25 May 2011 07:00
25 May 2011 Hogg Robinson Group plc ('HRG', 'the Company' or 'the Group') Preliminary Results for the year ended 31 March 2011 Strong results supported by recovery in corporate travel Summary of results Years ended 31 March 2011 2010 Change Revenue £358.0m £326.8m +10% Underlying earnings (1) - Operating profit £41.9m £35.2m +19% - Operating profit margin 11.7% 10.8% +0.9 ppts - Profit before tax £32.9m £28.4m +16% - Earnings per share 7.3p 6.3p +16% Reported earnings - Operating profit £37.9m £28.0m +35% - Profit before tax £28.9m £21.2m +36% - Earnings per share 6.3p 4.4p +43% Dividend per share 1.5p 1.2p +25% Net debt £61.1m £77.5m -£16.4m Free cash flow (2) £21.4m £16.2m +£5.2m Financial Highlights
Revenue 10% higher at £358m (up 7% at constant currency)
Underlying profit before tax up 16% to £32.9m
Underlying EPS up 16% to 7.3p
Net debt down £16m to £61m; equivalent to 1.2x underlying EBITDA(1) (2010: 1.7x); net external interest cover 11.2x (2010: 13.9x)
Pension deficit down £12m to £115m
Full refinancing completed, with £190m committed until November 2014 and £30m repayable by November 2018
Final dividend up by 25% to 1.0p per share; full-year dividend up 25% to 1.5p per share with dividend cover of 4.9x (2010: 5.3x)
Operational Highlights
Client travel transaction activity up 17% (2010: down 3%)
Client travel spend up 23%, up 20% at constant currency (2010: down 17% at constant currency)
Revenue per employee up 7% at constant currency
Client retention rate remains above 90% and continued net new business wins
Continuing investment in technology with emphasis on mobile applications
Strong pipeline across multiple client sectors
Notes:
(1) Before amortisation of acquired intangibles and exceptional items
(2) Free cash flow is the change in net debt before acquisitions and disposals, dividends and the impact of foreign exchange movements
(3) References to client travel activity and client travel spend above and throughout this document are unaudited
David Radcliffe, Chief Executive of Hogg Robinson Group plc, said:
"I am delighted to report on another good year for HRG, which has been markedby strong growth in revenue and earnings and supported by a strong recovery inglobal business travel. In light of this performance the Board has recommendeda 25% increase in the dividend.
We anticipate the positive momentum that we have seen in our markets to continue. We will continue to innovate and invest for the longer term, and expect to make further progress through the course of the year."
Contact Details Hogg Robinson Group +44 (0)1256 312 600
David Radcliffe, Chief Executive Julian Steadman, Group Finance Director Angus Prentice, Head of Investor Relations
Tulchan Communications +44 (0)20 7353 4200 David Allchurch Stephen Malthouse Martin Robinson Notes to Editors
Hogg Robinson Group plc (HRG) was established in 1845 and is aninternational corporate travel services company with headquarters located inBasingstoke, Hampshire, UK. The HRG worldwide network, including contractedpartners, extends to over 120 countries. HRG's focus on its clients is underpinned by four differentiators - size andscope, people, technology and flexible service offering. The company hasexperienced management and skilled operators together with proprietarytechnology which has been developed in-house. HRG offers a range of servicesaround the globe to deliver value, cost savings, efficiency and innovation,
without compromise. www.hoggrobinsongroup.com A presentation for analysts and institutional investors will be held at 0900hBST today at Tulchan Communications, 85 Fleet Street, London EC4Y 1AE. (Pre-registration for this event is necessary to comply with securityprocedures at Tulchan Communications.) Copies of the presentation with audiocommentary from HRG's presentation team will be available at www.hoggrobinsongroup.com by 1100h BST today or soon thereafter. This announcement may contain forward-looking statements with respect tocertain of the plans and current goals and expectations relating to the futurefinancial conditions, business performance and results of Hogg Robinson GroupPlc (HRG). By their nature, all forward-looking statements involve risk anduncertainty because they relate to future events and circumstances that arebeyond the control of HRG, including amongst other things, HRG's futureprofitability, competition with the markets in which the Company operates andits ability to retain existing clients and win new clients, changes in economicconditions generally or in the travel and airline sectors, terrorist andgeopolitical events, legislative and regulatory changes, the ability of itsowned and licensed technology to continue to service developing demands,changes in taxation regimes, exchange rate fluctuations, and volatility in theCompany's share price. As a result, HRG's actual future financial condition,business performance and results may differ materially from the plans, goalsand expectations expressed or implied in these forward-looking statements. HRGundertakes no obligation to publicly update or revise forward-lookingstatements, except as may be required by applicable law and regulation(including the Listing Rules). No statement in this announcement is intendedto be a profit forecast or be relied upon as a guide to future performance.
Chairman's Statement I am very pleased to be able to report on a year of significant financialprogress for your Company. Revenues are up and profits are well ahead of lastyear and as a result we are very confident in recommending an increase in thedividend for the year of 25%. The global economy is slowly recovering from the financial crisis of the lastfew years and HRG's services are increasingly in demand. Last year'srestructuring within the Group and its impact on the cost base has furtherunderpinned our results and we look forward now to another year of improvedperformance. Our challenge is to continue to provide the very best service toour clients whilst managing effectively the cost of that service. Success onthese two fronts will deliver a growing business with good financial resultsand will give us the ability to reward both staff and shareholders in a waythat reflects the success that comes from delivering client satisfaction. Our strategy remains to strengthen our position as one of the world's leadingservice providers working within the corporate travel market and maintain asustainable business which delivers value to all stakeholders. Like allbusinesses we face some risks in delivering this strategy, not least copingwith any effects of increasing fuel prices on business travel activity and anypossible effects on the global economy of recent natural disasters andpolitical upheaval. We have a strong track record of coping well withshort-term disruptions, especially during the last two years, and thereforeretain a positive outlook for business performance in the longer term. A more detailed review of the business is given by Chief Executive DavidRadcliffe in his report and in the Operational Review but I would like to drawshareholders' attention to the growth in underlying earnings per share thisyear of 16% to 7.3p. This has encouraged the Board to propose a finaldistribution to shareholders of 1.0p which, together with the interim of 0.5prepresents a payout ratio of 21% of underlying earnings per share. I said inmy report last year that we aspired to a progressive dividend policy and thisyear we started to deliver it. We aim to continue to do so with the rate ofincrease in dividend being dependant on the increase in earnings and cash flow. Our principal borrowing facilities were successfully renegotiated in November2010 for a further four years at competitive rates. However, following thefinancial crisis, lenders have sought to increase their margins and we havebeen no exception to this trend. As a result, cash generation and debt levelscontinue to be a key area of focus for us. Year-end net debt again reflectsthe benefit of management actions but shareholders should be aware that averagenet debt levels through last year were again somewhat higher than at the yearend. Last year I drew shareholders' attention to the volatility in the Group'spension deficit. This year the deficit has fallen by 9% to £115m as a resultof improved asset values and contributions in the year partially offset bychanges in actuarial assumptions about inflation rates. The UK scheme has beenclosed to new members since 2003 and we continue to monitor the situationcarefully having regard to the interests of shareholders and past and presentmembers of the scheme.
Corporate governance is as important to smaller companies as it is to largeones. At Hogg Robinson Group, we aim to optimise the benefits of goodgovernance whilst carefully managing the cost of delivering it. Your Board hascomplied in full with the spirit of the UK Corporate Governance Code and willcontinue to do so. In this regard we plan to have an externally facilitatedreview of the Board in the coming year and I will report in due course on theresults of that review.
Sadly, George Battersby, one of our non-executive Board colleagues, passed awaylast year. He was a director from the time of the IPO in 2006 and providedvaluable insight and challenge as the Company developed in the spotlight of thepublic market. George was a valued colleague who gave great service to theCompany and was a good friend to all of us. He will be sorely missed. We have a new non-executive director, Paul Williams, who joined the board on 1April 2011. Paul has held senior executive positions in a number of blue-chipFTSE 100 companies in his career and we look forward to working with him.
I am also pleased to welcome Kevin Ruffles to the Board as Chief Operating Officer. Kevin has worked for HRG for 38 years in a number of roles and we will continue to benefit from his extensive experience.
My final words as always are to thank all those who have contributed to theCompany's success this year. In the face of many challenges, it has been anexcellent year which we should all celebrate. To my Board, executive and staffcolleagues, thank you for all the hard work. I hope you agree it has beenworth it and I look forward with you to another year of commitment and deliveryas we build the value of the Company. Chief Executive's Statement Overview
I am delighted to report on another good year for HRG, one marked by strong growth in revenue and earnings, on the back of a good recovery in activity levels. For the year ended 31 March 2011, client travel activity increased by 17% and spend by 23%. Our full-year revenue rose by 10% and underlying operating profit by 19%.
In my statement this time last year, I referred to the fact that, for most ofus involved in the travel industry, the key question was how quickly corporatetravel would recover. According to the World Travel & Tourism Council, globalbusiness travel spend rose by an estimated 7.4% in calendar 2010; the NationalBusiness Travel Association estimate was 6.2%, so the picture is broadlysimilar for both. In our case, we noted the earliest signs of an improvement during the autumn of2009. Since then, we have seen a steady recovery across all regions, thoughthe growth in corporate travel activity amongst our clients has been strongestin Asia Pacific and North America. Europe overall has shown some recoverythough the pace of recovery has varied by country. In the past year, the industry has had to cope with a number of significantevents ranging from fuel duty rises and severe winter weather to earthquakes,floods and a volcanic eruption that have disrupted travel and heightenedanxiety for those involved. Our strategy remains centred on delivering valuethrough excellent service that is tailored to the specific needs of eachclient. It is often at times of crisis and severe disruption that our clientscome to appreciate the true meaning of 'travel management' and the high qualityof our service. Our clients remain focused on optimising their travel expenditure and reducingcosts. Many of their cost-saving changes that were imposed during thefinancial crisis are still being applied. It is also fair to say that manyhave moved away from the simple mantra of cost reduction to balancevalue-adding services with total cost. As a full service provider, ourtechnology platform has delivered real value in the eyes of our clients. Goodexamples of this are the increasing use of online self-booking tools and theintroduction of mobile applications.
Financial results
Revenue of £358m was up 10% as reported, or up 7% at constant exchange rates. Underlying operating profit, which is before the amortisation of acquiredintangibles and exceptional items, was up by 19% to £41.9m, representing amargin improvement from 10.8% to 11.7%. Underlying profit before tax was up by16% to £32.9m, and underlying EPS increased by 16% from 6.3p to 7.3p.
After including the amortisation of acquired intangibles and prior-year exceptional items, reported operating profit was up by 35%, profit before tax was up by 36% and EPS increased by 43%.
In recent years, our focus has necessarily been on the reduction of ouroperating costs as our clients reduced their travel activity. As activityrecovered, we were careful not to add costs back into the business until wewere confident that the trends were likely to be sustained, and we began addingcapacity in the second half of the year (albeit at a slower rate than weremoved it) to ensure that we could continue to deliver excellent service andto support our continuing growth. As a result of this disciplined approach,average revenue per head rose by 7% at constant currency. As a result of strong management, year-end net debt reduced by £16.4m to £61.1mand represented 1.2x underlying EBITDA (2010: 1.7x), with net external interestcover of 11.2x (2010: 13.9x). Reducing net debt has been a key focus of thegroup over the last three years and the net debt has now been reduced by £49.3mfrom the peak year-end position of £110.4m in 2008. During the second half of the financial year, we completed a full refinancingof our £220m credit lines, with £190m committed until November 2014 and £30mrepayable by November 2018. Our terms are very competitive in the currentmarket, but the higher lenders' margins have contributed to the increase of £1.4m in our net external interest costs in the current year and are expected toadd around £4m for a full year.
The Board is recommending a final dividend of 1.0p per share resulting in a full-year dividend of 1.5p per share, an increase of 25% on the prior year.
Our dividend is covered 4.9x (2010: 5.3x) by underlying EPS. The final dividend will be paid on 1 August 2011 to shareholders on the register at the close of business on 1 July 2011.
Current trading and outlook
We expect that the positive momentum that we have seen will continue. Sincethe year end we have continued to trade ahead of last year and expect to makefurther progress through the rest of the year. David RadcliffeChief Executive Operational Review Market overviewThe improvement in market conditions, first seen towards the end of calendaryear 2009, marked the start of a steady recovery in global corporate travelthat has been sustained through 2010 and 2011 to date. For us, that recoverywas seen first in Asia Pacific and has since spread into North America andEurope, although the recovery for our European business has varied by country. Generally, macro indicators point to a continuing improvement in marketconditions and, importantly, an increase in business confidence. While no onedata set correlates directly with our business, the general trends in the datareleased by the International Monetary Fund, the International Air TransportAssociation (IATA) and STR Global correspond with our own experience during
theyear. IMF global growth forecasts for calendar year 2011 have been increased to about5%, with a similar rate of growth predicted for 2012. The forecasts vary byregion with, for example, China showing a figure close to 10% compared to 2%for the UK. Airline passenger numbers have clearly benefited from that turnaround. IATAfigures show that January 2011 volumes were 18% higher than the low point ofearly 2009 and 6% higher than the pre-recession peak of early 2008. Forpremium traffic, which is often taken as a measure of business confidence,volumes were almost 20% higher than the low point of mid 2009 but are stillaround 10% below their pre-recession levels. For hotels, recent data from STR Global show a similar recovery. Globally, theyear-on-year growth in monthly revenue per available room averagedapproximately 10% during the year ending March 2011 compared to a decline ofthe same magnitude for the previous year. As with the airlines, there areregional variations with the strongest growth in Asia Pacific. Client activityDuring the year, client travel spend rose by 23% or 20% at constant currencycompared to falls of 12% and 17% respectively in the prior year, while travelbooking activity rose by 17% compared to a fall of 3% in 2010.
Online self booking of simpler travel itineraries continues to appeal particularly for clients in North America, Australia and certain European countries, and the proportion of online bookings grew year-on-year.
Following the austerity of the last 18 months, we have seen increasing evidenceof some companies starting to increase activity levels, although there iscontinuing focus on cost control and compliance. Clients continue to reviewand consolidate service models that drive improvement in quality of service andprovide greater data to their business. The trend for consolidation ofmulti-country operations into single-point service locations is increasing asclients look to strengthen compliance and improve passenger security whileachieving economies of scale. We have responded by further extending ourmulti-country servicing capability. Anticipating this consolidation trend, weinvested in telephone call-switching technology and implemented more homeworking, which allowed us to further rationalise our branch network with focuson a smaller number of core 'hub' and 'specialist' locations. There were several occasions during the year when our clients' travel patternswere disrupted as a consequence of factors beyond their control. Theseincluded the closing of European airspace as a result of the ash emitted byIceland's Eyjafjallaj¶kull volcano, the severe weather conditions in Europe andNorth America, the natural disasters that occurred in New Zealand, Australiaand Japan, and the events unfolding in the Middle East and North Africa. Allthese events have led to an increased focus on passenger security. They havealso served to highlight the value that our clients place on the breadth anddepth of the travel management service that they receive from HRG as our staffwork tirelessly to help manage difficult situations and to provide alternativetravel itineraries wherever possible. Our focus on delivering bespoke travel management solutions, which lies at theheart of our business model, has resulted in our enjoying another successfulyear of client retention and new business. Like any global business, we lostsome clients during the year. Nevertheless, we have maintained our managedclient retention rate above 90% and grown our business with net new businesswins.
Amongst many new clients that we welcomed during the year were Aviva, Avon, Bank of America Merrill Lynch Asia, Direct Energy, Grant Thornton and Noble Energy. We also secured expanded contracts with existing clients such as Agilent, Ericsson, Novartis, Rolls Royce, SGS Group, Syngenta and Volkswagen.
We are delighted to have secured contract renewals with, amongst others, Bilfinger Berger, Bombardier, Diageo, Foreign & Commonwealth Office, GlaxoSmithKline, KPMG, Ministry of Defence, National Australia Bank, Patheon, Procter & Gamble, Roche, Schlumberger, UBS, Weatherford and Willis.
Our sales pipeline remains strong across many different sectors. One of ourkey strengths is the breadth of our client portfolio, which spans a range ofindustries, with no single client accounting for a significant share of clientrevenue. Corporate Travel Management EuropeYears ended 31 March 2011 2010 Change Revenue £244.6m £229.6m +6.5% Operating profit £27.8m £21.9m +£5.9m
Underlying operating profit (1) £30.8m £28.1m +£2.7m
Underlying margin (1) 12.6% 12.2% +0.4 ppts
(1) Before amortisation of acquired intangibles and exceptional items
Revenue was up by 6.1% at constant currency. Underlying operating profit roseby £2.7m, including a £0.6m benefit from currency movements. Client travelspend increased by 18% year-on-year at constant currency and travel activityrose by 13%.
Our focus on large multinational managed clients means that we are managing ourbusiness increasingly on a pan-European and even global basis rather thanthrough individual countries, as the trend amongst our larger clients toconsolidate their travel spend through fewer locations continues. We continuedto rationalise our service network in Europe during the year to focus, whereappropriate, on fewer service points or strategic hubs. We continue to lookfor further service and cost efficiencies without reducing the quality of ourservice. Over 300 of our people now work from home which allows us to furtherconsolidate our branch network. Online, self-booking adoption rates continued to grow and now account for 25%of all European travel bookings, up from 17% last year. The branch networkconsolidation, increasing flexibility from telephony call-flow switching, andthe growing number and proportion of our travel consultants working from homehave all helped us to continue to be price competitive whilst maintaining ourmargins. Our UK business produced another robust performance. The inevitable reductionin travel activity by our Government clients was offset by increases in othersectors and we achieved an overall increase in travel spend. In Germany, there was further evidence of clients returning to pre-recessionlevels and this allowed a return to normal working patterns following thereduced working-time initiative introduced by the German Government in March2009. In October, we initiated service for Volkswagen, a major client won
lastfinancial year. Our Swiss business showed notable year-on-year growth as key clients increasedtheir travel significantly. We also began to benefit from trading with severalnew clients including Novartis. Here too, last year's reduced working hoursinitiative was discontinued. North AmericaYears ended 31 March 2011 2010 Change Revenue £77.5m £69.3m +11.8% Operating profit/(loss) £9.2m £6.1m +£3.1m
Underlying operating profit (1) £9.9m £6.8m +£3.1m
Underlying margin (1) 12.8% 9.8% +3.0 ppts
(1) Before amortisation of acquired intangibles and exceptional items
Revenue was up 5.9% at constant currency. Underlying operating profit grew by£3.1m, including a £0.7m gain from currency movements and after a £1.0m one-offcharge related to surplus property. Client travel spend increased by 22%year-on-year at constant currency and travel activity rose by 24%.
Market conditions in North America improved steadily through the year.
Following the restructuring of HRG's North American operations in recent yearsthe strong growth in revenue, combined with operational gearing, improved theunderlying operating margin to a level comparable with our European business.
Domestic travel in North America is well suited to online self booking, which now represents more than half of all corporate air transactions. The North American travel market remains highly competitive and our investment in efficient systems enables us to handle large numbers of lower price transactions.
Our loyalty business in Canada, which manages the redemption of credit card loyalty points for several banks, had another year of good performance.
Asia PacificYears ended 31 March 2011 2010 Change Revenue £23.4m £16.7m +40.1% Operating profit/(loss) £0.4m (£1.1m) +£1.5m
Underlying operating profit/(loss) (1) £0.4m (£1.1m) +£1.5m
Underlying margin (1) 1.7% -6.6% +8.3 ppts
(1) Before amortisation of acquired intangibles and exceptional items
Revenue was up by 25.7% at constant currency. There was no currency impact onthe £1.5m increase in underlying operating profit. Client travel spendincreased by 31% year-on-year at constant currency and travel activity rose
by37%.
In Australia, our largest market in the region, we benefitted from a strongrecovery in travel spend and activity. The first full year of adoption of ourfully-integrated travel and expense management system for the QueenslandGovernment contributed to a strong result. We were also very pleased to beappointed to the panel of preferred suppliers to the Australian FederalGovernment during the year and believe that this should offer further growthopportunities. With online self booking now accounting for around half of allbookings, we have consolidated our e-fulfilment and e-support teams to supportthis trend. Singapore also saw a strong recovery during the year with many clientsreturning to pre-recession levels. This was especially true in the financialsectors which were the first to show recovery. Singapore is becoming a naturalkey hub for client travel consolidation in the region and we opened a newregional service centre to provide a multi-country service consolidation forone of our larger Manufacturing clients as the first phase in our plans forregional consolidation.
HRG's joint ventures in Hong Kong and mainland China also delivered strong growth. As associates, their results are not included in the table above.
SpendvisionYears ended 31 March 2011 2010 Change Revenue £12.5m £11.2m +11.6% Operating profit £0.5m £1.1m -£0.6m
Underlying operating profit (1) £0.8m £1.4m -£0.6m
Underlying margin (1) 6.4% 12.5% -6.1 ppts
(1) Before amortisation of acquired intangibles and exceptional items
Revenue was up 4.5% at constant currency. Underlying operating profit fell by £0.6m as we continued to invest in product delivery and customer support.
Spendvision provides transaction management solutions including end-to-endexpense management. Its online technology automates expense claims processingfor employees while offering a company enhanced control and visibility of itsindirect expenses. The platform also delivers a payables management system tobanks and their corporate customers, with the ability to improve thepurchase-to-pay (P2P) process. Spendvision's platform is accessed fromcustomers in nearly 130 countries and is available in 16 languages. The utilisation of the Visa IntelliLink Spend Management product, a white-labelversion of Spendvision's platform, is continuing as issuing banks convert fromVisa's existing system. The worldwide roll-out of the Spendvision platform toRio Tinto is also continuing and we have won new UK business in the Universityand Local Government sectors, building on our developing position in thesemarkets.
Spendvision has a strong pipeline of new business opportunities, with particular focus on banking.
TechnologyTravel management in the modern era is heavily reliant on data and analysis,with technology recognised as a critical success factor. HRG's systems allowus to offer a wide variety of proprietary applications and products but arealso compatible with third-party offerings. We believe that our long-heldcommitment to the development of in-house technology gives us a competitiveadvantage over those who are reliant on third-party providers withoff-the-shelf products. Nonetheless, we also retain a full capability to workwith client designated third-party suppliers when necessary. Our systems provide access to travel itineraries, alternative pricing, policycompliance, online self-booking tools and security tracking of passengers. They also allow our staff to access information from multiple sources,regardless of data source, thereby ensuring that we can provide an efficient,rapid and cost-effective service. During the year we released upgrades to all of our major technology products,including HRG i-SuiteTM, our travel portal which is a customisable gateway andsingle source for all our clients' travel information, products, tools andservices, and HRG OnlineTM, our online booking tool, adding a new module thatdisplays savings on UK rail costs.
We also launched a number of new products:
* HRG Security SuiteTM delivers a whole range of security services from
pre-trip destination intelligence, traveller tracking and security training
to international emergency response services in association with global
security experts, red24. In view of recent geo-political events in certain
regions of the world, this solution is proving attractive to many of our
clients. We are frequently able to alert travellers to situations and
offer alternative arrangements, before their own corporations are aware of
the need.
* Our first point of sale application, linking HRG with suppliers and global
distribution systems using our own technology interface, became live in the
UK.
We commenced development of a white-label version of HRG OnlineTM, which enables clients to make air, hotel, rail and ground transport reservations quickly and efficiently. This followed an agreement signed last year with Travelport which enables it to market a fully-branded version of HRG's booking tool to its corporate clients. This is a very exciting initiative as it broadens the reach of one of our principal products and is testament to the quality of our technology.
Mobile use is a fast-growing aspect of business life, and most businesstravellers now carry a smartphone mobile device. HRG's Universal SuperPlatform, our proprietary technology platform upon which all our travel-bookingapplications sit, is built on the Microsoft BizTalk platform and supportscommunication with internal and third-party systems via the internet. We aredeveloping mobile solutions that add real value to our clients. Last summer,we announced a mobile technology partnership with Sabre Travel Network enablingHRG to offer its clients TripCase, a mobile itinerary management application. Towards the end of the financial year we delivered access to HRG i-SuiteTM andHRG OnlineTM through a mobile enabled website and application for MicrosoftWindows 7 smartphone, and we plan to roll out delivery for BlackBerry, Androidand Apple iPhone and iPad devices in the near future. Technology allows companies to manage their travel programmes efficiently whileenhancing the traveller experience. We believe HRG's technology is leading theway amongst global travel management companies.
Additional Financial Disclosure
Revenue
Reported revenue increased by 9.5% to £358.0m, comprised of an increase of 7.0% at constant exchange rates and an increase of 2.5% from favourable currency translation.
Revenue per employee
Reported revenue per employee increased by 9.9% from £61.4k to £67.5k. At constant exchange rates this was an increase of 7.3%.
Operating expenses
Reported operating expenses increased by 7.1% to £320.1m.
Underlying operating expenses, which are before amortisation of acquiredintangibles and exceptional items, increased by 8.4% from £291.6m to £316.1m,or by 6.0% at constant exchange rates. This increase is comprised of 6.5% forstaff costs and 5.0% for other expenses.
The increase of 6.5% in staff costs reflects higher costs for staff incentives and UK pensions.
Underlying operating profit
Underlying operating profit, which is before amortisation of acquired intangibles and exceptional items, increased by 19.0% from £35.2m to £41.9m, including a benefit of £1.2m from favourable currency movements. The underlying operating profit margin, which has not been affected by currency movements, increased from 10.8% to 11.7%.
Exceptional items
There were no exceptional items reported in the period. A £3.3m charge was reported in the prior year relating to cost reduction programmes in Europe.
Net finance costs
Net finance costs increased by £2.0m to £9.0m as a result of the November 2010debt refinancing described below. The increase reflects higher interest costsand accelerated amortisation of debt issue costs relating to the previousfacilities. Following the refinancing, higher lenders' margins contributed to the increaseof £1.4m in net external interest costs for the year and are expected to addaround £4m for a full year.
Net external interest costs of £4.6m were covered 11.2 times by EBITDA (2010: 13.9x).
The IAS 19 pension charge, which increased to £3.3m for the year, is expected to decrease by £0.9m in the year to 31 March 2012.
Taxation
The tax charge for the year represents an overall effective tax rate (ETR) of31.5% of the reported profit before tax (2010: 32.5%). The current year ETRincludes a £0.5m charge relating to the impact on deferred tax assets of areduction in the UK corporation tax rate from 28% to 26%. An additional chargeof £2.1m is reflected in the Consolidated Statement of Comprehensive Income inrespect of deferred tax assets on pension liabilities. We anticipate an ETR ofaround 30% in future years. Return on capital employedReturn on capital employed is calculated by dividing underlying operatingprofit plus net share of the results of associates and joint ventures byaverage net assets. Average net assets are based on the 12 month ends for thefinancial year and exclude net debt, pension deficits and tax provisions. Average net assets amounted to £216.4m (2010: £209.4m) compared with £162.5m atthe year end (2010: £165.9m). The return for the year was 19.4% (2010: 16.9%). Cash flowFree cash flow, which is the change in net debt before acquisitions anddisposals, dividends and the impact of foreign exchange movements on net debtbalances, was £21.4m (2010: £16.2m) with the increase being consistent with theimproved profit for the year. Working capital increased by £1.8m, primarily due to a reduction in the activeworking capital programme described below. The cash outflow related toborrowings was £6.8m (2010: £2.8m), including £3.6m of fees associated with therefinancing. Tax paid in cash was £9.3m (2010: £5.1m) and capital expenditure,which is primarily internal software development and office equipment, was
£8.7m (2010: £11.1m). Cash costs for additional pension funding reduced to £6.1m (2010: £7.6m).
In addition to free cash flow, the other major cash flow items are related todividends paid to shareholders during the year, which were £3.9m in the currentyear compared to £1.2m in the prior year when only an interim dividend was
paidin cash. Funding and net debtThe Group completed the full refinancing of its credit lines in November 2010. The Group's principal borrowing is from a £190m multi-currency revolving creditfacility (RCF) that is committed until November 2014. The RCF is used forloans, letters of credit and guarantees with interest based on LIBOR/EURIBORplus a margin and costs. In addition, the Group has secured a £30m fixed rateloan which is repayable by 2018 and also has retained uncommitted facilities,amounting to around £24m at the year end, which are used for local flexibility. The principal banking covenants for the RCF continue to be measured twice eachyear, at the end of March and the end of September, against EBITDA. Thecovenants require that net debt is less than 3.0 times EBITDA and net externalinterest is covered at least 4.0 times by EBITDA. The definition of EBITDA forcovenant purposes is not materially different from the definition used in thesefinancial statements. Net debt at year end reduced by £16.4m to £61.1m, and was equivalent to 1.2times EBITDA (2010: 1.7x). This translates into gearing of 36% (2010: 45%), or74% (2010: 99%) including the pension deficits and related deferred taxassets. The Group has an active programme to reduce working capitalrequirements at the end of each half-year reporting period. This programmereduced working capital by approximately £31m at the year end compared to £35min March 2010. The average net debt, measured on a weekly basis, reduced by £11m during the year. Pensions
The Group's pension deficits under IAS 19 have decreased by £11.7m to £114.7m before tax.
The UK scheme deficit decreased by £11.8m to £104.1m. The scheme assetsincreased by £16.8m and the scheme liabilities increased by £5.0m. The majorchanges were due to a lower inflation rate assumption (£2.7m) and a change ininflation index from RPI to CPI (£4.5m). Annual cash contributions amounted to15.2% of pensionable salaries plus a deficit reduction payment of £6.6m perannum. The total charge against profits increased by £1.6m to £5.8m. The nextactuarial valuation will be effective from April 2011 and discussions havealready commenced with Trustees.
The overseas schemes are primarily in Germany and Switzerland, where the year-end deficit increased by £0.1m to £10.6m.
At the year end, there was a deferred tax asset of £27.0m (2010: £32.4m)relating to the UK deficit and a liability of £0.9m (2010: £0.4m) relating tothe overseas schemes. The change in UK deferred tax is due to the reduction inthe headline rate of UK corporation tax.
Share price
The closing mid-market price at the year end was 58p (2010: 31.5p). During the year, the price ranged from 26p to 60.75p per share.
Summary income statement Years ended 31 March 2011 2010 £m £m Revenue 358.0 326.8 EBITDA before exceptional items 51.6
44.5
Depreciation and amortisation (1) (9.7) (9.3) Underlying operating profit 41.9 35.2 Amortisation of acquired intangibles (4.0) (3.9) Exceptional items - (3.3)
Share of associates and joint ventures -
0.2 Net finance costs (9.0) (7.0) Profit before tax 28.9 21.2 Taxation (9.1) (6.9) Profit for the year 19.8 14.3 Summary balance sheet As at 31 March 2011 2010 £m £m Goodwill and other intangible assets 249.9
253.5
Property, plant, equipment and investments 15.3 17.5 Working capital (99.8) (101.2) Current tax liabilities (net) (4.7) (8.4) Deferred tax assets (net) 38.9 47.2 Net debt (61.1) (77.5) Pension liabilities (pre-tax) (114.7) (126.4) Provisions and other items (2.8) (4.0) Net assets 21.0 0.7 Summary cash flow statement Years ended 31 March 2011 2010 £m £m EBITDA before exceptional items 51.6
44.5
Cash flow from exceptional items (0.9) (7.0) Working capital movements (1.8) 5.7 Interest paid (3.2) (2.8) Refinancing costs (3.6) - Tax paid (9.3) (5.1) Capital expenditure (8.7) (11.1) Pension funding in excess of EBITDA charge (6.1) (7.6) Other movements 3.4 (0.4) Free cash inflow 21.4 16.2 Acquisitions and disposals (0.8) (0.3) Dividends paid to external shareholders (3.9) (1.2) Currency translation (0.3) (5.8) Other movements - (1.1) Decrease in net debt 16.4 7.8
Excluding amortisation of acquired intangibles
Hogg Robinson Group plcConsolidated Income Statement
For the year ended 31 March 2011
Years ended 31 March Notes 2011 2010 £m £m Revenue 1 358.0 326.8 Operating expenses 2 (320.1) (298.8) Operating profit 37.9 28.0 Analysed as: Underlying operating profit 41.9 35.2
Amortisation of acquired intangibles 8 (4.0) (3.9)
Exceptional items 2 - (3.3) Operating profit 37.9 28.0
Share of results of associates and joint ventures - 0.2
Finance income 4 0.2 0.2 Finance costs 4 (9.2) (7.2) Profit before tax 28.9 21.2 Income tax expense 5 (9.1) (6.9)
Profit for the financial year from continuing 19.8 14.3
operations Profit attributable to:
Equity shareholders of the Company 19.1 13.4
Non-controlling interests 13 0.7 0.9 19.8 14.3 Years ended 31 March 2011 2010 Earnings per share 6 pence pence Basic 6.3 4.4 Diluted 6.1 4.3 Hogg Robinson Group plc
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2011
Years ended 31 March Notes 2011 2010 £m £m Profit for the financial year 19.8 14.3 Other comprehensive income Currency translation differences (1.5)
(11.8)
Actuarial gain / (loss) on pension schemes 11 8.5
(66.0)
Deferred tax movement on pension liability (2.4)
18.7
Deferred tax movement on pension liability
attributable to impact of UK rate change (2.1) -
Deferred tax movement on cumulative share-based
- incentives cost 0.3 Other comprehensive income / (loss) for the year, net 2.8 (59.1)of tax Total comprehensive income / (loss) for the year 22.6 (44.8)
Total comprehensive income / (loss) attributable to:
Equity shareholders of the Company 21.8 (45.7) Non-controlling interests 0.8 0.9 22.6 (44.8) Hogg Robinson Group plcConsolidated Balance SheetAs at 31 March 2011 As at 31 March Notes 2011 2010 £m £m Non current assets Goodwill and other intangible assets 8 249.9
253.5
Property, plant and equipment 9 12.9
14.8
Investments accounted for using the equity method 2.4
2.7 Trade and other receivables 0.1 0.1 Deferred tax assets 40.9 48.8 306.2 319.9 Current assets Trade and other receivables 114.7 115.4
Financial assets - derivative financial instruments -
0.2 Current tax assets 0.7 1.0
Cash and cash equivalent assets 70.5
58.8 185.9 175.4 Total assets 1 492.1 495.3 Non current liabilities Financial liabilities - borrowings (128.0) (135.1) Deferred tax liabilities (2.0) (1.6) Retirement benefit obligations 11 (114.7) (126.4) Provisions (4.2) (3.5) (248.9) (266.6) Current liabilities Financial liabilities - borrowings (0.3)
(0.4)
Financial liabilities - derivative financial instruments (0.3)
- Current tax liabilities (5.4) (9.4) Trade and other payables (214.6) (216.7) Provisions (1.6) (1.5) (222.2) (228.0) Total liabilities (471.1) (494.6) Net assets 21.0 0.7 Capital and reserves Share capital 3.1 3.1 Share premium 172.2 172.2 Other reserves 12 14.0 13.4 Retained earnings 12 (171.9) (191.4) Attributable to owners of Hogg Robinson Group plc 17.4 (2.7)
Attributable to non-controlling interests 13 3.6
3.4 Total equity 21.0 0.7 Hogg Robinson Group plc
Consolidated Statement of Changes in Equity
As at 31 March 2011 Attributable to equity holders of the Company Share Share Other Retained Non-controlling Total capital premium reserves earnings Total interests Equity £m £m £m £m £m £m £m Balance at 1 April 2009 3.1 172.2 24.1 (155.2) 44.2 3.5 47.7 Retained profit for the - - - 13.4 13.4 0.9 14.3financial year Other comprehensive income: Actuarial loss on pension - - - (66.0) (66.0) - (66.0)schemes Deferred tax movement on - - - 18.7 18.7 - 18.7pension liability Currency translation - - (11.8) - (11.8) - (11.8)differences Total comprehensive income - - (11.8) (33.9) (45.7) 0.9 (44.8) Transactions with owners: Dividends - - - (1.2) (1.2) (1.0) (2.2) Shares purchased by - - - (1.1) (1.1) - (1.1)Employee Benefits Trust Share-based incentives - - 1.1 - 1.1 - 1.1
Total transactions with owners - - 1.1 (2.3) (1.2)
(1.0) (2.2) Balance at 1 April 2010 3.1 172.2 13.4 (191.4) (2.7) 3.4 0.7 Retained profit for the - - - 19.1 19.1 0.7 19.8financial year Other comprehensive income: Actuarial loss on pension - - - 8.5 8.5 - 8.5schemes Deferred tax movement on - - - (2.4) (2.4) - (2.4)pension liability Deferred tax movement on pension liability attributable to impact - - - (2.1) (2.1) - (2.1)of UK rate change Deferred tax movement on cumulative share-based incentives - - - 0.3 0.3 - 0.3cost Currency translation - - (1.6) - (1.6) 0.1 (1.5)differences Total comprehensive income - - (1.6) 23.4 21.8 0.8 22.6 Transactions with owners: Dividends - - - (3.9) (3.9) (0.6) (4.5) Share-based incentives - - 2.2 - 2.2 - 2.2
Total transactions with owners - - 2.2 (3.9) (1.7)
(0.6) (2.3) Balance at 31 March 2011 3.1 172.2 14.0 (171.9) 17.4 3.6 21.0 Hogg Robinson Group plc
Consolidated Cash Flow Statement
For the year ended 31 March 2011
Years ended 31 March Notes 2011 2010 £m £m
Cash flows from operating activities Cash generated from operations 14 46.9
36.2 Interest paid (3.6) (3.6) Tax paid (9.3) (5.1)
Cash flows from operating activities - net 34.0
27.5
Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired (0.8)
-
Acquisition of associates, joint ventures and other - (0.3)investments Purchase of property, plant and equipment (3.3)
(4.5)
Purchase and internal development of intangible assets 8 (5.4) (6.7)
Proceeds from sale of property, plant and equipment -
0.1 Interest received 0.2 0.3
Dividends received from associates and joint ventures 0.2
0.5 Cash flows from investing activities - net (9.1) (10.6)
Cash flows from financing activities
Repayment of borrowings (176.3) (40.3) New borrowings 170.8 21.1 Issue costs of new borrowings (3.6) - Cash effect of currency swaps 0.1 (1.2) Employee Benefits Trust 12 - (1.1) Dividends paid to external shareholders (3.9)
(1.2)
Dividends paid to non-controlling interests (0.6) (1.0) Cash flows from financing activities - net (13.5) (23.7) Net increase / (decrease) in cash and cash equivalents 11.4
(6.8)
Cash and cash equivalents at beginning of the year 58.2
63.3 Exchange rate effects 0.8 1.7
Cash and cash equivalents at end of the year 70.4
58.2
Cash and cash equivalent assets 70.5
58.8 Overdrafts (0.1) (0.6) 70.4 58.2
Additional Financial Information
General information and basis of preparation
The financial information which comprises the Consolidated Income Statement,the Consolidated Statement of Comprehensive Income, the Consolidated BalanceSheet, the Consolidated Statement of Changes in Equity and the ConsolidatedCash Flow Statement and related notes does not constitute the Company'sConsolidated Financial Statements for the years ended 31 March 2011 and 2010,but is derived from those financial statements. The auditors have reported onthe Group's Consolidated Financial Statements for each of the years ended 31March 2010 and 31 March 2011. Their reports were unqualified, did not drawattention to any matters by way of emphasis and did not contain statementsunder s498(2) or (3) of Companies Act 2006 or equivalent precedinglegislation. The Consolidated Financial Statements for the year ended 31 March2010 have been delivered to the Registrar of Companies and the ConsolidatedFinancial Statements for the year ended 31 March 2011 will be filed with theregistrar in due course.
The Consolidated Financial Statements have been prepared in compliance withInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion, International Financial Reporting Interpretations Committee (IFRIC)interpretations and with those parts of the Companies Act 2006 applicable tocompanies reporting under IFRS. The Consolidated Financial Statements havebeen prepared under the historical cost convention, as modified by the use ofvaluations for certain financial instruments, share-based payment incentivesand retirement benefits.
Critical accounting policies and forward-looking statements
The preparation of the IFRS financial statements requires the use of estimatesand assumptions that affect the reported amounts of assets and liabilities atthe date of the Consolidated Financial Statements and the reported amounts ofrevenues and expenses during the year. The Operational Review should be read in conjunction with the auditedConsolidated Financial Statements. The discussions contain forward-lookingstatements that appear in a number of places and include statements regardingHRG's intentions, beliefs or current expectations concerning, among otherthings, results of operations, revenue, financial condition, liquidity, growth,strategies, new products and the markets in which HRG operates. Readers arecautioned that any such forward-looking statements are not guarantees of futureperformance and involve risks and uncertainties. Non-GAAP measures
Underlying operating profit is calculated as operating profit before amortisation of acquired intangibles and exceptional items
Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) is calculated as operating profit before exceptional items before net finance costs, income taxes, depreciation, amortisation and impairment.
The Directors believe that the presentation of underlying operating profit andEBITDA enhances an investor's understanding of HRG's financial performance.However, underlying operating profit and EBITDA should not be considered inisolation or viewed as substitutes for retained profit, cash flow fromoperations or other measures of performance as defined by IFRS. Underlyingoperating profit and EBITDA as used in this announcement is not necessarilycomparable to other similarly titled captions of other companies due topotential inconsistencies in the method of calculation and are unaudited lineitems but are derived from audited financial information. The Directors useunderlying operating profit and EBITDA to assess HRG's operating performanceand to make decisions about allocating resources among various reportingsegments. 1 Segment information
The chief operating decision maker has been identified as the Executive Management Team, which reviews the Group's internal reporting in order to assess performance and allocate resources. The Executive Management Team has determined the operating segments based on these reports.
The Executive Management Team considers the business from the perspective oftwo core activities, Corporate Travel Management, which is analysed into threedistinct geographic segments, and Spendvision. The Group's internal reportingprocesses do not distinguish between the numerous sources of income thatcomprise revenue for Corporate Travel Management. The performance of theoperating segments is assessed based on a measure of operating profit excludingitems of an exceptional nature. Interest income and expenditure and income taxexpense are not included in the result for each operating segment that isreviewed by the Executive Management Team. Other information provided, exceptas noted below, to the Executive Management Team is measured in a mannerconsistent with that in the financial statements. Total segment assets exclude cash and cash equivalent assets, current taxassets and deferred tax assets which are managed on a central basis. These areincluded as part of the reconciliation to total Consolidated Balance Sheetassets. Corporate Travel Management North Asia Europe America Pacific Total Spendvision Total £m £m £m £m £m £m Year ended 31 March 2011
Revenue from external customers 244.6 77.5 23.4 345.5
12.5 358.0 Underlying operating profit 30.8 9.9 0.4 41.1 0.8 41.9
Amortisation of acquired intangibles (3.0) (0.7) - (3.7)
(0.3) (4.0) Operating profit 27.8 9.2 0.4 37.4 0.5 37.9 Underlying margin 12.6% 12.8% 1.7% 11.9% 6.4% 11.7% Year ended 31 March 2010
Revenue from external customers 229.6 69.3 16.7 315.6
11.2 326.8 Underlying operating profit 28.1 6.8 (1.1) 33.8 1.4 35.2
Amortisation of acquired intangibles (2.9) (0.7) - (3.6)
(0.3) (3.9)
Operating profit before exceptional items 25.2 6.1 (1.1) 30.2
1.1 31.3 Exceptional items (3.3) - - (3.3) - (3.3) Operating profit 21.9 6.1 (1.1) 26.9 1.1 28.0 Underlying margin 12.2% 9.8% -6.6% 10.7% 12.5% 10.8%
There is no material inter-segment revenue.
External revenue from clients by geographical area (where the client is located) is not materially different from external revenue from clients by origin (where the Group's operations are located) disclosed above.
A reconciliation of operating profit to total profit before income tax expense is provided in the Consolidated Income Statement.
Corporate Travel Management North Asia Europe America Pacific Total Spendvision Total £m £m £m £m £m £m Total segment assets 31 March 2011 268.2 89.4 15.8 373.4 6.6 380.0 31 March 2010 272.0 95.7 12.1 379.8 6.9 386.7
Reported segments' assets are reconciled to total assets as follows:
31 March 31 March 2011 2010 £m £m Total segment assets 380.0 386.7 Cash and cash equivalent assets 70.5 58.8 Current tax assets 0.7 1.0 Deferred tax assets 40.9 48.8 492.1 495.3
Capital expenditure by geographical location:
Corporate Travel Management North Asia Europe America Pacific Total Spendvision Total £m £m £m £m £m £m Capital expenditure 31 March 2011 6.2 1.6 0.4 8.2 1.0 9.2 31 March 2010 4.6 4.5 0.1 9.2 2.0 11.2 2 Operating expenses Years ended 31 March 2011 2010 £m £m
Underlying operating expenses
Staff costs (note 3) 210.4 193.6
Amortisation of intangible assets other than acquired 4.4
4.2intangible assets
Depreciation of property, plant and equipment 5.3
5.1
Auditors' remuneration for audit services 1.3
1.6
Operating lease rentals - buildings 14.1
14.7
Operating lease rentals - other assets 1.8
1.8
Loss on disposal of property, plant and equipment 0.5
0.1
Currency translation differences 0.2
0.2 Other expenses 78.1 70.3 316.1 291.6
Amortisation of acquired intangibles: Amortisation of client relationships 3.7
3.6
Amortisation of other acquired intangible assets 0.3
0.3 4.0 3.9 Exceptional items: Restructuring costs: - Staff costs (note 3) - 2.6 - Other expenses - 0.7 - 3.3 Total operating expenses 320.1 298.8
Restructuring costs of £3.3m were incurred during the year ended 31 March 2010 and related to planned cost reduction programmes in Europe. They were in respect of redundancy costs and onerous lease provisions.
3 Staff costs Years ended 31 March 2011 2011 2011 2010 2010 2010 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m £m £m Salaries 175.5 - 175.5 163.4 - 163.4 Social security costs 20.6 - 20.6 19.0 - 19.0 Pension costs 9.9 - 9.9 8.4 - 8.4 Redundancy and termination costs 2.2 - 2.2 1.7 2.6 4.3 Share-based incentives 2.2 - 2.2 1.1 - 1.1 210.4 - 210.4 193.6 2.6 196.2 Pension costs comprise:
Defined benefit schemes (note 3.7 - 3.7
2.3 - 2.311)
Defined contribution schemes 6.2 - 6.2
6.1 - 6.1 9.9 - 9.9 8.4 - 8.4 Years ended 31 March 2011 2010 number number
Average monthly number of staff employed by the Group including Key 5,307 5,319Management 4 Finance income and finance costs Years ended 31 March 2011 2010 £m £m
Finance income - bank interest
0.2 0.2
Interest on bank overdrafts and loans
(4.0) (3.4)
Amortisation of issue costs on bank loans
(1.1) (0.6)
Expected return on pension scheme assets less interest cost on pension scheme liabilities (note 11) (3.3) (3.2) Other finance charges (0.5) -
Interest on derivative financial instruments
(0.3) - Finance costs (9.2) (7.2) Net finance costs (9.0) (7.0) 5 Income tax expense Years ended 31 March 2011 2010 £m £m Current tax:
Tax on profits of the financial year 6.6
6.1
Adjustments in respect of previous years (1.6) (0.9) Total current tax 5.0 5.2 Deferred tax:
Origination and reversal of temporary differences 4.1
1.7
Adjustments in respect of previous years (0.5)
- Impact of UK rate change 0.5 - Total deferred tax 4.1 1.7 Taxation charge 9.1 6.9
The tax charge is split as follows:
Years ended 31 March 2011 2010 £m £m United Kingdom 3.7 3.6 Overseas 5.4 3.3 Taxation charge 9.1 6.9 Years ended 31 March 2011 2010 £m £m On recurring business 10.3 8.4 Tax on amortisation of acquired intangibles (1.2) (1.2) Exceptional items - (0.3) Taxation charge 9.1 6.9 6 Earnings per share Earnings per share attributable to equity holders of the Company were asfollows: Years ended 31 March 2011 2010 pence pence Earnings per share Basic 6.3 4.4 Diluted 6.1 4.3 Basic earnings per share (EPS) is calculated by dividing the earningsattributable to equity holders of the Company by the weighted average number ofOrdinary shares outstanding during the year, excluding those purchased by theCompany's Employee Benefits Trust. For diluted earnings per share, the weighted average number of Ordinary sharesin issue is adjusted to assume conversion of all dilutive potential Ordinaryshares. The following amounts have been used in the calculation of earnings per share: Years ended 31 March 2011 2010 £m £m
Earnings for the purposes of earnings per share:
Profit for the financial year 19.8 14.3 Less: amount attributable to non-controlling interests (0.7) (0.9) Total 19.1 13.4 Years ended 31 March 2011 2010 number number m m
Weighted average number of Ordinary shares in issue
Issued (for basic EPS) 301.0 301.5
Effect of dilutive potential Ordinary shares - share-based 12.9
9.9incentives For diluted EPS 313.9 311.4
The weighted average number of issued Ordinary shares is lower in the year ended 31 March 2011 compared to the year ended 31 March 2010 due to the impact of the shares purchased by the Employee Benefits Trust.
The Employee Benefits Trust has waived its rights to dividends.
Underlying earnings per share
Underlying earnings per share attributable to equity holders of the Companywere as follows: Years ended 31 March 2011 2010 pence pence
Underlying earnings per share
Basic 7.3 6.3 Diluted 7.0 6.1 Underlying earnings per share is calculated on the profit attributable toequity holders of the Company before amortisation of acquired intangibles andexceptional items after charging taxation associated with those profits of
£21.9m (2010: £19.1m). Years ended 31 March 2011 2010 £m £m
Earnings for the purposes of underlying earnings per
share:
Profit before tax from continuing operations 28.9
21.2
Add: amortisation of acquired intangibles 4.0
3.9 Add: exceptional items - 3.3
Underlying profit before tax 32.9
28.4
Underlying income tax expense (10.3) (8.4)
Underlying profit for the financial year 22.6
20.0
Less: amounts attributable to non-controlling interests (0.7) (0.9) Total 21.9 19.1 7 Dividends per share The dividends to the Company's shareholders in the year ended 31 March 2011were: Years ended 31 March 2011 2010 £m £m Final dividend in respect of year ended 31 March 2010 0.8p per share (31 March 2009 0.0p per share) 2.4 - Interim dividend in respect of year ended 31 March 2011 0.5p per share (31 March 2010 0.4p per share) 1.5 1.2
Total dividends to the Company's shareholders (note 3.9 1.212) A final dividend in respect of the year ended 31 March 2011 of 1.0p perOrdinary share, amounting to a total dividend of £3,014,785, is to be proposedat the Annual General Meeting on 25 July 2011. The Employee Benefits Trust haswaived its rights to dividends. 8 Goodwill and other intangible assets Years ended 31 March 2011 2010 £m £m Goodwill 221.0 221.8 Other intangible assets 28.9 31.7 249.9 253.5 Computer software Externally Internally Client Goodwill acquired generated relationships Total £m £m £m £m £m Cost At 1 April 2009 252.0 16.9 12.1 38.1 319.1 Additions - 1.6 5.1 - 6.7 Disposals - (2.9) - - (2.9) Adjustments to deferred (0.2) - - - (0.2)consideration Exchange differences (3.6) 0.6 0.7 (0.7) (3.0) At 31 March 2010 248.2 16.2 17.9 37.4 319.7 Additions - 0.8 4.6 - 5.4 Exchange differences (0.8) - 0.1 0.7 - At 31 March 2011 247.4 17.0 22.6 38.1 325.1 Accumulated amortisation At 1 April 2009 26.4 12.0 4.5 18.2 61.1 Amortisation charge for the year - 1.9 2.6 3.6 8.1 Disposals - (2.9) - - (2.9) Exchange differences - 0.2 (0.1) (0.2) (0.1) At 31 March 2010 26.4 11.2 7.0 21.6 66.2 Amortisation charge for the year - 1.5 3.2 3.7 8.4 Exchange differences - 0.1 (0.1) 0.6 0.6 At 31 March 2011 26.4 12.8 10.1 25.9 75.2 Carrying amount At 1 April 2009 225.6 4.9 7.6 19.9 258.0 At 31 March 2010 221.8 5.0 10.9 15.8 253.5 At 31 March 2011 221.0 4.2 12.5 12.2 249.9
The amortisation charge for the year of £8.4m (2010: £8.1m) is comprised of £4.0m (2010: £3.9m) in respect of intangible assets acquired via businesscombinations and £4.4m (2010: £4.2m) which relates to amortisation of softwarepurchased and internally generated by existing businesses. Impairment of goodwill The recoverable amount used in the assessment of goodwill for all cashgenerating units comprises the higher of value in use and net realisablevalue. During the year the Group reviewed its discount rate and long termgrowth rates and these have been applied in the assessment. The value in usehas been calculated by discounting at 10% per annum (2010: 8% per annum) theanticipated pre-tax cash flows. The forecasts are prepared from managementinformation taking into account historical trading performance and anticipatedchanges in future market conditions. The detailed forecasts cover a period ofthree years from the balance sheet date; cash flows are projected beyond thatperiod based on market consensus for GDP growth of 2% (2010: 2%). Goodwill consists of the following amounts related to cash generating units ofthe Group: Years ended 31 March 2011 2010 £m £m Corporate Travel Management Europe 172.9 171.7 North America 43.6 45.6 Asia Pacific 1.0 1.0 217.5 218.3 Spendvision 3.5 3.5 221.0 221.8
The key assumptions used in the impairment testing were as follows:
Discount rates
Rates of growth in cash generating units beyond 3 years
Discount rate
The discount rate reflects the management's estimate of the post-tax cost ofcapital employed for the Group's cash generating units listed above. The samerate is applied to all cash generating units, and reflects the Group's fundingarrangements where all units have equal access to the Group's treasuryfunctions and borrowing lines to fund their operations. None of the Group'scash generating units demonstrate levels of risks that are significantlydifferent from those experienced by the Group generally, and all have similarfunding profiles and therefore the discount rate applied is deemed to bejustified.
Rates of growth in cash generating units beyond 3 years
Management have reviewed Corporate Travel industry forecasts and consider thatthe market consensus for GDP growth of 2% is reasonable for the purposes of
theassessment of goodwill. Goodwill impairment
Management believes that no reasonable change in the key assumptions would cause any of the identified cash generating units to become impaired.
9 Property, plant and equipment Property Plant and equipment Total £m £m £m Cost At 1 April 2009 10.6 46.4 57.0 Additions for the year 0.2 4.3 4.5 Disposals for the year (0.6) (2.2) (2.8) Exchange differences 0.3 1.3 1.6 At 31 March 2010 10.5 49.8 60.3 Additions for the year 0.8 3.0 3.8 Disposals for the year (0.7) (0.8) (1.5) Exchange differences - 0.3 0.3 At 31 March 2011 10.6 52.3 62.9 Accumulated depreciation At 1 April 2009 6.6 35.3 41.9
Depreciation charge for the year 0.9 4.2
5.1 Disposals for the year (0.6) (1.9) (2.5) Exchange differences 0.3 0.7 1.0 At 31 March 2010 7.2 38.3 45.5
Depreciation charge for the year 0.8 4.5
5.3 Disposals for the year (0.3) (0.7) (1.0) Exchange differences (0.1) 0.3 0.2 At 31 March 2011 7.6 42.4 50.0 Carrying amount At 1 April 2009 4.0 11.1 15.1 At 31 March 2010 3.3 11.5 14.8 At 31 March 2011 3.0 9.9 12.9
Property is comprised of leasehold properties and leasehold improvements. Plant and equipment is comprised of IT and office equipment.
Years ended 31 March 2011 2010 £m £m Carrying amount of property, plant and equipment held under finance 0.3 0.3leases 10 Net debt Years ended 31 March 2011 2010 £m £m
Total financial liabilities - borrowings 128.3
135.5
Add back: Unamortised loan issue costs 3.3
0.8
Cash and cash equivalent assets (70.5) (58.8) Net debt 61.1 77.5
Analysis by currency after currency swaps
Years ended 31 March 2011 2010 £m £m Sterling 49.6 48.6 Euro (16.0) (11.6) Swiss Franc 10.4 11.0 Other European currencies 2.7 4.8 Canadian Dollar 10.0 21.4 US Dollar 1.4 (0.4) Other currencies 3.0 3.7 61.1 77.5 11 Retirement benefit obligations
Defined benefit pension arrangements
The Group's principal defined benefit pension arrangement is the Hogg Robinson(1987) Pension Scheme (the UK Scheme). The UK Scheme was available to most UKemployees until it was closed to new members in March 2003, with benefits basedon final pensionable salary. The increase in final pensionable salary since 31March 2003 is limited to the lower of the increase in the Retail Prices Indexand 5% per annum. The latest actuarial valuation of the scheme was carried outat 6 April 2008 by an independent qualified actuary.
The Group also operates defined benefit schemes in Norway, Switzerland, Germany, Italy and France.
The following amounts have been included in the Consolidated Income Statement in respect of all defined benefit pension arrangements:
Years ended 31 March 2011 2010 £m £m Current service charge 4.1 2.8 Curtailment gain (0.4) (0.5) Charge to operating profit 3.7 2.3
Interest cost on pension scheme liabilities 18.9
16.3
Expected return on pension scheme assets (15.6) (13.1) Charge to finance costs 3.3 3.2
Total charge to Consolidated Income Statement 7.0
5.5
The following amounts have been recognised as movements in equity:
Years ended 31 March 2011 2010 £m £m
Actual return on scheme assets 15.2
34.2
Less: expected return on scheme assets (15.6)
(13.1) (0.4) 21.1
Experience gains and losses arising on scheme liabilities 1.9
1.9
Changes in assumptions underlying the present value of
scheme liabilities 7.0 (89.2) Exchange rate movement - 0.2 Movement in the year 8.5 (66.0)
Cumulative amount recognised in the Consolidated Statement of Comprehensive Income since the transition date to IFRS, 1 (59.5) (68.0)April 2003
The key assumptions used for the UK Scheme were:
Years ended 31 March 2011 2010 2009 Rate of increase in salary 4.70% 4.80% 4.00%
Rate of increase in final pensionable salary 3.40% 3.50%
2.70%
Rate of increase in pensions in payment - accrued before 5.00% 5.00% 5.00%1999 Rate of increase in pensions in payment - accrued after 1999 3.40% 3.50% 2.70% Discount rate 5.50% 5.50% 6.70% Inflation - RPI 3.40% 3.50% 2.70% Inflation - CPI 2.90% N/A N/A
Expected rate of return on plan assets:
Equity instruments 8.00% 8.00% 7.20% Debt instruments 4.50% 4.50% 6.70% Property 8.00% 8.00% 7.20% Other assets 4.90% 4.40% 5.00%
The assumptions for the schemes in Norway, Switzerland, Germany, Italy and France do not produce materially different results from the assumptions used for the UK Scheme.
The expected rates of return have been set taking into account current market returns for each category of asset at the balance sheet dates.
The net present value of the defined benefit obligations of the UK Scheme aresensitive to both the actuarial assumptions used and to market conditions. Ifthe discount rate assumption was 0.5% lower the obligations would be expectedto increase by £37.4m and if it was 0.5% higher they would be expected todecrease by £32.1m. If the inflation assumption was 0.5% lower, theobligations would be expected to decrease by £13.2m and if it was £0.5% higherthey would be expected to increase by £14.9m.
The impact of the change in inflation index from RPI to CPI can be found in the Additional Financial Disclosure within the Operational Review.
The mortality assumptions for the UK Scheme are based on PMA/FA92 tables with'medium cohort' projections and a 1% underpin in the rate of futureimprovements in mortality. Life expectancy at the age of 65 is assumed to be: Years ended 31 March 2011 2010 Current Pensioners Male 22.8 22.7 Female 26.1 26.0 Future retirements Male 24.8 24.7 Female 28.2 28.1
The UK liability is based on the assumption that active and deferred members will take 25% of the value of their pension as a lump sum on retirement.
The net present value of the defined benefit obligations of the UK Scheme aresensitive to the life expectancy assumption. If there was an increase of oneyear to this assumption the obligations would be expected to increase by £9.6m.
The provision included in the Consolidated Balance Sheet arising from obligations in respect of defined benefit schemes is as follows:
Years ended 31 March 2011 2010 £m £m
Present value of defined benefit obligations
Unfunded scheme 9.5 9.6 Wholly or partly funded schemes 360.4 350.7 369.9 360.3 Fair value of scheme assets (255.2) (233.9) 114.7 126.4
The net present value of defined benefit obligations has moved as follows:
Years ended 31 March 2011 2010 £m £m At beginning of year 360.3 263.0 Current service cost 4.1 2.8 Curtailment gain (0.4) (2.3) Interest cost 18.9 16.3
Contributions by plan participants 1.5
1.4 Actuarial (gains) / losses (8.9) 87.3
Foreign currency exchange changes 2.8
0.3 Benefits paid (8.4) (8.5) At end of year 369.9 360.3
The fair value of scheme assets has moved as follows:
Years ended 31 March 2011 2010 £m £m At beginning of year 233.9 197.7 Curtailment loss - (1.8)
Expected returns on plan assets 15.6
13.1 Actuarial (losses) / gains (0.4) 21.1
Foreign currency exchange changes 2.8
0.5 Contributions by the employer 10.2 10.4
Contributions by plan participants 1.5
1.4 Benefits paid (8.4) (8.5) At end of year 255.2 233.9
The assets held in defined benefit schemes were as follows:
Years ended 31 March 2011 2010 £m £m Equity instruments 136.3 123.7 Debt instruments 66.8 64.1 Property 37.7 33.2 Other assets 14.4 12.9 255.2 233.9
None of the plan assets are represented by financial instruments of the Group. None of the plan assets are occupied or used by the Group.
The schedule of contributions for the UK Scheme, agreed with the Trustees at15.2% of pensionable salaries plus £6.6m per annum with effect from April 2008,was intended to eliminate the deficit over 10 years from April 2006. During theyear ended 31 March 2011, contributions amounting to £8.5m were made and, basedon this schedule, would remain at this level for the year ending 31 March 2012.However, a new schedule of contributions for the UK Scheme is expected beagreed with the Trustees as a result of the triennial valuation which is due tobe completed during 2011 (effective April 2011).
The obligations and assets are split as follows:
Years ended 31 March 2011 2011 2011 2010 2010 2010 UK Overseas Total UK Overseas Total £m £m £m £m £m £m Defined benefit obligations (324.3) (45.6) (369.9) (319.3) (41.0) (360.3) Fair value of plan assets 220.2 35.0 255.2 203.4 30.5 233.9 Deficit (104.1) (10.6) (114.7) (115.9) (10.5) (126.4) Five year experience Years ended 31 March 2011 2010 2009 2008 2007 £m £m £m £m £m Defined benefit obligations (369.9) (360.3) (263.0) (269.4) (274.8) Fair value of plan assets 255.2 233.9 197.7 221.3 214.9 Deficit (114.7) (126.4) (65.3) (48.1) (59.9) Experience gains/(losses) on plan liabilities 1.9 1.9 2.5 (2.3) (3.6) on plan assets (0.4) 21.1 (46.3) (18.3) 4.0
Pension funding in excess of the charge to operating profit is shown in the Consolidated Cash Flow Statement as follows:
Years ended 31 March 2011 2010 £m £m Contributions less service cost (note 14) (6.1) (7.6) 12 Reserves Retained earnings Years ended 31 March 2011 2010 £m £m At 1 April (191.4) (155.2)
Retained profit for the financial year 19.8
14.3 Dividends (note 7) (3.9) (1.2) Non-controlling interests (0.7) (0.9)
Shares purchased by Employee Benefits Trust -
(1.1)
Actuarial gain / (loss) on pension schemes 8.5
(66.0)
Deferred tax movement on pension liability and share-based (4.2)
18.7incentives At 31 March (171.9) (191.4) Other reserves Share-based Exchange Other incentives reserve reserves £m £m £m Balance at 1 April 2009 2.1 22.0 24.1 Other comprehensive income:
Currency translation differences - (11.8)
(11.8) Transactions with owners: Share-based incentives 1.1 - 1.1 Balance at 1 April 2010 3.2 10.2 13.4 Other comprehensive income:
Currency translation differences - (1.6)
(1.6) Transactions with owners: Share-based incentives 2.2 - 2.2 Balance at 31 March 2011 5.4 8.6 14.0 13 Non-controlling interests Years ended 31 March 2011 2010 £m £m At 1 April 3.4 3.5 Exchange differences 0.1 - Dividends paid (0.6) (1.0) Share of profit after tax 0.7 0.9 At 31 March 3.6 3.4 14 Cash generated from operations Years ended 31 March 2011 2010 £m £m
Profit before tax from continuing operations 28.9
21.2 Adjustments for:
Depreciation and amortisation (note 8 and 9) 13.7
13.2 Net increase in provisions 3.1 4.4 Share of results of associates and joint ventures - (0.2) Net finance costs (note 4) 9.0 7.0 Pension curtailment credit (0.4) (0.5) Other timing differences 3.3 1.4 57.6 46.5 Cash expenditure charged to provisions (2.8)
(8.4)
Change in trade and other receivables 1.3
(10.5)
Change in trade and other payables (3.1)
16.2
Pension funding in excess of charge to operating profit (6.1) (7.6)(note 11)
Cash generated from operations 46.9
36.2
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