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Edited Transcript of HL.L earnings conference call or presentation 31-Jan-20 9:00am GMT

Half Year 2020 Hargreaves Lansdown PLC Earnings Call

London Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Hargreaves Lansdown PLC earnings conference call or presentation Friday, January 31, 2020 at 9:00:00am 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 John Crean

Autonomous Research LLP - Managing Partner, Insurance

* Andrew Sinclair

BofA Merrill Lynch, Research Division - VP

* Gregory Bickley Simpson

Exane BNP Paribas, Research Division - Financial Analyst

* Gurjit Singh Kambo

JP Morgan Chase & Co, Research Division - Head of Diversified Financials Research

* Haley A. Tam

Crédit Suisse AG, Research Division - Research Analyst

* Oliver George Nigel Steel

Deutsche Bank AG, Research Division - MD

* 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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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [1]

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Thanks, Jane. All right. Good morning. Welcome to the Hargreaves Lansdown interim results presentation for the first half of our 2020 financial year. Thank you very much for being with us here today, and welcome to all those who are joining by the phone. I'm Chris Hill, Chief Executive, and I'm joined by Philip Johnson, Chief Financial Officer.

So the first half of our financial year was another period of growth. We saw a number of challenges with uncertainty from world's trade concerns, Brexit and a general election. Despite this, the continued execution of our strategy and our focus on ensuring the right outcomes for clients means that we've seen growth through the period.

We welcomed 50,000 new clients in the half year and our direct market share has increased to 41.8%. We delivered GBP 2.3 billion of net new business. Our AUA exceeded GBP 100 billion for the first time, finishing up 22% at GBP 105.2 billion of AUA. And we continue to develop both proposition and service. Active Savings now has over GBP 1.6 billion of AUA, has seen the expansion of the Easy Access product, and there's more development to come in the second half. And we completed the direct migrations from both JPMorgan and Baillie Gifford.

Profit before tax is up 12% at GBP 171.1 million. Earnings are up 12%. And the Board has declared a dividend of 11.2p, up 9%, reflecting our policy and ongoing confidence in the outlook.

So our growth has been challenged by market conditions, but since the election, we've seen an increase in client activity, a pickup in investor confidence and we've seen that come through in the first few weeks of the year.

I'm going to hand over to Philip to take you through the financials, and then I want to speak some more about how we continue to develop as a business with client outcomes at the very heart. Philip?

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [2]

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So thanks, Chris. Good morning, everyone. And starting as usual with the highlights for the period.

So I'm pleased to report today that we've delivered a strong set of numbers in the first half of our 2020 financial year. Revenues increased 9%, well ahead of average market levels, and continued effective cost control, matched in line with market conditions, has allowed profits to grow 12% to GBP 171 million. This has been a challenging period, but the Board remains confident in our prospects and business momentum and has therefore increased the interim dividend by 9% to 11.2p per share.

So looking at the numbers in more detail, starting with revenues. Revenue for the first half was GBP 258 million, 9% ahead of last year. The primary driver of this was cash, where revenues grew as expected due to the higher margins we guided to at the full year.

Funds revenue was impacted by the waiver of Woodford-related fee -- platform fees, which we estimate reduced the income by GBP 2.3 million in the period. Share revenues grew due to higher dealing volumes, although [those] rose by less than AUA. And HL Funds, income and assets were broadly flat as guided across a period where we didn't actively market them due to the Woodford holdings [inside]. I'll come back to the margins on all asset classes shortly.

Other income was down slightly, mostly due to the abolition of exit fees and ancillary charges. This touches on an important theme. We're a business focused on our clients and on constantly bringing them value. Some of this is nonfinancial, such as our leading service, tools, guide and information. But we're always -- also always looking at ways of improving client returns, not just helping them buy good investments but also by simplifying and driving down their cost of being invested. And we've done a lot more here than perhaps people appreciate.

So for example, over the last 2 years, we believe we have added over GBP 35 million per annum to client portfolios through a combination of reduced HL charges, negotiating lower fees from external fund managers on our clients' behalf and crediting rate increases on their cash, both in savings and on their main portfolios. This is a significant sum, and one our clients value.

So moving on to look at the margins on our own product asset classes. So on Funds, at the bottom of the slide, I've shown you the margin before the Woodford fee waiver just for your information. And to remind you, as assets have returned from the Equity Income Fund and the Income Focus Fund reopens, this money will fall back into our normal asset class charging structure.

The Shares margin remained at the lower end of our previous guidance range. Remember, the majority of this margin is a ratio, not an ad valorem charge, a ratio of dealing volumes to AUA. And what we've seen over the last 3 years is that average equity assets have risen by 60%, whilst average dealing volumes have only gone up by 23%. This effect is lowering the revenue margins we report here.

But it's not a real margin decline, it's a denominated-driven change. All our underlying business performance metrics are actually constant. Average stock-broking commissions per deal have been consistent over the past 3 years, so has the proportion of total AUA that is in equities and the proportion of our clients to own an equity. The only real thing that's happened is the average number of deals per client has fallen from about 4.5 to 3.5. And hence we are making the guidance ratios, that we provide to help with your modeling, more accurate at 24 to 28 basis points going forward.

I said in August that I expected net interest margins on cash to be higher in the first half than the second, and that's what we've seen. The actual first half income -- outcome was slightly better than we had expected, as interest we earned fell by less than the interest yield curve implied, but we still expect margins to drop in the second half. However, the strong first half means we have tightened our 2020 full year margin guidance today -- note that this obviously depends on interest rates not changing -- to 75 to 80 basis points.

Let's move on to costs. Operating costs for the first half before the levy were GBP 87.5 million, 3% ahead of last year. We've been managing costs tightly for 24 months now, and importantly, continued to do so during the challenging market conditions experienced over the last 6 months.

The general election has finally provided some political certainty and brought with it an increase in investor confidence, engagement and activity levels. This is a good time to redeploy some of the disciplined savings we have been making back into driving growth.

For example, I said last August you should expect full year marketing costs to return to more normal levels [and] better investment conditions. These costs are seasonal anyway, tilted around the tax year-end. So I suggest today that you should expect full year costs to return back to their 2018 levels adjusted after the growth in the business since then.

And finally, the FSCS levy. In common with all providers in our space, we saw an interim top-up levy this period with the FSCS compensation year we are currently in. In the second half, you should expect the usual charge for the next FSCS compensation year, remembering that you need to put together the GBP 6.9 million that we saw in the full half of last year and the GBP 1.7 million to get close to what we've actually been charged for the year that we're in.

I've given you some short-term guidance on individual lines here, which we'll always manage on with an eye on prevailing conditions. But over the longer term, including for 2020, I do reiterate that I still expect aggregate costs to grow in line with client numbers across the cycle.

So turning to profits. I've showed you these 2 charts before. On the left, how revenues and costs have developed in recent periods and how we've managed short-term costs in line with market conditions, while investing over the longer term in line with client growth. And on the right, our increased client numbers bring scale and efficiencies that we can consciously reinvest into growth, giving our clients the best proposition and service we can, whilst maintaining stable unit costs.

And this period, again, saw a continuation of these themes, resulting in profits before tax of GBP 171 million. It's 12% ahead of the prior year. And as you can see on the left-hand side, profits that are bigger than revenues were just 3.5 years ago.

Before I move on, you'll hopefully have seen last week that we entered into an agreement to sell FundsLibrary to Broadridge. FundsLibrary was our data management and digital solutions business, serving around 800 asset managers and platform companies. And we're selling because its purpose, structure and technology leads are very different to the rest of HL.

This sale is due to complete at the end of February, and to help with your forecasting beyond that point, you'll see FundsLibrary income is already split out in our recurring and nonrecurring revenue table, which you'll find in the financial review. The business is contributing between GBP 2 million and GBP 3 million of full year profits. And should everything go as planned, we anticipate receiving approximately GBP 40 million of net proceeds from this disposal.

So just finishing with EPS and dividends. The first half earnings per share of 29.3p were also up 12%. We continue to operate a clear dividend policy with a progressive ordinary dividend centered around the 65% payout ratio across the market cycle and the potential for special dividends paid out of excess cash generated [for] earnings after taking account of market conditions and our regulatory capital, growth and investment requirements at the time.

As I said, the Board remains confident in our prospects and business momentum, and hence has declared an interim dividend of 11.2p per share, 9% up on the prior year, slightly below the rate of first half profit growth due to the seasonal tilt of our cost base.

So thanks very much. And I'll pass you back to Chris now.

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

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Thank you, Philip. All right. So as I mentioned earlier, there were a number of challenges in 2019 with world's trade concerns, Brexit and a general election. So the impact of this uncertainty, as we've seen before, hit investor confidence, and in turn that weighs on retail flows. And it's a pretty unwelcoming environment for investment.

We saw the impact of this across the industry with The Investment Association data reporting weak funds flows throughout the period. And on top of this, the suspension of the 2 Woodford funds added to the general unease. Yet in spite of these difficult market conditions, we have delivered GBP 2.3 billion of net new business, completing the 2 direct transfers, and we have welcomed 50,000 new clients to our service over the period, which is, of course, a great indicator of future flows.

Retention rates have remained stable, and therefore, client numbers have increased to almost 1.3 million, and AUA has risen 22% over the past year to GBP 105.2 billion, and our market share has increased from 40.5% to 41.8%.

So I'm looking ahead with confidence, and that's because our 3 fundamental drivers of growth have not changed: the market opportunity; the importance of our relationship with clients; and our client-focused strategy and, as I will come on to, the culture of Hargreaves Lansdown which brings absolute focus on clients.

On to Slide 13. We remain excited by the structural growth opportunity in the U.K. savings and investments market and remain confident in our ability to deliver sustainable and attractive growth through the cycle. The secular transfer of long-term financial provision from businesses to individuals, an increase in life expectancy, ongoing low asset yields and a complex saving and investment environment all present immense challenges for our clients that we are there to help with. The broad spectrum of where we win new clients from across the wealth management industry, and the age range of those clients that join us, tells us that we are making good progress.

Our GBP 105.2 billion of assets represents 41.8% of the GBP 236 billion direct-to-consumer market. But I see our opportunity as broader than that. There is an addressable wealth market of GBP 1 trillion in the U.K., giving us only about a 10% share; and a further cash savings market of GBP 1.4 trillion, giving us about 4% of our target market.

People have a need to save and invest for the future, and this continued expansion of wealth accumulation and investment is happening in a complex environment. Hargreaves Lansdown is well placed to support them with these challenges through our client-focused business model, a broad investment and savings proposition and leading client service. By putting the client at the heart of our decisions, we can build this lifelong relationship.

And remember this chart, Slide 14, the direction is upwards and to the right. This is client numbers combined with our capability to bring clients along a lifelong journey. The direction of travel is clear, moving upwards and to the right. And you look at that age spike, 55 8 years ago. Since then, assets have grown and got older. Hence, the work on retirement outcomes. And older people have more cash to develop active savings. I'll come to both of these developments in due course.

But we continue to bring on clients across the spectrum, and we are supporting them throughout their accumulation journey and into retirement. It's the ability to support clients with the solutions and associated products that they need along their journey and throughout each important life stage that underpins our continued growth, flows and earnings.

And I'll keep coming back to this slide on Page 15. The messages here are key. Our clients remain at the center of everything that we do. You've seen their challenges on the previous pages, and our challenge is to help them to address their needs, and that is both an opportunity and a privilege for us.

Clients require information that builds knowledge and confidence that then helps them to understand the decisions they have to make to meet their individual needs. We provide this together with an ever-greater range of investments and savings products and solutions and make it easy to access and manage them all in one place.

We are always available and easy and efficient to use. We want clients' experience of using HL to stand out as a key and trusted relationship for them. Our culture is to do the best for our clients, because that makes the relationship last, and in turn, that delivers value for our clients. And we deliver this through a combination of our investments in people, technology and marketing.

Our clear purpose, our understanding of the promises that we make in delivering service and our core values help us to ensure that we are creating the right proposition and service for our clients. That creates the engagement that drives empowerment and leads to the right outcomes.

That previous slide is so important because it's the clarity of our purpose and our strongly shared values that define our culture. And in turn, culture drives not only how we develop our business as we grow, but how we react in tough situations. And even more than that, it is this culture that means we seek to learn from tough situations, and that pushes us to develop what we do as a result.

That's why when the Woodford suspensions occurred, we were swift to act. We cut our fees; even now other platforms have not done so. We communicated with clients throughout the period to date. I think there have been 18 separate communications to holders of the Woodford Equity Income Fund, the Woodford Income Focus Fund and the Woodford Patient Capital investment trust. We've set up a dedicated helpdesk for clients affected to help them through events.

It's been well documented that Philip and I, together with Lee Gardhouse and Mark Dampier, waived our bonuses. We did this as a demonstration of our values and the integrity of Hargreaves Lansdown. We've communicated throughout the period with a number of parties to encourage a broad consideration of options for the Woodford Income Focus Fund that would maximize value for unitholders. And this included polling clients to ensure that we were aligned to their needs, and asking for their preferred outcome. We've also been hard at work ensuring that the path to the return of funds for the Woodford Equity Income Fund is as smooth and as efficient as possible.

And as I said, our culture also drives how we develop the business as we grow. As a leading financial services company, we take our responsibilities very seriously, striving to play our role in setting the highest standards of client service, transparency and governance across the industry, and recognizing the challenges as a result. At our core, we want to help our clients achieve their objectives in the right way through our engagement with them, and as we support them with their evolving needs over the longer term.

Over the past year, we've removed various fees, such as exit fees and transfer fees, which leaves us with what we consider is now one of the most transparent pricing structures in our sector. We've continued our leadership of the industry's STAR transfer initiative. We want this to be an easy experience for clients, and we've been working on our own processes. We've made it easier for new clients to set up accounts through a transfer. 78% now complete the process digitally compared to less than 1/3 previously. This all means quicker transfers for clients, less calls from them chasing the progress, fewer errors and fewer complaints. All of these are good client outcomes.

Our Multi-Manager fund range began a project late in 2018 which transferred the assets that they invest into segregated mandates rather than off-the-shelf retail funds. This process gives the team greater control over who manages the underlying funds and how they run them, as well as reducing the costs of being invested in these funds to our clients. The process is working well with 24% of all Multi-Manager assets now under segregated mandates, and we look to extend this further in the future to the benefit of the investors.

And good governance is important to provide that challenge that leads to simplicity and transparency. We're hiring 2 new nonexecutive directors to the Hargreaves Lansdown Fund Management (sic) [Managers] Board to provide independent challenge and oversight closer to investment decisions. The first, John Troiano, joins us from Schroders, where he was Global Head of Distribution. John's global asset management and investment experience will add further breadth to the knowledge base and skills of both the plc Board as well as HLFM. And a search is currently underway for the second non-executive director.

As a market leader, both technology and innovation are fundamental to securing the constant provision but also the rapid deployment of the market-leading service, support and experience that we provide. Active Savings is an innovation in how it makes it easy to manage savings, diversifying risk and beating high street rates all through one HL log in.

During H1, we reached GBP 1.6 billion of deposits and 46,000 clients using the service, all of whom now have better rates to [use] that hold cash, whether they are in an accumulation phase or in retirement. Banks increasingly recognize the relative importance of this platform as a means to raise deposits, and development has continued with a new bank, ICICI, now offering Easy Access Accounts, and 2 others offering term deposits. We continue to look at ways of extending this proposition further, including offering a new Cash ISA account in the coming months.

We continue to invest in the scalability of our technology and our platform to ensure that our service is not only always available but it's also of the highest quality. 5 of the top 10 overall volumes of logged-in clients occurred during the period, and, showing the increased importance of mobile, 9 of the top 10 mobile log-ins. As you would expect, these days were all post the election.

As I said earlier, clients require information that builds knowledge and confidence, that then helps them to understand the decisions that they have to make to meet their individual needs. We provide this together with an ever-greater range of investment and saving products and solutions that make it easy to access and manage them all in one place.

So not only is the quality of the information, research and insight important, but how we communicate it and make it easy to engage with. So we are redesigning our fund updates, adding more detail, greater transparency and a new structure to our research notes, going further for those clients who want a deeper level of information. And as we look to improve client engagement, a review of our current tools and services also identified areas where we can add new functionality on our platform which can help our clients to make better investment decisions. We'll be launching new website tools later in the year to address these needs.

The FCA's 2017 review into best buy lists highlighted that they were a positive tool for investors and helped them to make decisions. Our clients agree with this. However, we've now carried out a thorough review of our Wealth 50, spoken to clients to ascertain their views about our favorite funds list and sought other independent insights. As a result, we will be making changes over the coming months to incorporate what we have learned from this research, including a greater focus on transparency of process.

Increasing numbers of our clients are approaching retirement, and we are mindful of the challenges that they face. During the period, we launched a range of wake-up packs, helping clients to understand better their options and challenges regarding tax, income and investments. We also made improvements to our annuity process to help clients to secure enhanced annuities, and hence, higher income where available.

Whilst interest rates remain low, we maintain our view that annuities are an important part of a range of tools that we offer to get to the right outcomes for clients in retirement. It's our continued focus on client needs and our track record of delivering a great service and propositions that means clients will stay with us throughout their financial lives.

We remain excited by the structural growth opportunity in the U.K. savings and investments market and remain confident in our ability to deliver sustainable growth through the cycle. The last 6 months have been tough, both [politically] and for the business and for clients, but we remain confident in our 3 fundamental drivers of growth and the client-focused culture of our business that underpins them.

We continue to execute on our strategy and invest into our opportunity, improving our proposition and service to ensure we are delivering the right client outcomes.

I won't attempt to predict investor confidence in H2, but I can see the pickup in activity post the election, and we will take the opportunity to continue to invest into this over the next period because we are confident in the outlook.

With that, may I hand it over 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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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [2]

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Gentleman here in the middle.

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Gregory Bickley Simpson, Exane BNP Paribas, Research Division - Financial Analyst [3]

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It's Greg Simpson from Exane here. Three questions, if I may. First would be on flows. In the Q2 period, it looked like there was quite a big slowdown for Vantage flows. Just wondering if you could give some color around what the drivers were. Was it existing clients kind of contributing less, higher gross outflows, less new clients? Or just what you're seeing in terms of the -- that mix.

The second question is on Active Savings. The 46,000 clients in the service, are those mostly existing HL clients? Or are they new clients that are not previous HL customers? And then the final question would be just on the -- a quick one on the FCA review of ETV transfers. Could you give some color on the proportion of clients that hold HL-specific share classes?

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

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Right. Okay. So that’s the number there. So first one, in terms of flow. I mean I think we've given color -- the color in terms of flow. It was a very difficult period. Investor confidence has been low throughout. When you compare it to previous periods, and in particular the ones that lead up to general election, that is never good for direct retail clients, and that's what you see reflected in what has happened.

In uncertain times though, that is precisely why you want to have a cash platform, because you want to ensure and help clients to continue to save through those periods. And then as investor confidence turns, that's when we look to -- let's get to get that money invested. And to my point, we most certainly saw a pickup in client activity. And I talked about the busiest days that we've had on the platform and from a mobile perspective. We then saw that translate into higher levels of investor confidence, and that flowed through into the first week -- few weeks of the new year. And obviously, we hope that that is maintained through into our very busy tax year-end season.

Your second question on Active Savings, the 46,000, they are mostly existing clients. And as I've said before, at the moment, we are very much concentrating our -- on our existing -- existing client base. And it's pleasing to see the progress that that service is making, particularly with the enhancements that we've made over the period with a couple more banks from a term deposit perspective and another bank from an Easy Access perspective, clearly servicing some demand. And we're very pleased with how that's developing. And looking ahead to the development of Cash ISA, I think that bodes well.

And then your comment -- question on FCA transfers. Look, we are a net beneficiary of transfers. And we want this to be an easy process that works with clients. We've removed exit fees over the summer. We think that was the right thing to do, and particularly, given the fact that we've put a lot of automation into that process. The transfer process is extremely complicated, but by us investing in digital processes, making it easier, that's how we're focused on giving the clients the right outcome.

You made a reference to clients who have HL share classes, and that is one of complexities that happens with transfers. And that's why we have the leadership that we do, just on industry transfer fees, to work through the complexities of these. And actually, overall, what we want to see is more of a digital process, companies prioritizing getting this done, companies signing up to that and getting to the right outcomes for clients.

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Shamoli Ravishanker, Morgan Stanley, Research Division - Equity Analyst [5]

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It's Shamoli Ravishanker from Morgan Stanley. 3 for me, please. Just a follow-up on the Active Savings. You mentioned that most of the customers are existing customers. But in terms of the flows, the money that they bring into Active Savings, is this new money that they might have held outside of HL? Or is it moving the cash balances from Vantage into Active Savings?

Secondly, going into 2020, have you seen the competitive landscape change versus more recent years? And does this affect your strategy and thinking in terms of your marketing as well?

And finally, on the back book acquisitions, you didn't have any in the quarter to December, but do you have any in the pipeline for 2020?

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [6]

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Thank you, Shami. So Active Savings, it's significantly, predominantly, mostly new money. And that was a fundamental consideration when we set the service up, because our interaction with clients, which I keep talking about, tells us they find it very difficult to manage cash savings. There is significant sums of money that is trapped in low-performing bank deposits, and the process that clients have to go through in changing that is awful. The client service is nowhere near what we would aspire to. So we developed this service, so one HL log in, and then you're able to move the funds across. And consequently, we saw clients -- their cash holdings elsewhere has now come on to the platform. And what is interesting for us, we've effectively created a marketplace here. So there is a learning phase that we're going through. And we've been very explicit in terms of how we are investing into that in terms of pricing because we want to get the volume, and I'm pleased with the way that that's going. Because as you get the volume, you learn how people use the service. So you learn how people moving towards retirement are wanting to manage cash, wanting to manage liquidity, wanting to manage income. And if you're a business that are really focused on client outcomes, you think about the clients through all of that perspective: how they're managing their cash, how they're managing their cash savings, how they're managing the investment. And you see the way that they use the platform, building up cash to others. We've got people who have done that just by getting 2% returns on their cash because that's the way that they're using the platform in conjunction with their other savings. But it's because they bought got their cash -- they brought cash onto the platform, and now we're giving the means for them to use it. So it's new money.

Your second one was about the evolution in the competitive landscape. I don't think we've seen any significant diversion of any trend, so to speak. We've seen a number of these platform businesses, the level of focus that they have and the tools that they provide, the research that we provide. We watch all of that. My concern is about the focus that we have on our clients and the service that we provide to our clients, because you talked about what impact does that have on our strategy, and it doesn't have an impact to our strategy, because our strategy is based upon the service that we provide to clients, developing the new tools, we talked about Active Savings, recognizing the group of clients that are moving towards retirement. How can you help with them? Inform them better, bring the wake-up packs. Recognize while it might not be fashionable, but annuities is an important tool, make that easy for them. And tailor research tools analysis to help them provide that -- to provide that additional analysis.

And then I think when you look ahead, how we evolve and develop that proposition is ever more key. And as I've said before, I think about what clients are doing, and they've been on Uber or Amazon or Netflix or any of those things, that we have to continue to involve the experience that you get with Hargreaves Lansdown using that technology. But all of that strategy is one that's focused on clients and client service. And that has not changed. That has not changed at all.

Finally then, sorry, you said about bank books. There isn't one in the pipeline. We'd share the news with you as and when they happen. And we are very aware of where these assets sit across the industry, and that's all I'll say. Paul?

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Paul McGinnis, Shore Capital Group Ltd., Research Division - Research Analyst [7]

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Paul McGinnis from Shore Capital. Just an extension of a couple of those others. Just on the competition point, noticed Vanguard finally got around to announcing that it's going to have SIPP capability. So the question was whether you expect any impact from that. Related to that, would you be able to give what proportion of the Vantage assets at the moment are sat in passive? And whether there are increasing amount of flows of passives versus your actives? And then the second question was just on Active Savings. The run rate seems to have been around GBP 100 million a month for quite a while now, sort of steady. I just wonder whether you're hoping that that might have accelerated by this point or whether the cash item might be the thing that actually starts to accelerate it. You've said H2 for that launch. So I just wondered, would it be better if you could get it out before the end of the tax year?

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [8]

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Well, I'm always impatient. So I'll do the Active Savings one first, since that's the one that (inaudible). I'm really pleased with how Active Savings is growing. And for a business that went to -- from a standing start to get to GBP 100 million a month as a run rate, I'm very pleased with. And the constant innovation that we bring to it means that we -- every time we do that, we see an influx of money. So I think recently, the introduction of Easy Access and the building out the capacity for Easy Access has definitely been a driver of that. Introducing more banks to the platform, giving a wider variety, that helps, too. And I do think the cash item is a big opportunity for us. It offers us a number of possibilities in ability to offer something that's very different that's out there, and I do think that will be a driver of further growth. But I am very pleased with how that service is developing.

Philip, the proportion of passives?

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [9]

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Yes. So across the platform, about 6% of assets are in passive funds and probably 3% in EPS. So those sound quite low as numbers on asset terms. So if you look at terms of clients, only 5% of our clients actually have a passive fund that's in their portfolio, 5% of EPS. So you can see that they're being used by a platform on an increasing basis and that's obviously within the Wealth 50 as well as the passive funds, et cetera. We think they are an important part of clients' investments portfolios, particularly when they're starting out. And equally, it's important for us to help our clients [sponsor the] process as with any investment [service].

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Paul McGinnis, Shore Capital Group Ltd., Research Division - Research Analyst [10]

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(inaudible)

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [11]

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Yes. It's really building over time at a constant. (inaudible) in the market.

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

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Then Paul, your first one. It was about competition, you talked about Vanguard, you talked about SIPP. Look, this is a big market that we're in, so there's plenty of space for a number of players. And I think it's a competitive market that functions very well. And in particular, if we look at it, I would go further than that because I would talk about the people involved. And it's not about product, it's about service. And there is absolutely a need to help people through that very difficult period into retirement. And you have to be able to offer a range of services. So I talk about cash. So I talk about helping people with annuity. And I talk about the -- how you help them to manage that investment piece into their SIPP. That's how we focus on it. And we focus on it in terms of actually the clients going through this, what are the needs that we have and how should we evolve and develop our proposition in order to do that. And I think it's -- whatever we do is a good thing if we're encouraging people to focus on saving for the full retirement. That's something that everybody needs to do. That shift from corporate management of long-term liability to individuals having to manage, that's an absolute fundamental driver of growth for the market. It's an opportunity for us, because it's very difficult for clients to manage and incorporate that, and that's exactly where Hargreaves Lansdown is. Our focus is on how you get the best outcomes for clients and help you -- and help them understand how to get there and provide them with the tools so they can do it easily. Andrew?

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Andrew John Crean, Autonomous Research LLP - Managing Partner, Insurance [13]

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Andrew Crean from Autonomous. Can I ask a question in 2 areas? Firstly, on Multi-Manager funds. Can you enumerate the outflows, and talk about what is the reason for that? Whether it's performance related, and whether as you move to segregated funds, you will take down the margins there? And then the other area, of your 50,000 clients acquired in the first half, could you strip out those coming from the back book and the Active Savings, just [related to] what's coming in off the street to retail funds, and whether you feel that there is some held on the platform because of any Woodford funds who might then move there afterwards, your sense is on that?

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [14]

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So on the Multi-Manager funds, we've had, as was well documented (inaudible) so you can see that there was an immediate [outset] and with funds suspension actually wasn't in the financial year. What you've seen during the period, as I talked to, has just been because we haven't been actively marketing. It's just been a reduction in gross inflows. The redemption profile is actually really stable and steady through the whole period after that initial first. And it's in the low couple of millions today. So it's just one of those things. And at the moment, what we need to look at is obviously the potential ones become clear so that they can -- we can positively start marketing them again.

On the segregated mandate side, as Chris said, that's been increasingly used across the portfolio. There is a reduction in the total expense ratio that comes alongside improvements in control and insights over the mandate. So just to give you a bit of insight into how much this matters to clients, so if you look at our largest fund which is the Income & Growth at GBP 2.7 billion, over the last 10 years, it's taken 40 basis points asset at the fund ratio due to negotiated down fees with external managers and really circulate the mandates (inaudible).

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [15]

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Your second question on the net new ...

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Andrew John Crean, Autonomous Research LLP - Managing Partner, Insurance [16]

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(inaudible) as well?

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [17]

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Well, at the moment, I don't see why we would. I mean there is a (inaudible) benchmark, our entire industry has to demonstrate value for money, as you're well aware, through the asset management market study, and we will have to look at our own funds in that light. I think it's really important that you understand that all of those assessments might just be performance and price, they're about the outcome (inaudible) the client, the proposition. They are tailored and used for a certain amount, a certain type of clients, and we need to make sure they're appropriate for them.

On the net new clients side of it, I think you talked about it, the 70,000, 80,000 that came in from the back book. A few of those have gone almost immediately just because of the nature of these deals, it is easy for them to come to us and plan to move on. But that incorporates (inaudible) all retention rates stable during the period. None of these obviously (inaudible) themselves. It's important to note that you can transfer Woodford assets; we have been able to through most all the periods, in fact. And LINC has made it possible to even (inaudible) Hargreaves Lansdown shares -- vintage Hargreaves Lansdown shares -- to be held on the new platform. We've seen a reasonably low number of transfers of people holding Woodford, to be honest with you, no more than on the rest of the platform. So we will see what will happen with clients at this point and see that whole point is what Chris has been talking about, is making sure that we get service, communications, the confidence enough that there's a platform for them to keep engaging with the (inaudible).

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Operator [18]

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(Operator Instructions)

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Gurjit Singh Kambo, JP Morgan Chase & Co, Research Division - Head of Diversified Financials Research [19]

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It's Gurjit Kambo, JPMorgan. Just a couple of questions. Firstly, in terms of sort of long-term themes around the addressable wealth market. A lot of that is within the advisory market. What's the sort of -- sort of what's going on in the advice market in Hargreaves? We haven't heard a lot I guess, in terms of your recruitment of new adviser [perhaps]. Would you consider [M&A] within advice? That's the first question. And secondly, we did these changes in the Wealth 50, is there any potential impacts on the discounts that you can obtain from managers?

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [20]

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Okay. Thank you. So long-term themes in the advice market. Look, your point, there's a lot of assets that sit under advisers, absolutely. When you look at the value that people are getting as a result of that. And Philip (inaudible) just now. That comes under increasing scrutiny. And when you think about the service that people have got in the past from their adviser, the administration, et cetera, you can do that on the platform. When you think about the "Where should I invest, how should I invest," there are research and tools available. And there is -- therefore, there's more and more that platforms are able to do in providing a service focused on individuals, that I think challenge the nature of that advice model.

From our adviser perspective, and we're still around 80, 90 advisers, our view is there are absolutely times when you need to have advice. And we want to make it as easy as possible for clients to be able to interact us to get that. But they should only get advice when it is that they truly need that. You should focus on the value that's really provided from doing that. And clients should only pay for that as and when they use the advice. That's a different business model and one that I think represents significantly better value than what we see existing.

When you put that together with my -- the point about the whole shift from defined benefits, defined contribution, and all elements of government, policy, et cetera, focusing people on the need to advise -- the need to invest rather, what you see in that is -- you think over time, you'll see an increased capability of people understanding how to manage their financial affairs, an increased engagement. I think also, enrollment is significant, because in 10 years' time, we're going to have a whole generation -- actually, you have got a meaningful sum to be investing. And as that happens, their needs become more complex and the needs of what they want moves beyond being just fat in one pension. They start thinking a lot broader than that. But these are much more financially literate. These are people who actually want to engage much more digitally. These are people who will engage much more with a platform that provides that sort of service. So I think there's a significant opportunity for us.

And then your second -- your second one, around the changes in the Wealth 50 and impact on -- impact on fund pricing. I don't think that -- I don't think the 2 things need to be linked. And moreover, what I'd say about the changes that we'll make to our Wealth 50, what we are concentrated on, what we have told clients about, what we have brought clients in and done focus groups with and tested various things on them, is about the engagement and the interaction and the understanding and helping them to get to the outcome that they're looking at, and that's the prime focus of the changes that we're making. Go ahead.

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Oliver George Nigel Steel, Deutsche Bank AG, Research Division - MD [21]

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Oliver from Deutsche. Just looking at the changes which you're putting through to the fund research and Wealth 50, I get the point about increasing the transparency and that's clearly important. But what changes are you putting through to ensure that you can never have another Woodford situation again? And what does the greater insight and information from fund research -- how does that actually help the customer to ensure that he won't be going or she won't be going into another Woodford?

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [22]

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Second, just to the second point, I think this is key. There's an awful lot of information that -- look, if you get back to the Woodford situation, all the facts were out there. And the key -- one of the key things is to make sure that people understood what was going on and make sure. That's what I'm talking about, simplicity and transparency. I mean we've been back and gone through all the communications that we've made with clients throughout that period which was informing of those changes. But the key is to make sure it's simple, easy, transparent, and they understand where that's the case. So that's why when I talk about the importance of communications, that's exactly where our focus is. And when we've been through these focus groups, it's been challenging people to try and understand what the best ways are for getting that information across and how you focus it in a way that's easy to -- that's concise and easy to understand, and then you can go further if you need to.

And then the comment about the investment process. We have a very thorough investment process. It has a very strong track record. Yes, we've had an issue here. But actually, if you look at the returns that have come from our favorite funds over time, they have been strong. But what we have also done in looking at that investment process, we've looked at the decision-making all the way through. That's why we said, actually, let's bring in some more independence and challenge, that's why we've done the [nonexec] changes that we have made. And this is the approach that we've taken. We haven't just looked at that one piece. We've looked at all the processes involved and said, well, actually, what can you learn from this? Beyond it being the one particular decision that was made or not made or persisted with or any of those, but actually, where are the broad learnings that you can make, because the focus is to make it a better process.

Haley? Sorry, Andrew. We'll come on to you in a minute. Thank you for being patient.

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Haley A. Tam, Crédit Suisse AG, Research Division - Research Analyst [23]

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It's Haley Tam from Crédit Suisse. A quick question on the GBP 40 million proceeds from the FundsLibrary sale, is that something that is earmarked for any capital expenditure? Or is it part of what we might as shareholders expect to be included in the pool for dividend distribution at the end of the year?

A second question. Just in terms of transfer times, you've talked about how you've been working on this at STAR Group. Could you give us an idea of what transfer times are now? And if there's any specific work you need to do ahead of the FCA rules coming in on the 31st of July, on in-specie transfers and any cost conversions? And then the final question, just on Active Savings. I think there's a cash savings consultation going on which shows that banks should offer the same rate to all customers. And I just wondered how that might affect your proposition longer term.

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [24]

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Thank you, Haley. If I deal with the proceeds question, then Philip, will you do the -- take that, the transfers? So the proceeds from the sale of FundsLibrary which we've talked about today, the question is around decisioning on dividends, et cetera. That's to the end of the year. And this will make no change to how we talk about our dividend policy. We've got a progressive ordinary dividend policy. The board will make an assessment at the end of the year depending on our investment needs, requirements and regulatory capital, a range of things. That's what's when we'll make that call. And it's for then.

Active Savings and the FCA's interaction at the moment. We'll follow that and see where it goes. But I think that anything that encourages an environment where it's easier for clients to get a better deal has got to be a good thing. And I'm very, very clear that the Active Savings' service is probably the best way that you can do that right now, because it's innovative in the way that it does it. It makes it really, really easy. And as I've explained, we've got 46,000 people using it, and the feedback and satisfaction that we get from them is very, very high, and we will continue to invest into that.

Philip, will you take care of the transfers?

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [25]

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Yes. So the transfers in, we got about 50% of the transfer in 5 days, probably about 90% within 14 -- so the bulk of them goes really, really quickly. Anything [that comes] in electronically or cash is very fast, slower seems to be that [50%] in a paper form. And that's not really value penetrating in size. So that's the tail that will take longer to work through and it's generally the most painful for clients as well. There's clearly work for us to do. There's clearly work for us to do in terms of getting ready for the proposition the regulator's talking about. I think there is a lot of work for the [clients] to understand those, for the FDA and the industry. It's worth noting that a lot of [exit] fee work with -- across a lot of platforms as just trying to get people to (inaudible) cash. It's so much easier for the administration. We've taken other way, it shows you a little bit of insight and comfort we have in our transfer process. And I think it's also unclear at the moment what the role of the client is with consents that are required in order to get some of the share class changes made, get on paper (inaudible) [proxy] and various other needs and requirements that need to get clarified. So there's more to be done, and we'll make sure we're ready, but it's incredibly important to understand that transfer involves 2 parties and both their need is as good as each other and also to get the outcome they're looking for, particularly (inaudible).

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Haley A. Tam, Crédit Suisse AG, Research Division - Research Analyst [26]

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(inaudible)

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [27]

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No, no. Transfers are -- I mean I've read some comments about transfers out, and are we or are we not (inaudible). Those are very much [suspect] cases. Actually, we are pretty similar on transfers out, to be honest with you, as we are on transfers in, and even from some of the other platforms who have been [noisier] than others, it's worth noting that we've been (inaudible) times from them than they are losing despite the [noise].

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [28]

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Andy?

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Andrew Sinclair, BofA Merrill Lynch, Research Division - VP [29]

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It's Andy Sinclair from Bank of America Securities, as we all know. 3 for me, if that's okay. Firstly, first 2 are probably fairly short questions, if we're able to get any color. Firstly is the money that's now coming out of the Woodford equity income fund, can you give us any color on where that's being reallocated to? Secondly, post election, I'd say -- pretty short notice. Post election, have you seen any rotation between asset classes, say out of cash and into some stocks and shares and others? And thirdly, I was just following up on Haley's question on dividends. The dividend payout ratio at half year dropped a little bit. And the seasonality is always through kind of H1 versus H2. I just wondered if there was anything to do with that [slide there that's] in the payout ratio at the half year.

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

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Thank you, Andy. Right. The proceeds of the -- with the equity income fund, first payment on liquidation, which we've been working extremely hard on over the last 48 hours. They are -- they're processed now. They are in 5 accounts. And one should not underestimate actually the significant challenges involved in processing something like that in a short period of time. I'll just echo the emphasis that Hargreaves Lansdown places on the service for clients and the amount of care and attention that we've applied in processing that. But that being the case, I really can't give you any insights. Really can't.

As far as the information that we've provided to clients, we've done our utmost to make sure that clients do understand all of their options. Also, again, clients have different needs, and we've been pointing them towards the information and tools so they can understand actually all of their options and possibilities for that. So we are seeking to make that process as easy and painless as possible, including the dedicated helpdesk that we've got.

Post the election movement asset classes. I mean, look, post election, we're seeing the sort of behaviors that I would absolutely expect to see. So you see a pickup in client activity, logins, checking, thinking things through. You see a flow of -- you see clients then wanting to invest because of investor confidence. And I suppose you could always see a shift that, again, would not be surprising. U.K. funds, which have been out of favor for a long, long time. But I think there's a renewed -- we'll see a renewed focus on the U.K., which, again, I think, is positive.

The dividend, nothing to see here. The Board is confident in the future, and we've -- earnings have grown. We've grown the dividend in line. And as I -- the comment I made to Haley, we'll think about what we'll do at the end of the year.

Andrew, you're coming back.

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Andrew Sinclair, BofA Merrill Lynch, Research Division - VP [31]

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A very quick one. On expense growth, I think in the first half, client -- average client numbers grew 12%. Expenses, excess the levy, grew 3%. I think you're indicating that they'd equalize. You said something about including 2020, they should be roughly equal. So are you genuinely saying in the second half, there will be such a catch-up that expenses should grow roughly in line with, say, 12%?

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Philip Johnson, Hargreaves Lansdown plc - CFO & Executive Director [32]

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Well, I think what I was really saying is -- I was trying to be helpful in terms of -- in the second half of the year, you should expect to spend more in marketing. You'll see probably an increase happen to (inaudible) what we have seen in the past. And therefore, the longer-term guidance is, hence, roughly where the consensus is. (inaudible) 5%.

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

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James, anything from the phones?

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James Found, Hargreaves Lansdown plc - Head of IR & Group Financial Controller [34]

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None.

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Christopher F. Hill, Hargreaves Lansdown plc - CEO & Executive Director [35]

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Okay? Well, thank you, thank you all for coming. We are available -- James is available the rest of the day if there are any incoming further questions that you have. Meantime, thank you very much, and I look forward to seeing you again in the full year. Thank you, everybody. Have a good day.

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Operator [36]

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Ladies and gentlemen, this does conclude today's call. Thank you again for joining, and you may now disconnect your lines.