23 May 2012 07:00
23 May 2012 Hogg Robinson Group plc (`HRG', `the Company' or `the Group') Preliminary Results for the year ended 31 March 2012 Another strong performance with a 33% increase in dividend Summary of resultsYears ended 31 March 2012 2011 Change Revenue £374.2m £358.0m +5% Underlying earnings (1) - Operating profit £47.2m £41.9m +13% - Operating profit margin 12.6% 11.7% +0.9 pp - Profit before tax £38.2m £32.9m +16% - Earnings per share 8.3p 7.3p +14% Reported earnings - Operating profit £43.1m £37.9m +14% - Profit before tax £34.1m £28.9m +18% - Earnings per share 7.4p 6.3p +17% Dividend per share 2.0p 1.5p +33% Net debt £61.0m £61.1m -£0.1m Free cash flow (2) £19.6m £21.4m -£1.8mFinancial Highlights
* Revenue 5% higher at £374m (up 2% at constant currency)
* Underlying profit before tax up 16% to £38.2m; underlying EPS up 14% to
8.3p
* Net debt unchanged at £61m after accounting for the Spendvision purchase;
equivalent to 1.1x EBITDA(3) (2011: 1.2x) * Successful completion of UK pension liability management programme to reduce future volatility
* Pre-tax pension deficits up by £31m due to continuing low interest rates
* Full-year dividend up 33% to 2.0p per share with dividend cover of 4.2x
(2011: 4.9x)
Operational Highlights
* Client travel transaction activity up 2% and spending up 5% * Revenue per employee up 1% at constant currency * Acquired remaining 42% minority interest in Spendvision, strengthening end-to-end services proposition
* Important new client additions during the year including AIG, Allianz, CGI,
Monitor and Posten Norge
* Strong pipeline of opportunities across multiple client sectors
Notes:
(1) Before amortisation of acquired intangibles
(2) Free cash flow is the change in net debt before acquisitions and disposals,Employee Benefits Trust purchases, dividends and the impact of foreign exchangemovements
(3) Earnings Before Interest, Taxation, Depreciation and Amortisation
(4) 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 happy to report another strong set of results for HRG despite thecontinuing challenging economic conditions with underlying profit before tax up16% to £38.2m. We have continued to provide an excellent, tailored service toclients as we bring to bear the breadth of the Group's services and experienceto help them gain better value from their travel expenditure. At the end of theyear, we were very pleased to take full operational control of Spendvision,which improves our ability to offer clients integrated end-to-end travel andexpense management solutions.
"Since the year end the Group has continued to trade in line with our expectations and we are confident that our proven strategy, resilient business model, robust financial position and strong pipeline of new business opportunities will enable HRG to continue to make good progress in the year ahead. In recognition of our strong performance and confidence we have recommended a 33% increase in the dividend."
Contact DetailsHogg 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 Stephen Malthouse David Allchurch Martin Robinson Notes to Editors
Hogg Robinson Group plc (HRG) is the award-winning international corporate services company. Established in 1845 and headquartered in Basingstoke, Hampshire, UK, HRG specialises in travel, expense and data management underpinned by proprietary technology. With a worldwide network that comprises over 120 countries, HRG provides unparalleled global expertise and local knowledge in Europe, North America, Asia Pacific, Africa, Latin America and MEWA. Read the latest HRG news and search our archives.
www.hrgworldwide.com
A presentation for analysts and institutional investors will be held at 0900hBST today at Tulchan Communications, 85 Fleet Street, London EC4Y 1AE. Aconference call facility will also be available for analysts and institutionalinvestors unable to attend in person. (Pre-registration for this event isnecessary to comply with security procedures at the venue. To register yourinterest in attending the presentation, or to obtain conference call details,please contact Tulchan Communications on +44 (0)20 7353 4200.) Copies of thepresentation with audio commentary from HRG's presentation team will beavailable at www.hrgworldwide.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 intended tobe a profit forecast or be relied upon as a guide to future performance.
Chairman's Statement
This has been another year of good performance by the Group, with revenuesincreasing and profits showing material growth over last year's results. In itsturn this enables the funding of another significant increase in the dividend,in line with our progressive dividend policy.We and our clients operated in the last year in a world of divergent regionaleconomic performance. The European economy benefitted from growth in Germanybut otherwise did poorly in a year that was dominated by the eurozone crisisand political indecision over the best way to resolve it. Within Europe the UKeconomy was broadly unchanged for the year as a whole but questions remainabout the fragility of the economy. North American economies grew in 2011 butnot quite as well as in 2010 while certain countries in South America and muchof Asia delivered very good growth in GDP. With these different challenges andopportunities as the backdrop, HRG has once again produced good results andcontinues to anticipate a positive and resilient future.Our strategy is to provide a range of services to our clients in the corporatetravel and related expense area. We do this through a mixture of internet anddirect service offerings allowing clients to choose from a range of servicelevels with consequent pricing options. We are expanding accessibility andrange, and have recently increased ownership of our subsidiary, Spendvision, toone hundred per cent. This will enable us to introduce Spendvision'scapabilities in online expense management to the corporate travel market,whilst also continuing to develop its capabilities in the existing markets thatit serves. Like all businesses we face risks in delivering our strategyincluding higher oil prices and their impact on travel costs. We have to be atthe forefront of technological change as the internet and mobile technologyconstantly increase the ways to interact with clients. Natural disasters canimpact our business, interestingly, positively as well as negatively andfinally, travel costs are affected by Government increasing fuel duty andtaxation of air travel. Notwithstanding these risks, we see a good andexpanding future for the business in the long term.Chief Executive David Radcliffe reports in more detail on performance in theyear and the outlook. I would just like to draw shareholders' attention to theincrease in underlying earnings per share of 14%. Your Board remains mindful ofits commitment to maintain a progressive dividend policy while being cognisantof the capital needs of the business and its cash flow. Nevertheless we thinkit appropriate to reward shareholders with an increase in the total dividend of33%, ahead of last year's 25% increase.Borrowings have been held flat this year with the £10.4m cash outflow inconnection with the Spendvision purchase being fully funded by the cash flowgenerated from operations. Year-end net debt again reflects management actionto hold it below the average borrowing level for the year but we no longer seethe need for this active working capital programme to continue in the future.After allowing for its cessation, we expect the business to again generatepositive free cash flow in the coming year.The pension deficit remains a substantial amount for a company of our size. TheUK pension scheme has been closed to new members since 2003 and during the yearwe have taken action to reduce the volatility of the deficit by offeringenhanced transfer values to members who withdraw from the scheme. Nevertheless,for so long as interest rates remain at such low levels, it is difficult to seethe net pension liabilities reducing significantly.Your Board has complied with the requirements of the UK Corporate GovernanceCode and, as envisaged last year, we undertook a review of Board effectivenessby external consultants in the last year. The review concluded that ourprocedures are appropriate but, as always, there are some things we can dobetter. We have established a programme to follow up these points and will doso through the coming year.We have benefitted from the additional input of the two directors who wereappointed last year and we were recently pleased to announce the appointment ofour new Group Finance Director, Philip Harrison, who will join the Company on11th June. We are looking forward to working with him. Philip has beenappointed to fill the role that will be left when Julian Steadman retires atthe AGM on 25th July after four and a half years' service. In that time, theCompany has produced consistently better results and achieved an improvedfinancial position and I would like to thank Julian for his importantcontribution. We wish him well with his future plans.Finally, I would like to extend my thanks to all those who have contributed tothe Company's success this year. The growth has continued and that is due tothe efforts of the executive and staff colleagues who have always put theclient first, and of course to my colleagues on the Board.
Chief Executive's Statement
Overview
I am pleased to report another year of good financial and operationalperformance. We made excellent progress, continuing the positive momentum thatwe achieved in the last financial year and since the onset of the financialcrisis in late 2008. During the first six months, we delivered very good growthdespite the continuing macroeconomic uncertainty. As expected, the second halfwas essentially flat when measured against more demanding year-on-yearcomparatives following our strong performance in the second half of last year.For the year ended 31 March 2012, client travel activity increased by 2% andtravel spend by 5%. Our own revenue rose by 5% and underlying operating profitby 13%.Given the obvious macroeconomic uncertainty, it is not surprising that ourclients continue to show a cautious approach to their travel. Most recognisethe need to travel as they pursue their growth objectives. However, a majorityhad two common objectives this year: to gain tighter control of their travelactivity and to maximise the value of their travel-related expenditure. Theresult was a growing trend towards consolidation of service and the delivery ofincremental cost savings. As we have noted before, our proprietary technologyis playing an increasingly important role by providing accurate and relevantdata to both our clients and our own business managers as they help our clientsmake decisions. Technology also helps provide efficient and cost-effectivetools applicable to other areas of the travel and expense management process.Our strategy is centred on delivering value through excellent service that istailored to the specific needs of each client. As the breadth of the Group'sservices has widened in recent years, to include travel, expense and datamanagement underpinned by proprietary technology, our clients have remained atthe centre of our attention. This approach supports our reputation as one ofthe world's leading international corporate services companies helping ussustain a business which delivers value to all stakeholders in the toughest
oftrading climates.Financial resultsRevenue of £374m was up 5% as reported, or up 2% at constant exchange rates.Underlying operating profit, which is before the amortisation of acquiredintangibles, was up by 13% to £47.2m, and represented a margin improvement from11.7% to 12.6%. Underlying profit before tax was up by 16% to £38.2m, andunderlying EPS increased by 14% from 7.3p to 8.3p. Once again, this performanceunderscores the fact that our model does not rely on large revenue growth toenable margin progression.
After including the amortisation of acquired intangibles, reported operating profit was up by 14%, profit before tax was up by 18% and EPS increased by 17%.
Reported revenue per employee increased by 2.7% from £67.5k to £69.3k. At constant exchange rates this was an increase of 0.6%.
At the end of the year, we purchased the remaining 42% of Spendvision for £13.4m, which valued 100% of Spendvision at £32.0m. The consideration was fundedby £8.4m of cash and the issue of £5.0m of new HRG shares. There was also adeferred consideration payment of £2.0m in cash. Spendvision is a leadinginnovator in the development and support of transaction management solutions,including expenses management and payable automation. Full ownership brings anumber of benefits to the Group. The acquisition is expected to be earningsneutral in the year ending 31 March 2013 and marginally earnings enhancing inthe year ending 31 March 2014, excluding the benefit of any cost or revenuesynergies.Cash flow generation remained strong. Year-end net debt was held flat at £61m,after paying cash consideration of £10.4m for the acquisition of Spendvisionand without any change to our active working capital programme. Year-end netdebt represented 1.1x EBITDA (2011: 1.2x). Reducing net debt has been a keyfocus of the Group over the last four years and our consistently strong freecash flow, coupled with active working capital management, means that thelatest net debt figure is now almost half of the £110m in 2008.
Pensions
On an accounting basis, the Group-wide pension deficits amounted to £146mbefore tax, or £113m after tax (2011: £89m), reflecting the impact ofcontinuing low interest rates on the net present value of liabilities. Asalready announced, the April 2011 triennial valuation of the principal UKscheme was agreed with only a small increase in current cash contributions.Since then, we have sought to reduce future volatility by offering enhancedterms to deferred members who transfer their accrued benefits to alternativepension providers. This offer has reduced the March 2012 assets and liabilitiesby £33m. The cost of implementing the offer amounted to £1.4m and is includedin operating expenses for the period.
Dividend
We operate a progressive dividend policy that remains unchanged. In recognitionof the continued strong performance and improved financial position, the Boardis recommending a final dividend of 1.4p per share resulting in a full-yeardividend of 2.0p per share. This represents an increase of 33% on the prioryear and is ahead of the minimum figure of 1.8p per share that we indicated inour half-year results statement last November. Our dividend is covered 4.2x(2011: 4.9x) by underlying EPS. The final dividend will be paid on 30 July 2012to shareholders on the register at the close of business on 29 June 2012.
The Board
Earlier this month we announced that Philip Harrison would be joining us on 11June as our new Group Finance Director, taking over from Julian Steadman whenhe retires at our AGM in July. We look forward to welcoming Philip to HRG. Onbehalf of the Board, the executive management team and all the staff at HRG, Iwould like to place on record our sincere thanks to Julian for the positivecontribution he made to the Group during his time with us, and to wish him
thevery best for the future.Current trading and outlook
Given the difficult macroeconomic outlook, we expect trading conditions toremain challenging during the current financial year. However, since the yearend, the Group has continued to trade in line with our expectations and we areconfident that our proven strategy and business model, our robust financialposition and strong pipeline of new business opportunities will enable HRG tocontinue to make good progress in the year ahead.David RadcliffeChief ExecutiveOperational ReviewMarket overviewThe global economy remains uncertain. Figures published by the InternationalMonetary Fund (IMF) reveal 3.9% growth in world output in calendar 2011,compared to 5.3% in the prior year, with estimates of 3.5% and 4.1% growth in2012 and 2013 respectively. Regional variations exist with growth in the matureeconomies projected at roughly 1% in 2012 while output in developing economiesis forecast to rise by about 6%.As has been predicted by past industry statistics, corporate travel hascontinued to grow, building on the recovery that began towards the end ofcalendar year 2009. According to the World Travel & Tourism Council (WTTC),business travel expenditure increased by 3.3% at constant currency in calendar2011, following the 2.6% in the prior year, and it forecasts growth of 2.5% in2012.Airline passenger numbers, as reported by the International Air TransportAssociation (IATA), also continue to grow. Overall, passenger numbers,including leisure traffic, grew by 5.9% in calendar 2011, following the 7.3%increase in the prior year, and is forecast to grow by 4.2% in 2012. The numberof premium class passengers grew by 5.5% in 2011 and economy class passengersincreased by 5.1%. Premium traffic, which is often seen as a barometer ofbusiness confidence, is now about 10% below its pre-recession peak while thenumber of passengers flying on economy class seats is approximately 7% above.We believe these numbers also reflect the ongoing trend for business passengersto travel in economy, particularly on short-haul journeys.For hotels, revenue per available room (RevPAR) increased by approximately 8%in calendar year 2011, following 9% in the prior year, according to the latestdata from STR Global. On a regional basis, Europe, the Americas and AsiaPacific showed growth rates of 13%, 8% and 11% respectively, while RevPAR forhotels in the Middle East and Africa fell by 1%. The outlook for global lodgingappears cautiously positive. As examples, both Marriott and Starwood haveindicated that they expect constant currency RevPAR growth for 2012 to besimilar to 2011.While HRG's fee-based business model does not correlate with any one particularset of data, the IMF, WTTC, IATA and STR Global figures all point to acautiously positive trend and this is consistent with our view on the outlookfor HRG.Client activity
During the financial year, our client travel spend rose by 5% or 2% at constant currency, while travel booking activity rose by 2%.
Following the sharp rises in travel booking activity and spend, which werefeatures of our clients' activity last year as business confidence recovered inthe aftermath of the global recession, two specific trends were common to manyof our clients' activity this year:
* Consolidation of travel management services through fewer locations
* Determination by clients to seek incremental cost savings wherever possible
We have seen further evidence of a growing trend towards consolidation oftravel management through fewer locations, often as part of a general aim tomove towards a more centralised model for outsourced services. We anticipatedthis move some years ago and have been steadily developing our multi-countryservice model based on fewer locations.The drive by clients to seek further, incremental cost savings is a naturalconsequence of the ongoing macroeconomic uncertainties and their effect onbusiness generally. Clients are generally more cautious compared to last yearand while they recognise the need to continue to travel, they are keen toexplore all opportunities to gain better value from their travel expenditure.As we have seen in the past, during periods of uncertainty and austerity, ourclients have naturally drawn on our expertise, experience and bespoke advice tohelp them optimise their travel expenditure and costs.In addition to looking for savings from the travel itself, our clients areincreasingly listening to our ideas on how savings can be made by changing orimplementing different systems around the process of booking travel. Adoptionof online self-booking for simpler travel itineraries continues to grow, notonly in the traditional high adoption markets in North America, Australia andcertain European countries; companies are now looking at deployment on regionaland global bases. In certain countries, self-booking accounts for more than 50%of all travel transactions.Our move to full ownership of Spendvision plays to the growing demand by ourclients for an integrated `end-to-end' travel and expense management solution.We already have clients who benefit from this approach and look forward todeveloping this opportunity in the future.Costs associated with hotel expenditure and business meetings are other areaswhere we are helping our clients gain better value and reduce costs. Thesecosts have often been overlooked or misunderstood by clients in the past and asa result of improved data we are now able to offer more disciplined advice inthese areas. Programme savings and compliance policy advice are amongst manyother areas where HRG is now providing additional services to its clientsrelated directly to cost savings.The supply and analysis of data is at the heart of much of HRG's travelmanagement advice and we have seen an increase in demand from clients forrelevant data and analysis to aid decision-making across all areas of travelmanagement, including risk, travel cost and supplier performance. A key productof the ongoing development of our proprietary technology, HRG's superior dataand analysis is offering new revenue opportunities to the Group.Our focus in all aspects of our business remains firmly on the delivery of thehighest quality of service to each of our clients around the globe. Inevitably,we lose clients from time to time, but we continue to attract new clients andexpand our relationships with existing clients. Once again, our valueproposition has been rewarded by a consistently-high client retention rate.We were pleased to welcome several new clients during the year including AddaxPetroleum, AIG, Allianz, CGI, Monitor, Posten Norge, SNC-Lavalin and States ofJersey. We also secured expanded contracts, in terms of both service andgeography, with existing clients such as ABB, BG Group, BMW, Buhler, Capsugel,Department of Veteran Affairs, DHL, Huawei, Mars, Polarcus, Sweco, Sungard,Tesco, UK Central Government and Volkswagen. Notable amongst clients renewingtheir contracts with HRG were ABB, BG Group, BMW, DuPont, Ergon Energy, Foreign& Commonwealth Office, Interpublic Group, Ministry of Defence, NewsCorporation, Porsche, Smiths Group, TeliaSonera and Wells Fargo. Since the yearend, Unilever has indicated its intention to award its travel contract to HRG.As a new client, Unilever will use HRG services in over 70 countries around theglobe. Once again, these successes are evidence of the huge diversity of HRG'sclient base, in terms of both industry and geography, which is one of theGroup's key strengths.Our new business pipeline remains very healthy. We are pleased to note thatseveral of our larger clients and prospects are showing a desire to consolidateservice provision as well as by geography. The breadth of HRG's serviceoffering, which includes travel, expense and data management, provides naturalbenefits to those seeking a `one-stop shop'.Corporate Travel ManagementEuropeYears ended 31 March 2012 2011 Change Revenue £250.7m £244.6m +2.5% Operating profit £29.0m £27.8m +4.3%
Underlying operating profit (1) £32.1m £30.8m +4.2%
Underlying margin (1) 12.8% 12.6% +0.2 pp
(1) Before amortisation of acquired intangibles
* Resilient performance in challenging economic environment * Strong performances in Germany and Switzerland
* Continuing to help clients consolidate multi-country travel operations into
single-point service hubs
At constant currency, revenue was unchanged for the year, with client spendingand travel activity also broadly unchanged. Underlying operating profit rose by£1.3m, including a £1.0m benefit from currency movements.
HRG's European business produced a steady result, building on last year's performance despite the heightened macroeconomic uncertainties which resulted in many of our clients taking a more cautious approach to travel.
The trend for clients to consolidate multi-country operations into single-pointservice hubs also continues as clients increasingly seek value, policycompliance, control and robust security monitoring. This trend has now become aregular feature in all major new business proposals. HRG's investment in widearea network (WAN) and telephony platforms plays well to this serviceconfiguration as we can re-route call volume and optimise resources based ondemand. We continue to rationalise our service network and cost base in Europewhere appropriate, as we increasingly focus our resources on fewer servicepoints or strategic hubs.Client adoption of online self-booking continued to grow and now accounts for27% of all bookings made in the region, up from 25% last year. During the year,we continued to improve the efficiencies of our operations across the region.The branch network consolidation and telephony call-flow switching have allowedmore travel consultants to work from home and improved clients' onlineself-booking experience. Less HRG intervention is one of the cost-savinginitiatives that have helped us to stay price competitive and maintain margins.Our ongoing focus in the UK has been to deliver excellent service and value toour clients. We have continued to improve our cost base during the year andfurther efficiencies continue to be evaluated. Amongst new business wins wereAIG, BP, Allianz and the UK Central Government.Client activity and travel spend increased in Germany during the year. Thefirst full year of trading with Volkswagen added to the business generated byexisting clients, as did Novartis which started to trade with us during theyear. HRG Germany played a significant role in helping us win geographicextensions for a number of large German clients, including Volkswagen, BMW andDHL, in the period. HRG's sports-related business in Germany benefited fromservices provided in connection with the FIFA Women's World Cup footballcompetition held in June and July 2011.
Our Swiss business demonstrated its traditional strength, helped by the first full year of trading with Novartis.
North AmericaYears ended 31 March 2012 2011 Change Revenue £78.0m £77.5m +0.6% Operating profit £11.1m £9.2m +20.7%
Underlying operating profit (1) £11.8m £9.9m +19.2%
Underlying margin (1) 15.1% 12.8% +2.3 pp
(1) Before amortisation of acquired intangibles
* Strong profit growth driven by increased client activity in a competitive
market * Providing more product and services to existing clients, particularly meetings management and online self-booking * Strong pipeline of opportunities
At constant currency, revenue was up 1.9%, with client spending increasing by3% and travel activity by 4%. Underlying operating profit grew by £1.9m, withno impact from currency movements. Margins improved as a result of tight costcontrol, including further rationalisation of our property portfolio.Our business in North America delivered a solid performance during the year.Top-line growth was bolstered by increased client activity and the provision ofadditional travel management product and services to existing clients. MeetingsManagement is one specialist service that proved particularly attractive tothose clients with limited internal resource. We saw further growth in clientadoption of our online self-booking solutions, using our own or third-partybooking tools. Online self-booking is proving attractive to clients looking togain better value in their travel spend and is well suited to clients in NorthAmerica where point-to-point domestic travel journeys are commonplace.
The North American market remains very competitive. Our steady investment in recent years in efficient operating systems, underpinned by our proprietary technology, enables us to handle large volumes of lower-price transactions which are commonplace for domestic travel in this region.
Our loyalty business in Canada, which manages the redemption of credit cardreward points programmes, continued to perform well. We restructured thisbusiness during the year to take account of a planned move into an onlineenvironment in cooperation with another supplier. This online agreement willattract lower fees but also requires a significantly lower cost base tooperate. During the year, we also entered the loyalty market in the USA withnew clients Lufthansa Miles & More and Delta SkyMiles and the pipeline remainsstrong.Asia PacificYears ended 31 March 2012 2011 Change Revenue £30.3m £23.4m +29.5% Operating profit £0.9m £0.4m +125.0%
Underlying operating profit (1) £0.9m £0.4m +125.0%
Underlying margin (1) 3.0% 1.7% +1.3 pp
(1) Before amortisation of acquired intangibles
* Strong performance with revenue growth of 21.0% at constant currency * Australia performed well aided by strong economy and demand in natural resources * Margin improvement reflecting continued improvements in operational efficiency At constant currency, revenue was up by 21.0%, with client spending increasingby 19% and travel activity by 24%. There was no currency impact on the £0.5mincrease in underlying operating profit.Our business in Australia performed well during the year, aided by the ongoingstrength of the economy and the surge in demand for the country's naturalresources. We won several new clients and expanded the scope of our services tomany existing clients. Our margin improvement reflects continued improvementsin our operational efficiency. Online self-booking of travel increased furtherduring the year and now accounts for more than 55% of all bookings (2011:approximately 50%). Although there was some softening of the corporate travelmarket during the third quarter of our financial year, it rebounded stronglyduring the final quarter.Our business in Singapore remained stable during the past year reflecting therelative stability of the country's economy in the face of the uncertaintiesthat continue to dominate other regions of the world. As we have noted before,Singapore is a natural hub for client travel consolidation. The trend towardsincreasing consolidation of operations is now being explored by clients in somesmaller markets such as Malaysia, Indonesia, Philippines and Thailand who willbe able to take advantage of our regional service centre along with a newregional after-hours service launched this year.
Our joint ventures in mainland China and Hong Kong also performed well, benefiting from the background of good economic growth in the region. As associates, their results are not included in the table above.
SpendvisionYears ended 31 March 2012 2011 Change Revenue £15.2m £12.5m +21.6% Operating profit £2.1m £0.5m +320.0%
Underlying operating profit (1) £2.4m £0.8m +200.0%
Underlying margin (1) 15.8% 6.4% +9.4 pp
(1) Before amortisation of acquired intangibles
With a refreshed management team in place, revenue was up 20.0% at constantcurrency, with good growth in direct business and also with clients in thebanking sector. Underlying operating profit grew by £1.6m, including a £0.1mbenefit from currency movements. The sharp rise in underlying margin isencouraging and has come as a result of much sharper focus within the business.Investment in additional development capacity has also allowed us to provideenhancements in functionality to customers.
Spendvision is a leading innovator in the development and support of transaction management solutions, including end-to-end expense management and payables automation. The online platform makes it easy for companies to capture, pay for, manage and understand all their corporate transactions, giving complete control over spend and increased cost efficiency. It also automates the processing of expense claims for employees.
The global roll out of Visa IntelliLink Spend Management solution, a white-label version of the Spendvision platform provided through an alliance with Visa, has continued to see strong growth with over 70 financial institutions now offering the solution.
Spendvision continues to maintain and develop strong relationships with new andexisting partners, delivering additional services and advanced functionalitysuch as its payables module. As part of an end-to-end travel management andexpenses solution, we see good opportunities for contactless payment andeMoney, together with our payables financing functionality. We have recentlysigned a significant new client in the banking sector and have a strongpipeline of additional white-label opportunities.
Since 30 March 2012, Spendvision has been wholly-owned by HRG and this will allow us to further capitalise on the strengths and capabilities of both companies. In addition to building on their current strengths in existing markets, there are also exciting opportunities to work together for the offering and integration of our travel and expense management solutions for our corporate clients.
TechnologyThe influence and importance of technology in business continues to grow apace.In the delivery of travel and related expense solutions, technology remains acritical factor due to ever-increasing complexity of data and decision-makingas well as the need for accuracy and swift reporting. Whilst retaining itscapability of being able to work with whichever technological solutions ourclients prefer, HRG has continued with its strategy of developing products andsolutions that are targeted at the corporate travel and related expense sector.Our systems platform architecture enables us to deliver a wide range ofproprietary applications as well as to integrate with third-party systems wherenecessary to meet specific client needs.Travel distribution, booking and reporting lie at the core of our technologydevelopment. Whether accessing the Global Distribution Systems (GDS) forcontent or going direct to suppliers, our knowledge and platform architecturehelps determine the best way of sourcing and aggregating appropriate contentfor booking and reporting. From integrating the latest GDS content interfacesto assessing if `direct connect' with a provider is viable and in the bestinterest of our clients, our technology platform offers flexibility andpositions HRG at the forefront of the direct connect debate.HRG's systems provide access to travel itineraries, alternative pricing, policycompliance, online self-booking tools, security tracking and reporting. Theyalso allow our staff to access information from multiple, concurrent sources,enabling us to provide efficient, rapid and cost-effective service to ourclients at all times.
During the year, we released upgrades across our product range with user interface updates and increased content through development of the Travelport Universal Application Programming Interface as a complement to its core GDS content.
With the ongoing and rapid adoption of smartphone mobile devices in businesslife, our development of mobile technology continued during the period. Accessto HRG i-SuiteTM, our online portal offering clients access to both HRG andthird-party products, and HRG OnlineTM, our in-house developed online bookingtool, is available via BlackBerry, and similar applications are being developedfor iPhone and Android mobile devices. The discussions surrounding applicationsand website mobile optimisation continue and our flexible platform architecturemeans we can be actively engaged in both.During the last quarter of our financial year, we presented to the market ournew data reporting service HRG InsightTM. This has been a significantdevelopment focus through the year and pilots of the new product are now inuse. Travel data has historically been built around pre-trip, post-trip andsecurity. We believe that data should be dynamic and flexible. HRG InsightTM istherefore a dynamic, flexible and open platform which brings clients' data tolife by telling the complete story of each transaction, thereby empoweringtravel managers and travellers with the information they need.Technology allows companies to manage their travel programmes efficiently whileenhancing the traveller experience which is why it remains a key element of ourstrategy. We believe HRG's technology is best in class and leading the wayamongst the global travel management companies.
Additional Financial Disclosure
Revenue
Reported revenue increased by 4.5% to £374.2m, comprised of an increase of 2.4% at constant exchange rates and an increase of 2.1% from favourable currency translation.
Revenue per employee
Reported revenue per employee increased by 2.7% from £67.5k to £69.3k. At constant exchange rates, this was an increase of 0.6%.
Operating expenses
Reported operating expenses increased by 3.4% to £331.1m.
Underlying operating expenses, which are before amortisation of acquired intangibles, increased by 3.4% to £327.0m, or by 1.4% at constant exchange rates. This 1.4% increase is comprised of 4.8% for staff costs and a reduction of 5.2% for other expenses.
The increase of 4.8% in staff costs reflects an increase of 1.7% in staff numbers and higher average compensation, including bonuses but excluding share-based incentives.
The reduction of 5.2% for other expenses is due to the continuing focus on cost management.
Underlying operating profitUnderlying operating profit, which is before amortisation of acquiredintangibles, increased by 12.6% from £41.9m to £47.2m, and includes a benefitof £1.1m from favourable currency movements. The underlying operating profitmargin, which has not been affected by currency movements, increased from 11.7%to 12.6%.Exceptional items
There were no exceptional items in the current or prior period income statements.
Net finance costs
Net finance costs increased by £0.9m to £9.9m, reflecting the full-year impactof refinancing the Group's credit facilities in November 2010. Net externalinterest costs increased by £2.0m as a result. The IAS 19 pension charge, whichis based on the 31 March position, decreased by £0.9m for the year, but isexpected to increase by £1.4m in the year to 31 March 2013.
Taxation
The tax charge for the year represents an overall effective tax rate (ETR) of29.0% of the reported profit before tax (2011: 31.5%). The current year ETRincludes a £0.3m charge relating to the impact on deferred tax assets of areduction in the UK corporation tax rate from 26% to 24%. An additional chargeof £2.8m is reflected in the Consolidated Statement of Comprehensive Income inrespect of deferred tax assets on pension liabilities. We anticipate an ETR ofno more than 30% in future years.
Return on capital employed
Return 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 £214.4m (2011: £216.4m) compared with £169.7m atthe year end (2011: £162.5m). The return for the year was 22.5% (2011: 19.4%).
Cash flow
Free cash flow, which is the change in net debt before acquisitions and disposals, Employee Benefits Trust purchases, dividends and the impact of foreign exchange movements on net debt balances, was £19.6m (2011: £21.4m).
Cash outflow in respect of working capital was £11.6m (2011: £1.8m), primarilydue to a reduction in trade creditors. The cash outflow related to interest andrefinancing costs was £5.6m (2011: £6.8m). Tax paid in cash was £6.7m (2011: £9.3m) and capital expenditure, which is primarily internal software developmentand office equipment, was £9.4m (2011: £8.7m). Cash costs for pension deficitreduction were £6.0m (2011: £6.1m).
In addition to free cash flow, the other major cash flow items are £11.7m related to acquisitions and disposals (2011: £0.8m), mainly comprising the Spendvision acquisition, share purchases of £2.5m by the Employee Benefits Trust (2011: £nil) and £4.7m of dividends paid to shareholders during the year (2011: £3.9m).
Funding and net debtThe principal banking facility is 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. During the year, the Group took advantage of the lowinterest rate environment to fix interest on CHF25m until November 2014 and on£20m until February 2017. In addition, the Group has a £30m fixed rate loan,repayable by 2018, and uncommitted facilities amounting to around £18m at theyear end.The principal covenants are measured semi-annually, at the end of March and theend of September, and require that net debt is less than 3.0 times EBITDA andnet external interest is covered at least 4.0 times by EBITDA, both on arolling 12-month basis. The definition of EBITDA for covenant purposes is notmaterially different from the definition used in these financial statements.Net debt at year end reduced by £0.1m to £61.0m and was equivalent to 1.1 timesEBITDA (2011: 1.2x). This translates into gearing of 35% (2011: 36%), or 99%(2011: 74%) including the pension deficits and related deferred tax assets. TheGroup has used an active programme to reduce working capital requirements atthe end of each half-year reporting period, but we no longer see the need forthis working capital programme to continue in the future. This programmereduced net debt by approximately £31m in both March 2012 and 2011. Average netdebt, as measured on a weekly basis, reduced by £19m during the year.
Net external interest costs of £6.6m were covered 8.8 times by EBITDA (2011: 11.2x).
Pensions
The Group-wide pension deficits under IAS 19 have increased by £31.1m to £ 145.8m before tax.
The UK scheme deficit increased by £30.0m to £134.1m. The scheme assets reducedby £21.0m and the scheme liabilities increased by £9.0m, with a lower discountrate adding £41.2m, a lower inflation rate saving £10.0m, revised mortalityassumptions saving £3.6m and a difference between actual and expected return onassets of £5.0m. For several years, the UK defined benefit scheme has beenclosed to new entrants and has capped increases in pensionable salary. Ourlatest triennial valuation, which was effective as at April 2011, was agreedwith the Trustees during the year.During the year, deferred members of the UK scheme were offered the opportunityto transfer their accrued benefits out of the UK scheme to alternative pensionproviders on enhanced terms. The programme reduced the March 2012 assets andliabilities by approximately £33m. The cost of implementing the programmeamounted to £1.4m and is included in other operating expenses for the period.
The overseas schemes are primarily in Germany and Switzerland, where the year-end deficit increased by £1.1m to £11.7m.
At the year end, there was a deferred tax asset of £32.2m (2011: £27.0m) relating to the UK deficit and an asset of £0.5m (2011: £0.9m liability) relating to the overseas schemes. The change in UK deferred tax includes the 2% reduction in the headline rate of UK corporation tax.
Share price
The closing mid-market price at the year end was 70.25p (2011: 58p). During the year, the price ranged from 46.6p to 70.3p per share.
Summary income statement Years ended 31 March 2012 2011 £m £m Revenue 374.2 358.0 EBITDA 57.9 51.6 Depreciation and amortisation (1) (10.7) (9.7) Underlying operating profit 47.2 41.9 Amortisation of acquired intangibles (4.1)
(4.0)
Share of associates and joint ventures 0.9
- Net finance costs (9.9) (9.0) Profit before tax 34.1 28.9 Taxation (9.9) (9.1) Profit for the year 24.2 19.8 Summary balance sheet As at 31 March 2012 2011 £m £m Goodwill and other intangible assets 244.6
249.9
Property, plant, equipment and investments 14.9 15.3 Working capital (86.9) (99.8) Current tax liabilities (net) (6.4) (4.7) Deferred tax assets (net) 43.9 38.9 Net debt (61.0) (61.1) Pension liabilities (pre-tax) (145.8) (114.7) Provisions and other items (2.9) (2.8) Net assets 0.4 21.0 Summary cash flow statement Years ended 31 March 2012 2011 £m £m EBITDA 57.9 51.6 Cash flow from exceptional items - (0.9) Working capital movements (11.6) (1.8) Interest paid (5.6) (3.2) Refinancing costs - (3.6) Tax paid (6.7) (9.3) Capital expenditure (9.4) (8.7) Pension funding in excess of EBITDA charge (6.0) (6.1) Other movements 1.0 3.4 Free cash inflow 19.6 21.4 Acquisitions and disposals (11.7) (0.8)
Employee Benefits Trust share purchases (2.5) - Dividends paid to external shareholders (4.7) (3.9) Currency translation (0.6) (0.3) Decrease in net debt 0.1 16.4
1. Excluding amortisation of acquired intangibles
Hogg Robinson Group plc
Consolidated Income Statement
For the year ended 31 March 2012
Years ended 31 March Notes 2012 2011 £m £m Revenue 1 374.2 358.0 Operating expenses 2 (331.1) (320.1) Operating profit 43.1 37.9 Analysed as: Underlying operating profit 47.2 41.9 Amortisation of acquired intangibles 8 (4.1) (4.0) Operating profit 43.1 37.9
Share of results of associates and joint 0.9
-ventures Finance income 4 0.3 0.2 Finance costs 4 (10.2) (9.2) Profit before tax 34.1 28.9 Income tax expense 5 (9.9) (9.1) Profit for the financial year 24.2 19.8 Profit attributable to: Equity shareholders of the Company 22.3 19.1 Non-controlling interests 13 1.9 0.7 24.2 19.8 Years ended 31 March 2012 2011 Earnings per share pence pence Basic 6 7.4 6.3 Diluted 6 7.0 6.1Hogg Robinson Group plc
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2012
Years ended 31 March Notes 2012 2011 £m £m Profit for the financial year 24.2 19.8 Other comprehensive income Currency translation differences (2.9)
(1.5)
Amounts credited to hedging reserve 0.5
-
Actuarial (loss) / gain on pension schemes 11 (35.3)
8.5
Deferred tax movement on pension liability 9.1
(2.4)
Deferred tax movement on pension liability
attributable to impact of UK rate change (2.8) (2.1)
Deferred tax movement on cumulative
share-based incentives cost 0.6 0.3
Other comprehensive (loss) / income for the (30.8)
2.8year, net of tax
Total comprehensive (loss) / income for the (6.6)
22.6year
Total comprehensive (loss) / income
attributable to:
Equity shareholders of the Company (8.4)
21.8 Non-controlling interests 1.8 0.8 (6.6) 22.6 Hogg Robinson Group plcConsolidated Balance SheetAs at 31 March 2012 As at 31 March Notes 2012 2011 £m £m Non current assets Goodwill and other intangible 8 244.6 249.9assets Property, plant and equipment 9 11.6 12.9 Investments accounted for using 3.3 2.4the equity method Trade and other receivables 0.1 0.1 Deferred tax assets 45.0 40.9 304.6 306.2 Current assets Trade and other receivables 102.4 114.7 Financial assets - derivative 0.5 -financial instruments Current tax assets - 0.7 Cash and cash equivalent assets 68.5 70.5 171.4 185.9 Total assets 1 476.0 492.1 Non current liabilities Financial liabilities - (126.8) (128.0)borrowings Deferred tax liabilities (1.1) (2.0)
Retirement benefit obligations 11 (145.8) (114.7)
Provisions (4.2) (4.2) (277.9) (248.9) Current liabilities Financial liabilities - (0.3) (0.3)borrowings Financial liabilities - - (0.3)derivative financial instruments Current tax liabilities (6.4) (5.4) Trade and other payables (189.4) (214.6) Provisions (1.6) (1.6) (197.7) (222.2) Total liabilities (475.6) (471.1) Net assets 0.4 21.0 Capital and reserves Share capital 3.2 3.1 Share premium 177.6 172.2 Other reserves 12 10.1 14.0 Retained earnings 12 (192.0) (171.9) Attributable to owners of Hogg (1.1) 17.4Robinson Group plc Attributable to non-controlling 13 1.5 3.6interests Total equity 0.4 21.0 Hogg Robinson Group plc
Consolidated Statement of Changes in Equity
As at 31 March 2012 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 3.1 172.2 13.4 (191.4) (2.7) 3.4 0.7April 2010 Retained profit - - - 19.1 19.1 0.7 19.8for the financial year Other comprehensive income: Actuarial gain - - - 8.5 8.5 - 8.5on pension schemes Deferred tax - - - (2.4) (2.4) - (2.4)movement on pension liability Deferred tax movement on pension liability attributable to - - - (2.1) (2.1) - (2.1)impact of UK rate change Deferred tax movement on cumulative share-based - - - 0.3 0.3 - 0.3incentives cost Currency - - (1.6) - (1.6) 0.1 (1.5)translation differences Total - - (1.6) 23.4 21.8 0.8 22.6comprehensive income Transactions with owners: Dividends - - - (3.9) (3.9) (0.6) (4.5) Shares - - - - - - -purchased by Employee Benefits Trust Share-based - - 2.2 - 2.2 - 2.2incentives Total - - 2.2 (3.9) (1.7) (0.6) (2.3)transactions with owners Balance at 31 3.1 172.2 14.0 (171.9) 17.4 3.6 21.0March 2011 Retained profit - - - 22.3 22.3 1.9 24.2for the financial year Other comprehensive income: Actuarial loss - - - (35.3) (35.3) - (35.3)on pension schemes Deferred tax - - - 9.1 9.1 - 9.1movement on pension liability Deferred tax movement on pension liability attributable to - - - (2.8) (2.8) - (2.8)impact of UK rate change Deferred tax movement on cumulative share-based - - - 0.6 0.6 - 0.6incentives cost Transfer from - - (0.9) 0.9 - - -exchange reserve to retained earnings Currency - - (2.8) - (2.8) (0.1) (2.9)translation differences Amounts - - 0.5 - 0.5 - 0.5credited to hedging reserve Total - - (3.2) (5.2) (8.4) 1.8 (6.6)comprehensive income Transactions with owners: Dividends - - - (4.7) (4.7) (0.9) (5.6) Shares - - - (2.5) (2.5) - (2.5)purchased by Employee Benefits Trust Share-based - - 2.4 - 2.4 - 2.4incentives - charge for period Share-based - - (0.1) - (0.1) - (0.1)incentives - exercise of CSOP options New shares - 0.1 - - 0.1 - 0.1issued to satisfy share-based incentives New shares - 0.4 - - 0.4 - 0.4issued to satisfy sharesave scheme Transfer from - - (3.0) 3.0 - - -share based incentive reserve to retained earnings Acquisition of 0.1 4.9 - (10.4) (5.4) (3.0) (8.4)non-controlling interests Transaction - - - (0.3) (0.3) - (0.3)costs Total 0.1 5.4 (0.7) (14.9) (10.1) (3.9) (14.0)transactions with owners Balance at 31 3.2 177.6 10.1 (192.0) (1.1) 1.5 0.4March 2012 Hogg Robinson Group plc
Consolidated Cash Flow Statement
For the year ended 31 March 2012
Years ended 31 March Notes 2012 2011 £m £m
Cash flows from operating activities Cash generated from operations 15 43.5
46.9 Interest paid (6.9) (3.6) Tax paid (6.7) (9.3)
Cash flows from operating activities - net 29.9
34.0
Cash flows from investing activities Acquisition of subsidiaries, net of cash (2.0) (0.8)acquired
Capital contribution in respect of equity (1.6)
-accounted investments
Disposals of associates, joint ventures and 0.3
-other investments Purchase of property, plant and equipment (4.2)
(3.3)
Purchase and internal development of 8 (5.4) (5.4)intangible assets
Proceeds from sale of property, plant and 0.2
-equipment Interest received 0.3 0.2
Dividends received from associates and joint 1.0
0.2ventures Cash flows from investing activities - net (11.4) (9.1)
Cash flows from financing activities
Repayment of borrowings (22.7) (176.3) New borrowings 20.5 170.8 Issue costs of new borrowings -
(3.6)
Cash effect of currency swaps (0.1)
0.1 Employee Benefits Trust 12 (2.5) -
Acquisition of non-controlling interest 14 (8.4)
-
Dividends paid to external shareholders (4.7)
(3.9)
Dividends paid to non-controlling interests (0.9) (0.6) Cash flows from financing activities - net (18.8) (13.5)
Net (decrease) / increase in cash and cash (0.3)
11.4equivalents
Cash and cash equivalents at beginning of 70.4
58.2the year Exchange rate effects (1.6) 0.8
Cash and cash equivalents at end of the year 68.5
70.4
Cash and cash equivalent assets 68.5
70.5 Overdrafts - (0.1) 68.5 70.4
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 2012 and 2011,but is derived from those financial statements. The auditors have reported onthe Group's Consolidated Financial Statements for each of the years ended 31March 2012 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 preceding legislation.The Consolidated Financial Statements for the year ended 31 March 2011 havebeen delivered to the Registrar of Companies and the Consolidated FinancialStatements for the year ended 31 March 2012 will be filed with the registrar indue 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 have beenprepared 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 2012 Revenue from external 250.7 78.0 30.3 359.0 15.2 374.2customers Underlying operating 32.1 11.8 0.9 44.8 2.4 47.2profit Amortisation of acquired (3.1) (0.7) - (3.8) (0.3) (4.1)intangibles Operating profit 29.0 11.1 0.9 41.0 2.1 43.1 Underlying margin 12.8% 15.1% 3.0% 12.5% 15.8% 12.6% Year ended 31 March 2011 Revenue from external 244.6 77.5 23.4 345.5 12.5 358.0customers Underlying operating 30.8 9.9 0.4 41.1 0.8 41.9profit Amortisation of acquired (3.0) (0.7) - (3.7) (0.3) (4.0)intangibles 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%
There is no material inter-segment revenue.
External revenue from clients by origin (where the Group's operations are located) is not materially different from external revenue from clients by geographical area (where the client is 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 2012 251.8 85.6 16.4 353.8 8.7 362.5 31 March 2011 268.2 89.4 15.8 373.4 6.6 380.0
Reported segments' assets are reconciled to total assets as follows:
31 March 31 March 2012 2011 £m £m Total segment assets 362.5 380.0
Cash and cash equivalent assets 68.5 70.5
Current tax assets - 0.7 Deferred tax assets 45.0 40.9 476.0 492.1
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 2012 6.4 1.2 0.7 8.3 2.2 10.5 31 March 2011 6.2 1.6 0.4 8.2 1.0 9.2 2 Operating expenses Years ended 31 March 2012 2011 £m £m Underlying operating expenses Staff costs (note 3) 225.3 210.4 Amortisation of intangible assets other than acquired 5.4 4.4intangible assets
Depreciation of property, plant and equipment 5.3
5.3
Auditors' remuneration for audit services 1.1
1.3
Operating lease rentals - buildings 14.4
14.1
Operating lease rentals - other assets 1.8
1.8
Loss on disposal of property, plant and equipment 0.6
0.5 Property lease impairment 0.6 1.1
Pension liability management programme costs 1.4
-
Currency translation differences 0.1
0.2 Other expenses 71.0 77.0 327.0 316.1
Amortisation of acquired intangibles: Amortisation of client relationships 3.8
3.7
Amortisation of other acquired intangible assets 0.3
0.3 4.1 4.0 Total operating expenses 331.1 320.1 3 Staff costs Years ended 31 March 2012 2011 £m £m Salaries 188.4 175.5 Social security costs 22.0 20.6 Pension costs 10.2 9.9
Redundancy and termination costs 2.3
2.2 Share-based incentives 2.4 2.2 225.3 210.4 Pension costs comprise:
Defined benefit schemes (note 11) 3.2
3.7
Defined contribution schemes 7.0
6.2 10.2 9.9 Years ended 31 March 2012 2011 number number Average monthly number of staff employed by the Group 5,398 5,307including Key Management
4 Finance income and finance costs
Years ended 31 March 2012 2011 £m £m
Finance income - bank interest 0.3
0.2 Interest on bank overdrafts and loans (5.8)
(4.0)
Amortisation of issue costs on bank loans (0.9)
(1.1)
Interest on obligations under finance leases (0.1)
-
Expected return on pension scheme assets less interest cost on pension scheme liabilities (note 11) (2.4) (3.3) Other finance charges (0.7) (0.5) Interest on derivative financial instruments (0.3) (0.3) Finance costs (10.2) (9.2) Net finance costs (9.9) (9.0) 5 Income tax expense Years ended 31 March 2012 2011 £m £m Current tax:
Tax on profits of the financial year 8.5
6.6
Adjustments in respect of previous years (0.1) (1.6) Total current tax 8.4 5.0 Deferred tax:
Origination and reversal of temporary differences 3.1
4.1
Adjustments in respect of previous years (1.9) (0.5) Impact of UK rate change 0.3 0.5 Total deferred tax 1.5 4.1 Taxation charge 9.9 9.1
The tax charge is split as follows:
Years ended 31 March 2012 2011 £m £m United Kingdom 2.4 3.7 Overseas 7.5 5.4 Taxation charge 9.9 9.1 Years ended 31 March 2012 2011 £m £m On underlying business 11.2 10.3 Tax on amortisation of acquired intangibles (1.3) (1.2) Exceptional items - - Taxation charge 9.9 9.1 6 Earnings per shareEarnings per share attributable to equity holders of the Company were asfollows: Years ended 31 March 2012 2011 pence pence Earnings per share Basic 7.4 6.3 Diluted 7.0 6.1 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 2012 2011 £m £m
Earnings for the purposes of earnings per share:
Profit for the financial year 24.2 19.8 Less: amount attributable to non-controlling interests (1.9) (0.7) Total 22.3 19.1 Years ended 31 March 2012 2011 number number m m
Weighted average number of Ordinary shares in issue
Issued (for basic EPS) 303.3 301.0 Effect of dilutive potential Ordinary shares - 14.2 12.9share-based incentives For diluted EPS 317.5 313.9
The weighted average number of issued Ordinary shares is higher in the yearended 31 March 2012 compared to the year ended 31 March 2011 due to the impactof the shares purchased by the Employee Benefits Trust, exercising of optionsunder the Sharesave Scheme and the shares issued on acquisition of SpendvisionHoldings Limited.
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 2012 2011 pence pence
Underlying earnings per share
Basic 8.3 7.3 Diluted 7.9 7.0
Underlying earnings per share is calculated on the profit attributable to equity holders of the Company before amortisation of acquired intangibles after charging taxation associated with those profits.
Years ended 31 March 2012 2011 £m £m
Earnings for the purposes of underlying earnings per
share: Profit before tax from continuing operations 34.1
28.9
Add: amortisation of acquired intangibles 4.1
4.0 Underlying profit before tax 38.2
32.9
Underlying income tax expense (11.2) (10.3) Underlying profit for the financial year 27.0
22.6
Less: amounts attributable to non-controlling (1.9) (0.7)interests Total 25.1 21.9 7 Dividends per shareThe dividends to the Company's shareholders in the year ended 31 March 2012were: Years ended 31 March 2012 2011 £m £m
Final dividend in respect of year ended 31 March 2011 1.0p per share (31 March 2010 0.8p per share) 2.9
2.4
Interim dividend in respect of year ended 31 March
2012
0.6p per share (31 March 2011 0.5p per share) 1.8
1.5
Total dividends to the Company's shareholders (note 4.7
3.912) The final dividend in respect of year ended 31 March 2011 includes an amount of£0.2m which was repaid by The Employee Benefits Trust in respect of previousdividends waived.A final dividend in respect of the year ended 31 March 2012 of 1.4p perOrdinary share, amounting to a total dividend of £4,359,342, is to be proposedat the Annual General Meeting on 25 July 2012. The Employee Benefits Trust haswaived its rights to dividends.
8 Goodwill and other intangible assets
Years ended 31 March 2012 2011 £m £m Goodwill 219.8 221.0 Other intangible assets 24.8 28.9 244.6 249.9 Computer software Externally Internally Client Goodwill acquired generated relationships Total £m £m £m £m £m Cost At 1 April 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 Additions 2.0 0.8 4.6 - 7.4 Disposals - (0.2) - - (0.2) Exchange differences (3.2) (0.4) 0.1 (0.6) (4.1) At 31 March 2012 246.2 17.2 27.3 37.5 328.2 Accumulated amortisation At 1 April 2010 26.4 11.2 7.0 21.6 66.2 Amortisation charge for the - 1.5 3.2 3.7 8.4year Exchange differences - 0.1 (0.1) 0.6 0.6 At 31 March 2011 26.4 12.8 10.1 25.9 75.2 Amortisation charge for the - 1.5 4.2 3.8 9.5year Disposals - (0.2) - - (0.2) Exchange differences - (0.3) (0.1) (0.5) (0.9) At 31 March 2012 26.4 13.8 14.2 29.2 83.6 Carrying amount At 1 April 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 At 31 March 2012 219.8 3.4 13.1 8.3 244.6
The amortisation charge for the year of £9.5m (2011: £8.4m) is comprised of £4.1m (2011: £4.0m) in respect of intangible assets acquired via businesscombinations and £5.4m (2011: £4.4m) 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 realisable value.During the year the Group reviewed its discount rate and long term growth ratesand these have been applied in the assessment. The value in use has beencalculated by discounting at 10% per annum (2011: 10% 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% (2011: 2%).Goodwill consists of the following amounts related to cash generating units ofthe Group: Years ended 31 March 2012 2011 £m £m Corporate Travel Management Europe 169.7 172.9 North America 43.6 43.6 Asia Pacific 1.0 1.0 214.3 217.5 Spendvision 5.5 3.5 219.8 221.0
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 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 Total equipment £m £m £m Cost At 1 April 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 Additions for the year 0.4 4.7 5.1 Disposals for the year (0.2) (6.1) (6.3) Exchange differences (0.1) (0.9) (1.0) At 31 March 2012 10.7 50.0 60.7 Accumulated depreciation At 1 April 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
Depreciation charge for the year 0.8 4.5
5.3 Disposals for the year (0.2) (5.3) (5.5) Exchange differences (0.1) (0.6) (0.7) At 31 March 2012 8.1 41.0 49.1 Carrying amount At 1 April 2010 3.3 11.5 14.8 At 31 March 2011 3.0 9.9 12.9 At 31 March 2012 2.6 9.0 11.6
Property is comprised of leasehold properties and leasehold improvements. Plant and equipment is comprised of IT and office equipment.
Years ended 31 March 2012 2011 £m £m
Contractual commitments for the acquisition
of: Property, plant and equipment 0.8 -
Carrying amount of property, plant and equipment held 0.8
0.3under finance leases 10 Net debt Years ended 31 March 2012 2011 £m £m Total financial liabilities - borrowings 127.1
128.3
Add back: Unamortised loan issue costs 2.4
3.3
Cash and cash equivalent assets (68.5) (70.5) Net debt 61.0 61.1
Analysis by currency after currency swaps
Years ended 31 March 2012 2011 £m £m Sterling 48.2 49.6 Euro (17.1) (16.0) Swiss Franc 11.2 10.4 Other European currencies 1.9 2.7 Canadian Dollar 15.2 10.0 US Dollar 1.9 1.4 Other currencies (0.3) 3.0 61.0 61.1
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 closed to new membersin March 2003, with benefits based on final pensionable salary. The increase infinal pensionable salary since 31 March 2003 is limited to the lower of theincrease in the Retail Prices Index and 5% per annum. The latest actuarialvaluation of the scheme was carried out as at 31 March 2011 by an independentqualified 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 2012 2011 £m £m Current service charge 3.8 4.1 Settlement gain (0.5) - Curtailment gain (0.1) (0.4) Charge to operating profit 3.2 3.7
Interest cost on pension scheme liabilities 19.3
18.9
Expected return on pension scheme assets (16.9) (15.6) Charge to finance costs 2.4 3.3
Total charge to Consolidated Income Statement 5.6
7.0
The following amounts have been recognised as movements in equity:
Years ended 31 March 2012 2011 £m £m
Actual return on scheme assets 9.9
15.2
Less: expected return on scheme assets (16.9) (15.6) (7.0) (0.4)
Experience gains and losses arising on scheme liabilities (0.7) 1.9
Changes in assumptions underlying the present value of
scheme liabilities (27.6) 7.0 (35.3) 8.5 Exchange rate movement 0.6 - Movement in the year (34.7) 8.5
Cumulative amount recognised in the Consolidated
Statement of Comprehensive Income since the transition date to IFRS, 1 (94.2) (59.5)April 2003
The key assumptions used for the UK Scheme were:
Years ended 31 March 2012 2011 2010 Rate of increase in salary 4.50% 4.70% 4.80% Rate of increase in final pensionable salary 3.20% 3.40%
3.50%
Rate of increase in pensions in payment - accrued 5.00% 5.00% 5.00%before 1999 Rate of increase in pensions in payment - accrued 3.10% 3.40% 3.50%after 1999 Discount rate 5.00% 5.50% 5.50% Inflation - RPI 3.20% 3.40% 3.50% Inflation - CPI 2.70% 2.90% N/A
Expected rate of return on plan assets:
Equity instruments 7.25% 8.00% 8.00% Debt instruments 4.70% 4.50% 4.50% Property 7.25% 8.00% 8.00% Other assets 4.70% 4.90% 4.40%
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 issensitive 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 £41.8m and if it was 0.5% higher, they would be expected todecrease by £35.9m. If the inflation assumption was 0.5% lower, the obligationswould be expected to decrease by £14.1m and if it was £0.5% higher, they wouldbe expected to increase by £18.4m.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 2012 2011 Current Pensioners Male 23.5 22.8 Female 25.7 26.1 Future retirements Male 25.0 24.8 Female 27.3 28.2
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 £10.2m.
The provision included in the Consolidated Balance Sheet arising from obligations in respect of defined benefit schemes is as follows:
Years ended 31 March 2012 2011 £m £m
Present value of defined benefit obligations
Unfunded scheme 10.1 9.5 Wholly or partly funded schemes 371.0 360.4 381.1 369.9 Fair value of scheme assets (235.3) (255.2) 145.8 114.7
The net present value of defined benefit obligations has moved as follows:
Years ended 31 March 2012 2011 £m £m At beginning of year 369.9 360.3 Current service cost 3.8 4.1 Settlement gain (0.5) - Curtailment gain (0.1) (0.4) Interest cost 19.3 18.9
Contributions by plan participants 1.6
1.5 Actuarial losses / (gains) 28.3 (8.9)
Foreign currency exchange changes 0.2
2.8 Benefits paid (41.4) (8.4) At end of year 381.1 369.9
The fair value of scheme assets has moved as follows:
Years ended 31 March 2012 2011 £m £m At beginning of year 255.2 233.9
Expected returns on plan assets 16.9
15.6 Actuarial losses (7.0) (0.4)
Foreign currency exchange changes 0.8
2.8 Contributions by the employer 9.2 10.2
Contributions by plan participants 1.6
1.5 Benefits paid (41.4) (8.4) At end of year 235.3 255.2
The assets held in defined benefit schemes were as follows:
Years ended 31 March 2012 2011 £m £m Equity instruments 121.3 136.3 Debt instruments 78.1 66.8 Property 37.8 37.7 Other assets 24.9 14.4 Liability management exercise (26.8) - 235.3 255.2 During the year, deferred members of the UK scheme were offered the opportunityto transfer their accrued benefits out of the UK scheme to alternative pensionproviders on enhanced terms. The programme reduced the March 2012 assets andliabilities by approximately £33m, of which £26.8m will be settled after 31March 2012.
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.
For several years, the UK defined benefit scheme has been closed to newentrants and has capped increases in pensionable salary. The latest triennialvaluation, effective April 2011, was agreed with the Trustees during the year.Cash contributions amounting to 14.8% of pensionable salaries, plus deficitreduction payments totalling £15.0m during the two years ending 31 March 2013were agreed. Debt reduction payments from 1 April 2013, will amount to £7.7mper annum, as adjusted for increases in RPI.
The obligations and assets are split as follows:
Years ended 31 March 2012 2012 2012 2011 2011 2011 UK Overseas Total UK Overseas Total £m £m £m £m £m £m Defined benefit (333.3) (47.8) (381.1) (324.3) (45.6) (369.9)obligations Fair value of plan 199.2 36.1 235.3 220.2 35.0 255.2assets Deficit (134.1) (11.7) (145.8) (104.1) (10.6) (114.7) Five year experience Years ended 31 March Years ended 31 March 2012 2011 2010 2009 2008 £m £m £m £m £m Defined benefit (381.1) (369.9) (360.3) (263.0) (269.4)obligations Fair value of plan 235.3 255.2 233.9 197.7 221.3assets Deficit (145.8) (114.7) (126.4) (65.3) (48.1) Experience gains/ (losses) on plan liabilities (0.7) 1.9 1.9 2.5 (2.3) on plan assets (7.7) (0.4) 21.1 (46.3) (18.3)
Pension funding in excess of the charge to operating profit is shown in the Consolidated Cash Flow Statement as follows:
Years ended 31 March 2012 2011 £m £m Contributions less service cost (note 15) (6.0) (6.1) 12 ReservesRetained earnings Years ended 31 March 2012 2011 £m £m At 1 April (171.9) (191.4)
Retained profit for the financial year 24.2
19.8 Dividends (note 7) (4.7) (3.9) Non-controlling interests (1.9) (0.7)
Acquisition of non-controlling interest (note 14) (10.4)
-
Transaction costs (note 14) (0.3)
-
Shares purchased by Employee Benefits Trust (2.5)
-
Actuarial (loss) / gain on pension schemes (35.3)
8.5
Deferred tax movement on pension liability and 6.9 (4.2)share-based incentives
Transfer to retained earnings from exchange reserve 0.9
-
Transfer to retained earnings from share-based 3.0
-incentives reserve At 31 March (192.0) (171.9) Other reserves Share-based Exchange Hedging Total other incentives reserve reserve reserves £m £m £m £m 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 Other comprehensive income:
Currency translation differences - (2.8) -
(2.8)
Fair value gain on cashflow hedges - - 0.5
0.5
Transfer from exchange reserve to - (0.9) -
(0.9)retained earnings Transactions with owners:
Transfer from share-based incentives (3.0) - -
(3.0)reserve to retained earnings
Share-based incentives - charge for 2.4 - -
2.4period
Share-based incentives - exercise of (0.1) - -
(0.1)CSOP options Balance at 31 March 2012 4.7 4.9 0.5 10.1 13 Non-controlling interests Years ended 31 March 2012 2011 £m £m At 1 April 3.6 3.4 Exchange differences (0.1) 0.1 Dividends paid (0.9) (0.6) Share of profit after tax 1.9 0.7
Acquisition of non-controlling interest (3.0)
-(note 14) At 31 March 1.5 3.6 14 AcquisitionsSpendvision Holdings LimitedOn 30 March 2012 the Group acquired the 42% interest in Spendvision HoldingsLimited which it did not already own for a total consideration of £13.4msatisfied by £8.4m in cash and £5.0m from the issue of 8.2m shares in HoggRobinson Group plc. Spendvision Holdings Limited is a leading innovator in thedevelopment and support of transaction management solutions, includingend-to-end expense management and payables automation. The acquisition providesan opportunity to strengthen the Group's product offering and end-to-endservices proposition, and is consistent with the Group's strategy to provide abroader range of integrated products to its corporate clients linked to its ownproprietary technology.The goodwill arising related to deferred consideration of £2.0m that was paidunder pre-existing agreements resulting from a previous sale of shares in March2008, this was consequently accounted for under IFRS 3 (2004).At the acquisition date, the carrying value of the non-controlling interest inSpendvision Holdings Limited was £3.0m. The difference of £10.4m between theconsideration and the carrying value of the interest acquired has beenrecognised in retained earnings within equity. Acquisition-related costs of £0.3m have been charged to retained earnings.Analysis of cash flows on acquisition: Years ended 31 March 2012 2011 £m £m
Included in cash flows from investing activities Cash paid for acquisition of subsidiaries:
Executive Travel Associates - (0.3) Advanced Meeting Partner Corporation - (0.5) Spendvision Holdings Limited (2.0) - Total (2.0) (0.8)
Included in cash flows from financing activities: Acquisition of non-controlling interest (8.4)
-
Goodwill arising on acquisitions:
Spendvision Holdings Limited 2.0 -
15 Cash generated from operations
Years ended 31 March 2012 2011 £m £m
Profit before tax from continuing operations 34.1
28.9 Adjustments for:
Depreciation and amortisation (note 8 and 9) 14.8
13.7 Net increase in provisions 2.5 3.1
Share of results of associates and joint ventures (0.9)
- Net finance costs (note 4) 9.9 9.0 Pension curtailment credit - (0.4) Other timing differences 3.0 3.3 63.4 57.6 Cash expenditure charged to provisions (2.3)
(2.8)
Change in trade and other receivables 9.7
1.3
Change in trade and other payables (21.3)
(3.1)
Pension funding in excess of charge to operating profit (6.0) (6.1)(note 11)
Cash generated from operations 43.5
46.9
XLON