling at c7-8% by FY26 on a sustainable basis reflecting the growth of clients and the development needed to maintain a market leading position in a competitive, regulated environment.

·      This results in reducing the cost to serve from low 20s (bps of AUA) in FY22 to high teens by FY26.

Guidance - Operating Margins

The revenue and cost guidance I have outlined will ensure we are able to drive improved and sustainable operating margins.

·      We expect underlying operating margins to improve from low 50s in FY23 to c55%+ by FY26 on a sustainable basis.

·      We will operate with positive underlying jaws (i.e. revenue growth exceeding underlying cost growth) from FY23 (ie financial year end June 2023) onwards.

·      On a statutory basis, we expect statutory operating margin to improve from mid-40s in FY23, rising to c55% by FY26 on a sustainable basis. We will operate with positive jaws (i.e. revenue growth exceeding cost growth) on a run rate basis as we exit FY23 (ie financial year end June 2023) onwards.

Dividend

The Board has declared an ordinary interim dividend of 12.26 pence per share, up 3% on the 11.9p per share declared last year. Through FY22 and FY23 we will fund the planned investment spend, in part, through the suspension of our special dividend but will reinstate it from FY24 onwards. We will maintain a 3% p.a. growth rate in our ordinary dividend for FY22 and FY23 whilst the special dividend is suspended, reflecting the confidence the Board and management have in the company's financial and strategic outlook.

Event Details

The hybrid event will take place live at the London Stock Exchange from 10:30 - 13:00 and will simultaneously be streamed via a live webcast.

Investors and analysts are invited to register for the live webcast by using the following link:

https://www.lsegissuerservices.com/spark/HargreavesLansdownBristol/events/4ace123a-ba0c-4b65-b034-48947ee380d8

A copy of the Capital Markets Day presentation will be made available from 10:30 today to download whilst a full recording of the event will be available on the 23^rd February at: http://www.hl.co.uk/investor-relations.

Hargreaves Lansdown will also be announcing their Interim Results today along with an analysts presentation at 8.00am, you can find details of how to join this event on our separately released statement.