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Edited Transcript of HL.L earnings conference call or presentation 8-Aug-19 8:00am GMT

Full Year 2019 Hargreaves Lansdown PLC Earnings Call

London Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Hargreaves Lansdown PLC earnings conference call or presentation Thursday, August 8, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher F. Hill

Hargreaves Lansdown plc - CEO & Executive Director

* James Found

Hargreaves Lansdown plc - Head of IR & Group Financial Controller

* Philip Johnson

Hargreaves Lansdown plc - CFO & Executive Director

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Conference Call Participants

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* Andrew Sinclair

BofA Merrill Lynch, Research Division - VP

* Charles John Douglas Bendit

Redburn (Europe) Limited, Research Division - Research Analyst

* Paul McGinnis

Shore Capital Group Ltd., Research Division - Research Analyst

* Shamoli Ravishanker

Morgan Stanley, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to Hargreaves Lansdown Preliminary Results Presentation. We are now going live into the auditorium in London where you will hear silence until the call begins. (Operator Instructions)

We are now live in the presentation room.

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [2]

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All right. Good morning, everyone. Welcome to Hargreaves Lansdown Annual Results for our 2019 Financial Year. Thank you very much to all of you for being with us here today and also welcome to everyone who's joining by phone. I'm Chris Hill, CEO. I'm joined here with Philip Johnson, our Chief Financial Officer.

I want to open with a number of highlights from the year where we have continued to execute the strategy that I first laid out 2 years ago, focusing on adding new clients, expanding our proposition and providing market-leading client service.

We now have 1.2 million clients. We welcomed an additional 133,000 new clients in the year. That's an increase of 12% and 28% on 2 years ago. We delivered GBP 7.3 billion of net new business and finished the year at GBP 99.3 billion, up 8% in the year, and that's 25% more than 2 years ago.

And I'm pleased to report that AUA exceeded GBP 100 billion for the first time last month. And this year, we've enhanced the proposition with the launch of Active Savings, which now has assets of over GBP 1 billion and a GBP 300 million global fund launch, which was our best ever, and we have continued to provide market-leading client service. In a year which has been challenging, profit before tax is up 5% at GBP 305.8 million, and the Board has declared a dividend increase in line with earnings.

Today, I want to give you some color on why we, as a Board, are confident in our growth outlook, underpinned by the much-needed investments we've undertaken over the last 2 years. We are strongly positioned to benefit from the structural growth opportunity that I've talked about with clients at the center of everything we do. When I stand back up again, that's what I want to focus on.

With that, let me hand over to Philip.

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [3]

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Thanks, Chris, and good morning, everyone. As Chris said, 2019 has been a continued execution of our strategy. Revenue steadily increased, up 7%, despite lower average market levels and challenging conditions at various points during the year. Combined with the completion of our cost catch-up phase, profit have again grown, up 5% to GBP 306 million. The Board remains confident in our prospects and business momentum, and has, therefore, increased the ordinary dividend in line with profit, and once again, declared special dividends resulting in total dividends of GBP 0.42 per share in 2019.

So let's look at the numbers in more detail, starting with revenues. So 290 -- sorry, 2019 revenue was GBP 481 million, 7% ahead of last year. Fund revenues, apart from rounding, again moved in line with average assets. Share revenues fell this year despite higher AUA. As of the half year, this is primarily due to lower U.K. share transaction volumes, in common with all retail stockbrokers.

Our proposition continues to outperform the market, however, shown by our execution-only stockbroking market share increasing from 31% to 34% this year.

2019 cash revenues are strongly ahead, in line with the margin guidance I gave you last year following the base rate rise in August 2018. And I'll come back shortly to that -- what that means going forward.

As some of you have noted, our HL Multi-Manager Funds growth has slowed this year. We expect this to remain a feature of 2020 flows. However, AUM remained stable and substantial in these funds at GBP 8.5 billion, that's the Multi-Manager component of it. And we continue to believe that they provide a valuable investment proposition to various client segments.

So finally, other income. As you know, this line has not and never has been correlated to AUA. In 2019, it was down GBP 4 million due to the IFRS 15 accounting change and the cessation of box profits. Details on both of these are in RDR. You should probably expect other income to drop slightly further next year as we have a full year of both these effects.

So looking forward, we now have over GBP 100 billion of assets compared to an average of under GBP 93 billion last year. And so it starts 2020 with good revenue momentum.

So moving on to margins. So as yet again, revenue margins have remained stable at, what, now 5 years since RDR. Fund revenues and margins, however, is being impacted in the short term by the waiver of our platform fee on direct holdings in the Woodford Equity Income Fund. This will cost us around GBP 360,000 per month since that reopened, which is currently expected to be in early December. Share margins fell to the lower end of our usual range this year despite our market share gains. We think it prudent to lower our shares guidance by 1 basis point to reflect volume-related uncertainty resulting from Brexit, and the management fee element being capped as larger fees as larger portfolios grow.

Looking cash. 2019, cash margins rose in the second half. This is due to the shape of the yield curve, which anticipated a further interest rate rise for most of the year, thereby allowing us to place 13-month money at attractive rates. Looking forward, the yield curve is not anticipating this rise any further, and forward money is now being placed at lower rates.

So our 2020 guidance is higher at 70 to 80 basis points. But given today's yield curve and today's interest rates, you should expect this to be towards the top end of that range in the first half and the bottom in the second.

So moving on to costs. 2019 operating costs, before the levy, were GBP 133 million, 11% ahead. I said last August, I believe we were now through our cost catch-up phase, and the cost growth was moderate this year. And that's exactly what's happened. We've been managing cost saving now for 18 months. The right-hand graph shows this with second half cost only 5% above the equivalent last year. Within operating cost, staff costs are clearly driven by headcount, with most of the growth for the full year effect of hires actually made in the first half of the 2018 financial year.

Marketing costs are down this year for 2 reasons. Firstly, IFRS 15, which moved GBP 2 million up against revenue. And secondly, the quiet market conditions, which allow us to manage cost proactively, but still deliver growth.

Remember marketing costs are not just client acquisition-related, they also include all the communications and management. [So there] our existing customer base too. So in a more normal environment, -- that's frankly we all hope 2020 will be -- you should expect marketing costs to return to a normalized level back above their 2018 equivalent, reflecting the growth of the business over that time period.

Turning on the levy. In column with all providers in our space, we are bearing more of the levy due to restructuring fee loss, exacerbated in our case, by our fees growing faster than nearly everybody else.

We saw our levy nearly double this year to GBP 6.8 million lifting total cost by 13% to GBP 179 million. You should probably note that the levy will likely increase from this rebased level moving forward, unless of course, the FCS raises less money than the entire industry.

So I'd like to look now at how our increasing scale is driving profit growth.

Apologies, it's slightly distorted on the screen.

I've shown you the chart on the left before, and how cost and client numbers have moved in parallel for many years now. This is why that, as we move forward, we expect that cost would increase more in line with client numbers. And that's exactly what happened in 2019. And looking forward, I think this is still a sensible link to use in your modeling.

In terms of the cost that we're putting in, I'd like to talk for a moment why this ongoing investment is key to our growth. And the graph on the right shows how increased client numbers are driving our profit growth. Over the last 4 years, we have added 65% more clients. That consistent revenues per client, whilst maintaining unit costs at similar levels in both AUA and client terms, having more clients is at the heart of our profit growth. Profit that, in 2019, were bigger than our revenues were in 2015. As we add clients, absolute cost grows because having more client brings more activity, more servicing requirements and more reporting. But adding cost isn't just for servicing existing clients, think about the Helpdesk and Operations, they're for everything. They also will underpin our future growth as well. Marketing, digital, understanding our customers better, extending and developing new propositions, technology investments too.

And so stable clients per -- stable cost per clients per unit of AUA is not the whole story. It's also about the same -- all the extra things you get with that stable unit costs. For example, workplace solutions, now 115,000 clients, GBP 3.7 billion of assets, GBP 1 billion of portfolio class assets, 3 Select Funds, Active Savings, the Wealth 50 relaunch, HL Tech, the market leading mobile app, digital marketing. I could literally go on and on.

So this is how we keep Hargreaves Lansdown as a great business, growing fast and outperforming our competition. This business is getting continually bigger, but also more efficient. And we will continue to seek and then consciously reinvest these efficiencies into growth, giving clients the better proposition and so as we can because adding clients and building a life-long relationship with them is key -- key to executing our strategy and key to delivering long-term profits expansion.

So just looking at profits again. The graph on the left shows you the half-on-half revenue and cost progression. And again, the moderation of the rate of cost growth over the past 18 months, the GBP 84 million, GBP 85 million, GBP 88 million of millennial mint colored box, as we'd like to call that color.

This underpinned 2019 profit growth, up by 5% to GBP 306 million. Diluted earnings per share, as shown in the table, is also up 5% to GBP 0.52 per share.

So just turning to what this means for capital and then finishing on dividends. This slide shows our continued healthy surplus over regulatory capital requirements after the final and special dividends are paid. A robust balance sheet is important to our clients, to our shareholders and our regulators. It provides security and allows us to manage events responsibly, whilst also delivering an attractive income stream to the shareholders.

So just looking at dividends before we end. We continue to operate a clear dividend policy with a progressive ordinary dividend centered around a 65% payout ratio across the cycle and the potential for special dividends paid out of excess cash generated from earnings after taking account of market conditions and our regulatory capital growth and investment requirements at the time.

As Chris has said, the Board remains confident in our prospects. And as a result, has recommended to shareholders a final ordinary dividend of 23.4p per share, resulting in a total ordinary dividend for 2019 of 33.7p, up 5% in line with earnings, and maintaining our ordinary dividend payout ratio at 65%.

The Board has also, once again, delighted to declare a special dividend of GBP 0.083 per share, resulting in total dividends of GBP 0.42, 5% ahead of last year.

So thanks very much, everyone. I look forward to the questions you might have at the end, and I'll pass you back to Chris now.

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [4]

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When I told you about our strategy in 2017, this is what I envisaged: Strong sustainable growth through the cycle, driven by diversifying and increasing the size of our addressable market. And this year, we've executed that strategy in challenging markets. Despite the market backdrop, we've delivered GBP 7.3 billion of net new business, driven by improved marketing effectiveness and investment in the client experience, underpinned by our continued focus on excellent client service and developing a proposition for changing client needs.

Our investment in digital marketing and client analytics means coordinated campaigns as well as tailored communications for existing and the new clients. And our understanding of what clients want to do and where they want support means that we continue to develop the proposition, this year with both Active Savings and the launch of the Global Select Fund. We created both of these for our clients because that is what they told us they wanted. And it's the strength of our relationship with our clients and our service that enables us to present the right proposition to asset managers for those direct book transfers.

This relieves them of the challenge of supporting these retail clients, but most importantly, it provides our market-leading service and broad proposition to those people who we now welcome as HL clients.

We are executing our strategy to grow the size of our addressable market, and most importantly, into markets that, in turn, are growing. Our GBP 99.3 billion of assets represent 40.5% of the GBP 222 billion direct-to-consumer market, but I see our opportunity as broader than that. There's an addressable wealth market of GBP 1 trillion in the U.K., giving us only a 9% share and a further cash savings market of GBP 1.4 trillion, giving us about 4% of our target markets. So there is a huge amount to play for.

The story here is growth. Our market share is growing. You can see direct-to-consumer and stock rating on this page that this entire market is growing because people need to save and invest for the future. And I don't see this picture changing in the foreseeable future.

This growth demonstrates the execution of our strategy to provide service to clients from across a spectrum far broader than the direct-to-consumer market, based upon understanding and adapting our propositions to their needs. Our transfers bring client teams from across the addressable market, from banks, life companies, other platforms, advisers and in the case of the direct works, from asset managers. The introduction of Active Savings allows us to enter that cash savings market. And as I say, people need to save and invest for the future. This trend of wealth accumulation and investment is happening in a very complex environment. Societal changes, such as improving life expectancy, the transfer of long-term savings from companies to individuals and a prolonged low-interest rate environment, offering minimal risk-free returns all require that individuals and families build their own wealth and capital. And this is against a backdrop of ever-shifting regulatory and tax environment. In this complicated world, our clients need support more than ever. Our analysis and interactions with our clients show that they want information, knowledge and insights to be able to understand and then our expertise and support to give them confidence in making these important decisions. Our proposition and service, combined with our expertise, helps ensure that we're building a lifelong relationship with our clients. It enable clients to start investing with HL, consolidate their savings and investments with us, accumulate their annual allowances and manage their own and their family finances all online, by the app and with the support of the Helpdesk and our advisers.

And that is why every second, every thought is focused on clients. We want client’s experience of using HL to stand out as a key relationship for them. The future value of this business is in our relationship with our clients. We aim to have that lifelong relationship, and it's in this that we continue to invest.

These promises, and our values underpin our proposition and service, and we enhance them with our investment in people, technology and marketing, all areas of competitive advantage. The combination of what we invest into, in partnership with how we conduct business. An HL strategy, our proposition and service and how we create engagement, puts the clients at the center of everything that we do.

There are key metrics on this page reflecting the growth of the business, and we previously explained the need to invest into ensuring that our excellent service levels were maintained as the business grew. More precisely, and I want to be clear on this, it's only because of the investments we've undertaken that HL has been able to, and can continue to, deliver our excellent service to a larger client base, resulting in a larger number of transactions with increased Helpdesk contact, whilst also enhancing our proposition for our clients.

We worked hard this year on areas that our clients tell us cause them inconvenience. For example, this year, we've made significant improvements to transfer time by enabling many more clients to transfer online 60%, compared to 35% a year ago, contributing towards 50% of transfers now completing in 5 days and 90% in 12 days. We've improved our Helpdesk Service by responding to high-volume call drivers, providing new training to managers and through deployment of technology tools. In turn, this has also enabled us to reduce the number of people on our Helpdesk by 7% compared to a year ago. We're answering calls more quickly with a 16 percentage point increase in calls answered immediately, and we're giving clients a better service with the Helpdesk NPS rising by 5 percentage points. Retention rates remain high, and that is the ultimate measure of what our clients think. It's this track record that means that clients will stay with us throughout their financial lives.

And what confidence the challenge to service from growth is the advantage of scale, and in particular, the insight that it brings. Clients interact with us, and we interact with them. This gives us a competitive advantage. Each interaction or engagement that clients have is a data point for us. 1.2 million clients, 92 million clients log ins, these clients are using the app, calling the Helpdesk, working with an adviser, all of this is giving us insight into the behaviors and needs of clients. Our scale gives us a tremendous amount of knowledge about our clients. We use the information and insight to the benefit of those clients to develop the proposition, such as the global fund or the cash service. We coordinate marketing and communications across e-mail apps on the website and on social media, making it more relevant for clients and giving us better click-through rates and better conversions.

During the year, the launch of Active Savings, which has brought GBP 1 billion of cash was our first coordinated campaign. The global Select Fund launch was our most successful yet, bringing close to GBP 300 million ahead of launch. And we had the best tax year ever with GBP 1.1 billion of net flows between the 1st of March and the 5th of April.

Clients interact with us, and we with them. That knowledge and insights gives us a competitive advantage.

Favorite funds list, now an important and useful tool for clients. Behavioral economics suggest that when people are presented with a wide or unfamiliar choice, for example, about financial planning, this can result in not making any decision at all.

There are 3,000 funds in the U.K. to choose from. That's a vast choice. But it was because of client feedback on our research that we created a favorite funds list. Retail investors need these lists, and the FCA agrees with this. In the investment platform market study, the FCA found that best-buy list and model portfolios help investors to pick independent and well-performing funds. Funds this work and how we deliver the Wealth 50, our favorite funds list, has worked well, and how we changed it in response to listening to the feedback from 6,500 current and potential investors that work, too, because we listen to clients who told us that they wanted a shorter, more focused list with the ability to filter by sector, objectives, risk yield cost, they also wanted a tracker in each sector.

Clients like the changes, and since launch, the list has performed well. Our scale then allows us to provide discounts to clients which saves them in the region of GBP 17 million a year.

Coupled with the outperformance, the list is an important part of our value proposition for clients. The process of selecting and reviewing the list is a rigorous one, driven by our 14-person investment research team who use quantitative and qualitative analysis of fund managers to assess long-term performance and individual stock-picking ability.

Funds on the list have, on average, outperformed relevant benchmark indices by 6% and sector averages by 12% after charges.

On the 3rd of June, after a period of underperformance by the fund manager, concerns about the level of illiquid assets in the portfolio and some high-level -- some high-profile redemptions, the Associate Corporate Director Link, took the decision to suspend dealings in Woodford Equity Income Funds. Clearly, we were not party to that decision, but it was nonetheless, a serious disappointment to us and to those clients affected. Following this suspension, we responded quickly and decisively. We immediately removed the funds from the Wealth 50. We communicated the suspension to clients. We waived the platform fees. And we dealt with all calls and e-mails in a timely and orderly manner since.

As I said at the time, I am sorry, and I am disappointed that clients are having to experience this unfortunate set of circumstances. We feel for them.

We've actively engaged with external stakeholders, including Link, Woodford Investment Management and the regulator as well as the financial press. Our priority remains to support our clients, keep them informed and ensure that the Woodford Equity Income Funds reopen as soon as is practical, whilst protecting the interest of all investors.

The vast majority of affected clients are well diversified. Since these announcements, business flows and service levels have held up well. Most of the outflows from the Woodford income-focused funds have stayed on the platform and being reinvested into Wealth 50 funds.

We continue to monitor the situation extremely closely. We're looking at all aspects of this as part of our review, and I'm determined that we learn and improve from the experience. And if we can do it better, we will. We will work with our clients to gain all of the knowledge and insights that we can.

We see engagement with an understanding client as a competitive advantage, and the insight that this provides allows us to continue to build our proposition effectively.

A key part of maintaining a lifelong relationship with clients is to provide a home for their assets, not only through their lifetime, but through the market cycle. Our research told us that clients wanted to manage their cash savings as well as their investments all in one place with simple switching and easy execution.

We soft launched our service in December 2017 and spent some time to get the proposition right. We launched with a full tranche of term deposits and a focus on growing assets under administration in September 2018. We listened to what our clients wanting more banks, the best rates and easy access accounts.

This is what we've provided. We introduced Easy Access in January 2019. We continue to add banks to our term deposit service. Many of our rates are top quartile and some of the best in the market. In order to establish a leading presence and provide the proposition our clients have asked for, we've reduced our revenue margins. We've been really pleased with the growth that we've seen this year, which has taken to GBP 1 billion of assets under administration. Our rates continue to be amongst the best available to the 30,000 clients who've opened accounts. We continue to develop the proposition. We'll be looking at a cash ISA as the next obvious place to go alongside new partner banks, and we'll update you on progress later in the year.

Philip spoke to you earlier on about reinvesting to build scale and serve more clients. I've talked about engaging with those clients and providing exceptional service to build a lifelong relationship. The combination of these 2 things, drive earnings growth. And what I'm showing here is that client numbers, and our capability to bring clients along a lifelong journey. The direction of travel is clear, moving upwards and to the right.

Look at that spike, age 55 about 8 years ago. And since then, assets have grown and got older, which you can see another spike at 40 with lifetime ISAs and then the junior ISA. And the shape of the curve at that older end, the spike, it's just the age of the business. We're bringing in more clients across the spectrum, and we're supporting them through their accumulation journey and into retirement. We're aiming to develop this relationship throughout their financial lives as they save and invest to accumulate and then move into a decumulation phase in retirement.

Providing the service and solutions that they need when they need them, engaging with them at the right times and communicating in the ways that they prefer, we optimize the value that we bring to this relationship.

Our proposition reflects this. It provides solutions at every stage of our clients' financial lives. You can see the very tangible effect that sustaining these relationships has on the profile of our clients.

I showed earlier that 2/3 of our flows come from existing clients. It's the ability to support clients along their journey and throughout each important life stage that underpins our continued growth, flows and earnings, upwards and to right.

I'm pleased with the performance and progress that delivered a strong set of results today. The relationship with clients is key, and our developments of proposition and service are as a result of us investing into the growth that comes with this relationship.

The headwinds that we face, such as the current political and economic uncertainty that are well publicized, but my confidence in both Hargreaves Lansdown business model and our strategy remains undimmed. We are a growth business in a growing market, characterized by excellent client service and a commitment to innovation, and we continue to be well positioned for the opportunities that we see.

And with that, can I open up to questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Shamoli Ravishanker, Morgan Stanley, Research Division - Equity Analyst [2]

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Shamoli Ravishanker from Morgan Stanley. Just on the outlook of the flow mix. Can you give us some color on that going into the second half of this year or full year 2020, given outflows from your Multi-Manager Funds that elevated in June, July so we can get an idea of thinking about the blended margin for the group going forward?

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [3]

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So your question is about the Multi-Manager Funds?

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Shamoli Ravishanker, Morgan Stanley, Research Division - Equity Analyst [4]

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The mix of the flows. So where are you seeing inflows and outflows? Your Multi-Manager Funds have seen elevated outflows in June, July, post the Woodford gating. So what's the outlook on the flows mix so we can think about how the blended margin goes forward.

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [5]

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Philip, you answer the Multi-Managers, and then I'll answer the bit more about the flows.

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [6]

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Yes. I mean, as Chris said, in relation to the Woodford action that we've been focused on. That (inaudible) redemption, and those were largely (inaudible) platform and in (inaudible) proportion to our usual retention rates as we invested into Wealth 50. So exactly the same thing what happened on the Multi-Manager Funds. So what you tend to have is clients that are mixed asset investors or use shares more or you use funds more. So you really have to think of if they're not buying Multi-Manager Funds, they're just buying some other funds on the platform, probably using the Wealth 50 to do so. And that's the real -- any real difference in the shape of the flows that should be accepted.

And I go back to what I was saying before, and this is the second large Multi-Manager franchise that I've run. This is very stable, diversified, large blocks of assets. And typically, at the time, if we have a bit of a redemption cycle of the asset and the market to offset each other. It's really just one of those things. And certainly -- and fundamental important things that Chris is probably going to talk about. (inaudible) the growth dynamic (inaudible) and the client's behavior. How clients choose the investment platform, we should (inaudible) introduce some conflict of interest so what they actually should be doing.

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [7]

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Thanks, Philip. And I made a comment earlier on, since all of the Woodford announcement, the business has held up well. I mean, if we put this into context, we look at the managers in the fund, that's 1% of our assets, right? And clearly, it's an important issue. Clearly, we're spending time doing what we can to put pressure on, as I've already said. But we've got 1.2 million clients that we're engaging with and we're looking after what they're doing.

Now we've been very responsive in terms of engaging with clients when the news first broke, but our experience is when you inform clients as to what has happened and you're really clear with them, and that communication came out from us, it was the 3rd of June, it came out the evening at the 3rd of June.

By the end of the second week, questions around Woodford weren't in the top 10 of what was being asked about coming into the Helpdesk. I think, in fact, they were number 12. And in spite of things that we were made aware about, things over the weekend, the biggest call on the Monday is about the M&S rights issue. And that's my point, right?

Clients have got to continue saving and investing for the future. And most clients are well diversified. They understand the risk, and they understand that they need to keep saving. That's what they're thinking about. So it's very much business as usual. Clearly, we're working on that particular issue, as everyone would expect us to do, but the business has held up well.

Andrew, you are next, give you credit.

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Andrew Sinclair, BofA Merrill Lynch, Research Division - VP [8]

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It's Andrew Sinclair from BofA Merrill Lynch. I've got 3 as usual. So I'll go one at a time. So firstly, it was on the direct [backflow] transactions. Some really good flows in there over the last year or so. Just wondered if you can give us an update on what's the pipeline for future transactions and how much remains of the ones that have come over the last few months.

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [9]

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Well, I'm not going to give any guidance as to what's in the pipeline. That wouldn't be right for me to do. And I'll let Philip to talk about the traffic that we've seen and how we've managed that, which I have to say, I think we've done that exceptionally well.

When I looked at the plant service stats through June, in terms of what I think that team has dealt with, I think it's truly exemplary actually how that's being managed, but I refer you back to the comments I made about investing so you can continue to provide that level of client service, no matter what. So I think that's important.

And then the comment I made, I think we provide a great solution for asset managers who have to deal with retail consumers, and that is complicated and it's difficult, but we do it, and we do it really well. So it's a solution for the asset managers.

It's -- clearly, in my view, that is a really good solution for those clients who come across. We welcome them as HL clients, and they go on behave like HL clients. I'll show you what happens to the flow. So they're clearly deals that we are really keen on doing. I don't know if you want to add any more color, Philip, to the levels of flows that we've seen. But it's back to the point that I made, which is looking for opportunities to diversify. And this is a ready solution for asset managers.

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [10]

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Yes. I mean, just in terms of putting some numbers (inaudible). So just some GBP 300 million is the 4 months of May. So the balance of around [900] is coming in [2 months]. We've done I think, 10 or 11 of these deals now. And until the last 3, typically, we've got about 2/3 of the assets and 2/3 for clients to grow. Actually, the ones we're seeing now are close to 18 months, which I think is a really strong validation of Hargreave's Lansdown as a destination. And when you consider that actually, the last 2 were JPMorgan and Baillie Gifford, I think it really does show the way that clients have come forward with HL as a destination.

So if you look at the original size, original announcements that we've made about the size of this deal and what's been (inaudible), you will see that this very number will have fallen half year, but beyond that, we announce the deals when they happen and when they happen (inaudible) the way we see it.

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Andrew Sinclair, BofA Merrill Lynch, Research Division - VP [11]

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Understood. And secondly was on Active Savings. You mentioned that you've kept the margins a little bit lower on that for the time being. Just wondered if you can give us any more color on where those margins are at the moment for revenue margins for Active Savings?

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [12]

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Philip, you can talk about where the margins are. I think my point on Active Savings is, I think, from standing start to get to GBP 1 billion, that's a good start. And you can see, when I showed you how that market shapes up, you can see why the next obvious thing for us to think about is the cash ISA.

And the other point is we made a very clear decision earlier on and remember talking about it back in January to actually reduce the margin because we wanted to scale. The reason we want to scale is because we created something different. We've created something that nobody's got before. And we want to see what the impact of scale has. And it's not only the impact on clients. We have really interesting learnings about clients. So you can see the number of clients who are putting their deposits in at GBP 85,000. It's a really effective solution for the managing that sort of FSCS exposure. But then you start to see how older clients start building deposit ladders. And that enables -- you've got clients out there who are getting 2% plus returns on their cash. They've locked that in. They're totally comfortable with managing large amounts of cash. That's really interesting for us to think about actually you help people as they move into retirement, how you manage your income and cash alongside it. But it's not just learning that with client, we've created a marketplace that's learning about it with the banks and seeing and understanding how the bank's behavior works. So I think the scale then is really important. Obviously, the margin then, Philip?

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [13]

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When I look at this, you have to remember, this business has mostly been in market (inaudible) as well. And so when I stuck up that graph that showed stable revenues for clients. And that's why it works. We're getting a lot of money off the platform (inaudible) which is great kind of earnings stair building. It's not really passing (inaudible).

As you look forward, the opportunity for monetizing this (inaudible) will add more different types of products, such as (inaudible), et cetera. And we have to do on it. It's quite hard for people to make margins in a very low interest rate environment. So (inaudible) interest rates at the moment, but it will get easier as interest rates can survive in the future. But the only people to have that monetization opportunities (inaudible) platform (inaudible).

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Andrew Sinclair, BofA Merrill Lynch, Research Division - VP [14]

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Understood. And that actually leads me on to my third question, which was how on cash margins, you have -- which as I say, it's at a very low interest rate world today, but you've upped your guidance to 70 to 80 bps on cash. Yes, I think customers maybe making more like 10. Do you think that's a good proposition for the customer, that sort of one?

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [15]

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I mean, over the last year, there's been quite a lot of commentary and thoughts around the less interest margin which platforms maintain -- retain, sorry. And the asset -- sorry, the investment platforms market study, can’t get my words out properly, and we've provided quite a lot of information to show that clients are quite aware of the dynamics here that they're making conscious choice about the amount of cash that they hold with us (inaudible) transactional (inaudible) Even if it is just in flux or dividend receipts or whatever it might be. There's also been a lot of improved disclosure about interest retention through the (inaudible) events. And we haven't actually seen much in the way of changes of behavior or contact levels adjusted.

But as that happens, we've made some of the best rates in the market (inaudible) they might obviously look. And we're very committed to sharing, interest rate rises with clients as it happens for the previous one. We actually shared 50-50 with clients, both at the (inaudible) all of us. And we're able to do that because we manage the money effectively, we spread the risk, we're able to give rates much higher degrees of FSCS coverage (inaudible) And that has value to clients. That has real value (inaudible) platform be covered by the (inaudible) manager that obviously (inaudible) in the platform.

So I think the important thing is to give clients great service, competitive rates (inaudible) as interest rates move up with to sharing that with funds as we go do that with the U.K. competition and regulatory environment (inaudible).

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Operator [16]

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(Operator Instructions)

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Unidentified Analyst, [17]

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(inaudible) every question on my side. The first

will be back on the Multi-Manager Funds. And some of them do have quite large allocations to the Woodford Income Fund. How are you managing the kind of running a open fund that has a gated asset? How are you managing the liquidity risk there? How are you thinking about things?

And second question would be on the back book transfers. Could you go confirm the client contribution roughly that these books brought in?

And then thirdly on the cost-to-client. You talked about this being quite a stable ratio. There's been a lot of investment. How do you see that trending over time? Presumably, there are parts of the cost base of the case -- cost base [without] quite fixed in nature?

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [18]

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(inaudible) On the Multi-Manager Funds, yes, we're very conscious of the holdings within Woodford, as we are in 6 of the 10 funds. As you'd expect, we have keep very close line of sight, flows and client behavior. As that happens, the largest one, which is income and growth, I'm going to say, price, as mentioned, was about 12.8%. This actually sounds more like 12 [on the] 12 (inaudible). So it's actually strengthening slightly as a proportion of funds for us, right? So I mean, it will (inaudible).

In terms of the funds has been inflow (inaudible) and moving through outflows, again, I've had the dialogue with [in] (inaudible) and his investment team about what they're doing. And so now, it's being exactly what they're doing on the way up, which is choosing the funds (inaudible) most allocations, the case is going down and outflows (inaudible) from allocation is rebalancing the portfolio (inaudible) deals and (inaudible). So it's all very, very sensible, exactly what they've been doing and what was happening (inaudible) [12.5%] (inaudible).

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [19]

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On the direct [first] and the customers. Sorry, James.

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Unidentified Analyst, [20]

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Please use his mic.

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [21]

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Sorry, you can use my mic.

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James Found, Hargreaves Lansdown plc - Head of IR & Group Financial Controller [22]

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I'm sure the answer's in my pack, and I'm just going to have to dig it out, to be honest with you.

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [23]

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I think it's about 30.

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [24]

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About 30.

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [25]

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It's about 30,000 overall. We can -- maybe we can confirm (inaudible).

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [26]

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It's (inaudible).

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [27]

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I think it's about (inaudible) but I think the point -- and then -- you have got -- yes, I got that -- the question on our cost per client. But I just want to make a point on the just on that back (inaudible).

So those clients who're coming across, this is great business for us because, as Philip said, we've done about 10 or 12 of these deals before. But the experiences, they get on to our (inaudible) onto the Hargreaves Lansdown platform, and they start engaging with us, and we start engaging with them and they're HL clients. The allowances start coming through, the consolidation start coming through, the household accounts starts coming through. This is great business. That's why I say, we welcome them as HL clients. It's a great solution for the asset managers. It's a great solution for the clients. And it works really well because then we've got a pool of clients that we then work with and start building that relationship, and they grow.

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [28]

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Yes. I found the answers, about the 31,500, and GBP 1.2 billion of flows, and it's great business.

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Charles John Douglas Bendit, Redburn (Europe) Limited, Research Division - Research Analyst [29]

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Charles Bendit from Redburn. Can I just follow-up on your answer to Greg's question? Can you just explain the thinking around how the 6 Multi-Manager Funds invest in Woodford might unwind their holdings once it reopens? Would that adversely impact or absorb the capacity for outflows from Woodford and impact clients who are invested directly in Woodford via your Wealth 50 list?

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [30]

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Right. Well, I think 2 things. I think 2 things on this. So number one, I mean, let's be clear. The Multi-Manager Funds are run by the investment team so it's their decision. That's not one that I nor Philip would have input into. And I'm not sure that we should, therefore, be commentating on actually what future moves that they might make. So I'm sorry if that doesn't address the question, but I'm just not sure it's appropriate for us to comment.

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [31]

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Yes. And I think, to be honest with you, how that fund reopens is really a question that Link should be talking about and discussing, and then you'd hope and expect that that they'd be talking to all the major holders comment on them to do that in a responsible way that protects the value of all unitholders.

We're doing what we can, clearly, to contribute to that process and engage with them. The regulator all the responsible parties. It's in nobody's interest in this entire industry of funds management, all of the platforms that hold this or that fund or (inaudible) I don't know, whatever word you want to choose, not a particularly glorious reopening. It needs to go and go smoothly.

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Unidentified Analyst, [32]

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Oliver [Truth] from Autonomous. Two questions. It's on Active Savings. I think you alluded to the answer earlier, but could you maybe put a rough percentage on the percent of the Active Savings money which is coming from existing clients? And then secondly, I think you said the cash prices would be the next step for Active Savings. Can you give us like a rough time sched when you want to do that and also bring to sit?

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [33]

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(inaudible) no. And because I've said that cash size, you can see it from the market size, it's the obvious next thing for us to do. These are complicated things to do. And maybe you've done it before, but we will, but we'll get to it. And we'll update you as and when it's appropriate to do so. So not helpful, but many.

And then in terms of Active Savings clients, as Philip alluded to, they're pretty much all existing clients. We've -- and this is the point. This is -- when I talked earlier on about why we're doing Active Savings. It's feedback from clients. Our research tells us how much cash that clients have got that is elsewhere, and it's a pain to manage, it's a pain to manage. It's actually come up with something that is simple, easy, efficiency, just a few clicks, you can go ahead and get it done. And what we find is you get clients to start using the platform, they will start using the service and say, "This is great." This is a way that, actually, I can manage my cash, I know how much one access to every month, I can turn it out, I've got an instant access. Can I ask for more? That's why we are very pleased with the growth that we've had. Cash size is the next place to go that I'm (inaudible).

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Operator [34]

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(Operator Instructions)

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Paul McGinnis, Shore Capital Group Ltd., Research Division - Research Analyst [35]

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Paul McGinnis from Shore Capital. Just to take Matt's question a stage further. If it's not so much the time scale as to when you might launch the cash item, I'm just thinking it from the point of view that once it is launched, and indeed, maybe a similar capacity within SIPPS, will it not highlight the fact that, I mean, at the moment, you can get 1.25% on the Instant Access on the Active Savings side versus 0.1% within Vantage. Are you satisfied that clients view those 2 things as 2 completely separate parts? One is transactional-type cash, and one's more long-term savings cash. It will highlight what difference and if clients are same, well, hold on a minute, why am I getting 0.1% here when I could be getting 1.25% on the same balances with a very different revenue margin to yourselves.

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [36]

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Well, I think the point is actually, clients do think about the cash in different ways. They're not putting the cash onto the platform for anything other than investments. And when you look at the timing, or when you look at usage, it's transactional. You got dividend payments coming in, you got reinvestments that they're making, and you got habits that -- you look at the behaviors that they'll build up cash through the year, and then they'll make their decision. All sorts of different things, but it's -- they're putting money there because they want to see -- invest it. When you then look into cash savings, that's something different, but importantly, it's complementary, and we'll see how client behavior works.

The most important thing is the experience that we're giving to the client helps them with all of their needs, and they're doing it all in one place. Now long-term clients know that they need to save and invest, and they want to invest it in funds, et cetera, for the long term. But then when you get to that other end of the curve, and we're all going to get there, we're actually sort of thinking about how are you going to manage your cash and how are you going to manage liquidity and how are you going to manage your income. So we need to develop a solution for that. And I think Active Savings is a really innovative way of doing that. And I do think what's going to be interesting for us is how we bring that together. But fundamentally, over the long term, if you focus on giving the clients the best experience, the best service and the best proposition, that's how we grow.

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Paul McGinnis, Shore Capital Group Ltd., Research Division - Research Analyst [37]

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Okay. Just one slight extension. Do you think the banks have got sufficient capacity on demand and deposits at the moment to be able to sort of launch some of these products? They don't appear to be chasing deposits very aggressively at the moment.

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [38]

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Well, the feedback that I got from the banks is they are very pleased with the service and how the service is working. And as I say, it's interesting working with them. You start to understand the dynamics of what they need and how and when they need it. And when I say we've created what I think is a valuable market, there's opportunities.

Anyway, look, thank you very much, everyone. If you have any further questions, James, Philip and I are available the rest of the day. Thank you very much. Have a good day. Thanks, everyone.

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Operator [39]

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This concludes today's call. Thank you for joining. You may now disconnect your lines. Have a lovely day.