Hogg Robinson Group Regulatory News (HRG)

24 May 2016

Hogg Robinson Group plc

Preliminary Results for the year ended 31 March 2016

Increased profits in line with expectations

Summary of results

Highlights

§ Reported profit before tax up 15%, driven mainly by revenue growth in Fraedom(4) and cost restructuring actions in Travel Management; underlying profit before tax up 6% and underlying operating profit up 5% with margin increased to 14.1%

§ Revenue down 2% on a constant currency basis, down 4% as reported, with most of the decline driven by Europe and Asia Pacific

§ Fraedom revenue up 13% and underlying operating profit ahead 75%, both at constant currency

§ In line with strategy, net debt has further reduced by 39% to £33.6m, equivalent to 0.6 times last 12 months EBITDA(5) (2015: 1.0 times)

§ Cost restructuring actions in FY16 yielded £4m cost saving during the financial year (annualised savings of £8m from FY17)

§ Final dividend up 8% to 1.83p per share; full-year dividend up 8% to 2.51p per share with underlying dividend cover of 2.9 times (2015: 2.8 times)

Outlook

§ Similar conditions to last year in the UK and North American travel markets during FY17; variable conditions in Continental Europe with continuing softness in Asia Pacific

§ Anticipate revenue in our Travel Management division will remain under pressure as aggressive competitor pricing continues alongside the ongoing move by our clients to online booking

§ Further revenue and earnings growth from Fraedom

§ Net debt to EBITDA below target range creates increased financial flexibility

§ Board has confidence for the year ahead with the Company focused on making further earnings progress

Notes:

(1) Before amortisation of acquired intangibles and exceptional items

(2) Debt reduction benefited from net cash inflow in the period of £12m, as well as from a one-off net receipt due to the settlement of a claim in respect of the UK pension scheme

(3) Free cash flow is the change in net debt before Employee Benefit Trust share purchases, dividends and the impact of foreign exchange movements

(4) All references to Fraedom in this results statement only relate to the payments and expense operations of the business, previously known as Spendvision

(5) Earnings before interest, tax, depreciation and amortisation (EBITDA)

(6) References to client travel activity and client travel spend throughout this document are unaudited

David Radcliffe, Chief Executive of Hogg Robinson Group plc, said:

"Hogg Robinson Group made good progress during the year. Our Travel Management business, HRG, which helps clients optimise their travel spend, continues to leverage its technology and service delivery platform to offer clients a better travel experience whilst also maintaining our profitability. At the same time, Fraedom, our exciting technology business, is growing strongly, capturing the demand for disruptive technology in the SaaS areas of payments, expense and travel management.

"Looking forward, the Board has confidence for the year ahead with the Company focused on making further earnings progress. With net debt to EBITDA below our target range, we now have the opportunity to refresh our view on appropriate capital structure, taking into account the potential benefits of increased investment in the business and whether there is scope to enhance returns to shareholders."

Contact Details

Notes to Editors

Hogg Robinson Group plc is an international corporate services company. Established in 1845 and headquartered in Basingstoke, Hampshire, UK, the Company specialises in travel, expense, payments and data management underpinned by proprietary technology. With a worldwide network that comprises over 120 countries, the Company provides unparalleled global expertise and local knowledge in Europe, North America, Asia Pacific, Africa, Latin America and MEWA.

www.hoggrobinson.com

A presentation for analysts and institutional investors will be held at 0900h BST today at Tulchan Communications, 85 Fleet Street, London EC4Y 1AE. A conference call facility and live webcast will also be available for analysts and institutional investors unable to attend in person. Pre-registration for this event is necessary to comply with security procedures at the venue. To register your interest in attending the presentation, or to obtain conference call details and access to the live webcast, please contact Tulchan Communications on +44 (0)20 7353 4200. A replay recording of the presentation via audio webcast and podcast with audio commentary from the Company's presentation team will be available at www.hoggrobinson.com by 1100h BST today or soon thereafter.

This announcement may contain forward-looking statements with respect to certain of the plans and current goals and expectations relating to the future financial conditions, business performance and results of Hogg Robinson Group plc. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the Company, including amongst other things, the Company's future profitability, competition with the markets in which the Company operates and its ability to retain existing clients and win new clients, changes in economic conditions generally or in the travel and airline sectors, terrorist and geopolitical events, legislative and regulatory changes, the ability of its owned and licensed technology to continue to service developing demands, changes in taxation regimes, exchange rate fluctuations, and volatility in the Company's share price. As a result, the Company's actual future financial condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward-looking statements. The Company undertakes no obligation to publicly update or revise forward-looking statements, except as may be required by applicable law and regulation (including the Listing Rules). No statement in this announcement is intended to be a profit forecast or be relied upon as a guide to future performance.

Chairman's Statement

It is a pleasure for me to be making my first statement to you as Chairman of Hogg Robinson Group. I was pleased to accept the role and have enjoyed my first few months with the Company. Hogg Robinson Group can trace its roots back to 1845. Since that time, the Company has evolved successfully and, in recent years, developed into an international B2B service company focused on offering travel, expense, payments and data management to its clients around the world.

Having joined the Board of Hogg Robinson Group in January and assumed the Chairman role in April, I have devoted much of the last few months to further my understanding of the Company's business. I have been encouraged by the considerable knowledge and depth of experience of employees across the Group as well as being impressed by their energy and enthusiasm. It is clear from my conversations with those outside Hogg Robinson Group that the Company is well known and respected in its markets, and has a well-deserved reputation for delivering value for money, quality service and technology solutions.

Hogg Robinson Group's financial track record speaks for itself. I have been impressed by the Company's resilient financial performance during recent years against a challenging macroeconomic backdrop that has almost become the accepted norm. This is a sound and stable business that has delivered underlying operating margin growth in all but one of the past seven years, a record many other companies would be proud to have. In FY16, the Company reported profit before tax up by 15% to £27m, free cash generation of £29m and a 39% decrease in net debt to £34m. As a result of these good cash flows, we have reduced our leverage from 1.0 times net debt / EBITDA to 0.6 times at the financial year end. A very credible performance, in my opinion. Based on our performance for the year, and confidence in our proven strategy and business model, we propose an increase in the total dividend per share of 8%, which maintains our commitment to a progressive dividend policy.

Hogg Robinson Group's core travel management business operates in an industry that is becoming increasingly commoditised and technology dependent. I am reassured by the fact that most of the Group's applications and solutions are proprietary, and excited by the growth prospects of Fraedom, Hogg Robinson Group's technology business. As the Company faces the structural changes taking place in the industry, Hogg Robinson Group is well placed to embrace those developments which we expect will continue to generate attractive returns for our shareholders.

In addition to the operational qualities of the business, I am also reassured by the Company's corporate governance and controls. The Board of Directors lies at the heart of corporate governance while offering direction and guidance in matters of finance, risk management and internal controls. At Hogg Robinson Group, we have a good range of experience and skill across the various executive and non-executive members of the Board. Particular thanks to my predecessor, John Coombe, who served as Hogg Robinson Group's Chairman for ten years. A number of other Board changes took place during the year. Michele Maher, who joined the Company in 1995, took over as Chief Financial Officer in June 2015 following the departure of Philip Harrison. Bill Brindle, our Chief Information Officer, who joined in 1998, became an executive director at the start of 2016. I would also like to welcome John Krumins who has joined us as a non-executive director very recently. The depth and experience of all the executive and non-executive members of your Board is reassuring and I am sure each person will continue to play an active role in guiding the Company in the future.

Finally, let me on behalf of the Board thank the senior management and staff at every level for the passion and hard work they have delivered during the year, which manifests in the provision of the very best in client service and Company performance. The ongoing success of Hogg Robinson Group is founded on their experience, innovation and commitment. I am confident that together we can continue to build value for clients, employees and shareholders.

Nigel Northridge

Chairman

Chief Executive's Statement

Overview and strategy

I am pleased to report on a year of good financial performance. A year ago, I described FY15 as being one of the most challenging periods for the Company in recent years. While the financial year ended 31 March 2016 was not without its own challenges, not least those driven by generally fragile macroeconomic conditions, we delivered increased profits in line with expectations. These are exciting times for our Company, albeit as previously predicted, we continued to experience downward pressure on our revenue as aggressive competitive pricing continued alongside the ongoing move by our clients to online booking. We won good quality new business and maintained our high client retention rate record. We also made steady progress with our plans to reshape and restructure the business, and will continue to work to lower the Group's cost base and drive operational efficiency initiatives throughout our operations. Free cash generation remained strong and this contributed to a 39% reduction in net debt. Our technology business, Fraedom, had a strong year, reporting a 13% increase in revenue and a 75% rise in underlying operating profit, both at constant currency. Underlying operating profit was up 5% for the Company as a whole, despite revenue down 2%, both at constant currency.

Going forward, we will continue to focus on providing innovative solutions to our clients backed by high quality service. Our strategy for growing our core managed travel business continues to focus on developing relationships with new and existing clients where we are able to demonstrate our expertise and experience in the arrangement and cost-effective management of complex travel, and in helping to optimise the value of their travel while reducing overall expenditure. We will continue to provide cost-saving, technology-led travel solutions via Fraedom, while accelerating the growth of this business and responding to the considerable market appetite for disruptive technology in the areas of payments, expense and travel.

Work on restructuring the Group's operations continued during the year as we sought to 'get ahead of the curve' through greater efficiency and lower operating costs. Over the past several years, we have steadily consolidated the Group's network and moved to a structure whereby clients are increasingly serviced by HRG staff located in hub locations or by those working from home. These changes, together with many other initiatives including optimising call centre and online services, are all designed to improve the Group's competitiveness as we shape our business to match the evolving needs of our clients and the rapidly changing dynamics of our industry.

During the year, we started the process of sizing a significant transformation programme for our mid-back office systems and processes. This long-term investment programme seeks to modernise our core mid-back office application set and harmonise technology platforms across the Group, simplifying and standardising processes across markets and improving data quality. A common mid-back office environment, which facilitates process and technology convergence for our operations, would enable further optimisation of the HRG operating model, both from a shared-service perspective and IT support model. We anticipate this programme will cost in the region of £9m to £11m over five years and deliver savings by year four. When completed, this project has been designed to bring European systems and processes together giving us greater efficiencies across international boundaries.

Across our Travel Management operations, market conditions remained broadly similar to the prior year. We should be mindful that all of our regions exist to serve our global capability and do not operate for the sake of separate regional profitability. In particular, this is true of our business in Asia Pacific. We saw growth in travel booking activity in Europe as a whole, driven by the UK and France. The Nordics also contributed positively, with the exception of Norway which remains relatively weak due to the lower oil price environment. Market conditions in North America were stable, showing little year-on-year change. Asia Pacific remained weak, particularly in Australia, our largest market in the region. Overall, and as predicted, strong competitor pricing continued, and together with the effect of further growth in online booking on client fee income, resulted in continued downward pressure on the top line. Overall, Travel Management revenue fell by 3% at constant currency. Underlying operating profit in Travel Management was down 1% at constant currency, with growth in North America, in particular, and Europe more than offset by a poor result in Asia Pacific, where the effect of client losses during the second half of last year and the current year was felt.

FY16 proved to be another active year in terms of new business. Our key focus areas for top-line growth in managed travel are Energy & Marine, Meetings, Groups & Events (MGE) and Government, where travel itineraries are often complex and clients rely on our expertise and experience. Notable amongst new and additional business wins during the year were ABB, Agilent, Allianz, AmerisourceBergen, the Government of Canada, Intuit, Kentz (SNC-Lavalin) and RBS. We are also delighted to have retained the Ministry of Defence as a client in the UK. Sadly, like any global business, we lost some clients during the period including Ericsson, Engie (formerly GDF Suez), Lenovo and Novartis. However, we are pleased to have maintained our consistently high client retention rate through our offering of value added solutions, linked to quality customer service.

Fraedom continued to perform well and in line with our expectations. Revenue and earnings were comfortably ahead of prior year and we are particularly pleased to see growing evidence of large corporations and governments being attracted to the innovative and 'disruptive' technology solutions available through Fraedom as they seek to improve their payments and transaction processing procedures and systems. We are currently evaluating the effect of past marketing investment with a view to considering what further investment might generate for our growth story.

The core of Hogg Robinson Group continues to be the provision of business travel services, delivered via HRG, the Group's Travel Management division, where the focus is on delivering good value to clients through superior service designed to meet their unique requirements. HRG operates in an industry that is changing rapidly. There is an ever-increasing demand from clients for data and analysis to help influence decisions on the control and reduction of travel expenditure, and for technology to improve the traveller experience.

At the same time, a majority of our clients are also seeking to reduce the cost of travel management services. As expected, cost-saving technology is playing an important role with online, self-booking tools, including our own HRG OnlineTM, now used by many of our clients as a cost-effective way to make travel bookings, particularly on simpler itineraries. Although the rate of growth slowed compared to last year, client adoption of this booking method rose during the period. Approximately 50% of all client travel bookings were self-booked online, up from about 47% last year.

Our strategic priorities are as follows:

§ HRG - Travel Management - To grow our managed travel business by increasing our business from existing clients with new service offerings, entering new markets and winning new business by leveraging our technology and service delivery

§ Fraedom - Technology - To develop a technology business specialising in providing SaaS solutions for payments, expense and travel to existing and new clients, either direct or through third party travel and payment providers

The breadth of the Group's services has broadened in recent years to include travel, expense, payments and data management underpinned by proprietary technology. Our ability to combine excellent managed travel services with superior technology solutions provides the Group with a good balance of resilience and growth. Last year, we brought our payments, expense and travel technology under one umbrella, Fraedom. Much progress was made in the current year to consolidate the business and I commend Fraedom's management and staff for the successful outcomes that this move is already delivering. In addition to the revenue and earnings growth I referred to earlier, Fraedom achieved an underlying operating margin during the financial year of 23%.

In FY16, we incurred exceptional costs relating to restructuring of £3.8m as we closed offices in Germany, Sweden, and Switzerland while also downsizing in other areas. These actions, together with the reorganisation of several finance and administrative functions, saved £4m in the year and will realise annual cost savings of £8m in FY17 and beyond. FY16 is year one of our three-year restructuring programme and we expect to yield savings across the programme of circa £20m with exceptional costs of about £8m. The programme initiatives include operational and overhead restructuring as well as reductions in our property footprint.

One of our financial priorities in recent years has been to reduce net debt and we have stated a medium-term target range of 0.7-1.0 times net debt / EBITDA. Cash generation continued to be good in the period and we also received a one-off benefit due to the settlement of a claim in respect of the UK pension scheme. Together with tight cost control, this resulted in the Group's year end net debt reducing by 39% from £54.7m to £33.6m. Our net debt is now equivalent to 0.6 times EBITDA for the last 12 months (2015: 1.0 times). This position provides the Company with a welcome degree of financial flexibility. Having achieved our deleveraging target, as we continue to generate free cash flow, the Board will assess the appropriate capital structure for the Company and the investment required in our business over the next three years. The review will also assess whether there is any potential to enhance returns to shareholders.

Summary and Outlook

Given the current macroeconomic environment, we are pleased with the Company's financial performance during the year, which was in line with expectations. Ongoing restructuring work progressed well and this will help improve the Group's long-term competitiveness. We won some exciting new business during the period, some of which has yet to trade, and we warmly welcome these new clients and thank existing ones for their ongoing support.

Since the year end, the Group has continued to trade in line with our expectations, albeit economic and political uncertainties continue to exist in several of our key travel markets. We expect trading conditions to remain much the same in the UK and North American travel markets during FY17, and to continue to vary across Continental Europe with continuing softness in Asia Pacific. We anticipate revenue in our Travel Management division will remain under pressure as aggressive competitive pricing continues alongside the ongoing move by our clients to online booking. However, we have confidence in our proven strategy and business model, which are core to driving earnings growth. This position, coupled with our increased financial flexibility, a healthy pipeline of new business, and the prospect of further revenue and earnings growth in Fraedom, give the Board confidence for the year ahead with the Company focused on making further earnings progress.

David Radcliffe

Chief Executive

Operational Review

HRG - Travel Management (TM)

§ Revenue lower due to price competition and ongoing adoption of online

§ Proportion of online self-booked travel up from 47% to 50%

§ New business wins in strategic focus areas

§ Margin increased

(1) Before amortisation of acquired intangibles and exceptional items

Client activity

Client travel transaction activity was broadly unchanged year-on-year, while client travel spend declined by 4% at constant currency. In terms of mix of travel bookings, air accounted for 46% of all transactions, marginally down on prior year, while hotel and rail bookings showed small increases to 28% and 18%, respectively.

Cost control is a continuing area of focus for all clients as macroeconomic trends impact earnings. Clients target savings and efficiencies from travel budgets in two areas: the cost of travel management services and the control and reduction of travel expenditure.

Travel and related expenditure is often the greatest area of opportunity for companies to reduce their costs. Compliance and control of travel policies are fundamental to ensuring the most cost effective use of travel budgets and clients focus on influencing travellers to make the appropriate choices in a market place with increasing complexity. Understanding how to control and manage this complexity is a challenge for many companies and HRG excels in providing a growing number of value added services and solutions. This ranges from comprehensive management information, analytics, actionable reporting and security tracking through to web-based policy management solutions.

There is also a growing focus on improving the traveller experience. As travel content via the internet becomes ubiquitous, travellers familiar with managing their personal travel seek and expect the same experience when booking corporate travel. Supporting this trend is often central to an organisation's travel management strategy in order to engage the user and maximise compliance to the programme. This is best achieved by introducing more traveller-facing technology into the corporate travel process. Currently, the fastest growing component of this is the use of mobile solutions (Apps) for the provision of itinerary information to keep travellers informed during travel. The appetite for further service enhancements available through mobile devices, including booking travel and accommodation, is also gathering momentum.

The cost of travel services is influenced by service fees and the adoption of self-service technology. HRG continues to support clients through the introduction of online booking tools. In the long term, as costs are adjusted, this generally means lower revenues but also higher margins. The rate of growth in online adoption has slowed compared to the prior year, showing an increase from 47% to 50% of transactions for the full year.

Programme management and technology solutions provide additional revenue opportunities for the Group, helping to offset the effect on our revenue of clients moving online and competitive pricing pressure, while encouraging the development of more strategic and higher margin relationships with many of our clients.

Our focus on delivering bespoke travel management solutions, which lies at the heart of our business model, has resulted in another successful year of client retention and new business. Like any global business, we lost some clients during the year including Ericsson, Engie (formerly GDF Suez), Lenovo and Novartis. Nevertheless, due to our offering of value-added solutions, linked to quality client service, we have maintained our consistently high client retention rate.

Amongst many new clients that we welcomed during the year were AmerisourceBergen, Arriva, the International Committee of the Red Cross, International Union for Conservation of Nature and Natural Resources (IUCN), Intuit, Norges Bank Investment Management, responsible for the management of the Government Pension Fund of Norway, RBS and Swedbank. We also secured expanded contracts with existing clients such as ABB, Agilent, Allianz, the Government of Canada and Kentz (SNC-Lavalin). Notable amongst clients renewing their contracts with the Group during the year were 21st Century Fox, ABB, Deutsche Bank, the UK's Ministry of Defence, Nordea and Unilever. Our client portfolio remains well diversified thereby ensuring that the Group is not overly exposed to any individual client or sector. No single client accounts for more than 4% of client revenue.

HRG regional strategy

As mentioned in the Chief Executive's summary, we should be mindful that all of our regions exist to serve our global capability and do not operate for the sake of separate regional profitability. In particular, this is true of our business in Asia Pacific.

Europe

(1) Before amortisation of acquired intangibles and exceptional items

§ Further rationalisation of service network to core hub locations

§ Online self-booking of travel up from 43% to 46%

§ Margin increased

Revenue in Europe declined by 2% at constant currency. Underlying operating profit was up by 1% at constant currency. Client travel spend was 2% lower year-on-year at constant currency and travel activity was up 2%.

The UK corporate travel market continued to show good momentum during the year. Travel booking activity amongst our clients rose year-on-year by 2% while spend was down by 3% at constant currency, primarily due to the different business mix between new and lost business. Amongst a number of exciting business wins, we are pleased to welcome new clients Arriva and RBS. The accelerated growth in rail, compared to air and hotel tickets booked, that was evident in prior years, stabilised with the proportions of air, hotel and rail transactions broadly unchanged year-on-year. Corporate and government clients continued to be attracted to the lower transaction fees associated with online, self-booking of travel: 60% of all client travel bookings in the UK are now self-booked, up from 55% last year, although online adoption levels remained static during the second half of the year. Our strategy of focusing on driving MGE business is bearing fruit. We benefited from both increased expenditure and activity from a number of existing clients. As in other territories, we continued to reduce operating costs and drive efficiency actions in many areas of our UK operations. Specific restructuring initiatives included the introduction of flexible working contracts, home working, property reviews and the re-alignment of sales and client management operations. A number of these remain ongoing.

Managed client travel activity levels showed steady year-on-year improvement in Sweden, Finland and Denmark driven by growth in underlying business, but were offset by a decline in Norway resulting from downtrading by Energy & Marine clients affected by the lower oil price environment. We will continue to monitor this closely to ensure that our operating costs remain appropriate. Across our Nordic operations as a whole, client travel booking activity was unchanged year-on-year while spend fell 2% at constant exchange rates. MGE revenue was up on prior year as a consequence of our increased focus on this market, resulting in more projects and an increased order book at the year end. As part of our Government initiative, we were pleased to welcome Norges Bank Investment Management, responsible for the management of the Government Pension Fund of Norway, as a new client during the period. The Nordic SME market remained weak, with lower volumes in all markets leading to a corresponding decline in associated revenue. We reduced headcount in our Malmo and Gothenburg offices during the year as part of our ongoing efficiency and productivity measures, and will continue to monitor staffing levels to match anticipated levels of travel activity and business mix.

Although the German economy showed signs of recovery and stabilisation during the year, the benefit to HRG of higher travel activity shown by many of our clients was unfortunately more than offset by the rollover effect of some client losses during the second half of last financial year. We did benefit, however, from additional business awarded by Allianz early in this year. We also extended our remit with ABB and this will benefit trading in FY17. Overall, across our German operations, client travel booking activity (down 2%) and spend (down 3%) were slightly down year-on-year, as was our revenue. In MGE, we won new business from clients including Amgen, Merck and Samsung and contract extensions from Agilent, Daiichi and TKK amongst others. One of the larger MGE projects during the year involved handling the travel logistics and hotel accommodation for more than 9,000 people as part of an existing client's 125-year anniversary celebrations. Online adoption continues to grow with online rates associated with new business wins significantly higher compared to lost business. We closed a number of branch locations during the year as part of our ongoing aim to further consolidate our service network and reduce headcount. We are beginning to see a positive impact from these and other restructuring actions, some of which are ongoing.

Rollover client losses from the prior year, competitive pricing pressure and the de-stabilising effect on Swiss businesses of the lifting of the Swiss franc-euro cap early in 2015 made Switzerland a challenging market for HRG this year. Client travel activity (down 2%) and spend (down 8%) fell compared to the prior year as many clients traded down. A number of clients introduced travel restrictions on their staff towards the end of our financial year and our financial performance in this country was adversely affected as a result. On the new business front, we welcomed the International Committee of the Red Cross (ICRC) and the International Union for Conservation of Nature and Natural Resources (IUCN) as new clients to our Government area of business. MGE revenue grew strongly year-on-year. As part of our ongoing cost efficiency programme, we have restructured how we do business in parts of Switzerland. Specifically, we introduced home working and closed our offices in Lausanne and Winterthur. We are confident that the actions we are taking will benefit this business in the future.

Client adoption of online self-booking in Europe continued to grow during the year, accounting for 46% of all bookings made in the region, up from 43% last year.

North America

(1) Before amortisation of acquired intangibles and exceptional items

§ Good earnings growth

§ Online self-booking of travel up from 58% to 59%

Revenue in North America was down by 1% at constant currency. Underlying operating profit rose by 8% at constant currency. Client spend dropped 4% at constant currency and travel transaction activity was slightly lower by 1%.

For FY16, the business travel market in North America remained stable compared to the prior year. There were variations by industry: financial sector clients have generally shown a modest increase in travel booking activity while clients impacted by the lower oil prices reduced their travel expenditure. New client activity includes the wins of AmerisourceBergen, a drug wholesale company, and Intuit, a financial software company, and additional business awarded by the Government of Canada and Kentz (SNC-Lavalin), one of the world's leading engineering and construction companies.

In our loyalty business, client stability and retention remains good. We renewed our contract with Orbitz and expanded our business with Loyalty Edge. The new business pipeline continues to look positive and we are currently exploring ways to develop our already-strong value proposition to offer true market differentiation in this attractive business area.

We completed the closure of our Stamford office during the year and reduced our office space in Charlotte. There are several ongoing restructuring initiatives aimed at reducing costs while driving operating efficiencies, including standardising workflows and data processes, to ensure that our cost base remains appropriate for the scale of our business.

Online self-booking of travel by clients accounted for 59% of all bookings compared to 58% last year.

Asia Pacific

(1) Before amortisation of acquired intangibles and exceptional items

§ Poor performance in Australia due to weak economy and lost clients

At constant currency, revenue in Asia Pacific was lower by 18%. Underlying operating loss increased by £1.1m after a £0.3m currency benefit. Client spend declined 18% year-on-year at constant currency and travel transaction activity fell sharply by 22%.

Australia is the Group's largest market in the Asia Pacific region. Trading conditions throughout the financial year were challenging and generally weak, and broadly similar to last year, as the Australian economy continued to struggle. Travel booking activity decreased by 28% compared to prior year and travel spend was lower by 19% at constant currency. We felt the effect of clients lost during the second half of last year but we were also impacted by current year lost clients. As noted previously, we have been disappointed with the financial performance of our Australian business. During the past year, we made changes to the management and service offering. Through HRG, we continue to provide our classic quality travel management services, particularly to our multinational clients. However, Fraedom will play a more prominent role in providing simpler, technology-based travel solutions, which are well suited to the sizeable SME market where point-to-point domestic travel is the norm. Australia has one of the most mature online markets in the HRG network at 67%, up from 65% last year, as well as an appetite for travel technologies, integrated expense products and innovative payment solutions. The changes we are making to our operations in this country are designed to take advantage of these developments and we expect to see our financial performance improve in the future because of these changes. Early signs of our new approach in this country are encouraging.

Travel booking activity amongst HRG's clients in Singapore fell 4% compared to last year while travel spend decreased by 8% at constant currency. Amidst an ongoing sluggish economic backdrop, most clients continued to seek incremental cost savings and we helped many implement travel policy changes designed to steer staff travellers towards lowest fare carriers and restrictive fares. Several cost-saving initiatives were introduced during the period across our Singapore operations, including greater use of technology, and we are beginning to see the benefits in terms of increased staff productivity and lower operating costs.

Client travel activity (down 17%) and spend (down 29%) in Hong Kong fell sharply compared to prior year, with many clients trading down. The decline was compounded by some client losses. We saw a similar picture in our joint venture in mainland China where market conditions were generally poor amidst concerns about the growth prospects of the Chinese economy. In both Hong Kong and mainland China, we experienced strong competitor pricing pressure. Our MGE business in both territories continues to perform steadily.

Online self-booking of travel in the Asia Pacific region accounts for 45% (2015: 47%) of all bookings.

Fraedom - Technology

(1) Before amortisation of acquired intangibles and exceptional items

§ Strong revenue and earnings growth

Revenue in the period for Fraedom was up 13% at constant currency. Underlying operating profit rose by 75% at constant currency, the growth driven by the increase in revenue.

Revenue growth was largely driven by business from banking clients and the number of end users increased by 13% compared to last year. During the course of the financial year, the Fraedom platform managed transactions totalling £25.1bn in value (2015: £21.2bn).

Fraedom is positioning itself as the leader in 'mobile first' transaction management technology, designed to help customers reduce the costs associated with paying suppliers, managing travel and expenses, and providing robust reporting across all spend types. In 2016, Fraedom joined forces with a US-based company specialising in Optical Character Recognition technology to deliver an automated receipt-scanning service to complement the Payments, Expense and Travel strategy. Fraedom invested £6.1m in R&D, an increase of 11% on last year, in its aim to deliver a 'touchless transaction' experience across its entire user base. FraedomGo, a software application which enables users to upload expense receipts using a mobile device while travelling, thereby saving administration time back in the office, was launched during the financial year and we also refreshed the user interface on our Payment and Expense technology platform.

We won a number of exciting new direct clients during the year including the Bank of England and Old Mutual Wealth in Europe, the Public Health Accreditation Board and the Independent Electricity System Operator in North America, and IAG Insurance Group and QBE Management Services in Asia.

In the last 12 months, the Fraedom partnership team has made considerable progress extending contracts with and, in many cases, adding additional services to, a number of banking clients including Visa, SunTrust Bank, NAB, Lloyds and ANZ. All these clients are working with Fraedom teams to embrace the new user interface and mobile first approach.

The Fraedom brand, which was launched in FY15, now reflects the new brand strategy and the focus on payments, expense and travel management technology. During the year, we extended our office space in Auckland to allow for expansion as we accelerate development in virtual card technology.

Financial Review

Overview

Revenue of £318.3m was down 3.6% as reported, comprised of a decrease of 1.7% at constant exchange rates and a 1.9% reduction through adverse currency movements. Underlying operating profit, which is before amortisation of acquired intangibles and exceptional items, increased by 5.4% from £42.5m to £44.8m, or by 4.7% at constant exchange rates, and represented a margin increase from 12.9% to 14.1%. Underlying profit before tax was up by 5.6% to £32.2m and underlying EPS up by 9.1% from 6.6p to 7.2p.

Reported operating profit increased by 11.6% to £39.3m. Reported profit before tax was up by 15% from £23.2m to £26.7m and EPS by 26% from 4.6p to 5.8p.

Year end net debt reduced by 39% or £21.1m to £33.6m, equivalent to 0.6 times EBITDA for the last 12 months (2015: 1.0 times). This translates into a gearing of 17.0% (2015: 28.5%). We continue to operate well within our banking covenants.

The reduction in net debt benefited from a one-off net receipt by the Group in respect of a claim in connection with the UK pension scheme (see note 2). During the year, the High Court granted rectification of a deed of amendment dated 8 September 1999 in respect of the UK pension scheme due to a mistake that had been made in the original drafting of that deed. As a result of the High Court confirming the correct basis for the rate of increase for any period of deferment for pensionable service between 8 September 1999 and 28 September 2006, a past service cost of £10.5m together with associated legal costs of £2.3m has been incurred. This amount is materially offset by the net monies received as a result of the settlement of a claim in respect of this mistake. The net charge to the income statement is £1.0m and this is included within exceptional items. Excluding the net monies received in relation to the pension rectification during the year, net debt reduced by £12.0m.

We have noted in the past that inflation and discount rates are volatile and together with the interest rate environment will significantly impact the accounting valuation of pension liabilities. On an accounting basis, the Group-wide pre-tax pension deficits have decreased by £0.3m to £258.3m (of which £237.6m relates to the UK scheme) due to an increase in the discount rate partially offset by the pension rectification past service cost and a reduction in the fair value of plan assets. On a post-tax basis, our Group pension deficits at the year end were £214.4m. In line with our latest UK triennial valuation and agreed ten-year recovery plan with the Trustees, the annual deficit reduction payment for the current financial year was £7.3m.

The Group has a progressive dividend policy and the Board is recommending an 8% increase in the final dividend to 1.83p per share, resulting in a full-year dividend of 2.51p per share, an increase of 8% on the prior year. Our dividend is covered 2.9 times (2015: 2.8 times) by underlying EPS. The final dividend will be paid on 29 July 2016 to shareholders on the register at the close of business on 1 July 2016.

Operating expenses

Reported operating expenses reduced by 5.4% to £279.0m.

Underlying operating expenses, which are before amortisation of acquired intangibles and exceptional items, reduced by 4.9% to £273.5m. At constant exchange rates, this represented a decrease of 2.7%.

Staff cost savings of £3.7m have arisen as a result of the planned FY16 restructuring actions across the Group.

Underlying operating profit

Underlying operating profit, which is before amortisation of acquired intangibles and exceptional items, increased by 5.4% from £42.5m to £44.8m, or by 4.7% at constant exchange rates. Underlying operating profit margin increased from 12.9% to 14.1%.

Exceptional items

Total exceptional costs of £4.8m have been incurred in the year, representing £3.8m of restructuring costs and £1.0m relating to pension rectification. The restructuring costs of £3.8m (2015: £6.3m) were incurred in relation to redundancy and property exit costs within Travel Management and Fraedom as part of our planned cost restructuring programme. The pension rectification charge of £1.0m reflects a £10.5m past service cost and £2.3m legal fees offset by settlement monies received.

Net finance costs

Net finance costs increased by £0.5m to £13.6m, reflecting an increase in the finance costs relating to retirement benefit obligations.

Taxation

The tax charge for the year represents an overall effective tax rate (ETR) of 28% of the reported profit before tax (2015: 32%). The underlying ETR was 26%. We anticipate an underlying ETR of around 28% in future years.

EPS

Underlying EPS rose by 9% from 6.6p to 7.2p. Basic EPS rose by 26% from 4.6p to 5.8p.

Return on capital employed

Return on capital employed is calculated by dividing underlying operating profit plus net share of the results of associates and joint ventures by average net assets. Average net assets are based on each of the 12 month ends for the financial year and exclude net debt, pension deficits and tax provisions. Average net assets amounted to £213.5m (2015: £211.5m) compared with £193.4m at the year end (2015: £192.8m). The return for the year was 21.5% (2015: 20.6%).

Cash flow

Free cash inflow, which is the change in net debt before Employee Benefit Trust share purchases, dividends and the impact of foreign exchange movements on net debt balances, was £28.9m (2015: £17.9m).

Cash outflow in respect of working capital excluding exceptional items was £5.7m (2015: £1.2m). The net cash outflow related to interest was £4.9m (2015: £5.0m). Dividends received from equity accounted investments were £0.7m (2015: £0.7m). Tax paid in cash was £5.4m (2015: £4.0m) and capital expenditure, which is primarily internal software development and office equipment, was £8.3m (2015: £11.3m). Cash costs for pension deficit reduction were £7.3m (2015: £4.5m). Of the £4.7m cash inflow in respect of exceptional items (2015: £8.3m outflow), £4.4m related to cash outflow from exceptional items and the balance related to cash inflow from the pension rectification settlement.

In addition to free cash flow, other cash flow items are related to share purchases of £1.3m made by the Employee Benefit Trust (2015: £nil), £7.7m of dividends paid to shareholders during the year (2015: £7.1m) and £1.2m of favourable foreign exchange related movements (2015: £0.2m adverse).

Funding and net debt

The principal banking facility is a £150m multi-currency revolving credit facility (RCF) that is committed until May 2018. The RCF is used for loans, letters of credit and guarantees, with interest based on the inter-bank lending rate for the appropriate currency plus a margin. At the year end, £46.5m of the facility has been utilised and the Group has fixed interest on £20m of this until February 2017. In addition, the Group has a £30m fixed rate loan, repayable by 2018, and additional uncommitted facilities amounting to around £17m at the year end.

Net external interest costs of £4.9m were covered 11.3 times by EBITDA (2015: 10.7 times).

The principal covenants continue to be measured semi-annually, at the end of March and the end of September, against EBITDA. The covenants require that net debt is less than 3.0 times EBITDA and net external interest is covered at least 4.0 times by EBITDA, both on a rolling 12-month basis. The definition of EBITDA for covenant purposes is not materially different from the definition used in these financial statements.

Pensions

The Group-wide pension deficits under IAS 19 have decreased by £0.3m to £258.3m before tax.

The UK scheme deficit decreased by £2.4m to £237.6m, primarily driven by a 0.2 percentage point increase in the discount rate to 3.5% reducing the liability by £22.5m partially offset by an exceptional £10.5m past service cost arising from the rectification of the 1999 deed of amendment relating to the UK pension scheme referred to above, and a reduction of £6.3m in the fair value of plan assets. For several years, the UK defined benefit scheme has been closed to new entrants and has capped increases in pensionable salary. Following a consultation process with active members, the UK defined benefit section was closed to future accrual on 13 June 2013 and replaced with a defined contribution section.

The overseas schemes are primarily in Germany and Switzerland, where the deficit increased by £2.1m to £20.7m.

At the year end, there was a deferred tax asset of £42.8m (2015: £48.0m) relating to the UK deficit and an asset of £1.1m (2015: £0.8m) relating to the overseas schemes.

Share price

The closing mid-market price at the year end was 62p (2015: 47p). During the year, the price ranged from 44.5p to 76.0p per share.

(1) Excluding amortisation of acquired intangibles

Hogg Robinson Group plc

Consolidated Income Statement

For the year ended 31 March 2016

Hogg Robinson Group plc

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2016

Hogg Robinson Group plc

Consolidated Balance Sheet

As at 31 March 2016

Hogg Robinson Group plc

Consolidated Statement of Changes in Equity

For the year ended 31 March 2016

Hogg Robinson Group plc

Consolidated Cash Flow Statement

For the year ended 31 March 2016

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 Balance Sheet, the Consolidated Statement of Changes in Equity and the Consolidated Cash Flow Statement and related notes does not constitute the Company's Consolidated Financial Statements for the years ended 31 March 2016 and 2015, but is derived from those financial statements. The auditors have reported on the Group's Consolidated Financial Statements for each of the years ended 31 March 2016 and 31 March 2015. Their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of Companies Act 2006 or equivalent preceding legislation. The Consolidated Financial Statements for the year ended 31 March 2015 have been delivered to the Registrar of Companies and the Consolidated Financial Statements for the year ended 31 March 2016 will be filed with the registrar in due course.

The Consolidated Financial Statements have been prepared in compliance with International Financial Reporting Standards (IFRS) as endorsed and adopted for use by the European Union, IFRIS Interpretations Committee (IFRS IC) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Consolidated Financial Statements have been prepared under the historical cost convention, as modified by the use of valuations for certain financial instruments, share-based payment incentives and retirement benefits.

Critical accounting policies and forward-looking statements

The preparation of the IFRS financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the year.

The Operational Review should be read in conjunction with the audited Consolidated Financial Statements. The discussions contain forward-looking statements that appear in a number of places and include statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, results of operations, revenue, financial condition, liquidity, growth, strategies, new products and the markets in which the Group operates. Readers are cautioned that any such forward-looking statements are not guarantees of future performance 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 and EBITDA enhances an investor's understanding of the Group's financial performance. However, underlying operating profit and EBITDA should not be considered in isolation or viewed as substitutes for retained profit, cash flow from operations or other measures of performance as defined by IFRS. Underlying operating profit and EBITDA as used in this announcement is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the method of calculation and are unaudited line items but are derived from audited financial information. The Directors use underlying operating profit and EBITDA to assess the Group's operating performance and to make decisions about allocating resources among various reporting segments.

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 of two core activities, Travel Management, which is analysed into three distinct geographic segments and includes Fraedom Travel, and Technology, which includes Fraedom Payments and Expense operations, previously known as Spendvision. The Group's internal reporting processes do not distinguish between the numerous sources of income that comprise revenue for Travel Management. The performance of the operating segments is assessed based on a measure of operating profit excluding items of an exceptional nature. Interest income and expenditure and income tax expense are not included in the result for each operating segment that is reviewed by the Executive Management Team. Other information provided, except as noted below, to the Executive Management Team is measured in a manner consistent with that in the financial statements.

Total segment assets exclude cash and cash equivalent assets, current tax assets and deferred tax assets which are managed on a central basis. These are included as part of the reconciliation to total Consolidated Balance Sheet assets.

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.

Reported segments' assets are reconciled to total assets as follows:

Capital expenditure by geographical location:

2 Operating expenses

EXCEPTIONAL ITEMS

Total exceptional costs of £4.8m have been incurred in the year, representing £3.8m of restructuring costs and £1.0m relating to pension rectification. The restructuring costs of £3.8m (2015: £6.3m) were incurred in relation to redundancy and property exit costs within Travel Management and Fraedom as part of our planned cost restructuring programme. 

During the year, the High Court granted rectification of a deed of amendment dated 8 September 1999 in respect of the UK pension scheme due to a mistake that had been made in the original drafting of that deed of amendment. As a result of the High Court confirming the correct rate of increase for any period of deferment for pensionable service between 8 September 1999 and 28 September 2006, a past service cost of £10.5m (note 12) together with associated legal costs of £2.3m has been incurred. This amount is materially offset by the settlement of a claim in respect of this mistake.

SERVICES PROVIDED BY THE COMPANY'S AUDITORS

The cost of services provided by the Company's auditors, PricewaterhouseCoopers LLP (PwC), and its associates is set out below:

In addition to the above services, the Company's auditors acted as auditors to the Hogg Robinson (1987) Pension Scheme. The appointment of auditors to the Group's pension scheme and the fees paid in respect of that audit are agreed by the trustees of the scheme, who act independently from the management of the Group. The aggregate fees paid to the Group's auditors for audit services to the pension scheme during the year were less than £0.1m (2015: less than £0.1m).

3 Staff costs

4 Finance income and finance costs

5 Income tax expense

The tax charge is split as follows:

The tax assessed for the year differs from the standard rate of corporation tax in the UK of 20% (2015: 21%) as explained below: