UPDATE 2-Cost control helps Hargreaves Lansdown defy weak market

Wed Sep 5, 2012 5:36am EDT

Related Topics

* Pretax profit up 21 pct at 152.8 mln stg vs forecast 149 mln

* Revenue up 15 pct at 238.7 mln stg

* FY dividend up 20 pct

By Chris Vellacott

LONDON, Sept 5 (Reuters) - Tight cost control and a broad product range helped British investment manager Hargreaves Lansdown beat full-year profit forecasts, even as volatile financial markets and a torrent of bad economic news hit business inflows.

The FTSE-100 firm hiked its total dividend by 20 percent, handing out a combined 56 million pounds ($89 million) to co-founders Peter Hargreaves and Stephen Lansdown for the year and showing its confidence in absorbing the cost of new regulations.

British fund managers have had a torrid year, with financial markets roiled by the country's slide back into recession and the euro zone debt crisis, and the prospect of tougher regulation in the wake of investment mis-selling scandals.

"Our projections are that we will be able to ... continue running the business profitably and growing the profits of the business as before, but the work involved is huge," Peter Hargreaves told Reuters on Wednesday, referring to new rules, such as requirements for higher levels of professional qualification and replacing commission-based selling with fees.

At 0900 GMT, Hargreaves Lansdown shares were up 0.4 percent, outperforming a weaker FTSE-100 index.

Profit before tax rose 21 percent to 152.8 million pounds in the year ended June on a 15 percent increase in revenue to 238.7 million pounds.

The numbers beat market forecasts which averaged 149 million pounds for profits and 234 million pounds for revenues, according to Thomson Reuters data.

Analysts attributed the robust earnings in part to the breadth of the company's product range.

"There are many 'me too' platforms that have emerged in recent years but none have the depth and breadth of the Hargreaves offering," Peel Hunt analysts said.

The company said cost control was also a key contributor. Net operating expenses increased 6 percent as its efforts to restrain rising staff and administrative costs largely offset the impact of a 30 percent hike in its contributions to an industry compensation scheme.

In spite of ongoing growth earnings growth, however, sluggish stock markets caused the rate of new business to slow.

While assets under administration grew 7 percent over the period to 26.3 billion pounds, net business inflows of 3.2 billion pounds were 9 percent lower than the previous year.

"This year, the succour of a stock market rise disappeared... All in all it is not surprising that the general retail investment market fared badly," the company said.

The firm lifted its final dividend 27 percent to 10.65 pence and raised a special dividend 15 percent to 6.84 pence. The total dividend is up 20 percent for the full year to 22.59 pence per share.

Peter Hargreaves, who co-founded the firm in 1981, remains its largest shareholder with a 32 percent stake, entitling him to 34 million pounds in dividend payments for the year.

The firm also said co-founder and second-largest shareholder Stephen Lansdown, who owns a fifth of the company and has served as a non executive director for two years, will be stepping down from the board.

Analysts at Citi said they did not see any operational impact "but note that Mr. Lansdown will no longer be constrained by director dealing timing constraints if he wishes to dispose of stock in the future."

Hargreaves said he has no plans to reduce his own stake.

"I have no need of the money and to be honest I find it easier to leave it where it is than having the hassle of knowing what to do with it if I took some out. To me the thought of selling any shares is definitely not on my agenda," he said.

FILED UNDER: