Strategic report Governance Financial statements Other information OPERATING AND FINANCIAL REVIEW CONTINUED Building on the success of last year’s initial launch, we evolved the Other costs primarily include office running costs, legal and Tax “Switch your money on” campaign aiming particularly at the ISA professional fees, compliance, compensation costs and insurance. The effective tax rate for the year was 19.1% (2020: 17.2%). This was market along with the benefits of long-term investing and overall Overall they fell by £0.4 million to £29.4 million (2020: £29.8m). in line with the standard rate of UK corporation tax. Note last year’s brand awareness. The increased spend together with our digital The Financial Services Compensation Scheme (FSCS) levy effective rate was below the standard rate of UK corporation tax marketing expertise, resulted in a record 233,000 net new clients increased slightly by £0.2 million to £13.9 million (2020: £13.7m). as the gain on disposal of FundsLibrary was exempt as it met the and £8.7 billion of NNB for the year. The cost for the year is a combination of a £0.4 million interim levy conditions of the Substantial Shareholder Exemption. The Group’s At current revenue margins and activity levels, the £8.7 billion of relating to the last scheme year, which was only raised in December tax strategy is published on our website at www.hl.co.uk. NNB delivered by the marketing spend will generate c.£44 million 2020, plus a charge made in the second half for the new scheme EPS of future annual revenues. year of £13.5 million (2020: £12.0m). The FSCS is the compensation Year ended Year ended Depreciation and amortisation costs increased by £3.1 million to fund of last resort for customers of authorised financial services 30 June 2021 30 June 2020 firms. All authorised firms are required to contribute to the running £m £m £16.2 million (2020: £13.1m). This was a result of higher capital spend of the scheme and the levy reflects the cost of compensation Profit after tax 296.3 313.2 in recent years, primarily on core in-house IT systems, hardware payments paid by the industry in proportion to the amount of each Diluted share capital (million) 474.5 474.8 and software for increased employee numbers and the Active participant’s relevant eligible income. At present we anticipate that Diluted EPS (pence per share) 62.5 65.9 Savings platform. this levy will continue at a similar level. Underlying diluted EPS (per share)* 62.5 57.8 Total capitalised expenditure was £17.8 million this year Profit before tax (2020: £15.9m). This majority of this expenditure was for cyclical Diluted EPS decreased by 5% from 65.9 pence to 62.5 pence, as replacement of IT hardware, the continuing project to enhance Year ended Year ended underlying growth was offset by the one-off gain on disposal of the capacity and capability of our key administration systems 30 June 2021 30 June 2020 £m £m FundsLibrary in 2020. The Group’s Basic EPS was similarly down 5% and the ongoing development of the Active Savings platform. Operating profit 365.6 337.7 from 66.1 pence to 62.6 pence. By removing the profit on disposal Activity related costs primarily include dealing related costs and Finance income 1.4 2.8 of FundsLibrary last year we arrive at an underlying diluted EPS financial transaction charges. Overall they increased by 93% to Finance costs (1.0) (1.0) which has increased by 8% from 57.8 pence to 62.5 pence. £35.6 million (2020: £18.4m). The key driver was the significant Underlying profit before tax* 366.0 339.5 Gain on disposal 38.8 Liquidity and capital management – increase in client activity particularly the record dealing volumes, Profit before tax 366.0 378.3 Hargreaves Lansdown looks to create long-term value for which helped bring in an additional £101 million of shares revenue Tax (69.7) (65.1) shareholders by balancing our desire to deliver profit growth, and the increased debit card transaction costs as clients added Profit after tax 296.3 313.2 capital appreciation and an attractive dividend stream to money to their accounts. shareholders with the need to maintain a market-leading offering Third party data and technology costs increased by 54% to The Group’s underlying profit before tax, excluding the one-off and high service standards for our clients. £22.8 million (2020: £14.8m). This was driven by the increase in gain from the sale of FundsLibrary in 2020, rose by 8% to employee numbers and enabling so many of them to work from £366.0 million (2020: £339.5m). Including the £38.8 million gain home with appropriate hardware and software throughout most on disposal in the 2020 result the profit before tax fell 3%. of the year, plus additional data costs incurred in providing Profits after tax declined by 5% to £296.3 million (2020: £313.2m) our proposition. as the effective rate of corporation tax rate increased to 19.1% (2020: 17.2%). * Definitions are shown in the Glossary of alternative financial performance measures on page 182. 63 Hargreaves Lansdown Report and Financial Statements 2021